G.R. No. 108905 October 23, 1997 GRACE CHRISTIAN HIGH SCHOOL, petitioner, vs.

THE COURT OF APPEALS, GRACE VILLAGE ASSOCIATION, INC., ALEJANDRO G. BELTRAN, and ERNESTO L. GO, respondents. MENDOZA, J.: The question for decision in this case is the right of petitioner's representative to sit in the board of directors of respondent Grace Village Association, Inc. as a permanent member thereof. For fifteen years from 1975 until 1989 petitioner's representative had been recognized as a "permanent director" of the association. But on February 13, 1990, petitioner received notice from the association's committee on election that the latter was "reexamining" (actually, reconsidering) the right of petitioner's representative to continue as an unelected member of the board. As the board denied petitioner's request to be allowed representation without election, petitioner brought an action for mandamus in the Home Insurance and Guaranty Corporation. Its action was dismissed by the hearing officer whose decision was subsequently affirmed by the appeals board. Petitioner appealed to the Court of Appeals, which in turn upheld the decision of the HIGC's appeals board. Hence this petition for review based on the following contentions: 1. The Petitioner herein has already acquired a vested right to a permanent seat in the Board of Directors of Grace Village Association; 2. The amended By-laws of the Association drafted and promulgated by a Committee on December 20, 1975 is valid and binding; and 3. The Practice of tolerating the automatic inclusion of petitioner as a permanent member of the Board of Directors of the 1 Association without the benefit of election is allowed under the law. Briefly stated, the facts are as follows: Petitioner Grace Christian High School is an educational institution offering preparatory, kindergarten and secondary courses at the Grace Village in Quezon City. Private respondent Grace Village Association, Inc., on the other hand, is an organization of lot and/or building owners, lessees and residents at Grace Village, while private respondents Alejandro G. Beltran and Ernesto L. Go were its president and chairman of the committee on election, respectively, in 1990, when this suit was brought. As adopted in 1968, the by-laws of the association provided in Article IV, as follows: The annual meeting of the members of the Association shall be held on the first Sunday of January in each calendar year at the principal office of the Association at 2:00 P.M. where they shall elect by plurality vote and by secret balloting, the Board of Directors, composed of eleven (11) members to serve for one (1) year until their successors are duly elected and have qualified.
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It appears, that on December 20, 1975, a committee of the board of directors prepared a draft of an amendment to the by-laws, reading as follows:
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VI. ANNUAL MEETING The Annual Meeting of the members of the Association shall be held on the second Thursday of January of each year. Each Charter or Associate Member of the Association is entitled to vote. He shall be entitled to as many votes as he has acquired thru his monthly membership fees only computed on a ratio of TEN (P10.00) PESOS for one vote. The Charter and Associate Members shall elect the Directors of the Association. The candidates receiving the first fourteen (14) highest number of votes shall be declared and proclaimed elected until their successors are elected and qualified. GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION. This draft was never presented to the general membership for approval. Nevertheless, from 1975, after it was presumably submitted to the board, up to 1990, petitioner was given a permanent seat in the board of directors of the association. On February 13, 1990, the association's committee on election in a letter informed James Tan, principal of the school, that "it was the sentiment that all directors should be elected by members of the association" because "to make a person or entity a permanent Director would deprive the right of voters to vote for fifteen (15) members of the 4 Board," and "it is undemocratic for a person or entity to hold office in perpetuity." For this reason, Tan was told that "the proposal to make the Grace Christian High School representative as a permanent director of the association, although previously tolerated in the past elections should be reexamined." Following this advice, notices were sent to the members of the association that the provision on election of directors of the 1968 bylaws of the association would be observed.

Petitioner requested the chairman of the election committee to change the notice of election by following the procedure in previous elections, claiming that the notice issued for the 1990 elections ran "counter to the practice in previous years" and was "in violation of the by-laws (of 1975)" 5 and "unlawfully deprive[d] Grace Christian High School of its vested right [to] a permanent seat in the board." As the association denied its request, the school brought suit for mandamus in the Home Insurance and Guaranty Corporation to compel the board of directors of the association to recognize its right to a permanent seat in the board. Petitioner based its claim on the following portion of the proposed amendment which, it contended, had become part of the by-laws of the association as Article VI, paragraph 2, thereof: The Charter and Associate Members shall elect the Directors of the Association. The candidates receiving the first fourteen (14) highest number of votes shall be declared and proclaimed elected until their successors are elected and qualified. GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION. It appears that the opinion of the Securities and Exchange Commission on the validity of this provision was sought by the association and that in reply to the query, the SEC rendered an opinion to the effect that the practice of allowing unelected members in the board was contrary to the existing by-laws of the association and to 92 of the Corporation Code (B.P. Blg. 68). Private respondent association cited the SEC opinion in its answer. Additionally, the association contended that the basis of the petition for mandamus was merely "a proposed by-laws which has not yet been approved by competent authority nor registered with the SEC or HIGC." It argued that "the by-laws which was registered with the SEC on January 16, 1969 should be the prevailing by-laws of the association and not the 6 proposed amended by-laws." In reply, petitioner maintained that the "amended by-laws is valid and binding" and that the association was estopped from questioning the by7 laws. A preliminary conference was held on March 29, 1990 but nothing substantial was agreed upon. The parties merely agreed that the board of directors of the association should meet on April 17, 1990 and April 24, 1990 for the purpose of discussing the amendment of the by-laws and a possible amicable settlement of the case. A meeting was held on April 17, 1990, but the parties failed to reach an agreement. Instead, the board adopted a resolution declaring the 1975 provision null and void for lack of approval by members of the association and the 1968 by-laws to be effective. On June 20, 1990, the hearing officer of the HIGC rendered a decision dismissing petitioner's action. The hearing officer held that the amended bylaws, upon which petitioner based its claim, "[was] merely a proposed by-laws which, although implemented in the past, had not yet been ratified by the members of the association nor approved by competent authority"; that, on the contrary, in the meeting held on April 17, 1990, the directors of the association declared "the proposed by-law dated December 20, 1975 prepared by the committee on by-laws . . . null and void" and the by-laws of December 17, 1968 as the "prevailing by-laws under which the association is to operate until such time that the proposed amendments to the by-laws are approved and ratified by a majority of the members of the association and duly filed and approved by the pertinent government agency." The hearing officer rejected petitioner's contention that it had acquired a vested right to a permanent seat in the board of directors. He held that past practice in election of directors could not give rise to a vested right and that departure from such practice was justified because it deprived members of association of their right to elect or to be voted in office, not to say that "allowing the automatic inclusion 8 of a member representative of petitioner as permanent director [was] contrary to law and the registered by-laws of respondent association." The appeals board of the HIGC affirmed the decision of the hearing officer in its resolution dated September 13, 1990. It cited the opinion of the SEC based on 92 of the Corporation Code which reads: 92. Election and term of trustees. Unless otherwise provided in the articles of incorporation or the by-laws, the board of trustees of non-stock corporations, which may be more than fifteen (15) in number as may be fixed in their articles of incorporation or by-laws, shall, as soon as organized, so classify themselves that the term of office of one-third (1/3) of the number shall expire every year; and subsequent elections of trustees comprising one-third (1/3) of the board of trustees shall be held annually and trustees so elected shall have a term of three (3) years. Trustees thereafter elected to fill vacancies occurring before the expiration of a particular term shall hold office only for the unexpired period. The HIGC appeals board denied claims that the school "[was] being deprived of its right to be a member of the Board of Directors of respondent association," because the fact was that "it may nominate as many representatives to the Association's Board as it may deem appropriate." It said that "what is merely being upheld is the act of the incumbent directors of the Board of correcting a long standing 9 practice which is not anchored upon any legal basis." Petitioner appealed to the Court of Appeals but petitioner again lost as the appellate court on February 9, 1993, affirmed the decision of the HIGC. The Court of Appeals held that there was no valid amendment of the association's by-laws because of failure to comply with the requirement of its existing by-laws, prescribing the affirmative vote of the majority of the members of the association at a regular or special meeting called for the 10 adoption of amendment to the by-laws. Article XIX of the by-laws provides:

The members of the Association by an affirmative vote of the majority at any regular or special meeting called for the purpose, may alter, amend, change or adopt any new by-laws. This provision of the by-laws actually implements 22 of the Corporation Law (Act No. 1459) which provides: 22. The owners of a majority of the subscribed capital stock, or a majority of the members if there be no capital stock, may, at a regular or special meeting duly called for the purpose, amend or repeal any by-law or adopt new by-laws. The owners of twothirds of the subscribed capital stock, or two-thirds of the members if there be no capital stock, may delegate to the board of directors the power to amend or repeal any by-law or to adopt new by-laws: Provided, however, That any power delegated to the board of directors to amend or repeal any by-law or adopt new by-laws shall be considered as revoked whenever a majority of the stockholders or of the members of the corporation shall so vote at a regular or special meeting. And provided, further, That the Director of the Bureau of Commerce and Industry shall not hereafter file an amendment to the by-laws of any bank, banking institution or building and loan association, unless accompanied by certificate of the Bank Commissioner to the effect that such amendments are in accordance with law. The proposed amendment to the by-laws was never approved by the majority of the members of the association as required by these provisions of the law and by-laws. But petitioner contends that the members of the committee which prepared the proposed amendment were duly authorized to do so and that because the members of the association thereafter implemented the provision for fifteen years, the proposed amendment for all 11 intents and purposes should be considered to have been ratified by them. Petitioner contends: Considering, therefore, that the "agents" or committee were duly authorized to draft the amended by-laws and the acts done by the "agents" were in accordance with such authority, the acts of the "agents" from the very beginning were lawful and binding on the homeowners (the principals) per se without need of any ratification or adoption. The more has the amended bylaws become binding on the homeowners when the homeowners followed and implemented the provisions of the amended by-laws. This is not merely tantamount to tacit ratification of the acts done by duly authorized "agents" but express approval and confirmation of what the "agents" did pursuant to the authority granted to them. Corollarily, petitioner claims that it has acquired a vested right to a permanent seat in the board. Says petitioner: The right of the petitioner to an automatic membership in the board of the Association was granted by the members of the Association themselves and this grant has been implemented by members of the board themselves all through the years. Outside the present membership of the board, not a single member of the Association has registered any desire to remove the right of herein petitioner to an automatic membership in the board. If there is anybody who has the right to take away such right of the petitioner, it would be the individual members of the Association through a referendum and not the present board some of the members of which are motivated by personal interest. Petitioner disputes the ruling that the provision in question, giving petitioner's representative a permanent seat in the board of the association, is contrary to law. Petitioner claims that that is not so because there is really no provision of law prohibiting unelected members of boards of directors of corporations. Referring to 92 of the present Corporation Code, petitioner says: It is clear that the above provision of the Corporation Code only provides for the manner of election of the members of the board of trustees of non-stock corporations which may be more than fifteen in number and which manner of election is even subject to what is provided in the articles of incorporation or by-laws of the association thus showing that the above provisions [are] not even mandatory. Even a careful perusal of the above provision of the Corporation Code would not show that it prohibits a non-stock corporation or association from granting one of its members a permanent seat in its board of directors or trustees. If there is no such legal prohibition then it is allowable provided it is so provided in the Articles of Incorporation or in the by-laws as in the instant case. xxx xxx xxx If fact, the truth is that this is allowed and is being practiced by some corporations duly organized and existing under the laws of the Philippines. One example is the Plus XII Catholic Center, Inc. Under the by-laws of this corporation, that whoever is the Archbishop of Manila is considered a member of the board of trustees without benefit of election. And not only that. He also automatically sits as the Chairman of the Board of Trustees, again without need of any election. Another concrete example is the Cardinal Santos Memorial Hospital, Inc. It is also provided in the by-laws of this corporation that whoever is the Archbishop of Manila is considered a member of the board of trustees year after year without benefit of any election and he also sits automatically as the Chairman of the Board of Trustees.

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

23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified. (Emphasis added) These provisions of the former and present corporation law leave no room for doubt as to their meaning: the board of directors of corporations must be elected from among the stockholders or members. There may be corporations in which there are unelected members in the board but it is clear that in the examples cited by petitioner the unelected members sit as ex officio members, i.e., by virtue of and for as long as they hold a particular office. But in the case of petitioner, there is no reason at all for its representative to be given a seat in the board. Nor does petitioner claim a right to such seat by virtue of an office held. In fact it was not given such seat in the beginning. It was only in 1975 that a proposed amendment to the by-laws sought to give it one. Since the provision in question is contrary to law, the fact that for fifteen years it has not been questioned or challenged but, on the contrary, appears to have been implemented by the members of the association cannot forestall a later challenge to its validity. Neither can it attain validity through acquiescence because, if it is contrary to law, it is beyond the power of the members of the association to waive its invalidity. For that matter the members of the association may have formally adopted the provision in question, but their action would be of no avail because no 13 provision of the by-laws can be adopted if it is contrary to law. It is probable that, in allowing petitioner's representative to sit on the board, the members of the association were not aware that this was contrary to law. It should be noted that they did not actually implement the provision in question except perhaps insofar as it increased the number of directors from 11 to 15, but certainly not the allowance of petitioner's representative as an unelected member of the board of directors. It is more accurate to say that the members merely tolerated petitioner's representative and tolerance cannot be considered ratification. Nor can petitioner claim a vested right to sit in the board on the basis of "practice." Practice, no matter how long continued, cannot give rise to any 14 vested right if it is contrary to law. Even less tenable is petitioner's claim that its right is "coterminus with the existence of the association." Finally, petitioner questions the authority of the SEC to render an opinion on the validity of the provision in question. It contends that jurisdiction over this case is exclusively vested in the HIGC. But this case was not decided by the SEC but by the HIGC. The HIGC merely cited as authority for its ruling the opinion of the SEC chairman. The HIGC could have cited any other authority for the view that under the law members of the board of directors of a corporation must be elected and it would be none the worse for doing so. WHEREFORE, the decision of the Court of Appeals is AFFIRMED. SO ORDERED.

G.R. No. 153413

March 1, 2007

NECTARINA S. RANIEL and MA. VICTORIA R. PAG-ONG, Petitioners, vs. PAUL JOCHICO, JOHN STEFFENS and SURYA VIRIYA, Respondents. DECISION AUSTRIA-MARTINEZ, J.: Assailed in the present Petition for Review on Certiorari is the Decision of the Court of Appeals (CA) dated April 30, 2002, affirming with modification the Decision dated October 27, 2000 rendered by the Securities and Exchange Commission (SEC) which held as valid the removal of petitioners Ma. Victoria R. Pag-ong (Pag-ong) as director and Nectarina S. Raniel (Raniel) as director and corporate officer of Nephro Systems Dialysis Center (Nephro). Petitioners first questioned their removal in SEC Case No. 02-98-5902 for Declaration of Nullity of the Illegal Acts of Respondents, Damages and Injunction. Petitioners, together with respondents Paul Jochico (Jochico), John Steffens and Surya Viriya, were incorporators and directors of Nephro, with Raniel acting as Corporate Secretary and Administrator. The conflict started when petitioners questioned respondents' plan to enter into a joint venture with the Butuan Doctors' Hospital and College, Inc. sometime in December 1997. Because of this, petitioners claim that respondents tried to compel them to waive and assign their shares with Nephro but they refused. Thereafter, Raniel sought an indefinite leave of absence due to stress, but this was denied by Jochico, as Nephro President. Raniel, nevertheless, did not report for work, causing Jochico to demand an explanation from her why she should not be removed as Administrator and Corporate Secretary. Raniel replied, expressing her sentiments over the disapproval of her request for leave and respondents' decision with regard to the Butuan venture. On January 30, 1998, Jochico issued a Notice of Special Board Meeting on February 2, 1998. Despite receipt of the notice, petitioners did not attend the board meeting. In said meeting, the Board passed several resolutions ratifying the disapproval of Raniel's request for leave, dismissing her as Administrator of Nephro, declaring the position of Corporate Secretary vacant, appointing Otelio Jochico as the new Corporate Secretary and authorizing the call of a Special Stockholders' Meeting on February 16, 1998 for the purpose of the removal of petitioners as directors of Nephro. Otelio Jochico issued the corresponding notices for the Special Stockholders' Meeting to be held on February 16, 1998 which were received by petitioners on February 2, 1998. Again, they did not attend the meeting. The stockholders who were present removed the petitioners as directors of Nephro. Thus, petitioners filed SEC Case No. 02-98-5902. On October 27, 2000, the SEC rendered its Decision, the dispositive portion of which reads: WHEREFORE, the Commission so holds that complainants cannot be awarded the reliefs prayed for in reinstating Nectarina S. Raniel as secretary and administrator. The corporation acting thru its Board of Directors can validly remove its corporate officers, particularly complainant Nectarina S. Raniel as corporate secretary, treasurer and administrator of the Dialysis Clinic. Also, the Commission cannot grant the relief prayed for by complainants in restraining the respondents from interfering in the administration of the Dialysis Clinic owned by the corporation and the use of corporate funds. The administration of the Dialysis Clinic of the corporation and the use of corporate funds, rightfully belong to the officers of the corporation, which in this case are the respondents. The counterclaim of respondents to return or assign back the complainants' shares in favor of respondent Paul Jochico or his nominee is hereby denied for lack of merit. The respondents failed to show any clear and convincing evidence to rebut the presumption of the validity and truthfulness of documents submitted to the Commission in the grant of corporate license. The claim for attorney's fees and damages of both parties are likewise denied for lack of merit, as neither party should be punished for vindicating a right, which he/she believes should be protected or enforced. SO ORDERED.
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Dissatisfied, petitioners filed a petition for review with the CA.

On April 30, 2002, the CA rendered the assailed Decision, with the following dispositive portion: WHEREFORE, in light of the foregoing discussions, the appealed decision of the Securities and Exchange Commission is hereby AFFIRMED with the MODIFICATION that the renewal of petitioners as directors of Nephro is declared valid. SO ORDERED.
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Respondents filed a Manifestation and Motion to Correct Typographical Error, stating that the term "renewal" as provided in the CA Decision 4 should be "removal." Petitioners, on the other hand, filed the present petition for review on certiorari. On November 20, 2002, the CA issued a Resolution resolving to refrain from acting on all pending incidents before it in view of the filing of the 5 petition with the Court. In the present petition, petitioners raised basically the same argument they had before the SEC and the CA, i.e., their removal from Nephro was not valid. Both the SEC and the CA held that Pag-ong's removal as director and Raniel's removal as director and officer of Nephro were valid. For its part, the SEC ruled that the Board of Directors had sufficient ground to remove Raniel as officer due to loss of trust and confidence, as her abrupt and unauthorized leave of absence exhibited her disregard of her responsibilities as an officer of the corporation and disrupted the operations of Nephro. The SEC also held that the Special Board Meeting held on February 2, 1998 was valid and the resolutions adopted therein are binding on 6 petitioners. The CA upheld the SEC's conclusions, adding further that the special stockholders' meeting on February 16, 1998 was likewise validly held. The CA also ruled that Pag-ong's removal as director of Nephro was justified as it was due to her "undenied delay in the release of Nephro's medical supplies from the warehouse of the Fly-High Brokerage where she was an officer, on top of her and her co-petitioner Raniel's absence from the 7 aforementioned directors' and stockholders' meetings of Nephro despite due notice." It is well to stress the settled rule that the findings of fact of administrative bodies, such as the SEC, will not be interfered with by the courts in the absence of grave abuse of discretion on the part of said agencies, or unless the aforementioned findings are not supported by substantial evidence. 8 They carry even more weight when affirmed by the CA. Such findings are accorded not only great respect but even finality, and are binding upon this Court, unless it is shown that it had arbitrarily disregarded or misapprehended evidence before it to such an extent as to compel a contrary 9 conclusion had such evidence been properly appreciated. This rule is rooted in the doctrine that this Court is not a trier of facts, as well as in the respect to be accorded the determinations made by administrative bodies in general on matters falling within their respective fields of 10 specialization or expertise. A review of the petition failed to demonstrate any reversible error committed by the two tribunals, hence, the petition must be denied. It does not present any argument which convinces the Court that the SEC and the CA made any misappreciation of the facts and the applicable laws such that their decisions should be overturned. A corporation exercises its powers through its board of directors and/or its duly authorized officers and agents, except in instances where the 11 Corporation Code requires stockholders approval for certain specific acts. Based on Section 23 of the Corporation Code which provides: SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees x x x. a corporations board of directors is understood to be that body which (1) exercises all powers provided for under t he Corporation Code; (2) conducts all business of the corporation; and (3) controls and holds all property of the corporation. Its members have been characterized as 12 trustees or directors clothed with a fiduciary character. Moreover, the directors may appoint officers and agents and as incident to this power of 13 appointment, they may discharge those appointed. In this case, petitioner Raniel was removed as a corporate officer through the resolution of Nephro's Board of Directors adopted in a special meeting on February 2, 1998. As correctly ruled by the SEC, petitioners' removal was a valid exercise of the powers of Nephro's Board of Directors, viz.: In the instant complaint, do respondents have sufficient grounds to cause the removal of Raniel from her positions as Corporate Secretary, Treasurer and Administrator of the Dialysis Clinic? Based on the facts proven during the hearing of this case, the answer is in the affirmative. Raniel's letter of January 26, 1998 speaks for itself. Her request for an indefinite leave, immediately effective yet without prior notice, reveals a disregard of the critical responsibilities pertaining to the sensitive positions she held in the corporation. Prior to her hasty departure, Raniel did not

make a proper turn-over of her duties and had to be expressly requested to hand over documents and records, including keys to the office and the cabinets (Exh. 15). xxxx Since Raniel occupied all three positions in Nephro, it is not difficult to foresee the disruption that her immediate and indefinite absence can inflict on the operations of the company. By leaving abruptly, Raniel abandoned the positions she is now trying to reclaim. Raniel's actuation has been 14 sufficiently proven to warrant loss of the Board's confidence. The SEC also correctly concluded that petitioner Raniel was removed as an officer of Nephro in compliance with established procedure, thus: The resolutions of the Board dismissing complainant Raniel from her various positions in Nephro are valid. Notwithstanding the absence of complainants from the meeting, a quorum was validly constituted. x x x. xxxx Based on its articles of incorporation, Nephro has five directors two of the positions were occupied by complainants and the remaining three are held by respondents. This being the case, the presence of all three respondents in the Special Meeting of the Board on February 2, 1998 established a quorum for the conduct of business. The unanimous resolutions carried by the Board during such meeting are therefore valid and binding against complainants. It bears emphasis that Raniel was given sufficient opportunity to be heard. Jochico's letters of January 26, 1998 and January 27, 1998, albeit adversarial, recognized her right to explain herself and gave her the chance to do so. In fact, Raniel did respond to Jochico's letter on January 28, 1998 and took the occasion to voice her opinions about Jochico's alleged "practice of using others for your own benefit, without cost." (Exh. 14). Moreover, the Special Meeting of the Board could have been the appropriate venue for Raniel to air her side. Had Raniel decided to grace the 15 meeting with her presence, she could have explained herself before the board and tried to convince them to allow her to keep her posts. Petitioners Raniel and Pag-ong's removal as members of Nephro's Board of Directors was likewise valid. Only stockholders or members have the power to remove the directors or trustees elected by them, as laid down in Section 28 of the Corporation 16 Code, which provides in part: SEC. 28. Removal of directors or trustees. -- Any director or trustee of a corporation may be removed from office by a vote of the stockholders holding or representing at least two-thirds (2/3) of the outstanding capital stock, or if the corporation be a non-stock corporation, by a vote of at least two-thirds (2/3) of the members entitled to vote: Provided, that such removal shall take place either at a regular meeting of the corporation or at a special meeting called for the purpose, and in either case, after previous notice to stockholders or members of the corporation of the intention to propose such removal at the meeting. A special meeting of the stockholders or members of a corporation for the purpose of removal of directors or trustees or any of them, must be called by the secretary on order of the president or on the written demand of the stockholders representing or holding at least a majority of the outstanding capital stock, or if it be a non-stock corporation, on the written demand of a majority of the members entitled to vote. x x x Notice of the time and place of such meeting, as well as of the intention to propose such removal, must be given by publication or by written notice as prescribed in this Code. x x x Removal may be with or without cause: Provided, That removal without cause may not be used to deprive minority stockholders or members of the right of representation to which they may be entitled under Section 24 of this Code. (Emphasis supplied) Petitioners do not dispute that the stockholders' meeting was held in accordance with Nephro's By-Laws. The ownership of Nephro's outstanding 17 capital stock is distributed as follows: Jochico - 200 shares; Steffens - 100 shares; Viriya - 100 shares; Raniel - 75 shares; and Pag-ong - 25 shares, or a total of 500 shares. A two-thirds vote of Nephro's outstanding capital stock would be 333.33 shares, and during the Stockholders' Special Meeting held on February 16, 1998, 400 shares voted for petitioners' removal. Said number of votes is more than enough to oust petitioners from their respective positions as members of the board, with or without cause. Verily therefore, there is no cogent reason to grant the present petition. WHEREFORE, the petition is DENIED for lack of merit. SO ORDERED.

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

A few years later, that is, on March 13, 1991, petitioners Homero Villasis, Prestod Villasis, Reginald Villasis and Dimas Enriquez filed an affidavitcomplaint against private respondents before the Office of the City Prosecutor of Iloilo, as a result of which two (2) separate criminal informations, one for falsification of a public document under Article 171 of the Revised Penal Code and the other for estafa under Article 315, par. 1(b) of the RPC, were filed before Branch 33 of the Regional Trial Court of Iloilo City. The charge for falsification of public document was anchored on the private respondents' submission of WIT's income statement for the fiscal year 1985-1986 with the Securities and Exchange Commission (SEC) reflecting therein the disbursement of corporate funds for the compensation of private respondents based on Resolution No. 4, series of 1986, making it appear that the same was passed by the board on March 30, 1986, when in truth, the same was actually passed on June 1, 1986, a date not covered by the corporation's fiscal year 1985-1986 (beginning May 1, 1985 and ending April 30, 1986). The Information for falsification of a public document states: The undersigned City Prosecutor accuses RICARDO T. SALAS, SALVADOR T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS and RICHARD S. SALAS (whose dates and places of birth cannot be ascertained) of the crime of FALSIFICATION OF A PUBLIC DOCUMENT, Art. 171 of the Revised Penal Code, committed as follows:

That on or about the 10th day of June, 1986, in the City of Iloilo, Philippines and within the jurisdiction of this Honorable Court, the above-named accused, being then the Chairman, Vice-Chairman, Treasurer, Secretary, and Trustee (who later became Secretary), respectively, of the board of trustees of the Western Institute of Technology, Inc., a corporation duly organized and existing under the laws of the Republic of the Philippines, conspiring and confederating together and mutually helping one another, to better realized ( sic) their purpose, did then and there wilfully, unlawfully and criminally prepare and execute and subsequently cause to be submitted to the Securities and Exchange Commission an income statement of the corporation for the fiscal year 1985-1986, the same being required to be submitted every end of the corporation fiscal year by the aforesaid Commission, and therefore, a public document, including therein the disbursement of the retroactive compensation of accused corporate officers in the amount of P186,470.70, by then and there making it appear that the basis thereof Resolution No. 4, Series of 1986 was passed by the board of trustees on March 30, 1986, a date covered by the corporation's fiscal year 1985-1986 (i.e., from May 1, 1985 to April 30, 1986), when in truth and in fact, as said accused well knew, no such Resolution No. 48, Series of 1986 was passed on March 30, 1986. CONTRARY TO LAW. Iloilo City, Philippines, November 22, 1991. [Emphasis ours]. The Information, on the other hand, for estafa reads: The undersigned City Prosecutor accuses RICARDO SALAS, SALVADOR T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS, RICHARD S. SALAS (whose dates and places of birth cannot be ascertained) of the crime of ESTAFA, Art. 315, par. 1 (b) of the Revised Penal Code, committed as follows: That on or about the 1st day of June, 1986, in the City of Iloilo, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused, being then the Chairman, Vice-Chairman, Treasurer, Secretary, and Trustee (who later became Secretary), respectively; of the Board of Trustees of Western Institute of Technology, Inc., a corporation duly organized and existing under the laws of the Republic of the Philippines, conspiring and confederating together and mutually helping one another to better realize their purpose, did then and there wilfully, unlawfully and feloniously defraud the said corporation (and its stockholders) in the following manner, to wit: herein accused, knowing fully well that they have no sufficient, lawful authority to disburse let alone violation of applicable laws and jurisprudence, disbursed the funds of the corporation by effecting payment of their retroactive salaries in the amount of P186,470.00 and subsequently paying themselves every 15th and 30th of the month starting June 15, 1986 until the present, in the amount of P19,500.00 per month, as if the same were their own, and when herein accused were informed of the illegality of these disbursements by the minority stockholders by way of objections made in an annual stockholders' meeting held on June 14, 1986 and every year thereafter, they refused, and still refuse, to rectify the same to the damage and prejudice of the corporation (and its stockholders) in the total sum of P1,453,970.79 as of November 15, 1991. CONTRARY TO LAW. Iloilo City, Philippines, November 22, 1991. [Emphasis ours] Thereafter, trial for the two criminal cases, docketed as Criminal Cases Nos. 37097 and 37098, was consolidated. After a full-blown hearing, Judge 5 Porfirio Parian handed down a verdict of acquittal on both counts dated September 6, 1993 without imposing any civil liability against the accused therein. Petitioners filed a Motion for Reconsideration of the civil aspect of the RTC Decision which was, however, denied in an Order dated November 23, 7 1993. Hence, the instant petition. Significantly on December 8, 1994, a Motion for Intervention, dated December 2, 1994, was filed before this Court by Western Institute of Technology, Inc., supposedly one of the petitioners herein, disowning its inclusion in the petition and submitting that Atty. Tranquilino R. Gale, counsel for the other petitioners, had no authority whatsoever to represent the corporation in filing the petition. Intervenor likewise prayed for the 8 dismissal of the petition for being utterly without merit. The Motion for Intervention was granted on January 16, 1995. Petitioners would like us to hold private respondents civilly liable despite their acquittal in Criminal Cases Nos. 37097 and 37098. They base their claim on the alleged illegal issuance by private respondents of Resolution No. 48, series of 1986 ordering the disbursement of corporate funds in the amount of P186,470.70 representing retroactive compensation as of June 1, 1985 in favor of private respondents, board members of WIT, plus P1,453,970.79 for the subsequent collective salaries of private respondents every 15th and 30th of the month until the filing of the criminal
6 4 3

complaints against them on March 1991. Petitioners maintain that this grant of compensation to private respondents is proscribed under Section 30 of the Corporation Code. Thus, private respondents are obliged to return these amounts to the corporation with interest. We cannot sustain the petitioners. The pertinent section of the Corporation Code provides: Sec. 30. Compensation of directors In the absence of any provision in the by-laws fixing their compensation, the directors shall not receive any compensation, as such directors, except for reasonable per diems: Provided, however, That any such compensation (other than per diems) may be granted to directors by the vote of the stockholders representing at least a majority of the outstanding capital stock at a regular or special stockholders' meeting. In no case shall the total yearly compensation of directors, as such directors, exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year. [Emphasis ours] There is no argument that directors or trustees, as the case may be, are not entitled to salary or other compensation when they perform nothing more than the usual and ordinary duties of their office. This rule is founded upon a presumption that directors/trustees render service gratuitously, 9 and that the return upon their shares adequately furnishes the motives for service, without compensation. Under the foregoing section, there are only two (2) ways by which members of the board can be granted compensation apart from reasonable per diems: (1) when there is a provision in the by-laws fixing their compensation; and (2) when the stockholders representing a majority of the outstanding capital stock at a regular or special stockholders' meeting agree to give it to them. This proscription, however, against granting compensation to directors/trustees of a corporation is not a sweeping rule. Worthy of note is the clear phraseology of Section 30 which states: ". . . [T]he directors shall not receive any compensation, as such directors, . . . ." The phrase as such directors is not without significance for it delimits the scope of the prohibition to compensation given to them for services performed purely in their capacity as directors or trustees. The unambiguous implication is that members of the board may receive compensation, in addition to 10 reasonable per diems, when they render services to the corporation in a capacity other than as directors/trustees. In the case at bench, Resolution No. 48, s. 1986 granted monthly compensation to private respondents not in their capacity as members of the board, but rather as officers of the corporation, more particularly as Chairman, Vice-Chairman, Treasurer and Secretary of Western Institute of Technology. We quote once more Resolution No. 48, s. 1986 for easy reference, viz.: Resolution No. 48 s. 1986 On the motion of Mr. Richard Salas (accused), duly seconded by Mrs. Soledad Tubilleja (accused), it was unanimously resolved that: The Officers of the Corporation be granted monthly compensation for services rendered as follows: Chairman P9,000.00/month, Vice Chairman P3,500.00/month, Corporate Treasurer P3,500.00/month and Corporate Secretary P3,500.00/month, retroactive June 1, 1985 and the ten per centum of the net profits shall be distributed equally among the ten members of the Board of Trustees. This shall amend and superceed ( sic) any previous resolution. There were no other business. The Chairman declared the meeting adjourned at 5:11 P.M. This is to certify that the foregoing minutes of the regular meeting of the Board of Trustees of Western Institute of Technology, Inc. held on March 30, 1986 is true and correct to the best of my knowledge and belief. (Sgd) ANTONIO 11 Corporate Secretary [Emphasis ours] S. SALAS

Clearly, therefore, the prohibition with respect to granting compensation to corporate directors/trustees as such under Section 30 is not violated in this particular case. Consequently, the last sentence of Section 30 which provides: . . . . . . . In no case shall the total yearly compensation of directors, as such directors, exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year. (Emphasis ours] does not likewise find application in this case since the compensation is being given to private respondents in their capacity as officers of WIT and not as board members. Petitioners assert that the instant case is a derivative suit brought by them as minority shareholders of WIT for and on behalf of the corporation to annul Resolution No. 48, s. 1986 which is prejudicial to the corporation. We are unpersuaded. A derivative suit is an action brought by minority shareholders in the name of the corporation to redress wrongs committed 12 against it, for which the directors refuse to sue. It is a remedy designed by equity and has been the principal defense of the minority shareholders

against abuses by the majority. Here, however, the case is not a derivative suit but is merely an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098 filed with the RTC of Iloilo for estafa and falsification of public document. Among the basic requirements for a derivative suit to prosper is that the minority shareholder who is suing for and on behalf of the corporation must allege in his complaint before the proper forum 14 that he is suing on a derivative cause of action on behalf of the corporation and all other shareholders similarly situated who wish to join. This is necessary to vest jurisdiction upon the tribunal in line with the rule that it is the allegations in the complaint that vests jurisdiction upon the court 15 or quasi-judicial body concerned over the subject matter and nature of the action. This was not complied with by the petitioners either in their complaint before the court a quo nor in the instant petition which, in part, merely states that "this is a petition for review on certiorari on pure 16 questions of law to set aside a portion of the RTC decision in Criminal Cases Nos. 37097 and 37098" since the trial court's judgment of acquittal failed to impose any civil liability against the private respondents. By no amount of equity considerations, if at all deserved, can a mere appeal on the civil aspect of a criminal case be treated as a derivative suit. Granting, for purposes of discussion, that this is a derivative suit as insisted by petitioners, which it is not, the same is outrightly dismissible for having been wrongfully filed in the regular court devoid of any jurisdiction to entertain the complaint. The ease should have been filed with the Securities and Exchange Commission (SEC) which exercises original and exclusive jurisdiction over derivative suits, they being intra-corporate disputes, per Section 5 (b) of P.D. No. 902-A: In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving: xxx xxx xxx b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the State insofar as it concerns their individual franchise or right to exist as such entity; xxx xxx xxx [Emphasis ours] Once the case is decided by the SEC, the losing party may file a petition for review before the Court of Appeals raising questions of fact, of law, or 17 mixed questions of fact and law. It is only after the case has ran this course, and not earlier, can it be brought to us via a petition for review on 18 certiorari under Rule 45 raising only pure questions of law. Petitioners, in pleading that we treat the instant petition as a derivative suit, are trying to short-circuit the entire process which we cannot here sanction. As an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098 for falsification of public document and estafa, which this petition truly is, we have to deny the petition just the same. It will be well to quote the respondent court's ratiocinations acquitting the private respondents on both counts: The prosecution wants this Court to believe and agree that there is falsification of public document because, as claimed by the prosecution, Resolution No. 48, Series of 1986 (Exh. "1-E-1") was not taken up and passed during the Regular Meeting of the Board of Trustees of the Western Institute of Technology (WIT), Inc. on March 30, 1986, but on June 1, 1986 special meeting of the same board of trustees. This Court is reluctant to accept this claim of falsification. The prosecution omitted to submit the complete minutes of the regular meeting of the Board of Trustees on March 30, 1986. It only presented in evidence Exh. "C", which is page 5 or the last page of the said minutes. Had the complete minutes (Exh. "1") consisting of five (5) pages, been submitted, it can be readily seen and understood that Resolution No. 48, Series of 1986 (Exh. "1-E-1") giving compensation to corporate officers, was indeed included in Other Business, No. 6 of the Agenda, and was taken up and passed on March 30, 1986. The mere fact of existence of Exh. "C" also proves that it was passed on March 30, 1986 for Exh. "C" is part and parcel of the whole minutes of the Board of Trustees Regular Meeting on March 30, 1986. No better and more credible proof can be considered other than the Minutes (Exh. "1") itself of the Regular Meeting of the Board of Trustees on March 30, 1986. The imputation that said Resolution No. 48 was neither taken up nor passed on March 30, 1986 because the matter regarding compensation was not specifically stated or written in the Agenda and that the words "possible implementation of said Resolution No. 48, was expressly written in the Agenda for the Special Meeting of the Board on June 1, 1986, is simply an implication . This evidence by implication to the mind of the court cannot prevail over the Minutes (Exh. "1") and cannot ripen into proof beyond reasonable doubt which is demanded in all criminal prosecutions. This Court finds that under the Eleventh Article (Exh. "3-D-1") of the Articles of Incorporation (Exh. "3-B") of the Panay Educational Institution, Inc., now the Western Institute of Technology, Inc., the officers of the corporation shall receive such compensation as the Board of Directors may provide. These Articles of Incorporation was adopted on May 17, 1957 (Exh. "3-E"). The Officers of the corporation and their corresponding duties are enumerated and stated in Sections 1, 2, 3 and 4 of Art. III of the Amended By-Laws of the

13

Corporation (Exh. "4-A") which was adopted on May 31, 1957. According to Sec. 6, Art. III of the same By-Laws, all officers shall receive such compensation as may be fixed by the Board of Directors. It is the perception of this Court that the grant of compensation or salary to the accused in their capacity as officers of the corporation, through Resolution No. 48, enacted on March 30, 1986 by the Board of Trustees, is authorized by both the Articles of Incorporation and the By-Laws of the corporation. To state otherwise is to depart from the clear terms of the said articles and by-laws. In their defense the accused have properly and rightly asserted that the grant of salary is not for directors, but for their being officers of the corporation who oversee the day to day activities and operations of the school. xxx xxx xxx . . .[O]n the question of whether or not the accused can be held liable for estafa under Sec. 1 (b) of Art. 315 of the Revised Penal Code, it is perceived by this Court that the receipt and the holding of the money by the accused as salary on basis of the authority granted by the Articles and By-Laws of the corporation are not tainted with abuse of confidence. The money they received belongs to them and cannot be said to have been converted and/or misappropriated by them. xxx xxx xxx
19

[Emphasis ours] From the foregoing factual findings, which we find to be amply substantiated by the records, it is evident that there is simply no basis to hold the accused, private respondents herein, civilly liable. Section 2(b) of Rule 111 on the New Rules on Criminal Procedure provides: Sec. 2. Institution of separate civil action. xxx xxx xxx (b) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from a declaration in a final judgment that the fact from which the civil might arise did not exist. [Emphasis ours] Likewise, the last paragraph of Section 2, Rule 120 reads: Sec. 2. Form and contents of judgment. xxx xxx xxx In case of acquittal, unless there is a clear showing that the act from which the civil liability might arise did not exist , the judgment shall make a finding on the civil liability of the accused in favor of the offended party. [Emphasis ours] The acquittal in Criminal Cases Nos. 37097 and 37098 is not merely based on reasonable doubt but rather on a finding that the accused-private respondents did not commit the criminal acts complained of. Thus, pursuant to the above rule and settled jurisprudence, any civil action ex delicto cannot prosper. Acquittal in a criminal action bars the civil action arising therefrom where the judgment of acquittal holds that the accused did not 20 commit the criminal acts imputed to them. WHEREFORE, the instant petition is hereby DENIED with costs against petitioners. SO ORDERED.

G.R. No. 129459 September 29, 1998 SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC., petitioner, vs. COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL DEVELOPMENT CORP. and JNM REALTY AND DEVELOPMENT CORP., respondents. PANGANIBAN, J.: May corporate treasurer, by herself and without any authorization from he board of directors, validly sell a parcel of land owned by the corporation?. May the veil of corporate fiction be pierced on the mere ground that almost all of the shares of stock of the corporation are owned by said treasurer and her husband? The Case These questions are answered in the negative by this Court in resolving the Petition for Review on Certiorari before us, assailing the March 18, 1997 1 2 Decision of the Court of Appeals in CA GR CV No. 46801 which, in turn, modified the July 18, 1994 Decision of the Regional Trial Court of Makati, 3 Metro Manila, Branch 63 in Civil Case No. 89-3511. The RTC dismissed both the Complaint and the Counterclaim filed by the parties. On the other hand, the Court of Appeals ruled: WHEREFORE, premises considered, the appealed decision is AFFIRMED WITH MODIFICATION ordering defendant-appellee Nenita Lee Gruenberg to REFUND or return to plaintiff-appellant the downpayment of P100,000.00 which she received from 4 plaintiff-appellant. There is no pronouncement as to costs. The petition also challenges the June 10, 1997 CA Resolution denying reconsideration. The Facts The facts as found by the Court of Appeals are as follows: Plaintiff-appellant San Juan Structural and Steel Fabricators, Inc.'s amended complaint alleged that on 14 February 1989, plaintiff-appellant entered into an agreement with defendant-appellee Motorich Sales Corporation for the transfer to it of a parcel of land identified as Lot 30, Block 1 of the Acropolis Greens Subdivision located in the District of Murphy, Quezon City. Metro Manila, containing an area of Four Hundred Fourteen (414) square meters, covered by TCT No. (362909) 2876: that as stipulated in the Agreement of 14 February 1989, plaintiff-appellant paid the downpayment in the sum of One Hundred Thousand (P100,000.00) Pesos, the balance to be paid on or before March 2, 1989; that on March 1, 1989. Mr. Andres T. Co, president of plaintiff-appellant corporation, wrote a letter to defendant-appellee Motorich Sales Corporation requesting for a computation of the balance to be paid: that said letter was coursed through defendant-appellee's broker. Linda Aduca, who wrote the computation of the balance: that on March 2, 1989, plaintiff-appellant was ready with the amount corresponding to the balance, covered by Metrobank Cashier's Check No. 004223, payable to defendant-appellee Motorich Sales Corporation; that plaintiff-appellant and defendant-appellee Motorich Sales Corporation were supposed to meet in the office of plaintiffappellant but defendant-appellee's treasurer, Nenita Lee Gruenberg, did not appear; that defendant-appellee Motorich Sales Corporation despite repeated demands and in utter disregard of its commitments had refused to execute the Transfer of Rights/Deed of Assignment which is necessary to transfer the certificate of title; that defendant ACL Development Corp. is impleaded as a necessary party since Transfer Certificate of Title No. (362909) 2876 is still in the name of said defendant; while defendant JNM Realty & Development Corp. is likewise impleaded as a necessary party in view of the fact that it is the transferor of right in favor of defendant-appellee Motorich Sales Corporation: that on April 6, 1989, defendant ACL Development Corporation and Motorich Sales Corporation entered into a Deed of Absolute Sale whereby the former transferred to the latter the subject property; that by reason of said transfer, the Registry of Deeds of Quezon City issued a new title in the name of Motorich Sales Corporation, represented by defendant-appellee Nenita Lee Gruenberg and Reynaldo L. Gruenberg, under Transfer Certificate of Title No. 3571; that as a result of defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corporation's bad faith in refusing to execute a formal Transfer of Rights/Deed of Assignment, plaintiffappellant suffered moral and nominal damages which may be assessed against defendants-appellees in the sum of Five Hundred Thousand (500,000.00) Pesos; that as a result of defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corporation's unjustified and unwarranted failure to execute the required Transfer of Rights/Deed of Assignment or formal deed of sale in favor of plaintiff-appellant, defendants-appellees should be assessed exemplary damages in the sum of One Hundred Thousand (P100,000.00) Pesos; that by reason of defendants-appellees' bad faith in refusing to execute a Transfer of Rights/Deed of Assignment in favor of plaintiff-appellant, the latter lost the opportunity to construct a residential building in the sum of One Hundred Thousand (P100,000.00) Pesos; and that as a consequence of defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corporation's bad faith in refusing to execute a deed of sale in favor of plaintiff-appellant, it has been constrained to obtain the services of counsel at an agreed fee of One Hundred Thousand (P100,000.00) Pesos plus appearance fee for every appearance in court hearings.
5

In its answer, defendants-appellees Motorich Sales Corporation and Nenita Lee Gruenberg interposed as affirmative defense that the President and Chairman of Motorich did not sign the agreement adverted to in par. 3 of the amended complaint; that Mrs. Gruenberg's signature on the agreement (ref: par. 3 of Amended Complaint) is inadequate to bind Motorich. The other signature, that of Mr. Reynaldo Gruenberg, President and Chairman of Motorich, is required: that plaintiff knew this from the very beginning as it was presented a copy of the Transfer of Rights (Annex B of amended complaint) at the time the Agreement (Annex B of amended complaint) was signed; that plaintiff-appellant itself drafted the Agreement and insisted that Mrs. Gruenberg accept the P100,000.00 as earnest money; that granting, without admitting, the enforceability of the agreement, plaintiff-appellant nonetheless failed to pay in legal tender within the stipulated period (up to March 2, 1989); that it was the understanding between Mrs. Gruenberg and plaintiff-appellant that the Transfer of Rights/Deed of Assignment will be signed only upon receipt of cash payment; thus they agreed that if the payment be in check, they will meet at a bank designated by plaintiff-appellant where they will encash the check and sign the Transfer of Rights/Deed. However, plaintiff-appellant informed Mrs. Gruenberg of the alleged availability of the check, by phone, only after banking hours. On the basis of the evidence, the court a quo rendered the judgment appealed from[,] dismissing plaintiff-appellant's complaint, ruling that: The issue to be resolved is: whether plaintiff had the right to compel defendants to execute a deed of absolute sale in accordance with the agreement of February 14, 1989: and if so, whether plaintiff is entitled to damage. As to the first question, there is no evidence to show that defendant Nenita Lee Gruenberg was indeed authorized by defendant corporation. Motorich Sales, to dispose of that property covered by T.C.T. No. (362909) 2876. Since the property is clearly owned by the corporation. Motorich Sales, then its disposition should be governed by the requirement laid down in Sec. 40. of the Corporation Code of the Philippines, to wit: Sec. 40, Sale or other disposition of assets. Subject to the provisions of existing laws on illegal combination and monopolies, a corporation may by a majority vote of its board of directors . . . sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and assets including its goodwill . . . when authorized by the vote of the stockholders representing at least two third (2/3) of the outstanding capital stock . . . No such vote was obtained by defendant Nenita Lee Gruenberg for that proposed sale[;] neither was there evidence to show that the supposed transaction was ratified by the corporation. Plaintiff should have been on the look out under these circumstances. More so, plaintiff himself [owns] several corporations (tsn dated August 16, 1993, p. 3) which makes him knowledgeable on corporation matters. Regarding the question of damages, the Court likewise, does not find substantial evidence to hold defendant Nenita Lee Gruenberg liable considering that she did not in anyway misrepresent herself to be authorized by the corporation to sell the property to plaintiff (tsn dated September 27, 1991, p. 8). In the light of the foregoing, the Court hereby renders judgment DISMISSING the complaint at instance for lack of merit. "Defendants" counterclaim is also DISMISSED for lack of basis. (Decision, pp. 7-8; Rollo, pp. 34-35) For clarity, the Agreement dated February 14, 1989 is reproduced hereunder: AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This Agreement, made and entered into by and between: MOTORICH SALES CORPORATION, a corporation duly organized and existing under and by virtue of Philippine Laws, with principal office address at 5510 South Super Hi-way cor. Balderama St., Pio del Pilar. Makati, Metro Manila, represented herein by its Treasurer, NENITA LEE GRUENBERG, hereinafter referred to as the TRANSFEROR; and

SAN JUAN STRUCTURAL & STEEL FABRICATORS, a corporation duly organized and existing under and by virtue of the laws of the Philippines, with principal office address at Sumulong Highway, Barrio Mambungan, Antipolo, Rizal, represented herein by its President, ANDRES T. CO, hereinafter referred to as the TRANSFEREE. WITNESSETH, That: WHEREAS, the TRANSFEROR is the owner of a parcel of land identified as Lot 30 Block 1 of the ACROPOLIS GREENS SUBDIVISION located at the District of Murphy, Quezon City, Metro Manila, containing an area of FOUR HUNDRED FOURTEEN (414) SQUARE METERS, covered by a TRANSFER OF RIGHTS between JNM Realty & Dev. Corp. as the Transferor and Motorich Sales Corp. as the Transferee; NOW, THEREFORE, for and in consideration of the foregoing premises, the parties have agreed as follows: 1. That the purchase price shall be at FIVE THOUSAND TWO HUNDRED PESOS (P5,200.00) per square meter; subject to the following terms: a. Earnest money amounting to ONE HUNDRED THOUSAND PESOS (P100,000.00), will be paid upon the execution of this agreement and shall form part of the total purchase price; b. Balance shall be payable on or before March 2, 1989; 2. That the monthly amortization for the month of February 1989 shall be for the account of the Transferor; and that the monthly amortization starting March 21, 1989 shall be for the account of the Transferee; The transferor warrants that he [sic] is the lawful owner of the above-described property and that there [are] no existing liens and/or encumbrances of whatsoever nature; In case of failure by the Transferee to pay the balance on the date specified on 1, (b), the earnest money shall be forfeited in favor of the Transferor. That upon full payment of the balance, the TRANSFEROR agrees to execute a TRANSFER OF RIGHTS/DEED OF ASSIGNMENT in favor of the TRANSFEREE. IN WITNESS WHEREOF, the parties have hereunto set their hands this 14th day of February, 1989 at Greenhills, San Juan, Metro Manila, Philippines. MOTORICH SALES CORPORATION SAN JUAN STRUCTURAL & STEEL FABRICATORS TRANSFEROR TRANSFEREE [SGD.] [SGD.] By. NENITA LEE GRUENBERG By: ANDRES T. CO Treasurer President Signed In the presence of: [SGD.] [SGD.] In its recourse before the Court of Appeals, petitioner insisted: 1. Appellant is entitled to compel the appellees to execute a Deed of Absolute Sale in accordance with the Agreement of February 14, 1989,
6

2. Plaintiff is entitled to damages.

As stated earlier, the Court of Appeals debunked petitioner's arguments and affirmed the Decision of the RTC with the modification that Respondent Nenita Lee Gruenberg was ordered to refund P100,000 to petitioner, the amount remitted as "downpayment" or "earnest money." 8 Hence, this petition before us. The Issues Before this Court, petitioner raises the following issues: I. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in the instant case II. Whether or not the appellate court may consider matters which the parties failed to raise in the lower court III. Whether or not there is a valid and enforceable contract between the petitioner and the respondent corporation IV. Whether or not the Court of Appeals erred in holding that there is a valid correction/substitution of answer in the transcript of stenographic note[s]. V. Whether or not respondents are liable for damages and attorney's fees The Court synthesized the foregoing and will thus discuss them seriatim as follows: 1. Was there a valid contract of sale between petitioner and Motorich? 2. May the doctrine of piercing the veil of corporate fiction be applied to Motorich? 3. Is the alleged alteration of Gruenberg's testimony as recorded in the transcript of stenographic notes material to the disposition of this case? 4. Are respondents liable for damages and attorney's fees? The Court's Ruling The petition is devoid of merit. First Issue: Validity of Agreement Petitioner San Juan Structural and Steel Fabricators, Inc. alleges that on February 14, 1989, it entered through its president, Andres Co, into the disputed Agreement with Respondent Motorich Sales Corporation, which was in turn allegedly represented by its treasurer, Nenita Lee Gruenberg. Petitioner insists that "[w]hen Gruenberg and Co affixed their signatures on the contract they both consented to be bound by the terms thereof." Ergo, petitioner contends that the contract is binding on the two corporations. We do not agree. True, Gruenberg and Co signed on February 14, 1989, the Agreement, according to which a lot owned by Motorich Sales Corporation was purportedly sold. Such contract, however, cannot bind Motorich, because it never authorized or ratified such sale. A corporation is a juridical person separate and distinct from its stockholders or members. Accordingly, the property of the corporation is not the property of its stockholders or members and may not be sold by the stockholders or members without express authorization from the 10 corporation's board of directors. Section 23 of BP 68, otherwise known as the Corporation Code of the Philippines, provides; Sec. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees 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. Indubitably, a corporation may act only through its board of directors or, when authorized either by its bylaws or by its board resolution, through its officers or agents in the normal course of business. The general principles of agency govern the relation between the corporation and its officers
9

or agents, subject to the articles of incorporation, bylaws, or relevant provisions of law. Thus, this Court has held that "a corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that the authority to do so has been conferred upon him, and this includes powers which have been intentionally conferred, and also such powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has 12 conferred." Furthermore, the Court has also recognized the rule that "persons dealing with an assumed agent, whether the assumed agency be a general or special one bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of 13 authority, and in case either is controverted, the burden of proof is upon them to establish it (Harry Keeler v. Rodriguez, 4 Phil. 19)." Unless duly 14 authorized, a treasurer, whose powers are limited, cannot bind the corporation in a sale of its assets. In the case at bar, Respondent Motorich categorically denies that it ever authorized Nenita Gruenberg, its treasurer, to sell the subject parcel of 15 land. Consequently, petitioner had the burden of proving that Nenita Gruenberg was in fact authorized to represent and bind Motorich in the 16 transaction. Petitioner failed to discharge this burden. Its offer of evidence before the trial court contained no proof of such authority. It has not shown any provision of said respondent's articles of incorporation, bylaws or board resolution to prove that Nenita Gruenberg possessed such power. That Nenita Gruenberg is the treasurer of Motorich does not free petitioner from the responsibility of ascertaining the extent of her authority to represent the corporation. Petitioner cannot assume that she, by virtue of her position, was authorized to sell the property of the corporation. Selling is obviously foreign to a corporate treasurer's function, which generally has been described as "to receive and keep the funds of the 17 corporation, and to disburse them in accordance with the authority given him by the board or the properly authorized officers." Neither was such real estate sale shown to be a normal business activity of Motorich. The primary purpose of Motorich is marketing, distribution, 18 export and import in relation to a general merchandising business. Unmistakably, its treasurer is not cloaked with actual or apparent authority to buy or sell real property, an activity which falls way beyond the scope of her general authority. Art. 1874 and 1878 of the Civil Code of the Philippines provides: Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing: otherwise, the sale shall be void. Art. 1878. Special powers of attorney are necessary in the following case: xxx xxx xxx (5) To enter any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration; xxx xxx xxx. Petitioner further contends that Respondent Motorich has ratified said contract of sale because of its "acceptance of benefits," as evidenced by the 19 receipt issued by Respondent Gruenberg. Petitioner is clutching at straws. As a general rule, the acts of corporate officers within the scope of their authority are binding on the corporation. But when these officers exceed 20 their authority, their actions "cannot bind the corporation, unless it has ratified such acts or is estopped from disclaiming them." In this case, there is a clear absence of proof that Motorich ever authorized Nenita Gruenberg, or made it appear to any third person that she had the authority, to sell its land or to receive the earnest money. Neither was there any proof that Motorich ratified, expressly or impliedly, the contract. Petitioner rests its argument on the receipt which, however, does not prove the fact of ratification. The document is a hand-written one, not a corporate receipt, and it bears only Nenita Gruenberg's signature. Certainly, this document alone does not prove that her acts were authorized or ratified by Motorich. Art. 1318 of the Civil Code lists the requisites of a valid and perfected contract: "(1) consent of the contracting parties; (2) object certain which is 21 the subject matter of the contract; (3) cause of the obligation which is established." As found by the trial court and affirmed by the Court of 22 Appeals, there is no evidence that Gruenberg was authorized to enter into the contract of sale, or that the said contract was ratified by Motorich. 23 This factual finding of the two courts is binding on this Court. As the consent of the seller was not obtained, no contract to bind the obligor was perfected. Therefore, there can be no valid contract of sale between petitioner and Motorich.

11

Because Motorich had never given a written authorization to Respondent Gruenberg to sell its parcel of land, we hold that the February 14, 1989 Agreement entered into by the latter with petitioner is void under Article 1874 of the Civil Code. Being inexistent and void from the beginning, said 24 contract cannot be ratified. Second Issue: Piercing the Corporate Veil Not Justified Petitioner also argues that the veil of corporate fiction of Motorich should be pierced, because the latter is a close corporation. Since "Spouses 25 Reynaldo L. Gruenberg and Nenita R. Gruenberg owned all or almost all or 99.866% to be accurate, of the subscribed capital stock" of Motorich, 26 petitioner argues that Gruenberg needed no authorization from the board to enter into the subject contract. It adds that, being solely owned by the Spouses Gruenberg, the company can treated as a close corporation which can be bound by the acts of its principal stockholder who needs no specific authority. The Court is not persuaded. First, petitioner itself concedes having raised the issue belatedly, not having done so during the trial, but only when it filed its sur-rejoinder 28 before the Court of Appeals. Thus, this Court cannot entertain said issue at this late stage of the proceedings. It is well-settled the points of law, theories and arguments not brought to the attention of the trial court need not be, and ordinarily will not be, considered by a reviewing court, as 29 they cannot be raised for the first time on appeal. Allowing petitioner to change horses in midstream, as it were, is to run roughshod over the basic principles of fair play, justice and due process. Second, even if the above mentioned argument were to be addressed at this time, the Court still finds no reason to uphold it. True, one of the 30 advantages of a corporate form of business organization is the limitation of an investor's liability to the amount of the investment. This feature flows from the legal theory that a corporate entity is separate and distinct from its stockholders. However, the statutorily granted privilege of a 31 corporate veil may be used only for legitimate purposes. On equitable considerations, the veil can be disregarded when it is utilized as a shield to commit fraud, illegality or inequity; defeat public convenience; confuse legitimate issues; or serve as a mere alter ego or business conduit of a 32 person or an instrumentality, agency or adjunct of another corporation. Thus, the Court has consistently ruled that "[w]hen the fiction is used as a means of perpetrating a fraud or an illegal act or as vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted 33 to allow for its consideration merely as an aggregation of individuals." We stress that the corporate fiction should be set aside when it becomes a shield against liability for fraud, illegality or inequity committed on third persons. The question of piercing the veil of corporate fiction is essentially, then, a matter of proof. In the present case, however, the Court finds no reason to pierce the corporate veil of Respondent Motorich. Petitioner utterly failed to establish that said corporation was formed, or that it is operated, for the purpose of shielding any alleged fraudulent or illegal activities of its officers or stockholders; or that the said veil was used to conceal fraud, illegality or inequity at the expense of third persons like petitioner. Petitioner claims that Motorich is a close corporation. We rule that it is not. Section 96 of the Corporation Code defines a close corporation as follows: Sec. 96. Definition and Applicability of Title. A close corporation, within the meaning of this Code, is one whose articles of incorporation provide that: (1) All of the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding twenty (20); (2) All of the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title; and (3) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class. Notwithstanding the foregoing, a corporation shall be deemed not a close corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation within the meaning of this Code. . . . . The articles of incorporation of Motorich Sales Corporation does not contain any provision stating that (1) the number of stockholders shall not exceed 20, or (2) a preemption of shares is restricted in favor of any stockholder or of the corporation, or (3) listing its stocks in any stock exchange 35 or making a public offering of such stocks is prohibited. From its articles, it is clear that Respondent Motorich is not a close corporation. Motorich does not become one either, just because Spouses Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed capital stock. The "[m]ere 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 36 the separate corporate personalities." So, too, a narrow distribution of ownership does not, by itself, make a close corporation. Petitioner cites Manuel R. Dulay Enterprises, Inc. v. Court of Appeals wherein the Court ruled that ". . . petitioner corporation is classified as a close corporation and, consequently, a board resolution authorizing the sale or mortgage of the subject property is not necessary to bind the 38 corporation for the action of its president." But the factual milieu in Dulay is not on all fours with the present case. In Dulay, the sale of real 39 property was contracted by the president of a close corporation with the knowledge and acquiescence of its board of directors. In the present case, Motorich is not a close corporation, as previously discussed, and the agreement was entered into by the corporate treasurer without the knowledge of the board of directors.
37 34 27

The Court is not unaware that there are exceptional cases where "an action by a director, who singly is the controlling stockholder, may be 40 considered as a binding corporate act and a board action as nothing more than a mere formality." The present case, however, is not one of them. As stated by petitioner, Spouses Reynaldo and Nenita Gruenberg own "almost 99.866%" of Respondent Motorich. Since Nenita is not the sole controlling stockholder of Motorich, the aforementioned exception does not apply. 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. There being no indication that said spouses, who appear to have been married before the effectivity of the Family Code, have 42 agreed to a different property regime, their property relations would be governed by conjugal partnership of gains. As a consequence, Nenita Gruenberg could not have effected a sale of the subject lot because "[t]here is no co-ownership between the spouses in the properties of the conjugal partnership of gains. Hence, neither spouse can alienate in favor of another his or interest in the partnership or in any property belonging 43 to it; neither spouse can ask for a partition of the properties before the partnership has been legally dissolved." Assuming further, for the sake of argument, that the spouses' property regime is the absolute community of property, the sale would still be invalid. Under this regime, "alienation of community property must have the written consent of the other spouse or he authority of the court 44 without which the disposition or encumbrance is void." Both requirements are manifestly absent in the instant case. Third Issue: Challenged Portion of TSN Immaterial Petitioner calls our attention to the following excerpt of the transcript of stenographic notes (TSN): Q Did you ever represent to Mr. Co that you were authorized by the corporation to sell the property? A Yes, sir.
45 41

Petitioner claims that the answer "Yes" was crossed out, and, in its place was written a "No" with an initial scribbled above it. This, however, is insufficient to prove that Nenita Gruenberg was authorized to represent Respondent Motorich in the sale of its immovable property. Said excerpt be understood in the context of her whole testimony. During her cross-examination. Respondent Gruenberg testified: Q So, you signed in your capacity as the treasurer? [A] Yes, sir. Q Even then you kn[e]w all along that you [were] not authorized? A Yes, sir. Q You stated on direct examination that you did not represent that you were authorized to sell the property? A Yes, sir. Q But you also did not say that you were not authorized to sell the property, you did not tell that to Mr. Co, is that correct? A That was not asked of me. Q Yes, just answer it. A I just told them that I was the treasurer of the corporation and it [was] also the president who [was] also authorized to sign on behalf of the corporation. Q You did not say that you were not authorized nor did you say that you were authorized? A Mr. Co was very interested to purchase the property and he offered to put up a P100,000.00 earnest money at that time. That was our first meeting. 47 Clearly then, Nenita Gruenberg did not testify that Motorich had authorized her to sell its property. On the other hand, her testimony demonstrates that the president of Petitioner Corporation, in his great desire to buy the property, threw caution to the wind by offering and paying the earnest money without first verifying Gruenberg's authority to sell the lot.

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Fourth Issue: Damages and Attorney's Fees Finally, petitioner prays for damages and attorney's fees, alleging that "[i]n an utter display of malice and bad faith, respondents attempted and succeeded in impressing on the trial court and [the] Court of Appeals that Gruenberg did not represent herself as authorized by Respondent Motorich despite the receipt issued by the former specifically indicating that she was signing on behalf of Motorich Sales Corporation. Respondent Motorich likewise acted in bad faith when it claimed it did not authorize Respondent Gruenberg and that the contract [was] not binding, [insofar] 48 as it [was] concerned, despite receipt and enjoyment of the proceeds of Gruenberg's act." Assuming that Respondent Motorich was not a party to the alleged fraud, petitioner maintains that Respondent Gruenberg should be held liable because she "acted fraudulently and in bad faith [in] 49 representing herself as duly authorized by [R]espondent [C]orporation." As already stated, we sustain the findings of both the trial and the appellate courts that the foregoing allegations lack factual bases. Hence, an award of damages or attorney's fees cannot be justified. The amount paid as "earnest money" was not proven to have redounded to the benefit of Respondent Motorich. Petitioner claims that said amount was deposited to the account of Respondent Motorich, because "it was deposited with 50 the account of Aren Commercial c/o Motorich Sales Corporation." Respondent Gruenberg, however, disputes the allegations of petitioner. She testified as follows: Q You voluntarily accepted the P100,000.00, as a matter of fact, that was encashed, the check was encashed. A Yes. sir, the check was paid in my name and I deposit[ed] it. Q In your account? A Yes, sir.
51

In any event, Gruenberg offered to return the amount to petitioner ". . . since the sale did not push through."

52

Moreover, we note that Andres Co is not a neophyte in the world of corporate business. He has been the president of Petitioner Corporation for 53 more than ten years and has also served as chief executive of two other corporate entities. Co cannot feign ignorance of the scope of the authority of a corporate treasurer such as Gruenberg. Neither can he be oblivious to his duty to ascertain the scope of Gruenberg's authorization to enter into a contract to sell a parcel of land belonging to Motorich. Indeed, petitioner's claim of fraud and bad faith is unsubstantiated and fails to persuade the Court. Indubitably, petitioner appears to be the victim of its own officer's negligence in entering into a contract with and paying an unauthorized officer of another corporation. As correctly ruled by the Court of Appeals, however, Nenita Gruenberg should be ordered to return to petitioner the amount she received as 54 55 earnest money, as "no one shall enrich himself at the expense of another." a principle embodied in Article 2154 of Civil Code. Although there was no binding relation between them, petitioner paid Gruenberg on the mistaken belief that she had the authority to sell the property of 56 Motorich. Article 2155 of Civil Code provides that "[p]ayment by reason of a mistake in the contruction or application of a difficult question of law may come within the scope of the preceding article." WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED. SO ORDERED.

G.R. No. 157851

June 29, 2007

ATTY. ANDREA UY and FELIX YUSAY, Petitioners, vs. ARLENE VILLANUEVA and NATIONAL LABOR RELATIONS COMMISSION, Respondents. DECISION NACHURA, J.: This appeal on certiorari under Rule 45 of the Rules of Court seeks the nullification of the February 28, 2002 Resolution and the February 27, 2003 Resolution denying the motion for reconsideration thereof of the Former Tenth Division of the Court of Appeals (CA) in CA-G.R. SP No. 68680. The antecedents of the case are as follows: Countrywide Rural Bank of La Carlota, Inc. (Countrywide Bank) is a private banking corporation engaged in rural banking and other allied services through its branches nationwide. Sometime in 1998, Countrywide Bank experienced liquidity problems and its treasury department was unable to comply with its b ranches 1 demands for fresh funds. Its various branches eventually experienced bank runs. Several of the banks depositors were alarmed at the prospect of losing their deposits and investments. A group of depositors , holding about 70% of the banks deposit accounts, met and agreed to organize themselves into a "Committee of Depositors." Petitio ner Felix Yusay was elected by the Committee as Chairman of the Interim Board of Directors, while petitioner Atty. Andrea Uy was designated Secretary. According to petitioners, the 2 Committee was formed for the purpose of protecting their collective interests and to increase their chances of recovering their deposits. With the consent and approval of the incumbent Board of Directors, the Committee of Depositors assumed temporary administrative control of the 3 remaining operations of the bank. The incumbent Board of Directors informed the Committee that some employees had tendered courtesy resignations, while some had expressed their willingness to resign upon official request. The Committee then accepted some of the courtesy 4 resignations. The Bangko Sentral ng Pilipinas (BSP) subsequently placed the bank under receivership and appointed a liquidator. Meanwhile, the Philippine 5 Deposit Insurance System (PDIC) commenced the processing of claims for return of deposits. Realizing that their bid to rehabilitate the bank had failed, the Committee of Depositors disbanded.
6

Eventually, three cases for illegal dismissal were filed against Countrywide Bank before the National Labor Relations Commission (NLRC). These were filed by Amalia Bueno (NLRC Case No. RAB-XI-01-50037-99), Amelia Valdez and Lyn Villa (NLRC Case No. RAB-XI-01-20039-99), and herein 7 private respondent Arlene Villanueva (NLRC Case No. RAB-XI-01-50043-99). Private respondent Villanueva avers that she was a regular employee of Countrywide Banks Marbel, South Cotabato branch. On December 7, 1998, she received a memorandum from the Interim Board of Directors accepting her courtesy resignation. She, however, denies that she 8 submitted a written courtesy resignation. On November 16, 1999, Labor Arbiter Arturo P. Gamolo of NLRC Sub-Regional Arbitration Branch No. XI, General Santos City rendered a Decision in RAB-XI-01-50043-99, the dispositive portion of which reads: WHEREFORE, premises considered, respondent Country Wide Rural Bank of La Carlota, Inc. and Individual Respondents Atty. Andrea Uy and Felix Yusay are solidarily liable to pay complainant Arlene Villanueva the sum PESOS: ONE HUNDRED THIRTEEN THOUSAND 9 SIX HUNDRED FORTY (P113,640.00) ONLY representing her monetary awards and attorneys fees. On January 21, 2000, Villanueva filed a Motion for Execution of Judgment to which Countrywide Bank, through the PDIC, filed an Opposition.
10 11

Thereafter, Labor Arbiter Gamolo rendered a Resolution and Order for all three cases against Countrywide Bank, the dispositive portion of which reads: Wherefore, finding the PDICs opposition to complainants motion for execution meritorious, complainants are hereby directed to file their respective money claims as adjudged in the decisions rendered in the above-entitled cases before the liquidation court for the latters approval of inclusion in the Banks Distribution Plan.

SO ORDERED.

12

Petitioners then filed a Notice of Appeal with Memorandum of Appeal with the NLRC, 5th Division, Cagayan de Oro City. On November 27, 2000, 14 15 the NLRC dismissed the appeal for being filed out of time. Petitioners filed a motion for reconsideration. The NLRC then recalled its November 16 27, 2000 Resolution and set the case for clarificatory hearing. Petitioners, however, received the Resolution five days after the scheduled clarificatory hearing. They instead filed their memorandum in lieu of the clarificatory hearing. On October 10, 2001, the NLRC rendered another Resolution reinstating its November 27, 2000 Resolution.
17

13

Petitioners filed a petition for certiorari before the CA to nullify the NLRCs November 27, 2000 and October 10, 2001 Resolutions. On February 28, 2002, the Tenth Division of the CA dismissed the petition for certiorari on technical grounds. In particular, the CA cited the following grounds for dismissal: 1. Failure to attach necessary pleadings and comments which are material portion of the records in able [sic] for this to [sic] judiciously evaluate the merit of the case such as: a.) memorandum of appeal filed by the petitioner on May 18, 2000; b.) Motion for Reconsideration of the petitioners dated December 21, 2000; in violation of Section 3, Rule 46 of the 1997 Rules of Civil Procedure as amended; 2. Failure to attach certified photocopy copies [sic] of the assailed resolutions and decisions of the original documents in violation of the same rules; and 3. Failure to send copy of the resolution to the public respondent.
19 18

Petitioners filed a Motion for Reconsideration arguing that the failure to attach the abovementioned documents was merely a procedural lapse on their part. They, likewise, attached the documents to the motion. Their motion for reconsideration having been denied, petitioners filed the present appeal on certiorari. They argue that the CAs dismissal of their petition for certiorari on technical grounds deprived them of substantial justice. They assail the CAs Resolution dismissing their petition on technical grounds. They cite previous decisions of this Court where it held that technicalities can be relaxed 21 in order to uphold the substantive rights of the parties. They likewise allege that the Labor Arbiter ruled in favor of respondent Villanueva based only on the pleadings filed by the latter. They allege that they were not properly served summons and notices which led to their failure to file their position paper. They also argue that they cannot be held solidarily liable to private respondent because they were mere depositors of the bank and not stockholders. Even assuming that they were stockholders, they still cannot be held individually liable for the banks obligations. On the other hand, private respondent argues that the appeal on certiorari merely reiterated arguments and issues on questions of facts that have 22 already been passed upon by competent authority. Having none of the circumstances that will warrant exemption from the requirement that a petition for review on certiorari under Rule 45 shall only raise questions of law, the petition must be dismissed. Likewise, private respondent argues that the petition has no other purpose than to delay the final execution of the decision. While this case was pending, petitioners filed a Manifestation on February 20, 2007, informing this Court that the case entitled Atty. Andrea Uy 24 and Felix Yusay v. Amalia Bueno, docketed as G.R. No. 159119 and involving the same factual antecedents as the present case, was decided by this Courts Second Division on March 14, 2006 in this wise: IN VIEW WHEREOF, the petition is GRANTED. The Court of Appeals Decision dated January 24, 2003 and Resolution dated May 26, 2003 in CA-G.R. 25 SP No. 70672, which found petitioner Atty. Andrea Uy solidarily liable with Countrywide Rural Bank of [La] Carlota, Inc. in Marbel, Koronadal City, South Cotabato, are REVERSED. No costs. SO ORDERED.
26 23 20

In the Bueno case, the Court found that, per the records of the case, petitioner Uy was a "mere depositor," one of several depositors who formed 28 themselves into a group or association indicating their intention to help rehabilitate Countrywide Rural Bank. It also found no evidence that the Committee of Depositors that elected petitioner Uy as Interim President and Corporate Secretary was recognized by the Bangko Sentral ng 29 Pilipinas, hence, had no legal authority to act for the bank. As such, the Court said: Lacking this evidence, the act of petitioner Uy in dismissing the respondent cannot be deemed an act as an officer of the bank. Consequently, it cannot be held that there existed an employer-employee relationship between petitioner Uy and respondent Bueno when the former allegedly dismissed the latter. This requirement of employer-employee relationship is jurisdictional for the provisions of the Labor Code, specifically Book VI thereof, on Post-Employment, to apply. Since the employer-employee relationship between petitioner Uy and respondent Bueno was not established, the labor arbiter never acquired jurisdiction over petitioner Uy. Consequently, whether petitioner Uy was properly served summons is immaterial. Likewise, that she terminated the services of respondent Bueno in bad faith and with malice is of no moment. Her liability, if any, 30 should be determined in another forum. The Court noted the manifestation in a Resolution dated April 23, 2007. We find the present petition meritorious. At the outset, we note that Countrywide Bank did not appeal the NLRCs rulings. As to the bank, there fore, the NLRC Decision has become final and executory. Rule 45 of the Rules of Civil Procedure provides that only questions of law shall be raised in an appeal by certiorari before this Court. This rule, however, admits of certain exceptions, namely, (1) when the findings are grounded entirely on speculations, surmises, or conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is a grave abuse of discretion; (4) when the judgment is based on misappreciation of facts; (5) when the findings of fact are conflicting; (6) when in making its findings, the same are contrary to the admissions of both appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners main a nd reply briefs are not disputed by the respondent; and (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the 32 evidence on record. In this case, the CA committed grave abuse of discretion in dismissing the petition without first examining its merits. The policy of our judicial system is to encourage full adjudication of the merits of an appeal. In the exercise of its equity jurisdiction, this Court may reverse the dismissal of 33 appeals that are grounded merely on technicalities. In the past, the Court has held that technicalities should not be permitted to stand in the way of equitably and completely resolving the rights and obligations of the parties. Where the ends of substantial justice would be better served, the application of technical rules of procedure may be 34 35 relaxed. Rules of procedure should indeed be viewed as mere tools designed to facilitate the attainment of justice. Section 1, Rule 65 of the Rules of Court provides: SECTION 1. Petition for certiorari. When any tribunal, board or officer exercising judicial or quasi-judicial functions has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal, or any plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that judgment be rendered annulling or modifying the proceedings of such tribunal, board or officer, and granting such incidental reliefs as law and justice may require. The petition shall be accompanied by a certified true copy of the judgment, order or resolution subject thereof, copies of all pleadings and documents relevant and pertinent thereto, and a sworn certification of non-forum shopping as provided in the third paragraph of Section 3, Rule 46. (emphasis supplied) Records show that in the petition for certiorari, filed before the CA, the petitioners attached photocopies of the assailed October 10, 2001 NLRC 36 37 38 Resolution, the NLRC Resolution dated November 27, 2000, the Labor Arbiters Decision dated November 16, 1999, and the Labor Arbiters 39 Resolution and Order dated April 17, 2000. Subsequently, when the CA dismissed the petition on technical grounds, petitioners filed a motion for reconsideration explaining the reason for the omission and attaching, in addition to the abovementioned documents, the other documents referred to in the CA Resolution. The Courts ruling in the case of Garcia v. Philippine Airlines is most instructive, to wit: It is evident, therefore, that aside from the assailed decision, order or resolution, not every pleading or document mentioned in the petition is required to be submitted only those that are pertinent and relevant to the judgment, order or resolution subject of the petition. The initial determination of what pleadings, documents or orders are relevant and pertinent to the petition rests on the petitioner. If, upon its initial review of the petition, the CA is of the view that additional pleadings, documents or order should have been submitted and appended to the petition, the
40 31

27

following are its options: (a) dismiss the petition under the last paragraph of Rule 46 of the Rules of Court; (b) order the petitioner to submit the required additional pleadings, documents, or order within a specific period of time; or (c) order the petitioner to file an amended petition appending thereto the required pleadings, documents or order within a fixed period. If the CA opts to dismiss the petition outright and the petitioner files a motion for the reconsideration of such dismissal, appending thereto the requisite pleadings, documents or order/resolution with an explanation for the failure to append the required documents to the original petition, this would constitute substantial compliance with the Rules of Court. In such case, then, the petition should be reinstated. As this Court emphasized in Cusi-Hernandez v. Diaz: xxxx We must stress that "cases should be determined on the merits after full opportunity to all parties for ventilation of their causes and defenses, rather than on technicality or some procedural imperfections. In that way, the ends of justice would be served better." Moreover, the Court has held: "Dismissal of appeals purely on technical grounds is frowned upon and the rules of procedure ought not to be applied in a very rigid, technical sense, for they are adopted to help secure, not override, substantial justice, and thereby defeat their very aims." Rules of procedure are mere tools designed to expedite the decision or resolution of cases and other matters pending in court. A strict and rigid application of rules that would result in technicalities that tend to frustrate rather than promote substantial justice must be avoided. (citations omitted) In putting a premium on technical rules over the just resolution of the case, therefore, the CA overlooked the right of petitioners to the full adjudication of their petition on its merits. Indeed, while labor laws mandate the speedy administration of justice with least attention to 41 technicalities, this must be done without sacrificing the fundamental requisites of due process. We now proceed to rule on the merits of the case. In order to sustain a finding of illegal dismissal, we must first determine the relationship between the petitioners and private respondent. Illegal dismissal presupposes that there was an employer-employee relationship between the dismissed employee and the persons complained of. To determine whether there was an employer-employee relationship between petitioners and private respondent, the Court has consistently used the "four-fold" test. The test calls for the determination of (1) whether the alleged employer has the power of selection and engagement of an employee; (2) whether he has control of the employee with respect to the means and methods by which work is to be accomplished; (3) whether 42 he has the power to dismiss; and (4) whether the employee was paid wages. Of the four, the control test is the most important element. In the instant case, all these elements are attributable to the bank itself and not to petitioners. There is no question that private respondent was an employee of the bank. As mentioned above, the NLRC Decision has become final and executory as to the bank. Its liability for private respondents dismissal is no longer in dispute. The same cannot be said of petitioners. Petitioners assumed only limited administrative control of the bank as part of the "Committee of Depositors." However, there is no showing that they took over the management and control of the bank. Given that there is in fact no employer-employee relationship between petitioners and private respondents, the Labor Arbiter, and consequently, the NLRC, is without jurisdiction to adjudicate the dispute between them. The cases a Labor Arbiter can hear and decide are "employment43 related." Even assuming that an employer-employee relationship does exist between petitioners and private respondent, the former still cannot be held liable with Countrywide Bank for the illegal dismissal of private respondent. Corporate officers are not personally liable for the money claims of 44 discharged corporate employees, unless they acted with evident malice and bad faith in terminating their employment. First, we agree with petitioners that they are not corporate officers of the bank. It has been held that an "office" is created by the charter of the corporation and the officer is elected by the directors or stockholders. On the other hand, an "employee" usually occupies no office and generally is employed not by action of the directors or stockholders but by the managing 45 officer of the corporation who also determines the compensation to be paid to such employee. Given this distinction, petitioners are neither officers nor employees of the bank. They are mere depositors who sought to manage the bank in order to save it.

Next, settled is the rule in this jurisdiction that a corporation is vested by law with a legal personality separate and distinct from those acting for 46 and in its behalf and, in general, from the people comprising it. The general rule is that obligations incurred by the corporation, acting through its directors, officers, and employees, are its sole liabilities. However, solidary liability may be incurred, but only under the following exceptional circumstances: 1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote for or assent to patently unlawful acts of the corporation; (b) act in bad faith or with gross negligence in directing the corporate affairs; (c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons; 2. When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto; 3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the corporation; or 4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action. Not one of these circumstances is present in this case. Furthermore, the doctrine of piercing the veil of corporate fiction finds no application in the case. Piercing the veil of corporate fiction may only be 48 done when "the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime." The general rule is that a corporation will be looked upon as a separate legal entity, unless and until sufficient reason to the contrary appears. For the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established. It cannot be 49 presumed. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not in itself 50 sufficient ground for disregarding the separate corporate personality. In the case at bar, petitioners are not even stockholders of the bank but mere depositors. That they assumed temporary control of the banks administration did not change the character of their relationship with the bank. In fact, their bid to convert their interest in the bank to that of stockholders failed as the BSP denied their plan to rehabilitate the bank. Finally, we have noted petitioners Manifestation dated January 31, 2007 and this Courts decision in Atty. Andrea Uy and Felix Yusay v. Amalia 52 Bueno. In previous cases, the Court has held, "When a court has laid down a principle of law as applicable to a certain set of facts, it will adhere to that principle and apply it to all future cases in which the facts are substantially the same. Stare decisis et non quieta movere. Stand by the decision and disturb not what is settled. It simply means that a conclusion reached in one case should be applied to those that follow if the facts are substantially the same, even though the parties may be different. It comes from the basic principle of justice that like cases ought to be decided alike. Thus, where the same question relating to the same event is brought by parties similarly situated as in a previous case already litigated and 53 decided by a competent court, the rule of stare decisis is a bar to any attempt to relitigate the same issue." Petitioners liability, if there be any, must be determined in the proper action and at the proper forum. WHEREFORE, premises considered, the petition is GRANTED. The February 28, 2002 Resolution in CA-G.R. SP No. 68680 of the Court of Appeals is REVERSED and SET ASIDE. The Decision of the Labor Arbiter in RAB-XI-01-50037-99, finding petitioners solidarily liable with Countrywide Rural Bank of La Carlota is, likewise, REVERSED and SET ASIDE. No pronouncement as to costs. SO ORDERED.
51 47

G.R. No. 173115

April 16, 2009

ATTY. VIRGILIO R. GARCIA, Petitioner, vs. EASTERN TELECOMMUNICATIONS PHILIPPINES, INC. and ATTY. SALVADOR C. HIZON, Respondents. x - - - - - - - - - - - - - - - - - - - - - - -x G.R. Nos. 173163-64 April 16, 2009

EASTERN TELECOMMUNICATIONS PHILIPPINES, INC. and ATTY. SALVADOR C. HIZON, Petitioners, vs. ATTY. VIRGILIO R. GARCIA, Respondent. DECISION CHICO-NAZARIO, J.: Assailed before Us via consolidated petitions for certiorari under Rule 45 of the Rules of Court is the Decision of the Court of Appeals in CA-G.R. SP 2 No. 88887 and No. 89066 dated 24 March 2006, which dismissed the petitions for certiorari questioning the Decision of the National Labor Relations Commission (NLRC) dated 21 March 2003, docketed as NLRC NCR CA No. 028901-01. The NLRC reversed the decision of the Labor Arbiter dated 30 September 2002, finding the preventive suspension and dismissal of Atty. Virgilio R. Garcia illegal, and dismissed the case for lack of jurisdiction. The facts are not disputed. Atty. Virgilio R. Garcia was the Vice President and Head of Business Support Services and Human Resource Departments of the Eastern Telecommunications Philippines, Inc. (ETPI). ETPI is a corporation duly organized and existing under the laws of the Republic of the Philippines. Atty. Salvador C. Hizon is the President/Chief Executive Officer of ETPI. On 16 January 2000, Atty. Garcia was placed under preventive suspension based on three complaints for sexual harassment filed by Atty. Maria Larrie Alinsunurin, former manager of ETPIs Office of the Legal Counsel; Ms. Emma Valeros -Cruz, Assistant Vice President of ETPI and former secretary of Atty. Garcia; and Dr. Mercedita M. Macalintal, medical retainer/company physician of ETPI. In response to the complaints, the Human Resources Department constituted a Committee on Decorum to investigate the complaints. By reason of said complaints, Atty. Garcia was placed in preventive suspension. The committee conducted an investigation where Atty. Garcia was given copies of affidavits of the witnesses against him 3 and a chance to defend himself and to submit affidavits of his witnesses. The Committee submitted a report which recommended his dismissal. In a letter dated 14 April 2000, Atty. Hizon advised Atty. Garcia that his employment with ETPI was, per recommendation of the Committee, terminated effective 16 April 2000. A complaint-affidavit for illegal dismissal with prayer for full backwages and recovery of moral and exemplary damages was filed on 11 July 2000 5 by Atty. Virgilio R. Garcia against ETPI and Atty. Salvador C. Hizon. The case, docketed as NLRC NCR-30-07-02787-00, was assigned to Labor Arbiter 6 7 8 Patricio P. Libo-on. The parties submitted their respective position papers, reply position papers and rejoinders. Per agreement of the parties, 9 ETPI and Atty. Hizon filed a sur-rejoinder on 6 March 2001. Atty. Garcia manifested that he was no longer submitting a sur-rejoinder and was submitting the case for resolution. On 15 April 2001, Atty. Garcia filed a Motion to Inhibit, praying that Labor Arbiter Libo-on inhibit himself from further proceeding with the case, on 10 11 the ground that he was a fraternity brother of Atty. Hizon. Atty. Garcia thereafter filed a second Motion to Inhibit on 10 May 2001. ETPI and 12 Atty. Hizon opposed said motion, arguing that the reason on which it was grounded was not one of those provided by law. In an Order dated 13 13 14 June 2001, said motions were denied. Atty. Garcia appealed said order before the NLRC via a Memorandum on Appeal dated 4 July 2001, to 15 which ETPI and Atty. Hizon filed an Answer. The NLRC, in its decision dated 20 December 2001, set aside the order of Labor Arbiter Libo-on and ordered the re-raffling of the case. ETPI and 17 18 Atty. Hizon moved for the reconsideration of the decision, but the same was denied. Consequently, the case was re-raffled to Labor Arbiter 19 Ramon Valentin C. Reyes. The parties were directed to submit their respective memoranda. Atty. Garcia filed his memorandum on 9 July 2002 while ETPI and Atty. Hizon 22 submitted their memorandum on 22 July 2002. On 16 August 2002, with leave of court, ETPI and Atty. Hizon filed a Reply Memorandum, raising for the first time the issue of lack of jurisdiction.
20 21 16 4 1

In his decision dated 30 September 2002, Labor Arbiter Reyes found the preventive suspension and subsequent dismissal of Atty. Garcia illegal. The dispositive portion of the decision reads: WHEREFORE, premises all considered, judgment is hereby rendered, finding the preventive suspension and the dismissal illegal and ordering the respondents to: 1. Reinstate complainant to his former position without loss of seniority rights and other benefits appurtenant to the position that complainant received prior to the illegal dismissal; 2. Pay complainant his backwages which for purpose of appeal is computed to the amount of P4,200,000.00 (P150,000 x 28); 3. Pay complainant Moral damages in the amount of P1,000,000.00 and Exemplary damages in the amount of P500,000.00.
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On 14 November 2002, Atty. Garcia filed an Ex-Parte Motion for the Issuance of a Writ of Execution. On 20 November 2002, Labor Arbiter Reyes 25 issued a Writ of Execution insofar as the reinstatement aspect of the decision was concerned. ETPI and Atty. Hizon filed a Very Urgent Motion to 26 Lift/Quash Writ of Execution on 28 November 2002. Per Sheriffs Return on the Writ of Execution, said writ remained unsatisfied because ETPI 27 and Atty. Hizon refused to reinstate Atty. Garcia to his former position. On 29 November 2002, Atty. Garcia filed an Ex-Parte Motion for the Issuance of an Alias Writ of Execution praying that said writ be issued ordering the sheriff to enforce the decision by garnishing the amount of P450,000.00 representing his monthly salaries for two months and 13th month pay 28 from any of ETPIs bank accounts. Atty. Garcia manifested that he was no longer filing any responsive pleading to the Very Urgent Motion to 29 Lift/Quash Writ of Execution because the Labor Arbiter lost jurisdiction over the case when an appeal had been perfected. In an Order dated 10 December 2002, Labor Arbiter Reyes denied the Very Urgent Motion to Lift/Quash Writ of Execution, explaining that it still had jurisdiction over the reinstatement aspect of the decision, notwithstanding the appeal taken, and that the grounds relied upon for the lifting or quashing of the writ 30 were not valid grounds. Labor Arbiter Reyes subsequently issued a 1st Alias Writ of Execution dated 11 December 2002 ordering the sheriff to 31 proceed to the premises of ETPI to reinstate Atty. Garcia and/or garnish the amounts prayed for. Per Sheriffs Return dated 17 January 2003, the 32 1st Alias Writ of Execution was satisfied with the amount of P450,000.00 being released for proper disposition to Atty. Garcia. ETPI and Atty. Hizon appealed the decision to the NLRC, filing a Notice of Appeal and Memorandum of Appeal, which appeal was opposed by 34 Atty. Garcia. The appeal was docketed as NLRC NCR CA Case No. 028901-01. ETPI and Atty. Hizon filed a Supplemental Appeal Memorandum 35 dated 23 January 2003 (With Very Urgent Motion for Issuance of Temporary Restraining Order). In a Manifestation ad Cautelam dated 28 January 2003, without waiving their right to continue to question the jurisdiction of the Labor Arbiter, they informed the Labor Arbiter that they had filed a Supplemental Appeal Memorandum before the NLRC and asked that all processes relating to the implementation of the reinstatement order be 36 held in abeyance so as not to render moot the reliefs prayed for in said Supplemental Appeal Memorandum. They likewise filed on 31 January 2003 a Very Urgent Motion to Lift/Quash Order of Garnishment ad Cautelam, praying that the notice of garnishment on ETPIs bank account with Metrobank, Dela Costa Branch, or with other banks with which ETPI maintained an account and which received said notice of garnishment be 37 38 immediately lifted/quashed. On 12 February 2003, Atty. Garcia filed his Opposition to said Supplemental Appeal Memorandum. On 3 February 2003, Atty. Garcia filed an Ex-Parte Motion for the Issuance of a 2nd Alias Writ of Execution. In an Order dated 5 February 2003, 40 Labor Arbiter Reyes lifted the notice of garnishment on ETPIs bank account with Metrobank, Dela Costa Branch. On 10 February 2003, Labor 41 Arbiter Reyes issued a 2nd Writ of Execution. In a Manifestation ad Cautelam dated 10 February 2003, ETPI and Atty. Hizon said that they filed with the NLRC on 7 February 2003 an Urgent 43 Petition (for Preliminary Injunction With Issuance of Temporary Restraining Order) which prayed, inter alia, for the issuance of a temporary restraining order to restrain the execution pending appeal of the order of reinstatement and to enjoin the Labor Arbiter from issuing writs of execution or other processes implementing the decision dated 30 September 2002. They added that they also filed on 7 February 2003 a Notice to 44 Withdraw their Supplemental Appeal Memorandum dated 23 January 2003. ETPI and Atty. Hizon, without waiving their right to continue to question the jurisdiction of the Labor Arbiter over the case, filed on 18 February 2003 a Motion to Inhibit, seeking the inhibition of Labor Arbiter Reyes for allegedly evident partiality in favor of the complainant in issuing writs of execution in connection with the order of reinstatement contained in his decision dated 30 September 2002, despite the pendency of an Urgent Petition (for Preliminary Injunction With Prayer for the Issuance of Temporary Restraining Order) with the NLRC, which sought the restraining of 45 the execution pending appeal of the order of reinstatement. The petition for injunction was docketed as NLRC NCR IC No. 0001193-02. Atty. 46 47 48 Garcia filed an opposition, to which ETPI and Atty. Hizon filed a reply. Said motion to inhibit was subsequently granted by Labor Arbiter Reyes. 49 The case was re-raffled to Labor Arbiter Elias H. Salinas. In an Order dated 26 February 2003, the NLRC, in NLRC NCR IC No. 0001193-02, issued a temporary restraining order (TRO) enjoining Labor Arbiter Reyes from executing pending appeal the order of reinstatement contained in his decision dated 30 September 2002, and from issuing similar writs of execution pending resolution of the petition for preliminary injunction. It directed ETPI and Atty. Hizon to post a bond in the amount of 50 P30,000.00 to answer for any damage which Atty. Garcia may suffer by reason of the issuance of the TRO.
42 39 33

On 21 March 2003, the NLRC rendered its decision in NLRC NCR CA Case No. 028901-01 reversing the decision of Labor Arbiter Reyes and dismissing the case for lack of jurisdiction. The decretal portion of the decision reads: WHEREFORE, the decision appealed from is REVERSED, and the instant case DISMISSED for lack of jurisdiction.
51

The Commission ruled that the dismissal of Atty. Garcia, being ETPIs Vice President, partook of the nature of an intra -corporate dispute cognizable by Regional Trial Courts and not by Labor Arbiters. It added that ETPI and Atty. Hizon were not barred by estoppel from challenging the jurisdiction of the Labor Arbiter over the instant case. Atty. Garcia moved for the reconsideration of the decision, which ETPI and Atty. Hizon opposed. 54 motion for reconsideration was denied for lack of merit.
52 53

In a resolution dated 16 December 2003, the

On 26 March 2003, Atty. Garcia filed a Motion to Inhibit, requesting Associate Commissioner Angelita A. Gacutan to inhibit herself from further participating in the deliberation and resolution of the case for manifest bias and partiality in favor of ETPI and Atty. Hizon. The motion was later 55 withdrawn. On 3 April 2003, the NLRC made permanent the TRO it issued pursuant to its ruling in NLRC NCR CA Case No. 028901-01, that since the Labor 56 Arbiter had no jurisdiction over the case, the decision of the Labor Arbiter dated 30 September 2002 was void. On 6 March 2004, the resolution dated 16 December 2003 became final and executory. Consequently, on 14 June 2004, an entry of judgment was 57 made recording said resolution in the Book of Entries of Judgments. On 18 June 2004, ETPI and Atty. Hizon filed a Motion to Discharge and/or Release the Appeal Bond in the amount of P5,700,000.00 that they had 59 posted. On 9 July 2004, Atty. Garcia filed a Motion to Set Aside Finality of Judgment With Opposition to Motion to Discharge Appeal Bond, claiming that he did not receive the resolution dated 16 December 2003 of the NLRC, the same having been sent to his former address at 9 Isidora St., Don Antonio Heights, Diliman, Quezon City, and not to his new address at 4 Pele St., Filinvest 2, Batasan Hills, Quezon City, where he had been receiving all pleadings, Resolutions, Orders and Decisions pertaining to the instant case since April 2001. On 19 July 2004, ETPI and Atty. Hizon filed their opposition thereto. On 23 August 2004, the NLRC, admitting that it missent the resolution dated 16 December 2003 denying At ty. Garcias motion for reconsideration, issued an order granting the motion. It recalled and set aside the Entry of Judgment dated 14 June 2004 and denied the 61 Motion to Discharge and/or Release the Appeal Bond. In its Motion for Reconsideration dated 17 September 2004, ETPI and Atty. Hizon argued that the NLRC correctly sent the resolution of 16 December 2003 to counsels allegedly old address, considering that same was counsels address of record, there being no formal notice filed with the NLRC informing it of a change of address. They contended that the aforesaid resolution had become final and executory, and that Atty. Garcia 62 should bear the consequences of his inequitable conduct and/or gross negligence. On 10 January 2005, the NLRC denied the motion for 63 reconsideration. On 14 March 2005, Atty. Garcia appealed to the Court of Appeals via a Petition for Certiorari. It prayed that the Decision dated 21 March 2003 and resolution dated 16 December 2003 of the NLRC be annulled and set aside, and that the decision of the Labor Arbiter dated 30 September 2002 be 64 reinstated. The appeal was docketed as CA-G.R. SP No. 88887. On 28 March 2005, ETPI and Atty. Hizon likewise filed a Petition for Certiorari asking that the Orders dated 23 August 2004 and 10 January 2005 of the NLRC be set aside; that its resolution dated 16 December 2003 be declared final and executory; and that the NLRC be directed to discharge 65 and/or release Supersedeas Bond No. JCL (15) 00823 SICI Bond No. 75069 dated 18 November 2002 posted by them. The appeal was docketed as CA-G.R. SP No. 89066. Upon motion of Atty. Garcia, the two petitions for certiorari were consolidated.
66 60 58

On 24 March 2006, the assailed decision of the Court of Appeals was rendered, the dispositive portion reading: UPON THE VIEW WE TAKE OF THIS CASE, THUS, the consolidated petitions are hereby DISMISSED for lack of merit. Without costs in both 67 instances. The appellate court, on ETPI and Atty. Hizons argument that Atty. Garcias petition for certiorari was filed out of time, ru led that the NLRC did not commit grave abuse of discretion in liberally applying the rules regarding changes in the address of counsel. It likewise ruled that Atty. Garcia, being the Vice President for Business Support Services and Human Resource Departments of ETPI, was a corporate officer at the time he was removed. Being a corporate officer, his removal was a corporate act and/or an intra-corporate controversy, the jurisdiction of which rested with the Securities and Exchange Commission (now with the Regional Trial Court), and not the Labor Arbiter and the NLRC. It added that ETPI and Atty.

Hizon were not estopped from questioning the jurisdiction of the Labor Arbiter before the NLRC on appeal, inasmuch as said issue was seasonably raised by ETPI and Atty. Hizon in their reply memorandum before the Labor Arbiter. On 18 April 2006, Atty. Garcia filed his Motion for Reconsideration. On 20 April 2006, ETPI and Atty. Hizon filed a Motion for Partial 69 70 Reconsideration. The parties filed their respective comments thereon. On 14 June 2006, the Court of Appeals denied the motions for 71 reconsideration. Atty. Garcia is now before us via a Petition for Review, which he filed on 3 August 2006. The petition was docketed as G.R. No. 173115. On 8 73 August 2006, he filed an Amended Petition for Review. He prays that the decision of the NLRC dated 21 March 2003 and its resolution dated 16 December 2003, and the decision of the Court of Appeals dated 24 March 2006 and its resolution dated 14 June 2006, be reconsidered and set aside and that the decision of the Labor Arbiter dated 30 September 2002 be affirmed and reinstated. ETPI and Atty. Hizon are also before us by way of a Petition for Certiorari. The petition which was filed on 6 July 2006 was docketed as G.R. Nos. 173163-64. In our resolution dated 30 August 2006, G.R. Nos. 173163-64 were consolidated with G.R. No. 173115, and the parties were required to comment 75 76 on the petitions within ten days from notice. Atty. Garcia filed his comment on 13 November 2006, while ETPI and Atty. Hizon filed theirs on 29 77 November 2006. On 15 January 2007, we noted the comments filed by the parties and required them to file their Replies to said comments. ETPI and Atty. Hizon 80 filed their Reply on 26 February 2007, with Atty. Garcia filing his on 2 March 2007.
78 79 74 72 68

On 26 March 2007, we gave due course to the petitions and required the parties to submit the respective memoranda within 30 days from notice. 82 83 Atty. Garcia submitted his Memorandum on 12 June 2007 and ETPI and Atty. Hizon filed theirs on 13 July 2007. With leave of court, ETPI and 84 Atty. Hizon filed a reply memorandum. Atty. Garcia raises the lone issue: WHETHER THE QUESTION OF LEGALITY OR ILLEGALITY OF THE REMOVAL OR TERMINATION OF EMPLOYMENT OF AN OFFICER OF A CORPORATION 85 IS AN INTRA-CORPORATE CONTROVERSY THAT FALLS UNDER THE ORIGINAL EXCLUSIVE JURISDICTION OF THE REGIONAL TRIAL COURTS? ETPI and Atty. Hizon argue that the Court of Appeals, in ruling that the NLRC did not commit grave abuse of discretion amounting to lack or excess of jurisdiction in issuing its order dated 23 August 2004 and its resolution dated 10 January 2005, committed grave reversible error and decided questions of substance in a way not in accordance with law and applicable decisions of the Honorable Court, and departed from the accepted and usual course of judicial proceedings, necessitating the Honorable Courts exercise of its power of supervision. I THE RESOLUTION DATED 16 DECEMBER 2003 ISSUED BY THE NATIONAL LABOR RELATIONS COMMISSION (SECOND DIVISION) HAS ALREADY BECOME FINAL AND EXECUTORY AND HAS VESTED UPON PETITIONERS ETPI, ET AL. A RIGHT RECOGNIZED AND PROTECTED UNDER THE LAW CONSIDERING THAT:

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A. RESPONDENTS COPY OF SAID RESOLUTION WAS PROPERLY SENT TO HIS ADDRESS OF RECORD, AT THE LATEST ON 15 JANUARY 2004, IN ACCORDANCE WITH WELL ESTABLISHED JURISPRUDENCE. HENCE, RESPONDENT GARCIA HAD ONLY UNTIL 15 MARCH 2004 WITHIN WHICH TO FILE HIS PETITION FOR CERTIORARI WITH THE COURT OF APPEALS. RESPONDENT GARCIA FAILED TO FILE HIS PETITION FOR CERTIORARI BY SAID DATE. B. NOTWITHSTANDING THE FOREGOING, RESPONDENT GARCIA HAD ACTUAL NOTICE OF THE ISSUANCE OF THE SAME AS OF 24 JUNE 2004. HENCE RESPONDENT GARCIA HAD ONLY UNTIL 23 AUGUST 2004 WITHIN WHICH TO FILE HIS PETITION FOR CERTIORARI WITH THE COURT OF APPEALS. RESPONDENT GARCIA FAILED TO FILE HIS PETITION FOR CERTIORARI BY SAID DATE. C. EVEN IF THE DATE OF RECEIPT IS RECKONED FROM 15 SEPTEMBER 2005, THE DATE RESPONDENT GARCIA ADMITTED IN HIS PETITION FOR CERTIORARI TO BE THE DATE OF HIS RECEIPT OF THE COPY OF THE RESOLUTION DATED 16 DECEMBER 2003 AT HIS ALLEGED NEW ADDRESS, RESPONDENT GARCIA HAD ONLY UNTIL 15 NOVEMBER 2005 TO FILE HIS PETITION FOR CERTIORARI DATED 11 MARCH 2005. RESPONDENT GARCIA FAILED TO FILE HIS PETITION FOR CERTIORARI BY SAID DATE. II THE COURT OF APPEALS ERRED IN AFFIRMING THE NLRCS LIBERAL APPLICATION OF RULES CONSIDERIN G THAT A LIBERAL APPLICATION OF RULES CANNOT BE USED TO DEPRIVE A RIGHT THAT HAS ALREADY IPSO FACTO VESTED ON PETITIONERS ETPI, ET AL.

III THE COURT OF APPEALS ERRED IN RULING THAT THE NLRC DID NOT COMMIT GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ISSUING ITS ORDER DATED 23 AUGUST 2004 AND RESOLUTION DATED 10 JANUARY 2005 CONSIDERING THAT RESPONDENT GARCIA MAY NOT ASSAIL THE FINALITY OF RESOLUTION DATED 16 DECEMBER 2003 THROUGH A MERE MOTION. IV THE COURT OF APPEALS ERRED IN FAILING TO RULE ON PETITIONERS COUNTER-MOTION TO CITE RESPONDENT GARCIA IN CONTEMPT OF COURT DESPITE ITS PREVIOUS RESOLUTION DATED 30 MAY 2005 STATING THAT IT SHALL ADDRESS THE SAME IN THE DECISION ON THE MERITS OF THE 86 CASE. The issue raised by Atty. Garcia whether the termination or removal of an officer of a corporation is an intra-corporate controversy that falls under the original exclusive jurisdiction of the regional trial courts is not novel. The Supreme Court, in a long line of cases, has decreed that a corporate officers dismissal or removal is always a corporate act and/or an intra -corporate controversy, over which the Securities and Exchange 87 88 Commission [SEC] (now the Regional Trial Court) has original and exclusive jurisdiction. We have ruled that an intra-corporate controversy is one which pertains to any of the following relationships: (1) between the corporation, partnership or association and the public; (2) between the corporation, partnership or association and the State insofar as the formers fra nchise, permit or license to operate is concerned; (3) between the corporation, partnership or association and its stockholders, partners, members or 89 90 officers; and (4) among the stockholders, partners or associates themselves. In Lozon v. National Labor Relations Commission, we declared that Presidential Decree No. 902-A confers on the SEC original and exclusive jurisdiction to hear and decide controversies and cases involving intracorporate and partnership relations between or among the corporation, officers and stockholders and partners, including their elections or appointments x x x. Before a dismissal or removal could properly fall within the jurisdiction of the SEC, it has to be first established that the person removed or 91 92 dismissed was a corporate officer. "Corporate officers" in the context of Presidential Decree No. 902-A are those officers of the corporation who 93 are given that character by the Corporation Code or by the corporations by -laws. There are three specific officers whom a corporation must have 94 under Section 25 of the Corporation Code. These are the president, secretary and the treasurer. The number of officers is not limited to these three. A corporation may have such other officers as may be provided for by its by-laws like, but not limited to, the vice-president, cashier, auditor or general manager. The number of corporate officers is thus limited by law and by the corporations by-laws.1avvphi1 In the case before us, the by-laws of ETPI provide: ARTICLE Officers V

Section 1. Number. The officers of the Company shall be a Chairman of the Board, a President, one or more Vice-Presidents, a Treasurer, a Secretary, an Assistant Secretary, and such other officers as may be from time to time be elected or appointed by the Board of Directors. One 95 person may hold any two compatible offices. Atty. Garcia tries to deny he is an officer of ETPI. Not being a corporate officer, he argues that the Labor Arbiter has jurisdiction over the case. One of the corporate officers provided for in the by-laws of ETPI is the Vice-President. It can be gathered from Atty. Garcias complaint-affidavit that he was Vice President for Business Support Services and Human Resource Departments of ETPI when his employment was terminated effective 16 April 2000. It is therefore clear from the by-laws and from Atty. Garcia himself that he is a corporate officer. One who is included in the by-laws of a 96 corporation in its roster of corporate officers is an officer of said corporation and not a mere employee. Being a corporate officer, his removal is deemed to be an intra-corporate dispute cognizable by the SEC and not by the Labor Arbiter. We agree with both the NLRC and the Court of Appeals that Atty. Garcias ouster as Vice -President, who is a corporate officer of ETPI, partakes of the nature of an intra-corporate controversy, jurisdiction over which is vested in the SEC (now the RTC). The Labor Arbiter thus erred in assuming jurisdiction over the case filed by Atty. Garcia, because he had no jurisdiction over the subject matter of the controversy. Having ruled which body has jurisdiction over the instant case, we find it unnecessary, due to mootness, to further discuss and rule on the issues raised by ETPI and Atty. Hizon regarding the NLRC order dated 23 August 2004 granting Atty. Garcias Motion to Set Aside Fina lity of Judgment with Opposition to Motion to Discharge Appeal Bond, and its resolution dated 10 January 2005 denying their motion for reconsideration thereon. The decision of the Labor Arbiter, who had jurisdiction over the case, was properly dismissed by the NLRC. Consequently, Supersedeas Bond No. JCL (15) 00823 SICI Bond No. 75069 dated 18 November 2002, posted by ETPI as a requirement for the filing of an appeal before the NLRC, is ordered discharged. WHEREFORE, premises considered, the petition for certiorari of Atty. Garcia in G.R. No. 173115 is hereby DENIED. The petition for review on certiorari of ETPI and Atty. Hizon in G.R. Nos. 173163-64 is PARTIALLY GRANTED insofar as the discharge of Supersedeas Bond No. JCL (15) 00823

SICI Bond No. 75069 dated 18 November 2002 is concerned. This ruling is without prejudice to Atty. Ga rcias taking recourse to and seeking relief through the appropriate remedy in the proper forum. SO ORDERED.