G.R. No. L-45911 April 11, 1979 JOHN GOKONGWEI, JR., petitioner, vs.

SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M. SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO BUNAO, WALTHRODE B. CONDE, MIGUEL ORTIGAS, ANTONIO PRIETO, SAN MIGUEL CORPORATION, EMIGDIO TANJUATCO, SR., and EDUARDO R. VISAYA, respondents. ANTONIO, J.: The instant petition for certiorari, mandamus and injunction, with prayer for issuance of writ of preliminary injunction, arose out of two cases filed by petitioner with the Securities and Exchange Commission, as follows: SEC CASE NO 1375 On October 22, 1976, petitioner, as stockholder of respondent San Miguel Corporation, filed with the Securities and Exchange Commission (SEC) a petition for "declaration of nullity of amended by-laws, cancellation of certificate of filing of amended by- laws, injunction and damages with prayer for a preliminary injunction" against the majority of the members of the Board of Directors and San Miguel Corporation as an unwilling petitioner. The petition, entitled "John Gokongwei Jr. vs. Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel, Antonio Roxas, Emeterio Bunao, Walthrode B. Conde, Miguel Ortigas, Antonio Prieto and San Miguel Corporation", was docketed as SEC Case No. 1375. As a first cause of action, petitioner alleged that on September 18, 1976, individual respondents amended by bylaws of the corporation, basing their authority to do so on a resolution of the stockholders adopted on March 13, 1961, when the outstanding capital stock of respondent corporation was only P70,139.740.00, divided into 5,513,974 common shares at P10.00 per share and 150,000 preferred shares at P100.00 per share. At the time of the amendment, the outstanding and paid up shares totalled 30,127,047 with a total par value of P301,270,430.00. It was contended that according to section 22 of the Corporation Law and Article VIII of the by-laws of the corporation, the power to amend, modify, repeal or adopt new by-laws may be delegated to the Board of Directors only by the affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid up capital stock of the corporation, which 2/3 should have been computed on the basis of the capitalization at the time of the amendment. Since the amendment was based on the 1961 authorization, petitioner contended that the Board acted without authority and in usurpation of the power of the stockholders. As a second cause of action, it was alleged that the authority granted in 1961 had already been exercised in 1962 and 1963, after which the authority of the Board ceased to exist. As a third cause of action, petitioner averred that the membership of the Board of Directors had changed since the authority was given in 1961, there being six (6) new directors. As a fourth cause of action, it was claimed that prior to the questioned amendment, petitioner had all the qualifications to be a director of respondent corporation, being a Substantial stockholder thereof; that as a stockholder, petitioner had acquired rights inherent in stock ownership, such as the rights to vote and to be voted upon in the election of directors; and that in amending the by-laws, respondents purposely provided for petitioner's disqualification and deprived him of his vested right as afore-mentioned hence 1 the amended by-laws are null and void. As additional causes of action, it was alleged that corporations have no inherent power to disqualify a stockholder from being elected as a director and, therefore, the questioned act is ultra vires and void; that Andres M. Soriano, Jr. and/or Jose M. Soriano, while representing other corporations, entered into

contracts (specifically a management contract) with respondent corporation, which was allowed because the questioned amendment gave the Board itself the prerogative of determining whether they or other persons are engaged in competitive or antagonistic business; that the portion of the amended bylaws which states that in determining whether or not a person is engaged in competitive business, the Board may consider such factors as business and family relationship, is unreasonable and oppressive and, therefore, void; and that the portion of the amended by-laws which requires that "all nominations for election of directors ... shall be submitted in writing to the Board of Directors at least five (5) working days before the date of the Annual Meeting" is likewise unreasonable and oppressive. It was, therefore, prayed that the amended by-laws be declared null and void and the certificate of filing thereof be cancelled, and that individual respondents be made to pay damages, in specified amounts, to petitioner. On October 28, 1976, in connection with the same case, petitioner filed with the Securities and Exchange Commission an "Urgent Motion for Production and Inspection of Documents", alleging that the Secretary of respondent corporation refused to allow him to inspect its records despite request made by petitioner for production of certain documents enumerated in the request, and that respondent corporation had been attempting to suppress information from its stockholders despite a negative reply by the SEC to its query regarding their authority to do so. Among the documents requested to be copied were (a) minutes of the stockholder's meeting field on March 13, 1961, (b) copy of the management contract between San Miguel Corporation and A. Soriano Corporation (ANSCOR); (c) latest balance sheet of San Miguel International, Inc.; (d) authority of the stockholders to invest the funds of respondent corporation in San Miguel International, Inc.; and (e) lists of salaries, allowances, bonuses, and other compensation, if any, received by Andres M. Soriano, Jr. and/or its successor-in-interest. The "Urgent Motion for Production and Inspection of Documents" was opposed by respondents, alleging, among others that the motion has no legal basis; that the demand is not based on good faith; that the motion is premature since the materiality or relevance of the evidence sought cannot be determined until the issues are joined, that it fails to show good cause and constitutes continued harrasment, and that some of the information sought are not part of the records of the corporation and, therefore, privileged. During the pendency of the motion for production, respondents San Miguel Corporation, Enrique Conde, Miguel Ortigas and Antonio Prieto filed their answer to the petition, denying the substantial allegations therein and stating, by way of affirmative defenses that "the action taken by the Board of Directors on September 18, 1976 resulting in the ... amendments is valid and legal because the power to "amend, modify, repeal or adopt new By-laws" delegated to said Board on March 13, 1961 and long prior thereto has never been revoked of SMC"; that contrary to petitioner's claim, "the vote requirement for a valid delegation of the power to amend, repeal or adopt new by-laws is determined in relation to the total subscribed capital stock at the time the delegation of said power is made, not when the Board opts to exercise said delegated power"; that petitioner has not availed of his intra-corporate remedy for the nullification of the amendment, which is to secure its repeal by vote of the stockholders representing a majority of the subscribed capital stock at any regular or special meeting, as provided in Article VIII, section I of the by-laws and section 22 of the Corporation law, hence the, petition is premature; that petitioner is estopped from questioning the amendments on the ground of lack of authority of the Board. since he failed, to object to other amendments made on the basis of the same 1961 authorization: that the power of the corporation to amend its by-laws is broad, subject only to the condition that the by-laws adopted should not be respondent corporation inconsistent with any existing law; that respondent corporation should not be precluded from adopting protective measures to minimize or eliminate situations where its directors might be tempted to put their personal interests over t I hat of the corporation; that the questioned amended by-laws is a matter of internal policy and the judgment of the board should not be interfered with: That the by-laws, as amended, are valid and binding and are intended to prevent the possibility of violation of criminal and civil laws prohibiting combinations in restraint of trade; and that the petition states no cause of action. It was, therefore, prayed that the petition be dismissed and that petitioner be ordered to pay damages and attorney's fees to respondents. The application for writ of preliminary injunction was likewise on various grounds.

Respondents Andres M. Soriano, Jr. and Jose M. Soriano filed their opposition to the petition, denying the material averments thereof and stating, as part of their affirmative defenses, that in August 1972, the Universal Robina Corporation (Robina), a corporation engaged in business competitive to that of respondent corporation, began acquiring shares therein. until September 1976 when its total holding amounted to 622,987 shares: that in October 1972, the Consolidated Foods Corporation (CFC) likewise began acquiring shares in respondent (corporation. until its total holdings amounted to P543,959.00 in September 1976; that on January 12, 1976, petitioner, who is president and controlling shareholder of Robina and CFC (both closed corporations) purchased 5,000 shares of stock of respondent corporation, and thereafter, in behalf of himself, CFC and Robina, "conducted malevolent and malicious publicity campaign against SMC" to generate support from the stockholder "in his effort to secure for himself and in representation of Robina and CFC interests, a seat in the Board of Directors of SMC", that in the stockholders' meeting of March 18, 1976, petitioner was rejected by the stockholders in his bid to secure a seat in the Board of Directors on the basic issue that petitioner was engaged in a competitive business and his securing a seat would have subjected respondent corporation to grave disadvantages; that "petitioner nevertheless vowed to secure a seat in the Board of Directors at the next annual meeting; that thereafter the Board of Directors amended the by-laws as afore-stated. As counterclaims, actual damages, moral damages, exemplary damages, expenses of litigation and attorney's fees were presented against petitioner. Subsequently, a Joint Omnibus Motion for the striking out of the motion for production and inspection of documents was filed by all the respondents. This was duly opposed by petitioner. At this juncture, respondents Emigdio Tanjuatco, Sr. and Eduardo R. Visaya were allowed to intervene as oppositors and they accordingly filed their oppositions-intervention to the petition. On December 29, 1976, the Securities and Exchange Commission resolved the motion for production and inspection of documents by issuing Order No. 26, Series of 1977, stating, in part as follows: Considering the evidence submitted before the Commission by the petitioner and respondents in the above-entitled case, it is hereby ordered: 1. That respondents produce and permit the inspection, copying and photographing, by or on behalf of the petitioner-movant, John Gokongwei, Jr., of the minutes of the stockholders' meeting of the respondent San Miguel Corporation held on March 13, 1961, which are in the possession, custody and control of the said corporation, it appearing that the same is material and relevant to the issues involved in the main case. Accordingly, the respondents should allow petitioner-movant entry in the principal office of the respondent Corporation, San Miguel Corporation on January 14, 1977, at 9:30 o'clock in the morning for purposes of enforcing the rights herein granted; it being understood that the inspection, copying and photographing of the said documents shall be undertaken under the direct and strict supervision of this Commission. Provided, however, that other documents and/or papers not heretofore included are not covered by this Order and any inspection thereof shall require the prior permission of this Commission; 2. As to the Balance Sheet of San Miguel International, Inc. as well as the list of salaries, allowances, bonuses, compensation and/or remuneration received by respondent Jose M. Soriano, Jr. and Andres Soriano from San Miguel International, Inc. and/or its successors-in- interest, the Petition to produce and inspect the same is hereby DENIED, as petitioner-movant is not a stockholder of San Miguel International, Inc. and has, therefore, no inherent right to inspect said documents; 3. In view of the Manifestation of petitioner-movant dated November 29, 1976, withdrawing his request to copy and inspect the management contract between San Miguel Corporation and A. Soriano Corporation and the renewal and amendments

thereof for the reason that he had already obtained the same, the Commission takes note thereof; and 4. Finally, the Commission holds in abeyance the resolution on the matter of production and inspection of the authority of the stockholders of San Miguel Corporation to invest the funds of respondent corporation in San Miguel International, Inc., until after the hearing on the merits of the principal issues in the above-entitled case. This Order is immediately executory upon its approval.
2

Dissatisfied with the foregoing Order, petitioner moved for its reconsideration. Meanwhile, on December 10, 1976, while the petition was yet to be heard, respondent corporation issued a notice of special stockholders' meeting for the purpose of "ratification and confirmation of the amendment to the By-laws", setting such meeting for February 10, 1977. This prompted petitioner to ask respondent Commission for a summary judgment insofar as the first cause of action is concerned, for the alleged reason that by calling a special stockholders' meeting for the aforesaid purpose, private respondents admitted the invalidity of the amendments of September 18, 1976. The motion for summary judgment was opposed by private respondents. Pending action on the motion, petitioner filed an "Urgent Motion for the Issuance of a Temporary Restraining Order", praying that pending the determination of petitioner's application for the issuance of a preliminary injunction and/or petitioner's motion for summary judgment, a temporary restraining order be issued, restraining respondents from holding the special stockholder's meeting as scheduled. This motion was duly opposed by respondents. On February 10, 1977, respondent Commission issued an order denying the motion for issuance of temporary restraining order. After receipt of the order of denial, respondents conducted the special stockholders' meeting wherein the amendments to the by-laws were ratified. On February 14, 1977, petitioner filed a consolidated motion for contempt and for nullification of the special stockholders' meeting. A motion for reconsideration of the order denying petitioner's motion for summary judgment was filed by petitioner before respondent Commission on March 10, 1977. Petitioner alleges that up to the time of the filing of the instant petition, the said motion had not yet been scheduled for hearing. Likewise, the motion for reconsideration of the order granting in part and denying in part petitioner's motion for production of record had not yet been resolved. In view of the fact that the annul stockholders' meeting of respondent corporation had been scheduled for May 10, 1977, petitioner filed with respondent Commission a Manifestation stating that he intended to run for the position of director of respondent corporation. Thereafter, respondents filed a Manifestation with respondent Commission, submitting a Resolution of the Board of Directors of respondent corporation disqualifying and precluding petitioner from being a candidate for director unless he could submit evidence on May 3, 1977 that he does not come within the disqualifications specified in the amendment to the by-laws, subject matter of SEC Case No. 1375. By reason thereof, petitioner filed a manifestation and motion to resolve pending incidents in the case and to issue a writ of injunction, alleging that private respondents were seeking to nullify and render ineffectual the exercise of jurisdiction by the respondent Commission, to petitioner's irreparable damage and prejudice, Allegedly despite a subsequent Manifestation to prod respondent Commission to act, petitioner was not heard prior to the date of the stockholders' meeting. Petitioner alleges that there appears a deliberate and concerted inability on the part of the SEC to act hence petitioner came to this Court. SEC. CASE NO. 1423

Petitioner likewise alleges that, having discovered that respondent corporation has been investing corporate funds in other corporations and businesses outside of the primary purpose clause of the corporation, in violation of section 17 1/2 of the Corporation Law, he filed with respondent Commission, on January 20, 1977, a petition seeking to have private respondents Andres M. Soriano, Jr. and Jose M. Soriano, as well as the respondent corporation declared guilty of such violation, and ordered to account for such investments and to answer for damages. On February 4, 1977, motions to dismiss were filed by private respondents, to which a consolidated motion to strike and to declare individual respondents in default and an opposition ad abundantiorem cautelam were filed by petitioner. Despite the fact that said motions were filed as early as February 4, 1977, the commission acted thereon only on April 25, 1977, when it denied respondents' motion to dismiss and gave them two (2) days within which to file their answer, and set the case for hearing on April 29 and May 3, 1977. Respondents issued notices of the annual stockholders' meeting, including in the Agenda thereof, the following: 6. Re-affirmation of the authorization to the Board of Directors by the stockholders at the meeting on March 20, 1972 to invest corporate funds in other companies or businesses or for purposes other than the main purpose for which the Corporation has been organized, and ratification of the investments thereafter made pursuant thereto. By reason of the foregoing, on April 28, 1977, petitioner filed with the SEC an urgent motion for the issuance of a writ of preliminary injunction to restrain private respondents from taking up Item 6 of the Agenda at the annual stockholders' meeting, requesting that the same be set for hearing on May 3, 1977, the date set for the second hearing of the case on the merits. Respondent Commission, however, cancelled the dates of hearing originally scheduled and reset the same to May 16 and 17, 1977, or after the scheduled annual stockholders' meeting. For the purpose of urging the Commission to act, petitioner filed an urgent manifestation on May 3, 1977, but this notwithstanding, no action has been taken up to the date of the filing of the instant petition. With respect to the afore-mentioned SEC cases, it is petitioner's contention before this Court that respondent Commission gravely abused its discretion when it failed to act with deliberate dispatch on the motions of petitioner seeking to prevent illegal and/or arbitrary impositions or limitations upon his rights as stockholder of respondent corporation, and that respondent are acting oppressively against petitioner, in gross derogation of petitioner's rights to property and due process. He prayed that this Court direct respondent SEC to act on collateral incidents pending before it. On May 6, 1977, this Court issued a temporary restraining order restraining private respondents from disqualifying or preventing petitioner from running or from being voted as director of respondent corporation and from submitting for ratification or confirmation or from causing the ratification or confirmation of Item 6 of the Agenda of the annual stockholders' meeting on May 10, 1977, or from Making effective the amended by-laws of respondent corporation, until further orders from this Court or until the Securities and Ex-change Commission acts on the matters complained of in the instant petition. On May 14, 1977, petitioner filed a Supplemental Petition, alleging that after a restraining order had been issued by this Court, or on May 9, 1977, the respondent Commission served upon petitioner copies of the following orders: (1) Order No. 449, Series of 1977 (SEC Case No. 1375); denying petitioner's motion for reconsideration, with its supplement, of the order of the Commission denying in part petitioner's motion for production of documents, petitioner's motion for reconsideration of the order denying the issuance of a temporary restraining order denying the issuance of a temporary restraining order, and petitioner's consolidated motion to declare respondents in contempt and to nullify the stockholders' meeting;

(2) Order No. 450, Series of 1977 (SEC Case No. 1375), allowing petitioner to run as a director of respondent corporation but stating that he should not sit as such if elected, until such time that the Commission has decided the validity of the bylaws in dispute, and denying deferment of Item 6 of the Agenda for the annual stockholders' meeting; and (3) Order No. 451, Series of 1977 (SEC Case No. 1375), denying petitioner's motion for reconsideration of the order of respondent Commission denying petitioner's motion for summary judgment; It is petitioner's assertions, anent the foregoing orders, (1) that respondent Commission acted with indecent haste and without circumspection in issuing the aforesaid orders to petitioner's irreparable damage and injury; (2) that it acted without jurisdiction and in violation of petitioner's right to due process when it decided en banc an issue not raised before it and still pending before one of its Commissioners, and without hearing petitioner thereon despite petitioner's request to have the same calendared for hearing , and (3) that the respondents acted oppressively against the petitioner in violation of his rights as a stockholder, warranting immediate judicial intervention. It is prayed in the supplemental petition that the SEC orders complained of be declared null and void and that respondent Commission be ordered to allow petitioner to undertake discovery proceedings relative to San Miguel International. Inc. and thereafter to decide SEC Cases No. 1375 and 1423 on the merits. On May 17, 1977, respondent SEC, Andres M. Soriano, Jr. and Jose M. Soriano filed their comment, alleging that the petition is without merit for the following reasons: (1) that the petitioner the interest he represents are engaged in business competitive and antagonistic to that of respondent San Miguel Corporation, it appearing that the owns and controls a greater portion of his SMC stock thru the Universal Robina Corporation and the Consolidated Foods Corporation, which corporations are engaged in business directly and substantially competing with the allied businesses of respondent SMC and of corporations in which SMC has substantial investments. Further, when CFC and Robina had accumulated investments. Further, when CFC and Robina had accumulated shares in SMC, the Board of Directors of SMC realized the clear and present danger that competitors or antagonistic parties may be elected directors and thereby have easy and direct access to SMC's business and trade secrets and plans; (2) that the amended by law were adopted to preserve and protect respondent SMC from the clear and present danger that business competitors, if allowed to become directors, will illegally and unfairly utilize their direct access to its business secrets and plans for their own private gain to the irreparable prejudice of respondent SMC, and, ultimately, its stockholders. Further, it is asserted that membership of a competitor in the Board of Directors is a blatant disregard of no less that the Constitution and pertinent laws against combinations in restraint of trade; (3) that by laws are valid and binding since a corporation has the inherent right and duty to preserve and protect itself by excluding competitors and antogonistic parties, under the law of self-preservation, and it should be allowed a wide latitude in the selection of means to preserve itself; (4) that the delay in the resolution and disposition of SEC Cases Nos. 1375 and 1423 was due to petitioner's own acts or omissions, since he failed to have the petition to suspend, pendente lite the amended by-laws calendared for hearing. It was emphasized that it was only on April 29, 1977 that petitioner calendared the aforesaid petition for suspension (preliminary injunction) for hearing on May 3, 1977. The instant petition being dated May 4, 1977, it is apparent that respondent Commission was not given a chance to act "with deliberate dispatch", and (5) that, even assuming that the petition was meritorious was, it has become moot and academic because respondent Commission has acted on the pending incidents, complained of. It was, therefore, prayed that the petition be dismissed.

On May 21, 1977, respondent Emigdio G, Tanjuatco, Sr. filed his comment, alleging that the petition has become moot and academic for the reason, among others that the acts of private respondent sought to be enjoined have reference to the annual meeting of the stockholders of respondent San Miguel Corporation, which was held on may 10, 1977; that in said meeting, in compliance with the order of respondent Commission, petitioner was allowed to run and be voted for as director; and that in the same meeting, Item 6 of the Agenda was discussed, voted upon, ratified and confirmed. Further it was averred that the questions and issues raised by petitioner are pending in the Securities and Exchange Commission which has acquired jurisdiction over the case, and no hearing on the merits has been had; hence the elevation of these issues before the Supreme Court is premature. Petitioner filed a reply to the aforesaid comments, stating that the petition presents justiciable questions for the determination of this Court because (1) the respondent Commission acted without circumspection, unfairly and oppresively against petitioner, warranting the intervention of this Court; (2) a derivative suit, such as the instant case, is not rendered academic by the act of a majority of stockholders, such that the discussion, ratification and confirmation of Item 6 of the Agenda of the annual stockholders' meeting of May 10, 1977 did not render the case moot; that the amendment to the bylaws which specifically bars petitioner from being a director is void since it deprives him of his vested rights. Respondent Commission, thru the Solicitor General, filed a separate comment, alleging that after receiving a copy of the restraining order issued by this Court and noting that the restraining order did not foreclose action by it, the Commission en banc issued Orders Nos. 449, 450 and 451 in SEC Case No. 1375. In answer to the allegation in the supplemental petition, it states that Order No. 450 which denied deferment of Item 6 of the Agenda of the annual stockholders' meeting of respondent corporation, took into consideration an urgent manifestation filed with the Commission by petitioner on May 3, 1977 which prayed, among others, that the discussion of Item 6 of the Agenda be deferred. The reason given for denial of deferment was that "such action is within the authority of the corporation as well as falling within the sphere of stockholders' right to know, deliberate upon and/or to express their wishes regarding disposition of corporate funds considering that their investments are the ones directly affected." It was alleged that the main petition has, therefore, become moot and academic. On September 29,1977, petitioner filed a second supplemental petition with prayer for preliminary injunction, alleging that the actuations of respondent SEC tended to deprive him of his right to due process, and "that all possible questions on the facts now pending before the respondent Commission are now before this Honorable Court which has the authority and the competence to act on them as it may see fit." (Reno, pp. 927-928.) Petitioner, in his memorandum, submits the following issues for resolution; (1) whether or not the provisions of the amended by-laws of respondent corporation, disqualifying a competitor from nomination or election to the Board of Directors are valid and reasonable; (2) whether or not respondent SEC gravely abused its discretion in denying petitioner's request for an examination of the records of San Miguel International, Inc., a fully owned subsidiary of San Miguel Corporation; and (3) whether or not respondent SEC committed grave abuse of discretion in allowing discussion of Item 6 of the Agenda of the Annual Stockholders' Meeting on May 10, 1977, and the ratification of the investment in a foreign corporation of the corporate funds, allegedly in violation of section 17-1/2 of the Corporation Law. I

Whether or not amended by-laws are valid is purely a legal question which public interest requires to be resolved It is the position of the petitioner that "it is not necessary to remand the case to respondent SEC for an appropriate ruling on the intrinsic validity of the amended by-laws in compliance with the principle of exhaustion of administrative remedies", considering that: first: "whether or not the provisions of the amended by-laws are intrinsically valid ... is purely a legal question. There is no factual dispute as to what the provisions are and evidence is not necessary to determine whether such amended by-laws are valid as framed and approved ... "; second: "it is for the interest and guidance of the public that an immediate and final ruling on the question be made ... "; third: "petitioner was denied due process by SEC" when "Commissioner de Guzman had openly shown prejudice against petitioner ... ", and "Commissioner Sulit ... approved the amended by-laws ex-parte and obviously found the same intrinsically valid; and finally: "to remand the case to SEC would only entail delay rather than serve the ends of justice." Respondents Andres M. Soriano, Jr. and Jose M. Soriano similarly pray that this Court resolve the legal issues raised by the parties in keeping with the "cherished rules of procedure" that "a court should always strive to settle the entire controversy in a single proceeding leaving no root or branch to bear the seeds of 3 future ligiation", citing Gayong v. Gayos. To the same effect is the prayer of San Miguel Corporation that this Court resolve on the merits the validity of its amended by laws and the rights and obligations of the parties thereunder, otherwise "the time spent and effort exerted by the parties concerned and, more importantly, by this Honorable Court, would have been for naught because the main question will come back to this Honorable Court for final resolution." Respondent Eduardo R. Visaya submits a similar appeal. It is only the Solicitor General who contends that the case should be remanded to the SEC for hearing and decision of the issues involved, invoking the latter's primary jurisdiction to hear and decide case involving intra-corporate controversies. It is an accepted rule of procedure that the Supreme Court should always strive to settle the entire 4 controversy in a single proceeding, leaving nor root or branch to bear the seeds of future litigation. Thus, 5 in Francisco v. City of Davao, this Court resolved to decide the case on the merits instead of remanding it to the trial court for further proceedings since the ends of justice would not be subserved by the remand 6 of the case. In Republic v. Security Credit and Acceptance Corporation, et al., this Court, finding that the main issue is one of law, resolved to decide the case on the merits "because public interest demands an 7 early disposition of the case", and in Republic v. Central Surety and Insurance Company, this Court denied remand of the third-party complaint to the trial court for further proceedings, citing precedent where this Court, in similar situations resolved to decide the cases on the merits, instead of remanding them to the trial court where (a) the ends of justice would not be subserved by the remand of the case; or (b) where public interest demand an early disposition of the case; or (c) where the trial court had already received all the evidence presented by both parties and the Supreme Court is now in a position, based 8 upon said evidence, to decide the case on its merits. It is settled that the doctrine of primary jurisdiction 8 has no application where only a question of law is involved. a Because uniformity may be secured through review by a single Supreme Court, questions of law may appropriately be determined in the first 8 instance by courts. b In the case at bar, there are facts which cannot be denied, viz.: 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; that in a special meeting on February 10, 1977 held specially for that purpose, the amended by-laws were ratified by more than 80% of the stockholders of record; that the foreign investment in the Hongkong Brewery and Distellery, a beer manufacturing company in Hongkong, was made by the San Miguel Corporation in 1948; and that in the stockholders' annual meeting held in 1972 and 1977, all foreign investments and operations of San Miguel Corporation were ratified by the stockholders. II

Whether or not the amended by-laws of SMC of disqualifying a competitor from nomination or election to the Board of Directors of SMC are valid and reasonable The validity or reasonableness of a by-law of a corporation in purely a question of law. Whether the bylaw is in conflict with the law of the land, or with the charter of the corporation, or is in a legal sense 10 unreasonable and therefore unlawful is a question of law. This rule is subject, however, to the limitation that where the reasonableness of a by-law is a mere matter of judgment, and one upon which reasonable minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the 11 judgment of those who are authorized to make by-laws and who have exercised their authority. Petitioner claims that the amended by-laws are invalid and unreasonable because they were tailored to suppress the minority and prevent them from having representation in the Board", at the same time depriving petitioner of his "vested right" to be voted for and to vote for a person of his choice as director. Upon the other hand, respondents Andres M. Soriano, Jr., Jose M. Soriano and San Miguel Corporation content that ex. conclusion of a competitor from the Board is legitimate corporate purpose, considering that being a competitor, petitioner cannot devote an unselfish and undivided Loyalty to the corporation; that it is essentially a preventive measure to assure stockholders of San Miguel Corporation of reasonable protective from the unrestrained self-interest of those charged with the promotion of the corporate enterprise; that access to confidential information by a competitor may result either in the promotion of the interest of the competitor at the expense of the San Miguel Corporation, or the promotion of both the interests of petitioner and respondent San Miguel Corporation, which may, therefore, result in a combination or agreement in violation of Article 186 of the Revised Penal Code by destroying free competition to the detriment of the consuming public. It is further argued that there is not vested right of any stockholder under Philippine Law to be voted as director of a corporation. It is alleged that petitioner, as of May 6, 1978, has exercised, personally or thru two corporations owned or controlled by him, control over the following shareholdings in San Miguel Corporation, vis.: (a) John Gokongwei, Jr. 6,325 shares; (b) Universal Robina Corporation 738,647 shares; (c) CFC Corporation 658,313 shares, or a total of 1,403,285 shares. Since the outstanding capital stock of San Miguel Corporation, as of the present date, is represented by 33,139,749 shares with a par value of P10.00, the total shares owned or controlled by petitioner represents 4.2344% of the total outstanding capital stock of San Miguel Corporation. It is also contended that petitioner is the president and substantial stockholder of Universal Robina Corporation and CFC Corporation, both of which are allegedly controlled by petitioner and members of his family. It is also claimed that both the Universal Robina Corporation and the CFC Corporation are engaged in businesses directly and substantially competing with the alleged businesses of San Miguel Corporation, and of corporations in which SMC has substantial investments. ALLEGED AREAS OF COMPETITION BETWEEN PETITIONER'S CORPORATIONS AND SAN MIGUEL CORPORATION According to respondent San Miguel Corporation, the areas of, competition are enumerated in its Board the areas of competition are enumerated in its Board Resolution dated April 28, 1978, thus: Product Line 1977 SMC Robina-CFC Estimated Market Share Total
9

Table Eggs Layer Pullets Dressed Chicken Poultry & Hog Ice Cream Instant Coffee Woven Fabrics 17.5% 9.1% 26.6%

0.6% 33.0% 35.0% Feeds 70.0% 45.0%

10.0% 24.0% 14.0% 40.0% 12.0% 13.0% 40.0%

10.6% 57.0% 49.0% 52.0% 83.0% 85.0%

Thus, according to respondent SMC, in 1976, the areas of competition affecting SMC involved product sales of over P400 million or more than 20% of the P2 billion total product sales of SMC. Significantly, the combined market shares of SMC and CFC-Robina in layer pullets dressed chicken, poultry and hog feeds ice cream, instant coffee and woven fabrics would result in a position of such dominance as to affect the prevailing market factors. It is further asserted that in 1977, the CFC-Robina group was in direct competition on product lines which, for SMC, represented sales amounting to more than ?478 million. In addition, CFC-Robina was directly competing in the sale of coffee with Filipro, a subsidiary of SMC, which product line represented sales for SMC amounting to more than P275 million. The CFC-Robina group (Robitex, excluding Litton Mills recently acquired by petitioner) is purportedly also in direct competition with Ramie Textile, Inc., subsidiary of SMC, in product sales amounting to more than P95 million. The areas of competition between SMC and CFC-Robina in 1977 represented, therefore, for SMC, product sales of more than P849 million. According to private respondents, at the Annual Stockholders' Meeting of March 18, 1976, 9,894 stockholders, in person or by proxy, owning 23,436,754 shares in SMC, or more than 90% of the total outstanding shares of SMC, rejected petitioner's candidacy for the Board of Directors because they "realized the grave dangers to the corporation in the event a competitor gets a board seat in SMC." On September 18, 1978, the Board of Directors of SMC, by "virtue of powers delegated to it by the stockholders," approved the amendment to ' he by-laws in question. At the meeting of February 10, 1977, these amendments were confirmed and ratified by 5,716 shareholders owning 24,283,945 shares, or more than 80% of the total outstanding shares. Only 12 shareholders, representing 7,005 shares, opposed the confirmation and ratification. At the Annual Stockholders' Meeting of May 10, 1977, 11,349 shareholders, owning 27,257.014 shares, or more than 90% of the outstanding shares, rejected petitioner's candidacy, while 946 stockholders, representing 1,648,801 shares voted for him. On the May 9, 1978 Annual Stockholders' Meeting, 12,480 shareholders, owning more than 30 million shares, or more than 90% of the total outstanding shares. voted against petitioner. AUTHORITY OF CORPORATION TO PRESCRIBE QUALIFICATIONS OF DIRECTORS EXPRESSLY CONFERRED BY LAW Private respondents contend that the disputed amended by laws were adopted by the Board of Directors of San Miguel Corporation a-, a measure of self-defense to protect the corporation from the clear and present danger that the election of a business competitor to the Board may cause upon the corporation and the other stockholders inseparable prejudice. Submitted for resolution, therefore, is the issue whether or not respondent San Miguel Corporation could, as a measure of self- protection, disqualify a competitor from nomination and election to its Board of Directors. It is recognized by an authorities that 'every corporation has the inherent power to adopt by-laws 'for its internal government, and to regulate the conduct and prescribe the rights and duties of its members 12 towards itself and among themselves in reference to the management of its affairs. At common law, the rule was "that the power to make and adopt by-laws was inherent in every corporation as one of its necessary and inseparable legal incidents. And it is settled throughout the United States that in the absence of positive legislative provisions limiting it, every private corporation has this inherent power as one of its necessary and inseparable legal incidents, independent of any specific enabling provision in its charter or in general law, such power of self-government being essential to enable the corporation to 13 accomplish the purposes of its creation. In this jurisdiction, under section 21 of the Corporation Law, a corporation may prescribe in its by-laws "the qualifications, duties and compensation of directors, officers and employees ... " This must necessarily refer to a qualification in addition to that specified by section 30 of the Corporation Law, which provides that "every director must own in his right at least one share of the capital stock of the stock 14 corporation of which he is a director ... " In Government v. El Hogar, the Court sustained the validity of a provision in the corporate by-law requiring that persons elected to the Board of Directors must be

holders of shares of the paid up value of P5,000.00, which shall be held as security for their action, on the ground that section 21 of the Corporation Law expressly gives the power to the corporation to provide in its by-laws for the qualifications of directors and is "highly prudent and in conformity with good practice. " NO VESTED RIGHT OF STOCKHOLDER TO BE ELECTED DIRECTOR Any person "who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and that he impliedly contracts that the will of the majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted by-laws and not forbidden by 15 law." To this extent, therefore, the stockholder may be considered to have "parted with his personal right or privilege to regulate the disposition of his property which he has invested in the capital stock of the corporation, and surrendered it to the will of the majority of his fellow incorporators. ... It cannot therefore be justly said that the contract, express or implied, between the corporation and the 16 stockholders is infringed ... by any act of the former which is authorized by a majority ... ." Pursuant to section 18 of the Corporation Law, any corporation may amend its articles of incorporation by a vote or written assent of the stockholders representing at least two-thirds of the subscribed capital stock of the corporation If the amendment changes, diminishes or restricts the rights of the existing shareholders then the disenting minority has only one right, viz.: "to object thereto in writing and demand payment for his share." Under section 22 of the same law, the owners of the majority of the subscribed capital stock may amend or repeal any by-law or adopt new by-laws. It cannot be said, therefore, that petitioner has a vested right to be elected director, in the face of the fact that the law at the time such right as stockholder was acquired contained the prescription that the corporate charter and the by-law shall be 17 subject to amendment, alteration and modification. It being settled that the corporation has the power to provide for the qualifications of its directors, the next question that must be considered is whether the disqualification of a competitor from being elected to the Board of Directors is a reasonable exercise of corporate authority. A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE CORPORATION AND ITS SHAREHOLDERS Although in the strict and technical sense, directors of a private corporation are not regarded as trustees, there cannot be any doubt that their character is that of a fiduciary insofar as the corporation and the stockholders as a body are concerned. As agents entrusted with the management of the corporation for the collective benefit of the stockholders, "they occupy a fiduciary relation, and in this sense the relation is 18 one of trust." "The ordinary trust relationship of directors of a corporation and stockholders", according 19 to Ashaman v. Miller, "is not a matter of statutory or technical law. It springs from the fact that directors have the control and guidance of corporate affairs and property and hence of the property interests of the stockholders. Equity recognizes that stockholders are the proprietors of the corporate interests and are ultimately the only beneficiaries thereof * * *. Justice Douglas, in Pepper v. Litton, directors of corporations, thus:
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emphatically restated the standard of fiduciary obligation of the

A director is a fiduciary. ... Their powers are powers in trust. ... He who is in such fiduciary position cannot serve himself first and his cestuis second. ... He cannot manipulate the affairs of his corporation to their detriment and in disregard of the standards of common decency. He cannot by the intervention of a corporate entity violate the ancient precept against serving two masters ... He cannot utilize his inside information and strategic position for his own preferment. He cannot violate rules of fair play by doing indirectly through the corporation what he could not do so directly. He cannot violate rules of fair play by doing indirectly though the corporation what he could not do so directly. He cannot use his power for his personal advantage and to the detriment of the stockholders

and creditors no matter how absolute in terms that power may be and no matter how meticulous he is to satisfy technical requirements. For that power is at all times subject to the equitable limitation that it may not be exercised for the aggrandizement, preference or advantage of the fiduciary to the exclusion or detriment of the cestuis. And in Cross v. West Virginia Cent, & P. R. R. Co.,
21

it was said:

... A person cannot serve two hostile and adverse master, without detriment to one of them. A judge cannot be impartial if personally interested in the cause. No more can a director. Human nature is too weak -for this. Take whatever statute provision you please giving power to stockholders to choose directors, and in none will you find any express prohibition against a discretion to select directors having the company's interest at heart, and it would simply be going far to deny by mere implication the existence of such a salutary power ... If the by-law is to be held reasonable in disqualifying a stockholder in a competing company from being a director, the same reasoning would apply to disqualify the wife and immediate member of the family of such stockholder, on account of the supposed interest of the wife in her husband's affairs, and his suppose influence over her. It is perhaps true that such stockholders ought not to be condemned as selfish and dangerous to the best interest of the corporation until tried and tested. So it is also true that we cannot condemn as selfish and dangerous and unreasonable the action of the board in passing the by-law. The strife over the matter of control in this corporation as in many others is perhaps carried on not altogether in the spirit of brotherly love and affection. The only test that we can apply is as to whether or 22 not the action of the Board is authorized and sanctioned by law. ... . These principles have been applied by this Court in previous cases.
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AN AMENDMENT TO THE CORPORATION BY-LAW WHICH RENDERS A STOCKHOLDER INELIGIBLE TO BE DIRECTOR, IF HE BE ALSO DIRECTOR IN A CORPORATION WHOSE BUSINESS IS IN COMPETITION WITH THAT OF THE OTHER CORPORATION, HAS BEEN SUSTAINED AS VALID It is a settled state law in the United States, according to Fletcher, that corporations have the power to make by-laws declaring a person employed in the service of a rival company to be ineligible for the corporation's Board of Directors. ... (A)n amendment which renders ineligible, or if elected, subjects to removal, a director if he be also a director in a corporation whose business is in competition with or is 24 antagonistic to the other corporation is valid." This is based upon the principle that where the director is so employed in the service of a rival company, he cannot serve both, but must betray one or the other. Such an amendment "advances the benefit of the corporation and is good." An exception exists in New Jersey, where the Supreme Court held that the Corporation Law in New Jersey prescribed the only 25 qualification, and therefore the corporation was not empowered to add additional qualifications. This is the exact opposite of the situation in the Philippines because as stated heretofore, section 21 of the Corporation Law expressly provides that a corporation may make by-laws for the qualifications of directors. Thus, it has been held that an officer of a corporation cannot engage in a business in direct competition with that of the corporation where he is a director by utilizing information he has received as such officer, under "the established law that a director or officer of a corporation may not enter into a competing enterprise which cripples or injures the business of the corporation of which he is an officer or 26 director. It is also well established that corporate officers "are not permitted to use their position of trust and 27 confidence to further their private interests." In a case where directors of a corporation cancelled a contract of the corporation for exclusive sale of a foreign firm's products, and after establishing a rival business, the directors entered into a new contract themselves with the foreign firm for exclusive sale of its products, the court held that equity would regard the new contract as an offshoot of the old contract

and, therefore, for the benefit of the corporation, as a "faultless fiduciary may not reap the fruits of his 28 misconduct to the exclusion of his principal. The doctrine of "corporate opportunity" is precisely a recognition by the courts that the fiduciary standards could not be upheld where the fiduciary was acting for two entities with competing interests. This doctrine rests fundamentally on the unfairness, in particular circumstances, of an officer or director taking advantage of an opportunity for his own personal profit when the interest of the corporation justly 30 calls for protection. It is not denied that a member of the Board of Directors of the San Miguel Corporation has access to sensitive and highly confidential information, such as: (a) marketing strategies and pricing structure; (b) budget for expansion and diversification; (c) research and development; and (d) sources of funding, availability of personnel, proposals of mergers or tie-ups with other firms. It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel Corporation, who is also the officer or owner of a competing corporation, from taking advantage of the information which he acquires as director to promote his individual or corporate interests to the prejudice of San Miguel Corporation and its stockholders, that the questioned amendment of the by-laws was made. Certainly, where two corporations are competitive in a substantial sense, it would seem improbable, if not impossible, for the director, if he were to discharge effectively his duty, to satisfy his loyalty to both corporations and place the performance of his corporation duties above his personal concerns. Thus, in McKee & Co. v. First National Bank of San Diego , supra the court sustained as valid and reasonable an amendment to the by-laws of a bank, requiring that its directors should not be directors, officers, employees, agents, nominees or attorneys of any other banking corporation, affiliate or subsidiary thereof. Chief Judge Parker, in McKee,explained the reasons of the court, thus: ... A bank director has access to a great deal of information concerning the business and plans of a bank which would likely be injurious to the bank if known to another bank, and it was reasonable and prudent to enlarge this minimum disqualification to include any director, officer, employee, agent, nominee, or attorney of any other bank in California. The Ashkins case, supra, specifically recognizes protection against rivals and others who might acquire information which might be used against the interests of the corporation as a legitimate object of by-law protection. With respect to attorneys or persons associated with a firm which is attorney for another bank, in addition to the direct conflict or potential conflict of interest, there is also the danger of inadvertent leakage of confidential information through casual office discussions or accessibility of files. Defendant's directors determined that its welfare was best protected if this opportunity for conflicting loyalties and potential misuse and leakage of confidential information was foreclosed. In McKee the Court further listed qualificational by-laws upheld by the courts, as follows: (1) A director shall not be directly or indirectly interested as a stockholder in any other firm, company, or association which competes with the subject corporation. (2) A director shall not be the immediate member of the family of any stockholder in any other firm, company, or association which competes with the subject corporation, (3) A director shall not be an officer, agent, employee, attorney, or trustee in any other firm, company, or association which compete with the subject corporation. (4) A director shall be of good moral character as an essential qualification to holding office.
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(5) No person who is an attorney against the corporation in a law suit is eligible for service on the board. (At p. 7.) These are not based on theorical abstractions but on human experience that a person cannot serve two hostile masters without detriment to one of them. The offer and assurance of petitioner that to avoid any possibility of his taking unfair advantage of his position as director of San Miguel Corporation, he would absent himself from meetings at which confidential matters would be discussed, would not detract from the validity and reasonableness of the by-laws here involved. Apart from the impractical results that would ensue from such arrangement, it would be inconsistent with petitioner's primary motive in running for board membership which is to protect his investments in San Miguel Corporation. More important, such a proposed norm of conduct would be against all accepted principles underlying a director's duty of fidelity to the corporation, for the policy of the law is to encourage and enforce responsible corporate management. As explained by 31 Oleck: "The law win not tolerate the passive attitude of directors ... without active and conscientious participation in the managerial functions of the company. As directors, it is their duty to control and supervise the day to day business activities of the company or to promulgate definite policies and rules of guidance with a vigilant eye toward seeing to it that these policies are carried out. It is only then that directors may be said to have fulfilled their duty of fealty to the corporation." Sound principles of corporate management counsel against sharing sensitive information with a director whose fiduciary duty of loyalty may well require that he disclose this information to a competitive arrival. These dangers are enhanced considerably where the common director such as the petitioner is a controlling stockholder of two of the competing corporations. It would seem manifest that in such situations, the director has an economic incentive to appropriate for the benefit of his own corporation the corporate plans and policies of the corporation where he sits as director. Indeed, access by a competitor to confidential information regarding marketing strategies and pricing policies of San Miguel Corporation would subject the latter to a competitive disadvantage and unjustly enrich the competitor, for advance knowledge by the competitor of the strategies for the development of existing or new markets of existing or new products could enable said competitor to utilize such 32 knowledge to his advantage. There is another important consideration in determining whether or not the amended by-laws are reasonable. The Constitution and the law prohibit combinations in restraint of trade or unfair competition. Thus, section 2 of Article XIV of the Constitution provides: "The State shall regulate or prohibit private monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be snowed." Article 186 of the Revised Penal Code also provides: Art. 186. Monopolies and combinations in restraint of trade. The penalty of prision correccional in its minimum period or a fine ranging from two hundred to six thousand pesos, or both, shall be imposed upon: 1. Any person who shall enter into any contract or agreement or shall take part in any conspiracy or combination in the form of a trust or otherwise, in restraint of trade or commerce or to prevent by artificial means free competition in the market. 2. Any person who shag monopolize any merchandise or object of trade or commerce, or shall combine with any other person or persons to monopolize said merchandise or object in order to alter the price thereof by spreading false rumors or making use of any other artifice to restrain free competition in the market.

3. Any person who, being a manufacturer, producer, or processor of any merchandise or object of commerce or an importer of any merchandise or object of commerce from any foreign country, either as principal or agent, wholesale or retailer, shall combine, conspire or agree in any manner with any person likewise engaged in the manufacture, production, processing, assembling or importation of such merchandise or object of commerce or with any other persons not so similarly engaged for the purpose of making transactions prejudicial to lawful commerce, or of increasing the market price in any part of the Philippines, or any such merchandise or object of commerce manufactured, produced, processed, assembled in or imported into the Philippines, or of any article in the manufacture of which such manufactured, produced, processed, or imported merchandise or object of commerce is used. There are other legislation in this jurisdiction, which prohibit monopolies and combinations in restraint of 33 trade. Basically, these anti-trust laws or laws against monopolies or combinations in restraint of trade are aimed at raising levels of competition by improving the consumers' effectiveness as the final arbiter in free markets. These laws are designed to preserve free and unfettered competition as the rule of trade. "It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of 34 our economic resources, the lowest prices and the highest quality ... ." they operate to forestall 35 concentration of economic power. The law against monopolies and combinations in restraint of trade is aimed at contracts and combinations that, by reason of the inherent nature of the contemplated acts, 36 prejudice the public interest by unduly restraining competition or unduly obstructing the course of trade. The terms "monopoly", "combination in restraint of trade" and "unfair competition" appear to have a well defined meaning in other jurisdictions. A "monopoly" embraces any combination the tendency of which is to prevent competition in the broad and general sense, or to control prices to the detriment of the 37 public. In short, it is the concentration of business in the hands of a few. The material consideration in determining its existence is not that prices are raised and competition actually excluded, but 38 that power exists to raise prices or exclude competition when desired. Further, it must be considered that the Idea of monopoly is now understood to include a condition produced by the mere act of individuals. Its dominant thought is the notion of exclusiveness or unity, or the suppression of competition by the qualification of interest or management, or it may be thru agreement and concert of action. It is, in 39 brief, unified tactics with regard to prices. From the foregoing definitions, it is apparent that the contentions of petitioner are not in accord with reality. The election of petitioner to the Board of respondent Corporation can bring about an illegal situation. This is because an express agreement is not necessary for the existence of a combination or 40 conspiracy in restraint of trade. It is enough that a concert of action is contemplated and that the 41 defendants conformed to the arrangements, and what is to be considered is what the parties actually did and not the words they used. For instance, the Clayton Act prohibits a person from serving at the same time as a director in any two or more corporations, if such corporations are, by virtue of their business and location of operation, competitors so that the elimination of competition between them 42 would constitute violation of any provision of the anti-trust laws. There is here a statutory recognition of the anti-competitive dangers which may arise when an individual simultaneously acts as a director of two or more competing corporations. A common director of two or more competing corporations would have access to confidential sales, pricing and marketing information and would be in a position to coordinate policies or to aid one corporation at the expense of another, thereby stifling competition. This situation has been aptly explained by Travers, thus: The argument for prohibiting competing corporations from sharing even one director is that the interlock permits the coordination of policies between nominally independent firms to an extent that competition between them may be completely eliminated . Indeed, if a director, for example, is to be faithful to both corporations, some accommodation must result. Suppose X is a director of both Corporation A and Corporation B. X could

hardly vote for a policy by A that would injure B without violating his duty of loyalty to B at the same time he could hardly abstain from voting without depriving A of his best judgment. If the firms really do compete in the sense of vying for economic advantage at the expense of the other there can hardly be any reason for an interlock between 43 competitors other than the suppression of competition. (Emphasis supplied.) According to the Report of the House Judiciary Committee of the U. S. Congress on section 9 of the Clayton Act, it was established that: "By means of the interlocking directorates one man or group of men have been able to dominate and control a great number of corporations ... to the detriment of the small 44 ones dependent upon them and to the injury of the public. Shared information on cost accounting may lead to price fixing. Certainly, shared information on production, orders, shipments, capacity and inventories may lead to control of production for the purpose of controlling prices. Obviously, if a competitor has access to the pricing policy and cost conditions of the products of San Miguel Corporation, the essence of competition in a free market for the purpose of serving the lowest priced goods to the consuming public would be frustrated, The competitor could so manipulate the prices of his products or vary its marketing strategies by region or by brand in order to get the most out of the consumers. Where the two competing firms control a substantial segment of the market this could lead to collusion and combination in restraint of trade. Reason and experience point to the inevitable conclusion that the inherent tendency of interlocking directorates between companies that are related to each other as competitors is to blunt the edge of rivalry between the corporations, to seek out ways of compromising opposing interests, and thus eliminate competition. As respondent SMC aptly observes, knowledge by CFC-Robina of SMC's costs in various industries and regions in the country win enable the former to practice price discrimination. CFC-Robina can segment the entire consuming population by geographical areas or income groups and change varying prices in order to maximize profits from every market segment. CFC-Robina could determine the most profitable volume at which it could produce for every product line in which it competes with SMC. Access to SMC pricing policy by CFC-Robina would in effect destroy free competition and deprive the consuming public of opportunity to buy goods of the highest possible quality at the lowest prices. Finally, considering that both Robina and SMC are, to a certain extent, engaged in agriculture, then the election of petitioner to the Board of SMC may constitute a violation of the prohibition contained in section 13(5) of the Corporation Law. Said section provides in part that "any stockholder of more than one corporation organized for the purpose of engaging in agriculture may hold his stock in such corporations solely for investment and not for the purpose of bringing about or attempting to bring about a combination to exercise control of incorporations ... ." Neither are We persuaded by the claim that the by-law was Intended to prevent the candidacy of petitioner for election to the Board. If the by-law were to be applied in the case of one stockholder but waived in the case of another, then it could be reasonably claimed that the by-law was being applied in a discriminatory manner. However, the by law, by its terms, applies to all stockholders. The equal protection clause of the Constitution requires only that the by-law operate equally upon all persons of a class. Besides, before petitioner can be declared ineligible to run for director, there must be hearing and evidence must be submitted to bring his case within the ambit of the disqualification. Sound principles of public policy and management, therefore, support the view that a by-law which disqualifies a competition from election to the Board of Directors of another corporation is valid and reasonable. In the absence of any legal prohibition or overriding public policy, wide latitude may be accorded to the corporation in adopting measures to protect legitimate corporation interests. Thus, "where the reasonableness of a by-law is a mere matter of judgment, and upon which reasonable minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment of 45 those who are authorized to make by-laws and who have expressed their authority.

Although it is asserted that the amended by-laws confer on the present Board powers to perpetua themselves in power such fears appear to be misplaced. This power, but is very nature, is subject to certain well established limitations. One of these is inherent in the very convert and definition of the terms "competition" and "competitor". "Competition" implies a struggle for advantage between two or more forces, each possessing, in substantially similar if not Identical degree, certain characteristics essential to the business sought. It means an independent endeavor of two or more persons to obtain the business 46 patronage of a third by offering more advantageous terms as an inducement to secure trade. The test must be whether the business does in fact compete, not whether it is capable of an indirect and highly 47 unsubstantial duplication of an isolated or non-characteristics activity. It is, therefore, obvious that not every person or entity engaged in business of the same kind is a competitor. Such factors as quantum and place of business, Identity of products and area of competition should be taken into consideration. It is, therefore, necessary to show that petitioner's business covers a substantial portion of the same markets for similar products to the extent of not less than 10% of respondent corporation's market for competing products. While We here sustain the validity of the amended by-laws, it does not follow as a necessary consequence that petitioner is ipso facto disqualified. Consonant with the requirement of due process, there must be due hearing at which the petitioner must be given the fullest opportunity to show that he is not covered by the disqualification. As trustees of the corporation and of the stockholders, it is 48 the responsibility of directors to act with fairness to the stockholders. Pursuant to this obligation and to remove any suspicion that this power may be utilized by the incumbent members of the Board to perpetuate themselves in power, any decision of the Board to disqualify a candidate for the Board of Directors should be reviewed by the Securities behind Exchange Commission en banc and its decision 49 shall be final unless reversed by this Court on certiorari. Indeed, it is a settled principle that where the action of a Board of Directors is an abuse of discretion, or forbidden by statute, or is against public policy, or is ultra vires, or is a fraud upon minority stockholders or creditors, or will result in waste, dissipation or 50 misapplication of the corporation assets, a court of equity has the power to grant appropriate relief. III Whether or not respondent SEC gravely abused its discretion in denying petitioner's request for an examination of the records of San Miguel International Inc., a fully owned subsidiary of San Miguel Corporation Respondent San Miguel Corporation stated in its memorandum that petitioner's claim that he was denied inspection rights as stockholder of SMC "was made in the teeth of undisputed facts that, over a specific period, petitioner had been furnished numerous documents and information," to wit: (1) a complete list of stockholders and their stockholdings; (2) a complete list of proxies given by the stockholders for use at the annual stockholders' meeting of May 18, 1975; (3) a copy of the minutes of the stockholders' meeting of March 18,1976; (4) a breakdown of SMC's P186.6 million investment in associated companies and other companies as of December 31, 1975; (5) a listing of the salaries, allowances, bonuses and other compensation or remunerations received by the directors and corporate officers of SMC; (6) a copy of the US $100 million Euro-Dollar Loan Agreement of SMC; and (7) copies of the minutes of all meetings of the Board of Directors from January 1975 to May 1976, with deletions of sensitive data, which deletions were not objected to by petitioner. Further, it was averred that upon request, petitioner was informed in writing on September 18, 1976; (1) that SMC's foreign investments are handled by San Miguel International, Inc., incorporated in Bermuda and wholly owned by SMC; this was SMC's first venture abroad, having started in 1948 with an initial outlay of ?500,000.00, augmented by a loan of Hongkong $6 million from a foreign bank under the personal guaranty of SMC's former President, the late Col. Andres Soriano; (2) that as of December 31, 1975, the estimated value of SMI would amount to almost P400 million (3) that the total cash dividends received by SMC from SMI since 1953 has amount to US $ 9.4 million; and (4) that from 1972-1975, SMI did not declare cash or stock dividends, all earnings having been used in line with a program for the setting up of breweries by SMI

These averments are supported by the affidavit of the Corporate Secretary, enclosing photocopies of the 51 afore-mentioned documents. Pursuant to the second paragraph of section 51 of the Corporation Law, "(t)he record of all business transactions of the corporation and minutes of any meeting shall be open to the inspection of any director, member or stockholder of the corporation at reasonable hours." The stockholder's right of inspection of the corporation's books and records is based upon their ownership of the assets and property of the corporation. It is, therefore, an incident of ownership of the corporate property, whether this ownership or interest be termed an equitable ownership, a beneficial ownership, or 52 a ownership. This right is predicated upon the necessity of self-protection. It is generally held by majority of the courts that where the right is granted by statute to the stockholder, it is given to him as such and must be exercised by him with respect to his interest as a stockholder and for some purpose 53 germane thereto or in the interest of the corporation. In other words, the inspection has to be germane to the petitioner's interest as a stockholder, and has to be proper and lawful in character and not inimical 54 55 to the interest of the corporation. In Grey v. Insular Lumber, this Court held that "the right to examine the books of the corporation must be exercised in good faith, for specific and honest purpose, and not to gratify curiosity, or for specific and honest purpose, and not to gratify curiosity, or for speculative or vexatious purposes. The weight of judicial opinion appears to be, that on application for mandamus to enforce the right, it is proper for the court to inquire into and consider the stockholder's good faith and his 56 purpose and motives in seeking inspection. Thus, it was held that "the right given by statute is not absolute and may be refused when the information is not sought in good faith or is used to the detriment 57 of the corporation." But the "impropriety of purpose such as will defeat enforcement must be set up the corporation defensively if the Court is to take cognizance of it as a qualification. In other words, the specific provisions take from the stockholder the burden of showing propriety of purpose and place upon 58 the corporation the burden of showing impropriety of purpose or motive. It appears to be the general rule that stockholders are entitled to full information as to the management of the corporation and the manner of expenditure of its funds, and to inspection to obtain such information, especially where it appears that the company is being mismanaged or that it is being managed for the personal benefit of 59 officers or directors or certain of the stockholders to the exclusion of others." While the right of a stockholder to examine the books and records of a corporation for a lawful purpose is a matter of law, the right of such stockholder to examine the books and records of a wholly-owned subsidiary of the corporation in which he is a stockholder is a different thing. Some state courts recognize the right under certain conditions, while others do not. Thus, it has been held that where a corporation owns approximately no property except the shares of stock of subsidiary corporations which are merely agents or instrumentalities of the holding company, the legal fiction of distinct corporate entities may be disregarded and the books, papers and documents of all the 60 corporations may be required to be produced for examination, and that a writ of mandamus, may be granted, as the records of the subsidiary were, to all incontents and purposes, the records of the parent 61 even though subsidiary was not named as a party. 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 62 parent showing the relation of principal or agent or something similar thereto. On the other hand, mandamus at the suit of a stockholder was refused where the subsidiary corporation is a separate and distinct corporation domiciled and with its books and records in another jurisdiction, and is not legally subject to the control of the parent company, although it owned a vast majority of the stock 63 of the subsidiary. Likewise, inspection of the books of an allied corporation by stockholder of the parent company which owns all the stock of the subsidiary has been refused on the ground that the stockholder 64 was not within the class of "persons having an interest." In the Nash case, The Supreme Court of New York held that the contractual right of former stockholders to inspect books and records of the corporation included the right to inspect corporation's
65

subsidiaries' books and records which were in corporation's possession and control in its office in New York." In the Bailey case, stockholders of a corporation were held entitled to inspect the records of a controlled subsidiary corporation which used the same offices and had Identical officers and directors. In his "Urgent Motion for Production and Inspection of Documents" before respondent SEC, petitioner contended that respondent corporation "had been attempting to suppress information for the stockholders" and that petitioner, "as stockholder of respondent corporation, is entitled to copies of some documents which for some reason or another, respondent corporation is very reluctant in revealing to the 67 petitioner notwithstanding the fact that no harm would be caused thereby to the corporation." There is no question that stockholders are entitled to inspect the books and records of a corporation in order to investigate the conduct of the management, determine the financial condition of the corporation, and 68 generally take an account of the stewardship of the officers and directors. In the case at bar, considering that the foreign subsidiary is wholly owned by respondent San Miguel Corporation and, therefore, under its control, it would be more in accord with equity, good faith and fair dealing to construe the statutory right of petitioner as stockholder to inspect the books and records of the corporation as extending to books and records of such wholly subsidiary which are in respondent corporation's possession and control. IV Whether or not respondent SEC gravely abused its discretion in allowing the stockholders of respondent corporation to ratify the investment of corporate funds in a foreign corporation Petitioner reiterates his contention in SEC Case No. 1423 that respondent corporation invested corporate funds in SMI without prior authority of the stockholders, thus violating section 17-1/2 of the Corporation Law, and alleges that respondent SEC should have investigated the charge, being a statutory offense, instead of allowing ratification of the investment by the stockholders. Respondent SEC's position is that submission of the investment to the stockholders for ratification is a sound corporate practice and should not be thwarted but encouraged. Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds in any other corporation or business or for any purpose other than the main purpose for which it was organized" provided that its Board of Directors has been so authorized by the affirmative vote of stockholders holding shares entitling them to exercise at least two-thirds of the voting power. If the investment is made in pursuance of the corporate purpose, it does not need the approval of the stockholders. It is only when the purchase of shares is done solely for investment and not to accomplish the purpose of its incorporation that the vote of approval of the stockholders holding shares entitling them to exercise at least two-thirds of the voting 69 power is necessary. As stated by respondent corporation, the purchase of beer manufacturing facilities by SMC was an investment in the same business stated as its main purpose in its Articles of Incorporation, which is to manufacture and market beer. It appears that the original investment was made in 1947-1948, when SMC, then San Miguel Brewery, Inc., purchased a beer brewery in Hongkong (Hongkong Brewery & Distillery, Ltd.) for the manufacture and marketing of San Miguel beer thereat. Restructuring of the investment was made in 1970-1971 thru the organization of SMI in Bermuda as a tax free reorganization. Under these circumstances, the ruling in De la Rama v. Manao Sugar Central Co., Inc., supra, appears relevant. In said case, one of the issues was the legality of an investment made by Manao Sugar Central Co., Inc., without prior resolution approved by the affirmative vote of 2/3 of the stockholders' voting power, in the Philippine Fiber Processing Co., Inc., a company engaged in the manufacture of sugar bags. The
66

lower court said that "there is more logic in the stand that if the investment is made in a corporation whose business is important to the investing corporation and would aid it in its purpose, to require authority of the stockholders would be to unduly curtail the power of the Board of Directors." This Court affirmed the ruling of the court a quo on the matter and, quoting Prof. Sulpicio S. Guevara, said: "j. Power to acquire or dispose of shares or securities. A private corporation, in order to accomplish is purpose as stated in its articles of incorporation, and subject to the limitations imposed by the Corporation Law, has the power to acquire, hold, mortgage, pledge or dispose of shares, bonds, securities, and other evidence of indebtedness of any domestic or foreign corporation. Such an act, if done in pursuance of the corporate purpose, does not need the approval of stockholders; but when the purchase of shares of another corporation is done solely for investment and not to accomplish the purpose of its incorporation, the vote of approval of the stockholders is necessary. In any case, the purchase of such shares or securities must be subject to the limitations established by the Corporations law; namely, (a) that no agricultural or mining corporation shall be restricted to own not more than 15% of the voting stock of nay agricultural or mining corporation; and (c) that such holdings shall be solely for investment and not for the purpose of bringing about a monopoly in any line of commerce of combination in restraint of trade." The Philippine Corporation Law by Sulpicio S. Guevara, 1967 Ed., p. 89) (Emphasis supplied.) 40. Power to invest corporate funds. A private corporation has the power to invest its corporate funds "in any other corporation or business, or for any purpose other than the main purpose for which it was organized, provide that 'its board of directors has been so authorized in a resolution by the affirmative vote of stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power on such a propose at a stockholders' meeting called for that purpose,' and provided further, that no agricultural or mining corporation shall in anywise be interested in any other agricultural or mining corporation. When the investment is necessary to accomplish its purpose or purposes as stated in its articles of incorporation the approval of the stockholders is not necessary."" (Id., p. 108) (Emphasis ours.) (pp. 258-259). Assuming arguendo that the Board of Directors of SMC had no authority to make the assailed investment, there is no question that a corporation, like an individual, may ratify and thereby render binding upon it the 70 originally unauthorized acts of its officers or other agents. This is true because the questioned investment is neither contrary to law, morals, public order or public policy. It is a corporate transaction or contract which is within the corporate powers, but which is defective from a supported failure to observe in its execution the. requirement of the law that the investment must be authorized by the affirmative vote of the stockholders holding two-thirds of the voting power. This requirement is for the benefit of the stockholders. The stockholders for whose benefit the requirement was enacted may, therefore, ratify the investment and its ratification by said stockholders obliterates any defect which it may have had at the 71 outset. "Mere ultra vires acts", said this Court in Pirovano, "or those which are not illegal and void ab initio, but are not merely within the scope of the articles of incorporation, are merely voidable and may become binding and enforceable when ratified by the stockholders. Besides, the investment was for the purchase of beer manufacturing and marketing facilities which is apparently relevant to the corporate purpose. The mere fact that respondent corporation submitted the assailed investment to the stockholders for ratification at the annual meeting of May 10, 1977 cannot be construed as an admission that respondent corporation had committed an ultra vires act, considering the common practice of corporations of periodically submitting for the gratification of their stockholders the acts of their directors, officers and managers. WHEREFORE, judgment is hereby rendered as follows:

The Court voted unanimously to grant the petition insofar as it prays that petitioner be allowed to examine the books and records of San Miguel International, Inc., as specified by him. On the matter of the validity of the amended by-laws of respondent San Miguel Corporation, six (6) Justices, namely, Justices Barredo, Makasiar, Antonio, Santos, Abad Santos and De Castro, voted to sustain the validity per se of the amended by-laws in question and to dismiss the petition without prejudice to the question of the actual disqualification of petitioner John Gokongwei, Jr. to run and if elected to sit as director of respondent San Miguel Corporation being decided, after a new and proper hearing by the Board of Directors of said corporation, whose decision shall be appealable to the respondent Securities and Exchange Commission deliberating and acting en banc and ultimately to this Court. Unless disqualified in the manner herein provided, the prohibition in the afore-mentioned amended by-laws shall not apply to petitioner. The afore-mentioned six (6) Justices, together with Justice Fernando, voted to declare the issue on the validity of the foreign investment of respondent corporation as moot. Chief Justice Fred Ruiz Castro reserved his vote on the validity of the amended by-laws, pending hearing by this Court on the applicability of section 13(5) of the Corporation Law to petitioner. Justice Fernando reserved his vote on the validity of subject amendment to the by-laws but otherwise concurs in the result. Four (4) Justices, namely, Justices Teehankee, Concepcion, Jr., Fernandez and Guerrero filed a separate opinion, wherein they voted against the validity of the questioned amended bylaws and that this question should properly be resolved first by the SEC as the agency of primary jurisdiction. They concur in the result that petitioner may be allowed to run for and sit as director of respondent SMC in the scheduled May 6, 1979 election and subsequent elections until disqualified after proper hearing by the respondent's Board of Directors and petitioner's disqualification shall have been sustained by respondent SEC en banc and ultimately by final judgment of this Court. In resume, subject to the qualifications aforestated judgment is hereby rendered GRANTING the petition by allowing petitioner to examine the books and records of San Miguel International, Inc. as specified in the petition. The petition, insofar as it assails the validity of the amended by- laws and the ratification of the foreign investment of respondent corporation, for lack of necessary votes, is hereby DISMISSED. No costs.

[G.R. No. 54330. January 13, 1989.] JULIO E. T. SALES and GEORGE V. AGONIAS, in their own behalf, and in behalf of SIPALAY MINING EXPLORATION CORPORATION, as minority stockholders thereof, and SIPALAY MINING EXPLORATION CORPORATION, Petitioners, v. SECURITIES AND EXCHANGE COMMISSION, STATE INVESTMENT HOUSE, INC., represented by its President, ANSELMO TRINIDAD; ANSELMO TRINIDAD CO., INC., represented by its President, ANSELMO TRINIDAD; and VULCAN INDUSTRIAL AND MINING CORP., represented by its President, WALTER W. BROWN; AFREDO C. RAMOS, ANNABELLE P. BROWN, WALTER W. BROWN, MANUEL C. DIAZ, and AUGUSTO B. SUNICO, Respondents.

SYLLABUS

1. COMMERCIAL LAW; CORPORATION LAW; SECURITIES AND EXCHANGE COMMISSION; JURISDICTION; POWER TO CREATE COMMITTEE TO SUPERVISE ANNUAL STOCKHOLDERS ANNUAL MEETING. The order of the Securities and Exchange Commission creating a committee to supervise and control the conduct of the proceedings in the corporations annual stockholders meeting is allowed by P.D. No. 902-A. 2. ID.; ID.; ID.; ID.; PRAYER FOR EXCLUSION OF SHARES IS ONE ARISING OUT OF INTRA-CORPORATE RELATIONS. The prayer for the exclusion of the questioned shares from the annual stockholders meeting may be considered either as one arising out of intra-corporate relations or one between and among the stockholders of the corporation, which falls within the original and exclusive jurisdiction of the SEC. 3. ID.; ID.; ID.; ID.; POWER TO COMPEL OFFICERS TO CALL STOCKHOLDERS MEETING. Under Section 6(f) of P.D. No. 902-A, SEC has the power to compel the officers of a corporation to call a stockholders meeting under its supervision. 4. ID.; ID.; RIGHT TO VOTE; STOCKHOLDERS NOT DEPRIVED OR RIGHT EXCEPT UPON A CLEAR SHOWING OF LAWFUL DENIAL. The Court will not deprive a stockholder of his right to vote his shares in the annual stockholders meeting, except upon a clear showing of its lawful denial under the articles of incorporation or by-laws of the corporation, as it is a right inherent in stock ownership. 5. REMEDIAL LAW; PROVISIONAL REMEDIES; INJUNCTION; WILL NOT ISSUE ON MERE ALLEGATION; PETITIONERS MUST ESTABLISH THEIR RIGHT. A mere allegation, in the absence of any support in the record, does not meet the standard of proof that would warrant the issuance of the injunctive writ. Petitioners must establish their right to the relief demanded, as would entitle them to the issuance of a writ of preliminary injunction. 6. ID.; ID.; ID.; ISSUANCE RESTS ON THE SOUND DISCRETION OF THE LOWER TRIBUNAL. The grant or denial of an injunction rests upon the sound discretion of the lower tribunal, in the exercise of which this Court will not interfere except in a clear case of abuse.

DECISION CORTES, J.:

Alleging grave abuse of discretion amounting to lack of jurisdiction, Petitioners, in this petition forcertiorari and prohibition with preliminary injunction, seek to have this Court set aside the orders of respondent Securities and Exchange Commission (hereinafter referred to as SEC) dated June 13, 1980 and July 17, 1980, and the issuance of an order: (1) restraining the SEC, its officers and agents from enforcing its order to create the committee to supervise and control the conduct of the proceedings in the annual stockholders meeting of Sipalay Mining Exploration Corporation and from stopping the Board of Directors and officers of Sipalay Mining from calling and conducting said meeting; and (2) restraining private respondent Vulcan Industrial and Mining Corporation (hereinafter referred to as VULCAN), its successors, assigns, representatives, nominees or substitutes from voting the disputed 198,500,000 shares of the capital stock of Sipalay Mining at the forthcoming regular annual stockholders meeting.

The undisputed facts, as culled from the numerous pleadings filed by the parties, are as follows:

chan rob1es v irt ual 1aw li bra ry

On or about June 13, 1974, respondent State Investment House, Inc. (formerly State Financing Center, Inc.) entered into a sales agreement with Sipalay Mining whereby the latter sold to the former 200,000,000 common shares of its capital stock in the amount of P2,600,000.00. The sales agreement between Sipalay Mining and State Investment contained the following terms and conditions:
chanrob 1es vi rtua l 1aw lib rary

1. That we shall dispose, sell or assign these shares to the general public through a duly licensed stockbroker after the approval of the registration and/or licensing of shares of the Corporation under terms and conditions and at the price determined by us; 2. That the stockbroker shall not sell more than 1,000,000 shares per buyer, to the extent practicable; 3. In the event you decide to make a public offering [of] additional shares in the future, whether with Sipalay Mining and Exploration Corporation or any other corporation organized by Sipalay Mining Exploration Corporation, you hereby grant us a right of first refusal to undertake the same; 4. The Corporation shall as soon as practicable after the offering period of our shares, apply for listing in the Stock Exchange in accordance with the rules and regulations of the Securities and Exchange Commission. The timing of the date of listing shall be mutually decided by us. 5. That State Financing Center, Inc. shall issue a voting trust in favor of the Board of Directors of Sipalay Mining Exploration Corporation which shall only be good up to the time the sale to the public of said shares has been effected. [Rollo, pp. 47-48.] The 200,000,000 shares of stock of Sipalay Mining, covered by ten certificates of stock, were delivered to State Investment. Subsequently, the restriction on the sale of the shares was modified. On October 19, 1974, the Board of Directors of Sipalay Mining approved the amendment of the sales agreement by allowing sale in blocks of 5,000,000 shares per buyer.
chan robles. com:c ralaw:red

On December 22, 1975, State Investment addressed a letter to Sipalay Mining requesting that the latter transfer the 200,000,000 shares to Anselmo Trinidad & Co., Inc. (hereinafter referred to as ATCO), to which it had sold the shares. Sipalay Mining complied with this request. During the time that ATCO held the shares, it voted them in the stockholders meetings of Sipalay Mining. On July 17, 1978, or some two and a half years later, ATCO in turn sold 198,500,000 of the shares to respondent VULCAN. Sipalay Mining was requested by ATCO to transfer the 198,500,000 shares to the name of VULCAN. By resolution of the Board of Directors of Sipalay Mining, its President was directed to sign the certificate of stock that would effect the transfer. Eight days prior to the scheduled annual stockholders meeting of Sipalay Mining on July 18, 1979, petitioners filed before the SEC a petition to nullify the sale of the shares to VULCAN, with a prayer for the issuance of a writ of preliminary injunction to enjoin VULCAN from voting the shares. In an order dated July 16, 1979, the SEC temporarily restrained VULCAN from voting its 198,500,000 shares at the 1979 annual stockholders meeting pending resolution of petitioners petition for the issuance of a writ of preliminary injunction. The annual stockholders meeting of Sipalay Mining proceeded on July 18, 1979 without the participation of VULCANs 198,500,000 shares and the members of the Board of Directors were elected. Meanwhile, hearings on petitioners petition for injunction continued. In the March 10, 1980 issue of the Bulletin Today, a Notice of Call was published, calling for the payment of twenty percent (20%) of unpaid subscriptions in Sipalay Mining on or before April 15, 1980. VULCAN immediately petitioned the SEC to issue a writ of injunction. On April 16, 1980, the SEC issued a temporary restraining order suspending the effects and implementation of the call.

On June 13, 1980, the SEC issued the first of the questioned orders, the dispositive portion of which reads as follows:
chan rob1es v irt ual 1aw l ibra ry

WHEREFORE, finding petitioners application for the issuance of the writ of preliminary injunction and respondents motion to dismiss to be both without merit, the same are hereby DENIED and, accordingly, the Restraining Order dated July 16, 1979 LIFTED and DISSOLVED. Considering that the annual stockholders meeting of Sipalay for the year 1980 is forthcoming as prescribed in its By-laws, the Board of Directors and officers of the corporation are directed to call and hold said regular meeting as mandated in the corporations By-laws. At said meeting, let the 198,500,000 shares in question be counted for quorum and allowed to vote and be voted for. To ensure an orderly stockholders meeting and forestall possible controversy in the sending of notices, processing and validation of proxies and closing of the stock and transfer book, a Committee composed of one representative of the Securities and Exchange Commission, as Chairman, and one representatives each from the respondents and the petitioners, as members, is hereby formed to supervise and control the conduct of the proceedings and perform the functions of the Corporate Secretary, including but not limited to, the following acts:
chanro b1es vi rtua l 1aw li bra ry

a) closing of the stock and transfer book; b) sending of notices of the stockholders meeting c) validation of proxies; d) certification of proper notice to stockholders; e) determination of presence of quorum; f) supervision of the casting and canvassing of the elections, including the determination of all issues related thereto; g) certification of the results of the elections; and h) such other acts and functions as the Committee may perform for the orderly and peaceful conduct of the stockholders meeting. Accordingly, Atty. EUGENIO E. REYES, Supervising S.E. Specialist, is hereby appointed to act as Chairman of the Committee. The petitioners, as well as the respondents are hereby given a period of three (3) days upon receipt of this Order to submit to the Commission their respective representatives to the Committee. [Rollo, pp. 119-120.] On June 20, 1980, the SEC issued an order lifting its previous order dated April 16, 1980 which suspended the effect and implementation of the call. To this, VULCAN filed a motion for reconsideration.
chan robles law lib rary

On July 17, 1980, the SEC issued the second questioned order, the dispositive portion of which states:

chanrob1es vi rt ual 1aw li bra ry

WHEREFORE, the motion of respondent Vulean seeking reconsideration of the Order of the Commission dated June 20, 1980 should be, as it is hereby DENIED and the Motion for Reconsideration filed by petitioners, through counsel, is likewise DENIED. Let the stockholders meeting set by Sipalay Mining Exploration Corporation for July 18, 1980 be cancelled and the Committee created under the Order dated June 13, 1980 be constituted. Petitioner is hereby directed to submit the name of its representative within five (5) days from receipt of this Order, otherwise, they shall be considered to have waived their right to be represented in said Committee. [Rollo, p. 124.] As the appeal of the assailed orders to the SEC en banc was not allowed under the rules of the Commission, * petitioners on July 23, 1980 filed the instant petition before this Court. On August 1, 1980, the Court issued a temporary restraining order enjoining the SEC from enforcing its orders dated June 13, 1980 and July 17, 1980, particularly from enforcing its order to create the committee to supervise and control the conduct of the proceeding in the annual stockholders meeting of Sipalay Mining and from stopping the Board of Directors and officers of Sipalay Mining from calling and conducting said

meeting; and respondent VULCAN from voting the questioned 198,500,000 shares of capital stock of Sipalay Mining at the forthcoming regular annual stockholders meeting [Rollo, pp. 129-30.] Thereafter, respondent VULCAN filed its comment, which was adopted in toto by respondents Walter W. Brown, Annabelle P. Brown and Alfredo C. Ramos. Respondent August B. Sunico filed a comment adopting VULCANs comment which included supplementary comments. On August 18, 1980, respondent VULCAN filed a manifestation alleging that it had received a Notice of Stockholders Meeting from Sipalay Mining notifying its stockholders that the annual stockholders meeting shall be held on August 21, 1980 and praying that the restraining order issued by the Court be lifted or that the annual stockholders meeting of Sipalay Mining be enjoined pending resolution of the case. Accordingly, the Court on August 20, 1980 issued a temporary restraining order enjoining petitioners from holding the annual stockholders meeting on August 21, 1980 [Rollo, pp. 202-03.] Thereafter, respondents ATCO, State Investment and the SEC filed their respective comments. Replies were filed by petitioners to the comments of respondents VULCAN and the SEC, to which rejoinders were filed by the latter. In a resolution dated July 27, 1987, the Court resolved to give due course to the petition and to consider the case submitted for decision on the basis of the pleadings already on file [Rollo, p. 407.] The question to be resolved by the Court is whether or not the SEC acted with grave abuse of discretion when it issued the two (2) questioned orders. However, for purposes of clarity, it may be divided into two (2) issues:
cha nrob 1es vi rtual 1aw lib rary

(1) Whether or not the SEC acted arbitrarily and with grave abuse of discretion, tantamount to lack of jurisdiction, when it ordered the creation of the committee composed of the SEC representative, as Chairman, and one representative each from petitioners and private respondents, as members, to supervise and control the conduct of the proceedings and perform the functions of the Corporate Secretary, in relation to the regular annual stockholders meeting of Sipalay Mining; and (2) Whether or not the SEC acted with grave abuse of discretion when it found that petitioners have not sufficiently shown that they are entitled to the injunctive relief prayed for in their petition and denied their prayer for the issuance of a writ of preliminary injunction. Each issue shall be discussed separately. A. Petitioners claim that the SEC acted arbitrarily and with grave abuse of discretion when its ordered the creation of the committee, on the grounds: (1) that the controversy is not one of those mentioned in Presidential Decree No. 902-A; and (2) that P.D. No. 902-A specifies that only in appropriate cases may the SEC compel officers of any corporation or association registered by it to call meetings of stockholders or members thereof under its supervision. [Rollo, p. 4] 1. The Court finds that the order of the SEC creating the committee is fully supported by P.D. No. 902-A. P.D. No. 902-A, as amended by P.D. No. 1653 (1979), provides: x x x
c hanrob1es vi rt ual 1aw li bra ry

Sec. 3. The Commission shall have absolute jurisdiction, supervision and control over all corporations, partnerships or associations, who are the grantees of primary franchise and/or a license or permit issued by the government to operate in the Philippines; and in the exercise of its authority, it shall have the power to enlist the aid and support of any and all enforcement agencies of the government, civil or military. x x x

Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under

existing laws and decrees, its shall have original and exclusive jurisdiction to hear and decide cases involving:
c han rob1es v irt ual 1aw l ibra ry

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:
chanrob1e s virt ual 1aw l ibra ry

c) Controversies in the election or appointments of directors, trustees, officers or managers of such corporations, partnerships or associations. x x x

As correctly pointed out by the Solicitor General, the case before the SEC involves a controversy regarding the election of directors of a corporation:
chan rob1e s virtual 1aw l ibra ry

It should be pointed out that in their amended petition in S.E.C. Case No. 1751, herein petitioners prayed, among other things, that a restraining order be issued enjoining Vulcan from exercising the rights of a stockholder over 198,500,000 shares of capital stock in Sipalay Mining, particularly, the right to vote in the then forthcoming regular annual stockholders meeting of Sipalay Mining on July 18, 1979. Pursuant to said application of petitioners, respondent Commission issued a restraining order enjoining Vulcan from voting the questioned 198,500,000 shares at said meeting (Annex "B" Petition). In its answer to the petition, in SEC Case No. 1751. Vulcan alleged, as first compulsory counterclaim, that by reason of the restraining order issued by the Commission, it was prevented from voting its shares in the stockholders meeting of Sipalay Mining held on July 18, 1979, and petitioners, thus, caused the "election" of a new set of members of the board of directors in the corporation.
cralawnad

It is apparent from the foregoing that a controversy in the election of directors of Sipalay Mining came about because it was petitioners themselves who had asked the Commission not to allow the disputed 198,500,000 shares to be voted on at the July 18, 1979 annual stockholders meeting of the corporation. Since said 198,500,000 shares of stock were not allowed to vote due to the restraining order of the Commission, petitioners were able to elect candidates from their group. It is this election of members of the board of directors on July 18, 1979, which is being questioned by respondent Vulcan in its answer in SEC Case No. 1751 wherein it prays that the stockholders meeting on the aforementioned date be declared null and void. The controversy regarding the election of directors in Sipalay Mining was, thus, a natural consequence of the relief sought by petitioners themselves that the shares of stocks of Vulcan aforementioned be barred from voting. Respondent Commission had to address itself to the controversy by issuing its questioned order dated June 13, 1980, directing the holding of the annual stockholders meeting of Sipalay Mining for the year 1980 as mandated in its by-laws, and creating a committee to supervise and control the conduct of the proceedings to insure an orderly stockholders meeting and forestall possible controversy in the sending of notices, processing and validation of proxies and closing of the stock and transfer book. Certainly, the Commission cannot be faulted, much less can it be said that it exceeded its jurisdiction, for having taken all proper measures to insure that an orderly meeting and election are held in Sipalay Mining in the light of the issues raised in SEC Case No. 1751 pending before the Commission. x x x

Sec. 5(c) of P.D. No. 902-A would, therefore, clothe the SEC with jurisdiction over the matter. From another vantage point, since petitioners, in their petition before the SEC, pray for the exclusion of the 198,500,000 shares of VULCAN from the annual stockholders meeting, the controversy may be considered either as one arising out of intra-corporate relations or one between and among the stockholders of the corporation.

In Union Glass & Container Corporation v. Securities and Exchange Commission G.R. No. 64013, November 28, 1983, 126 SCRA 31], the Court explained the jurisdiction of the SEC:
chanrob1e s virtual 1aw lib rary

This grant of jurisdiction must be viewed in the light of the nature and function of the SEC under the law. Section 3 of P.D. No. 902-A confers upon the latter "absolute jurisdiction, supervision, and control over all corporations, partnerships or associations, who are grantees of primary franchise and/or license or permit issued by the government to operate in the Philippines . . ." The principal function of the SEC is the supervision and control over corporations, partnerships and associations with the end in view that investment in these entities may be encouraged and protected, and their activities pursued for the promotion of economic development. It is in aid of this office that the adjudicative power of the SEC must be exercised. Thus the law explicitly specified and delimited its jurisdiction to matters intrinsically connected with the regulation of corporations, partnerships and associations and those dealing with the internal affairs of such corporations, partnerships or associations. Otherwise stated, in order that the SEC can take cognizance of a case, the controversy must pertain to any of the following relationships: (a) between the corporation, partnership or association and the public; (b) between the corporation, partnership or association and its stock-holders, partners, members, or officers; (c) between the corporation, partnership or association and the state in so far as its franchise, permit or license to operate is concerned; and (d) among the stockholders, partners or associates themselves. [at p. 38.] In a later decision, the Court expounded on what constitutes an intra-corporate controversy:
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It has already been settled that an intra-corporate controversy would call for the jurisdiction of the Securities and Exchange Commission. (Philippine School of Business Administration v. Lanao, 127 SCRA 781, February 24, 1984). On the other hand, an intra-corporate controversy has been defined as "one which arises between a stockholder and the corporation. There is no distinction, qualification, nor any exemption whatsoever." (Philex Mining Corporation v. Reyes, 118 SCRA 605, November 19, 1982). This Court has also ruled that cases of private respondents who are not stockholders of the corporation, cannot be a "controversy 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." (Sunset View Condominium Corporation v. Campos, Jr., 104 SCRA 303, April 27, 1981). [Rivera v. Florendo, G.R. No. 57586, October 8, 1986, 144 SCRA 643, 656.] But more recently, in a case where the respondents therein likewise sought to ultimately annul a transfer of shares of stock and, in the meantime, to prevent the shares from being registered in the name of the transferee, the Court held that the controversy fell within the jurisdiction of the SEC, to wit:
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The very complaint of the Bragas for the annulment of the sales and transfers as filed by them in the regular court questions the validity of the transfer and endorsement of the certificates of stock, claiming alleged pre-emptive rights in the case of the Abejos shares and alleged loss of the certificates and lack of consent and consideration in the case of Virginia Bragas shares. Such dispute clearly involves controversies "between and among stockholders," as to the Abejos right to sell and dispose of their shares to Teletronics, the validity of the latters acquisition of Virginia Bragaa shares, who between the Bragas and the Abejos transferee should be recognized as the controlling shareholders of the corporation, with the right to elect the corporate officers and the management and control of its operations. Such a dispute and case clearly fall within the original and exclusive jurisdiction of the SEC to decide, under Section 5 of P.D. 902-A above quoted. [Abejo v. De la Cruz, G.R. No. 63558 and Pocket Bel Phils., Inc. v. Securities and Exchange Commission, G.R. Nos. 68450-51, May 19, 1987, 149 SCRA 654, 664.]
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Viewed from any angle, there is no denying that the controversy over the sale of the shares to VULCAN and the right to vote them in the annual stockholders meeting squarely falls within the original and exclusive jurisdiction of the SEC. 2. The court likewise finds that it was within the powers of the SEC to compel the officers of Sipalay Mining to call a stockholders meeting under its supervision. P.D. No. 902-A states:
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Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers:
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f) To compel the officers of any corporation or association registered by it to call meetings of stockholders or members thereof under its supervision:
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As discussed above, under Section 5 of P.D. No. 902-A, the SEC had original and exclusive jurisdiction over the controversy. It was "in order to effectively exercise such jurisdiction", to borrow the language of P.D. No. 902-A, that the SEC ordered the creation of the committee, in the exercise of its broad powers of control and supervision over corporations and its more specific power to compel the officers of a corporation to call meetings of stockholders under its supervision. The Court finds the functions delegated to the committee to be in accordance with the SECs mandate. The powers delegated to the committee were all confined to the holding of the stockholders meeting and the conduct of the election of directors in connection therewith [See pp. 5-6 of this Decision.] This displays the circumspect and cautious manner in which the SEC exercised its broad powers under P.D. No. 902-A. The Court, therefore, finds no basis to sustain petitioners contention that the SEC acted arbitrarily and gravely abused its discretion when it ordered the creation of a committee to supervise the stockholders meeting and election of directors. B. Petitioners assail the SEC for finding that they have not shown convincingly that they are entitled to the injunctive relief and for denying their petition for the issuance of a writ of preliminary injunction. Petitioners raise two grounds for the invalidity of the sale of the 198,500,000 shares to VULCAN, which they contend should bar the shares from being voted, namely: (1) that the sale was violative of the condition in the sales agreement that the stockbroker shall not sell more than 5,000,000 shares per buyer; and (2) that VULCANs ownership of the shares is contrary to the provisions of Section 13 (5-A) of the old Corporation Law. 1. Petitioners argue that 5,000,000 shares constitute the maximum number that may be sold to a single buyer, without any qualification, and consequently the sale to VULCAN is null and void for violating this proviso. They assert that, originally, the sales agreement provided that the stockbroker shall not sell more than 1,000,000 shares per buyer, to the extent practicable, but this condition was modified in a resolution of Sipalay Minings Board of Directors increasing the maximum to 5,000,000 share per buyer, thus indicating the intent to make 5,000,000 shares the absolute maximum. Stated otherwise, the increase of the maximum number of shares that can be sold to a single buyer to 5,000,000 manifested the clear intent to limit the number of shares that may be sold to a single buyer to only 5,000,000, without any exception or qualification. Thus, in the letter of Sipalay Mining to State Financing Center, Inc. dated October 22, 1974, it is stated:
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Also please be informed that by resolution of the Board of Directors of this Corporation, approved on October 19, 1974, it was agreed that the restriction on sales to the public of a maximum of 1-million shares be modified to make the maximum five (5) million shares per buyer. It will be noted that the letter precisely used the term "five (5) million shares per buyer" without restating the previous qualification of "to the extent practicable."
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However, despite these facts, the SEC has found that petitioners have not established a clear right to the issuance of a writ of preliminary injunction:
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From the pleadings on record, the Commission is convinced that petitioners have failed to show clearly that they are entitled as a matter of right to the injunctive relief prayed for. The fact remains that the questioned sales of stock had, as early as July 17, 1978, been perfected and afford the buyer thereof the presumption of validity until otherwise declared invalid and void. At this stage of the proceedings, it is but logical and reasonable to apply that presumption. It will be noted also that the questioned 198,500,000 shares while in the hands of respondent ATCO, were voted in previous stockholders meetings which right was merely transferred to respondent Vulcan. Likewise, it would appear that to sustain the restraining order further or the issuance of preliminary injunction would necessarily cause greater damage to the respondents, particularly Vulcan, compared to the alleged injury which may be caused the petitioners. In the absence of clear and convincing evidence to merit the issuance of the preliminary injunction prayed for, the Commission is constrained to deny the same. x x x

That the issuance of the writ was not forthcoming was reiterated by the SEC in the other questioned order dated July 17, 1980:
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The Commission is not bent to reconsider its ruling earlier issued and denying the issuance of a writ of preliminary injunction. The issue principally on the defect of transfer of said shares from ATCO to Vulcan is not sufficient basis to enjoin said shares from being votes in a stockholders meeting. Considering that the questioned shares constitute the majority, it is more equitable that the same be allowed to vote rather than be enjoined. x x x

After considering the facts and the arguments of the parties, the Court finds no grave abuse of discretion amounting to lack or excess of jurisdiction attributable to the respondent SEC. As stated in the first assailed resolution, the sale of the shares of stock had long been perfected and is presumed valid until declared otherwise. As against this presumption, petitioners prayer for the issuance of a writ of preliminary injunction cannot prevail as the issue of the validity of the sale of the shares is still to be resolved by the SEC. Further, the directive of the Board of Directors of Sipalay Mining to its President to sign the stock certificate that would evidence the ownership of the shares by VULCAN militates against a finding that petitioners have established a case for injunction. Hence, it cannot be said that petitioners have established their right to the relief demanded, the whole or part of which consists in restraining the SEC of the act complained of, as would entitle them to the issuance of a writ of preliminary injunction. [See Sec. 3(c). Rule 58, Revised Rules of Court.] The Court is not at liberty to review whether or not the decision of the board to direct its President to sign the stock certificate was to the best interest of the corporation:

. . . It is a well known rule of law that questions of policy or of management are left solely to the honest decision of officers and directors of a corporation, and the court is without authority to substitute its judgment for the judgment of the board of directors; the board is the business manager of the corporation, and so long as it acts in good faith its orders are not reviewable by courts. [Montelibano v. Bacolod-Murcia Milling Co., Inc., G.R. No. L-15092, May 18, 1962, 5 SCRA 36, 42; Board of Liquidators v. Kalaw, G.R. No. L18805, August 14, 1967, 20 SCRA 987, 1011, citing, Fletcher on Corporations, Vol. 2, p. 390.] Moreover, there is legal basis to support the SECs view that "considering that the questioned shares constitute the majority, it is more equitable that the same be allowed to vote rather than be enjoined" [Rollo, p. 123.] The court has stated before that "the removal of a [majority] stockholder from the management of the corporation and/or the dissolution of a corporation in a suit filed by a minority stockholder is a drastic measure. It should be resorted to only when the necessity is clear . . ." [Chase v. Buencamino, Sr., G.R. No. L-20395, May 13, 1985, 136 SCRA 365, 385.] With more reason, the Court will not deprive a stockholder of his right to vote his shares in the annual stockholders meeting, except upon a

clear showing of its lawful denial under the articles of incorporation or by-laws of the corporation, as it is a right inherent in stock ownership. 2. With regard to their second ground, the alleged violation of Section 13 (5-A) of the Corporation Law, this Court finds that petitioners have not satisfactorily shown how respondent VULCAN committed the violation. Petitioners allege that VULCAN, by holding 198,500,000 shares of Sipalay Mining, has violated the following provision of Section 13 (5-A):
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Any domestic or foreign corporation, and its stockholders organized for the purpose of engaging in mining may acquire and hold not more than forty per centum of the capital stock then outstanding and entitled to vote of only one other corporation organized for the purpose of engaging in mining in the Philippines; Provided, that it shall likewise be unlawful for said latter corporation to be in any wise interested in any other corporation organized for the purpose of engaging in mining . . . In their petition filed before this Court, petitioners merely made the general allegation that: x x x
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5.10. While being the owner of 20% equity of Sipalay Mining, Vulcan Mining was likewise the holder of shares of stock outstanding and entitled to vote of some other corporations organized for the purpose of engaging in mining, in contravention of the injunction that as a corporation engaged in mining, it may acquire or hold not more than 40% of the capital stock outstanding and entitled to vote of only one other corporation organized for the purpose of engaging in mining. x x x
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which is but a restatement of the allegation in petitioners amended petition filed before the SEC: x x x

15. During almost the whole length of time that the series of prohibited sales from STATE INVESTMENT to ATCO and from ATCO to VULCAN MINING took place, respondent VULCAN MINING was already an existing corporation organized for the purpose of engaging in mining. Consequently, its acquisition of the twenty percent (20%), more or less, of the capital stock then outstanding and entitled to vote of SIPALAY MINING is subject to the statutory restrictions prescribed in Section 13 (5-a) of the Corporation Law; that as the records of VULCAN MINING would show, it appears that during said period when it acquired by purchase in July, 1978, almost twenty percent (20%) of the total equity outstanding and entitled to vote of SIPALAY MINING, said VULCAN MINING was already the owner and holder of shares of stock outstanding and entitled to vote of some other corporations organized for the purpose of engaging in mining, in contravention of the aforementioned provision of the Corporation Law . . . x x x

Petitioners, however, have failed to even annex to their pleadings any document that would show the violation. Undoubtedly, a mere allegation, in the absence of any support in the record, does not meet the standard of proof that would warrant the issuance of the injunctive writ. Again, on this point, petitioners had failed to establish that they are entitled to the relief demanded [See Sec. 3(a), supra.] At this juncture, it would be helpful to review some basic principles underlying the issuance of a writ of preliminary injunction, if only to underscore why the SEC, given the circumstances, was virtually without any recourse but to deny the petition for the issuance of the writ.

In the recent case of Buayan Cattle Co., Inc. v. Quintillan [G.R. No. L-26970, March 19, 1984, 128 SCRA 276], the Court summarized these principles, to wit:
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Two requisites are necessary if an injunction is to issue, namely, the existence of the right to be protected, and that the facts against which the injunction is to be directed are violative of said right. In particular, for a

writ of preliminary injunction to issue, the existence of the right and the violation must appear in the allegation of the complaint. And We recall that the complaint for injunctive relief must be construed strictly against the pleader. x x x

There is no power the exercise of which is more delicate which requires greater caution, deliberation and sound discretion, or (which is) more dangerous in a doubtful case than the issuing of an injunction; it is the strong arm of equity that never ought to be extended unless to cases of great injury where courts of law cannot afford an adequate or commensurate remedy in damages. The right must be clear, the injury impending or threatened, so as to be averted only by the protecting preventive process of injunction. (Underscoring in the original). [at pp. 286-287.] As discussed aboved, petitioners have not only failed to establish a threatened violation of a right, but they have also failed to discharge the burden of clearly showing the right to be protected. Moreover, as pointed out by the SEC, the issuance of a writ of preliminary injunction "would necessarily cause greater damage to the respondents, particularly VULCAN, compared to the alleged injury which may be caused the petitioners" [Rollo, p. 118] considering that VULCAN would be deprived of its right to vote the shares it purchased from ATCO without the sale even being nullified. This is precisely the kind of mischief that is contemplated in the Courts caveat in the Buayan decision. In view of the facts, the law and established jurisprudence, the Court is fully convinced that the SEC did not gravely abuse its discretion amounting to lack or excess of jurisdiction when it found that petitioners were not entitled to the writ. The rule is well established that the grant or denial of an injunction rests upon the sound discretion of the lower tribunal, in the exercise of which this Court will not interfere except in a clear case of abuse [Rodulfa v. Alfonso, 76 Phil. 225 (1946); Gregorio v. Mencias, G.R. No. L-16227, September 29, 1962, 6 SCRA 1124; Yaptinchay v. Torres, G.R. No. L-26462, June 9, 1969, 28 SCRA 489.] WHEREFORE, the petition is hereby DISMISSED and the temporary restraining orders issued by the Court on August 1, 1980 and on August 20, 1980 are LIFTED. SO ORDERED.

G.R. No. 91478 February 7, 1991 ROSITA PEA petitioner, vs. THE COURT OF APPEALS, SPOUSES RISING T. YAP and CATALINA YAP, PAMPANGA BUS CO., INC., JESUS DOMINGO, JOAQUIN BRIONES, SALVADOR BERNARDEZ, MARCELINO ENRIQUEZ and EDGARDO A. ZABAT,respondents.

GANCAYCO, J.:p The validity of the redemption of a foreclosed real property is the center of this controversy. The facts as found by the respondent court are not disputed. A reading of the records shows that [Pampanga Bus Co.] PAMBUSCO, original owners of the lots in question under TCT Nos. 4314, 4315 and 4316, mortgaged the same to the Development Bank of the Philippines (DBP) on January 3, 1962 in consideration of the amount of P935,000.00. This mortgage was foreclosed. In the foreclosure sale under Act No. 3135 held on October 25, 1974, the said properties were awarded to Rosita Pea as highest bidder. A certificate of sale was issued in her favor by the Senior Deputy Sheriff of Pampanga, Edgardo A. Zabat, upon payment of the sum of P128,000.00 to the Office of the Provincial Sheriff (Exh. 23). The certificate of sale was registered on October 29, 1974 (Exh. G). On November 19, 1974, the board of directors of PAMBUSCO, through three (3) out of its five (5) directors, resolved to assign its right of redemption over the aforesaid lots and authorized one of its members, Atty. Joaquin Briones "to execute and sign a Deed of Assignment for and in behalf of PAMBUSCO in favor of any interested party . . ." (Exh. 24). Consequently, on March 18, 1975, Briones executed a Deed of Assignment of PAMBUSCO's redemption right over the subject lots in favor of Marcelino Enriquez (Exh. 25). The latter then redeemed the said properties and a certificate of redemption dated August 15, 1975 was issued in his favor by Sheriff Zabat upon payment of the sum of one hundred forty thousand, four hundred seventy four pesos P140,474.00) to the Office of the Provincial Sheriff of Pampanga (Exh. 26). A day after the aforesaid certificate was issued, Enriquez executed a deed of absolute sale of the subject properties in favor of plaintiffs-appellants, the spouses Rising T. Yap and Catalina Lugue, for the sum of P140,000.00 (Exh. F). On August 18, 1975, a levy on attachment in favor of Capitol Allied Trading was entered as an additional encumbrance on TCT Nos. 4314, 4315 and 4316 and a Notice of a pending consulta was also annotated on the same titles concerning the Allied Trading case entitled Dante Gutierrez, et al. vs. PAMBUSCO (Civil Case No. 4310) in which the registrability of the aforesaid lots in the name of the spouses Yap was sought to be resolved (Exh. 20-F). The certificate of sale issued by the Sheriff in favor of defendant Pea, the resolution of the PAMBUSCO's board of directors assigning its redemption rights to any interested party, the deed of assignment PAMBUSCO executed in favor of Marcelino B. Enriquez, the certificate of redemption issued by the Sheriff in favor of Enriquez as well as the deed of absolute sale of the subject lots executed by Enriquez in favor of the plaintiffs-appellants were all annotated on the same certificates of title likewise on August 18, 1975. Also, on the same date, the Office of the Provincial Sheriff of San Fernando, Pampanga informed defendant-appellee by registered mail "that the

properties under TCT Nos. 4314, 4315 and 4316 . . . . were all redeemed by Mr. Marcelino B. Enriquez on August 15,1975 . . . ;" and that she may now get her money at the Sheriffs Office (Exh. J and J-1). On September 8, 1975, Pea wrote the Sheriff notifying him that the redemption was not valid as it was made under a void deed of assignment. She then requested the recall of the said redemption and a restraint on any registration or transaction regarding the lots in question (Exh. 27). On Sept. 10, 1975, the CFI Branch III, Pampanga in the aforementioned Civil Case No. 4310, entitled Dante Gutierrez, et al. vs. PAMBUSCO, et al., ordered the Register of Deeds of Pampanga . . . to desist from registering or noting in his registry of property . . . any of the following documents under contract, until further orders: (a) Deed of Assignment dated March 18, 1975 executed by the defendant Pampanga Bus Company in virtue of a resolution of its Board of Directors in favor of defendant Marcelino Enriquez; (b) A Certificate of Redemption issued by defendant Deputy Sheriff Edgardo Zabat in favor of defendant Marcelino Enriquez dated August 15, 1975; (c) Deed of Sale dated August 16, 1975 executed by defendant Marcelino Enriquez in favor of defendant Rising Yap. (Original Record, p. 244) On November 17, 1975, the Land Registration Commission opined under LRC Resolution No. 1029 that "the levy on attachment in favor of Capitol Allied Trading (represented by Dante Gutierrez) should be carried over on the new title that would be issued in the name of Rising Yap in the event that he is able to present the owner's duplicates of the certificates of title herein involved" (Exh. G). Meanwhile, defendant Pea, through counsel, wrote the Sheriff asking for the execution of a deed of final sale in her favor on the ground that "the one (1) year period of redemption has long elapsed without any valid redemption having been exercised;" hence she "will now refuse to receive the redemption money . . . (Exh. 28). On Dec. 30, 1977, plaintiff Yap wrote defendant Pea asking payment of back rentals in the amount of P42,750.00 "for the use and occupancy of the land and house located at Sta. Lucia, San Fernando, Pampanga," and informing her of an increase in monthly rental to P2,000; otherwise, to vacate the premises or face an eviction cum collection suit (Exh. D). In the meantime, the subject lots, formerly under TCT Nos. 4314, 4315 and 4316 were registered on June 16, 1978 in the name of the spouses Yap under TCT Nos. 148983-R, 148984-R and 148985-R, with an annotation of a levy on attachment in favor of Capitol Allied Trading. The LRC Resolution No. 1029 allowing the conditioned registration of the subject lots in the name of the spouses Yap was also annotated on TCT No. 4315 on June 16, 1978 and the notice of a pending consulta noted thereon on August 18, 1975 was cancelled on the same date. No Trial on the merits was held concerning Civil Case No. 4310. In an order dated February 17, 1983, the case was dismissed without prejudice.

Despite the foregoing, defendant-appellee Pea remained in possession of the lots in 1 question hence, the spouses Yap were prompted to file the instant case. The antecedents of the present petition are as follows: Plaintiffs-appellants, the spouses Rising T. Yap and Catalina Lugue, are the registered owners of the lots in question under Transfer Certificate of Title (TCT) Nos. 148983-R, 148984-R, 148985-R. In the complaint filed on December 15, 1978, appellants sought to recover possession over the subject lands from defendants Rosita Pea and Washington Distillery on the ground that being registered owners, they have to enforce their right to possession against defendants who have been allegedly in unlawful possession thereof since October 1974 "when the previous owners assigned (their) right to collect rentals . . . in favor of plaintiffs" (Record, p. 5). The amount claimed as damages is pegged on the total amount of unpaid rentals from October 1974 (as taken from the allegations in the complaint) up to December 1978 at a monthly rate of P1,500.00 'and the further sum of P2,000.00 a month from January 1979 until the defendants finally vacate the . . . premises in question with interest at the legal rate (Record, p. 61). In their answer, defendants Rosita Pea and Washington Distillery denied the material allegations of the complaint and by way of an affirmative and special defense asserted that Pea is now the legitimate owner of the subject lands for having purchased the same in a foreclosure proceeding instituted by the DBP . . . against PAMBUSCO . . . and no valid redemption having been effected within the period provided by law. It was contended that plaintiffs could not have acquired ownership over the subject properties under a deed of absolute sale executed in their favor by one Marcelino B. Enriquez who likewise could not have become [the] owner of the properties in question by redeeming the same on August 18, 1975 (Exh. 26) under an alleged[ly] void deed of assignment executed in his favor on March 18, 1975 by the original owners of the land in question, the PAMBUSCO. The defense was that since the deed of assignment executed by PAMBUSCO in favor of Enriquez was void ab initio for being an ultra vires act of its board of directors and, for being without any valuable consideration, it could not have had any legal effect; hence, all the acts which flowed from it and all the rights and obligations which derived from the aforesaid void deed are likewise void and without any legal effect. Further, it was alleged in the same Answer that plaintiffs are buyers in bad faith because they have caused the titles of the subject properties with the Register of Deeds to be issued in their names despite an order from the then CFI, Br. III, Pampanga in Civil Case No. 4310, entitled Dante Gutierrez, et al. vs. Pampanga Bus Company, Inc., et al., to desist from registering or noting in his registry of property . . . any of the above-mentioned documents under contest, until further orders. (Record, p. 11). For its part, defendant Washington Distillery stated that it has never occupied the subject lots hence they should not have been impleaded in the complaint. The defendants, therefore, prayed that the complaint be dismissed; that the deed of assignment executed in favor of Marcelino Enriquez, the certificate of redemption issued by the Provincial Sheriff also in favor of Marcelino Enriquez, and the deed of sale of these parcels of land executed by Marcelino Enriquez in favor of the plaintiffs herein be all declared null and void; and further, that TCT Nos. 148983-R, 148984-R and 148985-R, covering these parcels issued in the plaintiffs name be cancelled and, in lieu thereof, corresponding certificates of title over these same parcels be issued in the name of defendant Rosita Pea.

Thereafter, the defendants with prior leave of court filed a third-party complaint third-party defendants PAMBUSCO, Jesus Domingo, Joaquin Briones, Salvador Bernardez (as members of the Board of Directors of PAMBUSCO), Marcelino Enriquez, and Deputy Sheriff Edgardo Zabat of Pampanga. All these third-party defendants, how ever, were declared as in default for failure to file their answer, except Edgardo Zabat who did file his answer but failed to appear at the pre-trial. After trial, a decision was rendered by the court in favor of the defendants-appellees, to wit: WHEREFORE, and in view of all the foregoing, judgment is hereby rendered dismissing the complaint filed by the plaintiffs against the defendants and declaring as null and void the following: (a) The resolution of the Board of Directors of PAMBUSCO approved on November 19, 1974 assigning the PAMBUSCO's right of redemption concerning the parcels involved herein (b) The deed of assignment dated March 18, 1975 executed in favor of Marcelino Enriquez pursuant to the resolution referred to in the preceding paragraph; (c) The certificate of redemption dated August 15, 1975 issued by Deputy Sheriff Edgardo Zabat in favor of Marcelino Enriquez concerning these parcels; (d) The deed of absolute sale dated August 15, 1975 executed by Marcelino Enriquez in favor of the plaintiffs concerning the same parcels and (e) TCT Nos. 148983-R, 148984-R and 148985-R of the Register of Deeds of Pampanga in the name of the plaintiffs also covering these parcels. Third-party defendant Edgardo Zabat, in his capacity as Deputy Sheriff of Pampanga is directed to execute in favor of defendant Rosita Pea the corresponding certificate of final sale involving the parcels bought by her in the auction sale of October 25, 1974 for which a certificate of sale had been issued to her. Finally, the third-party defendants herein except Deputy Sheriff Edgardo Zabat are hereby ordered to pay the defendants/third party plaintiffs, jointly and severally, the amount of P10,000.00 as attorney's fees plus 2 costs. Thus, an appeal from said judgment of the trial court was interposed by private respondents to the Court of Appeals wherein in due course a decision was rendered on June 20, 1989, the dispositive part of which reads as follows: WHEREFORE, premises considered, the judgment of the trial court on appeal is REVERSED. Defendant-appellee Pea is hereby ordered to vacate the lands in question and pay the plaintiffs-appellants the accrued rentals from October, 1974 in the amount of

P1,500.00 per month up to December, 1978 and the amount of P2,000.00 per month thereafter, until appellee finally vacate (sic) the premises with interest at the legal rate. SO ORDERED.
3

A motion for reconsideration filed by the appellee was denied in a resolution dated December 27, 1989. Hence, this petition for review on certiorari of said decision and resolution of the appellate court predicated on the following assigned errors: First Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE TRIAL COURT HAD NO JURISDICTION TO RULE ON THE VALIDITY OF THE QUESTIONED RESOLUTION AND TRANSFERS. Second Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAS NO LEGAL STANDING TO ASSAIL THE VALIDITY OF THE QUESTIONED RESOLUTION AND THE SERIES OF SUCCEEDING TRANSACTIONS LEADING TO THE REGISTRATION OF THE SUBJECT PROPERTIES IN FAVOR OF THE RESPONDENTS YAP. Third Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE RESOLUTION OF RESPONDENT PAMBUSCO, ADOPTED ON 19 NOVEMBER 1974, ASSIGNING ITS RIGHT OF REDEMPTION IS NOT VOID OR AT THE VERY LEAST LEGALLY DEFECTIVE. Fourth Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ASSIGNMENT, DATED 8 MARCH 1975, IN FAVOR OF RESPONDENT ENRIQUEZ IS NOT VOID OR AT THE VERY LEAST VOIDABLE OR RESCISSIBLE. Fifth Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE QUESTIONED DEED OF ASSIGNMENT, DATED 8 MARCH 1975, WAS VOID AB INITIO FOR FAILING TO COMPLY WITH THE FORMALITIES MANDATORILY REQUIRED UNDER THE LAW FOR DONATIONS. Sixth Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENTS YAP ARE PURCHASERS IN GOOD FAITH AND IN FURTHER HOLDING THAT IT WAS TOO LATE FOR PETITIONER TO INTERPOSE THE ISSUE THAT RESPONDENTS YAP WERE PURCHASERS IN BAD FAITH. Seventh Assignment of Error

THE RESPONDENT COURT OF APPEALS ERRED IN REVERSING THE DECISION 4 OF THE TRIAL COURT. The petition is impressed with merit. First, the preliminary issues. The respondent court ruled that the trial court has no jurisdiction to annul the board resolution as the matter falls within the jurisdiction of the Securities and Exchange Commission (SEC) and that petitioner did not have the proper standing to have the same declared null and void. In Philex Mining Corporation vs. Reyes, this Court held that it is the fact of relationship between the parties that determines the proper and exclusive jurisdiction of the SEC to hear and decide intracorporate disputes; that unless the controversy has arisen between and among stockholders of the corporation, or between the stockholders and the officers of the corporation, then the case is not within the jurisdiction of the SEC. Where the issue involves a party who is neither a stockholder or officer of the corporation, the same is not within the jurisdiction of the SEC. In Union Glass & Container Corporation vs. Securities and Exchange Commission, this Court defined the relationships which are covered within "intra-corporate disputes" under Presidential Decree No. 902A, as amended, as follows: Otherwise stated, in order that the SEC can take cognizance of a case, the controversy must pertain to any of the following relationships (a) between the corporation, partnership or association and the public; (b) between the corporation, partnership or association and its stockholders, partners, members, or officers; (c) between the corporation, partnership or association and the state in so far as its franchise, permit or license to operate is concerned; and (d) among the stockholders, partners or associates themselves. In this case, neither petitioner nor respondents Yap spouses are stockholders or officers of PAMBUSCO. Consequently, the issue of the validity of the series of transactions resulting in the subject properties being registered in the names of respondents Yap may be resolved only by the regular courts. Respondent court held that petitioner being a stranger to the questioned resolution and series of succeeding transactions has no legal standing to question their validity. In Teves vs. People's Homesite and Housing Corporation, this Court held: We note however, in reading the complaint that the plaintiff is seeking the declaration of the nullity of the deed of sale, not as a party in the deed, or because she is obliged principally or subsidiarily under the deed, but because she has an interest that is affected by the deed. This Court has held that a person who is not a party obliged principally or subsidiarily in a contract may exercise an action for nullity of the contract if he is prejudiced in his rights with respect to one of the contracting parties, and can show the detriment which would positively result to him from the contract in which he had no intervention, Indeed, in the case now before Us, the complaint alleges facts which show that plaintiff suffered detriment as a result of the deed of sale entered into by and between defendant PHHC and defendant Melisenda L. Santos. We believe that the plaintiff should be given a chance to present evidence to establish that she suffered detriment and that she is entitled to relief. (Emphasis supplied.) There can be no question in this case that the questioned resolution and series of transactions resulting in the registration of the properties in the name of respondent Yap spouses adversely affected the rights
7 6 5

of petitioner to the said properties. Consequently, petitioner has the legal standing to question the validity of said resolution and transactions. As to the question of validity of the board resolution of respondent PAMBUSCO adopted on November 19, 1974, Section 4, Article III of the amended by-laws of respondent PAMBUSCO, provides as follows: Sec. 4. Notices of regular and special meetings of the Board of Directors shall be mailed to each Director not less than five days before any such meeting, and notices of special meeting shall state the purpose or purposes thereof Notices of regular meetings shall be sent by the Secretary and notices of special meetings by the President or Directors issuing the call. No failure or irregularity of notice of meeting shall invalidate any regular meeting or proceeding thereat; Provided a quorum of the Board is present, nor of any 8 special meeting; Provided at least four Directors are present. (Emphasis supplied.) The trial court in finding the resolution void held as follows: On the other hand, this Court finds merit in the position taken by the defendants that the questioned resolution should be declared invalid it having been approved in a meeting attended by only 3 of the 5 members of the Board of Directors of PAMBUSCO which attendance is short of the number required by the by-laws of the corporation. xxx xxx xxx In the meeting of November 19, 1974 when the questioned resolution was approved, the three members of the Board of Directors of PAMBUSCO who were present were Jesus Domingo, Joaquin Briones, and Salvador Bernardez The remaining 2 others, namely: Judge Pio Marcos and Alfredo Mamuyac were both absent therefrom. As it becomes clear that the resolution approved on November 19, 1974 is null and void it having been approved by only 3 of the members of the Board of Directors who were the only ones present at the said meeting, the deed of assignment subsequently executed in 9 favor of Marcelino Enriquez pursuant to this resolution also becomes null and void. . . . However, the respondent court overturning said legal conclusions of the trial court made the following disquisition: It should be noted that the provision in Section 4, Article III of PAMBUSCO's amended by-laws would apply only in case of a failure to notify the members of the board of directors on the holding of a special meeting, . . . . In the instant case, however, there was no proof whatsoever, either by way of documentary or testimonial evidence, that there was such a failure or irregularity of notice as to make the aforecited provision apply. There was not even such an allegation in the Answer that should have necessitated a proof thereof. The fact alone that only three (3) out of five (5) members of the board of directors attended the subject special meeting, was not enough to declare the aforesaid proceeding void ab initio, much less the board resolution borne out of it, when there was no proof of irregularity nor failure of notice and when the defense made in the Answer did not touch upon the said failure of attendance. Therefore, the judgment declaring the nullity of the subject board resolution must be set aside for lack of proof. Moreover, there is no categorical declaration in the by-laws that a failure to comply with the attendance requirement in a special meeting should make all the acts of the board

therein null and void ab initio. A cursory reading of the subject provision, as aforequoted, would show that its framers only intended to make voidable a board meeting held without the necessary compliance with the attendance requirement in the by-laws. Just the use of the word "invalidate" already denotes a legal imputation of validity to the questioned board meeting absent its invalidation in the proceedings prescribed by the corporation's by-laws and/or the general incorporation law. More significantly, it should be noted that even if the subject special meeting is itself declared void, it does not follow that the acts of the board therein are ipso facto void and without any legal effect. Without the declaration of nullity of the subject board proceedings, its validity should be maintained and the acts borne out of it should be presumed valid. Considering that the subject special board meeting has not been declared void in a proper proceeding, nor even in the trial by the court below, there is no reason why the acts of the board in the said special 10 meeting should be treated as void AB. initio. . . . The Court disagrees. The by-laws of a corporation are its own private laws which substantially have the same effect as the laws of the corporation. They are in effect, written, into the charter. In this sense they become part of the fundamental law of the corporation with which the corporation and its directors and officers must 11 comply. Apparently, only three (3) out of five (5) members of the board of directors of respondent PAMBUSCO convened on November 19, 1974 by virtue of a prior notice of a special meeting. There was no quorum to validly transact business since, under Section 4 of the amended by-laws hereinabove reproduced, at least four (4) members must be present to constitute a quorum in a special meeting of the board of directors of respondent PAMBUSCO. Under Section 25 of the Corporation Code of the Philippines, the articles of incorporation or by-laws of the corporation may fix a greater number than the majority of the number of board members to constitute the quorum necessary for the valid transaction of business. Any number less than the number provided in the articles or by-laws therein cannot constitute a quorum and any act therein would not bind the corporation; 12 all that the attending directors could do is to adjourn. Moreover, the records show that respondent PAMBUSCO ceased to operate as of November 15, 1949 as 13 evidenced by a letter of the SEC to said corporation dated April 17, 1980. Being a dormant corporation for several years, it was highly irregular, if not anomalous, for a group of three (3) individuals representing themselves to be the directors of respondent PAMBUSCO to pass a resolution disposing of the only remaining asset of the corporation in favor of a former corporate officer. As a matter of fact, the three (3) alleged directors who attended the special meeting on November 19, 1974 were not listed as directors of respondent PAMBUSCO in the latest general information sheet of 14 respondent PAMBUSCO filed with the SEC dated 18 March 1951. Similarly, the latest list of stockholders of respondent PAMBUSCO on file with the SEC does not show that the said alleged 15 directors were among the stockholders of respondent PAMBUSCO. Under Section 30 of the then applicable Corporation Law, only persons who own at least one (1) share in their own right may qualify to be directors of a corporation. Further, under Section 28 1/2 of the said law, the sale or disposition of an and/or substantially all properties of the corporation requires, in addition to a proper board resolution, the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation in a meeting duly called for that purpose. No doubt, the questioned resolution was not confirmed at a subsequent stockholders meeting duly called for the purpose by the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation. The same requirement is found in Section 40 of the present Corporation Code.

It is also undisputed that at the time of the passage of the questioned resolution, respondent PAMBUSCO was insolvent and its only remaining asset was its right of redemption over the subject properties. Since the disposition of said redemption right of respondent PAMBUSCO by virtue of the questioned resolution was not approved by the required number of stockholders under the law, the said resolution, as well as the subsequent assignment executed on March 8, 1975 assigning to respondent Enriquez the said right of redemption, should be struck down as null and void. Respondent court, in upholding the questioned deed of assignment, which appears to be without any consideration at all, held that the consideration thereof is the liberality of the respondent PAMBUSCO in favor of its former corporate officer, respondent Enriquez, for services rendered. Assuming this to be so, then as correctly argued by petitioner, it is not just an ordinary deed of assignment, but is in fact a donation. Under Article 725 of the Civil Code, in order to be valid, such a donation must be made in a public document and the acceptance must be made in the same or in a separate instrument. In the latter case, the donor shall be notified of the acceptance in an authentic form and such step must be noted in 16 both instruments. Non-compliance with this requirement renders the donation null and 17 18 void. Since undeniably the deed of assignment dated March 8, 1975 in question, shows that there was no acceptance of the donation in the same and in a separate document, the said deed of assignment is thus void ab initio and of no force and effect. WHEREFORE, the petition is GRANTED. The questioned decision of the respondent Court of Appeals dated June 20, 1989 and its resolution dated December 27, 1989 are hereby REVERSED AND SET ASIDE and another judgment is hereby rendered AFFIRMING in toto the decision of the trial court. SO ORDERED.

G.R. No. 69999 April 30, 1991 LUZVIMINDA VISAYAN, BENJAMIN BORJA, PABLO AJERO, LORETO DEDOYCO, NESTOR GORGOLLO, DOMINGO METRAN, LITO MONTERON, ROMEO OMAGBON, BOMBOM PAUSAMOS, CIRILO RAMOS, MARCOS SISON, ERIC BONDOLO, REY ZAMORA, TERESA ANAVISO, EVELYN BACULINAO, MARIBEL BASAG, VIOLETA DAGUISA, ADELAIDA CANALDA, LAILA DIMLA, MACHAELA LUCERO, DIVINA MARIANO, EPIFANIA OBLIGADO, RAQUEL PONCIANO, ELLEN SACRAMENTO, GRACE SULLETA FELY TAPAY, SUSAN VILLAMOR, ANAINO AMPLAYO, MARIO CHIONG NESTOR ESTARES, ALELI ALEJO, ELVIE BAUTISTA, JANINA ESTARES NORMA MENDOZA, LIGAYA SYDUA and JANETTE VILLAREAL, petitioners, -versusNATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION) and FUJIYAMA RESTAURANT AND HOTEL, INC. and its MANAGER/OPERATOR, respondents.

PARAS, J.:p Assailed in the instant petition is the Resolution of public respondent National Labor Relations Commission (NLRC, for brevity) promulgated January 15, 1985 for being contrary to law and jurisprudence and arrived at in grave abuse of discretion amounting to lack or in excess of jurisdiction. The facts are briefly stated as follows: Private respondent Fujiyama Hotel & Restaurant, Inc. was formally organized in April, 1978 with Aquilino Rivera holding a majority interest in the corporation. The rest of the four (4) incorporators composed the minority stockholders of respondent corporation. Upon organization in 1978, respondent corporation immediately opened a Japanese establishment, known as Fujiyama Hotel & Restaurant, located at 1413 M. Adriatico St., Ermita, Manila. In order to fully offer an authentic Japanese cuisine and traditional Japanese style of service, private respondent hired the services of Isamu Akasako as its chef and restaurant supervisor. (Private respondent's memorandum, p. 4). In June, 1980, Lourdes Jureidini and Milagros Tsuchiya, allegedly pretending to be stockholders of the corporation, filed a case with the then Court of First Instance of Manila, Branch XXXVI against Rivera and Akasako to wrest control over the establishment. In June, 1981, the said court issued a writ of preliminary mandatory injunction transferring possession of all the assets of the company and the management thereof to Jureidini and Tsuchiya. The stockholders and directors of the corporation were thereby excluded from the management and operation of the restaurant. Upon assuming management, Jureidini and Tsuchiya replaced almost all of the existing employees with new ones, majority of whom are the present petitioners in the instant case. Apparently, the new employees were extended probationary appointments for six (6) months from December 15, 1981 to June 1 5, 1982. In the meantime, Rivera and the rest of the stockholders elevated the civil case to the Supreme Court through a petition for certiorari assailing the ground for the issuance of the writ of preliminary mandatory injunction by the said Court of First Instance, which case was entitled Aquilino Rivera, et al. vs. Hon.

Alfredo C. Florendo, et al., docketed as G.R. No. 57586. On motion of Rivera, et al. in the said case, this Court on August 21, 1981 issued a writ of preliminary injunction to enjoin enforcement of the June 23, 1981 writ of preliminary mandatory injunction issued by the said Court of First Instance. Since Jureidini and Tsuchiya disregarded the writ We had previously issued, We issued another resolution on May 26, 1982 directing both Jureidini and Tsuchiya to strictly and immediately comply with the Court's injunction. Thus, this Court ordered Jureidini and Tsuchiya, "their agents, representatives, and/or any person or persons acting upon their orders or in their place or stead to refrain from further managing and/or interfering with the management of the business and assets of petitioner corporation and . . . . to turn over all assets and the management of petitioner corporation, Fujiyama Hotel & Restaurant, Inc., to Aquilino Rivera and Isamu Akasako." (NLRC, Resolution, p. 4; Rollo, p. 116). Pursuant to the above-quoted resolution, Rivera and Akasako regained control and management of Fujiyama Hotel & Restaurant, Inc. Immediately upon assumption of the management of the corporation, Rivera et al., refused to recognize as employees of the corporation all persons that were hired by Jureidini and Tsuchiya during the one-year period that the latter had operated the company and reinstated the employees previously hired by them. This gave rise to the filing of the present case by the dismissed employees hired by Jureidini and Tsuchiya (some of whom had allegedly been hired by Rivera and Akasako even before Jureidini and Tsuchiya assumed management of the corporation) against Fujiyama Hotel & Restaurant, Inc. for illegal dismissal, which case was docketed as NLRC-NCR Case No. 6-411082. On motion of private respondent corporation, the Labor Arbiter included Jureidini and Tsuchiya as third-party respondents therein. Thereafter, the parties, except Jureidini and Tsuchiya, submitted their respective position papers and affidavits in support of their contentions. On the basis of said position papers and affidavits, the Labor Arbiter rendered a decision on September 21, 1982 ordering respondent company and/or Akasako, Jureidini and Tsuchiya to reinstate all the complainants to their former positions plus backwages and to pay jointly and severally the complainants their unpaid wages plus their share in the service charges. (NLRC Decision, pp. 4-5;Rollo, pp. 25-26). On October 12, 1982, the aforesaid decision of the Labor Arbiter was received by private respondent's counsel. Ten (10) days thereafter, or on October 22, 1982, said counsel filed a notice of appeal with an accompanying supersedeas bond in the sum of P80,000.00 as fixed by the Labor Arbiter. Notably, the memorandum of appeal was not filed until November 24, 1982 when the attention of private respondent's counsel was called by the filing on November 19, 1982 of a motion for execution of the September 21, 1982 decision by the complainants. Thus, upon motion of private respondent, the NLRC temporarily stayed execution and directed the Labor Arbiter to transmit the entire record of the case to the NLRC for appropriate action. On December 28, 1983, the NLRC resolved to deny the appeal of private respondent for having been filed out of time. Subsequently, a motion for reconsideration was seasonably filed by private respondent which became the basis of another resolution dated January 15, 1985 issued by the NLRC setting aside its previous resolution of December 28, 1983 as well as the Labor Arbiter's decision dated September 21, 1982. The decretal portion of the January 15, 1982 NLRC Resolution is quoted, thus: WHEREFORE, the Resolution sought to be reconsidered and the Decision appealed from are hereby SET ASIDE and a new Decision is entered, declaring respondents Lourdes Jureidini and Mila Tsuchiya as the previous employer of the complainants hired by them while operating the Fujiyama Restaurant & Hotel, Inc. Consequently, the establishment and its present operator, Isamu Akasako, is absolved of any liability to them but the entire record is remanded for further appropriate proceedings to determine who are the complainants hired by said Jureidini and Tsuchiya.

SO ORDERED. (NLRC Resolution, pp. 19-20; Rollo, p. 7-8) The legal issues in the instant case are: (1) whether or not there is privity of contract between petitioners and private respondent as to establish an employer-employee relationship between the parties, and (2) whether or not the respondent NLRC erred in giving due course to private respondent's appeal and in reversing the September 21, 1982 decision of the Labor Arbiter. Section 23 of B.P. 68, otherwise known as the "Corporation Code of the Philippines," expressly provides as follows: Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified. . . . It is clear from the above-quoted provision that a corporation can act only through its board of directors. "The law is settled that contracts between a corporation and third persons must be made by or under the authority of its board of directors and not by its stockholders. Hence, the action of the stockholders in such matters is only advisory and not in any wise binding on the corporation." (De Leon, The Corporation Code of the Philippines, 1989 edition, p. 168, citing the case of Barreto vs. La Previsora Filipina, 57 Phil. 649). A corporation, like a natural person who may authorize another to do certain acts for and in his behalf, through its board of directors, may legally delegate some of its functions and powers to its officers, committees or agents appointed by it. (Campos & Campos, The Corporation Code-Comments, Notes, and Selected cases, 1981 ed., p. 253). In the absence of an authority from the board of directors, no person, not even the officers of the corporation, can validly bind the corporation. Thus, the Supreme Court, has made the following pronouncement in the case of Vicente vs. Geraldez, L-32473, 53 SCRA 210: . . . Whatever authority the officers or agents of a corporation may have is derived from the board of directors or other governing body, unless conferred by the charter of the corporation. A corporate officer's power as an agent of the corporation must therefore be sought from the statute, the charter, the by-laws, or in a delegation of authority to such officer, from the acts of the board of directors, formally expressed or implied from a habit or custom of doing business. In the case at bar no provision of the charter and by-laws of the corporation or any resolution or any other act of the board of directors has been cited from which we could reasonably infer that the administration trative manager had been granted expressly or impliedly the power to bind the corporation or the authority to compromise the case. The signature of Atty. Cardenas on the Agreement would therefore be legally ineffectual". (Vicente vs. Geraldez, L-32473, 52 SCRA 210, p. 227). (Respondent's Memorandum, p. 11) Applying the aforesaid doctrines in the case at bar, We hold that all acts done solely by Jureidini and Tsuchiya allegedly, for and in behalf of private respondent during the period from June, 1981 up to May 31, 1982 were not binding upon respondent corporation.

It is not denied by both parties that the operation and management of the Fujiyama Hotel & Restaurant Corporation, including the control and possession of all its assets, were forcibly taken by Jureidini and Tsuchiya from the owners thereof by virtue of a writ of preliminary mandatory injunction issued by then Court of First Instance of Manila, Branch XXXVI These owners, the Rivera-Akasako group, composed the board of directors of respondent corporation during the one (1) year period that Jureidini and Tsuchiya controlled the respondent corporation, the former managed and operated the latter apparently without any authority from the latter's board of directors. As alleged by Rivera, et al., Jureidini and Tsuchiya were not even officers of respondent corporation as to be considered its agents, which act prompted this tribunal to order said persons, under pain of contempt, to turn over the management and assets of respondent corporation to Rivera et al., as shown by this Court's resolution of May 26, 1982. Thus, all acts done by Jureidini and Tsuchiya for and in behalf of respondent corporation, having been made without the requisite authority from the board of directors, were not binding upon the said corporation. One of these unauthorized acts was the unwarranted termination of the original employees of respondent corporation who were validly hired by its board of directors, vis-a-vis, the hiring of new employees, the petitioners in the case at bar, to replace the said original employees. Since said acts were not binding upon the corporation, no employer-employee existed between the Fujiyama Hotel & Restaurant, Inc. and the herein petitioners. We agree with private respondent that the act of the Rivera-Akasako group in admitting the original employees of respondent corporation after regaining control and management of the latter on May 31, 1982, having been made by the corporation's board of directors, was valid. Even if Jureidini and Tsuchiya took over the management and control of respondent corporation, the employer-employee relationship between the corporation and its original employees has not been severed for lack of authority on the part of Jureidini and Tsuchiya to dismiss said employees. Consequently, petitioners' claim of illegal dismissal is entirely mistaken as they were not hired by respondent corporation or its duly authorized officers or agents, hence, no employer-employee relationship ever existed between them. Jureidini and Tsuchiya, the persons who hired petitioners' services, are to be considered their employer, and not the private respondents. Neither may petitioners claim good faith or ignorance of the lack of authority on the part of Jureidini and Tsuchiya to legally hire them and bind the corporation because they were all informed by Isamu Tatewaki respondent corporation's Assistant Manager, of such fact at the time they were hired. (Reply Brief of Isamu Tatewaki Annex "10"). Besides, it was clearly shown that the appointments of the petitioners were on a probationary basis. Further, it will be recalled that on August 21, 1981, this Court issued a writ of preliminary injunction in the case of Rivera, et al. vs. Judge Alfredo C. Florendo, et al., G.R. No. 57586, promulgated October 8, 1986, enjoining the enforcement of the writ of preliminary mandatory injunction issued by respondent judge therein. Despite the issuance of said writ, Jureidini and Tsuchiya refused to return the management of the corporation but continued managing and operating respondent corporation and in fact terminated the original employees of respondent corporation and hired new ones in place of those dismissed. The appointment papers of these new employees would show that they were hired only in one day, i.e., December 15, 1981, and that they were hired on a probationary basis. It follows that only Jureidini and Tsuchiya, being the ones who hired the petitioners, should be the ones responsible for the petitioners' claims. Since it would be most unfair and unjust to hold the respondent corporation liable for the claims of petitioners, even if respondent corporation's memorandum was filed beyond the 10 day reglementary period (note that the notice of appeal had been filed on time), We rule that the NLRC did not commit

grave abuse of discretion in giving due course to respondent corporation's appeal and in reversing the Labor Arbiter's decision dated September 21, 1982. The NLRC is vested with broad powers by the Labor Code, particularly Art. 218 thereof, to correct, amend or waive any error, injustice, defect or irregularity whether in substance or in form; and in adjudicating all cases brought before it, the NLRC is likewise empowered to use every and all reasonable means to ascertain the facts in each case expeditiously and objectively without regard to procedural technicalities. Thus, Art. 221 of the Labor Code provides as follows: In any proceeding before the Commission or any of the Labor Arbiters, the rules of evidence prevailing in Courts of Law or equity shall not be controlling and it is the spirit and intention of this Code that the Commission and its members and the Labor Arbiters shall use every and all reasonable means to ascertain the facts in each case speedily and objectively and without regard to technicalities of law or procedure, all in the interest of due process. In any proceeding before the Commission or any Labor Arbiter to exercise complete control of the proceedings at all stages. The factual circumstances and substantial merits of the instant case justify the NLRC's exercise of its reserve powers granted by the aforequoted provision. Private respondent's appeal should be granted and entertained in order to prevent a manifest injustice upon said respondent. While it is true that an appeal within the meaning of the Labor Code must include the assignments of error, memorandum of arguments in support thereof and the reliefs prayed for such that a mere notice of appeal will not toll the running of the period for perfecting an appeal, and the general rule is that after a judgment has become final the appellate court loses jurisdiction to entertain the appeal, the aforementioned rules admit of exceptions too, because it is also well-settled that such rules of procedure are used only to help secure and not override substantial justice. Litigations should, as much as possible, be decided on their merits and not on technicality, and under the circumstances obtaining in this case, We are reminded of what We said in the case of Gregorio vs. CA, 72 SCRA 120, "Dismissal of appeals purely on technical grounds is frowned upon where the policy of the courts is to encourage hearings of appeals on their merits and the rules of procedure ought not to be applied in a very rigid, technical sense; rules of procedure are used only to help secure, not override substantial justice. If a technical and rigid enforcement of the rules is made, their aim would be defeated. (American Home Insurance Co. vs. Court of Appeals, 109 SCRA 180) In the case at bar, the finding of the Labor Arbiter that there is an employer-employee relationship existing between petitioners and private respondent counter-acts the provisions of the Corporation Code such that to strictly apply the procedural rules on appeal under the Labor Code would obviously result in patent and gross injustice upon private respondent's substantive rights. In relation to the peculiar factual background of the instant case, private respondent's defense of lack of privity of contract with petitioners merits greater consideration in the interest of substantial justice. It will be recalled that the Labor Arbiter's finding of illegal dismissal and order of reinstatement were anchored on an erroneous premise that Jureidini and Tsuchiya were duly authorized and legitimate officers of the corporation. The enforcement of said erroneous ruling will cause serious injustice, not only upon respondent corporation but also upon the corporation's original employees who were taken back by the Aquilino Rivera group when they regained possession and management of the corporation. If

petitioners are reinstated, that would result in an absurd situation wherein the corporation will have employees very much more in excess of what the business would require. Besides, it is quite evident that private respondent seriously intended to appeal the Labor Arbiter's decision and We hereby quote a portion of the herein assailed NLRC Resolution: . . . In fact, it even filed an urgent petition for reduction of supersedeas bond, praying that it be allowed to file a P50,000.00 bond but it was fixed at P80,000.00 by the Labor Arbiter which it filed with its notice of appeal. In the conference on 15 October 1982 called by the Labor Arbiter issuing his decision for the purpose of settling the case amicably, the respondent again manifested after no settlement was arrived at that it will file its appeal. With these in mind, We are convinced that respondent's failure to file its memorandum on appeal with its notice of appeal was through excusable mistake only on the part of the messenger-clerk. Otherwise, it would not have gone through the burden of going through the rigors of having the supersedeas bond reduced and abiding with the amount fixed which entailed expenses. Consequently, in the interest of substantial justice and in line with the repeated rulings of the Supreme Court lately which abhors dismissal of cases based solely on technicalities, We set aside the Resolution sought to be reconsidered and give due course to the appeal. (pp. 15-16, Rollo) Finally' it is clear that petitioners were not abandoned by the NLRC as the latter ordered that the case be remanded to the Arbitration Branch for further proceedings to determine who among the petitioners were really hired by respondent corporation or by Jureidini, et al., in order to ultimately determine who is responsible for the settlement of petitioners' claims. Thus, petitioners are not without recourse relative to their claims. ACCORDINGLY, the instant petition is hereby DISMISSED for lack of merit and the assailed decision of the National Labor Relations Commission dated January 15, 1985 is AFFIRMED in toto. SO ORDERED.

G.R. No. 93695. February 4, 1992 RAMON C. LEE and ANTONIO DM. LACDAO, petitioners, vs. THE HON. COURT OF APPEALS, SACOBA MANUFACTURING CORP., PABLO GONZALES, JR. and THOMAS GONZALES, respondents.

GUTIERREZ, JR., J.: What is the nature of the voting trust agreement executed between two parties in this case? Who owns the stocks of the corporation under the terms of the voting trust agreement? How long can a voting trust agreement remain valid and effective? Did a director of the corporation cease to be such upon the creation of the voting trust agreement? These are the questions the answers to which are necessary in resolving the principal issue in this petition for certiorari whether or not there was proper service of summons on Alfa Integrated Textile Mills (ALFA, for short) through the petitioners as president and vice-president, allegedly, of the subject corporation after the execution of a voting trust agreement between ALFA and the Development Bank of the Philippines (DBP, for short). From the records of the instant case, the following antecedent facts appear: On November 15, 1985, a complaint for a sum of money was filed by the International Corporate Bank, Inc. against the private respondents who, in turn, filed a third party complaint against ALFA and the petitioners on March 17, 1986. On September 17, 1987, the petitioners filed a motion to dismiss the third party complaint which the Regional Trial Court of Makati, Branch 58 denied in an Order dated June 27, 1988. On July 18, 1988, the petitioners filed their answer to the third party complaint. Meanwhile, on July 12, 1988, the trial court issued an order requiring the issuance of an alias summons upon ALFA through the DBP as a consequence of the petitioner's letter informing the court that the summons for ALFA was erroneously served upon them considering that the management of ALFA had been transferred to the DBP. In a manifestation dated July 22, 1988, the DBP claimed that it was not authorized to receive summons on behalf of ALFA since the DBP had not taken over the company which has a separate and distinct corporate personality and existence. On August 4, 1988, the trial court issued an order advising the private respondents to take the appropriate steps to serve the summons to ALFA. On August 16, 1988, the private respondents filed a Manifestation and Motion for the Declaration of Proper Service of Summons which the trial court granted on August 17, 1988. On September 12, 1988, the petitioners filed a motion for reconsideration submitting that Rule 14, section 13 of the Revised Rules of Court is not applicable since they were no longer officers of ALFA and that the private respondents should have availed of another mode of service under Rule 14, Section 16 of the said Rules, i.e., through publication to effect proper service upon ALFA. In their Comment to the Motion for Reconsideration dated September 27, 1988, the private respondents argued that the voting trust agreement dated March 11, 1981 did not divest the petitioners of their positions as president and executive vice-president of ALFA so that service of summons upon ALFA through the petitioners as corporate officers was proper.

On January 2, 1989, the trial court upheld the validity of the service of summons on ALFA through the petitioners, thus, denying the latter's motion for reconsideration and requiring ALFA to filed its answer through the petitioners as its corporate officers. On January 19, 1989, a second motion for reconsideration was filed by the petitioners reiterating their stand that by virtue of the voting trust agreement they ceased to be officers and directors of ALFA, hence, they could no longer receive summons or any court processes for or on behalf of ALFA. In support of their second motion for reconsideration, the petitioners attached thereto a copy of the voting trust agreement between all the stockholders of ALFA (the petitioners included), on the one hand, and the DBP, on the other hand, whereby the management and control of ALFA became vested upon the DBP. On April 25, 1989, the trial court reversed itself by setting aside its previous Order dated January 2, 1989 and declared that service upon the petitioners who were no longer corporate officers of ALFA cannot be considered as proper service of summons on ALFA. On May 15, 1989, the private respondents moved for a reconsideration of the above Order which was affirmed by the court in its Order dated August 14, 1989 denying the private respondent's motion for reconsideration. On September 18, 1989, a petition for certiorari was belatedly submitted by the private respondent before the public respondent which, nonetheless, resolved to give due course thereto on September 21, 1989. On October 17, 1989, the trial court, not having been notified of the pending petition for certiorari with public respondent issued an Order declaring as final the Order dated April 25, 1989. The private respondents in the said Order were required to take positive steps in prosecuting the third party complaint in order that the court would not be constrained to dismiss the same for failure to prosecute. Subsequently, on October 25, 1989 the private respondents filed a motion for reconsideration on which the trial court took no further action. On March 19, 1990, after the petitioners filed their answer to the private respondents' petition for certiorari, the public respondent rendered its decision, the dispositive portion of which reads: WHEREFORE, in view of the foregoing, the orders of respondent judge dated April 25, 1989 and August 14, 1989 are hereby SET ASIDE and respondent corporation is ordered to file its answer within the reglementary period. (CA Decision, p. 8; Rollo, p. 24) On April 11, 1990, the petitioners moved for a reconsideration of the decision of the public respondent which resolved to deny the same on May 10, 1990. Hence, the petitioners filed this certiorari petition imputing grave abuse of discretion amounting to lack of jurisdiction on the part of the public respondent in reversing the questioned Orders dated April 25, 1989 and August 14, 1989 of the court a quo, thus, holding that there was proper service of summons on ALFA through the petitioners. In the meantime, the public respondent inadvertently made an entry of judgment on July 16, 1990 erroneously applying the rule that the period during which a motion for reconsideration has been pending must be deducted from the 15-day period to appeal. However, in its Resolution dated January 3, 1991, the public respondent set aside the aforestated entry of judgment after further considering that the rule it relied on applies to appeals from decisions of the Regional Trial Courts to the Court of Appeals, not to appeals from its decision to us pursuant to our ruling in the case of Refractories Corporation of the Philippines v . Intermediate Appellate Court, 176 SCRA 539 . (CA Rollo, pp. 249-250) In their memorandum, the petitioners present the following arguments, to wit: (1) that the execution of the voting trust agreement by a stockholders whereby all his shares to the corporation have been transferred to the trustee deprives the stockholders of his position as

director of the corporation; to rule otherwise, as the respondent Court of Appeals did, would be violative of section 23 of the Corporation Code ( Rollo, pp. 270-3273); and (2) that the petitioners were no longer acting or holding any of the positions provided under Rule 14, Section 13 of the Rules of Court authorized to receive service of summons for and in behalf of the private domestic corporation so that the service of summons on ALFA effected through the petitioners is not valid and ineffective; to maintain the respondent Court of Appeals' position that ALFA was properly served its summons through the petitioners would be contrary to the general principle that a corporation can only be bound by such acts which are within the scope of its officers' or agents' authority (Rollo, pp. 273-275) In resolving the issue of the propriety of the service of summons in the instant case, we dwell first on the nature of a voting trust agreement and the consequent effects upon its creation in the light of the provisions of the Corporation Code. A voting trust is defined in Ballentine's Law Dictionary as follows: (a) trust created by an agreement between a group of the stockholders of a corporation and the trustee or by a group of identical agreements between individual stockholders and a common trustee, whereby it is provided that for a term of years, or for a period contingent upon a certain event, or until the agreement is terminated, control over the stock owned by such stockholders, either for certain purposes or for all purposes, is to be lodged in the trustee, either with or without a reservation to the owners, or persons designated by them, of the power to direct how such control shall be used. (98 ALR 2d. 379 sec. 1 [d]; 19 Am J 2d Corp. sec. 685). Under Section 59 of the new Corporation Code which expressly recognizes voting trust agreements, a more definitive meaning may be gathered. The said provision partly reads: Sec. 59. Voting Trusts One or more stockholders of a stock corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the share for a period rights pertaining to the shares for a period not exceeding five (5) years at any one time: Provided, that in the case of a voting trust specifically required as a condition in a loan agreement, said voting trust may be for a period exceeding (5) years but shall automatically expire upon full payment of the loan. A voting trust agreement must be in writing and notarized, and shall specify the terms and conditions thereof. A certified copy of such agreement shall be filed with the corporation and with the Securities and Exchange Commission; otherwise, said agreement is ineffective and unenforceable. The certificate or certificates of stock covered by the voting trust agreement shall be cancelled and new ones shall be issued in the name of the trustee or trustees stating that they are issued pursuant to said agreement. In the books of the corporation, it shall be noted that the transfer in the name of the trustee or trustees is made pursuant to said voting trust agreement. By its very nature, a voting trust agreement results in the separation of the voting rights of a stockholder from his other rights such as the right to receive dividends, the right to inspect the books of the corporation, the right to sell certain interests in the assets of the corporation and other rights to which a stockholder may be entitled until the liquidation of the corporation. However, in order to distinguish a voting trust agreement from proxies and other voting pools and agreements, it must pass three criteria or tests, namely: (1) that the voting rights of the stock are separated from the other attributes of ownership; (2) that the voting rights granted are intended to be irrevocable for a definite period of time; and (3) that the principal purpose of the grant of voting rights is to acquire voting

control of the corporation. (5 Fletcher, Cyclopedia of the Law on Private Corporations, section 2075 p. 331 citing Tankersly v. Albright, 374 F. Supp. 538) Under section 59 of the Corporation Code, supra, a voting trust agreement may confer upon a trustee not only the stockholder's voting rights but also other rights pertaining to his shares as long as the voting trust agreement is not entered "for the purpose of circumventing the law against monopolies and illegal combinations in restraint of trade or used for purposes of fraud." (section 59, 5th paragraph of the Corporation Code) Thus, the traditional concept of a voting trust agreement primarily intended to single out a stockholder's right to vote from his other rights as such and made irrevocable for a limited duration may in practice become a legal device whereby a transfer of the stockholder's shares is effected subject to the specific provision of the voting trust agreement. The execution of a voting trust agreement, therefore, may create a dichotomy between the equitable or beneficial ownership of the corporate shares of a stockholders, on the one hand, and the legal title thereto on the other hand. The law simply provides that a voting trust agreement is an agreement in writing whereby one or more stockholders of a corporation consent to transfer his or their shares to a trustee in order to vest in the latter voting or other rights pertaining to said shares for a period not exceeding five years upon the fulfillment of statutory conditions and such other terms and conditions specified in the agreement. The five year-period may be extended in cases where the voting trust is executed pursuant to a loan agreement whereby the period is made contingent upon full payment of the loan. In the instant case, the point of controversy arises from the effects of the creation of the voting trust agreement. The petitioners maintain that with the execution of the voting trust agreement between them and the other stockholders of ALFA, as one party, and the DBP, as the other party, the former assigned and transferred all their shares in ALFA to DBP, as trustee. They argue that by virtue to of the voting trust agreement the petitioners can no longer be considered directors of ALFA. In support of their contention, the petitioners invoke section 23 of the Corporation Code which provides, in part, that: Every director must own at least one (1) share of the capital stock of the corporation of which he is a director which share shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be director . . . (Rollo, p. 270) The private respondents, on the contrary, insist that the voting trust agreement between ALFA and the DBP had all the more safeguarded the petitioners' continuance as officers and directors of ALFA inasmuch as the general object of voting trust is to insure permanency of the tenure of the directors of a corporation. They cited the commentaries by Prof. Aguedo Agbayani on the right and status of the transferring stockholders, to wit: The "transferring stockholder", also called the "depositing stockholder", is equitable owner for the stocks represented by the voting trust certificates and the stock reversible on termination of the trust by surrender. It is said that the voting trust agreement does not destroy the status of the transferring stockholders as such, and thus render them ineligible as directors. But a more accurate statement seems to be that for some purposes the depositing stockholder holding voting trust certificates in lieu of his stock and being the beneficial owner thereof, remains and is treated as a stockholder. It seems to be deducible from the case that he may sue as a stockholder if the suit is in equity or is of an equitable nature, such as, a technical stockholders' suit in right of the corporation. [Commercial Laws of the Philippines by Agbayani, Vol. 3 pp. 492493, citing 5 Fletcher 326, 327] (Rollo, p. 291)

We find the petitioners' position meritorious. Both under the old and the new Corporation Codes there is no dispute as to the most immediate effect of a voting trust agreement on the status of a stockholder who is a party to its execution from legal titleholder or owner of the shares subject of the voting trust agreement, he becomes the equitable or beneficial owner. (Salonga, Philippine Law on Private Corporations, 1958 ed., p. 268; Pineda and Carlos, The Law on Private Corporations and Corporate Practice, 1969 ed., p. 175; Campos and Lopez-Campos, The Corporation Code; Comments, Notes & Selected Cases, 1981, ed., p. 386; Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. 3, 1988 ed., p. 536). The penultimate question, therefore, is whether the change in his status deprives the stockholder of the right to qualify as a director under section 23 of the present Corporation Code which deletes the phrase "in his own right." Section 30 of the old Code states that: Every director must own in his own right at least one share of the capital stock of the stock corporation of which he is a director, which stock shall stand in his name on the books of the corporation. A director who ceases to be the owner of at least one share of the capital stock of a stock corporation of which is a director shall thereby cease to be a director . . . (Emphasis supplied) Under the old Corporation Code, the eligibility of a director, strictly speaking, cannot be adversely affected by the simple act of such director being a party to a voting trust agreement inasmuch as he remains owner (although beneficial or equitable only) of the shares subject of the voting trust agreement pursuant to which a transfer of the stockholder's shares in favor of the trustee is required (section 36 of the old Corporation Code). No disqualification arises by virtue of the phrase "in his own right" provided under the old Corporation Code. With the omission of the phrase "in his own right" the election of trustees and other persons who in fact are not beneficial owners of the shares registered in their names on the books of the corporation becomes formally legalized (see Campos and Lopez-Campos, supra, p. 296) Hence, this is a clear indication that in order to be eligible as a director, what is material is the legal title to, not beneficial ownership of, the stock as appearing on the books of the corporation (2 Fletcher, Cyclopedia of the Law of Private Corporations, section 300, p. 92 citing People v. Lihme, 269 Ill. 351, 109 N.E. 1051). The facts of this case show that the petitioners, by virtue of the voting trust agreement executed in 1981 disposed of all their shares through assignment and delivery in favor of the DBP, as trustee . Consequently, the petitioners ceased to own at least one share standing in their names on the books of ALFA as required under Section 23 of the new Corporation Code. They also ceased to have anything to do with the management of the enterprise. The petitioners ceased to be directors. Hence, the transfer of the petitioners' shares to the DBP created vacancies in their respective positions as directors of ALFA. The transfer of shares from the stockholder of ALFA to the DBP is the essence of the subject voting trust agreement as evident from the following stipulations: 1. The TRUSTORS hereby assign and deliver to the TRUSTEE the certificate of the shares of the stocks owned by them respectively and shall do all things necessary for the transfer of their respective shares to the TRUSTEE on the books of ALFA. 2. The TRUSTEE shall issue to each of the TRUSTORS a trust certificate for the number of shares transferred, which shall be transferrable in the same manner and with the same effect as certificates of stock subject to the provisions of this agreement; 3. The TRUSTEE shall vote upon the shares of stock at all meetings of ALFA, annual or special, upon any resolution, matter or business that may be submitted to any such meeting, and shall

possess in that respect the same powers as owners of the equitable as well as the legal title to the stock; 4. The TRUSTEE may cause to be transferred to any person one share of stock for the purpose of qualifying such person as director of ALFA, and cause a certificate of stock evidencing the share so transferred to be issued in the name of such person; xxx xxx xxx 9. Any stockholder not entering into this agreement may transfer his shares to the same trustees without the need of revising this agreement, and this agreement shall have the same force and effect upon that said stockholder. (CA Rollo, pp. 137-138; Emphasis supplied) Considering that the voting trust agreement between ALFA and the DBP transferred legal ownership of the stock covered by the agreement to the DBP as trustee, the latter became the stockholder of record with respect to the said shares of stocks. In the absence of a showing that the DBP had caused to be transferred in their names one share of stock for the purpose of qualifying as directors of ALFA, the petitioners can no longer be deemed to have retained their status as officers of ALFA which was the case before the execution of the subject voting trust agreement. There appears to be no dispute from the records that DBP has taken over full control and management of the firm. Moreover, in the Certification dated January 24, 1989 issued by the DBP through one Elsa A. Guevarra, VicePresident of its Special Accounts Department II, Remedial Management Group, the petitioners were no longer included in the list of officers of ALFA "as of April 1982." (CA Rollo, pp. 140-142) Inasmuch as the private respondents in this case failed to substantiate their claim that the subject voting trust agreement did not deprive the petitioners of their position as directors of ALFA, the public respondent committed a reversible error when it ruled that: . . . while the individual respondents (petitioners Lee and Lacdao) may have ceased to be president and vice-president, respectively, of the corporation at the time of service of summons on them on August 21, 1987, they were at least up to that time, still directors . . . The aforequoted statement is quite inaccurate in the light of the express terms of Stipulation No. 4 of the subject voting trust agreement. Both parties, ALFA and the DBP, were aware at the time of the execution of the agreement that by virtue of the transfer of shares of ALFA to the DBP, all the directors of ALFA were stripped of their positions as such. There can be no reliance on the inference that the five-year period of the voting trust agreement in question had lapsed in 1986 so that the legal title to the stocks covered by the said voting trust agreement ipso facto reverted to the petitioners as beneficial owners pursuant to the 6th paragraph of section 59 of the new Corporation Code which reads: Unless expressly renewed, all rights granted in a voting trust agreement shall automatically expire at the end of the agreed period, and the voting trust certificate as well as the certificates of stock in the name of the trustee or trustees shall thereby be deemed cancelled and new certificates of stock shall be reissued in the name of the transferors. On the contrary, it is manifestly clear from the terms of the voting trust agreement between ALFA and the DBP that the duration of the agreement is contingent upon the fulfillment of certain obligations of ALFA with the DBP. This is shown by the following portions of the agreement.

WHEREAS, the TRUSTEE is one of the creditors of ALFA, and its credit is secured by a first mortgage on the manufacturing plant of said company; WHEREAS, ALFA is also indebted to other creditors for various financial accomodations and because of the burden of these obligations is encountering very serious difficulties in continuing with its operations. WHEREAS, in consideration of additional accommodations from the TRUSTEE, ALFA had offered and the TRUSTEE has accepted participation in the management and control of the company and to assure the aforesaid participation by the TRUSTEE, the TRUSTORS have agreed to execute a voting trust covering their shareholding in ALFA in favor of the TRUSTEE; AND WHEREAS, DBP is willing to accept the trust for the purpose aforementioned. NOW, THEREFORE, it is hereby agreed as follows: xxx xxx xxx 6. This Agreement shall last for a period of Five (5) years, and is renewable for as long as the obligations of ALFA with DBP, or any portion thereof, remains outstanding; (CA Rollo, pp. 137138) Had the five-year period of the voting trust agreement expired in 1986, the DBP would not have transferred all its rights, titles and interests in ALFA "effective June 30, 1986" to the national government through the Asset Privatization Trust (APT) as attested to in a Certification dated January 24, 1989 of the Vice President of the DBP's Special Accounts Department II. In the same certification, it is stated that the DBP, from 1987 until 1989, had handled APT's account which included ALFA's assets pursuant to a management agreement by and between the DBP and APT (CA Rollo, p. 142) Hence, there is evidence on record that at the time of the service of summons on ALFA through the petitioners on August 21, 1987, the voting trust agreement in question was not yet terminated so that the legal title to the stocks of ALFA, then, still belonged to the DBP. In view of the foregoing, the ultimate issue of whether or not there was proper service of summons on ALFA through the petitioners is readily answered in the negative. Under section 13, Rule 14 of the Revised Rules of Court, it is provided that: Sec. 13. Service upon private domestic corporation or partnership . If the defendant is a corporation organized under the laws of the Philippines or a partnership duly registered, service may be made on the president, manager, secretary, cashier, agent or any of its directors. It is a basic principle in Corporation Law that a corporation has a personality separate and distinct from the officers or members who compose it. (See Sulo ng Bayan Inc. v. Araneta, Inc., 72 SCRA 347 ; Osias Academy v. Department of Labor and Employment, et al., G.R. Nos. 83257-58, December 21, 1990). Thus, the above rule on service of processes of a corporation enumerates the representatives of a corporation who can validly receive court processes on its behalf. Not every stockholder or officer can bind the corporation considering the existence of a corporate entity separate from those who compose it. The rationale of the aforecited rule is that service must be made on a representative so integrated with the corporation sued as to make it a priori supposable that he will realize his responsibilities and know what he should do with any legal papers served on him. (Far Corporation v. Francisco, 146 SCRA 197 citing Villa Rey Transit, Inc. v. Far East Motor Corp. 81 SCRA 303 ).

The petitioners in this case do not fall under any of the enumerated officers. The service of summons upon ALFA, through the petitioners, therefore, is not valid. To rule otherwise, as correctly argued by the petitioners, will contravene the general principle that a corporation can only be bound by such acts which are within the scope of the officer's or agent's authority. (see Vicente v. Geraldez, 52 SCRA 210 ). WHEREFORE, premises considered, the petition is hereby GRANTED. The appealed decision dated March 19, 1990 and the Court of Appeals' resolution of May 10, 1990 are SET ASIDE and the Orders dated April 25, 1989 and October 17, 1989 issued by the Regional Trial Court of Makati, Branch 58 are REINSTATED. SO ORDERED. Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur.

[G.R. No. 108905. October 23, 1997]

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

VI. ANNUAL MEETING The Annual Meeting of the members of the Association shall be held on the second Thursday of January of each year. Each Charter or Associate Member of the Association is entitled to vote. He shall be entitled to as many votes

as he has acquired thru his monthly membership fees only computed on a ratio of TEN (P10.00) PESOS for one vote. The Charter and Associate Members shall elect the Directors of the Association. The candidates receiving the first fourteen (14) highest number of votes shall be declared and proclaimed elected until their successors are elected and qualified. GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION. This draft was never presented to the general membership for approval. Nevertheless, from 1975, after it was presumably submitted to the board, up to 1990, petitioner was given a permanent seat in the board of directors of the association. On February 13, 1990, the associations committee on election in a letter informed James Tan, principal of the school, that it was the sentiment that all directors should be elected by members of the association because to make a person or entity a permanent Director would deprive the right of voters to vote for fifteen (15) m embers of the Board, and it is undemocratic for a [4] person or entity to hold office in perpetuity. For this reason, Tan was told that the proposal to mak e the Grace Christian High School representative as a permanent director of the association, although previously tolerated in the past elections should be reexamined. Following this advice, notices were sent to the members of the association that the provision on election of directors of the 1968 by-laws of the association would be observed. Petitioner requested the chairman of the election committee to change the notice of election by following the procedure in previous elections, claiming that the notice issued for the 1990 elections ran counter to the practice in previous years and was in violation of the by-laws (of 1975) and unlawfully [5] deprive[d] Grace Christian High School of its vested right [to] a permanent seat in the board. As the association denied its request, the school brought suit for mandamus in the Home Insurance and Guaranty Corporation to compel the board of directors of the association to recognize its right to a permanent seat in the board. Petitioner based its claim on the following portion of the proposed amendment which, it contended, had become part of the by-laws of the association as Article VI, paragraph 2, thereof: The Charter and Associate Members shall elect the Directors of the Association. The candidates receiving the first fourteen (14) highest number of votes shall be declared and proclaimed elected until their successors are elected and qualified. GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION. It appears that the opinion of the Securities and Exchange Commission on the validity of this provision was sought by the association and that in reply to the query, the SEC rendered an opinion to the effect that the practice of allowing unelected members in the board was contrary to the existing bylaws of the association and to 92 of the Corporation Code (B.P. Blg. 68). Private respondent association cited the SEC opinion in its answer. Additionally, the association contended that the basis of the petition for mandamus was merely a proposed by-laws which has not yet been approved by competent authority nor registered with the SEC or HIGC. It argued that the by-laws which was registered with the SEC on January 16, 1969 should be the prevailing by-laws of the [6] association and not the proposed amended by-laws. In reply, petitioner maintained that the amended by-laws is valid and binding and that the [7] association was estopped from questioning the by-laws. A preliminary conference was held on March 29, 1990 but nothing substantial was agreed upon. The parties merely agreed that the board of directors of the association should meet on April 17, 1990 and April 24, 1990 for the purpose of discussing the amendment of the by-laws and a possible amicable settlement of the case. A meeting was held on April 17, 1990, but the parties failed to reach an agreement. Instead, the board adopted a resolution declaring the 1975 provision null and void for lack of approval by members of the association and the 1968 by-laws to be effective. On June 20, 1990, the hearing officer of the HIGC rendered a decision dismissing petitioners action. The hearing officer held that the amended by-laws, upon which petitioner based its claim, [was] merely a

proposed by-laws which, although implemented in the past, had not yet been ratified by the members of the association nor approved by competent authority; that, on the contrary, in the meeting held on April 17, 1990, the directors of the association declared the proposed by-law dated December 20, 1975 prepared by the committee on by-laws . . . null and void and the by-laws of December 17, 1968 as the prevailing by-laws under which the association is to operate until such time that the proposed amendments to the by-laws are approved and ratified by a majority of the members of the association and duly filed and approved by the pertinent government agency. The hearing officer rejected petitioners contention that it had acquired a vested right to a permanent seat in the board of directors. He held that past practice in election of directors could not give rise to a vested right and that departure from such practice was justified because it deprived members of association of their right to elect or to be voted in office, not to say that allowing the automatic inclusion of a member representative of petitioner as permanent director [was] contrary to law and the registered by-laws of respondent [8] association. The appeals board of the HIGC affirmed the decision of the hearing officer in its resolution dated September 13, 1990. It cited the opinion of the SEC based on 92 of the Corporation Code which reads: 92. Election and term of trustees. - Unless otherwise provided in the articles of incorporation or the by-laws, the board of trustees of non-stock corporations, which may be more than fifteen (15) in number as may be fixed in their articles of incorporation or by-laws, shall, as soon as organized, so classify themselves that the term of office of onethird (1/3) of the number shall expire every year; and subsequent elections of trustees comprising one-third (1/3) of the board of trustees shall be held annually and trustees so elected shall have a term of three (3) years. Trustees thereafter elected to fill vacancies occurring before the expiration of a particular term shall hold office only for the unexpired period. The HIGC appeals board denied claims that the school [was] being deprived of its right to be a member of the Board of Directors of respondent association, because the fact was that it may nominate as many representatives to the Associations Board as it may deem appropriate. It said that what is merely being upheld is the act of the incumbent directors of the Board of correcting a long standing practice which is [9] not anchored upon any legal basis. Petitioner appealed to the Court of Appeals but petitioner again lost as the appellate court on February 9, 1993, affirmed the decision of the HIGC. The Court of Appeals held that there was no valid amendment of the associations by-laws because of failure to comply with the requirement of its existing by-laws, prescribing the affirmative vote of the majority of the members of the association at a regular or special meeting called for the adoption of amendment to the by-laws. Article XIX of the by-laws [10] provides: The members of the Association by an affirmative vote of the majority at any regular or special meeting called for the purpose, may alter, amend, change or adopt any new by-laws. This provision of the by-laws actually implements 22 of the Corporation Law (Act No. 1459) which provides: 22. The owners of a majority of the subscribed capital stock, or a majority of the members if there be no capital stock, may, at a regular or special meeting duly called for the purpose, amend or repeal any by-law or adopt new bylaws. The owners of two-thirds of the subscribed capital stock, or two-thirds of the members if there be no capital stock, may delegate to the board of directors the power to amend or repeal any by-law or to adopt new bylaws: Provided, however, That any power delegated to the board of directors to amend or repeal any by-law or adopt new by-laws shall be considered as revoked whenever a majority of the stockholders or of the members of the corporation shall so vote at a regular or special meeting. And provided, further, That the Director of the Bureau of Commerce and Industry shall not hereafter file an amendment to the by-laws of any bank, banking institution or building and loan association, unless accompanied by certificate of the Bank Commissioner to the effect that such amendments are in accordance with law.

The proposed amendment to the by-laws was never approved by the majority of the members of the association as required by these provisions of the law and by-laws. But petitioner contends that the members of the committee which prepared the proposed amendment were duly authorized to do so and that because the members of the association thereafter implemented the provision for fifteen years, the proposed amendment for all intents and purposes should be considered to have been ratified by [11] them. Petitioner contends: Considering, therefore, that the agents or committee were duly authorized to draft the amended by -laws and the acts done by the agents were in accordance with such authority, the acts of the agents from the very beginning were lawful and binding on the homeowners (the principals) per se without need of any ratification or adoption. The more has the amended by-laws become binding on the homeowners when the homeowners followed and implemented the provisions of the amended by-laws. This is not merely tantamount to tacit ratification of the acts done by duly authorized agents but express approval and confirmation of what the agents did pursuant to the authority granted to them. Corollarily, petitioner claims that it has acquired a vested right to a permanent seat in the board. Says petitioner: The right of the petitioner to an automatic membership in the board of the Association was granted by the members of the Association themselves and this grant has been implemented by members of the board themselves all through the years. Outside the present membership of the board, not a single member of the Association has registered any desire to remove the right of herein petitioner to an automatic membership in the board. If there is anybody who has the right to take away such right of the petitioner, it would be the individual members of the Association through a referendum and not the present board some of the members of which are motivated by personal interest. Petitioner disputes the ruling that the provision in question, giving petitioners representative a permanent seat in the board of the association, is contrary to law. Petitioner claims that that is not so because there is really no provision of law prohibiting unelected members of boards of directors of corporations. Referring to 92 of the present Corporation Code, petitioner says: It is clear that the above provision of the Corporation Code only provides for the manner of election of the members of the board of trustees of non-stock corporations which may be more than fifteen in number and which manner of election is even subject to what is provided in the articles of incorporation or by-laws of the association thus showing that the above provisions [are] not even mandatory. Even a careful perusal of the above provision of the Corporation Code would not show that it prohibits a non-stock corporation or association from granting one of its members a permanent seat in its board of directors or trustees. If there is no such legal prohibition then it is allowable provided it is so provided in the Articles of Incorporation or in the by-laws as in the instant case. .... If fact, the truth is that this is allowed and is being practiced by some corporations duly organized and existing under the laws of the Philippines. One example is the Pius XII Catholic Center, Inc. Under the by-laws of this corporation, that whoever is the Archbishop of Manila is considered a member of the board of trustees without benefit of election. And not only that. He also automatically sits as the Chairman of the Board of Trustees, again without need of any election. Another concrete example is the Cardinal Santos Memorial Hospital, Inc. It is also provided in the by-laws of this corporation that whoever is the Archbishop of Manila is considered a member of the board of trustees year after year without benefit of any election and he also sits automatically as the Chairman of the Board of Trustees.

It is actually 28 and 29 of the Corporation Law not 92 of the present law or 29 of the former one which require members of the boards of directors of corporations to be elected. These provisions read: 28. Unless otherwise provided in this Act, the corporate powers of all corporations formed under this Act shall be exercised, all business conducted and all property of such corporations controlled and held by a board of not less than five nor more than eleven directors to be elected from among the holders of stock or, where there is no stock, from the members of the corporation: Provided, however, That in corporations, other than banks, in which the United States has or may have a vested interest, pursuant to the powers granted or delegated by the Trading with the Enemy Act, as amended, and similar Acts of Congress of the United States relating to the same subject, or by Executive Order No. 9095 of the President of the United States, as heretofore or hereafter amended, or both, the directors need not be elected from among the holders of the stock, or, where there is no stock from the members of the corporation. (emphasis added) 29. At the meeting for the adoption of the original by-laws, or at such subsequent meeting as may be then determined, directors shall be elected to hold their offices for one year and until their successors are elected and qualified. Thereafter the directors of the corporation shall be elected annually by the stockholders if it be a stock corporation or by the members if it be a nonstock corporation, and if no provision is made in the by-laws for the time of election the same shall be held on the first Tuesday after the first Monday in January. Unless otherwise provided in the by-laws, two weeks notice of the election of directors must be given by publication in some newspaper of general circulation devoted to the publication of general news at the place where the principal office of the corporation is established or located, and by written notice deposited in the post-office, postage pre-paid, addressed to each stockholder, or, if there be no stockholders, then to each member, at his last known place of residence. If there be no newspaper published at the place where the principal office of the corporation is established or located, a notice of the election of directors shall be posted for a period of three weeks immediately preceding the election in at least three public places, in the place where the principal office of the corporation is established or located. (Emphasis added) The present Corporation Code (B.P. Blg. 68), which took effect on May 1, 1980,
[12]

similarly provides:

23. The Board of Directors or Trustees. - Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified. (Emphasis added) These provisions of the former and present corporation law leave no room for doubt as to their meaning: the board of directors of corporations must be elected from among the stockholders or members. There may be corporations in which there are unelected members in the board but it is clear that in the examples cited by petitioner the unelected members sit as ex officiomembers, i.e., by virtue of and for as long as they hold a particular office. But in the case of petitioner, there is no reason at all for its representative to be given a seat in the board. Nor does petitioner claim a right to such seat by virtue of an office held. In fact it was not given such seat in the beginning. It was only in 1975 that a proposed amendment to the by-laws sought to give it one. Since the provision in question is contrary to law, the fact that for fifteen years it has not been questioned or challenged but, on the contrary, appears to have been implemented by the members of the association cannot forestall a later challenge to its validity. Neither can it attain validity through acquiescence because, if it is contrary to law, it is beyond the power of the members of the association to waive its invalidity. For that matter the members of the association may have formally adopted the provision in question, but their action would be of no avail because no provision of the by-laws can be [13] adopted if it is contrary to law. It is probable that, in allowing petitioners representative to sit on the board, the members of the association were not aware that this was contrary to law. It should be noted that they did not actually implement the provision in question except perhaps insofar as it increased the number of directors from

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

[G.R. No. 116123. March 13, 1997]

SERGIO F. NAGUIAT, doing business under the name and style SERGIO F. NAGUIAT ENT., INC., & CLARK FIELD TAXI, INC., petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION), NATIONAL ORGANIZATION OF WORKINGMEN and its members, LEONARDO T. GALANG, et al., respondents. DECISION PANGANIBAN, J.: Are private respondent-employees of petitioner Clark Field Taxi, Inc., who were separated from service due to the closure of Clark Air Base, entitled to separation pay and, if so, in what amount? Are officers of corporations ipso facto liable jointly and severally with the companies they represent for the payment of separation pay? These questions are answered by the Court in resolving this petition for certiorari under Rule 65 of the Rules of Court assailing the Resolutions of the National Labor Relations Commission (Third [1] [2] [3] Division) promulgated on February 28, 1994, and May 31, 1994. The February 28, 1994 Resolution [4] affirmed with modifications the decision of Labor Arbiter Ariel C. Santos in NLRC Case No. RAB-III-122477-91. The second Resolution denied the motion for reconsideration of herein petitioners. The NLRC modified the decision of the labor arbiter by granting separation pay to herein individual respondents in the increased amount of US$120.00 for every year of service or its peso equivalent, and holding Sergio F. Naguiat Enterprises, Inc., Sergio F. Naguiat and Antolin T. Naguiat, jointly and severally liable with Clark Field Taxi, Inc. ("CFTI").

The Facts The following facts are derived from the records of the case: Petitioner CFTI held a concessionaire's contract with the Army Air Force Exchange Services ("AAFES") for the operation of taxi services within Clark Air Base. Sergio F. Naguiat was CFTI's president, while Antolin T. Naguiat was its vice-president. Like Sergio F. Naguiat Enterprises, Incorporated ("Naguiat Enterprises"), a trading firm, it was a family-owned corporation. Individual respondents were previously employed by CFTI as taxicab drivers. During their employment, they were required to pay a daily "boundary fee" in the amount of US$26.50 for those working from 1:00 a.m. to 12:00 noon, and US$27.00 for those working from 12:00 noon to 12:00 midnight. All incidental expenses for the maintenance of the vehicles they were driving were accounted against them, including gasoline expenses. The drivers worked at least three to four times a week, depending on the availability of taxicabs. They earned not less than US$15.00 daily. In excess of that amount, however, they were required to make cash deposits to the company, which they could later withdraw every fifteen days. Due to the phase-out of the US military bases in the Philippines, from which Clark Air Base was not spared, the AAFES was dissolved, and the services of individual respondents were officially terminated on November 26, 1991. The AAFES Taxi Drivers Association ("drivers' union"), through its local president, Eduardo Castillo, and CFTI held negotiations as regards separation benefits that should be awarded in favor of the drivers. They arrived at an agreement that the separated drivers will be given P500.00 for every year of service as severance pay. Most of the

drivers accepted said amount in December 1991 and January 1992. However, individual respondents herein refused to accept theirs. Instead, after disaffiliating themselves from the drivers' union, individual respondents, through the National Organization of Workingmen ("NOWM"), a labor organization which they subsequently joined, filed a complaint[5]against "Sergio F. Naguiat doing business under the name and style Sergio F. Naguiat Enterprises, Inc., Army-Air Force Exchange Services (AAFES) with Mark Hooper as Area Service Manager, Pacific Region, and AAFES Taxi Drivers Association with Eduardo Castillo as President," for payment of separation pay due to termination/phase-out. Said complaint was later amended[6] to include additional taxi drivers who were similarly situated as complainants, and CFTI with Antolin T. Naguiat as vice president and general manager, as party respondent. In their complaint, herein private respondents alleged that they were regular employees of Naguiat Enterprises, although their individual applications for employment were approved by CFTI. They claimed to have been assigned to Naguiat Enterprises after having been hired by CFTI, and that the former thence managed, controlled and supervised their employment. They averred further that they were entitled to separation pay based on their latest daily earnings of US$15.00 for working sixteen (16) days a month. In their position paper submitted to the labor arbiter, herein petitioners claimed that the cessation of business of CFTI on November 26, 1991, was due to "great financial losses and lost business opportunity" resulting from the phase-out of Clark Air Base brought about by the Mt. Pinatubo eruption and the expiration of the RP-US military bases agreement. They admitted that CFTI had agreed with the drivers' union, through its President Eduardo Castillo who claimed to have had blanket authority to negotiate with CFTI in behalf of union members, to grant its taxi driver-employees separation pay equivalent to P500.00 for every year of service. The labor arbiter, finding the individual complainants to be regular workers of CFTI, ordered the latter to pay them P1,200.00 for every year of service "for humanitarian consideration," setting aside the earlier agreement between CFTI and the drivers' union of P500.00 for every year of service. The labor arbiter rejected the allegation of CFTI that it was forced to close business due to "great financial losses and lost business opportunity" since, at the time it ceased operations, CFTI was profitably earning and the cessation of its business was due to the untimely closure of Clark Air Base. In not awarding separation pay in accordance with the Labor Code, the labor-arbiter explained: "To allow respondents exemption from its (sic) obligation to pay separation pay would be inhuman to complainants but to impose a monetary obligation to an employer whose profitable business was abruptly shot (sic) down by force majeure would be unfair and unjust to say the least." [7] and thus, simply awarded an amount for "humanitarian consideration." Herein individual private respondents appealed to the NLRC. In its Resolution, the NLRC modified the decision of the labor arbiter by granting separation pay to the private respondents. The concluding paragraphs of the NLRC Resolution read: "The contention of complainant is partly correct. One-half month salary should be US$120.00 but this amount can not be paid to the complainant in U.S. Dollar which is not the legal tender in the Philippines. Paras, in commenting on Art. 1249 of the New Civil Code, defines legal tender as 'that which a debtor may compel a creditor to accept in payment of the debt. The complainants who are the creditors in this instance can be compelled to accept the Philippine peso which is the legal tender, in which case, the table of conversion (exchange rate) at the time of payment or satisfaction of the judgment should be used. However, since the choice is left to the debtor, (respondents) they may choose to pay in US dollar.' (Phoenix Assurance Co. vs. Macondray & Co. Inc., L-25048, May 13, 1975) In discharging the above obligations, Sergio F. Naguiat Enterprises, which is headed by Sergio F. Naguiat and Antolin Naguiat, father and son at the same time the President and Vice-President and General Manager, respectively, should be joined as indispensable party whose liability is joint and several. (Sec. 7, Rule 3, Rules of Court)"[8]

As mentioned earlier, the motion for reconsideration of herein petitioners was denied by the NLRC. Hence, this petition with prayer for issuance of a temporary restraining order. Upon posting by [9] the petitioners of a surety bond, a temporary restraining order was issued by this Court enjoining execution of the assailed Resolutions.

Issues The petitioners raise the following issues before this Court for resolution: "I. Whether or not public respondent NLRC (3rd Div.) committed grave abuse of discretion amounting to lack of jurisdiction in issuing the appealed resolution; II. Whether or not Messrs. Teofilo Rafols and Romeo N. Lopez could validly represent herein private respondents; and, III. Whether or not the resolution issued by public respondent is contrary to law." [10] Petitioners also submit two additional issues by way of a supplement to their petition, to Wit: that Petitioners Sergio F. Naguiat and Antolin Naguiat were denied due process; and that petitioners were not furnished copies of private respondents' appeal to the NLRC. As to the procedural lapse of insufficient copies of the appeal, the proper forum before which petitioners should have raised it is the NLRC. They, however, failed to question this in their motion for reconsideration. As a consequence, they are deemed to have waived the same and voluntarily submitted themselves to the jurisdiction of the appellate body. Anent the first issue raised in their original petition, petitioners contend that NLRC committed grave abuse of discretion amounting to lack or excess of jurisdiction in unilaterally increasing the amount of severance pay granted by the labor arbiter. They claim that this was not supported by substantial evidence since it was based simply on the self-serving allegation of respondents that their monthly takehome pay was not lower than $240.00. On the second issue, petitioners aver that NOWM cannot make legal representations in behalf of individual respondents who should, instead, be bound by the decision of the union (AAFES Taxi Drivers Association) of which they were members. As to the third issue, petitioners incessantly insist that Sergio F. Naguiat Enterprises, Inc. is a separate and distinct juridical entity which cannot be held jointly and severally liable for the obligations of CFTI. And similarly, Sergio F. Naguiat and Antolin Naguiat were merely officers and stockholders of CFTI and, thus, could not be held personally accountable for corporate debts. Lastly, Sergio and Antolin Naguiat assail the Resolution of NLRC holding them solidarily liable despite not having been impleaded as parties to the complaint. Individual respondents filed a comment separate from that of NOWM. In sum, both aver that petitioners had the opportunity but failed to refute, the taxi drivers' claim of having an average monthly earning of $240.00; that individual respondents became members of NOWM after disaffiliating themselves from the AAFES Taxi Drivers Association which, through the manipulations of its President Eduardo Castillo, unconscionably compromised their separation pay; and that Naguiat Enterprises, being their indirect employer, is solidarily liable under the law for violation of the Labor Code, in this case, for nonpayment of their separation pay. The Solicitor General unqualifiedly supports the allegations of private respondents. In addition, he submits that the separate personalities of respondent corporations and their officers should be disregarded and considered one and the same as these were used to perpetrate injustice to their employees.
[11]

The Court's Ruling

As will be discussed below, the petition is partially meritorious.

First Issue: Amount of Separation Pay Firmly, we reiterate the rule that in a petition for certiorari filed pursuant to Rule 65 of the Rules of Court, which is the only way a labor case may reach the Supreme Court, the petitioner/s must clearly [12] show that the NLRC acted without or in excess of jurisdiction or with grave abuse of discretion. Long-standing and well-settled in Philippine jurisprudence is the judicial dictum that findings of fact of administrative agencies and quasi-judicial bodies, which have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded not only great respect but even finality; and are binding upon this Court unless there is a showing of grave abuse of discretion, or where it is [13] clearly shown that they were arrived at arbitrarily or in disregard of the evidence on record. Nevertheless, this Court carefully perused the records of the instant case if only to determine whether public respondent committed grave abuse of discretion, amounting to lack of jurisdiction, in granting the clamor of private respondents that their separation pay should be based on the amount of $240.00, allegedly their minimum monthly earnings as taxi drivers of petitioners. In their amended complaint before the Regional Arbitration Branch in San Fernando, Pampanga, herein private respondents set forth in detail the work schedule and financial arrangement they had with their employer. Therefrom they inferred that their monthly take-home pay amounted to not less than $240.00. Herein petitioners did not bother to refute nor offer any evidence to controvert said allegations. Remaining undisputed, the labor arbiter adopted such facts in his decision. Petitioners did not even appeal from the decision of the labor arbiter nor manifest any error in his findings and conclusions. Thus, petitioners are in estoppel for not having questioned such facts when they had all opportunity to do so. Private respondents, like petitioners, are bound by the factual findings of Respondent Commission. Petitioners also claim that the closure of their taxi business was due to great financial losses brought about by the eruption of Mt. Pinatubo which made the roads practically impassable to their taxicabs. Likewise well-settled is the rule that business losses or financial reverses, in order to sustain retrenchment of personnel or closure of business and warrant exemption from payment of separation pay, [14] must be proved with clear and satisfactory evidence. The records, however, are devoid of such evidence. The labor arbiter; as affirmed by NLRC, correctly found that petitioners stopped their taxi business within Clark Air Base because of the phase-out of U.S. military presence thereat. It was not due to any great financial loss because petitioners' taxi business was earning profitably at the time of its closure. With respect to the amount of separation pay that should be granted, Article 283 of the Labor Code provides: "x x x In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half () month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1 ) whole year." Considering the above, we find that NLRC did not commit grave abuse of discretion in ruling that [15] individual respondents were entitled to separation pay in the amount $120.00 (one-half of $240.00 monthly pay) or its peso equivalent for every year of service. Second Issue: NOWM's Personality to Represent Individual Respondents-Employees

On the question of NOWM's authority to represent private respondents, we hold petitioners in estoppel for not having seasonably raised this issue before the labor arbiter or the NLRC. NOWM was already a party-litigant as the organization representing the taxi driver-complainants before the labor arbiter. But petitioners who were party-respondents in said complaint did not assail the juridical personality of NOWM and the validity of its representations in behalf of the complaining taxi drivers before the quasi-judicial bodies. Therefore, they are now estopped from raising such question before this Court. In any event, petitioners acknowledged before this Court that the taxi drivers allegedly [16] represented by NOWM, are themselves parties in this case.

Third Issue: Liability of PetitionerCorporations and Their Respective Officers The resolution of this issue involves another factual finding that Naguiat Enterprises actually managed, supervised and controlled employment terms of the taxi drivers, making it their indirect employer. As adverted to earlier, factual findings of quasi-judicial bodies are binding upon the court in the absence of a showing of grave abuse of discretion. Unfortunately, the NLRC did not discuss or give any explanation for holding Naguiat Enterprises and its officers jointly and severally liable in discharging CFTI's liability for payment of separation pay. We again remind those concerned that decisions, however concisely written, must distinctly and clearly set [17] forth the facts and law upon which they are based. This rule applies as well to dispositions by quasijudicial and administrative bodies.

Naguiat Enterprises Not Liable In impleading Naguiat Enterprises as solidarily liable for the obligations of CFTI, respondents rely on [18] [19] [20] Articles 106, 107 and 109 of the Labor Code. Based on factual submissions of the parties, the labor arbiter, however, found that individual respondents were regular employees of CFTI who received wages on a boundary or commission basis. We find no reason to make a contrary finding. Labor-only contracting exists where: (1) the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machinery, and work premises, among others; and (2) the workers recruited and placed by such person are performing activities which are directly related to the principal business of the [21] employer. Independent contractors, meanwhile, are those who exercise independent employment, contracting to do a piece of work according to their own methods without being subject to control of their [22] employer except as to the result of their work. From the evidence proffered by both parties, there is no substantial basis to hold that Naguiat Enterprises is an indirect employer of individual respondents much less a labor only contractor. On the contrary, petitioners submitted documents such as the drivers' applications for employment with [23] [24] [25] CFTI, and social security remittances and payroll of Naguiat Enterprises showing that none of the [26] individual respondents were its employees. Moreover, in the contract between CFTI and AAFES, the former, as concessionaire, agreed to purchase from AAFES for a certain amount within a specified period a fleet of vehicles to be "ke(pt) on the road" by CFTI, pursuant to their concessionaire's contract. This indicates that CFTI became the owner of the taxicabs which became the principal investment and asset of the company. Private respondents failed to substantiate their claim that Naguiat Enterprises managed, supervised and controlled their employment. It appears that they were confused on the personalities of Sergio F. Naguiat as an individual who was the president of CFTI, and Sergio F. Naguiat Enterprises, Inc., as a separate corporate entity with a separate business. They presumed that Sergio F. Naguiat, who was at

the same time a stockholder and director of Sergio F. Naguiat Enterprises, Inc., was managing and controlling the taxi business on behalf of the latter. A closer scrutiny and analysis of the records, however, evince the truth of the matter: that Sergio F. Naguiat, in supervising the-taxi drivers and determining their employment terms, was rather carrying out his responsibilities as president of CFTI. Hence, Naguiat Enterprises as a separate corporation does not appear to be involved at all in the taxi business. To illustrate further, we refer to the testimony of a driver-claimant on cross examination. "Atty. Suarez Is it not true that you applied not with Sergio F. Naguiat but with Clark Field Taxi? Witness I applied for (sic) Sergio F. Naguiat Atty. Suarez Sergio F. Naguiat as an individual or the corporation? Witness 'Sergio F. Naguiat na tao.' Atty. Suarez Who is Sergio F. Naguiat? Witness He is the one managing the Sergio F. Naguiat Enterprises and he is the one whom we believe as our employer. Atty. Suarez What is exactly the position of Sergio F. Naguiat with the Sergio F. Naguiat Enterprises? Witness He is the owner, sir. Atty. Suarez How about with Clark Field Taxi Incorporated what is the position of Mr. Naguiat? Witness What I know is that he is a concessionaire. xxx Atty. Suarez But do you also know that Sergio F. Naguiat is the President of Clark Field Taxi, Incorporated? Witness Yes. sir. Atty. Suarez How about Mr. Antolin Naguiat what is his role in the taxi services, the operation of the Clark Field Taxi, Incorporated? xxx xxx

[27]

Witness He is the vice president."

[28]

And, although the witness insisted that Naguiat Enterprises was his employer, he could not deny that [29] he received his salary from the office of CFTI inside the base. Another driver-claimant admitted, upon the prodding of counsel for the corporations, that Naguiat [30] Enterprises was in the trading business while CFTI was in taxi services. In addition, the Constitution of CFTI-AAFES Taxi Drivers Association which, admittedly, was the union of individual respondents while still working at Clark Air Base, states that members thereof are the employees of CFTI and "(f)or collective bargaining purposes, the definite employer is the Clark Field Taxi Inc." From the foregoing, the ineludible conclusion is that CFTI was the actual and direct employer of individual respondents, and that Naguiat Enterprises was neither their indirect employer nor labor-only contractor. It was not involved at all in the taxi business.
[31]

CFTI president solidarily liable Petitioner-corporations would likewise want to avoid the solidary liability of their officers. To bolster their position, Sergio F. Naguiat and Antolin T. Naguiat specifically aver that they were denied due [32] process since they were not parties to the complaint below. In the broader interest of justice, we, however, hold that Sergio F. Naguiat, in his capacity as president of CFTI, cannot be exonerated from joint and several liability in the payment of separation pay to individual respondents. A.C. Ransom Labor Union-CCLU vs. NLRC is the case in point. A.C. Ransom Corporation was a family corporation, the stockholders of which were members of the Hernandez family. In 1973, it filed an application for clearance to close or cease operations, which was duly granted by the Ministry of Labor and Employment, without prejudice to the right of employees to seek redress of grievance, if any. Backwages of 22 employees, who engaged in a strike prior to the closure, were subsequently computed at P164,984.00. Up to September 1976, the union filed about ten (10) motions for execution against the corporation, but none could be implemented, presumably for failure to find leviable assets of said corporation. In its last motion for execution, the union asked that officers and agents of the company be held personally liable for payment of the backwages. This was granted by the labor arbiter. In the corporation's appeal to the NLRC, one of the issues raised was: "Is the judgment against a corporation to reinstate its dismissed employees with backwages, enforceable against its officer and agents, in their individual, private and personal capacities, who were not parties in the case where the judgment was rendered?" The NLRC answered in the negative, on the ground that officers of a corporation are not liable personally for official acts unless they exceeded the scope of their authority. On certiorari, this Court reversed the NLRC and upheld the labor arbiter. In imposing joint and several liability upon the company president, the Court, speaking through Mme. Justice Ameurfina Melencio-Herrera, ratiocinated this wise: "(b) How can the foregoing (Articles 265 and 273 of the Labor Code) provisions be implemented when the employer is a corporation? The answer is found in Article 212(c) of the Labor Code which provides: '(c) 'Employer' includes any person acting in the interest of an employer, directly or indirectly . The term shall not include any labor organization or any of its officers or agents except when acting as employer.' The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is an artificial person, it must have an officer who can be presumed to be the employer, being the 'person acting in the interest of (the) employer' RANSOM. The corporation, only in the technical sense, is the employer.
[33]

The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for nonpayment of back wages. That is the policy of the law. x x x (c) If the policy of the law were otherwise, the corporation employer can have devious ways for evading payment of back wages. x x x (d) The record does not clearly identify 'the officer or officers' of RANSOM directly responsible for failure to pay the back wages of the 22 strikers. In the absence of definite proof in that regard, we believe it should be presumed that the responsible officer is the President of the corporation who can be deemed the chief operation officer thereof. Thus, in RA 602, criminal responsibility is with the 'Manager or in his default, the person acting as such.' In RANSOM, the President appears to be the Manager." (Underscoring supplied.) Sergio F. Naguiat, admittedly, was the president of CFTI who actively managed the business. Thus, applying the ruling in A. C. Ransom, he falls within the meaning of an "employer" as contemplated by the Labor Code, who may be held jointly and severally liable for the obligations of the corporation to its dismissed employees. Moreover, petitioners also conceded that both CFTI and Naguiat Enterprises were "close family [34] corporations" owned by the Naguiat family. Section 100, paragraph 5, (under Title XII on Close Corporations) of the Corporation Code, states: "(5) To the extent that the stockholders are actively engage(d) in the management or operation of the business and affairs of a close corporation, the stockholders shall be held to strict fiduciary duties to each other and among themselves. Said stockholders shall be personally liable for corporate torts unless the corporation has obtained reasonably adequate liability insurance." (underscoring supplied) Nothing in the records show whether CFTI obtained "reasonably adequate liability insurance;" thus, what remains is to determine whether there was corporate tort. Our jurisprudence is wanting as to the definite scope of "corporate tort." Essentially, "tort" consists in [35] the violation of a right given or the omission of a duty imposed by law. Simply stated, tort is a breach of [36] a legal duty. Article 283 of the Labor Code mandates the employer to grant separation pay to employees in case of closure or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, which is the condition obtaining at bar. CFTI failed to comply with this law-imposed duty or obligation. Consequently, its stockholder who was actively engaged in the management or operation of the business should be held personally liable. Furthermore, in MAM Realty Development vs. NLRC, the Court recognized that a director or officer may still be held solidarily liable with a corporation by specific provision of law. Thus: "x x x A corporation, being a juridical entity, may act only through its directors, officers and employees. Obligations incurred by them, acting as such corporate agents, are not theirs but the direct accountabilities of the corporation they represent. True, solidary liabilities may at times be incurred but only when exceptional circumstances warrant such as, generally, in the following cases: xxx xxx xxx
[37]

4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action." (footnotes omitted) As pointed out earlier, the fifth paragraph of Section 100 of the Corporation Code specifically imposes personal liability upon the stockholder actively managing or operating the business and affairs of the close corporation. In fact, in posting the surety bond required by this Court for the issuance of a temporary restraining order enjoining the execution of the assailed NLRC Resolutions, only Sergio F. Naguiat, in his individual and personal capacity, principally bound himself to comply with the obligation thereunder, i.e., "to

guarantee the payment to private respondents of any damages which they may incur by reason of the issuance of a temporary restraining order sought, if it should be finally adjudged that said principals were [38] not entitled thereto." The Court here finds no application to the rule that a corporate officer cannot be held solidarily liable [39] with a corporation in the absence of evidence that he had acted in bad faith or with malice. In the present case, Sergio Naguiat is held solidarily liable for corporate tort because he had actively engaged in the management and operation of CFTI, a close corporation.

Antolin Naguiat not personally liable Antolin T. Naguiat was the vice president of the CFTI. Although he carried the title of "general manager" as well, it had not been shown that he had acted in such capacity. Furthermore, no evidence on the extent of his participation in the management or operation of the business was proffered. In this light, he cannot be held solidarily liable for the obligations of CFTI and Sergio Naguiat to the private respondents.

Fourth Issue: No Denial of Due Process Lastly, in petitioners' Supplement to their original petition, they assail the NLRC Resolution holding Sergio F. Naguiat and Antolin T. Naguiat jointly and severally liable with petitioner-corporations in the payment of separation pay, averring denial of due process since the individual Naguiats were not impleaded as parties to the complaint. We advert to the case of A.C. Ransom once more. The officers of the corporation were not parties to the case when the judgment in favor of the employees was rendered. The corporate officers raised this issue when the labor arbiter granted the motion of the employees to enforce the judgment against them. In spite of this, the Court held the corporation president solidarily liable with the corporation. Furthermore, Sergio and Antolin Naguiat voluntarily submitted themselves to the jurisdiction of the [40] labor arbiter when they, in their individual capacities, filed a position paper together with CFTI, before the arbiter. They cannot now claim to have been denied due process since they availed of the opportunity to present their positions. WHEREFORE, the foregoing premises considered, the petition is PARTLY GRANTED. The assailed February 28, 1994 Resolution of the NLRC is hereby MODIFIED as follows: (1) Petitioner Clark Field Taxi, Incorporated, and Sergio F. Naguiat, president and co-owner thereof, are ORDERED to pay, jointly and severally, the individual respondents their separation pay computed at US$120.00 for every year of service, or its peso equivalent at the time of payment or satisfaction of the judgment; (2) Petitioner Sergio F. Naguiat Enterprises, Incorporated, and Antolin T. Naguiat are ABSOLVED from liability in the payment of separation pay to individual respondents. SO ORDERED.

G.R. No. L-53820 June 15, 1992 YAO KA SIN TRADING, owned and operated by YAO KA SIN, petitioner, vs. HONORABLE COURT OF APPEALS and PRIME WHITE CEMENT CORPORATION, represented by its President-Chairman, CONSTANCIO B. MALAGNA, respondents.

DAVIDE, JR., J.: Assailed in this petition for review is the decision of the respondent Court of Appeals in C.A.-G.R. No. 61072R, 1 promulgated on 21 December 1979, reversing the decision 2 of the then Court of First Instance (now

Regional Trial Court) of Leyte dated 20 November 1975 in Civil Case No. 5064 entitled "Yao Ka Sin Trading versus Prime White Cement Corporation."
The root of this controversy is the undated letter-offer of Constancio B. Maglana, President and Chairman of the Board of private respondent Prime White Cement Corporation, hereinafter referred to as PWCC, to Yao Ka Sin Trading, hereinafter referred to as YKS, which describes itself as "a business concern of single proprietorship," 3 and

is represented by its manager, Mr. Henry Yao; the letter reads as follows:
PRIME WHITE CEMENT CORPORATION 602 Cardinal Life Building Herran Street, Manila Yao Ka Sin Tacloban City Gentlemen: We have the pleasure to submit hereby our firm offer to you under the following quotations, terms, and conditions, to wit: 1). Commodity Prime White Cement 2). Price At your option: a) P24.30 per 94 lbs. bag net, FOB Cebu City; and b) P23.30 per 94 lbs. bag net, FOB Asturias Cebu. 3). Quality As fully specified in certificate No. 224-73 by Bureau of Public Works, Republic of the Philippines. 4). Quantity Forty-five Thousand (45,000) bags at 94 lbs. net per bag withdrawable in guaranteed monthly quantity of Fifteen Thousand (15,000) bags minimum effective from June, 1973 to August 1973. 5). Delivery Schedule Shipment be made within four (4) days upon receipt of your shipping instruction. 6). Bag/Container a) All be made of Standard Kraft (water resistant paper, 4 ply, with bursting strength of 220 pounds, and b) Breakage allowance additional four percent (4%) over the quantity of each shipment. 7). Terms of Payment Down payment of PESOS: TWO HUNDRED FORTY THREE THOUSAND (P243,000.00) payable on the signing of this contract and the balance to be paid upon presentation of corresponding shipping documents.

It is understood that in the event of a delay in our shipment, you hold the option to discount any price differential resulting from a lower market price vis-a-vis the contract price. In addition, grant (sic) you the option to extend this contract until the complete delivery of Forty Five Thousand (45,000) bags of 94 lbs. each is made by us. You are also hereby granted the option to renew this contract under the same price, terms and conditions. Please countersign on the space provided for below as your acknowledgement and confirmation of the above transaction. Thank You. Very truly yours, PRIME WHITE CEMENT CORPORATION BY: (SGD) CONSTANCIO B. MAGLANA President & Chairman CONFORME: YAO KA SIN TRADING BY: (SGD) HENRY YAO WITNESSES: (SGD) T. CATINDIG (SGD) ERNESTO LIM RECEIVED from Mr. Henry Yao of Yao Ka Sin Trading, in pursuance of the above offer, the sum of Pesos: TWO HUNDRED FORTY THREE THOUSAND ONLY (P243,000.00) in the form of Producers' Bank of the Philippines Check No. C-153576 dated June 7, 1973. PRIME WHITE CEMENT CORPORATION BY: (SGD) CONSTANCIO B. MAGLANA President & Chairman 4 This letter-offer, hereinafter referred to as Exhibit "A", was prepared, typed and signed on 7 June 1973 in the office of Mr. Teodoro Catindig, Senior Vice-President of the Consolidated Bank and Trust Corporation (Solid Bank). 5 The principal issue raised in this case is whether or not the aforesaid letter-offer, as accepted by YKS, is a contract that binds the PWCC. The trial court rule in favor of the petitioner, but the respondent Court held otherwise. The records disclose the following material operative facts: In its meeting in Cebu City on 30 June 1973, or twenty-three (23) days after the signing of Exhibit "A", the Board of Directors of PWCC disapproved the same; the rejection is evidenced by the following Minutes (Exhibit "10"): the 10,000 bags of white cement sold to Yao Ka Sin Trading is sold not because of the alledged letter-contract adhered to by them, but must be understood as a new and separate contract, and has in no way to do with the letter-offer which they (sic) as consummated is by this resolution totally disapproved and is unacceptable to the corporation.

On 5 July 1973, PWCC wrote a letter (Exhibit "1") to YKS informing it of the disapproval of Exhibit "A". Pursuant, however, to its decision with respect to the 10,000 bags of cement, it is issued the corresponding Delivery Order (Exhibit "4") and Official Receipt No. 0394 (Exhibit "5") for the payment of the same in the amount of P243,000.00 This is the same amount received and acknowledged by Maglana in Exhibit "A". YKS accepted without protest both the Delivery and Official Receipts. While YKS denied having received a copy of Exhibit "1", it was established that the original thereof was shown to Mr. Henry Yao; since no one would sign a receipt for it, the original was left at the latter's office and this fact was duly noted in Exhibit "1" (Exhibit "l-A"). On 4 August 1973, PWCC wrote a letter (Exhibit "2") to YKS in answer to the latter's 4 August 1973 letter stating that it is "withdrawing or taking delivery of not less than 10,000 bags of white cement on August 6-7, 1973 at Asturias, Cebu, thru M/V Taurus." In said reply, PWCC reminded YKS of its (PWCC's) 5 July 1973 letter (Exhibit "1") and told the latter that PWCC "only committed to you and which you correspondingly paid 10,000 bags of white cement of which 4,150 bags were already delivered to you as of August 11, 1973. 6 Unfortunately, no copy of the said 4

August 1973 letter of YKS was presented in evidence.

On 21 August 1973, PWCC wrote another letter (Exhibit "3") 7 to YKS in reply to the latter's letter of 15 August

1973. Enclosed in the reply was a copy of Exhibit "2". While the records reveal that YKS received this reply also on 21 August 1973 (Exhibit "3" "A"), 8 it still denied having received it. Likewise, no copy of the so-called 15 August
1973 letter was presented in evidence.

On 10 September 1973, YKS, through Henry Yao, wrote a letter 9 to PWCC as a follow-up to the letter of 15

August 1973; YKS insisted on the delivery of 45,030 bags of white cement. 10
On 12 September 1973, Henry Yao sent a letter (Exhibit "G") to PWCC calling the latter's attention to the statement of delivery dated 24 August 1973, particularly the price change from P23.30 to P24.30 per 94 lbs. bag net FOB Asturias, Cebu. 11 On 2 November 1973, YKS sent a telegram (Exhibit "C") 12 to PWCC insisting on the full compliance with the

terms of Exhibit "A" and informing the latter that it is exercising the option therein stipulated.
On 3 November 1973, YKS sent to PWCC a letter (Exhibit "D") as a follow-up to the 2 November 1973 telegram, but this was returned to sender as unclaimed. 13 As of 7 December 1973, PWCC had delivered only 9,775 bags of white cement. On 9 February 1974, YKS wrote PWCC a letter (Exhibit "H") requesting, for the last time, compliance by the latter with its obligation under Exhibit "A". 14 On 27 February 1974, PWCC sent an answer (Exhibit "7") to the aforementioned letter of 9 February 1974; PWCC reiterated the unenforceability of Exhibit "A". 15 On 4 March 1974, YKS filed with the then Court of First Instance of Leyte a complaint for Specific Performance with Damages against PWCC. The complaint 16 was based on Exhibit "A" and was docketed as Civil Case No.

5064. filed on 1 July 1974, PWCC denied under oath the material averments in the complaint and alleged that: (a) YKS "has no legal personality to sue having no legal personality even by fiction to represent itself;" (b) Mr. Maglana, its President and Chairman, was lured into signing Exhibit "A"; (c) such signing was subject to the condition that Exhibit "A" be approved by the Board of Directors of PWCC, as corporate commitments are made through it; (d) the latter disapproved it, hence Exhibit "A" was never consummated and is not enforceable against PWCC; (e) it agreed to sell 10,000 bags of white cement, not under Exhibit "A", but under a separate contract prepared by the Board; (f) the rejection by
In its Answer with Counterclaim
17

the Board of Exhibit "A" was made known to YKS through various letters sent to it, copies of which were attached to the Answer as Annexes 1, 2 and 3; 18 (g) YKS knew, per Delivery Order 19 and Official Receipt 20 issued by PWCC, that only 10;000 bags were sold to it without any terms or conditions, at P24.30 per bag FOB Asturias, Cebu; (h) YKS is solely to blame for the failure to take complete delivery of 10,000 bags for it did not send its boat or truck to PWCC's plant; and (i) YKS has, therefore, no cause of action.
In its Counterclaim, PWCC asks for moral damages in the amount of not less than P10,000.00, exemplary damages in the sum of P500,000.00 and attorney's fees in the sum of P10,000.00. On 24 July 1974, YKS filed its Answer to the Counterclaim. 21 Issues having been joined, the trial court conducted a pre-trial. 22 On that occasion, the parties admitted that

according to the By-Laws of PWCC, the Chairman of the Board, who is also the President of the corporation, "has the power to execute and sign, for and in behalf of the corporation, all contracts or agreements which the corporation enters into," subject to the qualification that "all the president's actuations, prior to and after he had signed and executed said contracts, shall be given to the board of directors of defendant Corporation." Furthermore, it was likewise stated for the record "that the corporation is a semi-subsidiary of the government because of the NIDC participation in the same, and that all contracts of the corporation should meet the approval of the NIDC and/or the PNB Board because of an exposure and financial involvement of around P10 million therein. 23
During the trial, PWCC presented evidence to prove that Exhibit "A" is not binding upon it because Mr. Maglana was not authorized to make the offer and sign the contract in behalf of the corporation. Per its By-Laws (Exhibit "8"), only the Board of Directors has the power . . . (7) To enter into (sic) agreement or contract of any kind with any person in the name and for and in behalf of the corporation through its President, subject only to the declared objects and purpose of the corporation and the existing provisions of law. 24 Among the powers of the President is "to

operate and conduct the business of the corporation according to his own judgment and discretion, whenever the same is not expressly limited by such orders, directives or resolutions." 25 Per standard practice of the corporation, contracts should first pass through the marketing and intelligence unit before they are finalized. Because of its interest in the PWCC, the NIDC, through its comptroller, goes over contracts involving funds of and white cement produced by the PWCC. Finally, among the duties of its legal counsel is to review proposed contracts before they are submitted to the Board. While the president. may be tasked with the preparation of a contract, it must first pass through the legal counsel and the comptroller of the corporation. 26
On 20 November 1975, after trial on the merits, the court handed down its decision in favor of herein petitioner, the dispositive portion of which reads: WHEREFORE, in view of the foregoing, judgment is hereby rendered: (1) Ordering defendant: to complete the delivery of 45,000 bags of prime white cement at 94 lbs. net per bag at the price agreed, with a breakage allowance of empty bags at 4% over the quantity agreed; (2) Ordering defendant to pay P50,000.00, as moral damages; P5,000.00 as exemplary damages; P3,000.00 as attorney's fees; and the costs of these proceedings. SO ORDERED. 27 In disregarding PWCC's theory, the trial court interpreted the provision of the By-Laws granting its Board of Directors the power to enter into an agreement or contract of any kind with any person through the President, to mean that the latter may enter into such contract or agreement at any time and that the same is not subject to the ratification of the board of directors but "subject only to the declared objects and purpose of the corporation and existing laws." It then concluded:

It is obvious therefore, that it is not the whole membership of the board of directors who actually enters into any contract with any person in the name and for and in behalf of the corporation, but only its president. It is likewise crystal clear that this automatic representation of the board by the president is limited only by the "declared objects and purpose of the corporation and existing provisions of law." 28 It likewise interpreted the provision on the power of the president to "operate and conduct the business of the corporation according to the orders, directives or resolutions of the board of directors and according to his own judgment and discretion whenever the same is not expressly limited by such orders, directives and resolutions," to mean that the president can operate and conduct the business of the corporation according to his own judgment and discretion as long as it is not expressly limited by the orders, directives or resolutions of the board of directors. 29 The

trial court found no evidence that the board had set a prior limitation upon the exercise of such judgment and discretion; it further ruled that the By-Laws, does not require that Exhibit "A" be approved by the Board of Directors. Finally, in the light of the Chairman's power to "execute and sign for and in behalf of the corporation all contracts or agreements which the corporation may enter into" (Exhibit "I-1"), it concluded that Mr. Maglana merely followed the By-Laws "presumably both as president and chairman of the board thereof." 30 Hence, Exhibit "A" was validly entered into by Maglana and thus binds the corporation.
The trial court, however, ruled that the option to sell is not valid because it is not supported by any consideration distinct from the price; it was exercised before compliance with the original contract by PWCC; and the repudiation of the original contract by PWCC was deemed a withdrawal of the option before acceptance by the petitioner. Both parties appealed from the said decision to the respondent Court of Appeals before which petitioner presented the following Assignment of Errors: I THE TRIAL COURT ERRED IN HOLDING THAT THE OPTION TO RENEW THE CONTRACT OF SALE IS NOT ENFORCEABLE BECAUSE THE OPTION WAS MADE EVEN BEFORE THE COMPLIANCE OF (sic) THE ORIGINAL CONTRACT BY DEFENDANT AND THAT DEFENDANT'S PROMISE TO SELL IS NOT SUPPORTED BY ANY CONSIDERATION DISTINCT FROM THE PRICE. II THE TRIAL COURT ERRED IN NOT AWARDING TO THE PLAINTIFF ACTUAL DAMAGES, SUFFICIENT EXEMPLARY DAMAGES AND ATTORNEY'S FEES AS ALLEGED IN THE COMPLAINT AND PROVEN DURING THE TRIAL." 31 while the private respondent cited the following errors: I THE TRIAL COURT ERRED IN HOLDING THAT EXHIBIT "A" IS A VALID CONTRACT OR PLAINTIFF CAN CLAIM THAT THE PROPOSED LETTER-CONTRACT, EXHIBIT "A" IS LEGALLY ENFORCEABLE, AS THE SAME IS A MERE UNACCEPTED PROPOSAL, NOT HAVING BEEN PREVIOUSLY AUTHORIZED TO BE ENTERED INTO OR LATER ON RATIFIED BY THE DEFENDANTS BOARD OF DIRECTORS; IN FACT EXHIBIT "A" WAS TOTALLY REJECTED AND DISAPPROVED IN TOTO BY THE DEFENDANT'S BOARD OF DIRECTORS IN CLEAR, PLAIN LANGUAGE AND DULY INFORMED AND TRANSMITTED TO PLAINTIFF. II THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFF CAN LEGALLY UTILIZE THE COURTS AS THE FORUM TO GIVE LIFE AND VALIDITY TO A TOTALLY UNENFORCEABLE OR NON-EXISTING CONTRACT.

III THE TRIAL COURT ERRED IN ALLOWING YAO KA SIN TO IMPUGN AND CONTRADICT HIS VERY OWN ACTUATIONS AND REPUDIATE HIS ACCEPTANCE AND RECEIPTS OF BENEFITS FROM THE COUNTER-OFFER OF DEFENDANT FOR 10,000 BAGS OF CEMENT ONLY, UNDER THE PRICE, TERMS AND CONDITIONS TOTALLY FOREIGN TO AND WHOLLY DIFFERENT FROM THOSE WHICH APPEAR IN EXHIBIT "A". IV THE TRIAL COURT ERRED IN DISMISSING DEFENDANT'S COUNTER-CLAIMS AS THE SAME ARE DULY SUPPORTED BY CLEAR AND INDUBITABLE EVIDENCE. 32 In its decision 33 promulgated on 21 December 1979, the respondent Court reversed the decision of the trial

court, thus:
WHEREFORE, the judgment appealed from is REVERSED and set aside, Plaintiff's complaint is dismissed with costs. Plaintiff is ordered to pay defendant corporation P25,000.00 exemplary damages, and P10,000.00 attorney's fees. SO ORDERED. Such conclusion is based on its findings, to wit: Before resolving the issue, it is helpful to bring out some preliminary facts. First, the defendant corporation is supervised and principally financed by the National Investment and Development Corporation (NIDC), a subsidiary investment of the Philippine National Bank (PNB), with cash financial exposure of some P10,000,000.00. PNB is a government financial institution whose Board is chairmaned (sic) by the Minister of National Defense. This fact is very material to the issue of whether defendant corporations president can bind the corporation with his own act. Second, for failure to deny under oath the following actionable documents in support of defendant's counterclaim: 1. The resolution contained in defendant's letter to plaintiff dated July 5, 1973, on the 10,000 bags of white cement delivered to plaintiff was not by reason of the letter contract, Exhibit "A", which was totally disapproved by defendant corporation's board of directors, clearly stating that "If within ten (10) days from date hereof, we will not hear from you but you will withdraw cement at P24.30 per bag from our plant, then we will deposit your check of P243,000.00 dated June 7, 1973 issued by the Producers Bank of the Philippines, per instruction of the Board." (Annex "I" to defendant's Answer). 2. Letter of defendant to plaintiff dated August 4, 1973 that defendant "only committed to you and which you accordingly paid 10,000 bags of white cement of which 4,150 bags were already delivered to you as of August 1, 1973" (Annex "2" of defendant's Answer). 3. Letter dated August 21, 1973 to plaintiff reiterating defendant's letter of August 4, 1973 (Annex "3" to defendant's Answer). 4. Letter to stores dated August 21, 1973, 5. Receipt from plaintiff (sic) P243,000.00 in payment of 10,000 bags of white cement at P24.30 per bag (Annex "5", to defendant's Answer).

plaintiff is deemed to have admitted, not only the due execution and genuiness (sic) of said documents, (Rule 8 Sec. 8, Rules of Court) but also the allegations therein (Rule 9, Sec. 1, Rules of Court). All of the foregoing documents tend to prove that the letter-offer, Exhibit "A", was rejected by defendant corporation's Board of Directors and plaintiff was duly notified thereof and that the P243,000.00 check was considered by both parties as payment of the 10,000 bags of cement under a separate transaction. As proof of which plaintiff did not complain nor protest until February 9, 1974, when he threatened legal action. Third, Maglana's signing the letter-offer prepared for him in the Solidbank was made clearly upon the condition that it was subject to the approval of the board of directors of defendant corporation. We find consistency herein because according to the Corporation Law, and the By-Laws of defendant corporation, all corporate commitments and business are conducted by, and contracts entered into through, the express authority of the Board of Directors (Sec. 28. Corp. Law, Exh "I" or "8"). Fourth, What Henry Yao and Maglana agreed upon as embodied in Exhibit "A", insofar as defendant corporation is concerned, was an unauthorized contract (Arts. 1317 and 1403 (1), Civil Code). And because Maglana was not authorized by the Board of Directors of defendant corporation nor was his, actuation ratified by the Board, the agreement is unenforceable (Art. 1403 (1), Civil Code; Raquiza et al. vs. Lilles et al., 13 CA Rep. 343; Gana vs. Archbishop of Manila, 43 O-G. 3224). While it may be true that Maglana is President of defendant corporation nowhere in the Articles of Incorporation nor in the By-Laws of said corporation was he empowered to enter into any contract all by himself and bind the corporation without first securing the authority and consent of the Board of Directors. Whatever authority Maglana may have must be derived from the Board of Directors of defendant corporation. A corporate officers power as an agent must be sought from the law, the articles of incorporation and the By-Laws or from a resolution of the Board (Vicente vs. Geraldez, 52 SCRA 227, Board of Liquidators vs. Kalaw, 20 SCRA 987). It clearly results from the foregoing that the judgment appealed from is untenable. Having no cause of action against defendant corporation, plaintiff is not entitled to any relief. We see no justification, therefore, for the court a quo's awards in its favor. . . . 34 Its motion for reconsideration having been denied by the respondent Court in its resolution
35

dated 15 April 1980,

petitioner filed the instant petition based on the following grounds:

1. That the contract (Exh. "A") entered into by the President and Chairman of the Board of Directors Constancio B. Maglana in behalf of the respondent corporation binds the said corporation. 2. That the contract (Exh. "A") was never novated nor superceded (sic) by a subsequent contract. 3. That the option to renew the contract as contained in Exhibit "A" is enforceable. 4. That Sec. 8, Rule 8 of the Rules of Court only applies when the adverse party appear (sic) to be a party to the instrument but not to one who is not a party to the instrument and Sec. 1, Rule 9 of the said Rules with regards (sic) to denying under oath refers only to allegations of usury. 36 We gave due course 37 to the petition after private respondent filed its Comment

and required the parties to submit simultaneously their Memoranda, which the parties subsequently complied with. 39
Before going any further, this Court must first resolve an issue which, although raised in the Answer of private respondent, was neither pursued in its appeal before the respondent Court nor in its Comment and Memorandum in this case. It also eluded the attention of the trial court and the respondent Court. The issue, which is of paramount importance, concerns the lack of capacity of plaintiff/petitioner to sue. In the caption of both the complaint and the instant petition, the plaintiff and the petitioner, respectively, is:

38

YAO KA SIN TRADING, owned and operated by YAO KA SIN. 40 and is described in the body thereof as "a business concern of single proprietorship owned and operated by Yao Ka Sin." 41 In the body of the petition, it is described as "a single proprietorship business concern." 42 It also

appears that, as gathered from the decision of the trial court, no Yao Ka Sin testified. Instead, one Henry Yao took the witness stand and testified that he is the "manager of Yao Ka Sin Trading" and "it was in representation of the plaintiff" that he signed Exhibit "A" 43 Under Section 1, Rule 3 of the Rules of Court, only natural or juridical persons or entities authorized by law may be parties in a civil action. In Juasing Hardware vs. Mendoza, 44 this Court held that a single proprietorship is neither a natural person nor a juridical person under Article 44 of the Civil Code; it is not an entity authorized by law to bring suit in court:
The law merely recognizes the existence of a sole proprietorship as a form of business organization conducted for profit by a single individual, and requires the proprietor or owner thereof to secure licenses and permits, register the business name, and pair taxes to the national government. It does not vest juridical or legal personality upon the sole proprietorship nor empower it to file or defend an action in court. 45 Accordingly, the proper party plaintiff/petitioner should be YAO KA SIN. 46 The complaint then should have been amended to implead Yao Ka Sin as plaintiff in substitution of Yao Ka Sin Trading. However, it is now too late in the history of this case to dismiss this petition and, in effect, nullify all proceedings had before the trial court and the respondent Court on the sole ground of petitioner's lack of capacity to sue. Considering that private respondent did not pursue this issue before the respondent Court and this Court; that, as We held in Juasing, the defect is merely formal and not substantial, and an amendment to cure such defect is expressly authorized by Section 4, Rule 10 of the Rules of Court which provides that "[a] defect in the designation of the parties may be summarily corrected at any stage of the action provided no prejudice is caused thereby to the adverse party;" and that "[a] sole proprietorship does not, of coarse, possess any juridical personality separate and apart from the personality of the owner of the enterprise and the personality of the persons acting in the name of such proprietorship," 47 We hold and declare that Yao Ka Sin should be deemed as the plaintiff in Civil Case No.

5064 and the petitioner in the instant case. As this Court stated nearly eighty (80) years ago in Alonso vs. Villamor: 48
No one has been misled by the error in the name of the party plaintiff. If we should by reason of this error send this case back for amendment and new trial, there would be on the retrial the same complaint, the same answer, the same defense, the same interests, the same witnesses, and the same evidence. The name of the plaintiff would constitute the only difference between the old trial and the new. In our judgment there is not enough in a name to justify such action. And now to the merits of the petition. The respondent Court correctly ruled that Exhibit "A" is not binding upon the private respondent. Mr. Maglana, its President and Chairman, was not empowered to execute it. Petitioner, on the other hand, maintains that it is a valid contract because the Maglana has the power to enter into contracts for the corporation as implied from the following provisions of the By-Laws of private respondent: a) The power of the Board of Directors to . . . enter into (sic) agreement or contract of any kind with any person in the name and for and in behalf of the corporation through its President, subject only to the declared objects and purpose of the corporation and the existing provisions of law. (Exhibit "8-A"); and b) The power of the Chairman of the Board of Directors to "execute and sign, for and in behalf of the corporation, all contracts or agreements which the corporation may enter into" (Exhibit "I-1"). And even admitting, for the sake of argument, that Mr. Maglana was not so authorized under the By-Laws, the private respondent, pursuant to the doctrine laid down by this Court in Francisco vs. Government Service Insurance

System 49 and Board of Liquidators vs. Kalaw,

50

is still bound by his act for clothing him with apparent

authority.
We are not persuaded. Since a corporation, such as the private respondent, can act only through its officers and agents, "all acts within the powers of said corporation may be performed by agents of its selection; and, except so far as limitations or restrictions may be imposed by special charter, by-law, or statutory provisions, the same general principles of law which govern the relation of agency for a natural person govern the officer or agent of a corporation, of whatever status or rank, in respect to his power to act for the corporation; and agents when once appointed, or members acting in their stead, are subject to the same rules, liabilities and incapacities as are agents of individuals and private persons." 51 Moreover, " . . . a corporate officer or agent may represent and bind the corporation in

transactions with third persons to the extent that authority to do so has been conferred upon him, and this includes powers which have been intentionally conferred, and also such powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has conferred. 52
While there can be no question that Mr. Maglana was an officer the President and Chairman of private respondent corporation at the time he signed Exhibit "A", the above provisions of said private respondent's By-Laws do not in any way confer upon the President the authority to enter into contracts for the corporation independently, of the Board of Directors. That power is exclusively lodged in the latter. Nevertheless, to expedite or facilitate the execution of the contract, only the President and not all the members of the Board, or so much thereof as are required for the act shall sign it for the corporation. This is the import of the words through the president in Exhibit "8-A" and the clear intent of the power of the chairman "to execute and sign for and in behalf of the corporation all contracts and agreements which the corporation may enter into" in Exhibit "I-1". Both powers presuppose a prior act of the corporation exercised through the Board of Directors. No greater power can be implied from such express, but limited, delegated authority. Neither can it be logically claimed that any power greater than that expressly conferred is inherent in Mr. Maglana's position as president and chairman of the corporation. Although there is authority "that if the president is given general control and supervision over the affairs of the corporation, it will be presumed that he has authority to make contract and do acts within the course of its ordinary business," 53 We find such inapplicable in this case. We note that the private corporation has a general

manager who, under its By-Laws has, inter alia, the following powers: "(a) to have the active and direct management of the business and operation of the corporation, conducting the same accordingly to the order, directives or resolutions of the Board of Directors or of the president." It goes without saying then that Mr. Maglana did not have a direct and active and in the management of the business and operations of the corporation. Besides, no evidence was adduced to show that Mr. Maglana had, in the past, entered into contracts similar to that of Exhibit "A" either with the petitioner or with other parties.
Petitioner's last refuge then is his alternative proposition, namely, that private respondent had clothed Mr. Maglana with the apparent power to act for it and had caused persons dealing with it to believe that he was conferred with such power. The rule is of course settled that "[a]lthough an officer or agent acts without, or in excess of, his actual authority if he acts within the scope of an apparent authority with which the corporation has clothed him by holding him out or permitting him to appear as having such authority, the corporation is bound thereby in favor of a person who deals with him in good faith in reliance on such apparent authority, as where an officer is allowed to exercise a particular authority with respect to the business, or a particular branch of it, continuously and publicly, for a considerable time." 54 Also, "if a private corporation intentionally or negligently clothes its officers or agents

with apparent power to perform acts for it, the corporation will be estopped to deny that such apparent authority in real, as to innocent third persons dealing in good faith with such officers or agents." 55 This "apparent authority may result from (1) the general manner, by which the corporation holds out an officer or agent as having power to act or, in other words, the apparent authority with which it clothes him to act in general or (2) acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or without the scope of his ordinary powers. 56

It was incumbent upon the petitioner to prove that indeed the private respondent had clothed Mr. Maglana with the apparent power to execute Exhibit "A" or any similar contract. This could have been easily done by evidence of similar acts executed either in its favor or in favor of other parties. Petitioner miserably failed to do that. Upon the other hand, private respondent's evidence overwhelmingly shows that no contract can be signed by the president without first being approved by the Board of Directors; such approval may only be given after the contract passes through, at least, the comptroller, who is the NIDC representative, and the legal counsel. The cases then of Francisco vs. GSIS and Board of Liquidators vs. Kalaw are hopelessly unavailing to the petitioner. In said cases, this Court found sufficient evidence, based on the conduct and actuations of the corporations concerned, of apparent authority conferred upon the officer involved which bound the corporations on the basis of ratification. In the first case, it was established that the offer of compromise made by plaintiff in the letter, Exhibit "A", was validly accepted by the GSIS. The terms of the trial offer were clear, and over the signature of defendant's general manager Rodolfo Andal, plaintiff was informed telegraphically that her proposal had been accepted. It was sent by the GSIS Board Secretary and defendant did not disown the same. Moreover, in a letter remitting the payment of P30,000 advanced by her father, plaintiff quoted verbatim the telegram of acceptance. This was in itself notice to the corporation of the terms of the allegedly unauthorized telegram. Notwithstanding this notice, GSIS pocketed the amount and kept silent about the telegram. This Court then ruled that: This silence, taken together with the unconditional acceptance of three other subsequent remittances from plaintiff, constitutes in itself a binding ratification of the original agreement (Civil Code, Art. 1393). Art. 1393. Ratification may be effected expressly or tactly it is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right In the second case, this Court found: In the case at bar, the practice of the corporation has been to allow its general manager to negotiate and execute contracts in its copra trading activities for and in NACOCO's behalf without prior board approval. If the by-laws were to be literally followed, the board should give its stamp of prior approval on all corporate contracts. But that board itself, by its acts and through acquiescence, practically laid aside the by-laws requirement of prior approval. Under the given circumstances, the Kalaw contracts are valid corporate acts. The inevitable conclusion then is that Exhibit "A" is an unenforceable contract under Article 1317 of the Civil Code which provides as follows: Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him. A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it, has been execrated, before it is revoked by the other contracting party. The second ground is based on a wrong premise. It assumes, contrary to Our conclusion above, that Exhibit "A" is a valid contract binding upon the private respondent. It was effectively disapproved and rejected by the Board of Directors which, at the same time, considered the amount of P243,000.00 received Mr. Maglana as payment for 10,000 bags of white cement, treated as an entirely different contract, and forthwith notified petitioner of its decision that "If within ten (10) days from date hereof we will not hear from you but you will withdraw cement at P24.30 per bag from our plant, then we will deposit your check of P243,000.00 dated June 7, 1973 issued by the Producers Bank of 57 the Philippines, per instruction of the Board." Petitioner received the copy of this notification and thereafter accepted without any protest the Delivery Receipt covering the 10,000 bags and the Official Receipt for the P243,000.00. The respondent Court thus correctly ruled that petitioner had in fact agreed to a new transaction involving only 10,000 bags of white cement.

The third ground must likewise fail. Exhibit "A" being unenforceable, the option to renew it would have no leg to stand on. The river cannot rise higher than its source. In any event, the option granted in. this case is without any consideration Article 1324 of the Civil Code expressly provides that: When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised. while Article 1749 of the same Code provides: A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. Accordingly, even if it were accepted, it can not validly bind the private respondent. The fourth ground is, however, meritorious. Section 8, Rule 8 of the Rules of Court provides: Sec. 8. How to contest genuineness of such documents When an action or defense is founded upon a written instrument, copied in or attached in the corresponding pleading as provided in the preceding section, the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them, and sets forth what he claims to be the facts; but this provision does not apply when the adverse party does not appear, to be a party to the instrument or when compliance with an order for an inspection of the original instrument is refused. It is clear that the petitioner is not a party to any of the documents attached to the private respondent's Answer. Thus, the above quoted rule is not applicable. 59 While the respondent Court, erred in holding otherwise, the
58

challenged decision must, nevertheless, stand in view of the above disquisitions on the first to the third grounds of the petition.
WHEREFORE, judgment is hereby rendered AFFIRMING the decision of respondent Court of Appeals in C.A. G.R. No. 61072-R promulgated on 21 December 1979. Cost against the petitioner.

G.R. No. 89070 May 18, 1992 BENGUET ELECTRlC COOPERATIVE, INC., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, PETER COSALAN and BOARD OF DIRECTORS OF BENGUET ELECTRIC COOPERATIVE, INC., * respondents. FELICIANO, J.: Private respondent Peter Cosalan was the General Manager of Petitioner Benguet Electric Cooperative, Inc. ("Beneco"), having been elected as such by the Board of Directors of Beneco, with the approval of the National Electrification Administrator, Mr. Pedro Dumol, effective 16 October 1982. On 3 November 1982, respondent Cosalan received Audit Memorandum No. 1 issued by the Commission on Audit ("COA"). This Memorandum noted that cash advances received by officers and employees of petitioner Beneco in the amount of P129,618.48 had been virtually written off in the books of Beneco. In the Audit Memorandum, the COA directed petitioner Beneco to secure the approval of the National Electrification Administration ("NEA") before writing off or condoning those cash advances, and recommended the adoption of remedial measures. On 12 November 1982, COA issued another Memorandum Audit Memorandum No. 2 addressed to respondent Peter Cosalan, inviting attention to the fact that the audit of per diems and allowances received by officials and members of the Board of Directors of Beneco showed substantial inconsistencies with the directives of the NEA. The Audit Memorandum once again directed the taking of immediate action in conformity with existing NEA regulations. On 19 May 1983, petitioner Beneco received the COA Audit Report on the financial status and operations of Beneco for the eight (8) month period ended 30 September 1982. This Audit Report noted and enumerated irregularities in the utilization of funds amounting to P37 Million released by NEA to Beneco, and recommended that appropriate remedial action be taken. Having been made aware of the serious financial condition of Beneco and what appeared to be mismanagement, respondent Cosalan initiated implementation of the remedial measures recommended by the COA. The respondent members of the Board of Beneco reacted by adopting a series of resolutions during the period from 23 June to 24 July 1984. These Board Resolutions abolished the housing allowance of respondent Cosalan; reduced his salary and his representation and commutable allowances; directed him to hold in abeyance all pending personnel disciplinary actions; and struck his name out as a principal signatory to transactions of petitioner Beneco. During the period from 28 July to 25 September 1984, the respondent Beneco Board members adopted another series of resolutions which resulted in the ouster of respondent Cosalan as General Manager of Beneco and his exclusion from performance of his regular duties as such, as well as the withholding of his salary and allowances. These resolutions were as follows: 1. Resolution No. 91-4 dated 28 July 1984: . . . that the services of Peter M. Cosalan as General Manager of BENECO is terminated upon approval of the National Electrification Administration;

2. Resolution No. 151-84 dated September 15, 1984; . . . that Peter M. Cosalan is hereby suspended from his position as General Manager of the Benguet Electric Cooperative, Inc. (BENECO) effective as of the start of the office hours on September 24, 1984, until a final decision has been reached by the NEA on his dismissal; . . . that GM Cosalan's suspension from office shall remain in full force and effect until such suspension is sooner lifted, revoked or rescinded by the Board of Directors; that all monies due him are withheld until cleared; 3. Resolution No. 176-84 dated September 25, 1984; . . . that Resolution No. 151-84, dated September 15, 1984 stands as preventive suspension for GM Peter M. Cosalan. 1 Respondent Cosalan nevertheless continued to work as General Manager of Beneco, in the belief that he could be suspended or removed only by duly authorized officials of NEA, in accordance with provisions of P.D. No, 269, as amended by P.D. No. 1645 (the statute creating the NEA, providing for its capitalization, powers and functions and organization), the loan agreement between NEA and petitioner Beneco 2 and the NEA Memorandum of 2 July 1980. 3Accordingly, on 5 October and 10
November 1984, respondent Cosalan requested petitioner Beneco to release the compensation due him. Beneco, acting through respondent Board members, denied the written request of respondent Cosalan.

Respondent Cosalan then filed a complaint with the National Labor Relations Commission ("NLRC") on 5 December 1984 against respondent members of the Beneco Board, challenging the legality of the Board resolutions which ordered his suspension and termination from the service and demanding payment of his salaries and allowances. On 18 February 1985, Cosalan amended his complaint to implead petitioner Beneco and respondent Board members, the latter in their respective dual capacities as Directors and as private individuals. In the course of the proceedings before the Labor Arbiter, Cosalan filed a motion for reinstatement which, although opposed by petitioner Beneco, was granted on 23 October 1987 by Labor Arbiter Amado T. Adquilen. Petitioner Beneco complied with the Labor Arbiter's order on 28 October 1987 through Resolution No. 10-90. On 5 April 1988, the Labor Arbiter rendered a decision (a) confirming Cosalan's reinstatement; (b) ordering payment to Cosalan of his backwages and allowances by petitioner Beneco and respondent Board members, jointly and severally, for a period of three (3) years without deduction or qualification, amounting to P344,000.00; and (3) ordering the individual Board members to pay, jointly and severally, to Cosalan moral damages of P50,000.00 plus attorney's fees of ten percent (10%) of the wages and allowances awarded him. Respondent Board members appealed to the NLRC, and there filed a Memorandum on Appeal. Petitioner Beneco did not appeal, but moved to dismiss the appeal filed by respondent Board members and for execution of judgment. By this time, petitioner Beneco had a new set of directors. In a decision dated 21 November 1988, public respondent NLRC modified the award rendered by the Labor Arbiter by declaring that petitioner Beneco alone, and not respondent Board members,

was liable for respondent Cosalan's backwages and allowances, and by ruling that there was no legal basis for the award of moral damages and attorney's fees made by the Labor Arbiter. Beneco, through its new set of directors, moved for reconsideration of the NLRC decision, but without success. In the present Petition for Certiorari, Beneco's principal contentions are two-fold: first, that the NLRC had acted with grave abuse of discretion in accepting and giving due course to respondent Board members' appeal although such appeal had been filed out of time; and second, that the NLRC had acted with grave abuse of discretion amounting to lack of jurisdiction in holding petitioner alone liable for payment of the backwages and allowances due to Cosalan and releasing respondent Board members from liability therefor. We consider that petitioner's first contention is meritorious. There is no dispute about the fact that the respondent Beneco Board members received the decision of the labor Arbiter on 21 April 1988. Accordingly, and because 1 May 1988 was a legal holiday, they had only up to 2 May 1988 within which to perfect their appeal by filing their memorandum on appeal. It is also not disputed that the respondent Board members' memorandum on appeal was posted by registered mail on 3 May 1988 and received by the NLRC the following day. 4 Clearly, the memorandum on appeal was filed out of
time.

Respondent Board members, however, insist that their Memorandum on Appeal was filed on time because it was delivered for mailing on 1 May 1988 to the Garcia Communications Company, a licensed private letter carrier. The Board members in effect contend that the date of delivery to Garcia Communications was the date of filing of their appeal memorandum. Respondent Board member's contention runs counter to the established rule that transmission through a private carrier or letter-forwarder instead of the Philippine Post Office is not a recognized mode of filing pleadings. 5 The established rule is that the date of delivery of pleadings to a
private letter-forwarding agency is not to be considered as the date of filing thereof in court, and that in such cases, the date of actual receipt by the court, and not the date of delivery to the private carrier, is deemed the date of filing of that pleading. 6

There, was, therefore, no reason grounded upon substantial justice and the prevention of serious miscarriage of justice that might have justified the NLRC in disregarding the ten-day reglementary period for perfection of an appeal by the respondent Board members. Accordingly, the applicable rule was that the ten-day reglementary period to perfect an appeal is mandatory and jurisdictional in nature, that failure to file an appeal within the reglementary period renders the assailed decision final and executory and no longer subject to review. 7 The respondent Board members had thus lost their
right to appeal from the decision of the Labor Arbiter and the NLRC should have forthwith dismissed their appeal memorandum.

There is another and more compelling reason why the respondent Board members' appeal should have been dismissed forthwith: that appeal was quite bereft of merit. Both the Labor Arbiter and the NLRC had found that the indefinite suspension and termination of services imposed by the respondent Board members upon petitioner Cosalan was illegal. That illegality flowed, firstly, from the fact that the suspension of Cosalan was continued long after expiration of the period of thirty (30) days, which is the maximum period of preventive suspension that could be lawfully imposed under Section 4, Rule XIV of the Omnibus Rules Implementing the Labor Code. Secondly, Cosalan had been deprived of procedural due process by the respondent Board members. He was never informed of the charges raised against him and was given no opportunity to meet those charges and present his side of whatever dispute existed; he was kept totally in the dark as to the reason or

reasons why he had been suspended and effectively dismissed from the service of Beneco Thirdly, respondent Board members failed to adduce any cause which could reasonably be regarded as lawful cause for the suspension and dismissal of respondent Cosalan from his position as General Manager of Beneco. Cosalan was, in other words, denied due process both procedural and substantive. Fourthly, respondent Board members failed to obtain the prior approval of the NEA of their suspension now dismissal of Cosalan, which prior approval was required, inter alia, under the subsisting loan agreement between the NEA and Beneco. The requisite NEA approval was subsequently sought by the respondent Board members; no NEA approval was granted. In reversing the decision of the Labor Arbiter declaring petitioner Beneco and respondent Board members solidarily liable for the salary, allowances, damages and attorney's fees awarded to respondent Cosalan, the NLRC said: . . . A perusal of the records show that the members of the Board never acted in their individual capacities. They were acting as a Board passing resolutions affecting their general manager. If these resolutions and resultant acts transgressed the law, to then BENECO for which the Board was acting in behalf should bear responsibility. The records do not disclose that the individual Board members were motivated by malice or bad faith, rather, it reveals an intramural power play gone awry and misapprehension of its own rules and regulations. For this reason, the decision holding the individual board members jointly and severally liable with BENECO for Cosalan's backwages is untenable. The same goes for the award of damages which does not have the proverbial leg to stand on. The Labor Arbiter below should have heeded his own observation in his decision Respondent BENECO as an artificial person could not have, by itself, done anything to prevent it. But because the former have acted while in office and in the course of their official functions as directors of BENECO, . . . Thus, the decision of the Labor Arbiter should be modified conformably with all the foregoing holding BENECO solely liable for backwages and releasing the appellant board members from any individual liabilities. 8 (Emphasis supplied) The applicable general rule is clear enough. The Board members and officers of a corporation who purport to act for and in behalf of the corporation, keep within the lawful scope of their authority in so acting, and act in good faith, do not become liable, whether civilly or otherwise, for the consequences of their acts, Those acts, when they are such a nature and are done under such circumstances, are properly attributed to the corporation alone and no personal liability is incurred by such officers and Board members. 9 The major difficulty with the conclusion reached by the NLRC is that the NLRC clearly overlooked or disregarded the circumstances under which respondent Board members had in fact acted in the instant case. As noted earlier, the respondent Board members responded to the efforts of Cosalan to take seriously and implement the Audit Memoranda issued by the COA explicitly addressed to the petitioner Beneco, first by stripping Cosalan of the privileges and perquisites attached to his position as General Manager, then by suspending indefinitely and finally dismissing Cosalan from such position. As also noted earlier, respondent Board members offered no suggestion at all of any just or lawful cause that could sustain the suspension and dismissal of Cosalan. They obviously wanted to get rid of Cosalan and so acted, in the words of the NLRC itself, "with indecent haste" in removing him from his position and denying him substantive and procedural due process. Thus, the record

showed strong indications that respondent Board members had illegally suspended and dismissed Cosalan precisely because he was trying to remedy the financial irregularities and violations of NEA regulations which the COA had brought to the attention of Beneco. The conclusion reached by the NLRC that "the records do not disclose that the individual Board members were motivated by malice or bad faith" flew in the face of the evidence of record. At the very least, a strong presumption had arisen, which it was incumbent upon respondent Board members to disprove, that they had acted in reprisal against respondent Cosalan and in an effort to suppress knowledge about and remedial measures against the financial irregularities the COA Audits had unearthed. That burden respondent Board members did not discharge. The Solicitor General has urged that respondent Board members may be held liable for damages under the foregoing circumstance under Section 31 of the Corporation Code which reads as follows: Sec. 31. Liability of directors, trustees or officers. Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be jointly liable and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons . . . (Emphasis supplied) We agree with the Solicitor General, firstly, that Section 31 of the Corporation Code is applicable in respect of Beneco and other electric cooperatives similarly situated. Section 4 of the Corporation Code renders the provisions of that Code applicable in a supplementary manner to all corporations, including those with special or individual charters so long as those provisions are not inconsistent with such charters. We find no provision in P.D. No. 269, as amended, that would exclude expressly or by necessary implication the applicability of Section 31 of the Corporation Code in respect of members of the boards of directors of electric cooperatives. Indeed, P.D. No. 269 expressly describes these cooperatives as "corporations:" Sec. 15. Organization and Purpose. Cooperative non-stock, non-profit membership corporations may be organized, and electric cooperative corporations heretofore formed or registered under the Philippine non-Agricultural Co-operative Act may as hereinafter provided be converted, under this Decree for the purpose of supplying, and of promoting and encouraging-the fullest use of, service on an area coverage basis at the lowest cost consistent with sound economy and the prudent management of the business of such corporations. We agree with the Solicitor General, secondly, that respondent Board members were guilty of "gross negligence or bad faith in directing the affairs of the corporation" in enacting the series of resolutions noted earlier indefinitely suspending and dismissing respondent Cosalan from the position of General Manager of Beneco. Respondent Board members, in doing so, acted belong the scope of their authority as such Board members. The dismissal of an officer or employee in bad faith, without lawful cause and without procedural due process, is an act that is contra legem. It cannot be supposed that members of boards of directors derive any authority to violate the express mandates of law or the clear legal rights of their officers and employees by simply purporting to act for the corporation they control. We believe and so hold, further, that not only are Beneco and respondent Board members properly held solidarily liable for the awards made by the Labor Arbiter, but also that petitioner Beneco which was controlled by and which could act only through respondent Board members, has a right to be reimbursed for any amounts that Beneco may be compelled to pay to respondent Cosalan. Such

right of reimbursement is essential if the innocent members of Beneco are not to be penalized for the acts of respondent Board members which were both done in bad faith and ultra vires. The liabilitygenerating acts here are the personal and individual acts of respondent Board members, and are not properly attributed to Beneco itself. WHEREFORE, the Petition for Certiorari is GIVEN DUE COURSE, the comment filed by respondent Board members is TREATED as their answer, and the decision of the National Labor Relations Commission dated 21 November 1988 in NLRC Case No. RAB-1-0313-84 is hereby SET ASIDE and the decision dated 5 April 1988 of Labor Arbiter Amado T. Adquilen hereby REINSTATED in toto. In addition, respondent Board members are hereby ORDERED to reimburse petitioner Beneco any amounts that it may be compelled to pay to respondent Cosalan by virtue of the decision of Labor Arbiter Amado T. Adquilen. No pronouncement as to costs. SO ORDERED.

A.M. No. MTJ-92-643 November 27, 1992 LOUIS VUITTON S.A., complainant, vs. JUDGE FRANCISCO DIAZ VILLANUEVA, presiding Judge, Branch 36, The Metropolitan Trial Court at Quezon City, Metro Manila, respondent.

CAMPOS, JR. J.: This is a complaint filed by Louis Vuitton, S.A., represented by counsel, Quasha Asperilla Ancheta Pea and Nolasco Law Office, against Judge Francisco Diaz Villanueva of the Metropolitan Trial Court of Quezon City, Branch 36, on the ground that the latter knowingly rendered a manifestly unjust judgment. This Court finds the following facts as relevant: In Criminal Case No. XXXVI-62431, entitled "People of the Philippines vs. Jose V. Rosario", Louis Vuitton, S.A. accused the latter of unfair competition as defined by paragraph 1 of Article 189, Revised Penal Code. The information stated: . . . the above named accused, as owner/proprietor of Manila COD Department, Store . . . did then and there, wilfully, unlawfully and feloniously manufacture, distribute, sell and offer for sale lady's bags, should (sic) bags, wallets, purses and other similar goods made of leather with the labels, trademarks and logo of "LOUIS VUITTON " and "LV", which are exclusive trademarks owned and registered with the Philippine Patent Office in the name of private complainant LOUIS VUITTON S.A. . . . thus, giving to them the general appearance of goods or products of said private complainant, or such appearance which would be likely to induce the public to believe that said goods offered are those of private complainant, in unfair competition and for the purpose of deceiving or defrauding it of its 1 legitimate trade or the public in general. . . . On February 8, 1991, before judgment, prosecution filed the Prosecution's Memorandum with Motion found in Annex "A" of the Complaint, where the prosecution prayed: Premises considered, it is most respectfully prayed that the accused Jose V. Rosario be declared guilty beyond reasonable doubt of having committed the offense described in the criminal information against him. In the alternative, if the accused cannot be held responsible for the criminal information against him, it is respectfully moved that the accused be committed to answer for the proper offense of "giving other persons (the supposed concessionaire) a chance or opportunity to commit unfair competition" (Section 1, Article 189 of the Revised Penal 2 Code in conjunction with Rule 119 of the 1985 Rules on Criminal Procedure). The trial court summarized its factual findings as follows: From the records of the case, the evidence presented and the arguments advanced by the parties, the Court finds that the complaining witness in this case is the representative and attorney-in-fact, counsel of Louis Vuitton, S.A. French Company with business address at Paris, France; that private complainant is suing the accused for the protection of the trade mark Louis Vuitton and the L.V. logo which are duly registered with the Philippine Patent Office; that on May 10, 1989, Atty. Felino Padlan of the Quasha Law

Office brought a letter to the COD informing the latter to cease and desist from selling leather articles bearing the trade marks Louis Vuitton and L.V. logo as the same is the registered trade marks belonging to the private complainant which has not authorized any person in the Philippines to sell such articles; that on August 4, 1989, prosecution witness, Miguel trade mark and logo of Louis Vuitton . . . ; that again on September 6, 1989, said Mrs. Domingo again bought from the same store a wallet with a trade mark and logo of Louis Vuitton . . . ; that on September 28 1989, the NBI, upon the request of the Quasha law Firm applied for a Search Warrant at the Metropolitan Trial Court in Quezon City; that the application was granted and the Search Warrant was issued against COD and was enforced on the same date; that from the implementation of the said date; that from the implementation of the said Search Warrant, about seventy-two (72) leather products were seized; that the accuse signed the inventory of the seized articles. The accused, on the other hand, claimed: that he is not the manufacturer or seller of the seized articles; that the said articles were sold in the store by a concessionaire by the name of Erlinda Tan who is doing business under the name of Hi-Tech Bags and wallets. 3 In acquitting the accused, the trial court gave the following reasons: From all the foregoing, considering that the accused denied being the manufacturer or seller of the seized articles, it is incumbent upon the prosecution to prove that said articles are owned and being sold by the accused. The prosecution relied as their evidence against the accused the inventory which was signed by him (accused) with a notation under his signature "owner/representative". An examination of the inventory . . . would show that the same was a prepared form of the NBI and that the accused was made to sign only on the space on the typewritten word owner/representative. Aside from this, no other evidence was presented by the prosecution to show that there is a link between the Manufacturers of the seized goods and the accused. Further, when the case was filed the Prosecutor's Office, it stated the name of the accused as the owner of the COD, but from the evidence presented, it appears that the accused is not the owner by the stockholder and the executive-vice president thereof. The prosecution evidence shows that long before the raid of September 28, 1989, surveys have been caused to be made by the Quasha Law Firm, not only at the COD but also in other department stores as far as Baguio City and Cebu City; that these seized products were being sold not only t the COD but also in some big department (sic) store such as Cash and Carry. They could have easily verified from the Securities and Exchange Commission who the actual officers of the COD [are] to be charged, but the prosecution did not do this and relied only on the inventory of the seized goods prepared by the NBI agents with the typewritten word owner/representative. With respect to the seized goods, the test of unfair competition is whether the goods have been made to appear that will likely deceive the ordinary purchaser exercising ordinary care. The seized goods which were marked as exhibits and presented to the Court would easily show that there was no attempt on the part of the manufacturer or seller to pass these goods as products of Louis Vuitton. From the price tags attached to a seized bag, it could be seen that the article carried a price tag of ONE HUNDRED FORTY-SEVEN (P147.00) PESOS, whereas, upon examination of the expert witness presented by the prosecution, he testified that a genuine bag of Louis Vuitton would cost about FOUR THOUSAND (P4,000.00) PESOS to FIVE THOUSAND (P5,000.00) PESOS. It is apparent that the seized articles did not come close to the appearance of a genuine Louis Vuitton product. Further, the buckle of the bag also carries the logo of Gucci, another trade mark. From the appearance of all the seized goods, it is very apparent that these

goods were roughly done. The quality and textures of the materials used are of low quality that an ordinary purchases (sic) exercising ordinary [care] will easily determine that they were locally manufactured and will not pass as a ( sic) genuine Louis Vuitton products. From these, the Court finds that the prosecution failed to prove that the essential elements of unfair competition, to wit: a. That the offender gives his goods the general appearance of the goods of another manufacturer or dealer; b. That the general appearance is shown in the (1) goods themselves, or in the (2) wrapping of their packages, or in the (3) device or words therein, or in (4) any other feature of their a (sic) appearance. These elements, to the mind of the Court are absent in this case. Further finally, the prosecution filed this case accused Jose V. Rosario in his personal capacity and not as an officer of the Manila COD Department Store, which is a 4 corporation, and has a separate legal personality. In the complaint, pointed out that the respondent Judge did not consider the motion of February 11, 1990. This omission of respondent judge allegedly constituted a clear and gross violation of his ministerial duty in order to allow the accused to escape criminal liability. Furthermore, complainant claimed that the respondent judge's failure to resolve the motion exposed his gross ignorance of the law. Section 11, Rule 119 of the 1985 Rules on Criminal Procedure states: Sec. 11. When mistake has been made in charging the proper offense. When it becomes manifest at any time before judgment, that a mistake has been made in charging the proper offense, and the accused cannot be convicted of the offense charged, or of any other offense necessarily included therein, the accused shall not be discharged, if there appears to be good cause to detain him. In such case the court shall commit the accused to answer for the proper information charged. Complainant also assailed respondent judge's findings that there was no unfair competition because the elements of the crime were not met, and that he seized articles did not come close to the appearance of a genuine Louis Vuitton product, the counterfeit items having been poorly, done. According to complainant, in making such conclusions, respondent judge ignored the ruling Converse Rubber Corp. vs. Jacinto 5 Rubber & Plastics Co., Inc., that "the statute on unfair competition extends protection to the goodwill of a manufacturer or dealer". Thirdly, complainant criticized respondent judge for his failure to consider the alleged lack of credibility of Felix Lizardo, the lone witness for the defense, in rendering the assailed decision. Lastly, complainant pointed out that respondent judge violated the constitutional mandate that decisions should be rendered within three (3) months from submission of the case. It appeared that the decision was date June 28, 1991 but it was promulgated only on October 25, 1991. In response to the forgoing accusations, respondent judge set forth in his comment that: 1. The evidence of the prosecution was not sufficient to sustain the conclusion that Jose V. Rosario was guilty beyond reasonable doubt. The evidence did not prove all the elements of the offense charged. He added that in deciding criminal cases, the trial court relies not on the weakness of the accused's evidence but on the strength of the evidence submitted by the prosecution.

2. His alleged failure to act on the motion was due to the prosecutor's failure to point out to the court before judgment was rendered that a mistake was made in charging the proper offense. He also added that the prosecutor's evidence did not also manifest this mistake. Citing the conclusion of the Prosecution's Memorandum with Motion of the complaint, respondent judge averred that the private prosecutor himself, instead of showing the court that the proper offense was not charged, clearly indicated that no such mistake was committed. The cited statement says; It is respectfully submitted that the prosecution had fairly proven that the accused is guilty beyond reasonable doubt of having committed the offense outlined in the criminal 6 Information against him. . . . 3. The prayer contained in the Prosecution's Memorandum with Motion should have been placed in a proper pleading. He also said that the private prosecutor should have conferred with public prosecutor if the former believed that the proper offense of giving other persons a chance to commit unfair competition would be charged against Rosario. The failure of both public and private prosecutors to take the appropriate action provided no reason for respondent judge to commit the accused to answer for the proper information. The sole issue for consideration of this Court is whether or not respondent judge is guilty of knowingly rendering a manifestly unjust judgment. The Revised Penal Code holds a judge liable for knowingly rendering a manifestly unjust judgment. Article 204 thereof provides: Any judge who shall knowingly render an unjust judgment in a case submitted to him for decision shall be punished . . . The law requires that the (a) offender is a judge; (b) he renders a judgment in a case submitted to him for 7 decision; (c) the judgment is unjust; (d) he knew that said judgment is unjust. In 8 some administrative cases decided by this Court, We have ruled that in order to hold a judge liable, it must be shown beyond reasonable doubt that the judgment is unjust and that it was made with conscious and deliberate intent to do an injustice. In this case, We are constrained to hold that complainant failed to substantiate its claims that respondent judge rendered an unjust judgment knowingly. It merely relied on the failure of respondent judge to mentioned the motion in the decision, on his alleged reliance on the testimony of defense witness and on the delay in the promulgation of the case. But they are not enough to show that the judgment was unjust and was maliciously rendered. A judgment is said to be unjust when it is contrary to the standards of conduct prescribed by law. The test to determine whether an order or judgment is unjust may be inferred from the circumstances that it is 10 contrary to law or is not supported by evidence. The decision herein rests on two legal grounds: first, that there was no unfair competition because the elements of the crime were not sufficiently proven; second, that Jose V. Rosarion who was accused as owner/proprietor of COD was not properly charged as his personality is distinct from that of the COD's. In holding that there was no unfair competition, the respondent judge said that "the seized articles did not 11 come close to the appearance of a genuine Louis Vuitton product". His pronouncement obviously had in mind the test to determine unfair competition which this Court had laid down in the case of U.S. 12 vs. Manuel, to wit:
9

. . . whether certain goods have been clothed with an appearance which is likely to deceive the ordinary purchaser exercising ordinary care, . . . In so finding that the seized products did not come close to the appearance of genuine Louis Vuittons because they were poorly done, the court considered not only their appearance but other factors as well, such as the price differences between the real and the fake products. Complainant, on the other hand, alleged that they were good workmanship. But, this Court is not in a position to review the evidence and thereafter conclude that the imitation was poorly or excellently done. The findings of fact of the trial court, 13 if supported by substantial evidence, are binding on the Supreme Court. Even on the assumption that the judicial officer has erred in the appraisal of evidence, he cannot be held administratively or civilly 14 liable for his judicial action. The second ground which was relied upon by the trial court in acquitting the accused finds basis in the well-settled doctrine that a corporation has a distinct personality from that of its stockholders/owners. A corporation is vested by law with a personality of its own, separate and distinct from that of its 15 stockholders and from that of its officers who manage and run its affairs. Furthermore, Section 23 of the Corporation Code provides: . . . the corporate powers of all corporations formed under this code shall be exercised, all business conducted, and all property of such corporations controlled and held by the Board of Directors . . . This decision is assailed to be unjust mainly because it did not consider the Prosecution's Memorandum with Motion and Motion for Early Resolution filed by private prosecutor, herein complainant, on February 8, 1991 and February 11, 1991, respectively. According to complainant, had respondent judge taken the former motion into account, he would not have acquitted the accused, Jose V. Rosario. Instead, he would have been held guilty for giving others an opportunity engage in unfair competition as prescribed by Article 189 of the Revised Penal Code. Respondent judge's judgment cannot be rendered unjust by this alone. In the first place, it would not have made any difference because Jose v. Rosario was charged as owner/proprietor. COD is not a single proprietorship but one that is run and owned by a corporation, Rosario Bros., Inc., of which the accused is stockholder and Executive Vice-President. A stockholder generally does not have a hand in the management of the corporate affairs. On the other hand, the Vice16 President had no inherent power to bind the corporation. As general rule, his duties must be specified 17 in the by-laws. In the criminal case, the information did not specify his duties as Executive VicePresident. The trial court had no basis for holding that as such, the accused entered into a contract with the concessionaire thereby giving the latter an opportunity to practice unfair competition. Whereas, Section 23 of the Corporation Code is explicit that the directors, acting as a body, exercise corporation powers and conduct the corporation's business. The board has the sole power and responsibility to 18 decide whether a corporation should enter into any contract or perform any act. The amendment of the charge, as proposed by the private prosecutor, would not in any way affect the application of the doctrine that the corporation has a personality distinct from that of its owners. Moreover, the finding of the trial court that there is no unfair competition rendered the consideration of the motions insignificant. If there was unfair competition, so would there be no offense of giving others an opportunity to engage in unfair competition since there was no unfair competition to begin with. Herein complainant also failed to prove malice and deliberate intent on the part of respondent judge to perpetrate an unjustice. We hereby quoted the decision of this Honorable Court in Sta. Maria 19 vs. Ubay, stating that:

. . . complainant failed to show any unmistakable indication that bad faith motivated the alleged unjust actuations of the respondent judge . . . Absent, thus, any positive evidence on record that the respondent judge rendered judgment in question with conscious and deliberate intent to do an injustice, the . . . charge of the complainant must fall. In Mendoza vs. Villaluz,
20

this Court has also held:

. . . it is a fundamental rule of long standing that a judicial officer when required to exercise his judgment or discretion is not criminally liable for any error he commits provided he acts in good faith, that in the absence of malice or any wrongful conduct . . . the judge cannot be held administratively responsible . . . for "no one, called upon to try the facts or interpret the law in the process of administering justice can be infallible in his judgment," and "to hold a judge administratively accountable for every erroneous ruling or decision he renders assuming that he has erred, would be nothing short of harrasment or would make his position unbearable. This pronouncement has been reiterated by Us in the case of Miranda vs. Judge Manalastas, We said:
21

where

Well established is the rule that mere errors in the appreciation of evidence, unless so gross and patent as to produce an inference of ignorance or bad faith, or that the judge knowingly rendered an unjust decision, are irrelevant and immaterial in administrative proceedings against him. No one called upon to try the facts or interpret the law in the process of administering justice is infallible in his judgment. All that is expected of him is that he follows the rules prescribed to ensure a fair and impartial hearing, assess the different factors that emerge therefrom and bear on the issues presented, and on the basis of the conclusions he find established, with only his conscience and knowledge of the law to guide him, adjudicate the case accordingly. . . . If in the mind of the respondent, the evidence for the defense was entitled to more weight and credence, the cannot held to account administratively for the result of his ratiocination. For that is the very essence of judicial inquiry: otherwise the burdens of judicial office will be intolerable. (Emphasis supplied) A judge cannot be subjected to liability civil, criminal, or administrative for any his official acts, not 22 23 matter how erroneous, as long as he acts in good faith. In Pabalan vs. Guevarra, the Supreme Court spoke of the rationale for this immunity. We held, thus: . . . it is a general principle of the highest importance to the proper administration of justice that a judicial officer, in exercising the authority vested in him, shall be free to act the authority vested in him, shall be free to act upon his own convictions, without apprehension of personal consequences to himself." This concept of judicial immunity rests upon consideration of public policy, its purpose being to preserve the integrity and independence of the judiciary. Still, complainant wants Us to apply the Res Ipsa Loquitur Doctrine as applied by this Court in the cases 24 25 of People vs.Valenzuela; Cathay Pacific Airways vs. Romillo; In Re: Wenceslao 26 27 Laureta; and Consolidated Bank and Trust Corporation vs. Capistrano. That doctrine, however, is not applicable to the case at bar. In similar administrative cases separately 28 29 filed against Judge Liwag and Judge Dizon, We have ruled that: In these res ipsa loquitur resolutions, there was on the face of the assailed decisions, an inexpliacable grave error bereft of any redeeming feature, a patent railroading of a case to bring about an unjust decision, or a manifestly deliberate intent to wreak ( sic) an

injustice against a hapless party. The facts themselves, previously proven or admitted, were of such a character as to give rise to a strong inference that evil intent was present. Such intent, in short, was clearly deducible from what was already of record. The res ipsa loquitur doctrine does not except or dispense with the necessity of proving the facts on which the inference of evil intent is based. It merely expresses the clearly sound reasonable conclusion that when such facts are admitted or are already shown by the record, and no credible explanation that would negative the strong inference of evil intent is forthcoming, no further hearing to establish them to support a judgment as to the culpability of a respondents is necessary . Thus, when asked to explain the clearly gross ignorance of law or the grave misconduct irresistibly reflecting on their integrity, the respondent Judges were completely unable to give any credible explanation or to raise reasonable doubt . . . (Emphasis supplied). Thus, even granting that res ipsa loquitur is appreciable, complainant still has to present proof of malice and bad faith. Respondent judge, on the other hand, may raise good faith as a defense. That good faith is 30 a defense to the charge of knowingly rendering an unjust judgment remains to be the law. He is also given the chance to explain his acts and if such explanation is credible, the court may absolve him of the charge. In this case, We find that the facts and the explanation rendered by Judge Villanueva justify his absolution from the charge. However, while he is held to be not guilty, he should avoid acts which tend to cast doubt on his integrity. Moreover, his delay in the promulgation of this case deserves a reprimand from this Court as it is contrary to the mandate of our Constitution which enshrines the right of the litigants to a speedy disposition of their cases. WHEREFORE, in view of the foregoing, this complaint is hereby DISMISSED for lack of merit. Considering the delay in the promulgation of the decision of this case by respondent judge, a reprimand is in order. SO ORDERED.

G.R. No. 91436 May 24, 1993 METROPOLITAN BANK & TRUST COMPANY, petitioner, vs. QUILTS & ALL, INC., respondent. Balane, Barican, Cruz, Alampay Law Office for petitioner. Ranel L.Trinidad for private respondent.

MELO, J.: The petition for review before us was filed under Rule 45 of the Revised Rules of Court and seeks to set aside the decision of the Court of Appeals in CA-G.R. SP No. 18666 (Annex "L", pp. 98-104, Rollo) dated November 27, 1989, which disposed: WHEREFORE, judgment is hereby rendered giving due course to the petition and declaring that the honorable respondent court is without jurisdiction to pass upon the issue against defendants Senen B. Dizon and Relita P. de los Santos anent the authority of Senen B. Dizon to enter into a mortgage contract as this falls within the original and exclusive jurisdiction of the Securities and Exchange Commission, and ordering the suspension of further proceedings in Civil Case No. 5570 until said issue shall have been resolved by the Securities and Exchange Commission. Without pronouncement as to costs. (p. 103, Rollo) On April 7, 1987, Relita P. de los Santos (de los Santos) then Corporate Secretary then issued a Secretary's Certificate (Annex "A", p. 31, Rollo) which certified that in a special meeting of the Board of Directors of Quilts and All, Inc. (Quilts) its President, Mr. Senen B. Dizon (Dizon) was authorized and empowered to mortgage in favor of Metrobank, an property belonging to Quilts. On the basis of this Secretary's Certificate, Metrobank restructured Dizon's existing personal loan in the amount of P700,000.00 (Comment, p. 121, Rollo), secured by his house and lot at Angeles City and the property owned by Quilts covered by Transfer Certificate of Title No. 74172 (Annex "B", p. 32, Rollo). Aside from the mortgage lien, the secretary's Certificate was likewise annotated on TCT No. 74172 on April 10, 1977. On July 7, 1988, more than a year later, Metrobank received a letter from Atty. Cesar Villanueva, Quilt's counsel (Annex "D", p. 35, Rollo) offering the amount of P200,000.00 for the cancellation of the mortgage on the property owned by Quilts because, allegedly, "Mr. & Mrs. Senen Dizon had left the Philippines, leaving several creditors." Metrobank refused the offer since the amount offered did not approximate the appraised value of the mortgaged property. (Petition, p. 10, Rollo) On October 4, 1988, Atty. Ranel L. Trinidad, Quilt's new counsel wrote Metrobank. (Annex "C", p. 33, Rollo), reiterating the mortgage cancellation. In addition, counsel claimed that the alleged April 7, 1987 special meeting could not have taken place for lack of the requisite number of directors present to constitute a quorum since the Chairman and 2 other members of the Board of Directors were aboard on that date. On October 20, 1988, Quilts filed a complaint against Metrobank, Dizon and de los Santos for annulment and cancellation of mortgage (CC 5570, RTC-Br. 58, Angeles City) (Annex "E", p. 37, Rollo). On December 12, 1988, Metrobank moved to dismiss the complaint based on 1) lack of jurisdiction and 2)

failure to state a cause of action. Judge Reynaldo B. Daway, granted the motion on February 9, 1989. (Annex "G", p. 51, Rollo). However, on August 4, 1989, upon Quilt's motion, Judge Daway issued an Order (Annex "J", p. 73, Rollo) reconsidering and setting aside the dismissal order because the grounds relied upon by Metrobank "did not appear to be indubitable", and deferred the determination of the motion until the trial. Metrobank filed an original petition for certiorari, prohibition or mandamus, contesting the reinstatement of the complaint and in the process reiterating as grounds lack of jurisdiction on the part of the trial court and failure of Quilt's complaint to state a cause of action. The Court of Appeals upheld the jurisdiction of the lower Court only with respect to Metrobank. It dismissed the case against Dizon and de los Santos, since the issue of whether or not these two persons had committedultra vires acts is an intra-corporate matter which falls within the original and exclusive jurisdiction of the Securities and Exchange commission (SEC) pursuant to section 5 of Presidential Decree 902-A, as amended. Pending the outcome of the case that would be filed in the SEC, however, the Court of Appeals directed the suspension of the proceedings against Metrobank. The appellate court also stated that paragraph 10 of Quilt's complaint was sufficient basis for Quilt's case against Metrobank. Hence, the instant petition in which the central and key issue is whether or not Quilt's complaint sufficiently states a cause of action against Metrobank. Pertinent allegations of Quilt's complaint are quoted below: 4. That sometime on 7 April 1987, defendant Relita P. Delos Santos issued and signed a secretary's certificate certifying that she was the incumbent corporate secretary of plaintiff corporation and that a special meeting of the Board of Directors thereof was held on the same date at its principal office and that a resolution was passed and approved authorizing and empowering Senen B. Dizon, the then president of plaintiff corporation as the latter's attorney-in-fact, to mortgage in favor of defendant Metropolitan bank & Trust Company-Dau Branch the plaintiff's corporation's real property located at the Riverside Subd., Angeles City, covered by Transfer Certificate of Title No. 74172, Registry of Deeds of Angeles City, containing an area of 823 square meters, as security of the loan of SEVEN HUNDRED THOUSAND (P700,000.00) Philippine Pesos obtained by Mr. Senen B. Dizon in his personal capacity from the said bank, with full power and authority for Mr. Senen B. Dizon to sign, execute, acknowledge and deliver, for and in behalf of the plaintiff corporation relating to the said loan. A machine copy of the said secretary's certificate is hereto attached as Annex "B" hereof; 5. That verifications made later by the stockholders and some members of the Board of Directors of the plaintiff corporation with the Registry of Deeds of Angeles City revealed that the parcel of land owned by the plaintiff corporation covered by TCT No. 74172 was mortgaged in favor of the defendant Metropolitan bank & Trust Company to guaranty the personal obligation of defendant Senen B. Dizon in the principal amount of P700,000.00 (see Annex "A-2" hereof); 6. That on 7 April 1987, plaintiff corporation had for its Board of Directors five (5) members namely: Romeo V. Rosas, Arcadio R. Sarmiento, Jr., Romeo N. Pangilinan, Senen B. Dizon, and Relita P. Delos Santos, and for a quorum to be had, for purposes of holding a valid meeting of the Board of Directors, at least three (3) members thereof should be present thereat; 7. That on 7 April 1987, Mr. Romeo V. Rosas was in the United States of America while Mr. Arcadio R. Sarmiento, Jr. was then in New Zealand. Mr. Romeo N. Pangilinan, although in the country on the said date, was never informed and never attended a

meeting of the plaintiff corporation's Board of Directors. With the absence of three (3) of plaintiff corporation's five (5) member Board of Directors, no valid meeting could have been held; 8. That a perusal of the Amended Articles of Incorporation of the plaintiff corporation, particularly under the primary and secondary purposes for which it was created, will reveal that the corporation can not hypothecate any of its properties to secure the personal obligations of any of its shareholders, directors or officers. A machine copy of the plaintiff's corporation Amended Articles of Incorporation is hereto attached as Annexes "C" to "C-8" for pages 1 to 9, respectively, hereof; 9. That a letter demanding for the immediate cancellation of the real estate mortgage constituted upon TCT No. 74172 in favor of defendant Metropolitan Bank & Trust Company have been sent to the latter through its Dau branch Manager and Legal Department but the said bank failed and refused to comply with the valid demand of the plaintiff corporation. A copy of the said letter is hereto attached as Annexes "D" and "D-1" for pages 1 and 2, respectively, hereof; 10. That plaintiff corporation suffered and continue to suffer actual damages as a result of the illegal acts of defendants for which the former should be compensated in an amount to be proved during the trial of the instant cases. (pp. 38-40, Rollo). An examination of the complaint shows that the allegations therein pertain mostly to the alleged ultra vires acts of Dizon and de los Santos. Paragraph 10 of the complaint, upon which both the trial court and the Court of Appeals premised a case against Metrobank, merely expresses legal conclusions, and is not an averment or allegation of ultimate facts. In the case of Alzua and Armalot vs. Johnson, (21 Phil. 308 [1912]), we stated : . . . neither legal conclusions, nor conclusions or inferences of facts from facts not stated, nor incorrect inferences or conclusions from facts stated, being admitted by a demurrer to a complaint, conclusions of this nature is no wise aid the pleading. The ultimate facts upon which such conclusions rest must be alleged, though merely probative or evidential facts may be and should be omitted. (at p. 381.) We agree with Metrobank that the complaint does not contain allegations that Metrobank had prior knowledge of, or could have known with the exercise of due diligence, that the recitals in the Secretary's Certificate were false. The complaint does not even allege specific overt acts which show that Metrobank acted in conspiracy with its co-defendants to defraud Quilts. In the case of Bacolod-Murcia Milling Co., Inc. vs. First Farmers Milling Co., Inc. [103 SCRA 436 (1981)] we stated: . . . Granting, for the sake of argument, that, indeed, assistance in the "illegal" act was rendered, the same, however, is not supported by well-pleaded averments of facts. Nowhere is it alleged that defendants-appellees had notice, information or knowledge of any flaw, much less any illegality, in their co-defendants' actuations, assuming that there was such flaw or illegality. This absence is fatal and buoys up instead the PNB-NIDC's position of lack of cause of action. . . . (at pp. 441-442.) Although it is averred that the defendant's acts were done in bad faith, the Complaint does not contain any averment of facts showing that the acts were done in the manner alleged. Such a bare statement neither establishes any right or cause of action on the part of the plaintiff-appellant. It is a mere conclusion of law not sustained by declarations of facts, much less admitted by defendants-appellees. It does not, therefore, aid in any wise the complaint in setting forth a cause of action. . . . (pp. 441-442.)

On the other hand, Metrobank cannot be faulted for relying on the Secretary's Certificate. It did so in good faith, unaware of any flaw and on the presumption that the ordinary course of business had been followed (Sec. 5-q, Rule 131, Revised Rules of Court) and that the Corporate Secretary had regularly performed her duties. WHEREFORE, premises considered, the herein petition is GRANTED. The Resolution of the Court of Appeals in CA-G.R. SP No. 18666, dated November 27, 1989 is MODIFIED in that Civil Case No. 5570 against Metrobank is hereby DISMISSED. No special pronouncement is made as to costs. SO ORDERED.

[G.R. No. 136421. November 23, 2000]

JOSE and ANITA LEE, petitioners, vs. COURT OF APPEALS, HON. N.C. PERELLO, as Judge of RTC, Branch 276, Muntinlupa City and Heirs of the deceased SPOUSES MANUEL and CARMEN RECARIO, respondents. DECISION MENDOZA, J.: This is a petition for review of the resolution of the Court of Appeals dismissing petitioners appeal from a decision of the Regional Trial Court, Branch 276, Muntinlupa City, ordering petitioners to vacate a piece of land in Alabang, Muntinlupa and to pay rents and damages. The undisputed facts are as follows. On August 1, 1986, petitioner Anita Lee, nee Anita Rivero, entered into a contract with Carmen C. Recario with regard to the land in question which the latter owned. The contract reads: AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This Indenture, made and executed by and between: CARMEN C. RECARIO, of legal age, Filipino, widow and a resident of 690 T. Sulit St., Int. 7, Aguho, Pateros, Metro Manila, for herself and as Attorney-in-Fact of her children, namely: Maribeth, Marites, Marivic, Mariveluza, Maridel, Brando, Maricarl and Renrickz, all surnamed RECARIO, as per Power of Attorney acknowledged on 15 July 1985 before Notary Public, Francisco Agustin, of the City of Manila, in whose Notarial Register, the same was entered as Doc. No. 642, Page No. 66, Book No. XI, Series of 1985, hereinafter referred to as the PARTY OF THE FIRST PART; - and ANITA RIVERO, of legal age, Filipino, married, and a resident of 3344 Ibarra St., Makati Metro Manila, hereinafter referred to as the PARTY OF THE SECOND PART; WITNESSETH, THATWHEREAS, the PARTY OF THE FIRST PART is the absolute owner of a parcel of commercial lot consisting of FIFTY TWO (52) sq. ms., more or less, located at Rotonda, Alabang, Muntinlupa, M.M., embraced by TCT NO. 133710 of the Registry of Deeds for Makati, M.M., as per instrument denominated as Extra-Judicial Settlement of the Estate of the Deceased Manuel E. Recario acknowledged before Notary Public, Francisco Agustin, in whose Notarial Register, the same was entered as Doc. No. 641, Page No. 66, Book No. XI, Series of 1985; WHEREAS, constructed on the said lot is an unfinished two-storey commercial building of mixed materials; WHEREAS, the PARTY OF THE SECOND PART has proposed to reimburse and/or pay the PARTY OF THE FIRST PART the expenses incurred and still to be incurred in completing the construction of the said
[1]

unfinished building and to rent/lease the lot on which the same is erected, and the latter has accepted and agreed to each proposal subject to the terms and conditions hereinafter setforth; NOW, THEREFORE, for and in consideration of the foregoing and the covenants mutually entered into, the PARTY OF THE FIRST PART hereby lets and leases the above-referred parcel of land in favor of the PARTY OF THE SECOND PART subject to the terms and conditions hereinafter stipulated, to wit: 1. THE PARTY OF THE SECOND PART shall, upon execution of this agreement, pay as he does hereby pay the PARTY OF THE FIRST PART a sum of TWO HUNDRED SEVENTY FIVE THOUSAND (P275,000.00)PESOS, Philippine Currency, and the latter hereby acknowledges receipt of said amount from the former to her full satisfaction as and by way of reimbursement and/or payment for the total amount spent and still to be spent by the PARTY OF THE FIRST PART in the construction of the aforecited unfinished building and its completion; provided, that, among others, said party shall pursue with and continue the construction until the same is completely finished in accordance with the plan and specification, as approved, complete with electrical, lighting, water and other facilities, within a period of thirty (30) days from the execution hereof; 2. Immediately upon the completion of the construction, the PARTY OF THE FIRST PART shall deliver the said building to the PARTY OF THE SECOND PART, and the latter shall automatically become the exclusive owner thereof without the necessity of executing another instrument to effect the transfer of ownership of the referred building. However, after the lapse of seven and one half (7 1/2) years therefrom, the former shall, ipso facto become a co-owner of one-half (1/2) undivided portion of the building until the expiration of the term or duration of this agreement. After the term or duration of this agreement expires, the co-ownership shall automatically terminate and the PARTY OF THE FIRST PART shall become the exclusive owner of the referred building without need of executing any other instrument to consolidate and transfer absolute ownership of the building in favor of the PARTY OF THE FIRST PART; 3. This agreement shall have a term or duration of FIFTEEN (15) years from the completion and delivery of the building as above-contemplated, with a five-year extension, and renewable for such terms, conditions and duration as may be agreed upon by the parties hereto or their heirs, transfers, successors and assignee, for or against whom this agreement shall be binding; 4. The monthly rentals on the lot and/or both lot and building shall be FIVE THOUSAND (P5,000.00) PESOS during the first ten (10) years and the same shall be increased to SIX THOUSAND (P6,000.00) PESOS from the start of the 11th year up to the 15th year of this agreement. However, considering that the PARTY OF THE SECOND PART has paid and invested the corresponding amount of the construction or its costs, as cited heretofore, she shall pay only one-half of the agreed monthly rentals and the same shall be as they are hereby considered full satisfaction of the rentals. During the period of extension the rentals shall be subject to negotiation. Moreover, during the entire term or duration of this agreement, the monthly rentals shall be due and payable within the last five days of the month, starting from the month of the completion and delivery of the building; 5. In the event the PARTY OF THE FIRST PART shall desire to sell, alienate or encumber the lot within the first 7 1/2 years of this agreement, or the lot and building during any time thereafter while this agreement is in force or while the PARTY OF THE SECOND PART occupies the building, possesses or co-owns the same, the latter is hereby given the first priority or opportunity to purchase the same and to exercise the said priority or opportunity within 90 days from receipt of written notice to such effect; 6. Insurance policy or benefit covering the building during the duration of the agreement after the first 7 1/2 years shall be in favor of both parties hereto in equal share and the premium shall be equally borne by then;

7. The PARTY OF THE SECOND PART has absolute right and authority to transfer, sell, lease or in any manner encumber and alienate the building, or her rights and interests over the same under and by virtue of this agreement; 8. Expenses for electricity, water, gas, telephone and other facilities shall be for the account of the [2] PARTY OF THE SECOND PART; The building was thereafter completed and petitioners occupied it as absolute owners thereof. Before the expiration of the 7 1/2 year-term, however, Carmen C. Recario died. On March 1, 1994, at the end of the 7 1/2 year-term, the heirs of Carmen C. Recario, led by Marivic F. Recario, demanded that petitioners vacate one-half of the building on the ground that they needed the space for a dental clinic. Petitioners refused the demand on the ground that there was an existing lease over the building pursuant to the above agreement which would not expire until the year 2001. As several letters of demand sent by them had been ignored by petitioners, private respondents filed a case for unlawful detainer in the Metropolitan Trial Court of Muntinlupa City. On October 17, 1995, the Metropolitan Trial Court, Branch 80, Muntinlupa City rendered a decision dismissing the complaint for lack of cause of action. It said: Paragraph no. 2 of the agreement (Annex C of the complaint) states that after the lapse of seven and 1 one-half (7 /2) therefrom, the former (Carmen Recairo) shall ipso facto, become a co-owner of one-half 1 ( /2) undivided portion of the building until the expiration of the term or duration of this 1 agreement. However, it does not state that after the lapse of seven and one-half (7 /2) years of the lease 1 agreement, defendant will surrender to the plaintiff (Carmen Recario) possession of the one-half ( /2) undivided portion of the building. Precisely because the premises is under lease. This is exemplified by paragraph no. 3 and no. 4 of the same agreement which fixed the duration of the term of lease for fifteen (15) years covering both the lot and the building. WHEREFORE, for lack of cause of action the complaint against the defendants are hereby DISMISSED. The counterclaims are likewise dismissed it appearing that the complaint was not filed in [3] bad faith. Private respondents appealed to the Regional Trial Court, which reversed the decision of the Metropolitan Trial Court. The dispositive portion of the decision, dated May 21, 1996, of the Regional Trial Court, Branch 276, Muntinlupa City, stated: Premises considered, this Court reverses on Appeal the DECISION by the Metropolitan Trial Court, Branch 80 of Muntinlupa City, and directs Defendants as follows: 1. To immediately vacate and remove themselves from the premises having violated the agreement which is now terminated; 2. To pay the unpaid rentals for the whole lot and the 1/2 undivided portion of the building from September 1, 1994 up to the time of the filing of the complaint in the sum of P2,500.00 per month or a total of P22,500.00; 3. To pay damages in the form of reasonable monthly rentals for the use of the remaining one half part of the building which Defendant continued to occupy from March 2, 1994 up to the time of the filing of the complaint in the sum of P10,000.00 per month or a total amount of P150,000.00; 4. To pay the attorneys fees of Plaintiff in the sum of P10,000.00; 5. and cost of litigation.
[4]

In reversing the Metropolitan Trial Court, the Regional Trial Court said: Under these provisions this contract is for the lease of both the land and the improvement thereon consisting of a building, for a period of fifteen years with an option to renew for five years more. The building was initially constructed by the father of Plaintiff, but was finished by Defendant at a total sum of P275,000.00. The agreed rental was at P5,000.00 per month for the first ten (10) years and P6,000.00, in the succeeding five (5) years. It was also agreed that after 7 1/2 years of occupancy, Plaintiff will become the owner of one half of the building. Further, even as the monthly rental is for P5,000.00, a month, Defendant will pay only P2,500.00 a month, the remaining half of the rental will be deducted as reimbursement to Defendant for the amount they spent to finish the building. Thus within ten (10) years, Plaintiff would have reimbursed Defendant P25,000.00 already of their investment in finishing the house, and in the next five (5) years more,P15,000.00 more, or a total of P40,000.00 for the fifteen (15) yearterm of the lease. Evidently, defendant even as she continued to stay in the premises was being reimbursed of her investment by paying only 1/2 of the agreed monthly rental, while Plaintiffs who by their agreement should become the owner of the half portion of the building after 7 1/2 years, was actually making installment paying for the same building by offsetting a part of the agreed rental, to reimburse Defendants investment in finishing the house. Under this arrangement, Plaintiffs are now the exclusive owners of 1/2 of the building, and a co-owner of the other half since they paid Defendant in installment thru rental deduction of P2,500.00 a month. Plaintiffs should now be the owner of 3/4 of the whole [5] building, which was leased to defendant Anita Lee. Petitioners filed a motion for reconsideration, but their motion was denied. They then filed a petition for review in the Court of Appeals. However, their petition was dismissed on the ground that it was not accompanied by certified true copies of the assailed issuances. Petitioners filed a motion for reconsideration, pointing out that the copies of the decision and resolution of the Regional Trial Court attached to their petition for review were duplicate originals duly signed by Judge N.C. Perello. However, their motion was denied. Hence this petition. Petitioners raise the following issues. 1. Whether or not the respondent Court of Appeals erred in dismissing the petition for review despite the fact that duplicate originals of the assailed issuances had been attached. 2. Whether or not the private respondents can lawfully eject petitioners from the subject premises. 3. Whether or not private respondents are entitled to damages in the amount of P10,000.00 per [7] month and attorneys fees. We find the petition meritorious. First. The copies of the decision and resolution of the Regional Trial Court attached to the petition for review filed by petitioners in the Court of Appeals are duplicate originals. However, the Court of Appeals dismissed the petition for review of petitioners on the ground that copies of the decision and resolution of the Regional Trial Court must be certified true copies. The Court of Appeals based its action on Rule 42, 2 of the 1997 Rules of Civil Procedure, but this rule provides that petitions for review of decisions and resolutions of Regional Trial Courts must be accompanied by clearly legible duplicate originals or true copies of judgments or final orders of both lower courts, certified correct by the clerk of court of the Regional Trial Court. It suffices, therefore, that a copy of a decision or resolution attached to a petition for review is a duplicate original. Actually, considering that the petition for review of petitioners was filed in October of 1996, the applicable rule was Rule 6, 3(b) of the Revised Internal Rules of the Court of Appeals which provides as follows:
[6]

What Should be Filed. The petition shall be accompanied by a certified true copy of the disputed decisions, judgments, or orders of the lower courts, together with true copies of the pleadings and other material portions of the record as would support the allegations of the petition. However, although this rule makes no mention of duplicate originals, this Court, in Tuazon v. Court of [8] Appeals, considered duplicate originals as sufficient to support petitions for review filed in the Court of Appeals of the decisions or resolutions of Regional Trial Courts. It was error, therefore, for the Court of Appeals to dismiss the petition for review filed by petitioners on the ground that it was not accompanied by certified true copies of the decision and resolution of the Regional Trial Court. Second. Petitioners contend that they cannot be ejected from the subject premises because after 7 1/2 years they became lessees of the undivided one-half portion that became the property of private respondents. Hence, since there was an existing lease over the building they cannot be ejected by private respondents. On the other hand, private respondents say that the lease covers only the lot and not the building also and, therefore, as they had become co-owners of the building, they had the right over an undetermined half of the property. The agreement provides in pertinent parts: 3) This agreement shall have a term or duration of FIFTEEN (15) years from the completion and delivery of the building as above-contemplated, with a five-year extension, and renewable for such terms, conditions and duration as may be agreed upon by the parties hereto or their heirs, transfers, successors and assignee, for or against whom this agreement shall be binding; 4) The monthly rentals on the lot and/or both lot and building shall be FIVE THOUSAND (P5,000.00) PESOS during the first ten (10) years and the same shall be increased to SIX THOUSAND PESOS (P6,000.00) from the start of the 11th year paid the 15th year of this agreement. However, considering that the PARTY OF THE SECOND PART has paid and invested the corresponding amount of the construction or its costs, as cited heretofore, she shall pay only one-half of the agreed monthly rentals and the same shall be as they are hereby considered full satisfaction of the rentals. During the period of extension, the rentals shall be subject to negotiation. Moreover, during the entire term or duration of this agreement, the monthly rentals shall be due and payable within the last five days of the month, starting [9] from the month of the completion and delivery of the building; The phrase on the lot and/or both lot and building in the fourth paragraph of the agreement indicates that the lease covers both the land and the building. The duration of this agreement is 15 years as stated in the third paragraph. Hence, even if private respondents became co-owners of the building on March 1, 1994 after 7 1/2 years, petitioners lease over the land and the building gave them the right to remain in the premises until the year 2001. The monthly rental of P5,000.00 is for the lot and/or both lot and building. Indeed, the parties to the agreement could have simply said lot and building, but they did not. Instead, they said lot and/or both lot and building, indicating thereby that during the first half (7 1/2 years) of the agreement the lease would cover only the lot since during that period petitioners were the absolute owners of the entire building. After that period, however, i.e., during the second half, the lease would cover both the lot and the building since the latter would by then be owned in common by private respondents and petitioners. This construction of the agreement is in line with Art. 1374 of the Civil Code that the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. The second paragraph states: 2) Immediately upon the completion of the construction, the PARTY OF THE FIRST PART shall deliver the said building to the PARTY OF THE SECOND PART, and the latter shall automatically become the exclusive owner thereof without the necessity of executing another instrument to effect the transfer of

ownership of the referred building. However, after the lapse of seven and one-half (7 1/2) years therefrom, the former shall, ipso facto, become a co-owner of one-half undivided portion of the building until the expiration of the term or duration of this agreement. After the term or duration of this agreement expires, the co-ownership shall automatically terminate and the PARTY OF THE FIRST PART SHALL become the exclusive owner of the referred building without need of executing any other instrument to consolidate and transfer absolute ownership of the building in favor of the PART OF THE FIRST PART; As co-owners, private respondents have the power to exercise rights of ownership over their undivided portion, subject to the lease of this portion of the building to petitioners. The purpose of the second paragraph is to give private respondents interest in the building after 7 1/2 years, thus qualifying the otherwise absolute right of petitioners under the seventh paragraph of the agreement to sell the building. But it was not the intention to give private respondents possession of any part of the building, because until the termination of the agreement in the year 2001, it is under lease to petitioners. Indeed, considering the small size of the lot (52 square meters), the use and occupancy of the lot would be impossible without the use and occupancy of the building built on it. Third. Private respondents allege that in any event petitioners should be ejected from the lot and the building because of their alleged failure to pay rent. However, as both Metropolitan Trial Court and Regional Trial Court found, petitioners religiously paid to private respondents the amount of P2,500.00 every month except that from September, 1994 they decided to deposit this amount with Metrobank in [10] the name of Marivic F. Recario after the latter had refused to accept the payment from petitioners. In accordance with Art. 1256 of the Civil Code, petitioners were thereby released from responsibility for payment of rents. WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and that of the Metropolitan Trial Court is REINSTATED. SO ORDERED.

G.R. No. 76801 August 11, 1995 LOPEZ REALTY, INC., AND ASUNCION LOPEZ GONZALES, petitioners, vs. FLORENTINA FONTECHA, ET AL., AND THE NATIONAL LABOR RELATIONS COMMISSION, respondents.

PUNO, J.: The controversy at bench arose from a complaint filed by private respondents, namely, Florentina Fontecha, Mila Refuerzo, Marcial Mamaril, Perfecto Bautista, Edward Mamaril, Marissa Pascual and Allan Pimentel, against their employer Lopez Realty Incorporated (petitioner) and its majority stockholder, 2 Asuncion Lopez Gonzales, for alleged non-payment of their gratuity pay and other benefits. The case was docketed as NLRC-NCR Case No. 2-2176-82. Lopez Realty, Inc., is a corporation engaged in real estate business, while petitioner Asuncion Lopez Gonzales is one of its majority shareholders. Her interest in the company vis-a-vis the other shareholders is as follows: 1 Asuncion Lopez Gonzales 7831 7830 7830 4 1 1 shares shares shares shares share share
1

2 Teresita Lopez Marquez 3 Arturo F. Lopez 4 Rosendo de Leon 5 Benjamin Bernardino 6 Leo Rivera

Except for Arturo F. Lopez, the rest of the shareholders also sit as members of the Board of Directors. As found by the Labor arbiter. sometime in 1978, Arturo Lopez submitted a proposal relative to the distribution of certain assets of petitioner corporation among its three (3) main shareholders. The proposal had three (3) aspects, viz: (1) the sale of assets of the company to pay for its obligations; (2) the transfer of certain assets of the company to its three (3) main shareholders, while some other assets shall remain with the company; and (3) the reduction of employees with provision for their gratuity pay. The proposal was deliberated upon and approved in a special meeting of the board of directors held on April 17, 1978. It appears that petitioner corporation approved two (2) resolutions providing for the gratuity pay of its employees, viz: (a) Resolution No. 6, Series of 1980, passed by the stockholders in a special meeting held on September 8, 1980, resolving to set aside, twice a year, a certain sum of money for the gratuity pay of its retiring employees and to create a Gratuity Fund for the said contingency; and (b) Resolution No. 10, Series of 1980, setting aside the amount of P157,750.00 as Gratuity Fund covering the period from 1950 up to 1980. Meanwhile, on July 28, 1981, board member and majority stockholder Teresita Lopez Marquez died. On August 17, 1981, except for Asuncion Lopez Gonzales who was then abroad, the remaining members of the Board of Directors, namely: Rosendo de Leon, Benjamin Bernardino, and Leo Rivera, convened a special meeting and passed a resolution which reads:
3

Resolved, as it is hereby resolved that the gratuity (pay) of the employees be given as follows: (a) Those who will be laid off be given the full amount of gratuity; (b) Those who will be retained will receive 25% of their gratuity (pay) due on September 1, 1981, and another 25% on January 1, 1982, and 50% to be retained by the office in the meantime. (emphasis supplied) Private respondents were the retained employees of petitioner corporation. In a letter, dated August 31, 1981, private respondents requested for the full payment of their gratuity pay. Their request was granted in a special meeting held on September 1, 1981. The relevant, portion of the minutes of the said board meeting reads: In view of the request of the employees contained in the letter dated August 31, 1981, it was also decided that, all those remaining employees will receive another 25% (of their gratuity) on or before October 15, 1981 and another 25% on or before the end of November, 1981 of their respective gratuity. At that, time, however, petitioner Asuncion Lopez Gonzales was still abroad. Allegedly, while she was still out of the country, she sent a cablegram to the corporation, objecting to certain matters taken up by the board in her absence, such as the sale of some of the assets of the corporation. Upon her return, she flied a derivative suit with the Securities and Exchange Commission (SEC) against majority shareholder Arturo F. Lopez. Notwithstanding the "corporate squabble" between petitioner Asuncion Lopez Gonzales and Arturo Lopez, the first two (2) installments of the gratuity pay of private respondents Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista were paid by petitioner corporation. Also, petitioner corporation had prepared the cash vouchers and checks for the third installments of gratuity pay of said private respondents (Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista). For some reason, said vouchers were cancelled by petitioner Asuncion Lopez Gonzales. Likewise, the first, second and third installments of gratuity pay of the rest of private respondents, particularly, Edward Mamaril, Marissa Pascual and Allan Pimentel, were prepared but cancelled by petitioner Asuncion Lopez Gonzales. Despite private respondents' repeated demands for their 4 gratuity pay, corporation refused to pay the same. On July 23, 1984, Labor Arbiter Raymundo R. Valenzuela rendered judgment in favor of private 5 respondents. Petitioners appealed the adverse ruling of the Labor arbiter to public respondent National Labor Relations Commission. The appeal focused on the alleged non-ratification and non-approval of the assailed August 17, 1981 and September 1, 1981 Board Resolutions during the Annual Stockholders' Meeting held on March 1, 1982. Petitioners further insisted that the payment of the gratuity to some of the private respondents was a mere "mistake" on the part of petitioner corporation since, pursuant to Resolution No. 6, dated September 8, 1980, and Resolution No. 10, dated October 6, 1980, said gratuity pay should be given only upon the employees' retirement.

On November 20, 1985, public respondent, through its Second Division, dismissed the appeal for 6 lack of merit, the pertinent portion of which states: We cannot agree with the contention of respondents (petitioners') that the Labor Arbiter a quo committed abuse of discretion in his decision. Respondents' (petitioners') contention that, the two (2) resolutions dated 17 August 1981 and 1 September 1981 . . . which were not approved in the annual stockholders meeting had no force and effect, deserves scant consideration. The records show that the stockholders did not revoke nor nullify these resolutions granting gratuities to complainants. On record, it appears that the said resolutions arose from the legitimate creation of the Board of Directors who steered the corporate affairs of the corporation. . . . Respondents' (petitioners') allegation that the three (3) complainants, Mila E. Refuerzo, Marissa S. Pascual and Edward Mamaril, who had resigned after filing the complaint on February 8, 1982, were precluded to (sic) receive gratuity because the said resolutions referred to only retiring employee could not be given credence. A reading of Resolutions dated 17 August 1981 and 1 September 1981 disclosed that there were periods mentioned for the payment of complainants' gratuities. This disproves respondents' argument allowing gratuities upon retirement of employees. Additionally, the proposed distribution of assets (Exh. C-1) filed by Mr. Arturo F. Lopez also made mention of gratuity pay, " . . . (wherein) an employee who desires to resign from the LRI will be given the gratuity pay he or she earned." (Emphasis supplied) Let us be reminded, too, that the complainants' resignation was not voluntary but it was pressurized ( sic) due to "power struggle" which was evident between Arturo Lopez and Asuncion Gonzales. The respondents' (petitioners') contention of a mistake to have been committed in granting the first two (2) installments of gratuities to complainants Perfecto Bautista, Florentina Fontecha, Marcial Mamaril and Mila Refuerzo, (has) no legal leg to stand on. The record is bereft of any evidence that the Board of Directors had passed a resolution nor is there any minutes of whatever nature proving mistakes in the award of damages (sic). With regard to the award of service incentive leave and others, the Commission finds no cogent reason to disturb the appealed decision. We affirm. WHEREFORE, let the appealed decision be, as it is hereby, AFFIRMED and let the instant appeal (be) dismissed for lack of merit. SO ORDERED. Petitioners reconsidered. In their motion for reconsideration, petitioners assailed the validity of the board resolutions passed on August 17, 1981 and September 1, 1981, respectively, and claimed, for the first time, that petitioner Asuncion Lopez Gonzales was not notified of the special board meetings held on said dates. The motion for reconsideration was denied by the Second Division on July 24, 1986. On September 4, 1986, petitioners filed another motion for reconsideration. Again, the motion 8 was denied by public respondent in a Minute Resolution dated November 19, 1986.
7

Hence, the petition. As prayed for, we issued a Temporary Restraining Order, enjoining public respondent from enforcing or executing the Resolution, dated November 20, 1986 (sic), in NLRC10 NCR-2-2176-82. The sole issue is whether or not public respondent acted with grave abuse of discretion in holding that private respondents are entitled to receive their gratuity pay under the assailed board resolutions dated August 17, 1951 and September 1, 1981. Petitioners contend that the board resolutions passed on August 17, 1981 and September 1, 1981, granting gratuity pay to their retained employees, are ultra vires on the ground that petitioner Asuncion Lopez Gonzales was not duly notified of the said special meetings. They aver, further, that said board resolutions were not ratified by the stockholders of the corporation pursuant to Section 28 1/2 of the Corporation Law (Section 40 of the Corporation Code). They also insist that the gratuity pay must be given only to the retiring employees, to the exclusion of the retained employees or those who voluntarily resigned from their posts. At the outset, we note that petitioners allegation on lack of notice to petitioner Asuncion Lopez Gonzales was raised for the first time in the in their motion for reconsideration filed before public respondent National Labor Relations Commission, or after said public respondent had affirmed the decision of the labor arbiter. To stress, in their appeal before the NLRC, petitioners never raised the issue of lack of notice to Asuncion Lopez Gonzales. The appeal dealt with (a) the failure of the stockholders to ratify the assailed resolutions and (b) the alleged "mistake" committed by petitioner corporation in giving the gratuity pay to some of its employees who are yet to retire from employment. In their comment, private respondents maintain that the new ground of lack of notice was not raised before the labor arbiter, hence, petitioners are barred from raising the same on appeal. Private respondents claim, further, that such failure on the part of petitioners, had deprived them the opportunity to present evidence that, in a subsequent special board meeting held on September 29, 1981, the subject resolution dated September 1, 1981, was unanimously approved by the board of directors of petitioner corporation, including petitioner Asuncion Lopez 12 Gonzales. Indeed, it would be offensive to the basic rules of fair play and justice to allow petitioners to raise questions which have not been passed upon by the labor arbiter and the public respondent NLRC. It is well settled that questions not raised in the lower courts cannot, be raised for the first 13 time on appeal. Hence, petitioners may not invoke any other ground, other than those it specified at the labor arbiter level, to impugn the validity of the subject resolutions. We now come to petitioners' argument that the resolutions passed by the board of directors during the special meetings on August 1, 1981, and September 1, 1981, were ultra vires for lack of notice. The general rule is that a corporation, through its board of directors, should act in the manner and 14 within the formalities, if any, prescribed by its charter or by the general law. Thus, directors must act as a body in a meeting called pursuant to the law or the corporation's by-laws, otherwise, any action taken therein may be questioned by any objecting director or 15 shareholder. Be that as it may, jurisprudence tells us that an action of the board of directors during a meeting, which was illegal for lack of notice, may be ratified either expressly, by the action of the directors in subsequent legal meeting, or impliedly, by the corporation's subsequent course of 17 conduct. Thus, in one case, it was held:
16 11

. . . In 2 Fletcher, Cyclopedia of the Law of Private Corporations (Perm. Ed.) sec. 429, at page 290, it is stated: Thus, acts of directors at a meeting which was illegal because of want of notice may be ratified by the directors at a subsequent legal meeting, or by the corporations course of conduct ... Fletcher, supra, further states in sec. 762, at page 1073-1074: Ratification by directors may be by an express resolution or vote to that effect, or it may be implied from adoption of the act, acceptance or acquiescence. Ratification may be effected by a resolution or vote of the board of directors expressly ratifying previous acts either of corporate officers or agents; but it is not necessary, ordinarily, to show a meeting and formal action by the board of directors in order to establish a ratification. In American Casualty Co., v. Dakota Tractor and Equipment Co., 234 F. Supp. 606, 611 (D.N.D. 1964), the court stated: Moreover, the unauthorized acts of an officer of a corporation may be ratified by the corporation by conduct implying approval and adoption of the act in question. Such ratification may be express or may be inferred from silence and inaction. In the case at bench, it was established that petitioner corporation did not issue any resolution revoking nor nullifying the board resolutions granting gratuity pay to private respondents. Instead, they paid the gratuity pay, particularly, the first two (2) installments thereof, of private respondents Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista. Despite the alleged lack of notice to petitioner Asuncion Lopez Gonzales at that time the assailed resolutions were passed, we can glean from the records that she was aware of the corporation's obligation under the said resolutions. More importantly, she acquiesced thereto. As pointed out by private respondents, petitioner Asuncion Lopez Gonzales affixed her signature on Cash Voucher Nos. 81-10-510 and 81-10-506, both dated October 15, 1981, evidencing the 2nd installment of 18 the gratuity pay of private respondents Mila Refuerzo and Florentina Fontecha. We hold, therefore, that the conduct of petitioners after the passage of resolutions dated August, 17, 1951 and September 1, 1981, had estopped them from assailing the validity of said board resolutions. Assuming, arguendo, that there was no notice given to Asuncion Lopez Gonzalez during the special meetings held on August 17, 1981 and September 1, 1981, it is erroneous to state that the resolutions passed by the board during the said meetings were ultra vires. In legal parlance, "ultra vires" act refers to one which is not within the corporate powers conferred by the Corporation Code or articles of incorporation or not necessary or incidental in the exercise of the 19 powers so conferred. The assailed resolutions before us cover a subject which concerns the benefit and welfare of the company's employees. To stress, providing gratuity pay for its employees is one of the express powers of the corporation under the Corporation Code, hence, petitioners cannot invoke the 20 doctrine of ultra vires to avoid any liability arising from the issuance the subject resolutions.

We reject petitioners' allegation that private respondents, namely, Mila Refuerzo, Marissa Pascual and Edward Mamaril who resigned from petitioner corporation after the filing of the case, are precluded from receiving their gratuity pay. Pursuant to board resolutions dated August 17, 1981 and September 1, 1981, respectively, petitioner corporation obliged itself to give the gratuity pay of its retained employees in four (4) installments: on September 1, 1981; October 15, 1981; November, 1981; and January 1, 1982. Hence, at the time the aforenamed private respondents tendered their resignation, the aforementioned private respondents were already entitled to receive their gratuity pay. Petitioners try to convince us that the subject resolutions had no force and effect in view of the non-approval thereof during the Annual Stockholders' Meeting held on March 1, 1982. To strengthen their position, petitioners cite section 28 1/2 of the Corporation Law (Section 40 of the Corporation Code). We are not persuaded. The cited provision is not applicable to the case at bench as it refers to the sale, lease, exchange or disposition of all or substantially all of the corporation's assets, including its goodwill. In such a case, the action taken by the board of directors requires the authorization of the stockholders on record. It will be observed that, except far Arturo Lopez, the stockholders of petitioner corporation also sit as members of the board of directors. Under the circumstances in field, it will be illogical and superfluous to require the stockholders' approval of the subject resolutions. Thus, even without the stockholders' approval of the subject resolutions, petitioners are still liable to pay private respondents' gratuity pay. IN VIEW WHEREOF, the instant petition is DISMISSED for lack of merit and the temporary restraining order we issued on February 9, 1987 is LIFTED. Accordingly, the assailed resolution of the National Labor Relations Commission in NLRC-NCR-2176-82 is AFFIRMED. This decision is immediately executory. Costs against petitioners. SO ORDERED.

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

PREMIUM MARBLE RESOURCES, INC., petitioner, vs. THE COURT INTERNATIONAL CORPORATE BANK, respondents.

OF

APPEALS

and

PRINTLINE CORPORATION, petitioner, vs. THE COURT OF APPEALS and INTERNATIONAL CORPORATE BANK, respondents. DECISION TORRES, JR., J.: Assailed in the instant petition for review is the decision of the Court of Appeals in CA-G.R. CV No. 16810 dated September 28, 1990 which affirmed the trial courts dismissal of petitioners complaint for damages. The antecedents: On July 18, 1986, Premium Marble Resources, Inc. (Premium for brevity), assisted by Atty. Arnulfo Dumadag as counsel, filed an action for damages against International Corporate Bank which was docketed as Civil Case No. 14413. The complaint states, inter alia: 3. Sometime in August to October 1982, Ayala Investment and Development Corporation issued three (3) checks [Nos. 097088, 097414 & 27884] in the aggregate amount of P31,663.88 payable to the plaintiff and drawn against Citibank; xxx 5. On or about August to October 1982, former officers of the plaintiff corporation headed by Saturnino G. Belen, Jr., without any authority whatsoever from the plaintiff deposited the above-mentioned checks to the current account of his conduit corporation, Intervest Merchant Finance (Intervest, for brevity) which the latter maintained with the defendant bank under account No. 0200-02027-8; 6. Although the checks were clearly payable to the plaintiff corporation and crossed on their face and for payees account only, defendant bank accepted the checks to be deposited to the current account of Intervest and thereafter presented the same for collection from the drawee bank which subsequently cleared the same thus allowing Intervest to make use of the funds to the prejudice of the plaintiff; xxx 14. The plaintiff has demanded upon the defendant to restitute the amount representing the value of the checks but defendant refused and continue to refuse to honor plaintiffs demands up to the present; 15. As a result of the illegal and irregular acts perpetrated by the defendant bank, the plaintiff was damaged to the extent of the amount of P31,663.88. Premium prayed that judgment be rendered ordering defendant bank to pay the amount of P31,663.88 representing the value of the checks plus interest, P100,000.00 as exemplary damages; and P30,000.00 as attorneys fees. In its Answer International Corporate Bank alleged, inter alia, that Premium has no capacity/personality/authority to sue in this instance and the complaint should, therefore, be dismissed for failure to state a cause of action.
[1]

A few days after Premium filed the said case, Printline Corporation, a sister company of Premium also filed an action for damages against International Corporate Bank docketed as Civil Case No. 14444. Thereafter, both civil cases were consolidated. Meantime, the same corporation, i.e., Premium, but this time represented by Siguion Reyna, Montecillio and Ongsiako Law Office as counsel, filed a motion to dismiss on the ground that the filing of the case was without authority from its duly constituted board of directors as shown by the excerpt of the [2] minutes of the Premiums board of directors meeting. In its opposition to the motion to dismiss, Premium thru Atty. Dumadag contended that the persons who signed the board resolution namely Belen, Jr., Nograles & Reyes, are not directors of the corporation and were allegedly former officers and stockholders of Premium who were dismissed for various irregularities and fraudulent acts; that Siguion Reyna Law office is the lawyer of Belen and Nograles and not of Premium and that the Articles of Incorporation of Premium shows that Belen, Nograles and Reyes are not majority stockholders. On the other hand, Siguion Reyna Law firm as counsel of Premium in a rejoinder, asserted that it is the general information sheet filed with the Securities and Exchange Commission, among others, that is the best evidence that would show who are the stockholders of a corporation and not the Articles of Incorporation since the latter does not keep track of the many changes that take place after new stockholders subscribe to corporate shares of stocks. In the interim, defendant bank filed a manifestation that it is adopting in toto Premiums motion to dismiss and, therefore, joins it in praying for the dismissal of the present case on the ground that Premium lacks authority from its duly constituted board of directors to institute the action. In its Order, the lower court concluded that: Considering that the officers (directors) of plaintiff corporation enumerated in the Articles of Incorporation, filed on November 9, 1979, were to serve until their successors are elected and qualified and considering further that as of March 4, 1981, the officers of the plaintiff corporation were Alberto Nograles, Fernando Hilario, Augusto Galace, Jose L.R. Reyes, Pido Aguilar and Saturnino Belen, Jr., who presumably are the officers represented by the Siguion Reyna Law Firm, and that together with the defendants, they are moving for the dismissal of the above-entitled case, the Court finds that the officers represented by Atty. Dumadag do not as yet have the legal capacity to sue for and in behalf of the plaintiff corporation and/or the filing of the present action (Civil Case 14413) by them before Case No. 2688 of the SEC could be decided is a premature exercise of authority or assumption of legal capacity for and in behalf of plaintiff corporation. The issues raised in Civil Case No. 14444 are similar to those raised in Civil Case No. 14413. This Court is of the opinion that before SEC Case No. 2688 could be decided, neither the set of officers represented by Atty. Dumadag nor that set represented by the Siguion Reyna, Montecillo and Ongsiako Law Office, may prosecute cases in the name of the plaintiff corporation. It is clear from the pleadings filed by the parties in these two cases that the existence of a cause of action against the defendants is dependent upon the resolution of the case involving intra-corporate controversy still pending [3] before the SEC. On appeal, the Court of Appeals affirmed the trial courts Order cases. Hence, this petition. Petitioner submits the following assignment of errors: I The Court of Appeals erred in giving due course to the motion to dismiss filed by the Siguion Reyna Law Office when the said motion is clearly filed not in behalf of the petitioner but in behalf of the group of Belen who are the clients of the said law office.
[4]

which dismissed the consolidated

II The Court of Appeals erred in giving due course to the motion to dismiss filed by the Siguion Reyna Law Office in behalf of petitioner when the said law office had already appeared in other cases wherein the petitioner is the adverse party. III The Court of Appeals erred when it ruled that undersigned counsel was not authorized by the Board of Directors to file Civil Case Nos. 14413 and 14444. IV The Court of Appeals erred in concluding that under SEC Case No. 2688 the incumbent directors could not act for and in behalf of the corporation. V The Court of Appeals is without jurisdiction to prohibit the incumbent Board of Directors from acting and filing this case when the SEC where SEC Case No. 2688 is pending has not even made the prohibition. We find the petition without merit. The only issue in this case is whether or not the filing of the case for damages against private respondent was authorized by a duly constituted Board of Directors of the petitioner corporation. Petitioner, through the first set of officers, viz., Mario Zavalla, Oscar Gan, Lionel Pengson, Jose Ma. [5] Silva, Aderito Yujuico and Rodolfo Millare, presented the Minutes of the meeting of its Board of Directors held on April 1, 1982, as proof that the filing of the case against private respondent was authorized by the Board. On the other hand, the second set of officers, viz., Saturnino G. Belen, Jr., [6] Alberto C. Nograles and Jose L.R. Reyes, presented a Resolution dated July 30, 1986, to show that Premium did not authorize the filing in its behalf of any suit against the private respondent International Corporate Bank. Later on, petitioner submitted its Articles of Incorporation dated November 6, 1979 with the following as Directors: Mario C. Zavalla, Pedro C. Celso, Oscar B. Gan, Lionel Pengson, and Jose Ma. Silva. However, it appears from the general information sheet and the Certification issued by the SEC [8] on August 19, 1986 that as of March 4, 1981, the officers and members of the board of directors of the Premium Marble Resources, Inc. were: Alberto C. Nograles President/Director Fernando D. Hilario Vice President/Director Augusto I. Galace Treasurer Jose L.R. Reyes Secretary/Director Pido E. Aguilar Director Saturnino G. Belen, Jr. Chairman of the Board.
[7]

While the Minutes of the Meeting of the Board on April 1, 1982 states that the newly elected officers for the year 1982 were Oscar Gan, Mario Zavalla, Aderito Yujuico and Rodolfo Millare, petitioner failed to show proof that this election was reported to the SEC. In fact, the last entry in their General Information Sheet with the SEC, as of 1986 appears to be the set of officers elected in March 1981. We agree with the finding of public respondent Court of Appeals, that in the absence of any board resolution from its board of directors the [sic] authority to act for and in behalf of the corporation, the present action must necessarily fail. The power of the corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers. Thus, the issue of authority and the invalidity of plaintiff-appellants subscription which is still pending, is a matter that is also addressed, [9] considering the premises, to the sound judgment of the Securities & Exchange Commission. By the express mandate of the Corporation Code (Section 26), all corporations duly organized pursuant thereto are required to submit within the period therein stated (30 days) to the Securities and Exchange Commission the names, nationalities and residences of the directors, trustees and officers elected. Sec. 26 of the Corporation Code provides, thus: Sec. 26. Report of election of directors, trustees and officers. Within thirty (30) days after the election of the directors, trustees and officers of the corporation, the secretary, or any other officer of the corporation, shall submit to the Securities and Exchange Commission, the names, nationalities and residences of the directors, trustees and officers elected. xxx Evidently, the objective sought to be achieved by Section 26 is to give the public information, under sanction of oath of responsible officers, of the nature of business, financial condition and operational status of the company together with information on its key officers or managers so that those dealing with it and those who intend to do business with it may know or have the means of knowing facts concerning [10] the corporations financial resources and business responsibility. The claim, therefore, of petitioners as represented by Atty. Dumadag, that Zaballa, et al., are the incumbent officers of Premium has not been fully substantiated. In the absence of an authority from the [11] board of directors, no person, not even the officers of the corporation, can validly bind the corporation. We find no reversible error in the decision sought to be reviewed. ACCORDINGLY, for lack of merit, the petition is hereby DENIED. SO ORDERED.

[G.R. No. 119310. February 3, 1997]

JULIETA V. ESGUERRA, petitioner, vs. COURT OF APPEALS and SURESTE PROPERTIES, INC., respondents. DECISION PANGANIBAN, J.: May a co-owner contest as unenforceable a sale of a real property listed in and sold pursuant to the terms of a judicially-approved compromise agreement but without the knowledge of such co-owner? Is the corporate secretarys certification of the shareholders and directors resolution authorizing such sa le sufficient, or does the buyer need to go behind such certification and investigate further the truth and veracity thereof? These questions are answered by this Court as it resolves the instant petition challenging the [1] [2] Decision in CA-G.R. SP No. 33307 promulgated May 31, 1994 by the respondent Court, reversing the judgment of the trial court.

The Antecedent Facts The facts as found by the respondent Court of Appeals are as follows: On 29 June 1984, (now herein Petitioner) Julieta Esguerra filed a complaint for administration of conjugal partnership or separation of property against her husband Vicente Esguerra, Jr. before (the trial) court. The said complaint was later amended on 31 October 1985 impleading V. Esguerra Construction Co., Inc. (VECCI for brevity) and other family corporations as defendants (Annex C, p. 23, Rollo). The parties entered into a compromise agreement which was submitted to the court. On the basis of the said agreement, the court on 11 January 1990 rendered two partial judgments: one between Vicente and (herein petitioner) and the other as between the latter and VECCI (Annex F and G, pp. 26 -27, Rollo). The compromise agreement between (herein petitioner) and VECCI provides in part: Plaintiff Julieta V. Esguerra and defendant V. Esguerra Construction Co., Inc., as assisted by their r espective counsels, submitted to this Court on January 11, 1990 a Joint Motion for Partial Judgment Based on Compromise Agreement, pertinent provisions of which reads as follows: 1. Defendant V. Esguerra Construction Co., Inc., (VECCI) shall sell/alienate/transfer or dispose of in any lawful and convenient manner, and under the terms and conditions recited in the enabling resolutions of its Board of Directors and stockholders, all the following properties: * * * * * real estate and building located at 140 Amorsolo Street, Legaspi Village, Makati, Metro Manila; real estate and building located at 104 Amorsolo Street, Legaspi Village, Makati, Metro Manila; real estate and improvements located at Barangay San Jose, Antipolo, Rizal; real estate and improvements located at Barangay San Jose, Antipolo, Rizal; real estate and improvements located at Kamagong Street, St. Anthony Subdivision, Cainta, Rizal; and

real estate and improvements located at Barangay Malaatis, San Mateo, Rizal.

2. After the above-mentioned properties shall have been sold/alienated/transferred or disposed of and funds are realized therefrom, and after all the financial obligations of defendant VECCI (those specified in the enabling resolutions and such other obligations determined to be due and will become due) are completely paid and/or settled, defendant VECCI shall cause to be paid and/or remitted to the plaintiff such amount/sum equivalent to fifty percent (50%) of the (net) resulting balance of such funds. By virtue of said agreement, Esguerra Bldg. I located at 140 Amorsolo St., Legaspi Village was sold and the net proceeds distributed according to the agreement. The controversy arose with respect to Esguerra Building II located at 104 Amorsolo St., Legaspi Village, Makati. (Herein petitioner) started claiming one-half of the rentals of the said building which VECCI refused. Thus, on 7 August 1990, (herein petitioner) filed a motion with respondent court praying that VECCI be ordered to remit one-half of the rentals to her effective January 1990 until the same be sold (p. 28, id.). VECCI opposed said motion (p. 31, Rollo). On October 30, 1990 respondent (trial) court ruled in favor of (herein petitioner) (p. 34, Rollo) which was affirmed by this court in a decision dated 17 May 1991 in CA-G.R. SP. No. 2380. VECCI resorted to the Supreme Court which on 4 May 1992 in G.R. No. 100441 affirmed this courts decision the fallo of which reads: The petition is without merit. As correctly found by the respondent Court of Appeals, it can be deduced from the terms of the Compromise Agreement and from the nature of the action in the court a quo that the basis of the equal division of the proceeds of any sale or disposition of any of the subject properties is the acknowledged ownership of private respondent over one-half of the said assets. Considering that the other building has yet to be sold, it is but logical that pending its disposition and conformably with her one-half interest therein, private respondent should be entitled to half of its rentals which forms part of her share in the fruits of the assets. To accord a different interpretation of the Compromise Agreement would be prejudicial to the established rights of private respondent. (p. 36, Rollo). Meanwhile, Esguerra Bldg. II was sold to (herein private respondent Sureste Properties, Inc.) for P150,000,000.00 (sic). On 17 June 1993, (Julieta V. Esguerra) filed a motion seeking the nullification of the sale before respondent (trial) court on the ground that VECCI is not the lawful and absolute owner thereof and that she has not been notified nor consulted as to the terms and conditions of the sale (p.37, Rollo). Not being a party to the civil case, (private respondent Sureste) on 23 June 1993 filed a Manifestation concerning (herein petitioners) motion to declare the sale void ab initio. In its Manifestation (Sureste) points out that in the compromise agreement executed by VECCI and (Julieta V. Esguerra), she gave her express consent to the sale of the said building (p.38, Rollo). On 05 August 1993, respondent judge (who took over the case from Judge Buenaventura Guerrero, now Associate Justice of this court) issued an Omnibus Order denying among others, (Surestes) motion, [3] to which a motion for reconsideration was filed. After trial on the merits, the Regional Trial Court of Makati, Branch 133, dispositive portion of which reads: WHEREFORE, the Court resolves as it is resolved that: 1. The Omnibus Order of the Court issued on August 5, 1993 is hereby reconsidered and modified to the effect that: a. The Notice of Lis Pendens is annotated at the back of the Certificate of Title of Esguerra Bldg. II located at Amorsolo St., Legaspi Village, Makati, Metro Manila is delivered to be valid and subsisting, the cancellation of the same is hereby set aside; and,
[4]

rendered its order, the

b. The sale of Esguerra Bldg. II to Sureste Properties, Inc. is declared valid with respect to one-half of the value thereof but ineffectual and unenforceable with respect to the other half as the acknowledged owner of said portion was not consulted as to the terms and conditions of the sale. The other provisions of said Omnibus Order remain undisturbed and are now deemed final and executory. 2. Sureste Properties, Inc. is hereby enjoined from pursuing further whatever Court action it has filed against plaintiff as well as plaintiffs tenants at Esguerra Bldg. II; 3. Plaintiffs Urgent Ex-parte Motion dated December 14, 1993 is hereby DENIED for being moot and academic. 4. Plaintiff is hereby directed to bring to Court, personally or through counsel, the subject shares of stocks on February 15, 1994 at 10:30 in the morning for the physical examination of defendant or counsel. SO ORDERED.[5] From the foregoing order, herein private respondent Sureste Properties, Inc. interposed an appeal with the Court of Appeals which ruled in its favor, viz.: From the foregoing, it is clear that respondent judge abused his discretion when he rendered the sale of the property unenforceable with respect to one-half. WHEREFORE, the petition is hereby GRANTED. The assailed order dated 1 February 1994 is hereby SET ASIDE. No pronouncement as to cost. SO ORDERED.[6] Julieta Esguerras Motion for Reconsideration dated June 15, 1994 was denied by the respondent [8] Court in the second assailed Resolution promulgated on February 23, 1995. Hence this petition.
[7]

The Issues Petitioner submits the following assignment of errors: x x x (I)n issuing the Decision (Annex A of the petition) and the Resolution (Annex B of the petition), the Court of Appeals decided questions of substance contrary to law and applicable jurisprudence and acted without jurisdiction and/or with grave abuse of discretion when: It validated the sale by VECCI to Sureste of the subject property without the knowledge and consent of the acknowledged co-owner thereof and in contravention of the terms of the compromise agreement as well as the Resolution of this Honorable Court in G.R. No. 100441 wherein this Honorable Court recognized herein petitioners acknowledged ownership of - - - one-half of the subject property; and, It held that the trial court acted without jurisdiction and/or abused its discretion when it held that the questioned sale of the property is ineffectual and unenforceable as to herein petitioners one-half (1/2) ownership/interest in the property since the sale was made without her knowledge and consent. BECAUSE:

A. No proper corporate action of VECCI was made to effect such sale as required under the compromise agreement; B. The sale of the subject property was made in violation of the terms of the compromise agreement in that it was not made with the approval/consent of the acknowledged owner of 1/2 of the said asset; C. The prior sale of another property (the Esguerra Building I as distinguished from the subject property which is the Esguerra Building II) included in the said compromise agreement was made only after the prior approval/consent of petitioner and this procedure established a precedent that applied in the subsequent sale of the Esguerra Building II; and D. Respondent Sureste as purchaser pendente lite of the subject property covered by a notice of lis pendens was in law deemed to have been duly notified of the aforesaid conditions required for a valid sale of the subject property as well as of petitioners acknowledged [9] ownership - - - over one-half of the Esguerra Building II. Simply put, petitioner (1) assails VECCIs sale of Esguerra Building II to private respondent as unenforceable to the extent of her one-half share, and (2) accuses the appellate court of acting without jurisdiction or with grave abuse of discretion in reversing the trial courts finding to that effec t. The Courts Ruling The petition has no merit. First Issue: Is the Contract of Sale Unenforceable? The Civil Code provides that a contract is unenforceable when it is x x x entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond [10] his powers. And that (a) contract entered into in the name of another by one who has no authority or [11] legal representation, or who has acted beyond his powers, shall be unenforceable, x x x . After a thorough review of the case at bench, the Court finds the sale of Esguerra Building II by VECCI to private respondent Sureste Properties, Inc. valid. The sale was expressly and clearly authorized under the judicially-approved compromise agreement freely consented to and voluntarily signed by petitioner Julieta Esguerra. Thus, petitioners contention that the sale is unenforceable as to her share for being unauthorized is plainly incongruous with the express authority granted by the compromise agreement to VECCI, which specified no condition that the latter shall first consult with the former prior to selling any of the properties listed there. As astutely and correctly found by the appellate Court: The compromise agreement entered between private respondent (Julieta Esguerra) and VECCI , which was approved by the court, expressly provides, among others, that the latter shall sell or otherwise dispose of certain properties, among them, Esguerra Bldgs. I and II, and fifty (50%) percent of the net proceeds thereof to be given to the former. Pursuant to said agreement, VECCI sold the buildings.x x x xxx xxx xxx

x x x The compromise agreement expressly authorizes VECCI to sell the subject properties, with the only condition that the sale be in a lawful and convenient manner and under the terms and conditions recited in the enabling resolutions of its Board of Directors and stockholders. There is nothing in the said agreement requiring VECCI to consult the private respondent (Julieta Esguerra) before any sale (can be concluded). Thus, when VECCI sold the property to (Sureste Properties, Inc.) as agreed upon, it need not consult the private respondent. [12] Moreover, petitioners contention runs counter to Article 1900 of the Civil Code which provides that:

So far as third persons are concerned, an act is deemed to have been performed within the scope of the agents authority, if such act is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and the agent. Thus, as far as private respondent Sureste Properties, Inc. is concerned, the sale to it by VECCI was completely valid and legal because it was executed in accordance with the compromise agreement, authorized not only by the parties thereto, who became co-principals in a contract of agency created thereby, but by the approving court as well. Consequently, the sale to Sureste Properties, Inc. of Esguerra Building II cannot in any manner or guise be deemed unenforceable, as contended by petitioner.

Consultation in the Sale of Esguerra Building I Not a Binding Precedent The petitioner further argues that VECCIs consulting her on the ter ms and conditions of its sale of Esguerra Building I set a binding precedent to be followed by the latter on subsequent sales. She adds that in failing to consult her on the sale of Esguerra Building II, VECCI acted unfairly and unjustly as evidenced by (a) the sale of said building for only P160,000,000.00 instead of P200,000,000.00, which is the best price obtainable in the market, (b) payment of real estate brokers commission of 5% instead of just 2% as in the sale of Esguerra 1 building, and (c) the denial of petitioners right of first refusal when her offer to purchase her one-half share for P80,000,000.00 as ordered by the trial court was totally [13] ignored. The Court is not persuaded. Petitioners argument is debunked by the very nature of a compromise agreement. The mere fact that petitioner Julieta Esguerra was consulted by VECCI in the sale of Esguerra Building I did not affect nor vary the terms of the authority to sell granted the former as expressly spelled out in the judicially-approved compromise agreement because a compromise once approved by final orders of the court has the force of res judicata between the parties and should not be [14] disturbed except for vices of consent or forgery. Hence, a decision on a compromise agreement is [15] final and executory, x x x . Petitioner insists that had she been consulted in the sale of Esguerra Building II, better terms could have been obtained. This is plainly without legal basis since she already consented to the compromise agreement which authorized VECCI to sell the properties without the requirement of prior consultation with her. It is a long established doctrine that the law does not relieve a party from the effects of an unwise, foolish, or disastrous contract, entered into with all the required formalities and with full awareness of what he was doing. Courts have no power to relieve parties from obligations voluntarily [16] assumed, simply because their contracts turned out to be disastrous deals or unwise inve stments. It is a truism that a compromise agreement entered into by party-litigants, when not contrary to law, public order, public policy, morals, or good custom is a valid contract which is the law between the parties themselves. It follows, therefore, that a compromise agreement, not tainted with infirmity, irregularity, fraud or illegality is the law between the parties who are duty bound to abide by it and observe strictly its [17] terms and conditions as in this case. Incidentally, private respondent Sureste Properties, Inc. submits [18] that the petitioner offered to buy her one-half share for only P75,000,000.00, not P80,000,000.00. She therefore valued the whole building only at P150,000,000.00 which amount is P10,000,000.00 less than the price of P160,000,000.00 paid by private respondent, the highest offer the market has produced in two and a half years the building was offered for sale. Even the 5% real estate brokers commission was not disparate with the standard practice in the real estate industry. Thus, the respondent Court aptly stated that: x x x In affixing her signature on the compromise agreement, private respondent (Julieta Esguerra) has demonstrated her agreement to all the terms and conditions therein and have (sic) given expressly her consent to all acts that may be performed pursuant thereto. She can not later on repudiate the effects of her voluntary acts simply

because it does not fit her. Her contention that she was not consulted as to the terms of the sale has no leg to stand on.[19] Parenthetically, the previous consultation can be deemed as no more than a mere courtesy extended voluntarily by VECCI. Besides, such previous consultation -- even assuming arguendothat it was a binding precedent -- cannot bind private respondent Sureste which was not a party thereto. To declare the sale as infirm or unenforceable is to heap unfairness upon Sureste Properties, Inc. and to undermine public faith in court decisions approving compromise agreements. Right of First Refusal Waived The argument of petitioner that she was denied her right of first refusal is puerile. This alleged right, [20] like other rights, may be waived as petitioner did waive it upon entering into the compromise agreement. Corollarily, the execution of the spouses judicial compromise agreement n ecessitated the sale of the spouses co-owned properties and its proceeds distributed fifty percent to each of them which, [21] therefor, resulted in its partition. If petitioner wanted to keep such right of first refusal, she should have expressly reserved it in the compromise agreement. For her failure to do so, she must live with its consequences.

VECCIS Sale of Esguerra Building II A Valid Exercise of Corporate Power Petitioner contends that VECCI violated the condition in the compromise agreement requiring that the sale be made under the terms and conditions recited in the enabling resolutions of its Board of [22] Directors and stockholders. She rues that no shareholders or directors meeting, wherein these resolutions were passed, was actually held. She thus bewails this sale as improper for not having [23] complied with the requirements mandated by Section 40 of the Corporation Code. Petitioners contention is plainly unmeritorious. The trial courts partial decision dated January 11, 1990 approving the compromise agreement clearly showed that the enabling resolutions of its (VECCIs) board of directors and stockholders referred to were those then already existing; to wit: (1) the resolution of the stockholders of VECCI dated November 9, 1989, (where) the stockholders authorized VECCI to sell and/or disposed all or substantially all its property and assets upon such terms and conditions and for [24] such consideration as the board of directors may deem expedient. (2) the resolution dated 9 November 1989, (where) the board of directors of VECCI authorized VECCI to sell and/or dispose all or substantially all the property and assets of the corporation, at the highest available price/s they could be sold or disposed of in cash, and in such manner as may be held convenient under the circumstances, and authorized the President Vicente B. Esguerra, Jr. to negotiate, contract, execute and sign such [25] sale for and in behalf of the corporation. VECCIs sale of all the properties mentioned in the judiciallyapproved compromise agreement was done on the basis of its Corporate Secretarys Certification of these two resolutions. The partial decision did not require any further board or stockholder resolutions to make VECCIs sale of these properties valid. Being regular on its face, the Secretarys Certification was sufficient for private respondent Sureste Properties, Inc. to rely on. It did not have to investigate the truth of the facts contained in such certification. Otherwise, business transactions of corporations would become tortuously slow and unnecessarily hampered. Ineluctably, VECCIs sale of Esguerra Building II to private respondent was not ultra vires but a valid execution of the trial courts partial decision. Based on the foregoing, the sale is also deemed to have satisfied the requirements of Section 40 of the Corporation Code. Furthermore, petitioner Julieta Esguerra is estopped from contesting the validity of VECCIs corporate action in selling Esguerra Building II on the basis of said resolutions and certification because she never raised this issue in VECCIs prior sales of the other properties sold including the Esguerra [26] Building I. The same identical resolutions and certification were used in such prior sales.

Notice of Lis Pendens Once a notice of lis pendens has been duly registered, any cancellation or issuance of the title of the land involved as well as any subsequent transaction affecting the same, would have to be subject to [27] the outcome of the suit. In other words, a purchaser who buys registered land with full notice of the fact that it is in litigation between the vendor and a third party x x x stands in the shoes of his vendor and [28] his title is subject to the incidents and result of the pending litigation x x x. In the present case, the purchase made by private respondent Sureste Properties, Inc. of the property in controversy is subject to the notice of lis pendens annotated on its title. Thus, the private respondents purchase remains subject to our decision in the instant case. The former is likewise deemed notified of all the incidents of this case including the terms and conditions for the sale contained in the compromise agreement. However, petitioners inference that the private respondent is also deemed to have been notif ied that the manner of the sale of the properties contained in the compromise agreement should be made only upon prior consent/conformity of the herein petitioner is non sequitur. Nowhere in the compromise agreement was this inference expressly or impliedly stated. In the final analysis, the determination of this issue ultimately depends on this Courts disposition of this case.

Appealed Decision Consistent with Previous Court of Appeals and Supreme Court Decisions Petitioner maintains that the trial courts ruling that the sale of Esguerra Building II to Sureste is unenforceable to the extent of one-half share of petitioner in the property is based on the Court of Appeals decision in G.R. SP No. 23780 dated May 17, 1991, and the Supreme Courts decis ion in G.R. No. 100441 dated May 4, 1992 which both acknowledged petitioners one -half ownership of said [29] building. She reasons that (a)s co-owner her consent or conformity to the sale was necessary for the [30] validity or effectivity thereof insofar as her 1/2 share/ownership was concerned. The Court disagrees. As discussed previously, this repetitive contention is negated by her consent to the compromise agreement that authorized VECCI to sell the building without need of further consultation with her. Her co-ownership in the building was not inconsistent with her authorizing another, specifically VECCI, to sell her share in this property via an agency arrangement. As correctly stated by the respondent Court of Appeals, the only import of this Courts ruling in G.R. No. 100441 was as follows: the only issue involved is whether or not private respondent is entitled to one-half of the rentals of the subject property pending its sale. The rulings of the courts is (sic) therefore limited only to the issue of rental, there being no provision in the compromise agreement approved by the court for the rentals earned from the building pending its sale. Nowhere in the said rulings did it question nor assail the authority granted to VECCI to sell the said building. In fact, the decisions affirmed the authority granted to VECCI to sell the said building which invoked the compromise agreement of the parties as a basis of the decision (Manifestation, p. 38, Rollo).[31]

Second Issue: Did the Appellate Court Act Without Jurisdiction or With Grave Abuse of Discretion? In the case of Alafriz vs. Nable, abuse of discretion as follows:
[32]

this Court defined the phrases without jurisdiction and grave

Without jurisdiction means that the court acted with absolute want of jurisdiction. x x x Grave abuse of discretion implies such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction, or, in other words where the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and it must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law.

Contrary to petitioners asseverations, the Court finds that the respondent Court of Appeals judiciously, correctly and certainly acted within its jurisdiction in rever sing the trial courts decision. As discussed, its decision is consistent with law and existing jurisprudence. Let it be emphasized that Rule 45 of the Rules of Court, under which the present petition was filed, authorizes only reversible errors of the appellate court as grounds for review, and not grave abuse of discretion which is provided for by Rule 65. It is basic that where Rule 45 is available, and in fact availed of as a remedy -- as in this case -- recourse under Rule 65 cannot be allowed either as an add-on or as a substitute for appeal. Finally, (c)ourts as a rule may not impose upon the parties a judgment different from their [33] compromise agreement. It would be an abuse of discretion. Hence, in this case, it is the trial courts decision which is tainted with grave abuse of discretion for having injudiciously added prior consultation to VECCIs authority to sell the properties, a condition not contained in the judicially-approved compromise agreement. WHEREFORE, the petition is hereby DENIED for lack of merit, no reversible error having been committed by respondent Court. The assailed Decision is AFFIRMED in toto. Costs against petitioner. SO ORDERED.