Vicente vs Geraldez and Hi Cement Corporation

G.R. No. L-32473 July 31, 1973

Bernabe vs Hi Cement Corporation and Geraldez
G.R. No. L-32483 July 31, 1973
Facts: The two cases are herein decided jointly because they proceed from the same case
and involve in substance the same question of law. Respondent Hi Cement Corporation filed
with CFI of Bulacan complaint for injunction and damages against herein petitioners Juan
Bernabe et al regarding the rightful possession of a land covered by the alleged Deed of Sale
and Transfer obtained by the corporation. The court directed the parties to send their
representatives to the place of the survey on the date thereof and to furnish the surveyor
with copies of their titles. In an Order issued, the court approved the report "with the
conformity of all the parties in this case." The respective counsels of the parties then
conferred among themselves on the possibility of terminating the case by compromise, the
defendants having previously signified their willingness to sell to the plaintiff their respective
properties at reasonable prices. Counsels of the parties executed and submitted to the court
for its approval the Compromise Agreement. Pursuant to the terms of the said compromise
agreement the counsels of both parties submitted the names of the persons designated by
them as their respective commissioners.
Atty. Ventura, one of the three lawyers for HI Cement Corporation, filed with the trial
court a manifestation stating that he sent a copy of the Compromise Agreement to Mr.
Antonio Diokno, President of the corporation, requesting the latter to intercede with the
Board of Directors for the confirmation or approval of the commitment made by the
plaintiff's lawyers to abide by the decision of the Court based on the reports of the
Commissioners. In that letter Mr. Diokno said:
While I realize your interest in cooperating with the Court in its desire
to expedite the disposition of the case, this commitment would deprive us of
the right to appeal if we do not agree with the valuation set by the Court. Our
Board, therefore, cannot waive its rights; only when it knows the value set by
the Court on the properties can it decide whether to abide by it or appeal
therefrom. I would like to stress that, under the law, the compromise
agreement requires the express approval of our Board of Directors to be
binding on our corporation. Such an approval, I regret to say, cannot be
obtained at this time.
However, Bernabe answered praying that this be stricken out of the records on the ground
that its filing after the consolidation of the Compromised agreement cast suspicion on the
sincerity of the agreement; that Atty. Ventura himself was the first to sign the agreement
and the rest of the representatives also signed partaking the nature of a stipulation of facts
mutually agreed upon by the parties and approved by the court, hence, was binding and
conclusive upon the parties; and that the nomination by the plaintiff of Mr. Larry G. Marquez
as its Commissioner pursuant to the Compromise Agreement, was a clear indication of the
plaintiff's tacit approval of the terms and conditions of the Compromise Agreement, if not an
implied ratification of Atty. Ventura's acts. The court rendered a decision in which held that
the Consolidated Report of the Commissioners is extensively quoted. Defendant Juan
Bernabe filed an urgent motion for execution of judgment anchored on the proposition that
the judgment, being based on a compromise agreement, is not appealable and is, on the
other hand, immediately executory. The respondent court granted said motion.
Hi Cement filed with the court a motion for new trial on the ground that the decision
of the court dated March 13, 1970 is null and void because it was based on the Compromise
Agreement which was itself null and void for want of a special authority by the plaintiff's
lawyers to enter into the said agreement. Hence, this petition

Issue: whether the respondent court, in setting aside its decision and denying the motions
for execution of said decision, had acted without or in excess of its jurisdiction or with grave
abuse of discretion.
Held: No. Special powers of attorney are necessary, among other cases, in the following: to
compromise and to renounce the right to appeal from a judgment. Attorneys have authority
to bind their clients in any case by any agreement in relation thereto made in writing, and in
taking appeals, and in all matters of ordinary judicial procedure, but they cannot, without
special authority, compromise their clients' litigation, or receive anything in
discharge of their clients' claims but the full amount in cash.
The Compromise Agreement was signed only by the lawyers for petitioners and by
the lawyers for private respondent corporation. It is not disputed that the lawyers of
respondent corporation had not submitted to the Court any written authority from their
client to enter into a compromise. A corporation 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 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 of HI Cement Corporation has been cited. Absent such authority to
enter into the compromise, the signature of Atty. Cardenas on the agreement would be
legally ineffectual. For ratification can never be made "on the part of the corporation by the
same persons who wrongfully assume the power to make the contract, but the ratification
must be by the officer or governing body having authority to make such contract and, as we
have seen, must be with full knowledge."
Equally inapposite is petitioners' invocation of the principle of estoppel. In the case at
bar, except those made by Attys. Ventura, Cardenas and Magpantay, petitioners have not
demonstrated any act or declaration of the corporation amounting to false representation or
concealment of material facts calculated to mislead said petitioners. The acts or conduct for
which the corporation may be liable under the doctrine of estoppel must be those of the
corporation, its governing body or authorized officers, and not those of the purported agent
who is himself responsible for the misrepresentation.
LINA LIM LAO, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES,
respondents.
Facts:
Version of the prosecution
Petitioner/Appellant Lina Lim Lao was a junior officer of Premiere Investment House
(Premiere) in its Binondo Branch. As such officer, she was authorized to sign checks for and
in behalf of the corporation. She met complainant Father ArtelijoPelijo, the provincial
treasurer of the Society of the Divine Word through Mrs. Rosemarie Lachenal, a trader for
Premiere. Father Palijo was authorized to invest donations to the society and had been
investing the societys money with Premiere . All the checks were issued in favor of Artelijo
A. Palijo and signed by Lao and TeoduloAsprec, who was the head of operations. When
Father Palijo presented the checks for encashment, the same were dishonored for the reason
Drawn Against Insufficient Funds (DAIF). Father Palijo immediately made demands on
premiere to pay him the necessary amounts then filed an affidavit-complaint against Lao
and Asprec for violation of B.P. 22. After preliminary investigation,[5] three Informations
charging Lao and Asprec with the offense defined were filed.
Version of the Defense
Petitioner Lina Lim Lao wa san employee of Premiere Financing Corporation and in the
regular course of her duties as a junior officer, she was required to co-sign checks drawn
against the account of the corporation. The other co-signor was her head of office,
Mr.TeoduloAsprec. Since part of her duties required her to be mostly in the field and out of

the office, it was normal procedure for her to sign the checks in blank, that is, without the
names of the payees, the amounts and the dates of maturity. It was likewise Mr.Asprec, as
head of office, who alone decided to whom the checks were to be ultimately issued and
delivered. Lao had no knowledge of the actual funds available in the corporate account.
The power, duty and responsibility of monitoring and assessing the balances against the
checks issued, and funding the checks thus issued, devolved on the corporations Treasury
Department in its main office in Cubao, Quezon City, headed then by the Treasurer,
Ms.VeronilynOcampo. All bank statements regarding the corporate checking account were
likewise sent to the main branch in Cubao, Quezon City, and not in Binondo, Manila, where
petitioner was holding office. The foregoing circumstances attended the issuance of the
checks subject of the instant prosecution.
The checks were issued to guarantee payment of investments placed by private
complainant Palijo with Premiere Financing Corporation. In his transactions with the
corporation, private complainant dealt exclusively with one Rosemarie Lachenal, a trader
connected with the corporation, and he never knew nor in any way dealt with petitioner Lina
Lim Lao at any time before or during the issuance of the delivery of the checks. When the
checks were co-signed by petitioner, they were signed in advance and in blank, delivered to
the Head of Operations, Mr.TeoduloAsprec, who subsequently filled in the names of the
payee, the amounts and the corresponding dates of maturity. After Mr.Asprec signed the
checks, they were delivered to private complainant Palijo. At the time Lao signed the checks,
she had no knowledge of the sufficiency or insufficiency of the funds of the corporate
account. When the checks were subsequently dishonored, private complainant sent a notice
of said dishonor to Premier Financing Corporation at its head office in Cubao, Quezon City.
Private complainant did not send notice of dishonor to petitioner. It was the head office in
Cubao, Quezon City, which received notice of dishonor of the bounced checks.
The
dishonor of the check came in the wake of the assassination of the late Sen. Benigno Aquino,
as a consequence of which event a majority of the corporations clients pre-terminated their
investments. As a result of the financial crisis and distress, the Securities and Exchange
Commission placed Premier Financing Corporation under receivership.
May an employee who, as part of her regular duties, signs blank corporate checks -- with the
name of the payee and the amount drawn to be filled later by another signatory -- and,
therefore, does so without actual knowledge of whether such checks are funded, be held
criminally liable for violation of Batas PambansaBilang 22 (B.P. 22), when checks so signed
are dishonored due to insufficiency of funds? Does a notice of dishonor sent to the main
office of the corporation constitute a valid notice to the said employee who holds office in a
separate branch and who had no actual knowledge thereof? In other words, is constructive
knowledge of the corporation, but not of the signatory-employee, sufficient?
Court of Appeals dismissed the appeal of petitioner and affirming the decision of the
Regional Trial Court of Manila.
The Issue
WON lack of actual knowledge of insufficiency of funds is a defense in a prosecution for
violation of B.P. 22and that notice of dishonor sent to the main office of the corporation, and
not to petitioner herself who holds office in that corporations branch office, does not
constitute the notice mandated in Section 2 of BP 22; thus, there can be no prima facie
presumption that she had knowledge of the insufficiency of funds.
The Courts Ruling
YES. The petition is meritorious.
Lack of Actual Knowledge of Insufficiency of Funds
Knowledge of insufficiency of funds or credit in the drawee bank for the payment of a check
upon its presentment is an essential element of the offense.[15] There is a prima facie
presumption of the existence of this element from the fact of drawing, issuing or making a
check, the payment of which was subsequently refused for insufficiency of funds. It is
important to stress, however, that this is not a conclusive presumption that forecloses or
precludes the presentation of evidence to the contrary.

In the present case, the fact alone that petitioner was a signatory to the checks that were
subsequently dishonored merely engenders the prima facie presumption that she knew of
the insufficiency of funds, but it does not render her automatically guilty under B.P. 22. The
prosecution has a duty to prove all the elements of the crime, including the acts that give
rise to the prima facie presumption; petitioner, on the other hand, has a right to rebut the
prima facie presumption.[16] Therefore, if such knowledge of insufficiency of funds is proven
to be actually absent or non-existent, the accused should not be held liable for the offense
defined under the first paragraph of Section 1 of B.P. 22. Although the offense charged is a
malumprohibitum, the prosecution is not thereby excused from its responsibility of proving
beyond reasonable doubt all the elements of the offense, one of which is knowledge of the
insufficiency of funds.
Since Petitioner Lina Lim Lao signed the checks without knowledge of the insufficiency of
funds, knowledge she was not expected or obliged to possess under the organizational
structure of the corporation, she may not be held liable under B.P. 22. For in the final
analysis, penal statutes such as B.P. 22 must be construed with such strictness as to
carefully safeguard the rights of the defendant xx x.[22] The element of knowledge of
insufficiency of funds having been proven to be absent, petitioner is therefore entitled to an
acquittal.
Lack of Adequate Notice of Dishonor
There is another equally cogent reason for the acquittal of the accused. There can be no
prima facie evidence of knowledge of insufficiency of funds in the instant case because no
notice of dishonor was actually sent to or received by the petitioner.
The notice of dishonor may be sent by the offended party or the drawee bank. The trial
court itself found absent a personal notice of dishonor to Petitioner Lina Lim Lao by the
drawee bank based on the unrebutted testimony of Ocampo (t)hat the checks bounced
when presented with the drawee bank but she did not inform anymore the Binondo branch
and Lina Lim Lao as there was no need to inform them as the corporation was in
distress.[29] The Court of Appeals affirmed this factual finding. Pursuant to prevailing
jurisprudence, this finding is binding on this Court.[30]
Indeed, this factual matter is borne by the records. The records show that the notice of
dishonor was addressed to Premiere Financing Corporation and sent to its main office in
Cubao, Quezon City. Furthermore, the same had not been transmitted to Premieres
Binondo Office where petitioner had been holding office.
Likewise no notice of dishonor from the offended party was actually sent to or received by
Petitioner Lao.
Because no notice of dishonor was actually sent to and received by the petitioner, the prima
facie presumption that she knew about the insufficiency of funds cannot apply. Section 2 of
B.P. 22 clearly provides that this presumption arises not from the mere fact of drawing,
making and issuing a bum check; there must also be a showing that, within five banking
days from receipt of the notice of dishonor, such maker or drawer failed to pay the holder of
the check the amount due thereon or to make arrangement for its payment in full by the
drawee of such check.
It has been observed that the State, under this statute, actually offers the violator a
compromise by allowing him to perform some act which operates to preempt the criminal
action, and if he opts to perform it the action is abated. This was also compared to certain
laws[32] allowing illegal possessors of firearms a certain period of time to surrender the
illegally possessed firearms to the Government, without incurring any criminal liability.[33]
In this light, the full payment of the amount appearing in the check within five banking days
from notice of dishonor is a complete defense.[34] The absence of a notice of dishonor
necessarily deprives an accused an opportunity to preclude a criminal prosecution.
Premiere has no obligation to forward the notice addressed to it to the employee concerned,
especially because the corporation itself incurs no criminal liability under B.P. 22 for the
issuance of a bouncing check. Responsibility under B.P. 22 is personal to the accused; hence,
personal knowledge of the notice of dishonor is necessary. Consequently, constructive
notice to the corporation is not enough to satisfy due process. Moreover, it is petitioner, as

an officer of the corporation, who is the latters agent for purposes of receiving notices and
other documents, and not the other way around. It is but axiomatic that notice to the
corporation, which has a personality distinct and separate from the petitioner, does not
constitute notice to the latter.
Thus, this Court exhorts the prosecutors and the police authorities concerned to exert their
best to arrest and prosecute Asprec so that justice in its pristine essence can be achieved in
all fairness to the complainant, Fr. ArtelijoPalijo, and the People of the Philippines. By this
Decision, the Court enjoins the Secretary of Justice and the Secretary of Interior and Local
Government to see that essential justice is done and the real culprit(s) duly-prosecuted and
punished.
WHEREFORE, the questioned Decision of the Court of Appeals affirming that of the Regional
Trial Court, is hereby REVERSED and SET ASIDE. Petitioner Lina Lim Lao is ACQUITTED.

SHIEN CASAA
Business Organization II
Case No. 6
1. Case Digest:
G.R. No. 125469

October 27, 1997

THE PHILIPPINE STOCK EXCHANGE, INC., petitioner,

vs.
THE HONORABLE COURT OF APPEALS,
SECURITIES AND EXCHANGE COMMISSION and PUERTO AZUL LAND, INC.,
respondents.
Facts:
Puerto Azul Land, Inc. (PALI),a domestic real estatecorporation, had sought to offer its
shares to the public inorder to raise funds for development of properties and pay itsloans
with several banks. The Securities and Exchange Commission (SEC) then issued a Permit to
Sell to thepublic. To facilitate the trading of its shares, PALI sought thecourse of trading of its
shares through the Philippine Stock Exchange (PSE), for purpose of which it filed a
listing application.PSE received a letter from the Heirs of Marcos, requesting todefer PALIs
application. It claimed that the late President Marcoswas the legal and beneficial
owner of certain propertiesclaimed by PALI as its assets which are subject of a sequestration
proceeding before the Sandiganbayan. Consequently, in its regular meeting held on March
27, 1996, the Board of Governors of the PSE reached its decision to reject PALI's application,
citing the existence of serious claims, issues and circumstances surrounding PALI's
ownership over its assets that adversely affect the suitability of listing PALI's shares in the
stock exchange.
On April 11, 1996, PALI wrote a letter to the SEC addressed to the then Acting
Chairman, Perfecto R. Yasay, Jr., bringing to the SEC's attention the action taken by the PSE
in the application of PALI for the listing of its shares with the PSE, and requesting that the
SEC, in the exercise of its supervisory and regulatory powers over stock exchanges under
Section 6(j) of P.D. No. 902-A, review the PSE's action on PALI's listing application and
institute such measures as are just and proper under the circumstances.
The SEC therebyrendered decision reversing
Reconsideration was filed by the latter, however, denied.

PSEs

decision. A

Motion

for

On appeal, the Court of Appeals upheld the decision of the SEC, affirming
the latters jurisdiction and authority to look into the decision of PSE andfor the purpose
of ensuring fair administration of the stockexchange.
Thus, this petition.
Issue:
Whether or not SEC had authority to order PSE to list the shares of PALIin the stock
exchange.
Held:
No.
The SEC has both jurisdiction and authority to look into the decision of PSE pursuant
to the Revised Securities Act and for the purpose of ensuring fair administration of the
exchange. PSE, as a corporation itself and as a stock exchange is subject to SECs
jurisdiction, regulation, and control. In order to insure fair dealing of securities and a fair
administration of exchanges in the PSE, the SEC has the authority to look into the rulings
issued by it. The SEC is the entity with the primary say as to whether or not securities,
including shares of stock of a corporation, may be traded or not in the stock exchange.
HOWEVER, the SECs actions shall be subject to business judgment rule, whereby
the SEC and the courts are barred from intruding into business judgments of a corporation
when the same are made in good faith.
In the case at bar, there was no showing that PSE acted with bad faith when it denied
the application of PALI. Based on the multiple adverse claims against the assets of PALI, PSE
deemed that granting PALIs application will only be contrary to the best interest of the
general public. It was reasonable for the PSE to exercise its judgment in the manner it
deems appropriate for its business identity, as long as no rights are trampled upon, and
public welfare is safeguarded.

2. Full Text:
G.R. No. 125469

October 27, 1997

THE PHILIPPINE STOCK EXCHANGE, INC., petitioner,

vs.
THE HONORABLE COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION
and PUERTO AZUL LAND, INC., respondents.
TORRES, JR., J.:
The Securities and Exchange Commission is the government agency, under the direct
general supervision of the Office of the President, 1 with the immense task of enforcing the
Revised Securities Act, and all other duties assigned to it by pertinent laws. Among its
inumerable functions, and one of the most important, is the supervision of all corporations,
partnerships or associations, who are grantees of primary franchise and/or a license or
permit issued by the government to operate in the Philippines. 2 Just how far this regulatory
authority extends, particularly, with regard to the Petitioner Philippine Stock Exchange, Inc.
is the issue in the case at bar.
In this Petition for Review on Certiorari, petitioner assails the resolution of the respondent
Court of Appeals, dated June 27, 1996, which affirmed the decision of the Securities and
Exchange Commission ordering the petitioner Philippine Stock Exchange, Inc. to allow the
private respondent Puerto Azul Land, Inc. to be listed in its stock market, thus paving the
way for the public offering of PALI's shares.
The facts of the case are undisputed, and are hereby restated in sum.
The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to offer its
shares to the public in order to raise funds allegedly to develop its properties and pay its
loans with several banking institutions. In January, 1995, PALI was issued a Permit to Sell its
shares to the public by the Securities and Exchange Commission (SEC). To facilitate the
trading of its shares among investors, PALI sought to course the trading of its shares through
the Philippine Stock Exchange, Inc. (PSE), for which purpose it filed with the said stock
exchange an application to list its shares, with supporting documents attached.
On February 8, 1996, the Listing Committee of the PSE, upon a perusal of PALI's application,
recommended to the PSE's Board of Governors the approval of PALI's listing application.
On February 14, 1996, before it could act upon PALI's application, the Board of Governors of
the PSE received a letter from the heirs of Ferdinand E. Marcos, claiming that the late
President Marcos was the legal and beneficial owner of certain properties forming part of the
Puerto Azul Beach Hotel and Resort Complex which PALI claims to be among its assets and
that the Ternate Development Corporation, which is among the stockholders of PALI, likewise
appears to have been held and continue to be held in trust by one RebeccoPanlilio for then
President Marcos and now, effectively for his estate, and requested PALI's application to be
deferred. PALI was requested to comment upon the said letter.
PALI's answer stated that the properties forming part of the Puerto Azul Beach Hotel and
Resort Complex were not claimed by PALI as its assets. On the contrary, the resort is actually
owned by Fantasia Filipina Resort, Inc. and the Puerto Azul Country Club, entities distinct
from PALI. Furthermore, the Ternate Development Corporation owns only 1.20% of PALI. The
Marcoses responded that their claim is not confined to the facilities forming part of the
Puerto Azul Hotel and Resort Complex, thereby implying that they are also asserting legal
and beneficial ownership of other properties titled under the name of PALI.
On February 20, 1996, the PSE wrote Chairman MagtanggolGunigundo of the Presidential
Commission on Good Government (PCGG) requesting for comments on the letters of the PALI
and the Marcoses. On March 4, 1996, the PSE was informed that the Marcoses received a

Temporary Restraining Order on the same date, enjoining the Marcoses from, among others,
"further impeding, obstructing, delaying or interfering in any manner by or any means with
the consideration, processing and approval by the PSE of the initial public offering of PALI."
The TRO was issued by Judge Martin S. Villarama, Executive Judge of the RTC of Pasig City in
Civil Case No. 65561, pending in Branch 69 thereof.
In its regular meeting held on March 27, 1996, the Board of Governors of the PSE reached its
decision to reject PALI's application, citing the existence of serious claims, issues and
circumstances surrounding PALI's ownership over its assets that adversely affect the
suitability of listing PALI's shares in the stock exchange.
On April 11, 1996, PALI wrote a letter to the SEC addressed to the then Acting Chairman,
Perfecto R. Yasay, Jr., bringing to the SEC's attention the action taken by the PSE in the
application of PALI for the listing of its shares with the PSE, and requesting that the SEC, in
the exercise of its supervisory and regulatory powers over stock exchanges under Section
6(j) of P.D. No. 902-A, review the PSE's action on PALI's listing application and institute such
measures as are just and proper under the circumstances.
On the same date, or on April 11, 1996, the SEC wrote to the PSE, attaching thereto the
letter of PALI and directing the PSE to file its comments thereto within five days from its
receipt and for its authorized representative to appear for an "inquiry" on the matter. On
April 22, 1996, the PSE submitted a letter to the SEC containing its comments to the April
11, 1996 letter of PALI.
On April 24, 1996, the SEC rendered its Order, reversing the PSE's decision. The dispositive
portion of the said order reads:
WHEREFORE, premises considered, and invoking the Commissioner's authority and
jurisdiction under Section 3 of the Revised Securities Act, in conjunction with Section 3, 6(j)
and 6(m) of Presidential Decree No. 902-A, the decision of the Board of Governors of the
Philippine Stock Exchange denying the listing of shares of Puerto Azul Land, Inc., is hereby
set aside, and the PSE is hereby ordered to immediately cause the listing of the PALI shares
in the Exchange, without prejudice to its authority to require PALI to disclose such other
material information it deems necessary for the protection of the investigating public.
This Order shall take effect immediately.
SO ORDERED.
PSE filed a motion for reconsideration of the said order on April 29, 1996, which was,
however denied by the Commission in its May 9, 1996 Order which states:
WHEREFORE, premises considered, the Commission finds no compelling reason to reconsider
its order dated April 24, 1996, and in the light of recent developments on the adverse claim
against the PALI properties, PSE should require PALI to submit full disclosure of material facts
and information to protect the investing public. In this regard, PALI is hereby ordered to
amend its registration statements filed with the Commission to incorporate the full
disclosure of these material facts and information.
Dissatisfied
Petition for
Restraining
following as

with this ruling, the PSE filed with the Court of Appeals on May 17, 1996 a
Review (with Application for Writ of Preliminary Injunction and Temporary
Order), assailing the above mentioned orders of the SEC, submitting the
errors of the SEC:

I.
SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN ISSUING THE
ASSAILED ORDERS WITHOUT POWER, JURISDICTION, OR AUTHORITY; SEC HAS NO POWER
TO ORDER THE LISTING AND SALE OF SHARES OF PALI WHOSE ASSETS ARE SEQUESTERED
AND TO REVIEW AND SUBSTITUTE DECISIONS OF PSE ON LISTING APPLICATIONS;
II.
SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN FINDING
THAT PSE ACTED IN AN ARBITRARY AND ABUSIVE MANNER IN DISAPPROVING PALI'S LISTING
APPLICATION;
III.
THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID FOR ALLOWING FURTHER
DISPOSITION OF PROPERTIES IN CUSTODIA LEGIS AND WHICH FORM PART OF
NAVAL/MILITARY RESERVATION; AND
IV.
THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY PROMULGATED AND ITS
IMPLEMENTATION AND APPLICATION IN THIS CASE VIOLATES THE DUE PROCESS CLAUSE OF
THE CONSTITUTION.
On June 4, 1996, PALI filed its Comment to the Petition for Review and subsequently, a
Comment and Motion to Dismiss. On June 10, 1996, PSE fled its Reply to Comment and
Opposition to Motion to Dismiss.
On June 27, 1996, the Court of Appeals promulgated its Resolution dismissing the PSE's
Petition for Review. Hence, this Petition by the PSE.
The appellate court had ruled that the SEC had both jurisdiction and authority to look into
the decision of the petitioner PSE, pursuant to Section 3 3 of the Revised Securities Act in
relation to Section 6(j) and 6(m) 4 of P.D. No. 902-A, and Section 38(b) 5 of the Revised
Securities Act, and for the purpose of ensuring fair administration of the exchange. Both as a
corporation and as a stock exchange, the petitioner is subject to public respondent's
jurisdiction, regulation and control. Accepting the argument that the public respondent has
the authority merely to supervise or regulate, would amount to serious consequences,
considering that the petitioner is a stock exchange whose business is impressed with public
interest. Abuse is not remote if the public respondent is left without any system of control. If
the securities act vested the public respondent with jurisdiction and control over all
corporations; the power to authorize the establishment of stock exchanges; the right to
supervise and regulate the same; and the power to alter and supplement rules of the
exchange in the listing or delisting of securities, then the law certainly granted to the public
respondent the plenary authority over the petitioner; and the power of review necessarily
comes within its authority.
All in all, the court held that PALI complied with all the requirements for public listing,
affirming the SEC's ruling to the effect that:
. . . the Philippine Stock Exchange has acted in an arbitrary and abusive manner in
disapproving the application of PALI for listing of its shares in the face of the following
considerations:
1.
PALI has clearly and admittedly complied with the Listing Rules and full disclosure
requirements of the Exchange;
2.
In applying its clear and reasonable standards on the suitability for listing of shares,
PSE has failed to justify why it acted differently on the application of PALI, as compared to
the IPOs of other companies similarly situated that were allowed listing in the Exchange;

3.
It appears that the claims and issues on the title to PALI's properties were even less
serious than the claims against the assets of the other companies in that, the assertions of
the Marcoses that they are owners of the disputed properties were not substantiated enough
to overcome the strength of a title to properties issued under the Torrens System as
evidence of ownership thereof;
4.
No action has been filed in any court of competent jurisdiction seeking to nullify
PALI's ownership over the disputed properties, neither has the government instituted
recovery proceedings against these properties. Yet the import of PSE's decision in denying
PALI's application is that it would be PALI, not the Marcoses, that must go to court to prove
the legality of its ownership on these properties before its shares can be listed.
In addition, the argument that the PALI properties belong to the Military/Naval Reservation
does not inspire belief. The point is, the PALI properties are now titled. A property losses its
public character the moment it is covered by a title. As a matter of fact, the titles have long
been settled by a final judgment; and the final decree having been registered, they can no
longer be re-opened considering that the one year period has already passed. Lastly, the
determination of what standard to apply in allowing PALI's application for listing, whether the
discretion method or the system of public disclosure adhered to by the SEC, should be
addressed to the Securities Commission, it being the government agency that exercises both
supervisory and regulatory authority over all corporations.
On August 15, 19961 the PSE, after it was granted an extension, filed the instant Petition for
Review on Certiorari, taking exception to the rulings of the SEC and the Court of Appeals.
Respondent PALI filed its Comment to the petition on October 17, 1996. On the same date,
the PCGG filed a Motion for Leave to file a Petition for Intervention. This was followed up by
the PCGG's Petition for Intervention on October 21, 1996. A supplemental Comment was
filed by PALI on October 25, 1997. The Office of the Solicitor General, representing the SEC
and the Court of Appeals, likewise filed its Comment on December 26, 1996. In answer to
the PCGG's motion for leave to file petition for intervention, PALI filed its Comment thereto
on January 17, 1997, whereas the PSE filed its own Comment on January 20, 1997.
On February 25, 1996, the PSE filed its Consolidated Reply to the comments of respondent
PALI (October 17, 1996) and the Solicitor General (December 26, 1996). On May 16, 1997,
PALI filed its Rejoinder to the said consolidated reply of PSE.
PSE submits that the Court of Appeals erred in ruling that the SEC had authority to order the
PSE to list the shares of PALI in the stock exchange. Under presidential decree No. 902-A, the
powers of the SEC over stock exchanges are more limited as compared to its authority over
ordinary corporations. In connection with this, the powers of the SEC over stock exchanges
under the Revised Securities Act are specifically enumerated, and these do not include the
power to reverse the decisions of the stock exchange. Authorities are in abundance even in
the United States, from which the country's security policies are patterned, to the effect of
giving the Securities Commission less control over stock exchanges, which in turn are given
more lee-way in making the decision whether or not to allow corporations to offer their stock
to the public through the stock exchange. This is in accord with the "business judgment rule"
whereby the SEC and the courts are barred from intruding into business judgments of
corporations, when the same are made in good faith. the said rule precludes the reversal of
the decision of the PSE to deny PALI's listing application, absent a showing of bad faith on
the part of the PSE. Under the listing rules of the PSE, to which PALI had previously agreed to
comply, the PSE retains the discretion to accept or reject applications for listing. Thus, even
if an issuer has complied with the PSE listing rules and requirements, PSE retains the
discretion to accept or reject the issuer's listing application if the PSE determines that the
listing shall not serve the interests of the investing public.

Moreover, PSE argues that the SEC has no jurisdiction over sequestered corporations, nor
with corporations whose properties are under sequestration. A reading of Republic of the
Philippines vs. Sadiganbayan, G.R. No. 105205, 240 SCRA 376, would reveal that the
properties of PALI, which were derived from the Ternate Development Corporation (TDC) and
the Monte del Sol Development Corporation (MSDC). are under sequestration by the PCGG,
and subject of forfeiture proceedings in the Sandiganbayan. This ruling of the Court is the
"law of the case" between the Republic and TDC and MSDC. It categorically declares that the
assets of these corporations were sequestered by the PCGG on March 10, 1986 and April 4,
1988.
It is, likewise, intimated that the Court of Appeals' sanction that PALI's ownership over its
properties can no longer be questioned, since certificates of title have been issued to PALI
and more than one year has since lapsed, is erroneous and ignores well settled
jurisprudence on land titles. That a certificate of title issued under the Torrens System is a
conclusive evidence of ownership is not an absolute rule and admits certain exceptions. It is
fundamental that forest lands or military reservations are non-alienable. Thus, when a title
covers a forest reserve or a government reservation, such title is void.
PSE, likewise, assails the SEC's and the Court of Appeals reliance on the alleged policy of
"full disclosure" to uphold the listing of PALI's shares with the PSE, in the absence of a clear
mandate for the effectivity of such policy. As it is, the case records reveal the truth that PALI
did not comply with the listing rules and disclosure requirements. In fact, PALI's documents
supporting its application contained misrepresentations and misleading statements, and
concealed material information. The matter of sequestration of PALI's properties and the fact
that the same form part of military/naval/forest reservations were not reflected in PALI's
application.
It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is
clothed with the markings of a corporate entity, it functions as the primary channel through
which the vessels of capital trade ply. The PSE's relevance to the continued operation and
filtration of the securities transactions in the country gives it a distinct color of importance
such that government intervention in its affairs becomes justified, if not necessarily. Indeed,
as the only operational stock exchange in the country today, the PSE enjoys a monopoly of
securities transactions, and as such, it yields an immense influence upon the country's
economy.
Due to this special nature of stock exchanges, the country's lawmakers has seen it wise to
give special treatment to the administration and regulation of stock exchanges. 6
These provisions, read together with the general grant of jurisdiction, and right of
supervision and control over all corporations under Sec. 3 of P.D. 902-A, give the SEC the
special mandate to be vigilant in the supervision of the affairs of stock exchanges so that
the interests of the investing public may be fully safeguard.
Section 3 of Presidential Decree 902-A, standing alone, is enough authority to uphold the
SEC's challenged control authority over the petitioner PSE even as it provides that "the
Commission shall have absolute jurisdiction, supervision, and control over all corporations,
partnerships or associations, who are the grantees of primary franchises and/or a license or
permit issued by the government to operate in the Philippines. . ." The SEC's regulatory
authority over private corporations encompasses a wide margin of areas, touching nearly all
of a corporation's concerns. This authority springs from the fact that a corporation owes its
existence to the concession of its corporate franchise from the state.
The SEC's power to look into the subject ruling of the PSE, therefore, may be implied from or
be considered as necessary or incidental to the carrying out of the SEC's express power to

insure fair dealing in securities traded upon a stock exchange or to ensure the fair
administration of such exchange. 7 It is, likewise, observed that 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 for the promotion of economic development. 8
Thus, it was in the alleged exercise of this authority that the SEC reversed the decision of
the PSE to deny the application for listing in the stock exchange of the private respondent
PALI. The SEC's action was affirmed by the Court of Appeals.
We affirm that the SEC is the entity with the primary say as to whether or not securities,
including shares of stock of a corporation, may be traded or not in the stock exchange. This
is in line with the SEC's mission to ensure proper compliance with the laws, such as the
Revised Securities Act and to regulate the sale and disposition of securities in the country. 9
As the appellate court explains:
Paramount policy also supports the authority of the public respondent to review petitioner's
denial of the listing. Being a stock exchange, the petitioner performs a function that is vital
to the national economy, as the business is affected with public interest. As a matter of fact,
it has often been said that the economy moves on the basis of the rise and fall of stocks
being traded. By its economic power, the petitioner certainly can dictate which and how
many users are allowed to sell securities thru the facilities of a stock exchange, if allowed to
interpret its own rules liberally as it may please. Petitioner can either allow or deny the entry
to the market of securities. To repeat, the monopoly, unless accompanied by control,
becomes subject to abuse; hence, considering public interest, then it should be subject to
government regulation.
The role of the SEC in our national economy cannot be minimized. The legislature, through
the Revised Securities Act, Presidential Decree No. 902-A, and other pertinent laws, has
entrusted to it the serious responsibility of enforcing all laws affecting corporations and
other forms of associations not otherwise vested in some other government office. 10
This is not to say, however, that the PSE's management prerogatives are under the absolute
control of the SEC. The PSE is, alter all, a corporation authorized by its corporate franchise to
engage in its proposed and duly approved business. One of the PSE's main concerns, as
such, is still the generation of profit for its stockholders. Moreover, the PSE has all the rights
pertaining to corporations, including the right to sue and be sued, to hold property in its own
name, to enter (or not to enter) into contracts with third persons, and to perform all other
legal acts within its allocated express or implied powers.
A corporation is but an association of individuals, allowed to transact under an assumed
corporate name, and with a distinct legal personality. In organizing itself as a collective
body, it waives no constitutional immunities and perquisites appropriate to such a body. 11
As to its corporate and management decisions, therefore, the state will generally not
interfere with the same. Questions of policy and of management are left to the honest
decision of the officers and directors of a corporation, and the courts are without authority to
substitute their 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 the courts. 12
Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant
authority to reverse the PSE's decision in matters of application for listing in the market, the
SEC may exercise such power only if the PSE's judgment is attended by bad faith. In Board of
Liquidators vs. Kalaw, 13 it was held that bad faith does not simply connote bad judgment or
negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of

wrong. It means a breach of a known duty through some motive or interest of ill will,
partaking of the nature of fraud.
In reaching its decision to deny the application for listing of PALI, the PSE considered
important facts, which, in the general scheme, brings to serious question the qualification of
PALI to sell its shares to the public through the stock exchange. During the time for receiving
objections to the application, the PSE heard from the representative of the late President
Ferdinand E. Marcos and his family who claim the properties of the private respondent to be
part of the Marcos estate. In time, the PCGG confirmed this claim. In fact, an order of
sequestration has been issued covering the properties of PALI, and suit for reconveyance to
the state has been filed in the Sandiganbayan Court. How the properties were effectively
transferred, despite the sequestration order, from the TDC and MSDC to RebeccoPanlilio, and
to the private respondent PALI, in only a short span of time, are not yet explained to the
Court, but it is clear that such circumstances give rise to serious doubt as to the integrity of
PALI as a stock issuer. The petitioner was in the right when it refused application of PALI, for
a contrary ruling was not to the best interest of the general public. The purpose of the
Revised Securities Act, after all, is to give adequate and effective protection to the investing
public against fraudulent representations, or false promises, and the imposition of worthless
ventures. 14
It is to be observed that the U.S. Securities Act emphasized its avowed protection to acts
detrimental to legitimate business, thus:
The Securities Act, often referred to as the "truth in securities" Act, was designed not only to
provide investors with adequate information upon which to base their decisions to buy and
sell securities, but also to protect legitimate business seeking to obtain capital through
honest presentation against competition from crooked promoters and to prevent fraud in the
sale of securities. (Tenth Annual Report, U.S. Securities & Exchange Commission, p. 14).
As has been pointed out, the effects of such an act are chiefly (1) prevention of excesses
and fraudulent transactions, merely by requirement of that their details be revealed; (2)
placing the market during the early stages of the offering of a security a body of information,
which operating indirectly through investment services and expert investors, will tend to
produce a more accurate appraisal of a security, . . . Thus, the Commission may refuse to
permit a registration statement to become effective if it appears on its face to be incomplete
or inaccurate in any material respect, and empower the Commission to issue a stop order
suspending the effectiveness of any registration statement which is found to include any
untrue statement of a material fact or to omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading. (Idem).
Also, as the primary market for securities, the PSE has established its name and goodwill,
and it has the right to protect such goodwill by maintaining a reasonable standard of
propriety in the entities who choose to transact through its facilities. It was reasonable for
the PSE, therefore, to exercise its judgment in the manner it deems appropriate for its
business identity, as long as no rights are trampled upon, and public welfare is safeguarded.
In this connection, it is proper to observe that the concept of government absolutism is a
thing of the past, and should remain so.
The observation that the title of PALI over its properties is absolute and can no longer be
assailed is of no moment. At this juncture, there is the claim that the properties were owned
by TDC and MSDC and were transferred in violation of sequestration orders, to
RebeccoPanlilio and later on to PALI, besides the claim of the Marcoses that such properties
belong to the Marcos estate, and were held only in trust by RebeccoPanlilio. It is also alleged
by the petitioner that these properties belong to naval and forest reserves, and therefore

beyond private dominion. If any of these claims is established to be true, the certificates of
title over the subject properties now held by PALI map be disregarded, as it is an established
rule that a registration of a certificate of title does not confer ownership over the properties
described therein to the person named as owner. The inscription in the registry, to be
effective, must be made in good faith. The defense of indefeasibility of a Torrens Title does
not extend to a transferee who takes the certificate of title with notice of a flaw.
In any case, for the purpose of determining whether PSE acted correctly in refusing the
application of PALI, the true ownership of the properties of PALI need not be determined as
an absolute fact. What is material is that the uncertainty of the properties' ownership and
alienability exists, and this puts to question the qualification of PALI's public offering. In sum,
the Court finds that the SEC had acted arbitrarily in arrogating unto itself the discretion of
approving the application for listing in the PSE of the private respondent PALI, since this is a
matter addressed to the sound discretion of the PSE, a corporation entity, whose business
judgments are respected in the absence of bad faith.
The question as to what policy is, or should be relied upon in approving the registration and
sale of securities in the SEC is not for the Court to determine, but is left to the sound
discretion of the Securities and Exchange Commission. In mandating the SEC to administer
the Revised Securities Act, and in performing its other functions under pertinent laws, the
Revised Securities Act, under Section 3 thereof, gives the SEC the power to promulgate such
rules and regulations as it may consider appropriate in the public interest for the
enforcement of the said laws. The second paragraph of Section 4 of the said law, on the
other hand, provides that no security, unless exempt by law, shall be issued, endorsed, sold,
transferred or in any other manner conveyed to the public, unless registered in accordance
with the rules and regulations that shall be promulgated in the public interest and for the
protection of investors by the Commission. Presidential Decree No. 902-A, on the other hand,
provides that the SEC, as regulatory agency, has supervision and control over all
corporations and over the securities market as a whole, and as such, is given ample
authority in determining appropriate policies. Pursuant to this regulatory authority, the SEC
has manifested that it has adopted the policy of "full material disclosure" where all
companies, listed or applying for listing, are required to divulge truthfully and accurately, all
material information about themselves and the securities they sell, for the protection of the
investing public, and under pain of administrative, criminal and civil sanctions. In connection
with this, a fact is deemed material if it tends to induce or otherwise effect the sale or
purchase of its securities. 15 While the employment of this policy is recognized and
sanctioned by the laws, nonetheless, the Revised Securities Act sets substantial and
procedural standards which a proposed issuer of securities must satisfy. 16 Pertinently,
Section 9 of the Revised Securities Act sets forth the possible Grounds for the Rejection of
the registration of a security:
The Commission may reject a registration statement and refuse to issue a permit to sell
the securities included in such registration statement if it finds that
(1)
The registration statement is on its face incomplete or inaccurate in any material
respect or includes any untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not misleading; or
(2)

The issuer or registrant

(i)

is not solvent or not in sound financial condition;

(ii)
has violated or has not complied with the provisions of this Act, or the rules
promulgated pursuant thereto, or any order of the Commission;

(iii)
has failed to comply with any of the applicable requirements and conditions that the
Commission may, in the public interest and for the protection of investors, impose before the
security can be registered;
(iv)

has been engaged or is engaged or is about to engage in fraudulent transaction;

(v)

is in any way dishonest or is not of good repute; or

(vi)
does not conduct its business in accordance with law or is engaged in a business that
is illegal or contrary to government rules and regulations.
(3)
The enterprise or the business of the issuer is not shown to be sound or to be based
on sound business principles;
(4)
An officer, member of the board of directors, or principal stockholder of the issuer is
disqualified to be such officer, director or principal stockholder; or
(5)
The issuer or registrant has not shown to the satisfaction of the Commission that the
sale of its security would not work to the prejudice of the public interest or as a fraud upon
the purchasers or investors. (Emphasis Ours)
A reading of the foregoing grounds reveals the intention of the lawmakers to make the
registration and issuance of securities dependent, to a certain extent, on the merits of the
securities themselves, and of the issuer, to be determined by the Securities and Exchange
Commission. This measure was meant to protect the interests of the investing public against
fraudulent and worthless securities, and the SEC is mandated by law to safeguard these
interests, following the policies and rules therefore provided. The absolute reliance on the
full disclosure method in the registration of securities is, therefore, untenable. As it is, the
Court finds that the private respondent PALI, on at least two points (nos. 1 and 5) has failed
to support the propriety of the issue of its shares with unfailing clarity, thereby lending
support to the conclusion that the PSE acted correctly in refusing the listing of PALI in its
stock exchange. This does not discount the effectivity of whatever method the SEC, in the
exercise of its vested authority, chooses in setting the standard for public offerings of
corporations wishing to do so. However, the SEC must recognize and implement the
mandate of the law, particularly the Revised Securities Act, the provisions of which cannot
be amended or supplanted by mere administrative issuance.
In resume, the Court finds that the PSE has acted with justified circumspection, discounting,
therefore, any imputation of arbitrariness and whimsical animation on its part. Its action in
refusing to allow the listing of PALI in the stock exchange is justified by the law and by the
circumstances attendant to this case.
ACCORDINGLY, in view of the foregoing considerations, the Court hereby GRANTS the
Petition for Review on Certiorari. The Decisions of the Court of Appeals and the Securities
and Exchange Commission dated July 27, 1996 and April 24, 1996 respectively, are hereby
REVERSED and SET ASIDE, and a new Judgment is hereby ENTERED, affirming the decision
of the Philippine Stock Exchange to deny the application for listing of the private respondent
Puerto Azul Land, Inc.
SO ORDERED
G.R. No. 137686
February 8, 2000
RURAL BANK OF MILAOR (CAMARINES SUR), petitioner,
vs.

FRANCISCA OCFEMIA, ROWENA BARROGO, MARIFE O. NIO, FELICISIMO OCFEMIA,

RENATO OCFEMIA JR, and WINSTON OCFEMIA, respondents.
PANGANIBAN, J.:
CASE DIGEST:
FACTS: Several parcels of land were mortgaged by the respondents during the
lifetime of the respondents grandparents to the Rural bank of Milaor as shown by the
Deed of Real Estate Mortgage and the Promissory Note. Spouses FelicisimoOcfemia
and Juanita Ocfemiawere not able to redeem the mortgaged properties so the
mortgage was foreclosed and thereafter ownership was transferred to the petitioner
bank. Out of the seven parcels of land that were foreclosed, five of them are in the
possession of the respondents because these five parcels of land were sold by the
petitioner bank to the respondents as evidenced by a Deed of Sale. However, the five
parcels of land cannot be transferred in the name of the parents of Merife Nino, one
of the respondents, because there is a need to have the document of sale registered.
The Register of deeds, however, said that the document of sale cannot be registered
without the board resolution of the petitioner bank confirming both the Deed of
sale andthe authority of the bank manager, Fe S. Tena, to enter such transaction.
The petitioner bank refused her request for a board resolution and made many alibis.
Respondents initiated the present proceedings so that they could transfer to their
names the subject five parcel of land and subsequently mortgage said lots and to use
the loan proceeds for the medical expenses of their ailing mother.
ISSUE:
May the Board of Directors of a rural banking corporation be compelled to confirm a
deed of absolute sale of real property owned by the corporation which deed of
sale was executed by the bankmanager without prior authority of the board of
directors of the bank?
HELD:
YES. The bank acknowledges, by its own acts or failure to act, the authority of Fe S.
Tena to enter into binding contracts. After the execution of the Deed of Sale,
respondents occupied the propertiesin dispute and paid the real estate taxes. If the
bank management believed that it had title to the property, it should have taken
measured to prevent the infringement and invasion of title thereto and possession
thereof. Likewise, Tena had previously transacted business on behalf of the bank, and
the latter had acknowledged her authority. A bank is liable to innocent third persons
where representation is made in the course of its normal business by an agent like
Manager Tena even though such agent is abusing her authority. Clearly, persons
dealing with her could not be blamed for believing that she was authorized to
transact business for and on behalf of the bank.
The bank is estopped from questioning the authority of the bank to enter into
contract of sale. If a corporation knowingly permits one of its officers or any other
agent to act within the scope of an apparentauthority, it holds the agent out to the
public as possessing the power to do those acts; thus, the corporation will, as against
anyone who has in good faith dealt with it through such agent, be estopped from
denying the agents authority.
FULL TEXT:
When a bank, by its acts and failure to act, has clearly clothed its manager with apparent
authority to sell an acquired asset in the normal course of business, it is legally obliged to
confirm the transaction by issuing a board resolution to enable the buyers to register the
property in their names. It has a duty to perform necessary and lawful acts to enable the
other parties to enjoy all benefits of the contract which it had authorized.

The Case
Before this Court is a Petition for Review on Certiorari challenging the December 18, 1998
Decision of the Court of Appeals 1 (CA) in CA-GR SP No. 46246, which affirmed the May 20,
1997 Decision 2 of the Regional Trial Court (RTC) of Naga City (Branch 28). The CA disposed
as follows:
Wherefore, premises considered, the Judgment appealed from is hereby AFFIRMED. Costs
against the respondent-appellant. 3
The dispositive portion of the judgment affirmed by the CA ruled in this wise:
WHEREFORE, in view of all the foregoing findings, decision is hereby rendered whereby the
[petitioner] Rural Bank of Milaor (Camarines Sur), Inc. through its Board of Directors is
hereby ordered to immediately issue a Board Resolution confirming the Deed of Sale it
executed in favor of Renato Ocfemia marked Exhibits C, C-1 and C-2); to pay [respondents]
the sum of FIVE HUNDRED (P500.00) PESOS as actual damages; TEN THOUSAND
(P10,000.00) PESOS as attorney's fees; THIRTY THOUSAND (P30,000.00) PESOS as moral
damages; THIRTY THOUSAND (P30,000.00) PESOS as exemplary damages; and to pay the
costs. 4
Also assailed is the February 26, 1999 CA Resolution 5 which denied petitioner's Motion for
Reconsideration.
The Facts
The trial court's summary of the undisputed facts was reproduced in the CA Decision as
follows:
This is an action for mandamus with damages. On April 10, 1996, [herein petitioner] was
declared in default on motion of the [respondents] for failure to file an answer within the
reglementary-period after it was duly served with summons. On April 26, 1996, [herein
petitioner] filed a motion to set aside the order of default with objection thereto filed by
[herein respondents].
On June 17, 1996, an order was issued denying [petitioner's] motion to set aside the order of
default. On July 10, 1996, the defendant filed a motion for reconsideration of the order of
June 17, 1996 with objection thereto by [respondents]. On July 12, 1996, an order was issued
denying [petitioner's] motion for reconsideration. On July 31, 1996, [respondents] filed a
motion to set case for hearing. A copy thereof was duly furnished the [petitioner] but the
latter did not file any opposition and so [respondents] were allowed to present their
evidence ex-parte. A certiorari case was filed by the [petitioner] with the Court of Appeals
docketed as CA GR No. 41497-SP but the petition was denied in a decision rendered on
March 31, 1997 and the same is now final.
The evidence presented by the [respondents] through the testimony of Marife O. Nio, one
of the [respondents] in this case, show[s] that she is the daughter of Francisca Ocfemia, a
co-[respondent] in this case, and the late Renato Ocfemia who died on July 23, 1994. The
parents of her father, Renato Ocfemia, were Juanita Arellano Ocfemia and FelicisimoOcfemia.
Her other co-[respondents] Rowena O. Barrogo, FelicisimoOcfemia, Renato Ocfemia, Jr. and
Winston Ocfemia are her brothers and sisters.1wphi1.nt
Marife O. Nio knows the five (5) parcels of land described in paragraph 6 of the petition
which are located in Bombon, Camarines Sur and that they are the ones possessing them
which [were] originally owned by her grandparents, Juanita Arellano Ocfemia and
FelicisimoOcfemia. During the lifetime of her grandparents, [respondents] mortgaged the
said five (5) parcels of land and two (2) others to the [petitioner] Rural Bank of Milaor as
shown by the Deed of Real Estate Mortgage (Exhs. A and A-1) and the Promissory Note (Exh.
B).
The spouses FelicisimoOcfemia and Juanita Arellano Ocfemia were not able to redeem the
mortgaged properties consisting of seven (7) parcels of land and so the mortgage was
foreclosed and thereafter ownership thereof was transferred to the [petitioner] bank. Out of
the seven (7) parcels that were foreclosed, five (5) of them are in the possession of the
[respondents] because these five (5) parcels of land described in paragraph 6 of the petition
were sold by the [petitioner] bank to the parents of Marife O. Nio as evidenced by a Deed of
Sale executed in January 1988 (Exhs. C, C-1 and C-2).

The aforementioned five (5) parcels of land subject of the deed of sale (Exh. C), have not
been, however transferred in the name of the parents of Merife O. Nio after they were sold
to her parents by the [petitioner] bank because according to the Assessor's Office the five
(5) parcels of land, subject of the sale, cannot be transferred in the name of the buyers as
there is a need to have the document of sale registered with the Register of Deeds of
Camarines Sur.
In view of the foregoing, Marife O. Nio went to the Register of Deeds of Camarines Sur with
the Deed of Sale (Exh. C) in order to have the same registered. The Register of Deeds,
however, informed her that the document of sale cannot be registered without a board
resolution of the [petitioner] Bank. Marife Nio then went to the bank, showed to if the Deed
of Sale (Exh. C), the tax declaration and receipt of tax payments and requested the
[petitioner] for a board resolution so that the property can be transferred to the name of
Renato Ocfemia the husband of petitioner Francisca Ocfemia and the father of the other
[respondents] having died already.
The [petitioner] bank refused her request for a board resolution and made many alibi[s]. She
was told that the [petitioner] bank ha[d] a new manager and it had no record of the sale.
She was asked and she complied with the request of the [petitioner] for a copy of the deed
of sale and receipt of payment. The president of the [petitioner] bank told her to get an
authority from her parents and other [respondents] and receipts evidencing payment of the
consideration appearing in the deed of sale. She complied with said requirements and after
she gave all these documents, Marife O. Nio was again told to wait for two (2) weeks
because the [petitioner] bank would still study the matter.
After two (2) weeks, Marife O. Nio returned to the [petitioner] bank and she was told that
the resolution of the board would not be released because the [petitioner] bank ha[d] no
records from the old manager. Because of this, Marife O. Nio brought the matter to her
lawyer and the latter wrote a letter on December 22, 1995 to the [petitioner] bank inquiring
why no action was taken by the board of the request for the issuance of the resolution
considering that the bank was already fully paid [for] the consideration of the sale since
January 1988 as shown by the deed of sale itself (Exh. D and D-1 ).
On January 15, 1996 the [petitioner] bank answered [respondents'] lawyer's letter (Exh. D
and D-1) informing the latter that the request for board resolution ha[d] already been
referred to the board of directors of the [petitioner] bank with another request that the latter
should be furnished with a certified machine copy of the receipt of payment covering the
sale between the [respondents] and the [petitioner] (Exh. E). This request of the [petitioner]
bank was already complied [with] by Marife O. Nio even before she brought the matter to
her lawyer.
On January 23, 1996 [respondents'] lawyer wrote back the branch manager of the
[petitioner] bank informing the latter that they were already furnished the receipts the bank
was asking [for] and that the [respondents] want[ed] already to know the stand of the bank
whether the board [would] issue the required board resolution as the deed of sale itself
already show[ed] that the [respondents were] clearly entitled to the land subject of the sale
(Exh. F). The manager of the [petitioner] bank received the letter which was served
personally to him and the latter told Marife O. Nio that since he was the one himself who
received the letter he would not sign anymore a copy showing him as having already
received said letter (Exh. F).
After several days from receipt of the letter (Exh. F) when Marife O. Nio went to the
[petitioner] again and reiterated her request, the manager of the [petitioner] bank told her
that they could not issue the required board resolution as the [petitioner] bank ha[d] no
records of the sale. Because of this Merife O. Nio already went to their lawyer and ha[d] this
petition filed.
The [respondents] are interested in having the property described in paragraph 6 of the
petition transferred to their names because their mother and co-petitioner, Francisca
Ocfemia, is very sickly and they want to mortgage the property for the medical expenses of
Francisca Ocfemia. The illness of Francisca Ocfemia beg[a]n after her husband died and her

suffering from arthritis and pulmonary disease already became serious before December
1995.
Marife O. Nio declared that her mother is now in serious condition and they could not have
her hospitalized for treatment as they do not have any money and this is causing the family
sleepless nights and mental anguish, thinking that their mother may die because they could
not submit her for medication as they do not have money. 6
The trial court granted the Petition. As noted earlier, the CA affirmed the RTC Decision.
Hence, this recourse. 7 In a Resolution dated June 23, 1999, this Court issued a Temporary
Restraining Order directing the trial court "to refrain and desist from executing [pending
appeal] the decision dated May 20, 1997 in Civil Case No. RTC-96-3513, effective
immediately until further orders from this Court." 8
Ruling of the Court of Appeals
The CA held that herein respondents were "able to prove their present cause of action"
against petitioner. It ruled that the RTC had jurisdiction over the case, because (1) the
Petition involved a matter incapable of pecuniary estimation; (2) mandamus fell within the
jurisdiction of RTC; and (3) assuming that the action was for specific performance as argued
by the petitioner, it was still cognizable by the said court.
Issues
In its Memorandum, 9 the bank posed the following questions:
1. Question of Jurisdiction of the Regional Trial Court. Has a Regional Trial Court original
jurisdiction over an action involving title to real property with a total assessed value of less
than P20,000.00?
2. Question of Law. May the board of directors of a rural banking corporation be
compelled to confirm a deed of absolute sale of real property owned by the corporation
which deed of sale was executed by the bank manager without prior authority of the board
of directors of the rural banking corporation? 10
This Court's Ruling
The present Petition has no merit.
First Issue:
Jurisdiction of the Regional Trial Court
Petitioner submits that the RTC had no jurisdiction over the case. Disputing the ruling of the
appellate court that the present action was incapable of pecuniary estimation, petitioner
argues that the matter in fact involved title to real property worth less than P20,000. Thus,
under RA 7691, the case should have been filed before a metropolitan trial court, a
municipal trial court or a municipal circuit trial court.
We disagree. The well-settled rule is that jurisdiction is determined by the allegations of the
complaint. 11 In the present case, the Petition for Mandamus filed by respondents before the
trial court prayed that petitioner-bank be compelled to issue a board resolution confirming
the Deed of Sale covering five parcels of unregistered land, which the bank manager had
executed in their favor. The RTC has jurisdiction over such action pursuant to Section 21 of
BP 129, which provides:
Sec. 21. Original jurisdiction in other cases. Regional Trial Courts shall exercise original
jurisdiction;
(1) In the issuance of writ of certiorari, prohibition, mandamus, quo warranto, habeas
corpus and injunction which may be enforced in any part of their respective regions; and
(2) In actions affecting ambassadors and other public ministers and consuls.
A perusal of the Petition shows that the respondents did not raise any question involving the
title to the property, but merely asked that petitioner's board of directors be directed to
issue the subject resolution. Moreover, the bank did not controvert the allegations in the said
Petition. To repeat, the issue therein was not the title to the property; it was respondents'
right to compel the bank to issue a board resolution confirming the Deed of Sale.
Second Issue:
Authority of the Bank Manager
Respondents initiated the present proceedings, so that they could transfer to their names
the subject five parcels of land; and subsequently, to mortgage said lots and to use the loan

proceeds for the medical expenses of their ailing mother. For the property to be transferred
in their names, however, the register of deeds required the submission of a board resolution
from the bank confirming both the Deed of Sale and the authority of the bank manager, Fe
S. Tena, to enter into such transaction. Petitioner refused. After being given the runaround by
the bank, respondents sued in exasperation.
Allegations in the Petition for Mandamus Deemed Admitted
Respondents based their action before the trial court on the Deed of Sale, the substance of
which was alleged in and a copy thereof was attached to the Petition for Mandamus. The
Deed named Fe S. Tena as the representative of the bank. Petitioner, however, failed to
specifically deny under oath the allegations in that contract. In fact, it filed no answer at all,
for which reason it was declared in default. Pertinent provisions of the Rules of Court read:
Sec. 7. Action or defense based on document. Whenever an action or defense is based
upon a written instrument or document, the substance of such instrument or document shall
be set forth in the pleading, and the original or a copy thereof shall be attached to the
pleading as an exhibit, which shall be deemed to be a part of the pleading, or said copy may
with like effect be set forth in the pleading.
Sec. 8. How to contest genuineness of such documents. When an action or defense is
founded upon a written instrument, copied in or attached to 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. 12
In failing to file its answer specifically denying under oath the Deed of Sale, the bank
admitted the due execution of the said contract. Such admission means that it
acknowledged that Tena was authorized to sign the Deed of Sale on its behalf. 13 Thus,
defenses that are inconsistent with the due execution and the genuineness of the written
instrument are cut off by an admission implied from a failure to make a verified specific
denial.
Other Acts of the Bank
In any event, the bank acknowledged, by its own acts or failure to act, the authority of Fe S.
Tena to enter into binding contracts. After the execution of the Deed of Sale, respondents
occupied the properties in dispute and paid the real estate taxes due thereon. If the bank
management believed that it had title to the property, it should have taken some measures
to prevent the infringement or invasion of its title thereto and possession thereof.
Likewise, Tena had previously transacted business on behalf of the bank, and the latter had
acknowledged her authority. A bank is liable to innocent third persons where representation
is made in the course of its normal business by an agent like Manager Tena, even though
such agent is abusing her authority. 14 Clearly, persons dealing with her could not be blamed
for believing that she was authorized to transact business for and on behalf of the bank.
Thus, this Court has ruled in Board of Liquidators v. Kalaw: 15
Settled jurisprudence has it that where similar acts have been approved by the directors as
a matter of general practice, custom, and policy, the general manager may bind the
company without formal authorization of the board of directors. In varying language,
existence of such authority is established, by proof of the course of business, the usages and
practices of the company and by the knowledge which the board of directors has, or must be
presumed to have, of acts and doings of its subordinates in and about the affairs of the
corporation. So also,
. . . authority to act for and bind a corporation may be presumed from acts of recognition in
other instances where the power was in fact exercised.
. . . Thus, when, in the usual course of business of a corporation, an officer has been allowed
in his official capacity to manage its affairs, his authority to represent the corporation may
be implied from the manner in which he has been permitted by the directors to manage its
business.

Notwithstanding the putative authority of the manager to bind the bank in the Deed of Sale,
petitioner has failed to file an answer to the Petition below within the reglementary period,
let alone present evidence controverting such authority. Indeed, when one of herein
respondents, Marife S. Nino, went to the bank to ask for the board resolution, she was
merely told to bring the receipts. The bank failed to categorically declare that Tena had no
authority. This Court stresses the following:
. . . Corporate transactions would speedily come to a standstill were every person dealing
with a corporation held duty-bound to disbelieve every act of its responsible officers, no
matter how regular they should appear on their face. This Court has observed in Ramirez
vs. Orientalist Co., 38 Phil. 634, 654-655, that
In passing upon the liability of a corporation in cases of this kind it is always well to keep in
mind the situation as it presents itself to the third party with whom the contract is made.
Naturally he can have little or no information as to what occurs in corporate meetings; and
he must necessarily rely upon the external manifestation of corporate consent. The integrity
of commercial transactions can only be maintained by holding the corporation strictly to the
liability fixed upon it by its agents in accordance with law; and we would be sorry to
announce a doctrine which would permit the property of man in the city of Paris to be
whisked out of his hands and carried into a remote quarter of the earth without recourse
against the corporation whose name and authority had been used in the manner disclosed in
this case. As already observed, it is familiar doctrine that if a corporation knowingly permits
one of its officers, or any other agent, to do acts within the scope of an apparent authority,
and thus holds him out to the public as possessing power to do those acts, the corporation
will, as against anyone who has in good faith dealt with the corporation through such agent,
be estopped from denying his authority; and where it is said "if the corporation permits this
means the same as "if the thing is permitted by the directing power of the corporation." 16
In this light, the bank is estopped from questioning the authority of the bank manager to
enter into the contract of sale. If a corporation knowingly permits one of its officers or any
other agent to act within the scope of an apparent authority, it holds the agent out to the
public as possessing the power to do those acts; thus, the corporation will, as against
anyone who has in good faith dealt with it through such agent, be estopped from denying
the agent's authority. 17
Unquestionably, petitioner has authorized Tena to enter into the Deed of Sale. Accordingly, it
has a clear legal duty to issue the board resolution sought by respondents. Having
authorized her to sell the property, it behooves the bank to confirm the Deed of Sale so that
the buyers may enjoy its full use.
The board resolution is, in fact, mere paper work. Nonetheless, it is paper work necessary in
the orderly operations of the register of deeds and the full enjoyment of respondents' rights.
Petitioner-bank persistently and unjustifiably refused to perform its legal duty. Worse, it was
less than candid in dealing with respondents regarding this matter. In this light, the Court
finds it proper to assess the bank treble costs, in addition to the award of damages.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision and Resolution
AFFIRMED. The Temporary Restraining Order issued by this Court is hereby LIFTED. Treble
costs against petitioner.
SO ORDERED.
Melo, Purisima and Gonzaga-Reyes, JJ., concur.
Vitug, J., please see concurring opinion.

Separate Opinions
VITUG, J., concurring opinion;
I share the views expressed in the ponencia written for the Court by our esteemed colleague
Mr. Justice Artemio V. Panganiban. There is just a brief clarificatory statement that I thought
could be made.

The Civil Code, being a law of general application, can be suppletory to special laws and
certainly not preclusive of those that govern commercial transactions. Indeed, in its generic
sense, civil law can rightly be said to encompass commercial law. Jus civile, in ancient Rome,
was merely used to distinguish it from jus gentium or the law common to all the nations
within the empire and, at some time later, only in contrast to international law. In more
recent times, civil law is so referred to as private law in distinction from public law and
criminal law. Today, it may not be totally inaccurate to consider commercial law, among
some other special laws, as being a branch of civil law.
Sec. 45 of the Corporation Code provides:
Sec. 45. Ultra vires acts of corporations. No corporation under this Code shall possess or
exercise any corporate powers except those conferred by this Code or by its articles of
incorporation and except such as are necessary or incidental to the exercise of the powers
so conferred.
The language of the Code appears to confine the term ultra vires to an act outside or beyond
express, implied and incidental corporate powers. Nevertheless, the concept can also
include those acts that may ostensibly be within such powers but are, by general or special
laws, either proscribed or declared illegal. In general, although perhaps loosely, ultra
vires has also been used to designate those acts of the board of directors or of corporate
officers when acting beyond their respective spheres of authority. In the context that the law
has used the term in Article 45 of the Corporation Code, an ultra vires act would be void and
not susceptible to ratification. 1 In determining whether or not a corporation may perform an
act, one considers the logical and necessary relation between the act assailed and the
corporate purpose expressed by the law or in the charter. For if the act were one which is
lawful in itself or not otherwise prohibited and done for the purpose of serving corporate
ends or reasonably contributes to the promotion of those ends in a substantial and not
merely in a remote and fanciful sense, it may be fairly considered within corporate powers. 2
Sec. 23 of the Corporation Code states that the corporate powers are to be exercised, all
business conducted, and all property of corporations controlled and held, by the Board of
Directors. When the act of the board is within corporate powers but it is done without the
concurrence of the shareholders as and when such approval is required by law 3 or when the
act is beyond its competence to do, 4 the act has been described as void 5 or, as
unenforceable, 6 or as ineffective and not legally binding. 7 These holdings notwithstanding,
the act cannot accurately be likened to an ultra vires act of the corporation itself defined in
Section 45 of the Code. Where the act is within corporate powers but the board has acted
without being competent to independently do so, the action is not necessarily and totally
devoid of effects, and it may generally be ratified expressly or impliedly. Thus, an
acceptance of benefits derived by the shareholders from an outside investment made by the
board without the required concurrence of the stockholders may, nonetheless, be so
considered as an effective investment. 8 It may be said, however, that when the board
resolution is yet executory, the act should aptly be deemed inoperative and specific
performance cannot be validly demanded but, if for any reason, the contemplated action is
carried out, such principles as ratification or prescription when applicable, normally unknown
in void contracts, can serve to negate a claim for the total nullity thereof.
Corporate officers, in their case, may act on such matters as may be authorized either
expressly by the By-laws or Board Resolutions or impliedly such as by general practice or
policy or as are implied by express powers. When officers are allowed to act in certain
particular cases, their acts conformably therewith can bind the company. Hence, a corporate
officer entrusted with general management and control of the business has the implied
authority to act or contract for the corporation which may be necessary or appropriate to
conduct the ordinary business. 9 If the act of corporate officers comes within corporate
powers but it is done without any express or implied authority therefor from the by-laws,
board resolutions or corporate practices, such an act does not bind the corporation. The
Board, however, acting within its competence, may ratify the unauthorized act of the
corporate officer. So, too, a corporation may be held in estoppel from denying as against

innocent third persons the authority of its officers or agents who have been clothed by it
with ostensible or apparent authority. 10
The Corporation Code itself has not been that explicit with respect to the consequences
of ultra vires acts; hence, the varied ascriptions to its effects heretofore expressed. It may
well be to consider futile any further attempt to have these situations bear any exact
equivalence to the civil law precepts of defective contracts. Nevertheless, general
statements could be made. Here reiterated, while an act of the corporation which is either
illegal or outside of express, implied or incidental powers as so provided by law or the
charter would be void under Article 5 11 of the Civil Code, and the act is not susceptible to
ratification, an unauthorized act (if within corporate powers) of the board or a corporate
officer, however, would only be unenforceable conformably with Article 1403 12 of the Civil
Code but, if the party with whom the agent has contracted is aware of the latter's limits of
powers, the unauthorized act is declared void by Article 1898 13 of the same Code, although
still susceptible thereunder to ratification by the principal. Any person dealing with corporate
boards and officers may be said to be charged with the knowledge that the latter can only
act within their respective limits of power, and he is put to notice accordingly. Thus, it would
generally behoove such a person to look into the extent of the authority of corporate agents
since the onus would ordinarily be with him.

Montelibano et al. vs. Bacolod-Murcia Milling Company, G.R. No. L-15092 May 18,
1962
Facts: Plaintiffs-appellants, Alfredo Montelibano, Alejandro Montelibano, and the Limited copartnership Gonzaga and Company, had been and are sugar planters adhered to the
defendant-appellees sugar central mill under identical milling contracts. Originally executed
in 1919, said contracts were stipulated to be in force for 30 years starting with the 1920-21
crop, and provided that the resulting product should be divided in the ratio of 45% for the
mill and 55% for the planters. Sometime in 1936, it was proposed to execute amended
milling contracts, increasing the planters share to 60% of the manufactured sugar and
resulting molasses, besides other concessions, but extending the operation of the milling
contract from the original 30 years to 45 years. The Board of Directors of the appellee
Bacolod-Murcia Milling Co., Inc., adopted a resolution granting further concessions to the
planters over and above those contained in the printed Amended Milling Contract. The
appellants initiated the present action, contending that three Negros sugar centrals with a
total annual production exceeding one-third of the production of all the sugar central mills in
the province, had already granted increased participation (of 62.5%) to their planters, and
that under the resolution the appellee had become obligated to grant similar concessions to
the plaintiffs. The appellee Bacolod-Murcia Milling Co., Inc., resisted the claim, and defended
by urging that the stipulations contained in the resolution were made without consideration;
that the resolution in question was, therefore, null and void ab initio, being in effect a
donation that was ultra vires and beyond the powers of the corporate directors to adopt.
Issue:
1. WON the board resolution is an ultra vires act and in effect a donation from the board
of directors?
2. WON the act in question is in direct and immediate furtherance of the corporation's
business, fairly incident to the express powers and reasonably necessary to their
exercise.
Held:
1. No. There can be no doubt that the directors of the appellee company had authority
to modify the proposed terms of the Amended Milling Contract for the purpose of
making its terms more acceptable to the other contracting parties. As the resolution
in question was passed in good faith by the board of directors, it is valid and binding,

and whether or not it will cause losses or decrease the profits of the central, the court
has no authority to review them. Whether the business of a corporation should be
operated at a loss during depression, or close down at a smaller loss, is a purely
business and economic problem to be determined by the directors of the corporation
and not by the court. The appellee Bacolod-Murcia Milling Company is, under the
terms of its Resolution of August 20, 1936, duty bound to grant similar increases to
plaintiffs-appellants herein.
2. According to the SUPREME COURT, the controverted resolution was adopted by
appellee corporation as a supplement to, or further amendment of, the proposed
milling contract, and that it was approved twenty-one days prior to the signing by
appellants of the Amended Milling Contract itself; so that when the Milling Contract
was executed, the concessions granted by the disputed resolution had been already
incorporated into its terms. As the resolution in question was passed in good faith by
the board of directors, it is valid and binding, and whether or not it will cause losses
or decrease the profits of the central, the court has no authority to review them.
So, the decision of the CFI was reversed.
(3.) Visayan vs. NLRC
196 SCRA 410, G.R. No. 69999, April 30, 1991
Paras, J.:
FACTS: Fujiyama Hotel & Restaurant, Inc. (FHRI) 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 the corporation. The corporation
opened as Japanese establishment and hired Isamu Akasaku as its chef and restaurant
supervisor to fully offer an authentic Japanese cuisine and traditional Japanese style.
Thereafter, Lourdes Jureideni and Milagros Tsuchiya, allegedly pretending to be stockholders
of the corporation, filed a case with the then Court of First Instance of Manila, Branch 36
against Rivera and Akasako to wrest control over the establishment. 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. Jureidini and Tsuchiya
replaced almost all of the existing employees with new ones, majority of whom are
Luzviminda Visayan et al., the petitioners in this case. The new employees were extended
probationary appointments for six (6) months. Subsequently, Rivera and the rest of the
stockholders elevated the civil case to the Supreme Court (SC) through a petition
for certiorari assailing the ground for the issuance of the writ of preliminary mandatory
injunction of the lower court. The SC issued the writ of preliminary injunction to enjoin the
enforcement of the injunction issued by the lower court but Jureidini and Tsuchiya
disregarded the writ. As a result, the SC issued a resolution directing Jureidini and Tsuchiya
to comply strictly with the writ. Consequently, Rivera and Akasako regained control and
management of FHRI.
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. Hence, 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) filed a case
against FHRI for illegal dismissal. The Labor Arbiter included Jureidini and Tsuchiya as thirdparty respondents. The parties except Jureidini and Tsuchiya submitted their respective
position papers. On the basis of the position papers and affidavits, the Labor Arbiter
rendered a decision ordering FHRI 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. FHRI et al.
appealed the case to the NLRC but the latter denied the appeal for being filed out of time.
Upon motion for reconsideration, the NLRC set aside its resolution and reversed the decision
of the Labor Arbiter. The NLRC reasoned that there is no employer-employee relationship
that exists between FHRI and the employees hired by Jureidini and Tsuchiya, thus, the
complaint for illegal dismissal will not prosper. Hence, the case reached the SC.
ISSUE: Whether or not employer-employee exists between FHRI and the employees hired
by Jureidini and Tsuchiya.
HELD: No. It is clear from Section 23 of BP 68 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. 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. 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, all acts done solely by Jureidini and
Tsuchiya allegedly, for and in behalf of FHRI during the period from June, 1981 up to May 31,
1982 were not binding upon it.
It is not denied by both parties that the operation and management of FHRI, 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
CFI, Branch 36. 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 latters 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 fact prompted the SC to order said persons, under pain of contempt, to turn over the
management and assets of FHRI to Rivera et al. Thus, all acts done by Jureidini and Tsuchiya
for and in behalf of FHRI, 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, Visayan et al. 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 FHRI and Visayan et al.
The act of the Rivera-Akasako group in admitting the original employees of FHRI after
regaining control and management of the latter, having been made by the corporations
board of directors, was valid. Even if Jureidini and Tsuchiya took over the management and
control of FHRI, 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, Visayan et al.s claim of illegal dismissal is entirely mistaken as they
were not hired by FHRI or its duly authorized officers or agents, hence, no employeremployee relationship ever existed between them. Jureidini and Tsuchiya, the persons who
hired Visayan et al.s services, are to be considered their employer, and not FHRI.
Neither may Visayan et al. 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, FHRIs Assistant Manager, of such fact at the time they

were hired. Besides, it was clearly shown that the appointments of Visayan et al. were on a
probationary basis.
Further, the SC issued a writ of preliminary injunction against CFI Manila Branch 36
enjoining the enforcement of the writ of preliminary mandatory injunction issued by the
latter. Despite the issuance of said writ, Jureidini and Tsuchiya refused to return the
management of the corporation but continued managing and operating FHRI and in fact
terminated the original employees of FHRI 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.
NOTES: Section 23 of BP 68 provides, 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.

Citibank, N. A. vs. Chua

Facts:
Petitioner is a foreign commercial banking corporation duly licensed to do business in
the Philippines. Private respondents, spouses Cresencio and Zenaida Velez, were good
clients of petitioner bank's branch in Cebu until March 14, 1986 when they filed a complaint
for specific performance and damages against it in Civil Case No. CEB-4751 before the
Regional Trial Court of Cebu, Branch 10.
Petitioner bank filed a criminal complaint against private respondents for violation of
Batas Pambansa Blg. 22 (Bouncing Checks Law) and estafa (six counts) under Article 315
par. 2(d) of the Revised Penal Code.
On March 30, 1990, the date of the pre-trial conference, counsel for petitioner bank
appeared, presenting a special power of attorney executed by Citibank officer Florencia
Tarriela in favor of petitioner bank's counsel, the J.P. Garcia & Associates, to represent and
bind petitioner bank at the pre-trial conference of the case at bar.
In spite of this special power of attorney, counsel for private respondents orally
moved to declare petitioner bank as in default on the ground that the special power of
attorney was not executed by the Board of Directors of Citibank.
In compliance with the above promise, petitioner bank filed a manifestation, dated
May 23, 1990, attaching therewith a special power of attorney executed by William W.
Ferguson in favor of Citibank employees to represent and bind Citibank on the pre-trial
conference of the case at bar.
On June 26, 1991, the Court of Appeals dismissed the petition on the following
grounds:
". . . In the first place, petitioner admitted that it did not and could not present a
Board resolution from the bank's Board of Directors appointing its counsel, Atty. Julius Z.
Neri, as its attorney-in-fact to represent and bind it during the pre-trial conference of this
case. This admission is contained on pages 12 and 13 of the instant petition.
In the second place, the "By-Laws" of petitioner which on its face authorizes (sic) the
appointment of an attorney-in-fact to represent it in any litigation, has not been approved by
the Securities and Exchange Commission, as required by Section 46 of the Corporation Code
of the Philippines. Apparently, the "By-Laws" in question was (sic) approved under the laws

of the United States, but there is no showing that the same was given the required
imprimatur by the Securities and Exchange Commission. Since petitioner is a foreign
corporation doing business in the Philippines, it is bound by all laws, rules and regulations
applicable to domestic corporations (Sec. 129, Corporation Code).
In the third place, no special power of attorney was presented authorizing petitioner's
counsel of record, Atty. Julius Neri and/or J.P. Garcia Associates, to appear for and in behalf of
petitioner during the pre-trial.
Issue:
1. Whether a resolution of the board of directors of a corporation is always necessary
for granting authority to an agent to represent the corporation in court cases. NO
2. Whether the by-laws of the petitioner foreign corporation which has previously been
granted a license to do business in the Philippines, are effective in this jurisdiction.
YES
Ruling:
1. In the corporate hierarchy, there are three levels of control: (1) the board of
directors, which is responsible for corporate policies and the general management of the
business affairs of the corporation; (2) the officers, who in theory execute the policies laid
down by the board, but in practice often have wide latitude in determining the course of
business operations; and (3) the stockholders who have the residual power over
fundamental corporate changes, like amendments of the articles of incorporation. However,
just as a natural person may authorize another to do certain acts in his behalf, so may the
board of directors of a corporation validly delegate some of its functions to individual officers
or agents appointed by it.
It is clear that corporate powers may be directly conferred upon corporate officers or
agents by statute, the articles of incorporation, the by-laws or by resolution or other act of
the board of directors. In addition, an officer who is not a director may also appoint other
agents when so authorized by the by-laws or by the board of directors. Such are referred to
as express powers. 9 There are also powers incidental to express powers conferred. It is a
fundamental principle in the law of agency that every delegation of authority, whether
general or special, carries with it, unless the contrary be expressed, implied authority to do
all of those acts, naturally and ordinarily done in such cases, which are reasonably necessary
and proper to be done in order to carry into effect the main authority conferred.
Since the by-laws are a source of authority for corporate officers and agents of the
corporation, a resolution of the Board of Directors of Citibank appointing an attorney in fact
to represent and bind it during the pre-trial conference of the case at bar is not necessary
because its by-laws allow its officers, the Executing Officer and the Secretary Pro-Tem, ** to
execute a power of attorney to a designated bank officer, William W. Ferguson in this case,
clothing him with authority to direct and manage corporate affairs.
Since paragraph XXI above specifically allows Ferguson to delegate his powers in
whole or in part, there can be no doubt that the special power of attorney in favor, first, of
J.P. Garcia & Associates and later, of the bank's employees, constitutes a valid delegation of
Ferguson's express power (under paragraph XVII above) to represent petitioner bank in the
pre-trial conference in the lower court.
2.By-laws may be adopted and filed prior to incorporation; in such case, such by-laws shall
be approved and signed by all the incorporators and submitted to the Securities and
Exchange Commission, together with the articles of incorporation. In all cases, by-laws shall
be effective only upon the issuance by the Securities and Exchange Commission of a
certification that the by-laws are not inconsistent with this Code
A corporation can submit its by-laws, prior to incorporation, or within one month after
receipt of official notice of the issuance of its certificate of incorporation by the SEC.
Since the SEC will grant a license only when the foreign corporation has complied
with all the requirements of law, it follows that when it decides to issue such license, it is

satisfied that the applicant's by-laws, among the other documents, meet the legal
requirements. This, in effect, is an approval of the foreign corporations by-laws. It may not
have been made in express terms, still it is clearly an approval. Therefore, petitioner bank's
by-laws, though originating from a foreign jurisdiction, are valid and effective in the
Philippines.
The petition is hereby GRANTED.

17 San Juan Structural v CA case digest

FACTS:
1. San Juan and Motorich, represented by its corporate treasurer resp Mrs. Nenita
Gruenberg, entred into an agreement for the transfer of the latters parcel of land
located in QC to San Juan.
2. San Juan paid the downpayment amounting to 100K
3. When the reps of San Juan and Motorich were supposed to meet for the
consummation of sale, the latters rep did not show up
4. It was later found out that Motorich sold the parcel of land to ACL Development Corp.,
and the TCT transferred to its name
5. Motorich interposed the defense that
a. its agreement to transfer with San Juan lacks the signature of the President
and Chairman of Motorich
b. that this fact was known by San Juan
c. that Mrs. Gruenberg accepted the 100K as earnest money
d. that San Juan failed to pay in legal tender within the stipulated time
e. that they agreed that if the payment be in check, they will meet at a bank
designated by San Juan, encash the check and sign the Transfer of
Rights/Deed, but San Juan informed Mrs. Gruenberg only through phone and
after banking hours
6. QC RTC: Dismissed the complaint for lack of merit; San Juan has no right to compel
Motorich to execute the deed of absolute sale in accordance with the earlier
agreement because
a. Mrs. Gruenberg was not authorized by the board of directors to enter into the
transfer agreement. Under Sec. 40 of the Corpo Code, a corporation may sell,
lease, exchange, mortgage, pledge or otherwise dispose of all or substantially
all of its property and assets including its goodwill if authorized by majority of
the Board and by vote of stockholders representing 2/3 of authorized capital
stock
b. No damage should be awarded because Mrs. Gruenberg did not misrepresent
herself to be authorized
7. CA: Affirmed RTC with modification to the effect that Mrs. Gruenberg shall return the
100K downpayment
ISSUES:
1. Was there a valid contract of sale between San Juan and Motorich?
2. Is the doctrine piercing the veil applicable?
RULING:
1. None. Motorich cannot be bound by the agreement between its corporate treasurer
and San Juan.
a. A corporation has a separate and distinct personality from that of its
stockholders and members. The Corporation Code says a corporation acts and
conducts businesses through its board of directors when authorized either by
its bylaws or board reso.

b. Motorich categorically denies that it ever authorized Mrs. Gruenberg to sell

the subject parcel of land. San Juan had the burden of proving that she was in
fact authorized to represent and bind Motorich in the transaction. Petitioner
failed to discharge this burden.
c. According to the Civil Code, in a sale of parcel of land through an agent, there
must be a written authorization from the principal. Otherwise, the sale is void.
2. No. Although it was argued by San Juan that Mrs. Gruenberg does not need
authorization from the Board to bind the corporation for contracts entered to by her
because Motorich is a closed corpo owned by Mr and Mrs Gruenberg, the Court says:
a. From its articles, it is clear that Motorich is not a close corporation. It does not
become one either, just because Spouses Reynaldo and Nenita Gruenberg
owned 99.866% of its subscribed capital stock. The "mere ownership by a
single stockholder or by another corporation of all or capital stock of a
corporation is not of itself sufficient ground for disregarding the separate
corporate personalities."
b. Granting arguendo that the corporate veil of Motorich is to be disregarded, the
subject parcel of land would then be treated as conjugal property of Spouses
Gruenberg, because the same was acquired during their marriage.As a
consequence, Nenita Gruenberg could not have effected a sale of the subject
lot because in conjugal partnership of gains, neither spouse can alienate in
favor of another his or interest in the partnership or in any property belonging
to it; neither spouse can ask for a partition of the properties before the
partnership has been legally dissolved."

ABS CBN Broadcasting Corporation vs. CA [301 SCRA 572 (Jan 21 1999)]
Power of the Board of Directors
Delegation to Executive Committee
Facts:
In 1990, ABS CBN and Viva executed a Film Exhibition Agreement whereby Viva gave ABS
CBN an exclusive right to exhibit some Viva films. Said agreement contained a stipulation
that ABS shall have the right of first refusal to the next 24 Viva films for TV telecast,
provided that such right shall be exercised by ABS from the actual offer in writing.
Hence, through this agreement, Viva offered ABS a list of 36 films from which ABS may
exercise its right of first refusal. ABS however, through VP Concio, did not accept the list
since she could only tick off 10 films. This rejection was embodied in a letter.
In 1992, Viva again approached ABS with a list consisting of 52 original films where Viva
proposed to sell these airing rights for P60M.
Vivas Vic del Rosario and ABS general manager Eugenio Lopez III met at the Tamarind Grill
to discuss this package proposal. What transcribed at that meeting was subject to
conflicting versions.
According to Lopez, he and del Rosario agreed that ABS was granted exclusive film rights to
14 films for P36M, and that this was put in writing in a napkin, signed by Lopez and given to
del Rosario. On the other hand, del Rosario denied the existence of the napkin in which
Lopez wrote something, and insisted that what he and Lopez discussed was Vivas film
package of the 52 original films for P60M stated above, and that Lopez refused said offer,
allegedly signifying his intent to send a counter proposal. When the counter proposal

arrived, Vivas BoD rejected it, hence, he sold the rights to the 52 original films to RBS.
Thus, ABS filed before RTC a complaint for specific performance with prayer for TRO against
RBS and Viva. RTC issued the TRO enjoining the airing of the films subject of controversy.
After hearing, RTC rendered its decision in favor of RBS and Viva contending that there was
no meeting of minds on the price and terms of the offer. The agreement between Lopez and
del Rosario was subject to Viva BoD approval, and since this was rejected by the board, then,
there was no basis for ABS demand that a contract was entered into between them. That
the 1990 Agreement with the right of first refusal was already exercised by Ms. Concio when
it rejected the offer, and such 1990 Agreement was an entirely new contract other than the
1992 alleged agreement at the Tamarind Grill.
CA affirmed.
Hence, this petition for certiorari with SC.
Lopez claims that it had not fully exercised its right of first refusal over 24 films since it only
chose 10. He insists that SC give credence to his testimony that he and del Rosario
discussed the airing of the remaining 14 films under the right of first refusal agreement in
Tamarind Grill where there was a contract written in the alleged napkin.
Issue: Whether or not there was a perfected contract between Lopez and del Rosario.
Held: NO. A contract is a meeting of minds between 2 persons whereby one binds himself
to give something or to render some service to another for a consideration. There is no
contract unless the following requisites concur: (1) consent of the contracting parties (2)
object certain which is the subject of the contract (3) cause of the obligation, which is
established.
Contracts that are consensual in nature are perfected upon mere meeting of the minds.
Once there is concurrence between the offer and the acceptance upon the subject matter,
consideration, and terms of payment, a contract is produced. The offer must be certain. To
convert the offer into a contract, the acceptance must be absolute and must not qualify the
terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any
sort from the proposal. A qualified acceptance, or one that involves a new proposal,
constitutes a counter offer and is a rejection of the original offer. Consequently, when
something is desired which is not exactly what is proposed in the offer, such acceptance is
not sufficient to generate consent because any modification or variation from the terms of
the offer annuls the offer.
In the case at bar, when del Rosario met with Lopez at the Tamarind Grill, the package of 52
films was Vivas offer to enter into a new Exhibition Agreement. But ABS, through its
counter proposal sent to Viva, actually made a counter offer. Clearly, there was no
acceptance. The acceptance should be unqualified. When Vivas BoD rejected the counter
proposal, then no contract could have been executed. Assuming arguendo that del Rosario
did enter into a contract with Lopez at Tamarind Grill, this acceptance did not bind Viva since
there was no proof whatsoever that del Rosario had specific authority to do so. Under the
Corporation Code, unless otherwise provided by said law, corporate powers, such
as the power to enter into contracts, are exercised by the BoD. However, the
board may delegate such powers to either an executive committee or officials or
contracted managers. The delegation, except for the executive committee, must
be for specific purposes. Delegation to officers makes the latter agents of the
corporation, and accordingly, the general rules of agency ad to the binding

effects of their acts would apply. For such officers to be deemed fully clothed by
the corporation to exercise a power of the Board, the latter must specially
authorize them to do so. That del Rosario did not have the authority to accept
ABS counter offer was best evidenced by his submission of the counter proposal
to Vivas BoD for the latters approval. In any event, there was no meeting of the
minds between del Rosario and Lopez.
The contention of Lopez that their meeting in Tamarind Grill was a continuation of their right
of first refusal agreement over the remaining 14 films is untenable. ABS right of first refusal
had already been exercised when Ms. Concio wrote to Viva choosing only 10 out of the 36
films offered by del Rosario. It already refused the 26 films.