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G.R. No. L-63558 May 19, 1987 SPOUSES JOSE ABEJO AND AURORA ABEJO, TELEC.

TRONIC SYSTEMS, INC., petitioners, vs. HON. RAFAEL DE LA CRUZ, JUDGE OF THE REGIONAL TRIAL COURT (NATIONAL CAPITAL JUDICIAL REGION, BRANCH CLX-PASIG), SPOUSES AGAPITO BRAGA AND VIRGINIA BRAGA, VIRGILIO BRAGA AND NORBERTO BRAGA, respondents. No. L-68450-51 May 19, 1987 POCKET BELL PHILIPPINES, INC., AGAPITO T. BRAGA, VIRGILIO T. BRAGA, NORBERTO BRAGA, and VIRGINIA BRAGA, petitioners, vs. THE HONORABLE SECURITIES AND EXCHANGE COMMISSION, TELECTRONIC SYSTEMS, INC., JOSE ABEJO, JOSE LUIS SANTIAGO, SIMEON A. MIRAVITE, SR., ANDRES T. VELARDE AND L. QUIDATO BANDOLINO, respondents. TEEHANKEE, C.J.: These two cases, jointly heard, are jointly herein decided. They involve the question of who, between the Regional Trial Court and the Securities and Exchange Commission (SEC), has original and exclusive jurisdiction over the dispute between the principal stockholders of the corporation Pocket Bell Philippines, Inc. (Pocket Bell), a "tone and voice paging corporation," namely, the spouses Jose Abejo and Aurora Abejo (hereinafter referred to as the Abejos) and the purchaser, Telectronic Systems, Inc. (hereinafter referred to as Telectronics) of their 133,000 minority shareholdings (for P5 million) and of 63,000 shares registered in the name of Virginia Braga and covered by five stock certificates endorsed in blank by her (for P1,674,450.00), and the spouses Agapito Braga and Virginia Braga (hereinafter referred to as the Bragas), erstwhile majority stockholders. With the said purchases, Telectronics would become the majority stockholder, holding 56% of the outstanding stock and voting power of the corporation Pocket Bell. With the said purchases in 1982, Telectronics requested the corporate secretary of the corporation, Norberto Braga, to register and transfer to its name, and those of its nominees the total 196,000 Pocket Bell shares in the corporation's transfer book, cancel the surrendered certificates of stock and issue the corresponding new certificates of stock in its name and those of its nominees. Norberto Braga, the corporate secretary and son of the Bragas, refused to register the aforesaid transfer of shares in t e corporate oo s, asserting that the Bragas claim preemptive rights over the 133,000 Abejo shares and that Virginia Braga never transferred her 63,000 shares to Telectronics but had lost the five stock certificates representing those shares. This triggered off the series of intertwined actions between the protagonists, all centered on the question of jurisdiction over the dispute, which were to culminate in the filing of the two cases at bar. The Bragas assert that the regular civil court has original and exclusive jurisdiction as against the Securities and Exchange Commission, while the Abejos claim the contrary. A summary of the actions resorted to by the parties follows: A. ABEJOS ACTIONS IN SEC 1. The Abejos and Telectronics and the latter's nominees, as new majority shareholders, filed SEC Cases Nos. 02379 and 02395 against the Bragas on December 17, 1982 and February 14, 1983, respectively. 2. In SEC Case No. 02379, they prayed for mandamus from the SEC ordering Norberto Braga, as corporate secretary of Pocket Bell to 2 register in their names the transfer and sale of the aforesaid 196,000 Pocket Bell shares (of the Abejos 1 and Virginia Braga , cancel the surrendered certificates as duly endorsed and to issue new certificates in their names. 3. In SEC Case No.02395, they prayed for injunction and a temporary restraining order that the SEC enjoin the Bragas from disbursing or disposing funds and assets of Pocket Bell and from performing such other acts pertaining to the functions of corporate officers. 4. Pocket Bell's corporate secretary, Norberto Braga, filed a Motion to Dismiss the mandamus case (SEC Case No. 02379) contending that the SEC has no jurisdiction over the nature of the action since it does not involve an intracorporate controversy between stockholders, the principal petitioners therein, Telectronics, not being a stockholder of record of Pocket Bell. 5. On January 8, 1983, SEC Hearing Officer Joaquin Garaygay denied the motion. On January 14, 1983, the corporate secretary filed a Motion for Reconsideration. On March 21, 1983, SEC Hearing Officer Joaquin Garaygay issued an order granting Braga's motion for reconsideration and dismissed SEC Case No. 02379. 6. On February 11, 1983, the Bragas filed their Motion to Dismiss the injunction case, SEC Case No. 02395. On April 8, 1985, the SEC Director, Eugenio Reyes, acting upon the Abejos'ex-parte motion, created a three-man committee composed of Atty. Emmanuel Sison as Chairman and Attys. Alfredo Oca and Joaquin Garaygay as members, to hear and decide the two SEC cases (Nos. 02379 and 02395). 7. On April 13, 1983, the SEC three-man committee issued an order reconsidering the aforesaid order of March 21, 1983 of the SEC Hearing Officer Garaygay (dismissing the mandamus petition SEC Case No. 02379) and directing corporate secretary Norberto Braga to file his answer to the petitioner therein. B. BRAGAS' ACTION IN SEC 8. On December 12, 1983, the Bragas filed a petition for certiorari, prohibition and mandamus with the SEC en banc, SEC Case No. EB #049, seeking the dismissal of SEC Cases Nos.' 02379 and 02395 for lack of jurisdiction of the Comn-iission and the setting aside of the various orders issued by the SEC three-man committee in the course of the proceedings in the two SEC cases. 9. On May 15, 1984, the SEC en banc issued an order dismissing the Bragas' petition in SEC Case No. EB#049 for lack of merit and at the same time ordering the SEC Hearing Committee to continue with the hearings of the Abejos and Telectronics SEC Cases Nos. 02379 and 02395, ruhng that the "issue is not the ownership of shares but rather the nonperformance by the Corporate Secretary of the ministerial duty of recording transfers of shares of stock of the corporation of which he is secretary." 10. On May 15, 1984 the Bragas filed a motion for reconsideration but the SEC en banc denied the same on August 9, 1984. C. BRAGAS' ACTION IN CFI (NOWRTC) 11. On November 25, 1982, following the corporate secretary's refusal to register the transfer of the shares in question, the Bragas filed a complaint against the Abejos and Telectronics in the Court of First Instance of Pasig, Branch 21 (now the Regional Trial Court, Branch 160) docketed as Civil Case No. 48746 for: (a) rescission and annulment of the sale of the shares of stock in Pocket Bell made by the Abejos in favor of Telectronics on the ground that it violated the Bragas' alleged pre-emptive right over the Abej os' shareholdings and an alleged perfected contract with the Abejos to sell the same shares in their (Bragas) favor, (Ist cause of action); plus damages for bad faith; and (b) declaration ofnullity of any transfer, assignment or endorsement of Virginia Bragas' stock certificates for 63,000 shares in Pocket Ben to Telectronics for want of consent and consideration, alleging that said stock

certificates, which were intended as security for a loan application and were thus endorsed by her in blank, had been lost (2nd cause of action). 12. On January 4, 1983, the Abejos filed a Motion to Dismiss the complaint on the ground that it is the SEC that is vested under PD 902-A with original and exclusive jurisdiction to hear and decide cases involving, among others, controversies "between and among stockholders" and that the Bragas' suit is such a controversy as the issues involved therein are the stockholders' alleged pre-emptive rights, the validity of the transfer and endorsement of certificates of stock, the election of corporate officers and the management and control of the corporation's operations. The dismissal motion was granted by Presiding Judge G. Pineda on January 14, 1983. 13. On January 24, 1983, the Bragas filed a motion for reconsideration. The Abejos opposed. Meanwhile, respondent Judge Rafael de la Cruz was appointed presiding judge of the court (renamed Regional Trial Court) in place of Judge G. Pineda. 14. On February 14, 1983, respondent Judge de la Cruz issued an order rescinding the January 14, 1983 order and reviving the temporary restraining order previously issued on December 23, 1982 restraining Telectronics' agents or representatives from enforcing their resolution constituting themselves as the new set of officers of Pocket Bell and from assuming control of the corporation and discharging their functions. 15. On March 2, 1983, the Abejos filed a motion for reconsideration, which motion was duly opposed by the Bragas. On March 11, 1983, respondent Judge denied the motion for reconsideration. D. ABEJOS' PETITION AT BAR 16. On March 26, 1983, the Abejos, alleging that the acts of respondent Judge in refusing to dismiss the complaint despite clear lack of jurisdiction over the action and in refusing to reconsider his erroneous position were performed without jurisdiction and with grave abuse of discretion, filed their herein Petition for certiorari and Prohibition with Preliminary Injunction. They prayed that the challenged orders of respondent Judge dated February 14, 1983 and March 11, 1983 be set aside for lack of jurisdiction and that he be ordered to permanently desist from further proceedings in Civil Case No. 48746. Respondent judge desisted from further proceedings in the case, dispensing with the need of issuing any restraining order. E. BRAGAS' PETITION AT BAR 17. On August 29, 1984, the Bragas, alleging in turn that the SEC has no jurisdiction over SEC Cases Nos. 02379 and 02395 and that it acted arbitrarily, whimsically and capriciously in dismissing their petition (in SEC Case No. EB #049) for dismissal of the said cases, filed their herein Petition for certiorari and Prohibition with Preliminary Injunction or TRO. The petitioner seeks the reversal and/or setting aside of the SEC Order dated May 15, 1984 dismissing their petition in said SEC Case No. EB #049 and sustaining its jurisdiction over SEC Cases Nos. 02379 and 02395, filed by the Abejos. On September 24, 1984, this Court issued a temporary restraining order to maintain the status quo and restrained the SEC and/or any of its officers or hearing committees from further proceeding with the hearings in SEC Cases Nos. 02379 and 02395 and from enforcing any and all orders and/or resolutions issued in connection with the said cases. The cases, having been given due course, were jointly heard by the Court on March 27, 1985 and the parties thereafter filed on April 16, 1985 their respective memoranda in amplification of oral argument on the points of law that were crystalled during the hearing, The Court rules that the SEC has original and exclusive jurisdiction over the dispute between the principal stockholders of the corporation Pocket Bell, namely, the Abejos and Telectronics, the purchasers of the 56% majority stock (supra, at page 2) on the one hand, and the Bragas, erstwhile majority stockholders, on the other, and that the SEC, through its en banc Resolution of May 15, 1984 co"ectly ruled in dismissing the Bragas' Petition questioning its jurisdiction, that "the issue is not the ownership of shares but rather the nonperformance by the Corporate Secretary of the ministerial duty of recording transfers of shares of stock of the Corporation of which he is secretary." 1. The SEC ruling upholding its primary and exclusive jurisdiction over the dispute is correctly premised on, and fully supported by, the applicable provisions of P.D. No. 902-A which reorganized the SEC with additional powers "in line with the government's policy of encouraging investments, both domestic and foreign, and more active publicParticipation in the affairs of private corporations and enterprises through which desirable activities may be pursued for the promotion of economic development; and, to promote a wider and more meaningful equitable distribution of wealth," and accordingly provided that: SEC. 3. The Commission shall have absolute jurisdiction, supervision and control ouer all corporations, partnerships or associations, who are the grantees of primary franchise and/or a license or permit issued by the government to operate in the Philippines; ... SEC. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving: a) Devices or schemes employed by or any acts, of the board of directors, business associations, its officers or partners, amounting to fruud and misrepresentation which may be detrimental to the interest of the public andlor of the stockholder, partners, members of associations or organizations registered with the Commission. b) Controversies arising out of intracorporate or partnership relations, between and among stockholders, members, or associates; between any andlor all of them and the corporation, partnership or association of which they are stockholders, members or assmiates, respectively; and between such corporation, partnership or assmiation and the state insofar as it concems their individual franchise or right to exist as such entity; c) Controversies in the election or appointments of directors, trustees, officers or managers of 3 such corporations, partnerships or associations. Section 6 further grants the SEC "in order to effectively exercise such jurisdiction," the power, inter alia, "to issuepreliminary or permanent injunctions, whether prohibitory or mandatory, in all cases in which it has jurisdiction, and in which cases the pertinent provisions of the Rules of Court shall apply." 2. Basically and indubitably, the dispute at bar, as held by the SEC, is an intracorporate dispute that has arisen between and among the principal stockholders of the corporation Pocket Bell due to the refusal of the corporate secretary, backed up by his parents as erstwhile majority shareholders, to perform his "ministerial duty" to record the transfers of the corporation's controlling (56%) shares of stock, covered by duly endorsed certificates of stock, in favor of Telectronics as the purchaser thereof. mandamus in the SEC to compel the corporate secretary to register the transfers and issue new certificates in favor of Telectronics and its nominees 4 was properly resorted to under Rule XXI, Section 1 of the SEC's New Rules of Procedure, which provides for the filing of such

petitions with the SEC. Section 3 of said Rules further authorizes the SEC to "issue orders expediting the proceedings ... and also [to] grant a preliminary injunction for the preservation of the rights of the parties pending such proceedings, " The claims of the Bragas, which they assert in their complaint in the Regional Trial Court, praying for rescission and annulment of the sale made by the Abejos in favor of Telectronics on the ground that they had an alleged perfected preemptive right over the Abejos' shares as well as for annulment of sale to Telectronics of Virginia Braga's shares covered by street certificates duly endorsed by her in blank, may in no way deprive the SEC of its primary and exclusive jurisdiction to grant or not the writ of mandamus ordering the registration of the shares so transferred. The Bragas' contention that the question of ordering the recording of the transfers ultimately hinges on the question of ownership or right thereto over the shares notwithstanding, the jurisdiction over the dispute is clearly vested in the SEC. 3. The very complaint of the Bragas for annulment of the sales and transfers as filed by them in the regular court questions the validity of the transfer and endorsement of the certificates of stock, claiming alleged pre-emptive rights in the case of the Abejos' shares and alleged loss of thio certificates and lack of consent and consideration in the case of Virginia Braga's shares. Such dispute c learly involve's controversies "between and among stockholders, " as to the Abej os' right to sell and dispose of their shares to Telectronics, the validity of the latter's acquisition of Virginia Braga's shares, who between the Bragas and the Abejos' transferee should be recognized as the controlling shareholders of the corporation, with the right to elect the corporate officers and the management and control of its operations. Such a dispute and case clearly fag within the original and exclusive jurisdiction of the SEC to decide, under Section 5 of P.D. 902-A, above-quoted. The restraining order issued by the Regional Trial Court restraining Telectronics agents and representatives from enforcing their resolution constituting themselves as the new set of officers of Pocket Bell and from assuming control of the corporation and discharging their functions patently encroached upon the SEC's exclusive jurisdiction over such specialized corporate controversies calling for its special competence. As stressed by the Solicitor General on behalf of the SEC, the Court has held that "Nowhere does the law [PD 902-A] empower any Court of First Instance [now Regional 5 Trial Court] to interfere with the orders of the Commission," and consequently "any ruling by the trial court on the issue of 6 ownership of the shares of stock is not binding on the Commission for want of jurisdiction. 4. The dispute therefore clearly falls within the general classification of cases within the SEC's original and exclusive jurisdiction to hear and decide, under the aforequoted governing section 5 of the law. Insofar as the Bragas and their corporate secretary's refusal on behalf of the corporation Pocket Bell to record the transfer of the 56% majority shares to Telectronics may be deemed a device or scheme amounting to fraud and misrepresentation emplolyed by them to keep themselves in control of the corporation to the detriment of Telectronics (as buyer and substantial investor in the corporate stock) and the Abejos (as substantial stockholderssellers), the case falls under paragraph (a). The dispute is likewise an intra-corporate controversy between and among the majority and minority stockholders as to the transfer and disposition of the controlling shares of the corporation, failing under paragraph (b). 7 As stressed by the Court in DMRC Enterprises v. Este del Sol Mountain Reserve, Inc, Considering the announced policy of PD 902-A, the expanded jurisdiction of the respondent Securities and Exchange Commission under said decree extends exclusively to matters arising from contracts involving investments in private corporations, partnerships and associations." The dispute also concerns the fundamental issue ofwhether the Bragas or Telectronics have the right to elect the corporate directors and officers and manage its business and operations, which falls under paragraph (c). 5. Most of the cases that have come to this Court involve those under paragraph (b), i.e. whether the controversy is an intracorporate one, arising "between and among stockholders" or "between any or allof them and the corporation." The parties have 8 focused their arguments on this question. The Bragas' contention in his field must likewise fail. In Philex Mining Corp. v. Reyes, the Court spelled out that"'an intra-corporate controversy is one which arises between a stockholder and the corporation. There is no distinction, qualification, nor any exemption whatsoever. The provision is broad and covers all kinds of controversies between stockholders and corporations. The issue of whether or not a corporation is bound to replace a stockholder's lost certificate of stock is a matter purely between a stockholder and the corporation. It is a typical intra-corporate dispute. The quqsjion of damage's raised is merely incidental to that main issue. The Court rejected the stockholders' theory of excluding his complaint (for replacement of a lost stock [dividend] certificate which he claimed to have never received) from the classification of intra-corporate controversies as one that "does not square with the intent of the law, which is to segregate from the general jurisdiction of regular Courts controversies involving corporations and their stockholders and to bring them to the SEC for exclusive resolution, in much the same way that labor disputes are now brought to the Ministry-of Labor and Employment (MOLE) and the National Labor Relations Commission (NLRC), and not to the Courts." (a) The Bragas contend that Telectronics, as buyertransferee of the 56% majority shares is not a registered stockholder, because they, through their son the corporate secretary, appear to have refused to perform "the ministerial duty of recording transfers of shares of stock of the corporation of which he is the secretary," and that the dispute is therefore, not an intracorporate one. This contention begs the question which must properly be resolved by the SEC, but which they would prevent by their own act, through their son, of blocking the due recording of the transfer and cannot be sanctioned. It can be seen from their very complaint in the regular courts that they with their two sons constituting the plaintiffs are all stockholders while the defendants are the Abejos who are also stockholders whose sale of the shares to Telectronics they would annul. (b) There can be no question that the dispute between the Abejos and the Bragas as to the sale and transfer of the former's shares to Telectronics for P5 million is an intracorporate one under section 5 (b), prescinding from the applicability of section 5 (a) and (c), (supra, par. 4) lt is the SEC which must resolve the Bragas' claim in their own complaint in the court case filed by them of an alleged pre-emptive right to buy the Abejos' shares by virtue of "ongoing negotiations," which they may submit as their defense to the mandamus petition to register the sale of the shares to Telectronics. But asserting such preemptive rights and asking that the same be enforced is a far cry from 9 the Bragas' claim that "the case relates to questions of ownership" over the shares in question. (Not to mention, as pointed out by the Abejos, that the corporation is not a close corporation, and no restriction over the free transferability of the shares appears in the Articles of Incorporation, as well as in the by-laws10 and the certificates of stock themselves, as required by law for the enforcement of such restriction. See Go Soc & Sons, etc. v. IAC, G.R. No. 72342, Resolution of February 19, 1987.) (c) The dispute between the Bragas and Telectronics as to the sale and transfer for P1,674,450.00 of Virginia Braga's 63.000 shares covered by Street certificates duly endorsed in blank by her is within the special competence and jurisdiction of the SEC, dealing as it does with the free transferability of corporate shares, particularly street

certificates," as guaranteed by the Corporation Code and its proclaimed policy of encouraging foreign and domestic investments in Philippine private corpora. tions and more active public participation therein for the Promotion of economic development. Here again, Virginia Braga's claim of loss of her street certificates 11 or theft thereof (denounced by Telectronics as 11 perjurious" 12 ) must be pleaded by her as a defense against Telectronics'petition for mandamus and recognition now as the controlling stockholder of the corporation in the light of the joint affidavit of Geneml Cerefino S. Carreon of the National Telecommunications Commission and private respondent Jose Luis Santiago of Telectronics narrating the facts and circumstances of how the former sold and delivered to Telectronics on behalf of his compadres, the Bragas, Virginia Braga's street certificates for 63,000 shares equivalent to 18% of the corporation's outstanding stock and received the cash price thereof. 13 But as to the sale and transfer of the Abejos' shares, the Bragas cannot oust the SEC of its original and exclusive jurisdiction to hear and decide the case, by blocking through the corporate secretary, their son, the due recording of the transfer and sale of the shares in question and claiming that Telectronics is not a stockholder of the corporation which is the very issue that the SEC is called upon to resolve. As the SEC maintains, "There is no requirement that a stockholder of a corporation must be a registered one in order that,the Securities and Exchange Commission may take cognizance of a suit seeking to enforce his rights as such stockholder." 14 This is because the SEC by express mandate has "absolute jurisdiction, supervision and control over all corporations" and is called upon to enforce the provisions of the Corporation Code, among which is the stock purchaser's right to secure the corresponding certificate in his name under the provisions of Section 63 of the Code. Needless to say, any problem encountered in securing the certificates of stock representing the investment made by the buyer must be expeditiously dealt with through administrative mandamus proceedings with the SEC, rather than through the usual tedious regular court procedure. Furthermore, as stated in the SEC order of April 13, 1983, notice given to the corporation of the sale of the shares and presentation of the certificates for transfer is ,equivalent to registration: "Whether the refusal of the (corporation) to effect the same is ivalid or not is still subject to the outcome of the hearing on the merits of the case. 15 6. In the fifties, the Court taking cognizance of the move to vest jurisdiction in administrative commissions and boards the power to resolve specialized disputes in the field of labor (as in corporations, public transportation and public utilities) ruled that Congress in requiring the Industrial Court's intervention in the resolution of labor-management controversies likely to cause strikes or lockouts meant such jurisdiction to be exclusive, although it did not so expressly state in the law. The Court held that under the "sensemaking and expeditious doctrine of primary jurisdiction ... the courts cannot or will n6t determine a controversy involving a question which is within the jurisdiction of an administrative tribunal, where the question demands the exercise of sound administrative discretion requiring the special knowledge, experience, and seruices of the administratiue tribunal to determine technical and intricate matters of fact, and a uniformity of ruling is essential to comply uith the purposes of the regulatory statute administered " 16 In this era of clogged court dockets, the need for specialized administrative boards or commissions with the special knowledge, experience and capability to hear and determine promptly disputes on technical matters or essentially factual matters, subject to judicial review in case of grave abuse of discretion, has become well nigh indispensable. Thus, in 1984, the Court noted that "between the power lodged in an administrative body and a court, the unmistakable trend has been to refer it to the former. 'Increasingly, this Court has been committed to the view that unless the law speaks clearly and unequivocably, the choice should fall on [an administrative agency.]' " 17 The Court in the earlier case of Ebon vs. De Guzman 18 noted that the lawmaking authority, in restoring to the labor arbiters and the NLRC their jurisdiction to award all kinds of damages in labor cases, as against the previous P.D. amendment splitting their jurisdiction with the regular courts, "evidently ... had second thoughts about depriving the Labor Arbiters and the NLRC of the jurisdiction to award damages in labor cases because that setup would mean duplicity of suits, splitting the cause of action and possible conflicting findings and conclusions by two tribunals on one and the same claim." 7. Thus, the Corporation Code (B.P. No. 178) enacted on May 1, 1980 specifically vests the SEC with the Rule-making power in the discharge of its task of implementing the provisions of the Code and particularly charges it with the duty of preventing fraud and abuses on the part of controlling stockholders, directors and officers, as follows: SEC. 143. Rule-making power of the Securities and Exchange Commission. The Securities and Exchange Commission shall have the power and authority to implement the provisions of this Code, and to promulgate rules and regulations reasonably necessary to enable it to perform its duties hereunder, particularly in the prevention of fraud and abuses on the part of the controlling stockholders, members, directors, trustees or officers. (Emphasis supplied) The dispute between the contending parties for control of thecorporation manifestly fans within the primary and exclusive jurisdiction of the SEC in whom the law has reserved such jurisdiction as an administrative agency of special competence to deal promptly and expeditiously therewith. As the Court stressed in Union Glass & Container Corp. v. SEC, 19 "This grant of jurisdiction [in Section 51 must be viewed in the light of the nature and functions of the SEC under the law. Section 3 of PD No. 902-A confers upon the latter 'absolute jurisdiction, supervision, and control over all corporations, partnerships or associations, who are grantees of primary franchise and/or license or permit issued by the government to operate in the Philippines ... The principal function of the SEC is the supervision and control over corporations, partnerships and associations with the end in view that investment in these entities may be encouraged and protected, and their activities pursued for the promotion of economic development. "It is in aid of this office that the adjudicative power of the SEC must be exercised. Thus the law explicitly specified and delin-dted its jurisdiction to matters intrinsically connected with the regulation of corporations, partnerships and associations and those dealing with the internal affairs of such corporations, partnerships or associations. "Otherwise stated, in order that the SEC can take cognizance of a case, the controversy must pertain to any of the following relationships: [al between the corporation, partnership or association and the public; [b] between the corporation, partnership or association and its stockholders, partners, members, or officers; [c] between the corporation, partnership or association and the state in so far as its franchise, permit or license to operate is concerned; and Id] among the stockholders, partners or associates 20 themselves." Parenthetically, the cited case of Union Glass illustrates by way of contrast what disputes do not fall within the special jurisdiction of the SEC. In this case, the SEC had properly assumed jurisdiction over the dissenting stockholders' com. Plaint against the corporation

Pioneer Glass questioning its dacion en pago of its glass plant and all its assets in favor of the DBP which was clearly an intracorporate controversy dealing with its internal affairs. But the Court held that the SEC had no jurisdiction over petitioner Union Glass Corp., imPle,aded as third party purchaser of the plant from DBP in the action to annul the dacion en pago. The Court held that such action for recovery of the glass plant could be brought by the dissenting stockholder to the regular courts only if and when the SE C rendered final judgment annulling the dacion en pago and furthermore subject to Union Glass' defenses as a third party buyer in good faith. Similarly, in the DMRC case, therein petitioner's,tomplaint for collection of the amounts due to it as payment of rentals for the lease of its heavy equipment in the form mainly of cash and part in shares of stock of the debtor-defendant corporation was held to be not covered by the SEC's exclusive jurisdiction over intracorporate disputes, since "to pass upon a money claim under a lease contract would be beyond the competence Of the Securities and Exchange Commission and to separate the claim for money 21 from the claim for shares of stock would be splitting a single cause of action resulting in a multiplicity of suitS." Such an action for collection of a debt does not involve enforcement Of rights and obligations under the Corporation Code nor the in. temal or intracorporate affairs of the debtor corporation. But in aR disputes affecting and dealing With the interests of the corporation and its stockholders, following the trend and clear legislative intent of entmsting all disputes of a specialized nature to administrative agencies possessing. the requisite competence, special knowledge, experience and services and facilities to expeditiously resolve them and determine the essential facts including technical and intricate matters, as in labor and public utilities rates disputes, the SEC has been given "the original and exclusive jurisdiction to hear anddecide" them (under section 5 of P.D. 902-A) "in addition to [its] regulatory and adjudicative functions" (under Section 3, vesting in it "absolute jurisdiction, supervision and control over all corporations" and the Rule-making power granted it in Section 143 of the Corporation Code, supra). As stressed by the Court in the Philex case, supra, "(T)here is no distinction, qualification, nor any exemption whatsoever. The provision is broad and covers all kinds of controversies between stockholders and corporations." 22 It only remains now to deal with the Order dated April 15, 1983 (Annex H, Petition) of the SEC's three-member Hearing Conunittee granting Telectronics' motion for creation of a receivership or management committee with the ample powers therein enumerated for the preservation pendente lite of the corporation's assets and in discharge of its "power and duty to preserve the rights of the parties, the stockholders, the public availing of the corporation's services and the rights of creditors," as well as "for reasons of equity and justice ... (and) to prevent possible paralization of corporate business." The said Order has not been implemented notwithstanding its having been upheld per the SEC en banc's Order of May 15, 1984 (Annex "V", Petition) dismissing for lack of merit the petition for certiorari, prohibition and mandamus with prayer for restraining order or injunction filed by the Bragas seeking the disbandment of the Hearing Committee and the setting aside of its Orders, and its Resolution of August 9, 1984, denying reconsideration (Annex "X", Petition), due to the Bragas' filing of the petition at bar. Prescinding from the great concern of damage and prejudice expressed by Telectronics due to the Bragas having remained in control of the corporation and having allegedly committed acts of gross mismanagement and misapplication of funds, the Court finds that under the facts and circumstances of record, it is but fair and just that the SEC's order creating a receivership committee be implemented forthwith, in accordance with its terms, as follows: The three-man receivership committee shall be composed of a representative from the commission, in the person of the Director, Examiners and Appraisers Department or his designated representative, and a representative from the petitioners and a representative of the respondent. The petitioners and respondent are therefore directed to sub. mit to the Commission the name of their designated representative within three (3) days from receipt of this order. The Conunission shall appoint the other representatives if either or both parties fafl to comply with the requirement within the stated time. ACCORDINGLY, judgment is hereby rendered: (a) Granting the petition in G.R. No. 63558, annulling the challenged Orders of respondent Judge clated February 14, 1983 and March i 1, 1983 (Annexes "L" and "P" of the Abejos' petition) and prohibiting respondent Judge from further proceeding in Civil Case No. 48746 filed in his Court other than to dismiss the same for lack or jurisdiction over the subject-matter; (b) Dismissing the petition in G.R. Nos. 68450-51 and lifting the temporary restraining order issued on September 24, 1984, effective immediately upon promulgation hereof, (c) Directing the SEC through its Hearing Committee to proceed immediately with hearing and resolving the pending mandamus petition for recording in the corporate books the transfer to Telectronics and its nominees of the majority (56%) shares of stock of the corporation Pocket Bell pertaining to the Abejos and Virginia Braga and all related issues, taking into consideration, without need of resubmittal to it, the pleadings, annexes and exhibits filed by the contending parties in the cases at bar; and (d) Likewise directing the SEC through its Hearing Committee to proceed immediately with the implementation of its receivership or management committee Order of April 15, 1983 in SEC Case No. 2379 and for the purpose, the contending parties are ordered to submit to said Hearing Committee the name of their designated representatives in the receivership/management committee within three (3) days from receipt of this decision, on pain of forfeiture of such right in case of failure to comply herewith, as provided in the said Order; and ordering theBragas to perform only caretaker acts in the corporation pending the organization of such receivership/management committee and assumption of its functions. This decision shall be immediately executory upon its promulgation. SO ORDERED.

ABS-CBN BROADCASTING CORPORATION, petitioner, vs. HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA PRODUCTION, INC., and VICENTE DEL ROSARIO, respondents. DAVIDE, JR., CJ.: In this petition for review on certiorari, petitioner ABS-CBN Broadcasting Corp. (hereafter ABS-CBN) seeks to reverse and set aside 1 2 the decision of 31 October 1996 and the resolution of 10 March 1997 of the Court of Appeals in CA-G.R. CV No. 44125. The former 3 affirmed with modification the decision of 28 April 1993 of the Regional Trial Court (RTC) of Quezon City, Branch 80, in Civil Case No. Q-92-12309. The latter denied the motion to reconsider the decision of 31 October 1996. The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows: In 1990, ABS-CBN and Viva executed a Film Exhibition Agreement (Exh. "A") whereby Viva gave ABS-CBN an exclusive right to exhibit some Viva films. Sometime in December 1991, in accordance with paragraph 2.4 [sic] of said agreement stating that . 1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for TV telecast under such terms as may be agreed upon by the parties hereto, provided, however, that such right shall be exercised by ABSCBN from the actual offer in writing. Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-Concio, a list of three(3) film packages (36 title) from which ABS-CBN may exercise its right of first refusal under the afore-said agreement (Exhs. "1" par, 2, "2," "2-A'' and "2-B"-Viva). ABS-CBN, however through Mrs. Concio, "can tick off only ten (10) titles" (from the list) "we can purchase" (Exh. "3" - Viva) and therefore did not accept said list (TSN, June 8, 1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the subject of the case at bar except the film ''Maging Sino Ka Man." For further enlightenment, this rejection letter dated January 06, 1992 (Exh "3" - Viva) is hereby quoted: 6 January 1992 Dear Vic, This is not a very formal business letter I am writing to you as I would like to express my difficulty in recommending the purchase of the three film packages you are offering ABS-CBN. From among the three packages I can only tick off 10 titles we can purchase. Please see attached. I hope you will understand my position. Most of the action pictures in the list do not have big action stars in the cast. They are not for primetime. In line with this I wish to mention that I have not scheduled for telecast several action pictures in out very first contract because of the cheap production value of these movies as well as the lack of big action stars. As a film producer, I am sure you understand what I am trying to say as Viva produces only big action pictures. In fact, I would like to request two (2) additional runs for these movies as I can only schedule them in our nonprimetime slots. We have to cover the amount that was paid for these movies because as you very well know that non-primetime advertising rates are very low. These are the unaired titles in the first contract. 1. Kontra Persa [sic]. 2. Raider Platoon. 3. Underground guerillas 4. Tiger Command 5. Boy de Sabog 6. Lady Commando 7. Batang Matadero 8. Rebelyon I hope you will consider this request of mine. The other dramatic films have been offered to us before and have been rejected because of the ruling of MTRCB to have them aired at 9:00 p.m. due to their very adult themes. As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the other Viva movies produced last year. I have quite an attractive offer to make. Thanking you and with my warmest regards. (Signed) Charo Santos-Concio On February 27, 1992, defendant Del Rosario approached ABS-CBN's Ms. Concio, with a list consisting of 52 original movie titles (i.e. not yet aired on television) including the 14 titles subject of the present case, as well as 104 re-runs (previously aired on television) from which ABS-CBN may choose another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN airing rights over this package of 52 originals and 52 re-runs for P60,000,000.00 of which P30,000,000.00 will be in cash and P30,000,000.00 worth of television spots (Exh. "4" to "4-C" Viva; "9" Viva). On April 2, 1992, defendant Del Rosario and ABS-CBN general manager, Eugenio Lopez III, met at the Tamarind Grill Restaurant in Quezon City to discuss the package proposal of Viva. What transpired in that lunch meeting is the subject of conflicting versions. Mr. Lopez testified that he and Mr. Del Rosario allegedly agreed that ABS-CRN was granted exclusive film rights to fourteen (14) films for a total consideration of P36 million; that he allegedly put this agreement as to the price and number of films in a "napkin'' and signed it and gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992). On the other hand, Del Rosario denied having made any agreement with Lopez regarding the 14 Viva films; denied the existence of a napkin in which Lopez wrote something; and insisted that what he and Lopez discussed at the lunch meeting was Viva's film package offer of 104 films (52 originals and 52 re-runs) for a total price of P60 million. Mr. Lopez promising [sic]to make a counter proposal which came in the form of a proposal contract Annex "C" of the complaint (Exh. "1"- Viva; Exh. "C" - ABS-CBN). On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance discussed the terms and conditions of Viva's offer to sell the 104 films, after the rejection of the same package by ABS-CBN.

On April 07, 1992, defendant Del Rosario received through his secretary, a handwritten note from Ms. Concio, (Exh. "5" - Viva), which reads: "Here's the draft of the contract. I hope you find everything in order," to which was attached a draft exhibition agreement (Exh. "C''- ABS-CBN; Exh. "9" - Viva, p. 3) a counter-proposal covering 53 films, 52 of which came from the list sent by defendant Del Rosario and one film was added by Ms. Concio, for a consideration of P35 million. Exhibit "C" provides that ABS-CBN is granted films right to 53 films and contains a right of first refusal to "1992 Viva Films." The said counter proposal was however rejected by Viva's Board of Directors [in the] evening of the same day, April 7, 1992, as Viva would not sell anything less than the package of 104 films for P60 million pesos (Exh. "9" - Viva), and such rejection was relayed to Ms. Concio. On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetings defendant Del Rosario and Viva's President Teresita Cruz, in consideration of P60 million, signed a letter of agreement dated April 24, 1992. granting RBS the exclusive right to air 104 Viva-produced and/or acquired films (Exh. "7-A" - RBS; Exh. "4" 4 - RBS) including the fourteen (14) films subject of the present case. On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of preliminary 5 injunction and/or temporary restraining order against private respondents Republic Broadcasting Corporation (hereafter RBS ), Viva Production (hereafter VIVA), and Vicente Del Rosario. The complaint was docketed as Civil Case No. Q-92-12309. 6 On 27 May 1992, RTC issued a temporary restraining order enjoining private respondents from proceeding with the airing, broadcasting, and televising of the fourteen VIVA films subject of the controversy, starting with the filmMaging Sino Ka Man, which was scheduled to be shown on private respondents RBS' channel 7 at seven o'clock in the evening of said date. On 17 June 1992, after appropriate proceedings, the RTC issued an 7 order directing the issuance of a writ of preliminary injunction upon ABS-CBN's posting of P35 million bond. ABS-CBN moved for 8 the reduction of the bond, while private respondents moved for reconsideration of the order and offered to put up a 9 counterbound. 10 In the meantime, private respondents filed separate answers with counterclaim. RBS also set up a cross-claim against VIVA.. 11 On 3 August 1992, the RTC issued an order dissolving the writ of preliminary injunction upon the posting by RBS of a P30 million counterbond to answer for whatever damages ABS-CBN might suffer by virtue of such dissolution. However, it reduced petitioner's injunction bond to P15 million as a condition precedent for the reinstatement of the writ of preliminary injunction should private respondents be unable to post a counterbond. 12 At the pre-trial on 6 August 1992, the parties, upon suggestion of the court, agreed to explore the possibility of an amicable settlement. In the meantime, RBS prayed for and was granted reasonable time within which to put up a P30 million counterbond in the event that no settlement would be reached. As the parties failed to enter into an amicable settlement RBS posted on 1 October 1992 a counterbond, which the RTC approved in 13 its Order of 15 October 1992. 14 On 19 October 1992, ABS-CBN filed a motion for reconsideration of the 3 August and 15 October 1992 Orders, which RBS 15 opposed. 16 On 29 October 1992, the RTC conducted a pre-trial. 17 Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a petition challenging the RTC's Orders of 3 August and 15 October 1992 and praying for the issuance of a writ of preliminary injunction to enjoin the RTC from enforcing said orders. The case was docketed as CA-G.R. SP No. 29300. 18 On 3 November 1992, the Court of Appeals issued a temporary restraining order to enjoin the airing, broadcasting, and televising of any or all of the films involved in the controversy. 19 On 18 December 1992, the Court of Appeals promulgated a decision dismissing the petition in CA -G.R. No. 29300 for being premature. ABS-CBN challenged the dismissal in a petition for review filed with this Court on 19 January 1993, which was docketed as G.R. No. 108363. In the meantime the RTC received the evidence for the parties in Civil Case No. Q-192-1209. Thereafter, on 28 April 1993, it 20 rendered a decision in favor of RBS and VIVA and against ABS-CBN disposing as follows: WHEREFORE, under cool reflection and prescinding from the foregoing, judgments is rendered in favor of defendants and against the plaintiff. (1) The complaint is hereby dismissed; (2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following: a) P107,727.00, the amount of premium paid by RBS to the surety which issued defendant RBS's bond to lift the injunction; b) P191,843.00 for the amount of print advertisement for "Maging Sino Ka Man" in various newspapers; c) Attorney's fees in the amount of P1 million; d) P5 million as and by way of moral damages; e) P5 million as and by way of exemplary damages; (3) For defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of reasonable attorney's fees. (4) The cross-claim of defendant RBS against defendant VIVA is dismissed. (5) Plaintiff to pay the costs. According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged agreement between Lopez III and Del Rosario was subject to the approval of the VIVA Board of Directors, and said agreement was disapproved during the meeting of the Board on 7 April 1992. Hence, there was no basis for ABS-CBN's demand that VIVA signed the 1992 Film Exhibition Agreement. Furthermore, the right of first refusal under the 1990 Film Exhibition Agreement had previously been exercised per Ms. Concio's letter to Del Rosario ticking off ten titles acceptable to them, which would have made the 1992 agreement an entirely new contract. 21 On 21 June 1993, this Court denied ABS-CBN's petition for review in G.R. No. 108363, as no reversible error was committed by the Court of Appeals in its challenged decision and the case had "become moot and academic in view of the dismissal of the main action by the court a quo in its decision" of 28 April 1993.

Aggrieved by the RTC's decision, ABS-CBN appealed to the Court of Appeals claiming that there was a perfected contract between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject films. Private respondents VIVA and Del Rosario also appealed seeking moral and exemplary damages and additional attorney's fees. In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract between ABS-CBN and VIVA had not been perfected, absent the approval by the VIVA Board of Directors of whatever Del Rosario, it's agent, might have agreed with Lopez III. The appellate court did not even believe ABS-CBN's evidence that Lopez III actually wrote down such an agreement on a "napkin," as the same was never produced in court. It likewise rejected ABS-CBN's insistence on its right of first refusal and ratiocinated as follows: As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement was entered into between Appellant ABS-CBN and appellant VIVA under Exhibit "A" in 1990, and that parag. 1.4 thereof provides: 1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films for TV telecast under such terms as may be agreed upon by the parties hereto, provided, however, that such right shall be exercised by ABS-CBN within a period of fifteen (15) days from the actual offer in writing (Records, p. 14). [H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be subject to such terms as may be agreed upon by the parties thereto, and that the said right shall be exercised by ABS-CBN within fifteen (15) days from the actual offer in writing. Said parag. 1.4 of the agreement Exhibit "A" on the right of first refusal did not fix the price of the film right to the twenty-four (24) films, nor did it specify the terms thereof. The same are still left to be agreed upon by the parties. In the instant case, ABS-CBN's letter of rejection Exhibit 3 (Records, p. 89) stated that it can only tick off ten (10) films, and the draft contract Exhibit "C" accepted only fourteen (14) films, while parag. 1.4 of Exhibit "A'' speaks of the next twenty-four (24) films. The offer of V1VA was sometime in December 1991 (Exhibits 2, 2-A. 2-B; Records, pp. 86-88; Decision, p. 11, Records, p. 1150), when the first list of VIVA films was sent by Mr. Del Rosario to ABS-CBN. The Vice President of ABS-CBN, Ms. Charo Santos-Concio, sent a letter dated January 6, 1992 (Exhibit 3, Records, p. 89) where ABS-CBN exercised its right of refusal by rejecting the offer of VIVA.. As aptly observed by the trial court, with the said letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its right of first refusal. And even if We reckon the fifteen (15) day period from February 27, 1992 (Exhibit 4 to 4-C) when another list was sent to ABS-CBN after the letter of Mrs. Concio, still the fifteen (15) day period within which ABS-CBN shall exercise its right of first refusal has already 22 expired. Accordingly, respondent court sustained the award of actual damages consisting in the cost of print advertisements and the premium payments for the counterbond, there being adequate proof of the pecuniary loss which RBS had suffered as a result of the filing of the complaint by ABS-CBN. As to the award of moral damages, the Court of Appeals found reasonable basis therefor, holding that RBS's reputation was debased by the filing of the complaint in Civil Case No. Q-92-12309 and by the non-showing of the film "Maging Sino Ka Man." Respondent court also held that exemplary damages were correctly imposed by way of example or correction for the public good in view of the filing of the complaint despite petitioner's knowledge that the contract with VIVA had not been perfected, It also upheld the award of attorney's fees, reasoning that with ABS-CBN's act of instituting Civil Case No, Q-921209, RBS was "unnecessarily forced to litigate." The appellate court, however, reduced the awards of moral damages to P2 million, exemplary damages to P2 million, and attorney's fees to P500, 000.00. On the other hand, respondent Court of Appeals denied VIVA and Del Rosario's appeal because it was "RBS and not VIVA which was actually prejudiced when the complaint was filed by ABS-CBN." Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case, contending that the Court of Appeals gravely erred in I . . . RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND PRIVATE RESPONDENT VIVA NOTWITHSTANDING PREPONDERANCE OF EVIDENCE ADDUCED BY PETITIONER TO THE CONTRARY. II . . . IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS. III . . . IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS. IV . . . IN AWARDING ATTORNEY'S FEES IN FAVOR OF RBS. ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under the 1990 Film Exhibition Agreement, as it had chosen only ten titles from the first list. It insists that we give credence to Lopez's testimony that he and Del Rosario met at the Tamarind Grill Restaurant, discussed the terms and conditions of the second list (the 1992 Film Exhibition Agreement) and upon agreement thereon, wrote the same on a paper napkin. It also asserts that the contract has already been effective, as the elements thereof, namely, consent, object, and consideration were established. It then concludes that the Court of Appeals' pronouncements were not supported by law and jurisprudence, as per our decision of 1 December 1995 in Limketkai Sons 23 24 Milling, Inc. v. Court of Appeals, which cited Toyota Shaw, Inc. v. Court of Appeals, Ang Yu Asuncion v. Court of 25 26 Appeals, andVillonco Realty Company v. Bormaheco. Inc. Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the premium on the counterbond of its own volition in order to negate the injunction issued by the trial court after the parties had ventilated their respective positions during the hearings for the purpose. The filing of the counterbond was an option available to RBS, but it can hardly be argued that ABS-CBN compelled RBS to incur such expense. Besides, RBS had another available option, i.e., move for the dissolution or the injunction; or if it was determined to put up a counterbond, it could have presented a cash bond. Furthermore under Article 2203 of the Civil Code, the party suffering loss or injury is also required to exercise the diligence of a good father of a family to minimize the damages resulting from the act or omission. As regards the cost of print advertisements, RBS had not convincingly established that this was a loss attributable to the non showing "Maging Sino Ka Man"; on the contrary, it was brought out during trial that with or without the case or the injunction, RBS would have spent such an amount to generate interest in the film.

ABS-CBN further contends that there was no clear basis for the awards of moral and exemplary damages. The controversy involving ABS-CBN and RBS did not in any way originate from business transaction between them. The claims for such damages did not arise from any contractual dealings or from specific acts committed by ABS-CBN against RBS that may be characterized as wanton, fraudulent, or reckless; they arose by virtue only of the filing of the complaint, An award of moral and exemplary damages is not 27 warranted where the record is bereft of any proof that a party acted maliciously or in bad faith in filing an action. In any case, free resort to courts for redress of wrongs is a matter of public policy. The law recognizes the right of every one to sue for that which he honestly believes to be his right without fear of standing trial for damages where by lack of sufficient evidence, legal technicalities, 28 or a different interpretation of the laws on the matter, the case would lose ground. One who makes use of his own legal right does 29 30 no injury. If damage results front the filing of the complaint, it is damnum absque injuria. Besides, moral damages are generally not awarded in favor of a juridical person, unless it enjoys a good reputation that was debased by the offending party resulting in 31 social humiliation. As regards the award of attorney's fees, ABS-CBN maintains that the same had no factual, legal, or equitable justification. In sustaining the trial court's award, the Court of Appeals acted in clear disregard of the doctrines laid down in Buan 32 v. Camaganacan that the text of the decision should state the reason why attorney's fees are being awarded; otherwise, the award should be disallowed. Besides, no bad faith has been imputed on, much less proved as having been committed by, ABS-CBN. It has been held that "where no sufficient showing of bad faith would be reflected in a party' s persistence in a case other than an 33 erroneous conviction of the righteousness of his cause, attorney's fees shall not be recovered as cost." On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA absent any meeting of minds between them regarding the object and consideration of the alleged contract. It affirms that the ABS-CBN's claim of a right of first refusal was correctly rejected by the trial court. RBS insist the premium it had paid for the counterbond constituted a pecuniary loss upon which it may recover. It was obliged to put up the counterbound due to the injunction procured by ABS-CBN. Since the trial court found that ABS-CBN had no cause of action or valid claim against RBS and, therefore not entitled to the writ of injunction, RBS could recover from ABS-CBN the premium paid on the counterbond. Contrary to the claim of ABS-CBN, the cash bond would prove to be more expensive, as the loss would be equivalent to the cost of money RBS would forego in case the P30 million came from its funds or was borrowed from banks. RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of the film "Maging Sino Ka Man" because the print advertisements were put out to announce the showing on a particular day and hour on Channel 7, i.e., in its entirety at one time, not a series to be shown on a periodic basis. Hence, the print advertisement were good and relevant for the particular date showing, and since the film could not be shown on that particular date and hour because of the injunction, the expenses for the advertisements had gone to waste. As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured injunctions purely for the purpose of harassing and prejudicing RBS. Pursuant then to Article 19 and 21 of the Civil Code, ABS-CBN must be held liable for such 34 damages. Citing Tolentino, damages may be awarded in cases of abuse of rights even if the act done is not illicit and there is abuse of rights were plaintiff institutes and action purely for the purpose of harassing or prejudicing the defendant. In support of its stand that a juridical entity can recover moral and exemplary damages, private respondents RBScited People 35 v. Manero, where it was stated that such entity may recover moral and exemplary damages if it has a good reputation that is debased resulting in social humiliation. it then ratiocinates; thus: There can be no doubt that RBS' reputation has been debased by ABS-CBN's acts in this case. When RBS was not able to fulfill its commitment to the viewing public to show the film "Maging Sino Ka Man" on the scheduled dates and times (and on two occasions that RBS advertised), it suffered serious embarrassment and social humiliation. When the showing was canceled, late viewers called up RBS' offices and subjected RBS to verbal abuse ("Announce kayo nang announce, hindi ninyo naman ilalabas," "nanloloko yata kayo") (Exh. 3-RBS, par. 3). This alone was not something RBS brought upon itself. it was exactly what ABS-CBN had planned to happen. The amount of moral and exemplary damages cannot be said to be excessive. Two reasons justify the amount of the award. The first is that the humiliation suffered by RBS is national extent. RBS operations as a broadcasting company is [sic] nationwide. Its clientele, like that of ABS-CBN, consists of those who own and watch television. It is not an exaggeration to state, and it is a matter of judicial notice that almost every other person in the country watches television. The humiliation suffered by RBS is multiplied by the number of televiewers who had anticipated the showing of the film "Maging Sino Ka Man" on May 28 and November 3, 1992 but did not see it owing to the cancellation. Added to this are the advertisers who had placed commercial spots for the telecast and to whom RBS had a commitment in consideration of the placement to show the film in the dates and times specified. The second is that it is a competitor that caused RBS to suffer the humiliation. The humiliation and injury are far greater in degree when caused by an entity whose ultimate business objective is to lure customers (viewers in this 36 case) away from the competition. For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the Court of Appeals do not support ABS-CBN's claim that there was a perfected contract. Such factual findings can no longer be disturbed in this petition for review under Rule 45, as only questions of law can be raised, not questions of fact. On the issue of damages and attorneys fees, they adopted the arguments of RBS. The key issues for our consideration are (1) whether there was a perfected contract between VIVA and ABS-CBN, and (2) whether RBS is entitled to damages and attorney's fees. It may be noted that the award of attorney's fees of P212,000 in favor of VIVA is not assigned as another error. I. The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two persons whereby one binds 37 himself to give something or to render some service to another for a consideration. there is no contract unless the following requisites concur: (1) consent of the contracting parties; (2) object certain which is the subject of the contract; and (3) cause of the 38 obligation, which is established. A contract undergoes three stages: (a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties;

(b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and 39 (c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. Contracts that are consensual in nature are perfected upon mere meeting of the minds, Once there is concurrence between the offer and the acceptance upon the subject matter, consideration, and terms of payment a contract is produced. The offer must be certain. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a rejection of the original offer. Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to generate consent because any modification or 40 variation from the terms of the offer annuls the offer. When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to discuss the package of films, said package of 104 VIVA films was VIVA's offer to ABS-CBN to enter into a new Film Exhibition Agreement. But ABS-CBN, sent, through Ms. Concio, a counter-proposal in the form of a draft contract proposing exhibition of 53 films for a consideration of P35 million. This counter-proposal could be nothing less than the counter-offer of Mr. Lopez during his conference with Del Rosario at Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVA's offer, for it was met by a counter-offer which substantially varied the terms of the offer. ABS-CBN's reliance in Limketkai Sons Milling, Inc. v. Court of 41 42 Appeals and Villonco Realty Company v. Bormaheco, Inc., is misplaced. In these cases, it was held that an acceptance may contain a request for certain changes in the terms of the offer and yet be a binding acceptance as long as "it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer, whether such request is granted or not." This ruling 43 was, however, reversed in the resolution of 29 March 1996, which ruled that the acceptance of all offer must be unqualified and absolute, i.e., it "must be identical in all respects with that of the offer so as to produce consent or meeting of the minds." On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were not material but merely 44 clarificatory of what had previously been agreed upon. It cited the statement in Stuart v.Franklin Life Insurance Co. that "a vendor's change in a phrase of the offer to purchase, which change does not essentially change the terms of the offer, does not amount to a 45 rejection of the offer and the tender of a counter-offer." However, when any of the elements of the contract is modified upon acceptance, such alteration amounts to a counter-offer. In the case at bar, ABS-CBN made no unqualified acceptance of VIVA's offer. Hence, they underwent a period of bargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a draft contract, VIVA through its Board of Directors, rejected such counter-offer, Even if it be conceded arguendo that Del Rosario had accepted the counter-offer, the acceptance did not bind VIVA, as there was no proof whatsoever that Del Rosario had the specific authority to do so. 46 Under Corporation Code, unless otherwise provided by said Code, corporate powers, such as the power; to enter into contracts; are exercised by the Board of Directors. However, the Board may delegate such powers to either an executive committee or officials 47 or contracted managers. The delegation, except for the executive committee, must be for specific purposes, Delegation to officers makes the latter agents of the corporation; accordingly, the general rules of agency as to the bindings effects of their acts would 48 apply. For such officers to be deemed fully clothed by the corporation to exercise a power of the Board, the latter must specially authorize them to do so. That Del Rosario did not have the authority to accept ABS-CBN's counter-offer was best evidenced by his submission of the draft contract to VIVA's Board of Directors for the latter's approval. In any event, there was between Del Rosario and Lopez III no meeting of minds. The following findings of the trial court are instructive: A number of considerations militate against ABS-CBN's claim that a contract was perfected at that lunch meeting on April 02, 1992 at the Tamarind Grill. FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price and the number of films, which he wrote on a napkin. However, Exhibit "C" contains numerous provisions which, were not discussed at the Tamarind Grill, if Lopez testimony was to be believed nor could they have been physically written on a napkin. There was even doubt as to whether it was a paper napkin or a cloth napkin. In short what were written in Exhibit "C'' were not discussed, and therefore could not have been agreed upon, by the parties. How then could this court compel the parties to sign Exhibit "C" when the provisions thereof were not previously agreed upon? SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract was 14 films. The complaint in fact prays for delivery of 14 films. But Exhibit "C" mentions 53 films as its subject matter. Which is which If Exhibits "C" reflected the true intent of the parties, then ABS-CBN's claim for 14 films in its complaint is false or if what it alleged in the complaint is true, then Exhibit "C" did not reflect what was agreed upon by the parties. This underscores the fact that there was no meeting of the minds as to the subject matter of the contracts, so as to preclude perfection thereof. For settled is the rule that there can be no contract where there is no object which is its subject matter (Art. 1318, NCC). THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. "D") states: We were able to reach an agreement. VIVA gave us the exclusive license to show these fourteen (14) films, and we agreed to pay Viva the amount of P16,050,000.00 as well as grant Viva commercial slots worth P19,950,000.00. We had already earmarked this P16, 050,000.00. which gives a total consideration of P36 million (P19,950,000.00 plus P16,050,000.00. equals P36,000,000.00). On cross-examination Mr. Lopez testified: Q. What was written in this napkin? A. The total price, the breakdown the known Viva movies, the 7 blockbuster movies and the other 7 Viva movies because the price was broken down accordingly. The none [sic] Viva and the seven other Viva movies and the sharing between the cash portion and the concerned spot portion in the total amount of P35 million pesos. Now, which is which? P36 million or P35 million? This weakens ABS-CBN's claim. FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit "C" to Mr. Del Rosario with a handwritten note, describing said Exhibit "C" as a "draft." (Exh. "5" - Viva; tsn pp. 23-24 June 08, 1992). The said draft has a well defined meaning.

Since Exhibit "C" is only a draft, or a tentative, provisional or preparatory writing prepared for discussion, the terms and conditions thereof could not have been previously agreed upon by ABS-CBN and Viva Exhibit "C'' could not therefore legally bind Viva, not having agreed thereto. In fact, Ms. Concio admitted that the terms and conditions embodied in Exhibit "C" were prepared by ABS-CBN's lawyers and there was no discussion on said terms and conditions. . . . As the parties had not yet discussed the proposed terms and conditions in Exhibit "C," and there was no evidence whatsoever that Viva agreed to the terms and conditions thereof, said document cannot be a binding contract. The fact that Viva refused to sign Exhibit "C" reveals only two [sic] well that it did not agree on its terms and conditions, and this court has no authority to compel Viva to agree thereto. FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the Tamarind Grill was only provisional, in the sense that it was subject to approval by the Board of Directors of Viva. He testified: Q. Now, Mr. Witness, and after that Tamarind meeting ... the second meeting wherein you claimed that you have the meeting of the minds between you and Mr. Vic del Rosario, what happened? A. Vic Del Rosario was supposed to call us up and tell us specifically the result of the discussion with the Board of Directors. Q. And you are referring to the so-called agreement which you wrote in [sic] a piece of paper? A. Yes, sir. Q. So, he was going to forward that to the board of Directors for approval? A. Yes, sir. (Tsn, pp. 42-43, June 8, 1992) Q. Did Mr. Del Rosario tell you that he will submit it to his Board for approval? A. Yes, sir. (Tsn, p. 69, June 8, 1992). The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no authority to bind Viva to a contract with ABS-CBN until and unless its Board of Directors approved it. The complaint, in fact, alleges that Mr. Del Rosario "is the Executive Producer of defendant Viva" which "is a corporation." (par. 2, complaint). As a mere agent of Viva, Del Rosario could not bind Viva unless what he did is ratified by its Board of Directors. (Vicente vs. Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson, 44 Phil. 634). As a mere agent, recognized as such by plaintiff, Del Rosario could not be held liable jointly and severally with Viva and his inclusion as party defendant has no legal basis. (Salonga vs. Warner Barner [sic] , COLTA , 88 Phil. 125; Salmon vs. Tan, 36 Phil. 556). The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was supposed to have been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not a binding agreement. It is as it should be because corporate power to enter into a contract is lodged in the Board of Directors. (Sec. 23, Corporation Code). Without such board approval by the Viva board, whatever agreement Lopez and Del Rosario arrived at could not ripen into a valid contract binding upon Viva (Yao Ka Sin Trading vs.Court of Appeals, 209 SCRA 763). The evidence adduced shows that the Board of Directors of Viva rejected Exhibit "C" and insisted that the 49 film package for 140 films be maintained (Exh. "7-1" - Viva ). The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films under the 1990 Film Exhibition Agreement and that the meeting between Lopez and Del Rosario was a continuation of said previous contract is untenable. As observed by the trial court, ABS-CBN right of first refusal had already been exercised when Ms. Concio wrote to VIVA ticking off ten films, Thus: [T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was for an entirely different package. Ms. Concio herself admitted on cross-examination to having used or exercised the right of first refusal. She stated that the list was not acceptable and was indeed not accepted by ABS-CBN, (TSN, June 8, 1992, pp. 8-10). Even Mr. Lopez himself admitted that the right of the first refusal may have been already exercised by Ms. Concio (as she had). (TSN, June 8, 1992, pp. 71-75). Del Rosario himself knew and understand [sic] that ABS-CBN has lost 50 its rights of the first refusal when his list of 36 titles were rejected (Tsn, June 9, 1992, pp. 10-11) II However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on actual or compensatory damages. Except as provided by law or by stipulation, one is entitled to 51 compensation for actual damages only for such pecuniary loss suffered by him as he has duly proved. The indemnification shall 52 comprehend not only the value of the loss suffered, but also that of the profits that the obligee failed to obtain. In contracts and quasi-contracts the damages which may be awarded are dependent on whether the obligor acted with good faith or otherwise, It case of good faith, the damages recoverable are those which are the natural and probable consequences of the breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time of the constitution of the obligation. If the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible for all damages which may be reasonably 53 attributed to the non-performance of the obligation. In crimes and quasi-delicts, the defendant shall be liable for all damages which are the natural and probable consequences of the act or omission complained of, whether or not such damages has been 54 foreseen or could have reasonably been foreseen by the defendant. Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary or permanent personal 55 injury, or for injury to the plaintiff's business standing or commercial credit. The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It arose from the fact of filing of the complaint despite ABS-CBN's alleged knowledge of lack of cause of action. Thus paragraph 12 of RBS's Answer with Counterclaim and Cross-claim under the heading COUNTERCLAIM specifically alleges: 12. ABS-CBN filed the complaint knowing fully well that it has no cause of action RBS. As a result thereof, RBS 56 suffered actual damages in the amount of P6,621,195.32. Needless to state the award of actual damages cannot be comprehended under the above law on actual damages. RBS could only probably take refuge under Articles 19, 20, and 21 of the Civil Code, which read as follows: Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.

Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for tile same. Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. It may further be observed that in cases where a writ of preliminary injunction is issued, the damages which the defendant may 57 suffer by reason of the writ are recoverable from the injunctive bond. In this case, ABS-CBN had not yet filed the required bond; as a matter of fact, it asked for reduction of the bond and even went to the Court of Appeals to challenge the order on the matter, Clearly then, it was not necessary for RBS to file a counterbond. Hence, ABS-CBN cannot be held responsible for the premium RBS paid for the counterbond. Neither could ABS-CBN be liable for the print advertisements for "Maging Sino Ka Man" for lack of sufficient legal basis. The RTC issued a temporary restraining order and later, a writ of preliminary injunction on the basis of its determination that there existed sufficient ground for the issuance thereof. Notably, the RTC did not dissolve the injunction on the ground of lack of legal and factual basis, but because of the plea of RBS that it be allowed to put up a counterbond. As regards attorney's fees, the law is clear that in the absence of stipulation, attorney's fees may be recovered as actual or 58 compensatory damages under any of the circumstances provided for in Article 2208 of the Civil Code. The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium should be 59 placed on the right to litigate. They are not to be awarded every time a party wins a suit. The power of the court to award 60 attorney's fees under Article 2208 demands factual, legal, and equitable justification. Even when claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorney's fees may not be awarded where no sufficient showing of 61 bad faith could be reflected in a party's persistence in a case other than erroneous conviction of the righteousness of his cause. As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof defines what are included in moral damages, while Article 2219 enumerates the cases where they may be recovered, Article 2220 provides that moral damages may be recovered in breaches of contract where the defendant acted fraudulently or in bad faith. RBS's claim for moral damages could possibly fall only under item (10) of Article 2219, thereof which reads: (10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35. Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered. and not to impose a 62 penalty on the wrongdoer. The award is not meant to enrich the complainant at the expense of the defendant, but to enable the injured party to obtain means, diversion, or amusements that will serve to obviate then moral suffering he has undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and should be proportionate to the 63 suffering inflicted. Trial courts must then guard against the award of exorbitant damages; they should exercise balanced restrained 64 and measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption on the part of the trial court. The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no senses, It cannot, therefore, experience physical suffering and mental 65 66 anguish, which call be experienced only by one having a nervous system. The statement in People v. Manero and Mambulao 67 Lumber Co. v. PNB that a corporation may recover moral damages if it "has a good reputation that is debased, resulting in social humiliation" is an obiter dictum. On this score alone the award for damages must be set aside, since RBS is a corporation. The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code. These are imposed by way of 68 example or correction for the public good, in addition to moral, temperate, liquidated or compensatory damages. They are recoverable in criminal cases as part of the civil liability when the crime was committed with one or more aggravating 69 70 circumstances; in quasi-contracts, if the defendant acted with gross negligence; and in contracts and quasi-contracts, if the 71 defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict, or quasi-delict, Hence, the claims for moral and exemplary damages can only be based on Articles 19, 20, and 21 of the Civil Code. The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right or duty, (2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another. Article 20 speaks of the general sanction for all other provisions of law which do not especially provide for their own sanction; while Article 21 deals with acts contra bonus mores, and has the following elements; (1) there is an act which is legal, (2) but which is contrary to morals, good custom, public order, or public 72 policy, and (3) and it is done with intent to injure. Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a conscious and intentional design 73 74 to do a wrongful act for a dishonest purpose or moral obliquity. Such must be substantiated by evidence. There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly convinced of the merits of its cause after it had undergone serious negotiations culminating in its formal submission of a draft contract. Settled is the rule that the adverse result of an action does not per se make the action wrongful and subject the actor to damages, for the law could not have meant to impose a penalty on the right to litigate. If damages result from a person's exercise of a right, it is damnum absque 75 injuria. WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV No, 44125 is hereby REVERSED except as to unappealed award of attorney's fees in favor of VIVA Productions, Inc.1wphi1.nt No pronouncement as to costs. SO ORDERED.

ACEBEDO OPTICAL COMPANY, INC., petitioner, v. THE HONORABLE COURT OF APPEALS, Hon. MAMINDIARA MANGOTARA, in his capacity as Presiding Judge of the RTC, 12th Judicial Region, Br. 1, Iligan City; SAMAHANG OPTOMETRIST Sa PILIPINAS - Iligan City Chapter, LEO T. CAHANAP, City Legal Officer, and Hon. CAMILO P. CABILI, City Mayor of Iligan, Respondents. DECISION PURISIMA, J.: At bar is a petition for review under Rule 45 of the Rules of Court seeking to nullify the dismissal by the Court of Appeals of the original petition for certiorari, prohibition and mandamus filed by the herein petitioner against the City Mayor and City Legal Officer of Iligan and the Samahang Optometrist sa Pilipinas - Iligan Chapter (SOPI, for brevity). The antecedent facts leading to the filing of the instant petition are as follows: Petitioner applied with the Office of the City Mayor of Iligan for a business permit. After consideration of petitioners application and the opposition interposed thereto by local optometrists, respondent City Mayor issued Business Permit No. 5342 subject to the following conditions: 1. Since it is a corporation, Acebedo cannot put up an optical clinic but only a commercial store; 2. Acebedo cannot examine and/or prescribe reading and similar optical glasses for patients, because these are functions of optical clinics; 3. Acebedo cannot sell reading and similar eyeglasses without a prescription having first been made by an independent optometrist (not its employee) or independent optical clinic. Acebedo can only sell directly to the public, without need of a prescription, Ray-Ban and similar eyeglasses; 4. Acebedo cannot advertise optical lenses and eyeglasses, but can advertise Ray-Ban and similar glasses and frames; 1 5. Acebedo is allowed to grind lenses but only upon the prescription of an independent optometrist. On December 5, 1988, private respondent Samahan ng Optometrist Sa Pilipinas (SOPI), Iligan Chapter, through its Acting President, Dr. Frances B. Apostol, lodged a complaint against the petitioner before the Office of the City Mayor, alleging that Acebedo had violated the conditions set forth in its business permit and requesting the cancellation and/or revocation of such permit. Acting on such complaint, then City Mayor Camilo P. Cabili designated City Legal Officer Leo T. Cahanap to conduct an investigation on the matter. On July 12, 1989, respondent City Legal Officer submitted a report to the City Mayor finding the herein petitioner guilty of violating all the conditions of its business permit and recommending the disqualification of petitioner from operating its business in Iligan City. The report further advised that no new permit shall be granted to petitioner for the year 1989 and should only be given time to wind up its affairs. On July 19, 1989, the City Mayor sent petitioner a Notice of Resolution and Cancellation of Business Permit effective as of said date and giving petitioner three (3) months to wind up its affairs. On October 17, 1989, petitioner brought a petition for certiorari, prohibition and mandamus with prayer for restraining order/preliminary injunction against the respondents, City Mayor, City Legal Officer and Samahan ng Optometrists sa Pilipinas-Iligan City Chapter (SOPI), docketed as Civil Case No. 1497 before the Regional Trial Court of Iligan City, Branch I. Petitioner alleged that (1) it was denied due process because it was not given an opportunity to present its evidence during the investigation conducted by the City Legal Officer; (2) it was denied equal protection of the laws as the limitations imposed on its business permit were not imposed on similar businesses in Iligan City; (3) the City Mayor had no authority to impose the special conditions on its business permit; and (4) the City Legal Officer had no authority to conduct the investigation as the matter falls within the exclusive jurisdiction of the Professional Regulation Commission and the Board of Optometry. Respondent SOPI interposed a Motion to Dismiss the Petition on the ground of non-exhaustion of administrative remedies but on November 24, 1989, Presiding Judge Mamindiara P. Mangotara deferred resolution of such Motion to Dismiss until after trial of the case on the merits. However, the prayer for a writ of preliminary injunction was granted. Thereafter, respondent SOPI filed its answer. On May 30, 1990, the trial court dismissed the petition for failure to exhaust administrative remedies, and dissolved the writ of preliminary injunction it earlier issued. Petitioners motion for reconsideration met the same fate. It was denied by an Order dated June 28, 1990. On October 3, 1990, instead of taking an appeal, petitioner filed a petition for certiorari, prohibition and mandamus with the Court of Appeals seeking to set aside the questioned Order of Dismissal, branding the same as tainted with grave abuse of discretion on the part of the trial court. 2 On January 24, 1991, the Ninth Division of the Court of Appeals dismissed the petition for lack of merit. Petitioners motion reconsideration was also denied in the Resolution dated May 15, 1991. Undaunted, petitioner has come before this court via the present petition, theorizing that: A. THE RESPONDENT COURT, WHILE CORRECTLY HOLDING THAT THE RESPONDENT CITY MAYOR ACTED BEYOND HIS AUTHORITY IN IMPOSING THE SPECIAL CONDITIONS IN THE PERMIT AS THEY HAD NO BASIS IN ANY LAW OR ORDINANCE, ERRED IN HOLDING THAT THE SAID SPECIAL CONDITIONS NEVERTHELESS BECAME BINDING ON PETITIONER UPON ITS ACCEPTANCE THEREOF AS A PRIVATE AGREEMENT OR CONTRACT. B. THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE CONTRACT BETWEEN PETITIONER AND THE CITY OF ILIGAN WAS ENTERED INTO BY THE LATTER IN THE PERFORMANCE OF ITS PROPRIETARY FUNCTIONS. The petition is impressed with merit. Although petitioner agrees with the finding of the Court of Appeals that respondent City Mayor acted beyond the scope of his authority in imposing the assailed conditions in subject business permit, it has excepted to the ruling of the Court of Appeals that the said conditions nonetheless became binding on petitioner, once accepted, as a private agreement or contract. Petitioner maintains that the said special conditions are null and void for being ultra vires and cannot be given effect; and therefore, the principle of estoppel cannot apply against it. On the other hand, the public respondents, City Mayor and City Legal Officer, private respondent SOPI and the Office of the Solicitor General contend that as a valid exercise of police power, respondent City Mayor has the authority to impose, as he did, special conditions in the grant of business permits. Police power as an inherent attribute of sovereignty is the power to prescribe regulations to promote the health, morals, peace, 3 education, good order or safety and general welfare of the people. The State, through the legislature, has delegated the exercise of

police power to local government units, as agencies of the State, in order to effectively accomplish and carry out the declared 4 objects of their creation. This delegation of police power is embodied in the general welfare clause of the Local Government Code which provides: Sec. 16. General Welfare. - Every local government unit shall exercise the powers expressly granted, those necessarily implied therefrom, as well as powers necessary, appropriate, or incidental for its efficient and effective governance, and those which are essential to the promotion of the general welfare. Within their respective territorial jurisdictions, local government units shall ensure and support, among other things, the preservation and enrichment of culture, promote health and safety, enhance the right of the people to a balanced ecology, encourage and support the development of appropriate and self-reliant scientific and technological capabilities, improve public morals, enhance economic prosperity and social justice, promote full employment among their residents, maintain peace and order, and preserve the comfort and convenience of their inhabitants. The scope of police power has been held to be so comprehensive as to encompass almost all matters affecting the health, safety, peace, order, morals, comfort and convenience of the community. Police power is essentially regulatory in nature and the power to issue licenses or grant business permits, if exercised for a regulatory and not revenue-raising purpose, is within the ambit of this 5 power. The authority of city mayors to issue or grant licenses and business permits is beyond cavil. It is provided for by law. Section 171, paragraph 2 (n) of Batas Pambansa Bilang 337 otherwise known as the Local Government Code of 1983, reads: Sec. 171. The City Mayor shall: xxx n) Grant or refuse to grant, pursuant to law, city licenses or permits, and revoke the same for violation of law or ordinance or the conditions upon which they are granted. However, the power to grant or issue licenses or business permits must always be exercised in accordance with law, with utmost observance of the rights of all concerned to due process and equal protection of the law. Succinct and in point is the ruling of this Court, that: "x x x While a business may be regulated, such regulation must, however, be within the bounds of reason, i. e., the regulatory ordinance must be reasonable, and its provision cannot be oppressive amounting to an arbitrary interference with the business or calling subject of regulation. A lawful business or calling may not, under the guise of regulation, be unreasonably interfered with even by the exercise of police power. xxx xxx xxx xxx xxx The exercise of police power by the local government is valid unless it contravenes the fundamental law of the land or an act of the legislature, or unless it is against public policy or is unreasonable, oppressive, partial, discriminating or in derogation of a common right."[6] In the case under consideration, the business permit granted by respondent City Mayor to petitioner was burdened with several conditions. Petitioner agrees with the holding by the Court of Appeals that respondent City Mayor acted beyond his authority in imposing such special conditions in its permit as the same have no basis in the law or ordinance. Public respondents and private respondent SOPI, on the other hand, are one in saying that the imposition of said special conditions on petitioners business permit is well within the authority of the City Mayor as a valid exercise of police power. As aptly discussed by the Solicitor General in his Comment, the power to issue licenses and permits necessarily includes the corollary power to revoke, withdraw or cancel the same. And the power to revoke or cancel, likewise includes the power to restrict through 7 the imposition of certain conditions. In the case of Austin-Hardware, Inc. vs. Court of Appeals, it was held that the power to license carries with it the authority to provide reasonable terms and conditions under which the licensed business shall be conducted. As the Solicitor General puts it: "If the City Mayor is empowered to grant or refuse to grant a license, which is a broader power, it stands to reason that he can also exercise a lesser power that is reasonably incidental to his express power, i. e. to restrict a license through the imposition of certain conditions, especially so that there is no positive prohibition to the exercise of such prerogative by the City Mayor, nor is there any particular official or body vested with such authority"[8] However, the present inquiry does not stop there, as the Solicitor General believes. The power or authority of the City Mayor to impose conditions or restrictions in the business permit is indisputable. What petitioner assails are the conditions imposed in its particular case which, it complains, amount to a confiscation of the business in which petitioner is engaged. Distinction must be made between the grant of a license or permit to do business and the issuance of a license to engage in the practice of a particular profession. The first is usually granted by the local authorities and the second is issued by the Board or Commission tasked to regulate the particular profession. A business permit authorizes the person, natural or otherwise, to engage in business or some form of commercial activity. A professional license, on the other hand, is the grant of authority to a natural person to engage in the practice or exercise of his or her profession. In the case at bar, what is sought by petitioner from respondent City Mayor is a permit to engage in the business of running an optical shop. It does not purport to seek a license to engage in the practice of optometry as a corporate body or entity, although it does have in its employ, persons who are duly licensed to practice optometry by the Board of Examiners in Optometry. 9 The case of Samahan ng Optometrists sa Pilipinas vs. Acebedo International Corporation, G.R. No. 117097, promulgated by this Court on March 21, 1997, is in point. The factual antecedents of that case are similar to those of the case under consideration and the issue ultimately resolved therein is exactly the same issue posed for resolution by this Court en banc. In the said case, the Acebedo International Corporation filed with the Office of the Municipal Mayor an application for a business permit for the operation of a branch of Acebedo Optical in Candon, Ilocos Sur. The application was opposed by the Samahan ng Optometrists sa Pilipinas-Ilocos Sur Chapter, theorizing that Acebedo is a juridical entity not qualified to practice optometry. A committee was created by the Office of the Mayor to study private respondents application. Upon recommendation of the said committee, Acebedos application for a business permit was denied. Acebedo filed a petition with the Regional Trial Court but the same was dismissed. On appeal, however, the Court of Appeals reversed the trial courts disposition, prompting the Samahan ng Optometrists to elevate the matter to this Court. The First Division of this Court, then composed of Honorable Justice Teodoro Padilla, Josue Bellosillo, Jose Vitug and Santiago Kapunan, with Honorable Justice Regino Hermosisima, Jr. as ponente, denied the petition and ruled in favor of respondent Acebedo International Corporation, holding that "the fact that private respondent hires optometrists who practice their profession in the course of their employment in private respondents optical shops, does not translate into a practice of optometry by private

respondent itself." The Court further elucidated that in both the old and new Optometry Law, R.A. No. 1998, superseded by R.A. No. 8050, it is significant to note that there is no prohibition against the hiring by corporations of optometrists. The Court concluded thus: "All told, there is no law that prohibits the hiring by corporations of optometrists or considers the hiring by corporations of optometrists as a practice by the corporation itself of the profession of optometry." In the present case, the objective of the imposition of subject conditions on petitioners business permit could be attained by requiring the optometrists in petitioners employ to produce a valid certificate of registration as optometrist, from the Board of Examiners in Optometry. A business permit is issued primarily to regulate the conduct of business and the City Mayor cannot, through the issuance of such permit, regulate the practice of a profession, like that of optometry. Such a function is within the exclusive domain of the administrative agency specifically empowered by law to supervise the profession, in this case the Professional Regulations Commission and the Board of Examiners in Optometry. It is significant to note that during the deliberations of the bicameral conference committee of the Senate and the House of Representatives on R.A. 8050 (Senate Bill No. 1998 and House Bill No. 14100), the committee failed to reach a consensus as to the prohibition on indirect practice of optometry by corporations. The proponent of the bill, former Senator Freddie Webb, admitted thus: "Senator Webb: xxx xxx xxx The focus of contention remains to be the proposal of prohibiting the indirect practice of optometry by corporations. We took a 11 second look and even a third look at the issue in the bicameral conference, but a compromise remained elusive." Former Senator Leticia Ramos-Shahani likewise voted her reservation in casting her vote: "Senator Shahani: Mr. President The optometry bills have evoked controversial views from the members of the panel. While we realize the need to uplift the standards of optometry as a profession, the consensus of both Houses was to avoid touching sensitive issues which properly belong to judicial determination. Thus, the bicameral conference committee decided to leave the issue of indirect practice of optometry 12 and the use of trade names open to the wisdom of the Courts which are vested with the prerogative of interpreting the laws." From the foregoing, it is thus evident that Congress has not adopted a unanimous position on the matter of prohibition of indirect practice of optometry by corporations, specifically on the hiring and employment of licensed optometrists by optical corporations. It is clear that Congress left the resolution of such issue for judicial determination, and it is therefore proper for this Court to resolve the issue. Even in the United States, jurisprudence varies and there is a conflict of opinions among the federal courts as to the right of a 13 corporation or individual not himself licensed, to hire and employ licensed optometrists. Courts have distinguished between optometry as a learned profession in the category of law and medicine, and optometry as a mechanical art. And, insofar as the courts regard optometry as merely a mechanical art, they have tended to find nothing objectionable in the making and selling of eyeglasses, spectacles and lenses by corporations so long as the patient is actually 14 examined and prescribed for by a qualified practitioner. The primary purpose of the statute regulating the practice of optometry is to insure that optometrical services are to be rendered by competent and licensed persons in order to protect the health and physical welfare of the people from the dangers engendered by unlicensed practice. Such purpose may be fully accomplished although the person rendering the service is employed by a 15 corporation. 16 Furthermore, it was ruled that the employment of a qualified optometrist by a corporation is not against public policy. Unless 17 prohibited by statutes, a corporation has all the contractual rights that an individual has and it does not become the practice of 18 medicine or optometry because of the presence of a physician or optometrist. The manufacturing, selling, trading and bartering of 19 eyeglasses and spectacles as articles of merchandise do not constitute the practice of optometry. 20 In the case of Dvorine vs. Castelberg Jewelry Corporation, defendant corporation conducted as part of its business, a department for the sale of eyeglasses and the furnishing of optometrical services to its clients. It employed a registered optometrist who was compensated at a regular salary and commission and who was furnished instruments and appliances needed for the work, as well as an office. In holding that the corporation was not engaged in the practice of optometry, the court ruled that there is no public policy forbidding the commercialization of optometry, as in law and medicine, and recognized the general practice of making it a commercial business by advertising and selling eyeglasses. To accomplish the objective of the regulation, a state may provide by statute that corporations cannot sell eyeglasses, spectacles, and lenses unless a duly licensed physician or a duly qualified optometrist is in charge of, and in personal attendance at the place 21 where such articles are sold. In such a case, the patients primary and essential safeguard lies in the optometrists control of the 22 "treatment" by means of prescription and preliminary and final examination. In analogy, it is noteworthy that private hospitals are maintained by corporations incorporated for the purpose of furnishing medical and surgical treatment. In the course of providing such treatments, these corporations employ physicians, surgeons and medical practitioners, in the same way that in the course of manufacturing and selling eyeglasses, eye frames and optical lenses, optical shops hire licensed optometrists to examine, prescribe and dispense ophthalmic lenses. No one has ever charged that these corporations are engaged in the practice of medicine. There is indeed no valid basis for treating corporations engaged in the business of running optical shops differently. It also bears stressing, as petitioner has pointed out, that the public and private respondents did not appeal from the ruling of the Court of Appeals. Consequently, the holding by the Court of Appeals that the act of respondent City Mayor in imposing the questioned special conditions on petitioners business permit is ultra vires cannot be put into issue here by the respondents. It is well-settled that: "A party who has not appealed from the decision may not obtain any affirmative relief from the appellate court other than what he had obtain from the lower court, if any, whose decision is brought up on appeal.[23] xxx an appellee who is not an appellant may assign errors in his brief where his purpose is to maintain the judgment on other grounds, but he cannot seek modification or reversal of the judgment or affirmative relief unless he has also appealed."[24] Thus, respondents submission that the imposition of subject special conditions on petitioners business permit is notultra vires cannot prevail over the finding and ruling by the Court of Appeals from which they (respondents) did not appeal.

10

Anent the second assigned error, petitioner maintains that its business permit issued by the City Mayor is not a contract entered into by Iligan City in the exercise of its proprietary functions, such that although petitioner agreed to such conditions, it cannot be held in estoppel since ultra vires acts cannot be given effect. Respondents, on the other hand, agree with the ruling of the Court of Appeals that the business permit in question is in the nature of a contract between Iligan City and the herein petitioner, the terms and conditions of which are binding upon agreement, and that petitioner is estopped from questioning the same. Moreover, in the Resolution denying petitioners motion for reconsideration, the Court of Appeals held that the contract between the petitioner and the City of Iligan was entered into by the latter in the performance of its proprietary functions. This Court holds otherwise. It had occasion to rule that a license or permit is not in the nature of a contract but a special privilege. "xxx a license or a permit is not a contract between the sovereignty and the licensee or permitee, and is not a property in the constitutional sense, as to which the constitutional proscription against impairment of the obligation of contracts may extend. A license is rather in the nature of a special privilege, of a permission or authority to do what is within its terms. It is not in any way vested, permanent or absolute."[25] It is therefore decisively clear that estoppel cannot apply in this case. The fact that petitioner acquiesced in the special conditions imposed by the City Mayor in subject business permit does not preclude it from challenging the said imposition, which is ultra vires or beyond the ambit of authority of respondent City Mayor. Ultra vires acts or acts which are clearly beyond the scope of ones authority are null and void and cannot be given any effect. The doctrine of estoppel cannot operate to give effect to an act which is otherwise null and void or ultra vires. The Court of Appeals erred in adjudging subject business permit as having been issued by respondent City Mayor in the performance of proprietary functions of Iligan City. As hereinabove elaborated upon, the issuance of business licenses and permits by a municipality or city is essentially regulatory in nature. The authority, which devolved upon local government units to issue or grant such licenses or permits, is essentially in the exercise of the police power of the State within the contemplation of the general welfare clause of the Local Government Code. WHEREFORE , the petition is GRANTED; the Decision of the Court of Appeals in CA-GR SP No. 22995 REVERSED; and the respondent City Mayor is hereby ordered to reissue petitioners business permit in accordance with law and with this disposition. No pronouncement as to costs. SO ORDERED.

EMILIANO ACUA, plaintiff-appellant, vs. BATAC PRODUCERS COOPERATIVE MARKETING ASSOCIATION, INC., JUSTINO GALANO, TEODORO NARCISO, PABLO BACTIN, (DR.) EMMANUEL BUMANGLAG, VENANCIO DIRIC, MARCOS ESQUIVEL, EVARISTO CAOILI, FIDEL BATTULAYAN, DAMIAN ROSSINI, RAYMUNDO BATALLONES, PLACIDO QUIAOIT, and LEON Q. VERANO defendants-appellees. Marquez and Marquez for plaintiff-appellant. Estanislao A. Fernandez for defendants-appellees. MAKALINTAL, J.: Appeal taken from the order dated September 10, 1962 of the Court of First Instance of Rizal, Branch V (Quezon City) dismissing plaintiff's complaint on the ground that it states no cause of action, and discharging the writ of preliminary attachment issued therein. On August 9, 1962, plaintiff Emiliano Acua filed a complaint, which was later amended on August 13, against the defendant Batac Producers Cooperative Marketing Association, Inc., hereinafter called the Batac Procoma, Inc., or alternatively, against all the other defendants named in the caption. The complaint alleged, inter alia, that on or about May 5, 1962 it was tentatively agreed upon between plaintiff and defendant Leon Q. Verano, as Manager of the defendant Batac Procoma, Inc., that the former would seek and obtain the sum of not less, than P20,000.00 to be advanced to the defendant Batac Procoma, Inc., to be utilized by it as additional funds for its Virginia tobacco buying operations during the current redrying season; that plaintiff would be constituted as the corporation's representative in Manila to assist in handling and facilitating its continuous shipments of tobacco and their delivery to the redrying plants and in speeding up the prompt payment and collection of all amounts due to the corporation for such shipments; that for his services plaintiff would be paid a remuneration at the rate of P0.50 per kilo of tobacco; that said tentative agreement was favorably received by the Board of Directors of the defendant Batac Procoma Inc., and on May 6, 1962 all the defendants named above, who constituted the entire Board of Directors of said corporation (except Leon Q. Verano, who was its Manager), together with defendants Justino Galano and Teodoro Narciso, as President and Vice-President, respectively, unanimously authorized defendant Leon Q. Verano, by a formal resolution, "to execute any agreement with any person or entity, on behalf of the corporation, for the purpose of securing additional funds for the corporation, as well as to secure the services of such person or entity, in the collection of all payments due to the corporation from the PVTA for any tobacco sold and delivered to said administration; giving and conferring upon the Manager, full and complete authority to bind the corporation with such person or entity in any agreement, and under such considerations, which the said Manager may deem expedient and necessary for that purpose; that plaintiff was made to understand by all of said defendants that the original understanding between him and defendant Leon Q. Verano was acceptable to the corporation, except that the remuneration for the plaintiff's services would be P0.30 per kilo of tobacco; that on May 10, 1962, the formal "Agreement" was executed between plaintiff and defendant Leon Q. Verano, as Manager of the defendant corporation, duly authorized by its Board of Directors for such purpose, and signed by defendants Justino Galano and Dr. Emmanuel Bumanglag as instrumental witnesses and acknowledged by Atty. Fernando Alcantara, the Secretary and Legal Counsel of the defendant corporation; that upon plaintiff's inquiry, he was assured by these defendants that a formal approval of said "Agreement" by the Board was no longer necessary, as it was a mere "formality" appended to its authorizing resolution and as all the members of the Board had already agreed to the same; that on the same date, May 10, 1962, plaintiff gave and turned over to the defendant corporation, thru its treasurer, Dominador T. Cocson the sum of P20,000.00, in the presence of defendants Leon Q. Verano, Justino Galano, Dr. Emmanuel Bumanglag and Atty. Fernando Alcantara, for which said treasurer issued to plaintiff its corresponding Official Receipt No. 130852; that from then on, plaintiff diligently and religiously kept his part of the "Agreement;" that plaintiff even furnished the defendant corporation, upon request of its Manager Leon Q. Verano three thousand (3,000) sacks which it utilized in the shipment of its tobacco costing P6,000.00 and that plaintiff had personally advanced out of his own personal funds the total sum of P5,000.00 with the full knowledge, acquiescence and consent of all the individual defendants; that after the defendant corporation was enabled to replenish its funds with continuous collections from the PVTA for tobacco delivered due to the help, assistance and intervention of plaintiff, for which the said corporation collected from the PVTA the total sum of P381,495.00, the "Agreement" was disapproved by its Board of Directors on June 6, 1962. Upon the foregoing allegations plaintiff prays: (a) that an order of attachment be issued against the properties of defendant corporation; (b) that after due trial, judgment be rendered condemning defendant corporation, or alternatively, all the other individual defendants, jointly and severally, to comply with their contractual obligations and to pay plaintiff the sum of P300,000.00 for his services, plus P31,000.00 for cash advances made by him and P25,000.00 for attorney's fees. On August 14, 1962, the lower court ordered the issuance of a writ of preliminary attachment against the properties of the defendants and on the following day, after the plaintiff had posted the required bond, the writ was accordingly issued by the Clerk of Court.1wph1.t On August 22, 1962, the defendants filed a motion to dismiss the complaint on the ground that it stated no cause of action and to discharge the preliminary attachment on the ground that it was improperly or irregularly issued. In support of the motion defendants alleged that the contract for services was never perfected because it was not approved or ratified but was instead disapproved by the Board of Directors of defendant Batac Procoma, Inc., and that on the basis of plaintiff's pleadings the contract is void and unenforceable. Defendants further denied the fact that plaintiff had performed his part of the contract, alleging that he had not in any manner intervened in the delivery and payment of tobacco pertaining to the defendant corporation. On August 25, 1962, plaintiff filed a written opposition to the motion to dismiss and to discharge the preliminary attachment. On September 10, 1962, the trial court sustained defendants' motion and issued the following order: In resume the Court believes that the complaint states no cause of action and that contract in question is void ab initio. IN VIEW OF THE FOREGOING, the amended complaint filed in this case is hereby ordered DISMISSED, without special pronouncement as to costs. Consequently, the writ of preliminary attachment issued herein is ordered discharged. However, it is of record that the defendants has (sic) deposited the Court the amount of P20,400.00 representing the amount of money invested by the plaintiff plus the corresponding interest thereon. Plaintiff, by virtue of this order, may withdraw the same in due time, if he so desires, upon proper receipt therefor. From the foregoing order plaintiff interposed the present appeal. Appellant has assigned four errors, which we shall consider seriatim: The first assignment reads: "As the defendants' motion to dismiss the complaint and to discharge the preliminary attachment was based on the specific ground that the complaint states no cause of action (Sec. 1 [f], Rule 8, Rules of Court), the lower court should

not have gone beyond, and it should have limited itself, to the facts alleged in the complaint in considering and resolving said motion to dismiss. It is a settled principle that when a motion to dismiss is based on the ground that the complaint does not state a cause of action (Rule 8, Section 1, par. 7 of the old Rules; Rule 16, Section 1., par. [g] of the Revised Rules) the averments in the complaint are deemed hypothetically admitted and the inquiry is limited to whether or not they make out a case on which relief can be granted. If said motion assails directly or indirectly the veracity of the allegations, it is improper to grant the motion upon the assumption that the averments therein are true and those of the complaint are not (Carreon vs. Prov. Board of Pampanga, 52 O.G. 6557.) The sufficiency of the motion should be tested on the strength of the allegations of facts contained in the complaint, and no other. If these allegations show a cause of action, or furnish sufficient basis by which the complaint can be maintained, the complaint should not be dismissed regardless of the defenses that may be averred by the defendants. (Josefa de Jesus, et al. vs. Santos Belarmino, 50 O.G. 3004-3068; Verzosa vs. Rigonan, G.R. No. L-6459, April 23, 1954; Dimayuga vs. Dimayuga, 51 O.G. 2397-2400.) The first ground upon which the order of dismissal issued by the lower court is predicated is that the Board of Directors of defendant corporation did not approve, the agreement in question in fact disapproved it by a resolution passed on June 6, 1962 and that as a consequence the "suspensive condition" attached to the agreement was never fulfilled. The specific stipulation referred to by the Court as a suspensive condition states: "provided, however that the contract entered into by said manager to carry out the purposes above-mentioned shall be subject to the approve by the Board." A perusal of the complaint reveals that it contains sufficient allegations indicating such approval or at least subsequent ratification. On the first point we note the following averments: that on May 9th the plaintiff met with each and all of the individual defendants (who constituted the entire Board of Directors) and discussed with them extensively the tentative agreement and he was made to understand that it was acceptable to them, except as to plaintiff's remuneration; that it was finally agreed between plaintiff and all said Directors that his remuneration would be P0.30 per kilo (of tobacco); and that after the agreement was formally executed he was assured by said Directors that there would be no need of formal approval by the Board. It should be noted in this connection that although the contract required such approval it did not specify just in what manner the same should be given. On the question of ratification the complaint alleges that plaintiff delivered to the defendant corporation the sum of P20,000.00 as called for in the contract; that he rendered the services he was required to do; that he furnished said defendant 3,000 sacks at a cost of P6,000.00 and advanced to it the further sum of P5,000.00; and that he did all of these things with the full knowledge, acquiescence and consent of each and all of the individual defendants who constitute the Board of Directors of the defendant corporation. There is abundant authority in support of the proposition that ratification may be express or implied, and that implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom. Significantly the very resolution of the Board of Directors relied upon by defendants appears to militate against their contention. It refers to plaintiff's failure to comply with certain promises he had made, as well as to his interpretation of the contract with respect to his remuneration which, according to the Board, was contrary to the intention of the parties. The resolution then proceeds to "disapprove and/or rescind" the said contract. The idea of conflicting interpretation, or rescission on the ground that one of the parties has failed to fulfill his obligation under the contract, is certainly incompatible with defendants' theory here that no contract had yet been perfected for lack of approval by the Board of Directors. Appellants' second assignment of error reads: "Assuming that in resolving the defendants' motion to dismiss the lower court could consider the new facts alleged therein and the documents annexed thereto it committed an error in extending such consideration beyond ascertaining only if an issue of fact has been presented and in actually deciding instead such fact in issue." The assignment is well taken, and is the logical corollary of the rule that a motion to dismiss on the ground that the complaint fails to state a cause of action addresses itself to the averments in the complaint and, admitting their veracity, merely questions their sufficiency to make out a case on which the court can grant relief. Affidavits, such as those presented by defendants in support of the motion, can only be considered for the purpose of ascertaining whether an issue of fact is presented, but not as a basis for deciding the factual issue itself. This should await the trial on the merits. The third assignment of error assails the lower court's ruling that even assuming that a contract had been perfected no action can be maintained thereon because its object was illegal and therefore void. Specific reference was made by said court to an affidavit executed by appellant on May 10, 1962 which reads: That I, EMILIANO ACUA, the party of the Second Part in the contract entered into with the Batac Procoma, Inc., the party of the First Part in same contract declares that the amount of P0.30 per kilo is referred to upgraded tobacco only as delivered. This supplements paragraph three of the contract referred to. Deliveries downgraded or maintained at the redrying plant are deemed not included. The lower court, in its order of dismissal, held that "the upgrading of tobaccos is clearly prohibited under our laws," and hence the contract cannot be validly ratified. Evidently the court had in mind a fraudulent upgrading of tobacco by appellant as part of the services called for under the contract. This conclusion, however, is squarely traversed by appellant in another affidavit attached to his reply and opposition to the motion to dismiss, in which he explained the circumstances which led to the execution of the one relied upon by the court, and the real meaning of the word "upgraded" therein. It is therein stated: That after the execution of the agreement (Annex "B" to the amended complaint in said Civil Case No. Q-6547), Messrs. Verano, Galano and Dr. Bumanglag of the defendant Corporation indicated to me that if the price of P0.30 per kilo stipulated there to be paid to me were to be indiscriminately applied to all deliveries of tobaccos, the Corporation would be placed in a disadvantageous and losing position, and they proceeded to explain to me the following, (a) that when the farmers sell their tobaccos to the Facoma, they do so in bunches of assorted qualities which may belong either to Class A, B, C, D and E, and upon such purchase they are initially given an arbitrary classification of any of such classes as the case may be, the tendency generally being to give them a lower classification to equalize or average the assorted qualities as much as possible, and this is what is termed "downgrading;" (b) that after the tobaccos have been purchased by the Facoma from the farmers, they are then reassorted and re-classified in accordance with their actual quality or grade as found by the officials of the Facoma, thus in a bunch which are purchased as Class C, D or E, upon reclassification those found to belong to Class A are separated from Class B, those belonging to Class B are separated from Class C, and so on, and these bunches so reclassified necessarily have a higher grade than the farmers, and this is what is termed "upgrading" upon delivery original arbitrary classification given when purchased from the which was used in the addendum;

(c) the Facoma, in turn, delivers these properly re-classified tobaccos to the redrying plant, and there, a group of officials composed of a representative of the redrying plant, the Bureau of Internal Revenue, the General Auditing Office, the PVTA and the Facoma representative, then examines and grades the tobaccos, and if the classification given by the Facoma is found correct and not changed, then and only then would or should be entitled to collect the P0.30 per kilo, and this they said is what is termed "grade maintained" on the other hand, if these officials found the classification incorrect and lowers the classification given by the Facoma, thus class A to B, or from B to C, then the tobaccos are considered or said to be "downgraded" and in that event I should not receive any centavo for such deliveries, and it is in this sense that I was made to understand the term; Believing implicitly in the foregoing explanations of the defendants and in the reasonableness of their proposal, I agreed readily and Atty. Fernando Alcantara, Legal Counsel and Secretary of the defendant Corporation forthwith prepared, drafted and typed the "addendum" in question in their own typewriter of the Corporation; and as I am not a lawyer and was not well versed with the usage, customs and phraseology usually used in tobacco trading, I relied in absolute good faith that, as explained by the defendants, there was nothing wrong nor illegal in the use of the words "upgrading" and "downgrading" used in said addendum, which Atty. Alcantara unfortunately used in the same; Apart from the above, defendants knew the physical impossibility of "upgrading" the tobaccos at the redrying plant, because at the time of the transaction, only the PTFC & RC was allowed to accept tobacco for redrying and under the existing regulations and practices the delivery area for tobaccos at the redrying plant is enclosed by a high wire fence inaccessible to the general public and the only ones who actually make the grading of tobaccos delivered, are the (1) American representative of the redrying plant (PTFC & RC), (2) the PVTA, (3) the BIR, and (4) the General Auditing Office in the presence of the representative of the FACOMA, and since the redrying plant is compelled to purchase 41% of all tobaccos delivered and redried under their negotiated management contract, it is highly improbable that the representative of the redrying plant (PTFC & RC) whose conformity to the actual grading done must appear in the corresponding "guia" or tally sheet, would allow the "upgrading" of tobaccos, aside from the fact that stringent measures had been devised under the present administration to prevent the "upgrading" of tobaccos by any party. Certainly, an impossible condition could not have been contemplated by me and the defendants; (Record on Appeal, pp. 171-175). The foregoing explanation, on its face, is satisfactory and deprives the term "upgraded" of the sinister and illegal connotation attributed to it by the lower court. To be sure, whether the allegations in this subsequent affidavit are true or not is a question of fact; but it is precisely for this reason that they can neither be summarily admitted nor rejected for purposes of a motion to dismiss. Due process demands that they be the subject of proof and considered only after trial on the merits. The other errors assigned by appellant are merely incidental to those already discussed, and require no separate treatment. Wherefore, the order appealed from is set aside and the case is remanded to the court a quo for further proceedings, without prejudice to, the right of plaintiff-appellant to ask for another writ of attachment in said court, as the circumstances may warrant. Costs against defendants-appellees.

AETNA CASUALTY & SURETY COMPANY, plaintiff-appellant, vs. PACIFIC STAR LINE, THE BRADMAN CO. INC., MANILA PORT SERVICE and/or MANILA RAILROAD COMPANY, INC., defendantsappellees. Domingo E. de Lara & Associates for appellant. Salcedo, Del Rosario, Bito & Mesa for appellee Pacific Star Line. D. F. Macaranas for appellee Manila Port Service, etc. FERNANDEZ, J.: This is an appeal from the decision of the Court of First Instance of Manila, Branch XVI, in Civil Case No. 53074 entitled Aetna Casualty & Surety Company vs. Pacific Star Line, The Bradman Co. Inc., Manila Port Service and/or Manila Railroad Company, Inc." dismissing the complaint on the ground that the plaintiff has no legal capacity to bring this suit and making no finding as to the 1 liability of the defendants. On February 11, 1963, Smith Bell & Co. (Philippines), Inc. and Aetna Surety Casualty & Surety Co. Inc., as subrogee, instituted Civil Case No. 53074 in the Court of First Instance of Manila against Pacific Star Line, The Bradman Co. Inc., Manila Port Service and/or Manila Railroad Company, Inc. to recover the amount of US $2,300.00 representing the value of the stolen and damaged cargo plus litigation expenses and exemplary damages in the amounts of P1,000.00 and P2,000.00, respectively, with legal interest thereon from the filing of the suit and costs. The complaint stated that during the time material to the action, the defendant Pacific Star Line, as a common carrier, was operating the vessel SS Ampal on a commercial run between United States and Philippine Ports including Manila; that the defendant, The Bradman Co. Inc., was the ship agent in the Philippines for the SS Ampal and/or Pacific Star Line; that the Manila Railroad Co. Inc. and Manila Port Service were the arrastre operators in the port of Manila and were authorized to delivery cargoes discharged into their custody on presentation of release papers from the Bureau of Customs and the steamship carrier and/or its agents; that on December 2, 1961, the SS Ampal took on board at New York, N.Y., U.S.A., a consignment or cargo including 33 packages of Linen & Cotton Piece Goods for shipment to Manila for which defendant Pacific Star Line issued Bill of Lading No. 18 in the name of I. Shalom & Co., Inc., as shipper, consigned to the order of Judy Philippines, Inc., Manila; that the SS Ampal arrived in Manila on February 10, 1962 and in due course, discharged her cargo into the custody of Manila Port Service; that due to the negligence of the defendants, the shipment sustained damages valued at US $2,300.00 representing pilferage and seawater damage; that I. Shalom & Co., Inc. immediately filed claim for the undelivered land damaged cargo with defendant Pacific Star Line in New York, N.Y., but said defendant refused and still refuses to pay the said claim; that the cargo was insured by I. Shalom & Co., Inc. with plaintiff Aetna Casualty & Surety Company for loss and/or damage; that upon demand, plaintiff Aetna Casualty & Surety Company indemnified I. Shalom & Co., Inc. the amount of US $2,300.00; that in addition to this, the plaintiffs had obligated themselves to pay attorney's fees and they further anticipated incurring litigation expenses which may be assessed at P1,000.00; that plaintiffs and/or their predecessor-in-interest sustained losses due to the negligence of Pacific Star Line prior to delivery of the cargo to Manila or, in the alternative, due to the negligence of Manila Port Service after delivery of the cargo to it by the SS Ampal; that despite repeated demands, none of the defendants has been willing to accept liability for the claim of the plaintiffs and/or I. Shalom & Co., Inc.; and that by reason of defendants' evident bad faith, they should consequently be liable to pay exemplary damages in the amount of 2 P2,000.00. On motion of the defendants Pacific Star Line and The Bradman Co. Inc. and with the conformity of the plaintiff Aetna Casualty & 3 Surety Company, the plaintiff Smith Bell & Co. (Philippines), Inc. was dropped and the complaint was dismiss as to said plaintiff. In their answer filed on February 28, 1963, the defendants Manila Port Service and Manila Railroad Company, Inc. alleged that they have exercised due care and diligence in handling and delivering the cargoes consigned to Judy Philippines, Inc.; that, in fact, they had delivered the merchandise to the consignee thereof in the same quantity, order and condition as when the same was actually received from the carrying vessel; that a portion of the shipment in question was discharged from the carrying vessel in bad order and condition and consequently, any loss or shortage incurred thereto, is the sole responsibility of the said carrying vessel and not that of the arrastre operator; that they have delivered to the consignee thereof the same quantity of merchandise and in the same order or condition as when received from the carrying vessel; that since no claim of the value of the goods in question was filed by the plaintiff or any of its representative within 15 days from the discharge of the last package from the carrying vessel, the claim has become time-barred and/or prescribed pursuant to the management contract under which said defendants were appointed as arrastre operator at the Port of Manila; that consequently, they are completely relieved or released from any or all liability therefor 4 and that they do not in any manner act as agent of the carrying vessel in the discharge of the goods at the piers. The Pacific Star Line and The Bradman Co. Inc. alleged in their answer as special defenses that the plaintiff's cause of action, if any, against the answering defendants had prescribed under the provisions of the Carriage of Goods by Sea Act and/or the terms of the covering bill of lading that the entire shipment covered by the bill of lading issued by answering defendant Pacific Star Line was discharged complete and in good order condition into the custody of the other defendant, Manila Port Service, which was the operator of the arrastre service at the Port of Manila; that any damage which may have occurred to the cargo while it was in the custody of the other defendant, Manila Port Service was caused solely by the negligence of said arrastre operator and is, therefore, its sole responsibility, the defendant Manila Port Service is not the vessel agent in the receiving, handling, custody and/or delivery of the cargo purchased: that the vessel responsibility ceased upon removal of the cargo from the ship's tackle; that defendant Manila Port Service is not the vessel's or answering defendant's agent in the receiving, handling, custody and/or delivery of the cargo consignee; that the vessel's responsibility ceased upon removal of the cargo from the ship's tackles; that the vessel's liability, if any, 5 for one case cannot exceed the sum of P 500.00 under the Carriage of Goods by Sea Act. The defendants Manila Port Service and Manila Railroad Company, Inc. amended their answer to allege that the plaintiff, Aetna casualty & Surety Company, is a foreign corporation not duly licensed to do business in the Philippines and, therefore. without 6 capacity to sue and be sued. The parties submitted on November 23, 1965 the following partial stipulation of facts-. PARTIAL STIPULATION OF FACTS COME NOW the parties, through their undersigned counsel, and to this Honorable Court respectfully submit the following Partial Stipulation of Facts: A. - On their part, defendants admit: 1. - Paragraphs 2, 3, and 4 of the complaint;

2. - That the S/S Ampal arrived in Manila, on February 10, 1962 and in due course discharged her cargoes into the custody of the defendant Manila Port Service, including the subject shipment complete and in good order, except two (2) cases Nos. 5804 and 16705 which were discharged under B.O. Tally Sheets Nos. 2721 and 2722 and turned over to the custody of the defendant Manila Port Service by the vessel S/S Ampal. The shipping Documents covering the cargo were indorsed and sent to Judy's Philippines, Inc. for processing and eventual return thereof to the owner, and which cleared the documents with the defendants and the Bureau of Customs; 3 - That the I. Shalom & Co., Inc. filed claim for undelivered and damaged portion of subject cargo with defendant Pacific Star Line in New York, New York, but said defendant refused and still refuses to pay the said claim, for the reason stated in said defendant's letter to Smith, Bell & Co. (Philippines, Inc. dated June 1, 1962, copy of which letter is hereto attached and marked Annex A; 4 - That Judy's Philippines, Inc. through its customs broker filed provisional claims with defendant The Bradman Co., Inc. and defendant Manila Port Service on February 13, 1962. B. - Defendants admit the genuineness and due execution of the following documents: 1 - Bill of Lading No. 18 dated December 22, 1961, ex S/S Ampal, attached hereto and marked as Annex B; 2 - Invoice dated December 26, 1961 of I. Shalom & Co., Inc. attached hereto and marked as Annex B; 3 - Provisional Claim filed with The Bradman Co., Inc. on February 13, 1962, attached hereto and marked as Annex E; 4 - Provisional Claim filed with the Manila Port Service on February 13, 1962, attached hereto and marked as Annex E; 5 - Request for Bad Order Examination No. 1073 dated march 6, 1962 covering Cases Nos. 16705 and 5804, attached hereto and marked as Annex F; 6 - Request for Bad Order Examination No. 1177 dated March 5, 1962 covering Cases Nos. 14913 and 15043, attached 'hereto and marked as Annex G; 7 - Formal Claim dated April 10,1962 addressed to defendant Pacific Star Line filed by I. Shalom & co. Inc. attached hereto and marked as Annex H; 8 - Letter dated May 3, 1962 addressed to defendant Manila Port Service by Smith, Bell & co. (Philippines) Inc., attached hereto and marked as Annex I; 9 - Letter dated August 8, 1962 addressed to the defendant Manila Port Service by Smith Bell & Co. (Philippines) Inc., attached hereto and marked as Annex J; 10 - Certification of Insurance, authenticated by the Philippine Consul, New York, U.S.A. attached hereto and marked as Annex K; 11. Subrogation Receipt dated June 1, 1962, attached hereto and marked as Annex L; C. - On their part, plaintiff and defendant Pacific Star Line and The Bradman Company, Inc. admit: 1. - Having knowledge and being bound by the provisions of the Management Contract entered into by and between the Manila Port Service and the Bureau of customs on February 29, 1956, covering the operation of the arrastre service in the Port of Manila, a copy of which is attached hereto and marked as Annex M; 2. - The genuineness and due execution of Gate Pass No. 34582 which, aiming others, covers Case NO. 14915, attached hereto and marked as Annex N; 3. - The genuineness and due execution of Gate Pass No. 34837, which, among others, cover Cases No. 16706 and 16707, attached hereto and marked as Annex O; 4. - The genuineness and due execution of a Certification issued by the Office of the Insurance Commissioner dated December 19, 1964, a photostat copy of which is attached hereto and marked as Annex P; 5. - The genuineness and due execution of a Certification issued by the Securities and Exchange Commission dated November 10, 1964, a photostat copy of which is attached hereto and marked as Annex Q; 6. - That the value of the shipment in question was not specified or manifested in the bill of lading and that the arrastre charges thereon were paid on the basis of weight and/or measurement and not on the value thereof. D. On other part, plaintiff and defendant Manila Port Service admit: 1. - That the shipment in question was discharged complete and in good order condition into the custody of the Manila Port Service except Cases Nos. 5804 and 16705 covered by Tally Sheets Nos. 2721 and 2722; 2. - That as per signed copies of Survey Report and Turnover Receipt both dated February 26, 1962, all goods contained in Case No. 5804 were received in good order condition by the consignee who waived all claims thereon and that the contents of Case No. 16705 were turned over to the defendant Manila Port Service in the condition shown in said Turnover Receipt; 3. - The genuineness and due execution of the following documents: (a) Tally Sheet No. 2721 dated November 2, 1962 attached hereto and marked as Annex R; (b) Tally Sheet No. 2722, dated November 2, 1962, attached thereto and marked as Annex S; mark as Annex T; (d) Turnover Receipt dated February 26, 1962, attached hereto and marked as Annex U. WHEREFORE, it is respectfully prayed that the following Partial Stipulation of Facts be approved, and the parties be allowed to present evidence on the remaining controverted issues. Manila, Philippines, September, 1965.

VICTOR AFRICA, petitioner, vs. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, JOSE LAURETA, MELQUIADES GUTIERREZ, EDUARDO M. VILLANUEVA, EDUARDO DE LOS ANGELES and ROMAN MABANTA, JR., respondents. G.R. No. 85594 January 9, 1992 PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT and PCGG-Nominees/Designees: MELQUIADES GUTIERREZ, EDUARDO M. VILLANUEVA, RAMON DESUASIDO, ALMARIO P. VELASCO, RANULFO P. PAYOS and JOSE P. ROXAS, petitioners. vs. THE HONORABLE SANDIGANBAYAN (THIRD DIVISION), JOSE L. AFRICA, MANUEL H. NIETO, JR., RAFAEL VALDEZ and VICTOR AFRICA, respondents. G.R. No. 85597 January 9, 1992 REPUBLIC OF THE PHILIPPINES (PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT), petitioner, vs. THE HONORABLE SANDIGANBAYAN (THIRD DIVISION), JOSE L. AFRICA, MANUEL H. NIETO and RAFAEL VALDEZ, respondents. G.R. No. 85621 January 9, 1992 EDUARDO M. VILLANUEVA, petitioner, vs. THE HONORABLE SANDIGANBAYAN (THIRD DIVISION), JOSE L. AFRICA, MANUEL NIETO, RAFAEL C. VALDEZ and PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT,* respondents. Victor Africa for petitioner in G.R. No. 83831 Jose L. Africa and Manuel H. Nieto for respondents in G.R. No. 85594 and 85597. Arthur D. Lim Law Office for petitioner in G.R. No. 85621. Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for respondents Mabanta & de los Angeles in 83831 & 85594. REGALADO, J.: 1 These four cases separately filed before this Court were consolidated pursuant to our resolution of November 22, 1988 since they involve issues arising from, incidental or related to the sequestration of Eastern Telecommunications Philippines, Inc. (ETPI) by the Presidential Commission on Good Government (PCGG) on March 14, 1986 and the consequent filing by the PCGG on July 22, 1987 of an action for reconveyance, reversion, accounting and restitution of the alleged ill-gotten ETPI shares and damages, docketed as Civil Case No. 0009 in the Sandiganbayan. Shortly after the PCGG sequestered ETPI on March 14, 1986, the sequestration order was partially lifted in May, 1986 when 40% of the shares of stock (Class "B") owned by Cable and Wireless, Ltd. were freed from the effects of sequestration. The remaining 60% of the shares (Class "A"), however, remained under sequestration. Thereafter, on July 22, 1987, the PCGG filed with the Sandiganbayan the aforesaid Civil Case No. 0009. Subsequently, during the annual stockholders meeting convened on January 29, 1988 pursuant to a PCGG Resolution dated January 28, 1988 which called for the resumption of the stockholders meeting originally scheduled on January 4, 1988, Eduardo M. Villanueva, as PCGG nominee, Roman Mabanta, Jr. and Eduardo de los Angeles as nominees of the foreign investors, Cable and Wireless Ltd., and Jose L. Africa (who was absent) were elected as members of the board of directors. An organizational meeting was later held where Eduardo Villanueva was elected as president and general manager, while Ramon Desuasido, Almario Velasco and Ranulfo Payos were elected as acting corporate secretary, acting treasurer, and acting assistant corporate secretary, respectively. The nomination and election of PCGG nominees/designees to the ETPI Board of Directors, as well as the election of its new officers, triggered a chain of contentious proceedings before the Sandiganbayan and this Court between the members of the ETPI Board and its stockholders, on the one hand, and the PCGG's nominees/designees elected ETPI Board, on the other hand, in the cases hereinunder discussed. G.R. No. 83831 Victor Africa, who claims to be an employee of ETPI holding the positions of vice-president, general counsel (on official leave without pay), corporate secretary and special assistant to the chairman (and president), filed directly with this Court on June 30, 1988 a petition for injunction docketed as G.R. No. 83831, seeking to enjoin the PCGG and its nominees/designees to the board of directors and the newly-installed officers of ETPI from implementing their alleged illegal, invalid and immoral act of ousting him from his offices and positions at the ETPI pending the determination of whether they have validly, legally and morally assumed their supposed positions and offices as "directors" and/or "officers" of ETPI. He contends that the reasons advanced by the PCGG-sponsored board of directors for ousting him from his offices (redundancy, need to conserve company funds and loss of confidence) are flimsy, whimsical and arbitrary, evidencing not only the PCGGsponsored board's discriminatory and oppressive attitude towards him but, more importantly, its clear intent to harass him into refraining from questioning before several tribunals all the invalid, illegal and immoral acts of said PCGG-sponsored board which have caused and are still causing ETPI damages because they constitute dissipation of assets. Further claiming that the acts of respondents will work injustice, unfairness and inequity to him as they will invalidly, illegally and immorally deprive him of his principal means of livelihood to the detriment of his spouse and three children, petitioner sought the issuance of a writ of preliminary injunction or a temporary restraining order to enjoin the PCGG from ousting him from his positions and offices effective June 30, 1988. On July 8, 1988, petitioner informed the Court that while a verbal agreement to maintain the status quo was reached between petitioner's lawyers, Attys. Juan de Ocampo and Antonio Africa, and Messrs. Orlando Romero and Serafin Rivera of the PCGG, respondent Eduardo M. Villanueva circulated on July 5, 1988 an inter-office memorandum easing out the legitimate members of the board from their rooms in the executive offices for the benefit of the newly-installed members of the questioned PCGG board; and that Ildefonso Reynoso, vice-president for administration, issued a memorandum to the Nival Security and Protective Agency informing them that they were being relieved of their duty to provide security services at the 7th Floor of Telecoms Plaza where the 2 executive offices are located, which services would then be handled by the FCA Security Agency. On July 15, 1988, petitioner was allegedly forcibly taken out of his office on the basis of a PCGG order which petitioner claimed was addressed not to then PCGG Commissioner Laureta but to three other PCGG officials, namely, Esteban B. Conejos, Jr., Serafin P.

Rivera and Orlando Z. Romero. As a consequence, petitioner Africa sought to have then Commissioner Laureta declared in contempt of court for having committed "improper conduct tending directly or indirectly, to impede, obstruct or degrade the administration of 3 justice." He likewise sought the issuance of a writ of preliminary mandatory injunction ordering respondents to open his office and allow him access to and use of the same. G.R. Nos. 85597 and 85621 Jose L. Africa, Manuel Nieto and Rafael Valdez, allegedly the registered stockholders of ETPI, instituted on September 6, 1988 before 4 the Sandiganbayan Civil Case No. 0048, a complaint for injunction and damages with prayer for a temporary restraining order seeking to enjoin Eduardo M. Villanueva from acting as "Director, President and/or General Manager" of ETPI and from exercising the powers and functions of said positions, as well as to stop the PCGG from directly or indirectly interfering with the management of ETPI. They contend that the assumption of Villanueva to said positions was effected without due process of law through the PCGG using and voting the sequestered shares without legal justification. Eduardo M. Villanueva filed a motion to dismiss/opposition to the issuance of a restraining order on the grounds of lack of jurisdiction, because the complaint partakes of the nature of a suit against the State without its consent; that plaintiffs are not the real parties in interest in the action, which is actually a quo warranto proceeding; that the complaint is premature for failure to exhaust administrative remedies; and that the issues raised have already been passed upon by the Supreme Court in G.R. No. 82188, 5 a recourse against the Securities and Exchange Commission (SEC), entitled "PCGG, et al. vs. SEC, et al." The PCGG, on the other hand, opposed the issuance of a writ of preliminary injunction, contending that the issues raised in Civil Case No. 0048 have already been passed upon by the Supreme Court in its aforesaid decision in G.R. No. 82188 promulgated on June 30, 6 1988. In the proceedings on September 13, 1988, the PCGG, through Solicitor Ramolete, moved to defer the hearing until after the motion to dismiss of Villanueva and the objection raised by PCGG shall have been resolved. However, the Sandiganbayan resolved to hear the evidence on the application for preliminary injunction with the understanding that the incident shall not be resolved earlier than 7 the resolution of the motion to dismiss and the issue raised by Solicitor Ramolete. At the scheduled hearing on October 12, 1988, Villanueva objected to further proceedings without his motion to dismiss being first resolved, contending that since the action is for injunction and damages, the reception of evidence on the application for preliminary injunction was tantamount to a hearing on the merits. In open court, he was overruled and his motion to have the proceedings suspended pending resolution of his motion to dismiss was denied. From the denial of PCGG's motion to defer hearing and Villanueva's motion to suspend proceedings in Civil Case No. 0048, the PCGG filed on November 12, 1988 a petition for prohibition with prayer for a writ of preliminary injunction and/or restraining order with this Court, docketed as G.R. No. 85597, while Villanueva filed on November 16, 1988 a separate petition for prohibition with preliminary injunction and/or restraining order docketed as G.R. No. 85621. Both petitions assail the orders issued by the Sandiganbayan, dated September 13, 1988 and October 12, 1988, as having been issued with grave abuse of discretion amounting to lack of jurisdiction. On November 15, 1988, the Court issued a temporary restraining order 8 in G.R. No. 85597 directing the Sandiganbayan to cease and desist from proceeding with its hearing in Civil Case No. 0048 scheduled on November 18, 1988 at 2:00 p.m. In the resolution of November 22, 1988, the case was ordered consolidated with the other ETPI cases (G.R. Nos. 83831, 85594 and 85621). G.R. No. 85594 The same plaintiffs in Civil Case No. 0048, now in their capacity as erstwhile members of the Board of Directors of ETPI, instituted before the Sandiganbayan on September 23, 1988 Civil Case No. 0050, another action for injunction and damages with prayer for a writ of preliminary injunction and/or temporary restraining order. In their complaint, plaintiffs questioned the acts and orders of the PCGG leading to the election of therein defendants Melquiades Gutierrez, Mark Javier, Ranulfo P. Payos, Jose P. Roxas and Almario Velasco, and Cable and Wireless representatives Roman Mabanta, Jr. and Eduardo de los Angeles to the ETPI Board of Directors. Claiming to be the duly elected members of the ETPI Board of Directors during the January 4, 1988 special stockholders meeting, plaintiffs prayed that defendants be removed from their ETPI positions, and that an injunction be issued perpetually restraining the PCGG from electing, designating and supporting the 9 defendants in their ETPI roles. 10 11 12 The PCGG and its nominees/designees to the ETPI Board, Roman Mabanta, Jr. and Eduardo de los Angeles, separately filed their respective motions to dismiss and opposed the issuance of writ of preliminary injunction/restraining order invoking substantially the same grounds proffered in Civil Case No. 0048, as follows: (1) the court lacks jurisdiction because plaintiffs may not sue the State without its consent; (2) the filing of the complaint is improper because the cause(s) of action alleged and the reliefs sought therein constitute an action forquo warranto, hence plaintiffs are not the proper and real parties in interest to oust or unseat defendants; and (3) the filing of the complaint is barred by lis pendens, as plaintiffs should have contested PCGG's acts in Civil Case No. 0009 (Republic vs. Jose L. Africa, et al.). Roman Mabanta, Jr. and Eduardo de los Angeles further maintained that respondent court has no jurisdiction over the nature and subject matter of the complaint insofar as they are concerned, they being Class B Directors; and that the complaint is barred by the decision of the Supreme Court in G.R. No. 82188. On October 21, 1988, or while the motions to dismiss remained pending and prior to the hearing set on November 3, 1988 for the issuance of a writ of preliminary injunction/temporary restraining order, the Clerk of Court of the Sandiganbayan issued, upon request of the counsel for Jose L. Africa, et al. dated October 18, 1988, a subpoenaduces tecum and ad testificandum ordering the PCGG or its representatives to appear and testify before the Sandiganbayan during the hearing on November 3, 1988 at 2:00 p.m. and to produce the stock and transfer book and all stubs of the outstanding stock certificates of ETPI. Three days thereafter, or on October 24, 1988, another subpoena duces tecum was issued upon an amended request for subpoena by the same counsel, ordering Assistant Solicitor General Ramon Desuasido or his representative to appear before the Sandiganbayan at the 2:00 p.m. hearing on November 3, 1988 and to produce the "minutes of all meetings of the Board of Directors and Stockholders of ETPI held from January 29, 1988 to date." The PCGG and its nominee/designee, Ramon Desuasido, moved to quash both subpoenae, but the motion was denied by the 13 Sandiganbayan in an order dated November 3, 1988. The hearing was reset to November 15, 1988 at 2:00 o'clock in the afternoon. On November 15, 1988, an urgent petition for certiorari, docketed as G.R. No. 85594, was filed by the PCGG and its nominees/designees before this Court, assailing as having been issued with grave abuse of discretion the incidental orders dated October 24, 1988 and November 3, 1988 on the principal contention that the Sandiganbayan has no jurisdiction over the main

action for damages since Civil Case No. 0050 is in truth a suit against the State without its consent. The PCGG also prayed for the issuance of a temporary restraining order to enjoin the respondents from enforcing and/or executing the subpoenas dated October 14 21, 1988 and October 24, 1988. On the same date, or on November 15, 1988, the Court issued a temporary restraining order. The Sandiganbayan, in the meantime, proceeded with the main case and, thereafter, on December 13, 1988 promulgated a 15 resolution denying the motions to dismiss separately filed by the PCGG and the individual defendants. On February 23, 1989, the Sandiganbayan denied the motion for reconsideration filed by the representatives of Cable and Wireless, 16 Ltd. The PCGG and its nominees opted not to file a motion for reconsideration apparently in the belief that the same would be merely repetitive, if not futile. From the denial of the motion to dismiss, the PCGG and its nominees/designees filed on March 27, 1989 an Urgent Supplemental 17 Petition in G.R. No. 85594 assailing the denial by the Sandiganbayan of their motions to dismiss on the grounds that the core subject matter and issue are res judicata by virtue of the decision in G.R. No. 82188; that the respondent court lacks jurisdiction over the case; that private respondents have no legal capacity to sue and institute a separate action; and that they are not the real parties in interest. Recapping, therefore, from the foregoing narration it appears that the injunction suits filed and docketed as Civil Cases Nos. 0048 and 0050 in the Sandiganbayan and the petition for injunction filed directly with this Court as G.R. No. 83831 are substantially identical in the reliefs sought therein, that is, to nullify the acts and orders of the PCGG which led to the nomination and election of the new members of the board of directors and officers of the ETPI and to enjoin said directors and officers from exercising the powers and functions of said positions. Civil Cases Nos. 0048 and 0050 were elevated to this Court on some incidental matters relating to the propriety of hearing the cases on the merits without the motions to dismiss filed therein having been first resolved; and in Civil Case No. 0050, on the additional issue of the legality of the subpoena duces tecum and ad testificandum issued by the Sandiganbayan ordering the PCGG or its representatives to testify and produce the stock and transfer book, all stubs of the outstanding stock certificates of ETPI and the minutes of all meetings of the board of directors and stockholders held from January 29, 1988. The issue in Civil Case No. 0050 as to the propriety of hearing the main action for injunction before resolving the motions to dismiss has been mooted when the Sandiganbayan denied said motions to dismiss on December 13, 1988. We are, however, constrained to go deeper into the issue since the denial of said motions was the subject matter of a supplemental petition in G.R. No. 85594. With respect to G.R. Nos. 85597 and 85621, we find that the deferment of the resolution of the motions to dismiss Civil Case No. 0048 was tainted with grave abuse of discretion. It is well-settled that while the court has the discretion to defer the hearing and 18 determination of a motion to dismiss if the ground therefor is not indubitable, such deferment is in excess of jurisdiction if the ground for the motion to dismiss is lack of jurisdiction or lack of cause of action, since the allegations of the complaint are deemed 19 admitted and the motion to dismiss can be resolved without waiting for trial on the merits. Clearly, on the face of the complaint, the issue of lack of jurisdiction invoked in the motion to dismiss can be resolved without waiting for trial on the merits as will be shown hereunder. Thus, petitioner Villanueva is correct in his assertion that his motion to dismiss must first be resolved before trial on the merits may be had. Be that as it may, this finding merely constitutes a technical victory for said petitioner as it will be rendered moot and academic by the following ruling on the merits of the grounds raised in his motion to dismiss. In G.R. No. 85621, petitioner Villanueva imputes grave abuse of discretion to the Sandiganbayan in proceeding with the hearing of Civil Case No. 0048. To his mind, the injunction suit filed by Africa, Nieto and Valdez is in effect a suit against the State and, since there is no waiver of immunity by the State, respondent court cannot acquire jurisdiction over the same. Along the same vein, the PCGG elevated to this Court in G.R. No. 85594 the denial of its motion to dismiss Civil Case No. 0050 contending that the Sandiganbayan has no jurisdiction to entertain an independent suit against the Republic of the Philippines (PCGG) not only because it is only the Republic, without consenting to be sued or countersued, that is allowed to file civil or criminal cases with said court pursuant to Executive Order No. 14, but also because the cause of action, if any, or the subject matter or nature of the complaint for injunction are not within the limited or special jurisdiction of the Sandiganbayan as defined by Section 4, Presidential Decree No. 1606, as amended by Presidential Decree No. 1891, even as such jurisdiction has been enlarged by Executive Order No. 14. The law and jurisprudence on the jurisdiction of the Sandiganbayan over cases for the recovery of "ill-gotten wealth" are now 20 settled. In PCGG vs. Hon. Emmanuel G. Pea, etc., et al., this Court held: . . . Under Section 2 of the President's Executive Order No. 14 issued on May 7, 1986, all cases of the Commission regarding "the Funds, Moneys, Assets, and Properties Illegally Acquired or Misappropriated by Former President Ferdinand Marcos, Mrs. Imelda Romualdez Marcos, their Close Relatives, Subordinates, Business Associates, Dummies, Agents, or Nominees" whether civil or criminal, are lodged within the "exclusive and original jurisdiction of the Sandiganbayan" and all incidents arising from, incidental to, or related to, such cases necessarily fall likewise under the Sandiganbayan's exclusive and original jurisdiction, subject to review on certiorari exclusively by the Supreme Court. 21 The aforequoted ruling was reiterated in PCGG vs. Hon. Aquino, Jr., etc., et al. and Marcelo Fiberglass Corporation vs. PCGG, which were jointly decided by the Court on June 30, 1988. 22 In six (6) subsequent cases likewise jointly decided on August 10, 1988, the Court pointed out that: . . . (the) exclusive jurisdiction conferred on the Sandiganbayan would evidently extend not only to the principal causes of action, i.e., the recovery of alleged ill-gotten wealth, but also to "all incidents arising from, incidental to, or related to, such cases," such as the dispute over the sale of shares, the propriety of the issuance of ancillary writs or provisional remedies relative thereto, the sequestration thereof, which may not be made the subject of separate actions or proceedings in another forum. A careful examination of the records of these cases reveals that the complaints instituted by Jose L. Africa, et al. in Civil Cases Nos. 23 0048 and 0050 before the Sandiganbayan are in the nature of special and original civil actions for injunction directed against the defendants therein and specially seeking to restrain them from representing and acting as officers and members of the Board of Directors of ETPI and to prevent the PCGG from exercising acts of ownership and/or management over ETPI. Moreover, in claiming as illegal the acts or orders of the PCGG issued in pursuance of the exercise of its powers and functions under Executive Orders Nos. 1, 2 and 14, which resulted in the installation of defendants to the Board of Directors of ETPI and to their corporate offices, plaintiffs Jose L. Africa, et al. merely sought to preserve the status quo, that is, the last actual, peaceable,

uncontested status which preceded the pending controversy. The status quo to the plaintiffs was the fact of their election to the Board of Directors of ETPI during the special stockholders meeting on January 4, 1988 allegedly pursuant to a valid call, notice and assembly in accordance with law. The issue of jurisdiction of the Sandiganbayan over original special civil actions involving the powers and functions of the PCGG has been raised in and resolved by this Court. In the consolidated cases of PCGG vs. Hon. Aquino, Jr., etc., et al. and Marcelo Fiberglass Corporation vs. PCGG, supra, therein private respondent Marcelo Fiberglass Corporation contested the jurisdiction of the Sandiganbayan over special civil actions claiming that Section 2 of Executive Order No. 14 vested the Sandiganbayan with Jurisdiction over civil and criminal cases filed by the PCGG but not over special civil actions filed by private parties; that Section 2 did not limit the filing of special civil actions by private persons exclusively with the Sandiganbayan; and that Presidential Decree No. 1606 which created the Sandiganbayan did not vest such court with jurisdiction over special civil actions such as those involved therein and as enumerated in Section 4 of Presidential Decree No. 1606. The Court rejected such contention, declaring that the attempt to remove special civil actions from the Sandiganbayan's exclusive jurisdiction is of no avail if they similarly involve the powers and functions of the PCGG. The Court reiterated the pronouncement in PCGG vs. Pea, etc., et al., supra, that the Sandiganbayan has exclusive and original jurisdiction in civil or criminal cases involving ill-gotten wealth under Executive Order No. 14, as well as incidents arising from, incidental or related to such cases, subject to review on certiorari exclusively by the Supreme Court. Since the injunctive suits filed by Jose L. Africa, et al. before the Sandiganbayan stemmed from incidents arising from, incidental and related to the partial sequestration of ETPI, the directive enunciated in the Pea case that "those who wish to question or challenge the Commission's acts or orders in such cases must seek recourse in the same court, the Sandiganbayan, which is vested with exclusive and original jurisdiction," applies to the instant case. Neither would the principle of immunity of the State from suit invoked by the PCGG divest the Sandiganbayan of its jurisdiction over the complaints for injunction in both Civil Cases Nos. 0048 and 0050. While there were claims for damages alleged in the complaints in both cases, the same are, however, directed against the individual defendants in their personal capacities for having allegedly 24 acted without legal authority and in a manner adverse to the interests of ETPI. Incorporating a monetary claim in the complaint will not convert the special civil action for injunction into a mere claim for damages 25 which would otherwise call for the application of the rule on non-suability of the State. The complaints for injunction do not seek money judgments from nor do they demand any affirmative performance by the State in its political capacity which would call for immunity from suit. The doctrine of state immunity from suit applies only in actions resulting in adverse consequences on the public 26 treasury, whether in the disbursement of funds or loss of property. Plaintiffs in both cases sought the intervention of the Sandiganbayan to obtain redress for what they perceived to be an arbitrary and illegal deprivation of their proprietary rights in the ETPI by the individual defendants resulting from the latter being installed as directors or officers of ETPI by virtue of the questioned acts or orders of the PCGG. Plaintiffs do not seek to impose pecuniary liabilities against the PCGG as a government entity. Verily, the PCGG cannot hide behind the aforestated doctrine of immunity of the State from suit to bar plaintiffs from going to the courts to seek affirmative reliefs in these actions. Seeking further to divest the Sandiganbayan of its jurisdiction over the actions for injunction in Civil Cases Nos. 0048 and 0050, the PCGG argues that the said actions are barred by res judicata because of the prior judgment in PCGG, et al. vs. SEC, et al. and its companion case, PCGG vs. Sandiganbayan, et pl., supra. It is the contention of the PCGG that the subject matter and issues in both Civil Cases Nos. 0048 and 0050 are the very same subject matter and issues raised by Africa, et al. in SEC Case No. 3297 and in their motion for injunction in Civil Case No. 0009, both of which were elevated by the PCGG to this Court in G.R. No. 82186. The doctrine of res judicata or bar by prior judgment does not apply in the instant cases. The two issues raised in G.R. No. 82188 related principally to the issue of jurisdiction, namely: (1) whether or not the Securities and Exchange Commission gravely abused its discretion and acted in excess of jurisdiction in SEC Case No. 3297 when it restrained the PCGG from holding the special stockholders meeting of the ETPI on March 4, 1988; and (2) whether or not the Sandiganbayan gravely abused its discretion and acted in excess of jurisdiction when it restrained the PCGG, its nominated directors and/or corporate officers, employees, nominees, agents and/or representatives at ETPI from calling and/or holding a stockholders meeting and voting the sequestered shares thereat for the purpose of amending the articles of incorporation or by-laws of ETPI, or otherwise effecting substantial changes in policy, programs or practices of said corporation. In brief, what was obviously raised and resolved by the Court was the scope and extent of the authority of the Sandiganbayan to issue injunctive writs on matters involving the exercise and performance of the powers and functions of the PCGG as conservator in 27 accordance with the ruling in BASECO vs. PCGG, et al. to prevent the disposal and dissipation of the assets of sequestered companies or businesses. Although the challenge against the temporary restraining order issued by the Securities and Exchange Commission in SEC Case No. 3297 became moot and academic by virtue of the expiration of its 20-day effectivity period, the Court nevertheless ruled that the issuance of the same was tainted with grave abuse of discretion considering that the SEC Hearing Panel should have then realized that there existed an element in the case which effectively removed it from the jurisdiction of the SEC, to wit, the presence of the PCGG which, as another quasi-judicial body, is a co-equal entity over whose actions the SEC has no power of control. The Court, on the other hand, upheld the temporary restraining order issued by the Sandiganbayan insofar as it restrained the stockholders meeting specifically called for the purpose of ratifying the proposed amendment to delete from ETPI's articles of incorporation and by-laws the "right of first refusal" clause. Recognizing that the exercise of the "right of first refusal" is an act of strict ownership, the Court ruled that while there may be instances when only through an act of strict ownership can the PCGG be able to prevent the dissipation of assets of a sequestered corporation or business, the situation then presented was nevertheless not one of such instances. Significantly, however, the Court found the general injunction imposed by the Sandiganbayan on the PCGG to desist and refrain from calling a stockholders meeting for the purpose of electing a new board of directors or effecting substantial changes in the policy, program or practice of the corporation to be too broad as to thereby taint said order with grave abuse of discretion. On PCGG's insistence on the rule of bar by prior judgment, it is readily apparent that one fundamental requisite for the application of that doctrine of res judicata is absent in the instant case, that is, the prior judgment or order must be a judgment on the merits of the case. For a prior judgment to constitute a bar to a subsequent case, (1) it must be a final judgment or order, (2) the court rendering the same must have jurisdiction over the subject matter and over the parties, (3) it must be a judgment or order on the

merits, and (4) there must be between the two cases identity of parties, subject matter, and causes of 28 action. There is no dispute that, substantially, the acts or orders of the PCGG which led to the election of the members of the board of directors and officers of ETPI, as well as all acts done thereafter by the said board, are the incidents which gave rise to the causes of action involved in the injunction suit in SEC Case No. 3297 and the motion for injunction in Civil Case No. 0009, both of which gave rise to G.R. No. 82188. There is, accordingly, identity of the incidents upon which the causes of action in Civil Cases Nos. 0048 and 0050 are based and those of the two cases which gave rise to G.R. No. 82188. However, there is nothing, in the pronouncements of the Court in G.R. No. 82188 which finally resolved the merits of the factual issues raised therein by the opposing parties which included, among others, the alleged illegal manner by which the meeting to elect the new board of directors was called and held on January 29, 1988; the qualification, experience and probity of those elected to the board contrary to the caveat in BASECO vs. PCGG, et al., supra, on the substitution of directors of the board of sequestered corporations; and the alleged mismanagement of the operations of ETPI by those elected to the board and the corporate offices by the PCGG. A cursory reading of the decision would show that the Court merely ruled on the parameters of the jurisdiction of the Sandiganbayan to issue injunctive writs in cases involving the PCGG and PCGG-related matters. In fact, the Court stressed in G.R. No. 82188 that "the various motions filed by private respondents in this case involving matters which would require us to look into the facts of the case are better ventilated before the Sandiganbayan." Nothing final or definite was laid down by this Court in that case with respect to the legality or illegality of the questioned acts or orders of the PCGG leading to the election of its nominees/designees to the ETPI board of directors and corporate offices. The denial, therefore, of the motion to dismiss in Civil Case No. 0050 was not sullied by grave abuse of discretion. With this pronouncement, the denial of the motion to dismiss Civil Case No. 0048 would likewise be proper and necessarily called for. The issue raised in the original petition in G.R. No. 85594 relating to the validity of the issuance by the Sandiganbayan of the subpoena duces tecum and ad testificandum ordering the PCGG or its representative to testify and produce the stock and transfer book, all stubs of the outstanding stock certificates of ETPI and the minutes of all meetings of the board of directors and stockholders of ETPI held from January 29, 1988 to date was laid to rest by our joint resolution in two cases, both entitled Republic 29 vs. Sandiganbayan and Eduardo Cojuangco, Jr., which applies squarely in the instant petitions. In upholding therein the right of a stockholder of a sequestered company to inspect and/or examine the records of a corporation pursuant to Section 74 of the Corporation Code, the Court found nothing in Executive Orders Nos. 1, 2 and 14, as well as in BASECO, to indicate an implied amendment of the Corporation Code, much less an implied modification of a stockholder's right of inspection as guaranteed by Section 74 thereof. The only express limitation on the right of inspection, according to the Court, is that (1) the right of inspection should be exercised at reasonable hours on business days; (2) the person demanding the right to examine and copy excerpts from the corporate records and minutes has not improperly used any information secured through any previous examination of the records of such corporation; and (3) the demand is made in good faith or for a legitimate purpose. The issues raised in G.R. No. 83831, an original petition filed by Victor Africa with this Court, including the motion for contempt filed by Eduardo M. Villanueva against Jose L. Africa, Manuel Nieto and Victor Africa for having made unwarranted comments to the news media on matters involved in the pending petitions, are factual in nature and are best ventilated before the Sandiganbayan the proper forum where both parties can substantiate their respective claims. This Court is not a trier of facts. Considering that Civil Cases Nos. 0048 and 0050 arose from the partial sequestration of ETPI and the incidents raised before this Court in G.R. Nos. 85594, 85597 and 85621 are related to said partial sequestration of ETPI, all the factual matters alleged in these cases are best threshed out in the main case, Civil Case No. 0009, as incidents therein, to save time and efforts in the presentation of evidence and in order to avoid multiplicity of suits. IN VIEW OF THE FOREGOING, the petitions in G.R. Nos. 85594, 85597 and 85621 are hereby DISMISSED for lack of merit, and G.R. No. 83831 is REFERRED to the Sandiganbayan for appropriate proceedings. The Sandiganbayan is hereby ordered to consolidate G.R. No. 83831 and Civil Cases Nos. 0048 and 0050 with Civil Case No. 0009. The temporary restraining orders separately issued in G.R. No. 85594 and G.R. No. 85597 on November 15, 1988 are hereby LIFTED and SET ASIDE. SO ORDERED.

Agan v. PIATCO RESOLUTION Puno, J.: Before this Court are the separate Motions for Reconsideration filed by respondent Philippine International Air Terminals Co., Inc. (PIATCO), respondents-intervenors Jacinto V. Paras, Rafael P. Nantes, Eduardo C. Zialcita, Willie Buyson Villarama, Prospero C. Nograles, Prospero A. Pichay, Jr., Harlin Cast Abayon and Benasing O. Macaranbon, all members of the House of Representatives [1] (Respondent Congressmen), respondents-intervenors who are employees of PIATCO and other workers of the Ninoy Aquino [2] International Airport International Passenger Terminal III (NAIA IPT III) (PIATCO Employees) and respondents-intervenors [3] Nagkaisang Maralita ng Taong Association, Inc., (NMTAI) of the Decision of this Court dated May 5, 2003 declaring the contracts for the NAIA IPT III project null and void. Briefly, the proceedings. On October 5, 1994, Asias Emerging Dragon Corp. (AEDC) submitted an unsolicited proposal to the Philippine Government through the Department of Transportation and Communication (DOTC) and Manila International Airport Authority (MIAA) for the construction and development of the NAIA IPT III under a build-operate-and-transfer arrangement pursuant [4] to R.A. No. 6957, as amended by R.A. No. 7718 (BOT Law). In accordance with the BOT Law and its Implementing Rules and Regulations (Implementing Rules), the DOTC/MIAA invited the public for submission of competitive and comparative proposals to the unsolicited proposal of AEDC. On September 20, 1996 a consortium composed of the Peoples Air Cargo and Warehousing Co., Inc. (Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security Bank) (collectively, Paircargo Consortium), submitted their competitive proposal to the Prequalification Bids and Awards Committee (PBAC). After finding that the Paircargo Consortium submitted a bid superior to the unsolicited proposal of AEDC and after failure by AEDC to match the said bid, the DOTC issued the notice of award for the NAIA IPT III project to the Paircargo Consortium, which later organized into herein respondent PIATCO. Hence, on July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and PIATCO, through its President, Henry T. Go, signed the Concession Agreement for the Build-Operate-and-Transfer Arrangement of the Ninoy Aquino International Airport Passenger Terminal III (1997 Concession Agreement). On November 26, 1998, the 1997 Concession Agreement was superseded by the Amended and Restated Concession Agreement (ARCA) containing certain revisions and modifications from the original contract. A series of supplemental agreements was also entered into by the Government and PIATCO. The First Supplement was signed on August 27, 1999, the Second Supplement on September 4, 2000, and the Third Supplement on June 22, 2001 (collectively, Supplements) (the 1997 Concession Agreement, ARCA and the Supplements collectively referred to as the PIATCO Contracts). On September 17, 2002, various petitions were filed before this Court to annul the 1997 Concession Agreement, the ARCA and the Supplements and to prohibit the public respondents DOTC and MIAA from implementing them. In a decision dated May 5, 2003, this Court granted the said petitions and declared the 1997 Concession Agreement, the ARCA and the Supplements null and void. Respondent PIATCO, respondent-Congressmen and respondents-intervenors now seek the reversal of the May 5, 2003 decision and pray that the petitions be dismissed. In the alternative, PIATCO prays that the Court should not strike down the entire 1997 Concession Agreement, the ARCA and its supplements in light of their separability clause. Respondent-Congressmen and NMTAI also pray that in the alternative, the cases at bar should be referred to arbitration pursuant to the provisions of the ARCA. PIATCOEmployees pray that the petitions be dismissed and remanded to the trial courts for trial on the merits or in the alternative that the 1997 Concession Agreement, the ARCA and the Supplements be declared valid and binding. I Procedural Matters a. Lack of Jurisdiction Private respondents and respondents-intervenors reiterate a number of procedural issues which they insist deprived this Court of jurisdiction to hear and decide the instant cases on its merits. They continue to claim that the cases at bar raise factual questions which this Court is ill-equipped to resolve, hence, they must be remanded to the trial court for reception of evidence. Further, they allege that although designated as petitions for certiorari and prohibition, the cases at bar are actually actions for nullity of contracts over which the trial courts have exclusive jurisdiction. Even assuming that the cases at bar are special civil actions for certiorari and prohibition, they contend that the principle of hierarchy of courts precludes this Court from taking primary jurisdiction over them. We are not persuaded. [5] There is a question of fact when doubt or difference arises as to the truth or falsity of the facts alleged. Even a cursory reading of the cases at bar will show that the Court decided them by interpreting and applying the Constitution, the BOT Law, its Implementing Rules and other relevant legal principles on the basis of clearly undisputed facts. All the operative facts were settled, hence, there is no need for a trial type determination of their truth or falsity by a trial court. We reject the unyielding insistence of PIATCO Employees that the following factual issues are critical and beyond the capability of this Court to resolve, viz: (a) whether the National Economic Development Authority- Investment Coordinating Committee (NEDAICC) approved the Supplements; (b) whether the First Supplement created ten (10) new financial obligations on the part of the government; and (c) whether the 1997 Concession Agreement departed from the draft Concession Agreement contained in the Bid [6] Documents. The factual issue of whether the NEDA-ICC approved the Supplements is hardly relevant. It is clear in our Decision that the PIATCO contracts were invalidated on other and more substantial grounds. It did not rely on the presence or absence of NEDA-ICC approval of the Supplements. On the other hand, the last two issues do not involve disputed facts. Rather, they involve contractual provisions which are clear and categorical and need only to be interpreted. The interpretation of contracts and the determination of whether their provisions violate our laws or contravene any public policy is a legal issue which this Court may properly pass upon. Respondents corollary contention that this Court violated the hierarchy of courts when it entertained the cases at bar must also fail. The rule on hierarchy of courts in cases falling within the concurrent jurisdiction of the trial courts and appellate courts generally applies to cases involving warring factual allegations. For this reason, litigants are required to repair to the trial courts at the first instance to determine the truth or falsity of these contending allegations on the basis of the evidence of the parties. Cases which depend on disputed facts for decision cannot be brought immediately before appellate courts as they are not triers of facts. It goes without saying that when cases brought before the appellate courts do not involve factual but legal questions, a strict application of the rule of hierarchy of courts is not necessary. As the cases at bar merely concern the construction of the

Constitution, the interpretation of the BOT Law and its Implementing Rules and Regulations on undisputed contractual provisions and government actions, and as the casesconcern public interest, this Court resolved to take primary jurisdiction over them. This choice of action follows the consistent stance of this Court to settle any controversy with a high public interest component in a single proceeding and to leave no root or branch that could bear the seeds of future litigation. The suggested [7] remand of the cases at bar to the trial court will stray away from this policy. b. Legal Standing Respondent PIATCO stands pat with its argument that petitioners lack legal personality to file the cases at bar as they are not real parties in interest who are bound principally or subsidiarily to the PIATCO Contracts. Further, respondent PIATCO contends that petitioners failed to show any legally demandable or enforceable right to justify their standing to file the cases at bar. These arguments are not difficult to deflect. The determination of whether a person may institute an action or become a party to a suit brings to fore the concepts of real party in interest, capacity to sue and standing to sue. To the legally discerning, these [8] three concepts are different although commonly directed towards ensuring that only certain parties can maintain an action. As defined in the Rules of Court, a real party in interest is the party who stands to be benefited or injured by the judgment in the suit or [9] the party entitled to the avails of the suit. Capacity to sue deals with a situation where a person who may have a cause of action is disqualified from bringing a suit under applicable law or is incompetent to bring a suit or is under some legal disability that would prevent him from maintaining an action unless represented by a guardian ad litem. Legal standing is relevant in the realm of public law. In certain instances, courts have allowed private parties to institute actions challenging the validity of governmental action for [10] violation of private rights or constitutional principles. In these cases, courts apply the doctrine of legal standing by determining whether the party has a direct and personal interest in the controversy and whether such party has sustained or is in imminent danger of sustaining an injury as a result of the act complained of, a standard which is distinct from the concept of real party in [11] interest. Measured by this yardstick, the application of the doctrine on legal standing necessarily involves a preliminary [12] consideration of the merits of the case and is not purely a procedural issue. Considering the nature of the controversy and the issues raised in the cases at bar, this Court affirms its ruling that the petitioners have the requisite legal standing. The petitioners in G.R. Nos. 155001 and 155661 are employees of service providers operating at the existing international airports and employees of MIAA while petitioners-intervenors are service providers with existing contracts with MIAA and they will all sustain direct injury upon the implementation of the PIATCO Contracts. The 1997 Concession Agreement and the ARCA both provide that upon the commencement of operations at the NAIA IPT III, NAIA Passenger [13] Terminals I and II will cease to be used as international passenger terminals. Further, the ARCA provides: (d) For the purpose of an orderly transition, MIAA shall not renew any expired concession agreement relative to any service or operation currently being undertaken at the Ninoy Aquino International Airport Passenger Terminal I, or extend any concession agreement which may expire subsequent hereto, except to the extent that the continuation of the existing services and operations [14] shall lapse on or before the In-Service Date. Beyond iota of doubt, the implementation of the PIATCO Contracts, which the petitioners and petitioners-intervenors denounce as unconstitutional and illegal, would deprive them of their sources of livelihood. Under settled jurisprudence, one's [15] employment, profession, trade, or calling is a property right and is protected from wrongful interference. It is also self evident that the petitioning service providers stand in imminent danger of losing legitimate business investments in the event the PIATCO Contracts are upheld. Over and above all these, constitutional and other legal issues with far-reaching economic and social implications are embedded in the cases at bar, hence, this Court liberally granted legal standing to the petitioning members of the House of Representatives. First, at stake is the build-operate-andtransfer contract of the countrys premier international airport with a projected capacity of 10 million passengers a year. Second, the huge amount of investment to complete the project is estimated to be P13,000,000,000.00. Third, the primary issues posed in the cases at bar demand a discussion and interpretation of the Constitution, the BOT Law and its implementing rules which have not been passed upon by this Court in previous cases. They can chart the future inflow of investment under the BOT Law. Before writing finis to the issue of legal standing, the Court notes the bid of new parties to participate in the cases at bar as respondents-intervenors, namely, (1) the PIATCO Employees and (2) NMTAI (collectively, the New Respondents-Intervenors). After the Courts Decision, the New Respondents-Intervenors filed separate Motions for Reconsideration-In-Intervention alleging prejudice and direct injury. PIATCO employees claim that they have a direct and personal interest *in the controversy+... since they [16] stand to lose their jobs should the governments contract with PIATCO be declared null and void. NMTAI, on the other hand, represents itself as a corporation composed of responsible tax-paying Filipino citizens with the objective of protecting and sustaining the rights of its members to civil liberties, decent livelihood, opportunities for social advancement, and to a good, [17] conscientious and honest government. The Rules of Court govern the time of filing a Motion to Intervene. Section 2, Rule 19 provides that a Motion to Intervene should be filed before rendition of judgment.... The New Respondents-Intervenors filed their separate motions after a decision has been promulgated in the present cases. They have not offered any worthy explanation to justify their late intervention. Consequently, their Motions for Reconsideration-In-Intervention are denied for the rules cannot be relaxed to await litigants who sleep on their rights. In any event, a sideglance at these late motions will show that they hoist no novel arguments. c. Failure to Implead an Indispensable Party PIATCO next contends that petitioners should have impleaded the Republic of the Philippines as an indispensable party. It alleges that petitioners sued the DOTC, MIAA and the DPWH in their own capacities or as implementors of the PIATCO Contracts and not as a contract party or as representatives of the Government of the Republic of the Philippines. It then leapfrogs to the conclusion that the absence of an indispensable party renders ineffectual all the proceedings subsequent to the filing of the [18] complaint including the judgment. PIATCOs allegations are inaccurate. The petitions clearly bear out that public respondents DOTC and MIAA were impleaded as parties to the PIATCO Contracts and not merely as their implementors. The separate petitions filed by the MIAA [19] [20] employees and members of the House of Representatives alleged that public respondents are impleaded herein because they either executed the PIATCO Contracts or are undertaking acts which are related to the PIATCO Contracts. They are interested and [21] indispensable parties to this Petition. Thus, public respondents DOTC and MIAA were impleaded as parties to the case for having executed the contracts.

More importantly, it is also too late in the day for PIATCO to raise this issue. If PIATCO seriously views the non-inclusion of the Republic of the Philippines as an indispensable party as fatal to the petitions at bar, it should have raised the issue at the onset of the proceedings as a ground to dismiss. PIATCO cannot litigate issues on a piecemeal basis, otherwise, litigations shall be like a shore that knows no end. In any event, the Solicitor General, the legal counsel of the Republic, appeared in the cases at bar in representation of the interest of the government. II Pre-qualification of PIATCO The Implementing Rules provide for the unyielding standards the PBAC should apply to determine the financial capability of a bidder for pre-qualification purposes: (i) proof of the ability of the project proponent and/or the consortium to provide a minimum amount of equity to the project and (ii) a letter testimonial from reputable banks attesting that the project proponent and/or members of the consortium are banking with them, that they are in good financial standing, and that they have adequate [22] resources. The evident intent of these standards is to protect the integrity and insure the viability of the project by seeing to it that the proponent has the financial capability to carry it out. As a further measure to achieve this intent, it maintains a certain debt-to-equity ratio for the project. At the pre-qualification stage, it is most important for a bidder to show that it has the financial capacity to undertake the project by proving that it can fulfill the requirement on minimum amount of equity. For this purpose, the Bid Documents require in no uncertain terms: The minimum amount of equity to which the proponents financial capability will be based shall be thirty percent (30%) of the project cost instead of the twenty percent (20%) specified in Section 3.6.4 of the Bid Documents. This is to correlate with the required debt-to-equity ratio of 70:30 in Section 2.01a of the draft concession agreement. The debt portion of the project financing [23] should not exceed 70% of the actual project cost. In relation thereto, section 2.01 (a) of the ARCA provides: Section 2.01 Project Scope. The scope of the project shall include: (a) Financing the project at an actual Project cost of not less than Three Hundred Fifty Million United States Dollars (US$350,000,000.00) while maintaining a debt-to-equity ratio of 70:30, provided that if the actual Project costs should [24] exceed the aforesaid amount, Concessionaire shall ensure that the debt-to-equity ratio is maintained; Under the debt-to-equity restriction, a bidder may only seek financing of the NAIA IPT III Project up to 70% of the project cost. Thirty percent (30%) of the cost must come in the form of equity or investment by the bidder itself. It cannot be overly emphasized that the rules require a minimum amount of equity to ensure that a bidder is not merely an operator or implementor of the project but an investor with a substantial interest in its success. The minimum equity requirement also guarantees the Philippine government and the general public, who are the ultimate beneficiaries of the project, that a bidder will not be indifferent to the completion of the project. The discontinuance of the project will irreparably damage public interest more than private interest. In the cases at bar, after applying the investment ceilings provided under the General Banking Act and considering the maximum amounts that each member of the consortium may validly invest in the project, it is daylight clear that the Paircargo [25] Consortium, at the time of pre-qualification, had a net worth equivalent to only 6.08% of the total estimated project cost. By any reckoning, a showing by a bidder that at the time of pre-qualification its maximum funds available for investment amount to only 6.08% of the project cost is insufficient to satisfy the requirement prescribed by the Implementing Rules that the project proponent must have the ability to provide at least 30% of the total estimated project cost. In peso and centavo terms, at the time of prequalification, the Paircargo Consortium had maximum funds available for investment to the NAIA IPT III Project only in the amount of P558,384,871.55, when it had to show that it had the ability to provide at leastP2,755,095,000.00. The huge disparity cannot be dismissed as of de minimis importance considering the high public interest at stake in the project. PIATCO nimbly tries to sidestep its failure by alleging that it submitted not only audited financial statements but also testimonial letters from reputable banks attesting to the good financial standing of the Paircargo Consortium. It contends that in adjudging whether the Paircargo Consortium is a pre-qualified bidder, the PBAC should have considered not only its financial statements but other factors showing its financial capability. Anent this argument, the guidelines provided in the Bid Documents are instructive: 3.3.4 FINANCING AND FINANCIAL PREQUALIFICATIONS REQUIREMENTS Minimum Amount of Equity Each member of the proponent entity is to provide evidence of networth in cash and assets representing the proportionate share in the proponent entity. Audited financial statements for the past five (5) years as a company for each member are to be provided. Project Loan Financing Testimonial letters from reputable banks attesting that each of the members of the ownership entity are banking with them, in [26] good financial standing and having adequate resources are to be provided. It is beyond refutation that Paircargo Consortium failed to prove its ability to provide the amount of at least P2,755,095,000.00, or 30% of the estimated project cost. Its submission of testimonial letters attesting to its good financial standing will not cure this failure. At best, the said letters merely establish its credit worthiness or its ability to obtain loans to finance the project. They do not, however, prove compliance with the aforesaid requirement of minimum amount of equity in relation to the prescribed debt-to-equity ratio. This equity cannot be satisfied through possible loans. In sum, we again hold that given the glaring gap between the net worth of Paircargo and PAGS combined with the amount of maximum funds that Security Bank may invest by equity in a non-allied undertaking, Paircargo Consortium, at the time of prequalification, failed to show that it had the ability to provide 30% of the project cost and necessarily, its financial capability for the project cannot pass muster. III 1997 Concession Agreement Again, we brightline the principle that in public bidding, bids are submitted in accord with the prescribed terms, conditions and parameters laid down by government and pursuant to the requirements of the project bidded upon. In light of these parameters, bidders formulate competing proposals which are evaluated to determine the bid most favorable to the government. Once the contract based on the bid most favorable to the government is awarded, all that is left to be done by the parties is to execute the necessary agreements and implement them. There can be no substantial or material change to the parameters of the project,

including the essential terms and conditions of the contract bidded upon, after the contract award. If there were changes and the contracts end up unfavorable to government, the public bidding becomes a mockery and the modified contracts must be struck down. Respondents insist that there were no substantial or material amendments in the 1997 Concession Agreement as to the technical aspects of the project, i.e., engineering design, technical soundness, operational and maintenance methods and procedures of the project or the technical proposal of PIATCO. Further, they maintain that there was no modification of the financial features of the project, i.e., minimum project cost, debt-to-equity ratio, the operations and maintenance budget, the schedule and amount of annual guaranteed payments, or the financial proposal of PIATCO. A discussion of some of these changes to determine whether they altered the terms and conditions upon which the bids were made is again in order. a. Modification on Fees and Charges to be collected by PIATCO PIATCO clings to the contention that the removal of the groundhandling fees, airline office rentals and porterage fees from the category of fees subject to MIAA regulation in the 1997 Concession Agreement does not constitute a substantial amendment as these fees are not really public utility fees. In other words, PIATCO justifies the re-classification under the 1997 Concession Agreement on the ground that these fees are non-public utility revenues. We disagree. The removal of groundhandling fees, airline office rentals and porterage fees from the category of Public Utility Revenues under the draft Concession Agreement and its re-classification to Non-Public Utility Revenues under the 1997 Concession Agreement is significant and has far reaching consequence. The 1997 Concession Agreement provides that with respect [27] to Non-Public Utility Revenues, which include groundhandling fees, airline office rentals and porterage fees, *PIATCO+ may make [28] any adjustments it deems appropriatewithout need for the consent of GRP or any government agency. In contrast, the draft Concession Agreement specifies these fees as part of Public Utility Revenues and can be adjusted only once every two years and in accordance with the Parametric Formula and the adjustments shall be made effective only after the written express approval of [29] the MIAA. The Bid Documents themselves clearly provide: 4.2.3 Mechanism for Adjustment of Fees and Charges 4.2.3.1 Periodic Adjustment in Fees and Charges Adjustments in the fees and charges enumerated hereunder, whether or not falling within the purview of public utility revenues, shall be allowed only once every two years in accordance with the parametric formula attached hereto as Annex 4.2f. Provided that the adjustments shall be made effective only after the written express approval of MIAA. Provided, further, that MIAAs approval, shall be contingent only on conformity of the adjustments to the said parametric formula. The fees and charges to be regulated in the above manner shall consist of the following: .... c) groundhandling fees; d) rentals on airline offices; .... (f) porterage fees; [30] .... The plain purpose in re-classifying groundhandling fees, airline office rentals and porterage fees as non-public utility fees is to remove them from regulation by the MIAA. In excluding these fees from government regulation, the danger to public interest cannot be downplayed. We are not impressed by the effort of PIATCO to depress this prejudice to public interest by its contention that in the 1997 Concession Agreement governing Non-Public Utility Revenues, it is provided that *PIATCO+ shall at all times be judicious in fixing fees and charges constituting Non-Public Utility Revenues in order to ensure that End Users are not unreasonably deprived of [31] services. PIATCO then peddles the proposition that the said provision confers upon MIAA full regulatory powers to ensure that [32] PIATCO is charging non-public utility revenues at judicious rates. To the trained eye, the argument will not fly for it is obviously non sequitur. Fairly read, it is PIATCO that wields the power to determine the judiciousness of the said fees and charges. In the draft Concession Agreement the power was expressly lodged with the MIAA and any adjustment can only be done once every two years. The changes are not insignificant specks as interpreted by PIATCO. PIATCO further argues that there is no substantial change in the 1997 Concession Agreement with respect to fees and charges [33] PIATCO is allowed to impose which are not covered by Administrative Order No. 1, Series of 1993 as the relevant provision of the [34] 1997 Concession Agreement is practically identical with the draft Concession Agreement. We are not persuaded. Under the draft Concession Agreement, PIATCO may impose fees and charges other than those fees and charges previously imposed or collected at the Ninoy Aquino International Airport Passenger Terminal I, subject to the written [35] approval of MIAA. Further, the draft Concession Agreement provides that MIAA reserves the right to regulate these new fees and [36] charges if in its judgment the users of the airport shall be deprived of a free option for the services they cover. In contrast, under the 1997 Concession Agreement, the MIAA merely retained the right to approve any imposition of new fees and charges which were not previously collected at the Ninoy Aquino International Airport Passenger Terminal I. The agreement did not contain an [37] equivalent provision allowing MIAA to reserve the right to regulate the adjustments of these new fees and charges. PIATCO justifies the amendment by arguing that MIAA can establish terms before approval of new fees and charges, inclusive of the mode for their adjustment. PIATCOs stance is again a strained one. There would have been no need for an amendment if there were no change in the power to regulate on the part of MIAA. The deletion of MIAAs reservation of its right to regulate the price adjustments of new fees and charges can have no other purpose but to dilute the extent of MIAAs regulation in the collection of these fees. Again, the amendment diminished the authority of MIAA to protect the public interest in case of abuse by PIATCO. b. Assumption by the Government of the liabilities of PIATCO in the event of the latters default PIATCO posits the thesis that the new provisions in the 1997 Concession Agreement in case of default by PIATCO on its loans were merely meant to prescribe and limit the rights of PIATCOs creditors with regard to the NAIA Terminal III. PIATCO alleges that

Section 4.04 of the 1997 Concession Agreement simply provides that PIATCOs creditors have no right to foreclose the NAIA Terminal III. We cannot concur. The pertinent provisions of the 1997 Concession Agreement state: Section 4.04 Assignment. .... (b) In the event Concessionaire should default in the payment of an Attendant Liability, and the default has resulted in the acceleration of the payment due date of the Attendant Liability prior to its stated date of maturity, the Unpaid Creditors and Concessionaire shall immediately inform GRP in writing of such default. GRP shall, within one hundred eighty (180) Days from receipt of the joint written notice of the Unpaid Creditors and Concessionaire, either (i) take over the Development Facility and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified, to be substituted as concessionaire and operator of the Development Facility in accordance with the terms and conditions hereof, or designate a qualified operator acceptable to GRP to operate the Development Facility, likewise under the terms and conditions of this Agreement; Provided that if at the end of the 180day period GRP shall not have served the Unpaid Creditors and Concessionaire written notice of its choice, GRP shall be deemed to have elected to take over the Development Facility with the concomitant assumption of Attendant Liabilities. (c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, the latter shall form and organize a concession company qualified to take over the operation of the Development Facility. If the concession company should elect to designate an operator for the Development Facility, the concession company shall in good faith identify and designate a qualified operator acceptable to GRP within one hundred eighty (180) days from receipt of GRPs written notice. If the concession company, acting in good faith and with due diligence, is unable to designate a qualified operator within the aforesaid period, then GRP shall at the end of the 180-day period take over the Development Facility and assume Attendant Liabilities. A plain reading of the above provision shows that it spells out in limpid language the obligation of government in case of default by PIATCO on its loans. There can be no blinking from the fact that in case of PIATCOs default, the government will assume [38] PIATCOs Attendant Liabilities as defined in the 1997 Concession Agreement. This obligation is not found in the draft Concession Agreement and the change runs roughshod to the spirit and policy of the BOT Law which was crafted precisely to prevent government from incurring financial risk. In any event, PIATCO pleads that the entire agreement should not be struck down as the 1997 Concession Agreement contains a separability clause. The plea is bereft of merit. The contracts at bar which made a mockery of the bidding process cannot be upheld and must be annulled in their entirety for violating law and public policy. As demonstrated, the contracts were substantially amended after their award to the successful bidder on terms more beneficial to PIATCO and prejudicial to public interest. If this flawed process would be allowed, public bidding will cease to be competitive and worse, government would not be favored with the best bid. Bidders will no longer bid on the basis of the prescribed terms and conditions in the bid documents but will formulate their bid in anticipation of the execution of a future contract containing new and better terms and conditions that were not previously available at the time of the bidding. Such a public bidding will not inure to the public good. The resulting contracts cannot be given half a life but must be struck down as totally lawless. IV. Direct Government Guarantee The respondents further contend that the PIATCO Contracts do not contain direct government guarantee provisions. They assert that section 4.04 of the ARCA, which superseded sections 4.04(b) and (c), Article IV of the 1997 Concession Agreement, is but [39] a clarification and explanation of the securities allowed in the bid documents. They allege that these provisions merely provide [40] for compensation to PIATCO in case of a government buy-out or takeover of NAIA IPT III. The respondents, particularly respondent PIATCO, also maintain that the guarantee contained in the contracts, if any, is an indirect guarantee allowed under the [41] BOT Law, as amended. [42] [43] We do not agree. Section 4.04(c), Article IV of the ARCA should be read in conjunction with section 1.06, Article I, in the same manner that sections 4.04(b) and (c), Article IV of the 1997 Concession Agreement should be related to Article 1.06 of the same contract. Section 1.06, Article I of the ARCA and its counterpart provision in the 1997 Concession Agreement define in no uncertain terms the meaning of attendant liabilities. They tell us of the amounts that the Government has to pay in the event respondent PIATCO defaults in its loan payments to its Senior Lenders and no qualified transferee or nominee is chosen by the Senior Lenders or is willing to take over from respondent PIATCO. A reasonable reading of all these relevant provisions would reveal that the ARCA made the Government liable to pay all amounts ... from time to time owed or which may become owing by Concessionaire [PIATCO] to Senior Lenders or any other persons or entities who have provided, loaned, or advanced funds or provided financial facilities to Concessionaire [PIATCO] for [44] the Project *NAIA Terminal 3+. These amounts include without limitation, all principal, interest, associated fees, charges, [45] reimbursements, and other related expenses... whether payable at maturity, by acceleration or otherwise. They further include amounts owed by respondent PIATCO to its professional consultants and advisers, suppliers, contractors and sub-contractors as well as fees, charges and expenses of any agents or trustees of the Senior Lenders or any other persons or entities who have [46] provided loans or financial facilities to respondent PIATCO in relation to NAIA IPT III. The counterpart provision in the 1997 Concession Agreement specifying the attendant liabilities that the Government would be obligated to pay should PIATCO default in its loan obligations is equally onerous to the Government as those contained in the ARCA. According to the 1997 Concession Agreement, in the event the Government is forced to prematurely take over NAIA IPT III as a result of respondent PIATCOs default in the payment of its loan obligations to its Senior Lenders, it would be liable to pay the following amounts as attendant liabilities: Section 1.06. Attendant Liabilities Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books of the Concessionaire as owing to Unpaid Creditorswho have provided, loaned or advanced funds actually used for the Project, including all interests, penalties, associated fees, charges, surcharges, indemnities, reimbursements and other related expenses, and further including amounts [47] owed by Concessionaire to its suppliers, contractors and sub-contractors. These provisions reject respondents contention that what the Government is obligated to pay, in the event that respondent PIATCO defaults in the payment of its loans, is merely termination payment or just compensation for its takeover of NAIA IPT III. It is clear from said section 1.06 that what the Government would pay is the sum total of all the debts, including all interest, fees and charges, that respondent PIATCO incurred in pursuance of the NAIA IPT III Project. This reading is consistent with section 4.04 of the

ARCA itself which states that the Governmentshall make a termination payment to Concessionaire [PIATCO] equal to the Appraised Value (as hereinafter defined) of the Development Facility [NAIA Terminal III] or the sum of the Attendant Liabilities, if greater. For sure, respondent PIATCO will not receive any amount less than sufficient to cover its debts, regardless of whether or not the value of NAIA IPT III, at the time of its turn over to the Government, may actually be less than the amount of PIATCOs debts. The scheme is a form of direct government guarantee for it is undeniable that it leaves the government no option but to pay the attendant liabilities in the event that the Senior Lenders are unable or unwilling to appoint a qualified nominee or transferee as a result of PIATCOs default in the payment of its Senior Loans. As we stressed in our Decision, this Court cannot depart from the legal maxim that those that cannot be done directly cannot be done indirectly. This is not to hold, however, that indirect government guarantee is not allowed under the BOT Law, as amended. The intention to permit indirect government guarantee is evident from the Senate deliberations on the amendments to the BOT Law. The idea is to allow for reasonable government undertakings, such as to authorize the project proponent to undertake related ventures within [48] the project area, in order to encourage private sector participation in development projects. An example cited by then Senator Gloria Macapagal-Arroyo, one of the sponsors of R.A. No. 7718, is the Mandaluyong public market which was built under the Buildand-Transfer (BT) scheme wherein instead of the government paying for the transfer, the project proponent was allowed to [49] operate the upper floors of the structure as a commercial mall in order to recoup their investments. It was repeatedly stressed in the deliberations that in allowing indirect government guarantee, the law seeks to encourage both the government and the private sector to formulate reasonable and innovative government undertakings in pursuance of BOT projects. In no way, however, can the government be made liable for the debts of the project proponent as this would be tantamount to a direct government guarantee which is prohibited by the law. Such liability would defeat the very purpose of the BOT Law which is to encourage the use of private sector resources in the construction, maintenance and/or operation of development projects with no, or at least minimal, capital outlay on the part of the government. The respondents again urge that should this Court affirm its ruling that the PIATCO Contracts contain direct government guarantee provisions, the whole contract should not be nullified. They rely on the separability clause in the PIATCO Contracts. We are not persuaded. The BOT Law and its implementing rules provide that there are three (3) essential requisites for an unsolicited proposal to be accepted: (1) the project involves a new concept in technology and/or is not part of the list of priority projects, (2) no direct government guarantee, subsidy or equity is required, and (3) the government agency or local government unit has invited by [50] publication other interested parties to a public bidding and conducted the same. The failure to fulfill any of the requisites will result in the denial of the proposal. Indeed, it is further provided that a direct government guarantee, subsidy or equity provision [51] will necessarily disqualify a proposal from being treated and accepted as an unsolicited proposal. In fine, the mere inclusion of a direct government guarantee in an unsolicited proposal is fatal to the proposal. There is more reason to invalidate a contract if a direct government guarantee provision is inserted later in the contract via a backdoor amendment. Such an amendment constitutes a crass circumvention of the BOT Law and renders the entire contract void. Respondent PIATCO likewise claims that in view of the fact that other BOT contracts such as the JANCOM contract, the Manila [52] Water contract and the MRT contract had been considered valid, the PIATCO contracts should be held valid as well. There is no parity in the cited cases. For instance, a reading of Metropolitan Manila Development Authority v. JANCOM Environmental [53] Corporation will show that its issue is different from the issues in the cases at bar. In the JANCOM case, the main issue is whether there is a perfected contract between JANCOM and the Government. The resolution of the issue hinged on the following: (1) whether the conditions precedent to the perfection of the contract were complied with; (2) whether there is a valid notice of award; and (3) whether the signature of the Secretary of the Department of Environment and Natural Resources is sufficient to bind the Government. These issue and sub-issues are clearly distinguishable and different. For one, the issue of direct government guarantee was not considered by this Court when it held the JANCOM contract valid, yet, it is a key reason for invalidating the PIATCO Contracts. It is a basic principle in law that cases with dissimilar facts cannot have similar disposition. This Court, however, is not unmindful of the reality that the structures comprising the NAIA IPT III facility are almost complete and that funds have been spent by PIATCO in their construction. For the government to take over the said facility, it has to compensate respondent PIATCO as builder of the said structures. The compensation must be just and in accordance with law and equity for the government can not unjustly enrich itself at the expense of PIATCO and its investors. II. Temporary takeover of business affected with public interest in times of national emergency Section 17, Article XII of the 1987 Constitution grants the State in times of national emergency the right to temporarily take over the operation of any business affected with public interest. This right is an exercise of police power which is one of the inherent powers of the State. Police power has been defined as the "state authority to enact legislation that may interfere with personal liberty or property [54] in order to promote the general welfare." It consists of two essential elements. First, it is an imposition of restraint upon liberty or property. Second, the power is exercised for the benefit of the common good. Its definition in elastic terms underscores its all[55] [56] encompassing and comprehensive embrace. It is and still is the most essential, insistent, and illimitable of the States powers. It is familiar knowledge that unlike the power of eminent domain, police power is exercised without provision for just [57] compensation for its paramount consideration is public welfare. It is also settled that public interest on the occasion of a national emergency is the primary consideration when the government decides to temporarily take over or direct the operation of a public utility or a business affected with public interest. The nature and extent of the emergency is the measure of the duration of the takeover as well as the terms thereof. It is the State that prescribes such reasonable terms which will guide the implementation of the temporary takeover as dictated by the exigencies of the time. As we ruled in our Decision, this power of the State can not be negated by any party nor should its exercise be a source of obligation for the State. Section 5.10(c), Article V of the ARCA provides that respondent PIATCO shall be entitled to reasonable compensation for the duration of the temporary takeover by GRP, which compensation shall take into account the reasonable cost for the use of the [58] Terminal and/or Terminal Complex. It clearly obligates the government in the exercise of its police power to compensate respondent PIATCO and this obligation is offensive to the Constitution. Police power can not be diminished, let alone defeated by [59] any contract for its paramount consideration is public welfare and interest.

Again, respondent PIATCOs reliance on the case of Heirs of Suguitan v. City of Mandaluyong to justify its claim for reasonable compensation for the Governments temporary takeover of NAIA IPT III in times of national emergency is erroneous. What was involved in Heirs of Suguitan is the exercise of the states power of eminent domain and not of police power, hence, just compensation was awarded. The cases at bar will not involve the exercise of the power of eminent domain. III. Monopoly Section 19, Article XII of the 1987 Constitution mandates that the State prohibit or regulate monopolies when public interest so requires. Monopolies are not per se prohibited. Given its susceptibility to abuse, however, the State has the bounden duty to regulate monopolies to protect public interest. Such regulation may be called for, especially in sensitive areas such as the operation of the countrys premier international airport, considering the public interest at stake. By virtue of the PIATCO contracts, NAIA IPT III would be the only international passenger airport operating in the Island of Luzon, with the exception of those already operating in Subic Bay Freeport Special Economic Zone (SBFSEZ), Clark Special Economic Zone (CSEZ) and in Laoag City. Undeniably, the contracts would create a monopoly in the operation of an international commercial passenger airport at the NAIA in favor of PIATCO. The grant to respondent PIATCO of the exclusive right to operate NAIA IPT III should not exempt it from regulation by the government. The government has the right, indeed the duty, to protect the interest of the public. Part of this duty is to assure that respondent PIATCOs exercise of its right does not violate the legal rights of third parties. We reiterate our ruling that while the service providers presently operating at NAIA Terminals I and II do not have the right to demand for the renewal or extension of their contracts to continue their services in NAIA IPT III, those who have subsisting contracts beyond the In-Service Date of NAIA IPT III can not be arbitrarily or unreasonably treated. Finally, the Respondent Congressmen assert that at least two (2) committee reports by the House of Representatives found the PIATCO contracts valid and contend that this Court, by taking cognizance of the cases at bar, reviewed an action of a co-equal [61] [62] body. They insist that the Court must respect the findings of the said committees of the House of Representatives. With due respect, we cannot subscribe to their submission. There is a fundamental difference between a case in court and an investigation of a congressional committee. The purpose of a judicial proceeding is to settle the dispute in controversy by adjudicating the legal rights and obligations of the parties to the case. On the other hand, a congressional investigation is conducted in aid of [63] legislation. Its aim is to assist and recommend to the legislature a possible action that the body may take with regard to a particular issue, specifically as to whether or not to enact a new law or amend an existing one. Consequently, this Court cannot treat the findings in a congressional committee report as binding because the facts elicited in congressional hearings are not subject to the rigors of the Rules of Court on admissibility of evidence. The Court in assuming jurisdiction over the petitions at bar simply performed its constitutional duty as the arbiter of legal disputes properly brought before it, especially in this instance when public interest requires nothing less. WHEREFORE, the motions for reconsideration filed by the respondent PIATCO, respondent Congressmen and the respondentsin-intervention are DENIED with finality. SO ORDERED.

[60]

G.R. No. 111807 June 14, 1996 AHS/PHILIPPINES, INC., GERVACIO R. AMISTOSO and CONSTANCIO V. HALILI, petitioners, vs. COURT OF APPEALS and ALFONSO R. BAYANI, respondents. BELLOSILLO, J.:p American Hospital Supplies/Philippines, Inc. (AHS), its president Gervacio R. Amistoso, and its vice-president Constancio V. Halili seek 1 to set aside the 31 August 1993 Decision of respondent Court of Appeals in CA-G.R. CV No. 32416 affirming the 25 January 1989 2 Decision of the Regional Trial Court of Cebu City awarding actual and compensatory damages to private respondent Alfonso R. Bayani, a dentist, who was dismissed from the service without the clearance then required from the Secretary of Labor. Petitioner corporation was engaged in the sale and manufacture of medicines and pharmaceuticals in the country and did substantial business with government hospitals. On 1 June 1970 it hired private respondent as an Area Manager for Visayas and Mindanao, and later appointed him Manager of its Cebu branch. On 30 January 1978 private respondent was dismissed from the service. At that time he was receiving a monthly compensation of P3,180.00. On 5 May 1978 private respondent filed a complaint for damages before the trial court alleging that in the course of their business petitioners were directly encouraging, abetting and promoting bribery in the guise of "commissions," "entertainment expenses" and "representation expenses" which were given to various government hospital officials in exchange for favorable recommendations, approvals and actual purchases of medicines and pharmaceuticals. For his refusal to take direct and personal hand in giving "bribe money" he was dismissed. In his complaint he asked for an amount of not less than P520,000.00 as moral and consequential damages, P25,000.00 as exemplary damages and P50,000.00 for attorney's fees. On the other hand petitioner in its answer claims that private respondent was not dismissed but that he himself resigned on his own volition. On 25 January 1989 the trial court ruled that private respondent was illegally dismissed and awarded him P297,600.00 as actual and compensatory damages representing the minimum salary that he could have earned for the next 8 years until his retirement at 60 if he was not dismissed illegally, and P25,000.00 as attorney's fees. The trial court held that there was illegal dismissal because petitioner failed to secure a prior clearance from the Secretary of Labor before actually terminating the services of private respondent, but not for insubordination or disloyalty nor for his obstinate refusal to participate in the bribery. The trial court further ruled that private respondent was not entitled to moral and exemplary damages since "(his) hands are also tainted with the same 3 corruption that he complained about" -It appears that it was only when the repressive regime of then President Marcos started cracking down on "bribe takers" and "bribe givers" that Dr. Bayani must have started to have certain feelings of guilt and claimed that he wanted the "status quo" to be maintained, and that he will just allow his salesmen and agents to deliver the bribe money instead of him or Rene Simpao. Consequently, it is inescapable that as admitted by Dr. Bayani, he has been a party or privy to the giving out of sales REPS or (money) by signing checks which he bluntly called bribe money disguised as sales REP of 5%. Under the principle that he who comes to court must come with clean hands, Dr. Bayani cannot now pretend that he was innocent of the corrupt practices of his company and had clean hands as regards the same . . . . His hands are therefore equally tainted, are mired in the fifth of this corruption, in the matter of the giving of these "kickbacks" . . . . As a matter of conscience, he should have resigned, as that was the most honorable thing for him to do and accept the offer of Mr. Halili to pay his separation pay if he only tendered immediately his resignation. The court, therefore, is hard put, to award damages to the plaintiff in this case after betraying the confidences of his company because it would only serve his own selfish and disloyal ends. Although this is in no way saying, that this court condones corruption, yet it is evident from the proofs submitted to this court that the plaintiff was part of the corruption spun and woven, by the giving of 5% REPS to the doctors listed in 4 his voluminous exhibits and was dismissed for insubordination and disloyalty. On appeal, respondent Court of Appeals affirmed in toto the decision of the trial court; hence this petition for review. Petitioners contend that respondent court erred (1) in affirming the decision of the trial court holding that private respondent was illegally dismissed from the service for failure of petitioner to secure a prior clearance from the Department of Labor when the absence of a clearance was never put in issue during the trial; (2) in ruling that the prior-clearance rule applies to private respondent who is a managerial employee, assuming that the prior-clearance rule is a legitimate issue; (3) in affirming petitioner's liability for damages in an amount equal to private respondent's monthly salary multiplied by the number of years prior to his retirement age, assuming that lack of clearance is a proper issue; (4) when it disregarded decisions of this Court allowing backwages up to three (3) years only; (5) when it held petitioner Gervacio Amistoso personally liable when there is nothing on record to show that he had anything to do with the dismissal of private respondent; (6) when it likewise held petitioner Constancio Halili personally liable for dismissing private respondent when said act was done in his official capacity as vice-president of the corporation; and (7) when it affirmed petitioner's liability for attorney's fees. At the outset it must be noted that when the complaint for damages was filed on 5 May 1978 the applicable law was P.D. 5 1367 which amended Sec. 217, par. (a), of the Labor Code by providing that "the Regional Directors (of the Ministry of Labor) shall not indorse and Labor Arbiters shall not entertain claims for moral or other forms of damages." The claim of respondent Bayani for moral, exemplary and consequential damages was thus correctly filed before the then Court of First Instance. We go back to the findings and conclusions of the trial court. A reading of the complaint for damages filed by respondent Bayani readily shows that his cause of action stems from his allegation that "(he) has been unlawfully dismissed . . . because of (his) refusal to take direct and personal hand in giving out these bribe money to various hospitals or government officials with which 6 (petitioners) have been doing business." Petitioners for their part deny the allegation of respondent Bayani that he was dismissed. They claim he resigned. Thus, as succinctly put by the trial court, "[t]he issue . . . is whether the plaintiff (herein respondent) Dr. 7 Alfonso R. Bayani really resigned and whether Bayani was dismissed for his alleged refusal to cooperate in giving bribe money." In resolving the instant issue, the trial court held -From the testimonies of the plaintiff himself and that of defendants' witnesses Ranulfo Payos and Constancio Halili, the inescapable conclusion that the court can arrive at, is that Bayani did not really resign. In fact he only intended to do so. This apparent from Exh. "FFFFF" and that Halili was forcing Bayani to tender his resignation, and so he sent Payos to Cebu City in order to receive his letter of resignation. To prove that Halili wanted really Bayani to resign, he even offered him a severance pay from their retirement fund of the company if he would tender his

immediate resignation, even though according to him, the retirement fund is not supposed to be paid to any employee who resigns. It also appears very clear that Bayani was allowed to decide for himself when to resign, after he was allowed to go back to Cebu to confer and consult his family, regarding his intended resignation. It is also evident that Bayani asked if there was an opening in Manila or in Luzon. But already, the mind of Halili was closed, not to give him any other position as he said he does not believe in transferring a problem, from one area to another. In fact, it was already decided that they would close the Cebu Branch and convert it into a depot. From the telegram sent by Dr. Bayani which is Exh."FFFFFF", Bayani said that he was not going to report to Manila anymore, and he considered this as the very act of resignation because he (Halili) expected Bayani to tender his resignation. And so, when Bayani did not tender his resignation, Halili sent Payos to terminate him, when it became clear from the resignation, Halili sent Payos to terminate him, when it became clear from the communications made by Payos to Halili that Bayani could not be disuaded from filing corruption charges against the defendant corporation AHS and exposing it in the newspaper. This was evidently considered by Payos as untenable, and so they have decided to terminate the services of Bayani by compelling him to turn over the office to Mr. Roberto Veloro, who was already scheduled anyway, to replace Bayani according to the admission of Payos, nothwithstanding, that the expected letter of resignation of Bayani, for he was already relieved effectively on January 26. But he did not wait until January 31, 1978. The court, therefore arrives at the conclusion that Bayani was dismissed because of his obstinate threats to file a corruption charge against the company and its officers 8 before the Military Tribunal in Cebu which the defendant company considered as insubordination and disloyalty. However the trial court ruled that while respondent Bayani was dismissed, he was not illegally dismissed for his "obstinate threats to file a corruption charge against the company" as he was a "part of the corruption spun and woven, by the giving. of 5% REPS to the doctors listed in his voluminous exhibits." Rather, he was found to have been unlawfully dismissed from the service since his employer did not secure the required prior clearance from the Ministry of Labor before his services were actually terminated -Obviously, therefore, the state of the law at the time that the plaintiff in this case was dismissed required the employer AHS and defendants herein, to secure a clearance to terminate the plaintiff from has been for at least one year with the employer. Plaintiff has worked for 7 1/2 years before he was terminated. Whether there was cause or not therefore the defendants should have obtained a prior clearance from the Ministry of Labor to dismiss the plaintiff. This is the cause of the illegality of the dismissal and not because the plaintiff was uncooperative in the giving of, alleged bribe money for, as the court has already declared, it does not believe that the plaintiff is innocent of this very corrupt practice alleged by him, and that according to his own testimony, and that of defendants' witnesses, the "payola" or the giving of cash incentives directly to the doctors had already been 9 stopped in view of Blair Memorandum. In resolving the case at bench we defer to the well entrenched doctrine that factual findings of the trial court shall not be disturbed on appeal unless the trial court has overlooked or ignored some fact or circumstance of sufficient weight or significance which, if considered, would alter the situation. We have carefully assessed the record of this case and find no fact or circumstance which the trial court may have disregarded. Accordingly we affirm its factual findings that Dr. Alfonso R. Bayani did not resign, as what petitioners would want to impress upon this Court, but was actually dismissed from the service for insubordination and disloyalty because of his refusal to continue to give out "commissions," "entertainment expenses," and "representation expenses" to government doctors in exchange for sales contracts, and because of his obstinate threats to file a corruption charge against petitioners. However we cannot sustain the conclusions of the trial court that respondent Bayani was illegally dismissed on account of petitioner's failure to secure a prior clearance. For, simply; the lack of prior clearance is not a legitimate issue as it was not alleged by respondent Bayani in his complaint; neither was it litigated by the parties. In fact whether respondent Bayani is a managerial employee to which the prior-clearance rule does not apply has yet to be resolved, since from the evidence submitted it was not sufficiently established if respondent Bayani was indeed a managerial employee. Consequently, we now resolve whether respondent Bayani was validly terminated for insubordination and disloyalty. We have repeatedly said that two (2) requisites must concur so as to constitute a valid dismissal from employment: (1) the dismissal must be for any of the causes expressed in Art. 282 of the Labor Code, and, (2) the employee must be given an opportunity to be 10 heard and to defend himself. Under Art 282, as amended, an employer may terminate an employment for any of the following causes: (a) serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in connection with his work; (b) gross and habitual neglect by the employee of his duties; (c) fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative; (d) commission of a crime or offense by the employee against the person of his employer or any immediate member of his family or his duly authorized representative; and, (e) other causes analogous to the foregoing. It has been established that respondent Bayani was dismissed for insubordination and disloyalty which correspond to serious 11 misconduct or willful disobedience under par. (a) of Art. 282. But in Gold City Integrated Port Services, Inc. v. NLRC we explained that willful disobedience of the employer's lawful orders, as a just cause for dismissal of an employee, envisages the concurrence of at least two (2) requisites: the employee's assailed conduct must have been willful or intentional, the willfulness being characterized by a wrongful and perverse attitude; and the order violated must have been reasonable, lawful, made known to the employee and 12 must pertain to the duties which he had been engaged to discharge. Thus in Maebo v. NLRC we held that in order that an employer may terminate an employee on the ground of willful disobedience to the former's orders, regulations or instructions, it must be established that the said orders, regulations or instructions are (a) reasonable and lawful, (b) sufficiently known to the employee, and (c) in connection with the duties which the employee has been engaged to discharge. In the instant case, it is quite apparent that the subject order, i.e., to personally give "commissions," "entertainment expenses," and "representation expenses" to government doctors in exchange for sales contracts, was unreasonable and unlawful as it subjected respondent Bayani to criminal prosecution for graft and corruption. Definitely, the giving of commissions and entertainment and representation expenses to government officials in exchange for the approval of sales contracts is from all indications prohibited and punishable by existing laws on corruption of public officials. Accordingly respondent Bayani cannot be validly dismissed for refusing to heed the order to hand out "commissions" to government doctors. While it may be true, as the trial court said, that the hands of respondent Bayani are "equally tainted, and mired in the filth of this corruption, in the matter of the giving of these 'kickbacks,"' as "it is evident from the proofs submitted to this court that (he) was

part of the corruption spun and woven, by the giving of 5% REPS to the doctors listed in his voluminous exhibits," the Court believes that should he decide not to be part of the corrupt system anymore, whatever his reasons are, he should not be dismissed. A reforming employee should not be penalized, much less with dismissal from employment at that. When there is no showing of a clear, valid and legal cause for the termination of employment, the law considers the matter a case of 14 illegal dismissal and the burden is on the employer to prove that the termination was for a valid or authorized cause. In this case the employer has miserably failed to discharge that burden. All told, we hold that respondent Bayani was dismissed without a just and valid cause. We turn to the award of back wages. Respondent Bayani was illegally dismissed on 30 January 1978. At that time the prevailing doctrine was the so-called Mercury Drug Rule which was first explained by Mr. Justice Teehankee (later Chief Justice) in his Separate 15 Opinion in Mercury Drug Co. v. Court of Industrial Relations and later applied in full in FEATI University Faculty Club v. FEATI 16 University. The so called Mercury Drug Rule awards back wages equivalent to three (3) years (where the case is not terminated sooner), without qualification and deduction. The three-year period was used as the base figure of Mr. Justice Teehankee opined that "[n]ormally, the trial of the case and resolution of the appeal should be given preference and terminated within a period of 1 three years (one year for trial and decision in the industrial court and two years for briefs, etc., and decision in this Court)." 7 Appying the Mercury Drug Rule to the case at bar, respondent Bayani is entitled to be paid the sum of ONE HUNDRED FOURTEEN THOUSAND FOUR HUNDRED EIGHTY PESOS (P114,480.00) as back wages for three (3) years without deduction or qualification -P3,180.00 (Bayani's last monthly salary) x 12 months P38,160.00 (Bayani's salary for one year) P38,160.00 x 3 years P114,480.00 (Bayani's back wages for three years) We move to the question of reinstatement. Illegally dismissed employees are entitled to reinstatement is not possible, the illegally dismissed employees are entitled to separation pay and back wages. In the instant case it is more prudent and practical not to order reinstatement since this case has already dragged on for about 18 years. After 18 years it can now be fairly expected that respondent Bayani would find difficulty to fit into the employment structure of petitioner corporation, not to mention the fact that after all those years he may already be comfortable with his new endeavors. Besides the relationship between petitioners and respondent Bayani has been unduly strained, more so since the latter held a key position where he could work efficiently and effectively only if he enjoyed the full and complete trust and confidence of top management. Therefore instead of reinstatement, we hold that respondent Bayani is entitled to separation pay equivalent to one (1) month salary for every .year of service or in the amount of TWENTY THOUSAND SIX HUNDRED SEVENTY PESOS (P20,670.00), thus -P3,180.00 (Bayani's last monthly salary) x 6.5 (Bayani's years of service) P20,670.00 On the issue, of joint and solidary liability of petitioner Amistoso as president of petitioner corporation, and of petitioner Halili as vice-president of the same corporation, we have already said that corporate officers are not personally liable for money claims of 18 discharged corporate employees unless they acted with evident malice and bad faith in terminating their employment. In the case at bar, while petitioners Amistoso and Halili may have had a hand in the relief of respondent. Bayani, there are no indications of malice and bad faith on their part. We take exception to the conclusion of respondent Court of Appeals that "the manner by which 19 Halili and Amistoso acted is characterized by bad faith and malice, thus binding them personally liable to plaintiff-appellee,'' On the contrary it is apparent that the relief order was a business judgment on the part of the officers, with the best interest of the corporation in mind, based on their opinion that respondent Bayani had failed to perform the duties expected of him. Hence both the trial court and respondent Court of Appeals committed a reversible error in holding petitioners Amistoso and Halili jointly and solidarily liable with petitioner corporation. We however agree with the conclusion of respondent Court of Appeals that because of the unlawful act of petitioner corporation, private respondent is entitled to recover attorney's fees as he was compelled to litigate 20 and incur expenses to protect his interests. WHEREFORE, the Decision of 31 August 1993 of respondent Court of Appeals affirming the 25 January 1989 Decision of the RTC of Cebu City is MODIFIED. Petitioner American Hospital Supplies/Philippines, Inc., is ordered to PAY respondent dentist Alfonso R. Bayani: (a) back wages for three (3) years without deduction or qualification in the amount of ONE HUNDRED FOURTEEN THOUSAND FOUR HUNDRED EIGHTY PESOS (P114,480.00); (b) separation pay equivalent to one (1) month salary for every year of service or TWENTY THOUSAND SIX HUNDRED SEVENTY PESOS (P20,670.00); and, (c) attorney's fees of TWENTY FIVE THOUSAND PESOS (P25,000.00). SO ORDERED.

13

MARIANO A. ALBERT, plaintiff-appellant, vs. UNIVERSITY PUBLISHING CO., INC., defendant-appellee. Uy & Artiaga and Antonio M. Molina for plaintiff-appellant. Aruego, Mamaril & Associates for defendant-appellees. BENGZON, J.P., J.: No less than three times have the parties here appealed to this Court. In Albert vs. University Publishing Co., Inc., L-9300, April 18, 1958, we found plaintiff entitled to damages (for breach of contract) but reduced the amount from P23,000.00 to P15,000.00. Then in Albert vs. University Publishing Co., Inc., L-15275, October 24, 1960, we held that the judgment for P15,000.00 which had become final and executory, should be executed to its full amount, since in fixing it, payment already made had been considered. Now we are asked whether the judgment may be executed against Jose M. Aruego, supposed President of University Publishing Co., Inc., as the real defendant. Fifteen years ago, on September 24, 1949, Mariano A. Albert sued University Publishing Co., Inc. Plaintiff allegedinter alia that defendant was a corporation duly organized and existing under the laws of the Philippines; that on July 19, 1948, defendant, through Jose M. Aruego, its President, entered into a contract with plaintifif; that defendant had thereby agreed to pay plaintiff P30,000.00 for the exclusive right to publish his revised Commentaries on the Revised Penal Code and for his share in previous sales of the book's first edition; that defendant had undertaken to pay in eight quarterly installments of P3,750.00 starting July 15, 1948; that per contract failure to pay one installment would render the rest due; and that defendant had failed to pay the second installment. Defendant admitted plaintiff's allegation of defendant's corporate existence; admitted the execution and terms of the contract dated July 19, 1948; but alleged that it was plaintiff who breached their contract by failing to deliver his manuscript. Furthermore, defendant counterclaimed for damages.1wph1.t Plaintiff died before trial and Justo R. Albert, his estate's administrator, was substituted for him. The Court of First Instance of Manila, after trial, rendered decision on April 26, 1954, stating in the dispositive portion IN VIEW OF ALL THE FOREGOING, the Court renders judgment in favor of the plaintiff and against the defendant the University Publishing Co., Inc., ordering the defendant to pay the administrator Justo R. Albert, the sum of P23,000.00 with legal [rate] of interest from the date of the filing of this complaint until the whole amount shall have been fully paid. The defendant shall also pay the costs. The counterclaim of the defendant is hereby dismissed for lack of evidence. As aforesaid, we reduced the amount of damages to P15,000.00, to be executed in full. Thereafter, on July 22, 1961, the court a quo ordered issuance of an execution writ against University Publishing Co., Inc. Plaintiff, however, on August 10, 1961, petitioned for a writ of execution against Jose M. Aruego, as the real defendant, stating, "plaintiff's counsel and the Sheriff of Manila discovered that there is no such entity as University Publishing Co., Inc." Plaintiff annexed to his petition a certification from the securities and Exchange Commission dated July 31, 1961, attesting: "The records of this Commission do not show the registration of UNIVERSITY PUBLISHING CO., INC., either as a corporation or partnership." "University Publishing Co., Inc." countered by filing, through counsel (Jose M. Aruego's own law firm), a "manifestation" stating that "Jose M. Aruego is not a party to this case," and that, therefore, plaintiff's petition should be denied. Parenthetically, it is not hard to decipher why "University Publishing Co., Inc.," through counsel, would not want Jose M. Aruego to be considered a party to the present case: should a separate action be now instituted against Jose M. Aruego, the plaintiff will have to reckon with the statute of limitations. The court a quo denied the petition by order of September 9, 1961, and from this, plaintiff has appealed. The fact of non-registration of University Publishing Co., Inc. in the Securities and Exchange Commission has not been disputed. Defendant would only raise the point that "University Publishing Co., Inc.," and not Jose M. Aruego, is the party defendant; thereby assuming that "University Publishing Co., Inc." is an existing corporation with an independent juridical personality. Precisely, however, on account of the non-registration it cannot be considered a corporation, not even a corporation de facto (Hall vs. Piccio, 86 Phil. 603). It has therefore no personality separate from Jose M. Aruego; it cannot be sued independently. The corporation-by-estoppel doctrine has not been invoked. At any rate, the same is inapplicable here. Aruego represented a nonexistent entity and induced not only the plaintiff but even the court to believe in such representation. He signed the contract as "President" of "University Publishing Co., Inc.," stating that this was "a corporation duly organized and existing under the laws of the Philippines," and obviously misled plaintiff (Mariano A. Albert) into believing the same. One who has induced another to act upon his wilful misrepresentation that a corporation was duly organized and existing under the law, cannot thereafter set up against his victim the principle of corporation by estoppel (Salvatiera vs. Garlitos, 56 O.G. 3069). "University Publishing Co., Inc." purported to come to court, answering the complaint and litigating upon the merits. But as stated, "University Publishing Co., Inc." has no independent personality; it is just a name. Jose M. Aruego was, in reality, the one who answered and litigated, through his own law firm as counsel. He was in fact, if not, in name, the defendant. Even with regard to corporations duly organized and existing under the law, we have in many a case pierced the veil of corporate * fiction to administer the ends of justice. And in Salvatiera vs. Garlitos, supra, p. 3073, we ruled: "A person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and becomes personally liable for contracts entered into or for other acts performed as such agent." Had Jose M. Aruego been named as party defendant instead of, or together with, "University Publishing Co., Inc.," there would be no room for debate as to his personal liability. Since he was not so named, the matters of "day in court" and "due process" have arisen. In this connection, it must be realized that parties to a suit are "persons who have a right to control the proceedings, to make defense, to adduce and cross-examine witnesses, and to appeal from a decision" (67 C.J.S. 887) and Aruego was, in reality, the person who had and exercised these rights. Clearly, then, Aruego had his day in court as the real defendant; and due process of law has been substantially observed. By "due process of law" we mean " "a law which hears before it condemns; which proceeds upon inquiry, and renders judgment only after trial. ... ." (4 Wheaton, U.S. 518, 581.)"; or, as this Court has said, " "Due process of law" contemplates notice and opportunity to be heard before judgment is rendered, affecting one's person or property" (Lopez vs. Director of Lands, 47 Phil. 23, 32)." (Sicat vs. Reyes, L-11023, Dec. 14, 1956.) And it may not be amiss to mention here also that the "due process" clause of the Constitution is designed to secure justice as a living reality; not to sacrifice it by paying undue homage to formality. For substance must prevail over form. It may now be trite, but none the less apt, to quote what long ago we said in Alonso vs. Villamor, 16 Phil. 315, 321-322:

A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of movement and position, entraps and destroys the other. It is, rather, a contest in which each contending party fully and fairly lays before the court the facts in issue and then, brushing side as wholly trivial and indecisive all imperfections of form and technicalities of procedure, asks that Justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts. There should be no vested rights in technicalities. The evidence is patently clear that Jose M. Aruego, acting as representative of a non-existent principal, was the real party to the contract sued upon; that he was the one who reaped the benefits resulting from it, so much so that partial payments of the consideration were made by him; that he violated its terms, thereby precipitating the suit in question; and that in the litigation he was the real defendant. Perforce, in line with the ends of justice, responsibility under the judgment falls on him. We need hardly state that should there be persons who under the law are liable to Aruego for reimbursement or contribution with respect to the payment he makes under the judgment in question, he may, of course, proceed against them through proper remedial measures. PREMISES CONSIDERED, the order appealed from is hereby set aside and the case remanded ordering the lower court to hold supplementary proceedings for the purpose of carrying the judgment into effect against University Publishing Co., Inc. and/or Jose M. Aruego. So ordered.

ALGER ELECTRIC, INC., petitioner vs. COURT OF APPEALS and NORTHERN CEMENT CORPORATION, respondents. GUTIERREZ, JR., J.: In accordance with Republic Act No. 3826, petitioner Alger Electric, Inc., was granted a legislative franchise for a period of fifty (50) years from June 22, 1963 with the right, privilege, and authority to construct, maintain and operate an electric light, heat, and power system for the generation and/or distribution of electric light, heat, and/or power for sale within the municipalities of Sto. Tomas, Damortis and Rosario, province of La Union, and in the municipality of Sison, province of Pangasinan. On August 16, 1968, respondent Northern Cement Corporation (Northern) and the National Power Corporation (NPC) executed a contract for NPC to directly supply electric power to Northern's cement plant located in Labayog, Sison, Pangasinan. As a result, the petitioner filed a petition for prohibition with preliminary injunction against Northern and NPC in the Court of First Instance of Manila. The petition alleged that the contract was patently illegal in view of Section 2, Republic Act No. 3826, which provides: Section 2. In the event that the National Power Corporation should have established its lines in the areas adjacent to or near the territory covered by this franchise, the National Power Corporation may make available its powers and heat only after registration with and through the Alger Electric, Inc., or with the authority and consent of the grantee. The petitioner prayed that the August 16, 1968 contract between Northern and NPC be declared null and void and that pending the resolution of the case, a writ of preliminary injunction be immediately issued, enjoining the respondents, their managers, attorneys, agents and/or representatives acting for and in their behalf from enforcing said contract. The petitioner questions direct sale of power to Northern by NPC. It wants the distribution to be effected through it or by it. The case was docketed as Civil Case No. 74748. The writ of preliminary injunction prayed for was denied by the court in two (2) separate orders. After Northern had filed its answer and after the petitioner had formally offered all its testimonial and documentary evidence, Northern filed a motion to dismiss and/or for summary judgment on the following grounds: (a) the petition did not state a cause of action due to its failure to alleged and make out a proper case of prohibition or any similar special civil action; (b) the Court of First Instance of Manila had no jurisdiction over the subject matter of the action because the specific act sought to be restrained by a writ of prohibition was to be performed outside of its territorial jurisdiction; (c) Section 2 of the petitioner's legislative franchise is unconstitutional; and (d) the legislative franchise contains no specific prohibition against Northern's obtaining electric power directly from the National Power Corporation. For its part, the petitioner filed an urgent motion for leave to amend complaint and to admit attached amended complaint. The amendments sought were: (1) the change of the word "Petitioner" to plaintiff and the word "respondent" to defendant; (2) the omission of the designation "Prohibition with Preliminary Injunction"; (3) the change of the word "Petition" to Amended Complaint; (4) omission of the allegation in paragraph 16 of the original pleading and the addition of an allegation as to the actual damages to be suffered by the petitioner; and (5) the addition of a new paragraph between paragraphs 14 and 15 of the previous pleading and paragraph 5 of the prayer. Respondent Northern filed an opposition thereto reiterating its previous allegation that the court had no jurisdiction over the case and that the amended complaint substantially altered not only the theory and cause of action of the petitioner but also the very nature of the proceedings before the trial court. After considering the two aforestated motions as wen as an opposition interposed by the petitioner to the respondent's motion, the trial court, "... in the light of the evidence on record and in proper advertence to the principles of liberality observed in our procedural statutes ...", admitted the amended complaint and set the continuation of the trial of the case to January 6, 1970. A motion for reconsideration of this order was denied by the court, thus leading the respondent to file a petition for certiorari, prohibition, and mandamus with preliminary injunction in the Court of Appeals. The appellate court sustained the position of respondent Northern and set aside the questioned October 24, 1969 order of the trial court. It also ordered the trial court to act on the respondent's motion to dismiss the case. The appellate court ruled that the Court of First Instance of Manila did not have jurisdiction over the original complaint considering that the act sought to be enjoined was to be performed in Sison, Pangasinan which is outside of the court's territorial jurisdiction. It, therefore, held that the original "petition" could no longer be amended otherwise it would be in violation of the legal prohibition of a complaint not amendable in order to confer jurisdiction on the court in which it is filed, if the cause of action originally set forth was not within The court's jurisdiction. This decision is now challenged in this petition. A cursory look at the facts alleged in the original complaint reveals that the petitioner's cause of action revolves around the contract executed between the Northern Cement Corporation and the National Power Corporation. This contract was alleged to be iii violation of Alger's legislative franchise, particularly Section 2 thereof. It prayed to have the contract annulled for being null and void ab initio. To forestall the implementation of the contract, the petitioner further prayed for a writ of preliminary injunction, not a writ for prohibition as argued by the respondent. The writ of preliminary injunction prayed for was an ancillary remedy to enjoin the respondent and the National Power Corporation from enforcing the contract which was the subject matter of the petition. The fact that the original pleading was denominated as a petition for prohibition with preliminary injunction should not have deterred the court from considering it as a civil action for annulment of contract as indicated by the facts and allegations therein. The wellentrenched principle is that the "... nature of an action filed in court is determined by the facts alleged in the complaint as constituting the cause of action" (De Tavera v. Philippine Tuberculosis Society, Inc. 112 SCRA 243). In view of the foregoing, the trial court had jurisdiction from the inception of the case. Hence, it was well within the trial court's jurisdiction to admit the amended complaint considering that the amendments sought did not alter the cause of action of the original complaint. The case was brought to the Court of Appeals on whether or not the original petition could be amended and the proceedings converted from a special civil action for prohibition into an ordinary civil action for annulment of contract Now that the case is before us, we apply the rule enunciated in Gayos v. Gayos (67 SCRA 146) that it is a cherished rule of procedure for this Court to always strive to settle the entire controversy in a single proceeding leaving no root or branch to bear the seeds of future litigation. No useful purpose will be served if this case is remanded to the trial court only to have its decision raised again to the Intermediate Appellate Court and from there to this Court.

The pivotal issue raised in the main case revolves around the interpretation to be given to Section 2 of Republic Act No. 3826, quoted earlier. Respondent Northern argues: xxx xxx xxx 12. In any case, petitioner does not have a lawful, valid and sufficiently cause of action to complain against, and seek the nullification of, the contract dated August 15, 1968, because Section 2 of Rep. Act No. 3826 which is the basis of petitioner's stated cause of action and which reads. Section 2. In the event that the National Power Corporation shall have established its lines in the areas adjacent to or over the territory covered by this franchise, the National Power Corporation may make available its power and heat only after negotiation with and through the Alger Electric, Inc., or with the authority and consent of the grantee., is null and void ab initio because: (a) The above-quoted section of Rep. Act No. 3826 is patently unconstitutional for being exclusive in character. Sec. 8. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines * * *, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years.* * * (Art. XIV, Constitution of the Philippines; (b) The provisions of Sec. 2 of Rep. Act No. 3826 are completely foreign to the subject matter of said law which was clearly stated in its title as 'An Act Granting the Alger Electric, Inc., a Franchise for an Electric Light, Heat and Power System in the Municipalities of Sto. Tomas, Damortis and Rosario, Province of La Union, and Sison, Province of Pangasinan'. The insertion of Section 2 as a 'rider' in Rep. Act No. 3826 violated the constitutional injunction that 'No bill which may be enacted into law shall embrace more than one subject which shall be expressed in the title of the bill' (Art. VI, Sec. 21 (1), Constitution of the Philippines). (c) The provisions of said Section 2 are inconsistent with, and repugnant to, the following provisions of the special law which created the National Power Corporation, to wit: Sec. The powers, functions, rights and activities of the said corporation shall be the following: "'********* (g) To construct operate and maintain power plants, auxiliary plants, dams, reservoirs, pipes, mains transmission lines, power stations and substations, and other works for the purpose of developing hydraulic power from any river, creek, lake, spring and waterfall in the Philippines and supplying such power to the inhabitants thereof * * * to establish, develop, operate, maintain and administer power and lighting system for the use of the Government and the general public to sell electric power and to fix the rates and provide for the collection of the charges for any service renders Provided, that the rates of charges shall not be subject to revision by the Public Service Commission. (Com Act No. 120, as amended. It also points out that Alger was not and may never be in a position to supply the electric power requirements of Northern's cement plant in Sison, Pangasinan. In other words, its main function insofar as Northern is concerned would be to enforce a legal fiction that electric power from NPC must first pass symbolically, but not actually, through its lines before it may be used by the cement plant. Alger admits that it is a small and struggling corporation but claims that it will have the production capacity to supply the needs of Northern. At any rate, if direct sale of power to Northern is effected, it wants this to be done only after negotiations with and through Alger. Respondent Northern alleges that the provisions of Section 2 of Republic Act No. 3826 are foreign to the subject matter of the law as stated in its title "An Act Granting the Alger Electric, Inc., a Franchise for an Electric Light, Heat, and Power System in the Municipalities of Sto. Tomas, Damortis and Rosario, Province of La Union and Sison, Province of Pangasinan", and, therefore, violative of the provision against riders in legislative bills expressed in Article VI, Section 21(l) of the 1935 Constitution, now Article VIII, Section 19(l) of the Constitution as amended. It also states that Section 2 of the franchise violates the constitutional mandate that no franchise for the operation of a public utility shall be exclusive in character (Article XIV, Section 8 of the 1935 Constitution, now Article XIV, Section 5 of the Constitution as amended). We see no necessity of passing upon the constitutional issues raised by respondent Northern. This Court does not decide questions of a constitutional nature unless absolutely necessary to a decision of the case. If there exists some other ground based on statute or general law or other grounds of construction, we decide the case on a non-constitutional determination. (See Burton v. United States, 196 U.S. 283; Siler v. Lousville & Nashville R. Co. 213 U.S. 175; Berea College v. Kentucky 211 U.S. 45.) We start with the established principle that the exclusive nature of any public franchise is not favored. We may interpret in favor of exclusiveness only when the statute grants it in express, clear, and unmistakable terms. In all grants by the government to private corporations, the interpretation of rights, privileges, or franchises is taken against the grantee. Whatever is not clearly and expressly granted is withheld. (See Public Service Commission v. Havemeyer 296 U.S. 506; Piedmont Power and L. Co. v. Graham 253 U.S. 193; Pearsall v. Great Northern R. Co. 161 U.S. 646). We have interpreted monopolistic claims of corporations, which want to protect themselves through the exclusion of competitors and antagonistic parties, as necessarily yielding to the higher claims of public interest. (Gokongwei, Jr. v. Securities and Exchange Commission, et al., 89 SCRA 336) This interpretation is even more called for when the exclusiveness is claimed on the basis of a public franchise. Section 2 of Republic Act No. 3826 was obviously enacted to prevent the NPC from distributing or selling electric power where petitioner Alger is already selling or is able to sell its own self-generated electricity. In this case, Northern is a bulk purchaser of power. It had never purchase's Alger's electricity before the suit was filed. It is not the usual consumer residential or commercial for whom retail sales are Ideal. Exclusivity is given by law with the understanding that the company enjoying it is self-sufficient and capable of supplying the needed service or product at moderate or reasonable prices. It would be against public interest where the firm granted a monopoly is merely ail unnecessary conduit of electric power, jacking up prices as a superfluous middleman or an inefficient producer which cannot supply cheap electricity to power intensive industries. It is in the public interest when industries dependent on the heavy use of electricity are given reliable and direct power at the lowest costs thus enabling the sale of nationally

marketed products at prices within the reach of the masses. Applying the above principles to the specific facts of this case, Northern cannot be said to have committed an act void ab initio when it concluded the questioned contract with NPC. Accordingly, the respondent corporation is not liable for damages to the petitioner. WHEREFORE, the instant petition is DISMISSED for lack of merit. SO ORDERED.

FRANCISCO ALONSO (Deceased), substituted by MERCEDES V. ALONSO, TOMAS V. ALONSO and ASUNCION V. ALONSO, petitioners, vs. CEBU COUNTRY CLUB, INC., respondent. RESOLUTION AUSTRIA-MARTINEZ, J.: In our Decision dated January 31, 2002, we declared that: ... neither Tomas N. Alonso nor his son Francisco M. Alonso or the latters heirs are the lawful owners of Lot No. 727 in dispute. Neither has the respondent Cebu Country Club, Inc. been able to establish a clear title over the contested estate. The reconstitution of a title is simply the re-issuance of a lost duplicate certificate of title in its original form and condition. It does not determine or resolve the ownership of the land covered by the lost or destroyed title. A reconstituted title, like the original certificate of title, by [1] itself does not vest ownership of the land or estate covered thereby. on which basis, the dispositive portion of the decision reads: WHEREFORE, we DENY the petition for review. However, we SET ASIDE the decision of the Court of Appeals and that of the Regional Trial Court, Cebu City, Branch 08. IN LIEU THEREOF, we DISMISS the complaint and counterclaim of the parties in Civil Case No. CEB 12926 of the trial court. We declare that Lot No. 727 D-2 of the Banilad Friar Lands Estate covered by Original Certificate of Title Nos. 251, 232, and 253 legally belongs to the Government of the Philippines. No costs. [2] SO ORDERED. Petitioners and respondent filed separate motions for reconsideration, each assailing a different aspect of the decision. Petitioners, in their Motion for Reconsideration dated March 6, 2002, vigorously argue that: (a) the majority decision unduly deprives petitioners of their property without due process of law and in a manner shocking to good conscience; (b) in invalidating the sale of Lot 727 to the late Tomas Alonso, the ponencia unfairly deviated from established doctrine to favor a mere obiter dictum as misapplied in Liao vs. Court of Appeals, using as basis factual findings either unsupported by the evidence or contradicted by the appellate courts findings of fact; (c) the core issues of fraud and want of jurisdiction afflicting the reconstitution of respondent Cebu Country Clubs title were not squarely and frontally met, to the prejudice and damage of the petitioners; and (d) the dissenting opinion deserves a second hard look as it presents a more balanced, sober, factually accurate, and juridically precise approach to the critical issues of this case, including prescription and laches. On the other hand, respondent Cebu Country Club, Inc., in its Motion for Reconsideration dated March 5, 2002, staunchly assails the decision insofar as it declared that Lot 727-D-2 of the Banilad Friar Lands Estate legally belongs to the Government of the Republic of the Philippines. Respondent argues that the Office of the Solicitor General (OSG), as representative of the Government, has not intervened nor has it been impleaded in the Regional Trial Court (RTC) nor during the appeal in the Court of Appeals, and, the Torrens Certificate of Title, TCT No. RT-1310 (T-11351) of respondent, covering Lot 727, Banilad Friar Lands Estate, cannot be collaterally attacked and nullified in this case at bar. We find no merit in petitioners motion for reconsideration. The matters raised in the motion have already been substantially discussed in the decision. It must be emphasized that in civil cases, the burden of proof to be established by preponderance of evidence is on the plaintiff who is asserting the affirmative of an issue. He has the burden of presenting evidence required to obtain a favorable judgment, and [3] he, having the burden of proof, will be defeated if no evidence were given on either side. Inasmuch as petitioners pray for the Declaration of Nullity and Non-Existence of Deed/Title, Cancellation of Certificates of Title and Recovery of Property against the respondent, they had the burden to establish their claims of ownership of the subject property which they failed to do in this case. [4] Section 18 of Act No. 1120 or the Friar Lands Act unequivocally provides: No lease or sale made by the Chief of the Bureau of Public Lands (now the Director of Lands) under the provisions of this Act shall be valid until approved by the Secretary of the Interior (now, the Secretary of Natural Resources). Thus, petitioners claim of ownership must fail in the absence of positive evidence showing the approval of the Secretary of Interior. Approval of the Secretary of the Interior cannot simply be presumed or inferred from certain acts since the law is explicit in its mandate. This is the settled rule as enunciated in Solid State Multi-Products [5] [6] Corporation vs. Court of Appeals and reiterated in Liao vs. Court of Appeals. Petitioners have not offered any cogent reason that would justify a deviation from this rule. Contrary to petitioners protestations, we squarely resolved the core issues of fraud and want of jurisdiction afflicting the reconstitution of respondents title. While we held that the issue of the validity of respondents title is factual which cannot be [7] reviewed on appeal, nevertheless, we have answered each ground raised by petitioner in assailing respondents title. Needless to [8] stress, mere allegations of fraud are not enough. Fraud is never presumed but must be proved by clear and convincing [9] [10] evidence, mere preponderance of evidence not even being adequate. As we have held in Saguid vs. Court of Appeals, contentions must be proved by competent evidence and reliance must be had on the strength of the partys own evidence and not [11] upon the weakness of the opponents defense. Petitioners failed to discharge that burden. Moreover, it cannot be over-accentuated that Tomas Alonso, petitioners predecessor-in-interest, never asserted any claim of ownership over the disputed property during his lifetime. When he was alive, Tomas Alonso did not exert any effort to have the title of the disputed property reconstituted in his name or seek recovery thereof from the respondent which was in possession since [12] 1931. Significantly, Tomas Alonso had caused the reconstitution of his title on Lot 810, which is adjacent to the disputed property, sometime in 1946 and yet petitioners failed to show that Tomas Alonso exerted the same effort to reconstitute his alleged title to the subject property. As successors-in-interest, petitioners merely stepped into the shoes of Tomas Alonso. They cannot claim a right greater than that of their predecessor. Notably, Tomas Alonso and his son Francisco Alonso were not ordinary or unschooled men. They were learned men of the law. They belonged to the landed gentry and, thus, had adequate financial resources at their disposal. Tomas Alonso was even a member of Congress. The length of time that has elapsed, spanning six decades, before the institution of the suit to recover the property, begs for a valid explanation, of which none was convincingly offered. Petitioners silent acquiescence for several decades and belated invocation of an alleged right speak strongly of the staleness of their claim. Their claims can hardly evoke judicial compassion. Vigilantibus et non dormientibus jura subveniunt. If eternal vigilance is the price of [13] safety, one cannot sleep on ones right for more than a tenth of a century and expect it to be preserved in its pristine purity. We likewise find no merit in respondents motion for reconsideration insofar as the decision declared that Lot 727-D-2 of the Banilad Friar Lands Estate legally belongs to the Government of the Republic of the Philippines.

It must be borne in mind that the disputed property is part of the Friar Lands over which the Government holds title and are [14] not public lands but private or patrimonial property of the Government and can be alienated only upon proper compliance with the requirements of Act No. 1120 or the Friar Lands Act. Sections 11, 12 and 18 of Act No. 1120 provide: SECTION 11. Should any person who is the actual and bona fide settler upon and occupant of any portion of said lands . . . desire to purchase the land so occupied by him, he shall be entitled to do so at the actual cost thereof to the Government, and shall be allowed ten years from the date of purchase within which to pay for the same in equal annual installments, if he so desires, all deferred payments to bear interest at the rate of four per centum per annum on all deferred payments. ... SECTION 12. ... When the cost thereof shall have been thus ascertained the Chief of the Bureau of Public Lands shall give the said settler and occupant a certificate which shall set forth in detail that the Government has agreed to sell to such settler and occupant the amount of land so held by him, at the prize so fixed, payable as provided in this Act . . . and that upon the payment of the final installment together with all accrued interest the Government will convey to such settler and occupant the said land so held by him by proper instrument of conveyance, which shall be issued and become effective in the manner provided in section one hundred and twenty-two of the Land Registration Act. ... SECTION 18. No lease or sale made by the Chief of the Bureau of Public Lands under the provisions of this Act shall be valid until approved by the Secretary of the Interior. It was thus primordial for the respondent to prove its acquisition of its title by clear and convincing evidence in view of the nature of the land. In fact, it is essential for both respondent and petitioners to establish that it had become private property. Both parties failed to do so. As we have held earlier, petitioners have not succeeded to prove their claim of ownership over the subject property. On the part of respondent, it failed to shed light on how its predecessor in interest, United Services Country Club, Inc., acquired its title. Surprisingly, there is not even one evidence to show when and how its predecessor in interest, United Services Country Club, Inc., acquired the property from anybody. It may be true that records were destroyed during the war, but respondent has not offered any clear evidence, testimonial or documentary, on the circumstances surrounding the acquisition of Lot 727, thereby creating a wide chasm in its claim of ownership. It only serves to underscore the paucity of the proof of respondent to support its claim of ownership over the disputed property. Respondent relies solely on its reconstituted title which, by itself, does not determine or resolve the ownership of the land covered by the lost or destroyed title. The reconstitution of a title is simply the re-issuance of a lost duplicate certificate of title in its original form and condition. It does not determine or resolve the ownership of the land covered by the lost or destroyed title. A [15] reconstituted title, like the original certificate of title, by itself does not vest ownership of the land or estate covered thereby. Neither may the rewards of prescription be successfully invoked by respondent, as it is an iron-clad dictum that prescription can never lie against the Government. Since respondent failed to present the paper trail of the propertys conversion to private property, the lengthy possession and occupation of the disputed land by respondent cannot be counted in its favor, as the subject property being a friar land, remained part of the patrimonial property of the Government. Possession of patrimonial property of the Government, whether spanning decades or centuries, can not ipso facto ripen into ownership. Moreover, the rule that statutes of limitation do not run against the State, unless therein expressly provided, is founded on the great principle of public policy, applicable to all governments alike, which forbids that the public interests should be prejudiced by the negligence of the officers or [16] agents to whose care they are confided. Furthermore, the declaration in the Courts judgment that the subject property belongs to the Government is not an offshoot of a collateral attack on respondents title. The validity of the reconstitution of title to the land in question was directly in dispute, and the proceedings before the trial court was in the nature of a direct attack on the legality of respondents title. Finally, our declaration that Lot 727-D-2 of the Banilad Friar Lands Estate legally belongs to the Government does not amount to reversion without due process of law insofar as both parties are concerned. The disputed property is a Friar Land and both parties failed to show that it had ceased to belong to the patrimonial property of the State or that it had become private property. IN VIEW THEREOF, we DENY with finality the separate motions for reconsideration of the petitioners and respondent. SO ORDERED.

AM. No. 11-3-6-SC AMENDMENT OF SECTION 12, RULE 14 OF THE RULES OF COURT ON SERVICE UPON FOREIGN PRIVATE JURIDICAL ENTITY Section 12, Rule 14 of the Rules of Court is hereby amended to read as follows: "SEC. 12. Service upon foreign private juridical entity. When the defendant is a foreign private juridical entity which has transacted business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose, or, i f there be no such agent, on the government official designated by law to that effect, or on any of its officers or agents within the Philippines. If the foreign private juridical entity is not registered in the Philippines or has no resident agent, service may, with leave of court, be effected out of the Philippines through any of the following means: a) B y personal service coursed through the appropriate court in the foreign country with the assistance of the Department of Foreign Affairs; b) B y publication once in a newspaper of general circulation in the country where the defendant may be found and by serving a copy of the summons and the court order by-registered mail at the last known address of the defendant; c) B y facsimile or any recognized electronic means that could generate proof of service; or d) B y such other means as the court may in its discretion direct." This rule shall take effect fifteen (15) days after publication in a newspaper of general circulation in the Philippines. March 15, 2011

ERNESTO M. APODACA, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, JOSE M. MIRASOL and INTRANS PHILS., INC., respondents. Diego O. Untalan for petitioner. The Solicitor General for public respondent. Barcelona, Perlas, Joven & Academia Law Offices for private respondents. GANCAYCO, J.: Does the National Labor Relations Commission (NLRC) have jurisdiction to resolve a claim for non-payment of stock subscriptions to a corporation? Assuming that it has, can an obligation arising therefrom be offset against a money claim of an employee against the employer? These are the issues brought to this court through this petition for review of a decision of the NLRC dated September 18, 1987. The only remedy provided for by law from such a decision is a special civil action for certiorari under Rule 65 of the Rules of Court based on jurisdictional grounds or on alleged grave abuse of discretion amounting to lack or excess of jurisdiction, not by way of an appeal by certiorari. Nevertheless, in the interest of justice, this petition is treated as a special civil action for certiorari. Petitioner was employed in respondent corporation. On August 28, 1985, respondent Jose M. Mirasol persuaded petitioner to subscribe to 1,500 shares of respondent corporation at P100.00 per share or a total of P150,000.00. He made an initial payment of P37,500.00. On September 1, 1975, petitioner was appointed President and General Manager of the respondent corporation. However, on January 2, 1986, he resigned. On December 19, 1986, petitioner instituted with the NLRC a complaint against private respondents for the payment of his unpaid wages, his cost of living allowance, the balance of his gasoline and representation expenses and his bonus compensation for 1986. Petitioner and private respondents submitted their position papers to the labor arbiter. Private respondents admitted that there is due to petitioner the amount of P17,060.07 but this was applied to the unpaid balance of his subscription in the amount of P95,439.93. Petitioner questioned the set-off alleging that there was no call or notice for the payment of the unpaid subscription and that, accordingly, the alleged obligation is not enforceable. In a decision dated April 28, 1987, the labor arbiter sustained the claim of petitioner for P17,060.07 on the ground that the employer has no right to withhold payment of wages already earned under Article 103 of the Labor Code. Upon the appeal of the private respondents to public respondent NLRC, the decision of the labor arbiter was reversed in a decision dated September 18, 1987. The NLRC held that a stockholder who fails to pay his unpaid subscription on call becomes a debtor of the corporation and that the setoff of said obligation against the wages and others due to petitioner is not contrary to law, morals and public policy. Hence, the instant petition. The petition is impressed with merit. Firstly, the NLRC has no jurisdiction to determine such intra-corporate dispute between the stockholder and the corporation as in 1 the matter of unpaid subscriptions. This controversy is within the exclusive jurisdiction of the Securities and Exchange Commission. Secondly, assuming arguendo that the NLRC may exercise jurisdiction over the said subject matter under the circumstances of this 2 case, the unpaid subscriptions are not due and payable until a call is made by the corporation for payment. Private respondents have not presented a resolution of the board of directors of respondent corporation calling for the payment of the unpaid subscriptions. It does not even appear that a notice of such call has been sent to petitioner by the respondent corporation. What the records show is that the respondent corporation deducted the amount due to petitioner from the amount receivable from 3 him for the unpaid subscriptions. No doubt such set-off was without lawful basis, if not premature. As there was no notice or call for the payment of unpaid subscriptions, the same is not yet due and payable. Lastly, assuming further that there was a call for payment of the unpaid subscription, the NLRC cannot validly set it off against the wages and other benefits due petitioner. Article 113 of the Labor Code allows such a deduction from the wages of the employees by the employer, only in three instances, to wit: ART. 113. Wage Deduction. No employer, in his own behalf or in behalf of any person, shall make any deduction from the wages of his employees, except: (a) In cases where the worker is insured with his consent by the employer, and the deduction is to recompense the employer for the amount paid by him as premium on the insurance; (b) For union dues, in cases where the right of the worker or his union to checkoff has been recognized by the employer or authorized in writing by the individual worker concerned; and 4 (c) In cases where the employer is authorized by law or regulations issued by the Secretary of Labor. WHEREFORE, the petition is GRANTED and the questioned decision of the NLRC dated September 18, 1987 is hereby set aside and another judgment is hereby rendered ordering private respondents to pay petitioner the amount of P17,060.07 plus legal interest computed from the time of the filing of the complaint on December 19, 1986, with costs against private respondents. SO ORDERED.

ASSET PRIVATIZATION TRUST, petitioner, vs., COURT OF APPEALS, JESUS S. CABARRUS, SR., JESUS S. CABARRUS, JR., JAIME T. CABARRUS, JOSE MIGUEL CABARRUS, ALEJANDRO S. PASTOR, JR., ANTONIO U. MIRANDA, and MIGUEL M. ANTONIO, as Minority Stock Holders of Marinduque Mining and Industrial Corporation, respondents. DECISION KAPUNAN, J.: The petition for review on certiorari before us seeks us to reverse and set aside the decision of the Court of Appeals which denied due course to the petition for certiorari filed by the Asset Privatization Trust (APT) assailing the order of the Regional Trial Court (RTC) Branch 62, Makati City. The Makati RTCs order upheld and confirmed the award made by the Arbitration Committee in favor of Marinduque Mining and Industrial Corporation (MMIC) and against the Government, represented by herein petitioner APT for damages in the amount of P2.5 BILLION (or approximately P4.5 BILLION, including interest). Ironically, the staggering amount of damages was imposed on the Government for exercising its legitimate right of foreclosure as creditor against the debtor MMIC as a consequence of the latters failure to pay its overdue and unpaid obligation of P22 billion to the Philippine National Bank (PNB) and the Development Bank of the Philippines (DBP).
The antecedent facts of the case

The development, exploration and utilization of the mineral deposits in the Surigao Mineral Reservation have been authorized by Republic Act No. 1828, as amended by Republic Acts No. 2077 and 4167, by virtue of which laws, a Memorandum of Agreement was drawn on July 3, 1968, whereby the Republic of the Philippines thru the Surigao Mineral Reservation Board, granted MMIC the [1] exclusive right to explore, develop and exploit nickel, cobalt and other minerals in the Surigao mineral reservation. MMIC is a domestic corporation engaged in mining with respondents Jesus S. Cabarrus, Sr. as President and among its original stockholders. The Philippine Government undertook to support the financing of MMIC by purchase of MMIC debenture and extension of guarantees. Further, the Philippine Government obtained a firm, commitment from the DBP and/or other government financing institutions to subscribed in MMIC and issue guarantee/s for foreign loans or deferred payment arrangements secured from the US [2] Eximbank, Asian Development Bank, Kobe Steel, of amount not exceeding US$100 Million. DBP approved guarantees in favor of MMIC and subsequent requests for guarantees were based on the unutilized portion of the Government commitment. Thereafter, the Government extended accommodations to MMIC in various amounts. [3] On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust Agreement whereby MMIC, as mortgagor, agreed to constitute a mortgage in favor of PNB and DBP as mortgagees, over all MMICs assets, subject of real estate and chattel mortgage executed by the mortgagor, and additional assets described and identified, including assets of whatever kind, nature or description, which the mortgagor may acquire whether in substitution of, in replenishment, or in addition thereto. Article IV of the Mortgage Trust Agreement provides for Events of Default, which expressly includes the event that the [4] MORTGAGOR shall fail to pay any amount secured by this Mortgage Trust Agreement when due. Article V of the Mortgage Trust Agreement prescribes in detail, and in addition to the enumerated events of defaults, circumstances by which the mortgagor may be declared in default, the procedure therefor, waiver of period to foreclose, authority [5] of Trustee before, during and after foreclosure, including taking possession of the mortgaged properties. In various request for advances/remittances of loans of huge amounts, Deeds of Undertakings, Promissory Notes, Loans Documents, Deeds of Real Estate Mortgages, MMIC invariably committed to pay either on demand or under certain terms the loans and accommodations secured from or guaranteed by both DBP and PNB. By 1984, DBP and PNBs financial exposure both in loans and in equity in MMIC had reached tremendous proportions, and MMIC was having a difficult time meeting its financial obligations. MMIC had an outstanding loan with DBP in the amount of P13,792,607,565.92 as of August 31, 1984 and in the amount ofP8,789,028,249.38 as of July 15, 1984 or a total Government exposure of Twenty Two Billion Six Hundred Sixty-Eight Million Five Hundred Thirty-Seven Thousand Seven Hundred Seventy and [6] 05/100 (P22,668,537,770.05), Philippine Currency. Thus, a financial restructuring plan (FRP) designed to reduce MMIC' interest [7] expense through debt conversion to equity was drafted by the Sycip Gorres Velayo accounting firm. On April 30, 1984, the FRP was [8] approved by the Board of Directors of the MMIC. However, the proposed FRP had never been formally adopted, approved or [9] ratified by either PNB or DBP. In August and September 1984, as the various loans and advances made by DBP and PNB to MMIC had become overdue and since any restructuring program relative to the loans was no longer feasible, and in compliance with the directive of Presidential Decree No. 385, DBP and PNB as mortgagees of MMIC assets, decided to exercise their right to extrajudicially foreclose the [10] mortgages in accordance with the Mortgage Trust Agreement. The foreclosed assets were sold to PNB as the lone bidder and were assigned to three newly formed corporations, namely, Nonoc Mining Corporation, Maricalum Mining and Industrial Corporation, and Island Cement Corporation. In 1986, these assets [11] were transferred to the Asset Privatization Trust (APT). On February 28, 1985, Jesus S. Cabarrus, Sr., together with the other stockholders of MMIC, filed a derivative suit against DBP [12] and PNB before the RTC of Makati, Branch 62, for Annulment of Foreclosures, Specific Performance and Damages. The suit, docketed as Civil Case No. 9900, prayed that the court: (1) annul the foreclosure, restore the foreclosed assets to MMIC, and require the banks to account for their use and operation in the interim; (2) direct the banks to honor and perform their commitments under the alleged FRP; and (3) pay moral and exemplary damages, attorneys fees, litigation expenses and costs. In the course of the trial, private respondents and petitioner APT, as successor of the DBP and PNBs interest in MMIC, mutually agreed to submit the case to arbitration by entering into a Compromise and Arbitration Agreement, stipulating, inter alia: NOW, THEREFORE, for and in consideration of the foregoing premises and the mutual covenants contain herein, the parties agreed as follows: 1. Withdrawal and Compromise. The parties have agreed to withdraw their respective claims from the Trial Court and to resolve their dispute through arbitration by praying to the Trial Court to issue a Compromise Judgment based on this Compromise and Arbitration Agreement. In withdrawing their dispute form the court and in choosing to resolve it through arbitration, the parties have agreed that: (a) their respective money claims shall be reduced to purely money claims; and (b) as successor and assignee of the PNB and DBP interest in MMIC and the MMIC accounts, APT shall likewise succeed to the rights and obligations of PNB and DBP in respect of the controversy subject of Civil Case No. 9900 to be transferred to arbitration and any arbitral award/order against either PNB and/or DBP shall be the responsibility of, be discharged by and be enforceable against APT, the partied having agreed to drop PNB and DBP from the arbitration.

2. Submission. The parties hereby agree that (a) the controversy in Civil Case No. 9900 shall be submitted instead to arbitration under RA 876 and (b) the reliefs prayed for in Civil Case No. 9900 shall, with the approval of the Trial Court of this Compromise and Arbitration Agreement, be transferred and reduced to pure pecuniary/money claims with the parties waiving and foregoing all other [13] forms of reliefs which they prayed for or should have payed for in Civil Case No. 9900. The Compromise and Arbitration Agreement limited the issues to the following: 5. Issues. The issues to be submitted for the Committees resolution shall be: (a) Whether PLAINTIFFS have the capacity or the personality to institute this derivative suit in behalf of the MMIC or its directors; (b) Whether or not the actions leading to, and [14] including, the PNB-DBP foreclosure of the MMIC assets were proper, valid and in good faith. This agreement was presented for approval to the trial court. On October 14, 1992, the Makati RTC, Branch 62, issued an order, to wit: WHEREFORE, this Court orders: 1. Substituting PNB and DBP with the Asset Privatization Trust as party defendant. 2. Approving the Compromise and Arbitration Agreement dated October 6, 1992, attached as Annex C of the Omnibus Motion. 3. Approving the Transformation of the reliefs prayed for [by] the plaintiffs in this case into pure money claims; and [15] 4. The Complaint is hereby DISMISSED. The Arbitration Committee was composed of retired Supreme Court Justice Abraham Sarmiento as Chairman, Atty. Jose C. Sison and former Court of Appeals Justice Magdangal Elma as Members. On November 24, 1993, after conducting several hearings, the Arbitration Committee rendered a majority decision in favor of MMIC, the pertinent portions of which read as follows: Since, as this Committee finds, there is no foreclosure at all was not legally and validly done, the Committee holds and so declares that the loans of PNB and DBP to MMIC, for the payment and recovery of which the void foreclosure sales were undertaken, continue to remain outstanding and unpaid. Defendant APT as the successor-in-interest of PNB and DBP to the said loans is therefore entitled and retains the right, to collect the same from MMIC pursuant to and based on the loan documents signed by MMIC, subject to the legal and valid defenses that the latter may duly and seasonably interpose. Such loans shall, however, be reduced by the amount which APT may have realized from the sale of the seized assets of MMIC which by agreement should no longer be returned even if the foreclosure were found to be null and void. The documentary evidence submitted and adopted by both parties (Exhibits 3, 3-B; Exhibits 100; and also Exhibit ZZZ) as their exhibits would show that the total outstanding obligation due to DBP and PNB as of the date of foreclosure is P22,668,537,770.05, more or less. Therefore, defendant APT can, and is still entitled to, collect the outstanding obligations of MMIC to PNB and DBP amounting to P22,668.537,770.05, more or less, with interest thereon as stipulated in the loan documents from the date of foreclosure up to the time they are fully paid less the proportionate liability of DBP as owner of 87% of the total capitalization of MMIC under the FRP. Simply put, DBP shall share in the award of damages to, and in obligations of MMIC in proportion to its 87% equity in the total capital stock of MMIC. x x x. As this Committee holds that the FRP is valid, DBPs equity in MMIC is raised to 87%. So pursuant to the above provision of the Compromise and Arbitration Agreement, the 87% equity of DBP is hereby deducted from the actual damages of P19,486,118,654.00 resulting in the net actual damages of P2,531,635,425.02 plus interest. DISPOSITION WHEREFORE, premises considered, judgment is hereby rendered: 1. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except the DBP, the sum of P2,531,635,425.02 with interest thereon at the legal rate of six per cent (6%) per annum reckoned from August 3, 9, and 24, 1984, pari passu, as and for actual damages. Payment of these actual damages shall be offset by APT from the outstanding and unpaid loans of the MMIC with DBP and PNB, which have not been converted into equity. Should there be any balance due to the MMIC after the offsetting, the same shall be satisfied from the funds representing the purchase price of the sale of the shares of Island Cement Corporation in the amount of P503,000,000.00 held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9) of the Compromise and Arbitration Agreement; 2. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except the DBP, the sum of P13,000,000.00 as and for moral and exemplary damages. Payment of these moral and exemplary damages shall be offset by APT from the outstanding and unpaid loans of MMIC with DBP and PNB, which have not been converted into equity. Should there be any balance due to MMIC after the offsetting, the same shall be satisfied from the funds representing the purchase price of the sale of the shares of Island Cement Corporation in the of P503,000,000.00 held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9) of the Compromise and Arbitration Agreement; 3. Ordering the defendant to pay to the plaintiff, Jesus Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied likewise from the funds held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would supercede it, pursuant to paragraph (9) of the Compromise and Arbitration Agreement, as and for moral damages; and 4. Ordering the defendant to pay arbitration costs. This Decision is FINAL and EXECUTORY. [16] IT IS SO ORDERED. Motions for reconsiderations were filed by both parties, but the same were denied. On October 17, 1994, private respondents filed in the same Civil Case No. 9900 an Application/Motion for Confirmation of Arbitration Award. Petitioner countered with an Opposition and Motion to Vacate Judgment raising the following grounds: 1. The plaintiffs Application/Motion is improperly filed with this branch of the Court, considering that the said motion is neither a part nor the continuation of the proceedings in Civil Case No. 9900 which was dismissed upon motion of the parties. In fact, the defendants in the said Civil Case No. 9900 were the Development Bank of the Philippines and the Philippine National Bank (PNB); 2. Under Section 22 of Rep. Act 876, an arbitration under a contract or submission shall be deemed a special proceedings and a party to the controversy which was arbitrated may apply to the court having jurisdiction, (not necessarily with this Honorable Court) for an order confirming the award;

3. The issues submitted for arbitration have been limited to two: (1) propriety of the plaintiffs filing the derivative suit and (2) the regularity of the foreclosure proceedings. The arbitration award sought to be confirmed herein far exceeded the issues submitted and even granted moral damages to one of the herein plaintiffs; 4. Under Section 24 of Rep. Act 876, the Court must make an order vacating the award where the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual final and definite award upon the subject matter submitted to them was not [17] made. Private respondents filed a REPLY AND OPPOSITION dated November 10, 1984, arguing that a dismissal of Civil case No. 9900 was merely a qualified dismissal to pave the way for the submission of the controversy to arbitration, and operated simply as a mere suspension of the proceedings. They denied that the Arbitration Committee had exceeded its powers. In an Order dated November 28, 1994, the trial court confirmed the award of the Arbitration Committee. The dispositive portion of said order reads: WHEREFORE, premises considered, and in the light of the parties [sic] Compromise and Arbitration Agreement dated October 6, 1992, the Decision of the Arbitration Committee promulgated on November 24, 1993, as affirmed in a Resolution dated July 26, 1994, and finally settled and clarified in the Separate Opinion dated September 2, 1994 of Committee Member Elma, and the pertinent provisions of RA 876,also known as the Arbitration Law, this Court GRANTS PLAINTIFFS APPLICATION AND THUS CONFIRMS THE ARBITRATION AWARD, AND JUDGMENT IS HEREBY RENDERED: (a) Ordering the defendant APT to the Marinduque Mining and Industrial Corporation (MMIC, except the DBP, the sum of P3,811,757,425.00, as and for actual damages, which shall be partially satisfied from the funds held under escrow in the amount of P503,000,000.00 pursuant to the Escrow Agreement dated April 22, 1988. The Balance of the award, after the escrow funds are fully applied, shall be executed against the APT; (b) Ordering the defendant to pay to the MMIC, except the DBP, the sum of P13,000,000.00 as and moral and exemplary damages; (c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr., the sum of P10,000,000.00 as and for moral damages; and (d) Ordering the defendant to pay the herein plaintiffs/applicants/movants the sum of P1,705,410.22 as arbitration costs. In reiteration of the mandates of Stipulation No. 10 and Stipulation No. 8 paragraph 2 of the Compromise and Arbitration Agreement, and the final edict of the Arbitration Committees decision, and with this Courts Confirmation, the issuance of the Arbitration Committees Award shall henceforth be final and executory. [18] SO ORDERED. On December 27, 1994, petitioner filed its motion for reconsideration of the Order dated November 28, 1994. Private respondents, in turn, submitted their reply and opposition thereto. On January 18, 1995, the trial court handed down its order denying APTs motion for reconsideration for lack of merit and for having been filed out of time. The trial court declared that considering that the defendant APT through counsel, officially and actually received a copy of the Order of this Court dated November 28, 1994 on December 6, 1994, the Motion for Reconsideration thereof filed by the defendant APT on December 27, 1994, or after the lapse of 21 days, was clearly filed beyond the 15-day reglementary period prescribed or provided for by law for the filing of an appeal from final orders, resolutions, awards, judgments or decisions of any court in all cases, and by necessary implication for the filling of a motion for reconsideration thereof. On February 7, 1995, petitioner received private respondents motion for Execution and Appointment of Custodian of Proceeds of Execution dated February 6, 1995. Petitioner thereafter filed with the Court of Appeals a special civil action for certiorari with temporary restraining order and/or preliminary injunction dated February 13, 1996 to annul and declare as void the Orders of the RTC-Makati dated November 28, 1994 [19] and January 18, 1995 for having been issued without or in excess of jurisdiction and/or with grave abuse of discretion. As ground therefor, petitioner alleged that: I THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED JURISDICTION MUCH LESS, HAS THE COURT AUTHORITY, TO CONFIRM THE ARBITRAL AWARD CONSIDERING THAT THE ORIGINAL CASE, CIVIL CASE NO. 9900, HAD PREVIOUSLY BEEN DISMISSED. II THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF DISCRETION AND ACTED WITHOUT OR IN EXCESS OF JURISDICTION, IN ISSUING THE QUESTIONED ORDERS CONFIRMING THE ARBITRAL AWARD AND DENYING THE MOTION FOR RECONSIDERATION OF ORDER OF AWARD. III THE RESPONDENT JUDGE GROSSLY ABUSED HIS DISCRETION AND ACTED WITHOUT OR IN EXCESS OF AND WITHOUT JURISDICTION IN RECKONING THE COUNTING OF THE PERIOD TO FILE MOTION FOR RECONSIDERATION, NOT FROM THE DATE OF SERVICE OF THE COURTS COPY CONFIRMING THE AWARD, BUT FROM RECEIPT OF A XEROX COPY OF WHAT PRESUMABLY IS THE OPPOSING [20] COUNSELS COPY THEREOF. On July 12, 1995, the Court of Appeals, through its fifth Division denied due course and dismissed the petition for certiorari. Hence, the instant petition for review on certiorari imputing to the Court of Appeals the following errors. ASSIGNMENT OF ERRORS I THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE MAKATI REGIONAL TRIAL COURT, BRANCH 62 WHICH HAS PREVIOULSY DISMISSED CIVIL CASE NO. 9900 HAD LOST JURISDICTION TO CONFIRM THE ARBITRAL AWARD UNDER THE SAME CIVIL CASE AND IN NOT RULING THAT THE APPLICATION FOR CONFIRMATION SHOULD HAVE BEEN FILED AS A NEW CASE TO BE RAFFLED OFF AMONG THE DIFFERENT BRANCHES OF THE RTC. II THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING THAT PETITIONER WAS ESTOPPED FROM QUESTIONING THE ARBITRATION AWARD, WHEN PETITIONER QUESTIONED THE JURISDICTION OF THE RTC-MAKATI, BRANCH 62 AND AT THE SAME TIME MOVED TO VACATE THE ARBITRAL AWARD. III THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT TRIAL COURT SHOULD HAVE EITHER DISMISSED/DENIED PRIVATE RESPONDENTS MOTION/PETITION FOR CONFIRMATION OF ARBITRATION AWARD AND/OR SHOULD HAVE CONSIDERED THE MERITS OF THE MOTION TO VACATE ARBITRAL AWARD. IV

THE COURT OF APPEALS ERRED IN NOT TREATING PETITIONER APTS PETITION FOR CERTIORARI AS AN APPEAL TAKEN FROM THE ORDER CONFIRMING THE AWARD V THE COURT OF APPEALS ERRED IN NOT RULING ON THE LEGAL ISSUE OF WHEN TO RECKON THE COUNTING OF THE PERIOD TO [21] FILE A MOTION FOR RECONSIDERATION. The petition is impressed with merit. I
The RTC of Makati, Branch 62, did not have jurisdiction to confirm the arbitral award

The use of the term dismissed is not a mere semantic imperfection. The dispositive portion of the Order of the trial court dated October 14, 1992 stated in no uncertain terms: [22] 4. The Complaint is hereby DISMISSED. The term dismiss has a precise definition in law. To dispose of an action suit, or motion without trial on the issues [23] involved. Conclude, discontinue, terminate, quash. Admittedly the correct procedure was for the parties to go back to the court where the case was pending to have the award confirmed by said court. However, Branch 62 made the fatal mistake of issuing a final order dismissing the case. While Branch 62 [24] should have merely suspended the case and not dismissed it, neither of the parties questioned said dismissal. Thus, both parties as well as said court are bound by such error. It is erroneous then to argue, as private respondents do, that petitioner APT was charged with the knowledge that the case was merely stayed until arbitration finished, as again, the order of Branch 62 in very clear terms stated that the complaint was dismissed. By its own action, Branch 62 had lost jurisdiction over the vase. It could not have validly reacquired jurisdiction over the said case on mere motion of one of the parties. The Rules of Court is specific on how a new case may be initiated and such is not done by mere motion in a particular branch of the RTC. Consequently, as there was no pending action to speak of, the petition to confirm the arbitral award should have been filed as a new case and raffled accordingly to one of the branches of the Regional Trial Court. II
Petitioner was not estopped from questioning the jurisdiction of Branch 62 of the RTC of Makati.

The Court of Appeals ruled that APT was already estopped to question the jurisdiction of the RTC to confirm the arbitral award because it sought affirmative relief in said court by asking that the arbitral award be vacated. The rule is that Where the court itself clearly has no jurisdiction over the subject matter or the nature of the action, the invocation of this defense may de done at any time. It is neither for the courts nor for the parties to violate or disregard that rule, [25] let alone to confer that jurisdiction, this matter being legislative in character. As a rule the, neither waiver nor estoppel shall [26] apply to confer jurisdiction upon a court barring highly meritorious and exceptional circumstances. One such exception was [27] enunciated in Tijam vs. Sibonghanoy, where it was held that after voluntarily submitting a cause and encountering an adverse decision on the merits, it is too late for the loser to question the jurisdiction or power of the court." Petitioners situation is different because from the outset, it has consistently held the position that the RTC, Branch 62 had no jurisdiction to confirm the arbitral award; consequently, it cannot be said that it was estopped from questioning the RTCs jurisdiction. Petitioners prayer for the setting aside of the arbitral award was not inconsistent with its disavowal of the courts jurisdiction. III
Appeal of petitioner to the Court of Appeals thru certiorari under Rule 65 was proper.

The Court of Appeals in dismissing APTs petition for certiorari upheld the trial courts denial of APTs motion for reconsideration of the trial courts order confirming the arbitral award, on the ground that said motion was filed beyond the 15-day reglementary period; consequently, the petition for certiorari could not be resorted to as substitute to the lost right of appeal. We do not agree. [28] Section 29 of Republic Act No. 876, provides that: x x x An appeal may be taken from an order made in a proceeding under this Act, or from a judgment entered upon an award through certiorari proceedings, but such appeals shall be limited to question of law. x x x. The aforequoted provision, however, does not preclude a party aggrieved by the arbitral award from resorting to the extraordinary remedy of certiorari under Rule 65 of the Rules of Court where, as in this case, the Regional Trial Court to which the award was submitted for confirmation has acted without jurisdiction, or with grave abuse of discretion and there is no appeal, nor any plain, speedy remedy in the course of law. Thus, Section 1 of Rule 65 provides: SEC 1. Petition for Certiorari: - When any tribunal, board or officer exercising judicial functions, has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion and there is no appeal, nor 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, as the law requires, of such tribunal, board or officer. In the instant case, the respondent court erred in dismissing the special civil action for certiorari, it being from the pleadings and the evidence that the trial court lacked jurisdiction and/or committed grave abuse of discretion in taking cognizance of private respondent motion to confirm the arbitral award and, worse, in confirming said award which is grossly and patently not in accord with the arbitration agreement, as will be hereinafter demonstrated. IV
The nature and limits of the Arbitrators powers.

As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either as to the law or as to the [29] facts. Courts are without power to amend or overrule merely because of disagreement with matters of law or facts determined by [30] the arbitrators. They will not review the findings of law and fact contained in an award, and will not undertake to substitute their judgment for that of the arbitrators, since any other rule would make an award the commencement, not the end, of [31] litigation. Errors of law and fact, or an erroneous decision of matters submitted to the judgment of the arbitrators, are insufficient [32] to invalidate an award fairly and honestly made. Judicial review of an arbitration is, thus, more limited than judicial review of a [33] trial.

Nonetheless, the arbitrators awards is not absolute and without exceptions. The arbitrators cannot resolve issues beyond the [34] scope of the submission agreement. The parties to such an agreement are bound by the arbitrators award only to the extent and [35] in the manner prescribed by the contract and only if the award is rendered in conformity thereto. Thus, Sections 24 and 25 of the Arbitration Law provide grounds for vacating, rescinding or modifying an arbitration award. Where the conditions described in [36] [37] [38] Articles 2038, 2039 and 2040 of the Civil Code applicable to compromises and arbitration are attendant, the arbitration award may also be annulled. [39] In Chung Fu Industries (Phils.) vs. Court of Appeals, we held: x x x. It is stated explicitly under Art. 2044 of the Civil Code that the finality of the arbitrators awards is not absolute and without exceptions. Where the conditions described in Articles 2038, 2039, and 2040 applicable to both compromises and arbitration are obtaining, the arbitrators' award may be annulled or rescinded. Additionally, under Sections 24 and 25, of the Arbitration Law, there are grounds for vacating, modifying or rescinding an arbitrators award. Thus, if and when the factual circumstances referred to in the above-cited provisions are present, judicial review of the award is properly warranted. Accordingly, Section 20 of R.A. 876 provides: SEC. 20. Form and contents of award. The award must be made in writing and signed and acknowledged by a majority of the arbitrators, if more than one; and by the sole arbitrator, if there is only one. Each party shall be furnished with a copy of the award. The arbitrators in their award may grant any remedy or relief which they deem just and equitable and within the scope of the agreement of the parties, which shall include, but not be limited to, the specific performance of a contract. xxx The arbitrators shall have the power to decide only those matters which have been submitted to them. The terms of the award shall be confined to such disputes. (Underscoring ours). xxx. Section 24 of the same law enumerating the grounds for vacating an award states: SEC. 24. Grounds for vacating award. In any one of the following cases, the court must make an order vacating the award upon the petition of any party to the controversy when such party proves affirmatively that in the arbitration proceedings: (a) The award was procured by corruption, fraud, or other undue means; or (b) That there was evident partiality or corruption in arbitrators or any of them; or (c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; that one or more of the arbitrators was disqualified to act as such under section nine hereof, and willfully refrained from disclosing such disqualifications or any other misbehavior by which the rights of any party have been materially prejudiced; or (d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite award upon the subject matter submitted to them was not made. (Underscoring ours). xxx. Section 25 which enumerates the grounds for modifying the award provides: SEC. 25. Grounds for modifying or correcting award In anyone of the following cases, the court must make an order modifying or correcting the award, upon the application of any party to the controversy which was arbitrated: (a) Where there was an evident miscalculation of figures, or an evident mistake in the description of any person, thing or property referred to in the award; or (b) Where the arbitrators have awarded upon a matter not submitted to them, not affecting the merits of the decision upon the matter submitted; or (c) Where the award is imperfect in a matter of form not affecting the merits of the controversy, and if it had been a commissioners report, the defect could have been amended or disregarded by the court. x x x. Finally, it should be stressed that while a court is precluded from overturning an award for errors in determination of factual issues, nevertheless, if an examination of the record reveals no support whatever for the arbitrators determinations, their award [40] [41] must be vacated. In the same manner, an award must be vacated if it was made in manifest disregard of the law. Against the backdrop of the foregoing provisions and principles, we find that the arbitrators came out with an award in excess of their powers and palpably devoid of factual and legal basis. V
There was no financial structuring program; foreclosure of mortgage was fully justified.

The point need not be belabored that PNB and DBP had the legitimate right to foreclose of the mortgages of MMIC whose obligations were past due. The foreclosure was not a wrongful act of the banks and, therefore, could not be the basis of any award of damages. There was no financial restructuring agreement to speak of that could have constituted an impediment to the exercise of the banks right to foreclose. As correctly stated by Mr. Jose C. Sison, a member of the Arbitration Committee who wrote a separate opinion: 1. The various loans and advances made by DBP and PNB to MMIC have become overdue and remain unpaid. The fact that a FRP was drawn up is enough to establish that MMIC has not been complying with the terms of the loan agreement. Restructuring simply connotes that the obligations are past due that is why it is restructurable; 2. When MMIC thru its board and the stockholders agreed and adopted the FRP, it only means that MMIC had been informed or notified that its obligations were past due and that foreclosure is forthcoming; 3. At that stage, MMIC also knew that PNB-DBP had the option of either approving the FRP or proceeding with the foreclosure. Cabarrus, who filed this case supposedly in behalf of MMIC should have insisted on the FRP. Yet Cabarrus himself opposed the FRP; 4. So when PNB-DBP proceeded with the foreclosure, it was done without bad faith but with honest and sincere belief that foreclosure was the only alternative; a decision further explained by Dr. Placido Mapa who testified that foreclosure was, in the judgment of PNB, the best move to save MMIC itself. Q : Now in this portion of Exh. L which was marked as Exh. L-1, and we adopted as Exh. 37-A for the respondent, may I know from you, Dr. Mapa what you meant by that the decision to foreclose was neither precipitate nor arbitrary?

A Q

: Well, it is not a whimsical decision but rather decision arrived at after weighty considerations of the information that we have received, and listening to the prospects which reported to us that we had assumed would be the premises of the financial rehabilitation plan was not materialized nor expected to materialized. : And this statement that it was premised upon the known fact that means, it was referring to the decision to foreclose, was premised upon the known fact that the rehabilitation plan earlier approved by the stockholders was no longer feasible, just what is meant by no longer feasible? : Because the revenue that they were counting on to make the rehabilitation plan possible, was not anymore expected to be forthcoming because it will result in a short fall compared to the prices that were actually taking place in the market. : And I supposed that was you were referring to when you stated that the production targets and assumed prices of MMICs products, among other projections, used in the financial reorganization program that will make it viable were not met nor expected to be met? : Yes.

xxx Which brings me to my last point in this separate opinion. Was PNB and DBP absolutely unjustified in foreclosing the mortgages? In this connection, it can readily be seen and it cannot quite be denied that MMIC accounts in PNB-DBP were past due. The drawing up of the FRP is the best proof of this. When MMIC adopted a restructuring program for its loan, it only meant that these loans were already due and unpaid. If these loans were restructurable because they were already due and unpaid, they are likewise forecloseable. The option is with the PNB-DBP on what steps to take. The mere fact that MMIC adopted the FRP does not mean that DBP-PNB lost the option to foreclose. Neither does it mean that the FRP is legally binding and implementable. It must be pointed that said FRP will, in effect, supersede the existing and past due loans of MMIC with PNB-DBP. It will become the new loan agreement between the lenders and the borrowers. As in all other contracts, there must therefore be a meeting of minds of the parties; the PNB and DBP must have to validly adopt and ratify such FRP before they can be bound by it; before it can be implemented. In this case, not an iota of proof has been presented by the PLAINTIFFS showing that PNB and DBP ratified and adopted the FRP. PLAINTIFFS simply relied on a legal doctrine of promissory estoppel to [42] support its allegation in this regard. Moreover, PNB and DBP had to initiate foreclosure proceedings as mandated by P.D. No. 385, which took effect on January 31, 1974. The decree requires government financial institutions to foreclose collaterals for loans where the arrearages amount to 20% of the total outstanding obligations. The pertinent provisions of said decree read as follows: SEC. 1. It shall be mandatory for government financial institutions, after the lapse of sixty (60) days from the issuance of this Decree to foreclose the collaterals and/or securities for any loan, credit, accommodations, and/or guarantees granted by them whenever the arrearages on such account, including accrued interest and other charges, amount to at least twenty percent (20%) of the total outstanding obligations, including interest and other charges, as appearing in the books of account and/or related records of the financial institutions concerned. This shall be without prejudice to the exercise by the government financial institutions of such rights and/or remedies available to them under their respective contracts with their debtor, including the right to foreclosure on loans, credits, accommodations and/or guarantees on which the arrearages are less than twenty percent (20%). SEC. 2. No restraining order, temporary or permanent injunction shall be issued by the court against any government financial institution in any action taken by such institution in compliance with the mandatory foreclosure provided in Section 1 hereof, whether such restraining order, temporary or permanent injunction is sought by the borrower(s) or any third party or parties, except after due hearing in which it is established by the borrower and admitted by the government financial institution concerned that twenty percent (20%) of the outstanding arrearages has been paid after the filing of foreclosure proceedings. (Underscoring supplied.) Private respondents thesis that the foreclosure proceedings were null and void because of lack of publication in the newspaper is nothing more than a mere unsubstantiated allegation not borne out by the evidence. In any case, a disputable presumption exists in favor of petitioner that official duty has been regularly performed and ordinary course of business has been [43] followed. VI Not only was the foreclosure rightfully exercised by the PNB and DBP, but also, from the facts of the case, the arbitrators in making the award went beyond the arbitration agreement. In their complaint filed before the trial court, private respondent Cabarrus, et al. prayed for judgment in their favor: 1. Declaring the foreclosure effected by the defendants DBP and PNB on the assets of MMIC null and void and directing said defendants to restore the foreclosed assets to the possession of MMIC, to render an accounting of their use and/or operation of said assets and to indemnify MMIC for the loss occasioned by its dispossession or the deterioration thereof; 2. Directing the defendants DBP and PNB to honor and perform their commitments under the financial reorganization plan which was approved at the annual stockholders meeting of MMIC on 30 April 1984; 3. Condemning the defendants DBP and PNB, jointly and severally to pay the plaintiffs actual damages consisting of the loss of value of their investment amounting to not less than P80,000,000.00, the damnum emerges and lucrum cessans in such amount as may be establish during the trial, moral damages in such amount as this Honorable Court may deem just and equitable in the premises, exemplary damages in such amount as this Honorable Court may consider appropriate for the purpose of setting an example for the public good, attorneys fees and litigation expenses in such amounts as may be proven during the trial, and the costs legally taxable in this litigation. [44] Further, Plaintiffs pray for such other reliefs as may be just and equitable in the premises. Upon submission for arbitration, the Compromise and Arbitration Agreement of the parties clearly and explicitly defined and limited the issues to the following: (a) whether PLAINTIFFS have the capacity or the personality to institute this derivative suit in behalf of the MMIC or its directors; (b) whether or not the actions leading to, and including, the PNB-DBP foreclosure of the MMIC assets were proper, valid [45] and in good faith. Item No. 8 of the Agreement provides for the period by which the Committee was to render its decision, as well as the nature thereof:

8. Decision. The committee shall issue a decision on the controversy not later than six (6) months from the date of its constitution. In the event the committee finds that PLAINTIFFS have the personality to file this suit and extra-judicial foreclosure of the MMIC assets wrongful, it shall make an award in favor of the PLAINTIFFS (excluding DBP), in an amount as may be established or warranted by the evidence which shall be payable in Philippine Pesos at the time of the award. Such award shall be paid by the APT or its successor-in-interest within sixty (60) days from the date of the award in accordance with the provisions of par. 9 hereunder. x x x. The PLAINTIFFS remedies under this Section shall be in addition to other remedies that may be available to the PLAINTIFFS, all such remedies being cumulative and not exclusive of each other. On the other hand, in case the arbitration committee finds that PLAINTIFFS have no capacity to sue and/or that the extra-judicial foreclosure is valid and legal, it shall also make an award in favor of APT based on the counterclaims of DBP and PNB in an amount as may be established or warranted by the evidence. This decision of the arbitration committee in favor of APT shall likewise finally settle all issues regarding the foreclosure of the MMIC assets so that the funds held in escrow mentioned in par. 9 hereunder will [46] thus be released in full in favor of APT. The clear and explicit terms of the submission notwithstanding, the Arbitration Committee clearly exceeded its powers or so imperfectly executed them: (a) in ruling on and declaring valid the FRP; (b) in awarding damages to MMIC which was not a party to the derivative suit; and (c) in awarding moral damages to Jesus S. Cabarrus, Sr.
The arbiters overstepped their powers by declaring as valid proposed Financial Restructuring Program.

The Arbitration Committee went beyond its mandate and thus acted in excess of its powers when it ruled on the validity of, and gave effect to, the proposed FRP. In submitting the case to arbitration, the parties had mutually agreed to limit the issue to the validity of the foreclosure and to transform the reliefs prayed for therein into pure money claims. There is absolutely no evidence that the DBP and PNB agreed, expressly or impliedly, to the proposed FRP. It cannot be [47] overemphasized that a FRP, as a contract, requires the consent of the parties thereto. The contract must bind both contracting [48] parties. Private respondents even by their own admission recognized that the FRP had yet not been carried out and that the loans [49] of MMIC had not yet been converted into equity. However, the arbitration Committee not only declared the FRP valid and effective, but also converted the loans of MMIC into [50] equity raising the equity of DBP to 87%. [51] The Arbitration Committee ruled that there was a commitment to carry out the FRP on the ground of promissory estoppel. Similarly, the principle of promissory estoppel applies in the present case considering as we observed, the fact that the government (that is Alfredo Velayo) was the FRPs proponent. Although the plaintiffs are agreed that the government executed no formal agreement, the fact remains that the DBP itself which made representations that the FRP constituted a way out for MMIC. The Committee believes that although the DBP did not formally agree (assuming that the board and stockholders approvals were not formal enough), it is bound nonetheless if only for its conspicuous representations. Although the DBP sat in the board in a dual capacity-as holder of 36% of MMICs equity (at that time) and as MMICs creditor-the DBP can not validly renege on its commitments simply because at the same time, it held interest against the MMIC. The fact, of course, is that as APT itself asserted, the FRP was being carried out although apparently, it would supposedly fall short of its targets. Assuming that the FRP would fail to meet its targets, the DBP-and so this Committee holds-can not, in any event, brook any denial that it was bound to begin with, and the fact is that adequate or not (the FRP), the government is still bound by virtue of its acts. The FRP, of course, did not itself promise a resounding success, although it raised DBPs equity in MMIC to 87%. It is not excuse, [52] however, for the government to deny its commitments. Atty. Sison, however, did not agree and correctly observed that: But the doctrine of promissory estoppel can hardly find application here. The nearest that there can be said of any estoppel being present in this case is the fact that the board of MMIC was, at the time the FRP was adopted, mostly composed of PNB and DBP representatives. But those representatives, singly or collectively, are not themselves PNB or DBP. They are individuals with personalities separate and distinct from the banks they represent. PNB and DBP have different boards with different members who may have different decisions. It is unfair to impose upon them the decision of the board of another company and thus pin them down on the equitable principle of estoppel. Estoppel is a principle based on equity and it is certainly not equitable to apply it in this particular situation. Otherwise the rights of entirely separate, distinct and autonomous legal entities like PNB and DBP with [53] thousands of stockholders will be suppressed and rendered nugatory. As a rule, a corporation exercises its powers, including the power to enter into contracts, through its board of directors. While [54] a corporation may appoint agents to enter into a contract in its behalf, the agent, should not exceed his authority. In the case at bar, there was no showing that the representatives of PNB and DBP in MMIC even had the requisite authority to enter into a debtfor-equity swap. And if they had such authority, there was no showing that the banks, through their board of directors, had ratified the FRP. Further, how could the MMIC be entitled to a big amount of moral damages when its credit reputation was not exactly something to be considered sound and wholesome. Under Article 2217 of the Civil Code, moral damages include besmirched reputation which a corporation may possibly suffer. A corporation whose overdue and unpaid debts to the Government alone reached a tremendous amount of P22 Billion Pesos cannot certainly have a solid business reputation to brag about. As Atty. Sison in his separate opinion persuasively put it: Besides, it is not yet a well settled jurisprudence that corporations are entitled to moral damages. While the Supreme Court may have awarded moral damages to a corporation for besmirched reputation in Mambulao vs. PNB 22 SCRA 359, such ruling cannot find application in this case. It must be pointed out that when the supposed wrongful act of foreclosure was done, MMICs credit reputation was no longer a desirable one. The company then was already suffering from serious financial crisis which definitely projects an image not compatible with good and wholesome reputation. So it could not be said that there was a reputation [55] besmirches by the act of foreclosure.
The arbiters exceeded their authority in awarding damages to MMIC, which is not impleaded as a party to the derivative suit.

Civil Code No. 9900 filed before the RTC being a derivative suit, MMIC should have been impleaded as a party. It was not joined as a party plaintiff or party defendant at any stage of the proceedings. As it is, the award of damages to MMIC, which was not a party before the Arbitration Committee, is a complete nullity.

Settled is the doctrine that in a derivative suit, the corporation is the real party in interest while the stockholder filing suit for the corporations behalf is only nominal party. The corporation should be included as a party in the suit. An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real [56] party in interest. x x x. It is a condition sine qua non that the corporation be impleaded as a party becausex x x. Not only is the corporation an indispensible party, but it is also the present rule that it must be served with process. The reason given is that the judgment must be made binding upon the corporation and in order that the corporation may get the benefit of the suit and may not bring a subsequent suit against the same defendants for the same cause of action. In other words the corporations must be joined as party because it is its cause of action that is being litigated and because judgment must be a res [57] ajudicata against it. The reasons given for not allowing direct individual suit are: (1) x x x the universally recognized doctrine that a stockholder in a corporation has no title legal or equitable to the corporate property; that both of these are in the corporation itself for the benefit of the stockholders. In other words, to allow shareholders to sue separately would conflict with the separate corporate entity principle; (2) x x x that the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in the case of Evangelista v. Santos, that the stockholders may not directly claim those damages for themselves for that would result in the appropriation by, and the distribution among them of part of the corporate assets before the dissolution of the corporation and the liquidation of its debts and liabilities, something which cannot be legally done in view of section 16 of the Corporation Law xxx; (3) the filing of such suits would conflict with the duty of the management to sue for the protection of all concerned; (4) it would produce wasteful multiplicity of suits; and (5) it would involve confusion in a ascertaining the effect of partial recovery by an individual on the damages recoverable by the [58] corporation for the same act. If at all an award was due MMIC, which it was not, the same should have been given sans deduction, regardless of whether or not the party liable had equity in the corporation, in view of the doctrine that a corporation has a personality separate and distinct from its individual stockholders or members. DBPs alleged equity, even if it were indeed 87%, did not give it ownership over any corporate property, including the monetary award, its right over said corporate property being a mere expectancy or inchoate [59] right. Notably, the stipulation even had the effect of prejudicing the other creditors of MMIC.
The arbiters, likewise, exceeded their authority in awarding moral damages to Jesus Cabarrus, Sr.

It is perplexing how the Arbitration Committee can in one breath rule that the case before it is a derivative suit, in which the aggrieved party or the real party in interest is supposedly the MMIC, and at the same time award moral damages to an individual stockholder, to wit: WHEREFORE, premises considered, judgment is hereby rendered: xxx. 3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied likewise from the funds held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that [60] would supersede it, pursuant to paragraph (9), Compromise and Arbitration Agreement, as and for moral damages; x x x The majority decision of the Arbitration Committee sought to justify its award of moral damages to Jesus S. Cabarrus, Sr. by pointing to the fact that among the assets seized by the government were assets belonging to Industrial Enterprise Inc. (IEI), of which Cabarrus is the majority stockholder. It then acknowledge that Cabarrus had already recovered said assets in the RTC, but that he won no more than actual damages. While the Committee cannot possibly speak for the RTC, there is no doubt that Jesus S. Cabarrus, Sr., suffered moral damages on account of that specific foreclosure, damages the Committee believes and so holds, he [61] Jesus S. Cabarrus, Sr., may be awarded in this proceeding. Cabarrus cause of action for the seizure of the assets belonging to IEI, of which he is the majority stockholder, having been ventilated in a complaint he previously filed with the RTC, from which he obtained actual damages, he was barred res judicata from [62] filing a similar case in another court, this time asking for moral damages which he failed to get from the earlier case. Worse, private respondents violated the rule against non-forum shopping. [63] It is a basic postulate that s corporation has a personality separate and distinct from its stockholders. The properties foreclosed belonged to MMIC, not to its stockholders. Hence, if wrong was committed in the foreclosure, it was done against the corporation. Another reason is that Jesus S. Cabarrus, Sr. cannot directly claim those damages for himself that would result in the appropriation by, and the distribution to, him part of the corporations assets before the dissolution of the corporation and the liquidation of its debts and liabilities. The Arbitration Committee, therefore, passed upon matters not submitted to it. Moreover, said cause of action had already been decided in a separate case. It is thus quite patent that the arbitration committee exceeded the authority granted to it by the parties Compromise and Arbitration Agreement by awarding moral damages to Jesus S. Cabarrus, Sr. Atty. Sison, in his separate opinion, likewise expressed befuddlement to the award of moral damages to Jesus S. Cabarrus, Sr.: It is clear and it cannot be disputed therefore that based on these stipulated issues, the parties themselves have agreed that the basic ingredient of the causes of action in this case is the wrong committed on the corporation (MMIC) for the alleged illegal foreclosure of its assets. By agreeing to this stipulation, PLAINTIFFSthemselves (Cabarrus, et al.) admit that the cause of action pertains only to the corporation (MMIC) and that they are filing this for and in behalf of MMIC. Perforce this has to be so because it is the basic rule in Corporation Law that the shareholders have no title, legal or equitable to the property which is owned by the corporation (13 Am. Jur. 165; Pascual vs. Oresco, 14 Phil. 83). In Ganzon & Sons vs. Register of Deeds, 6 SCRA 373, the rule has been reiterated that a stockholder is not the co-owner of corporate property. Since the property or assets foreclosed belongs [sic] to MMIC, the wrong committed, if any, is done against the corporation. There is therefore no direct injury or direct violation of the rights of Cabarrus et al. There is no way, legal or equitable, by which Cabarrus et al. could recover damages in their personal capacities even assuming or just because the foreclosure is improper or invalid. The Compromise and Arbitration Agreement itself and the elementary principles of Corporation Law say so. Therefore, I am constrained to dissent [64] from the award of moral damages to Cabarrus.

From the foregoing discussions, it is evident that, not only did the arbitration committee exceed its powers or so imperfectly execute them, but also, its findings and conclusions are palpably devoid of any factual basis and in manifest disregard of the law. We do not find it necessary to remand this case to the RTC for appropriate action. The pleadings and memoranda filed with this Court, as well as in the Court of Appeals, raised and extensively discussed the issues on the merits. Such being the case, there is [65] sufficient basis for us to resolve the controversy between the parties anchored on the records and the pleadings before us. WHEREFORE, the Decision of the Court of Appeals dated July 17, 1995, as well as the Orders of the Regional Trial Court of Makati, Branch 62, dated November 28, 1994 and January 19, 1995, is hereby REVERSED and SET ASIDE, and the decision of the Arbitration Committee is hereby VACATED. SO ORDERED

ARB CONSTRUCTION CO., INC., and MARK MOLINA, petitioners, vs. COURT OF APPEALS, TBS SECURITY AND INVESTIGATION AGENCY represented by CECILIA R. BACLAY, respondents. DECISION BELLOSILLO, J.: ARB CONSTRUCTION CO., INC. (ARBC) and MARK MOLINA, Vice President for Operations of ARBC, in this consolidated petition, assail the Decision of the Court of Appeals in CA-G.R. SP Nos. 36330 and 36489 as well as the orders of the trial court dated 9 September 1994 and 9 December 1994 granting private respondent TBS Security and Investigation Agencys Motion for Leave to File Amended and Supplemental Complaint and denying petitioner Mark Molina's Motion to Dismiss, respectively. On 15 August 1993 TBS Security and Investigation Agency (TBSS) entered into two (2) Service Contracts with ARBC wherein TBSS agreed to provide and post security guards in the five (5) establishments being maintained by ARBC. Clause 10 of the Service Contracts provides 10. This contract shall be effective for a period of one (1) year commencing from 15th August 1993 and shall be considered automatically renewed for the same period unless otherwise a written notice of termination shall have been given by one party to the other party thirty (30) days in advance. In a letter dated 23 February 1994 ARBC informed TBSS of its desire to terminate the Service Contracts effective thirty (30) days after receipt of the letter. Also, in a letter dated 22 March 1994, ARBC through its Vice President for Operations, Mark Molina, informed TBSS that it was replacing its security guards with those of Global Security Investigation Agency (GSIA). In response to both letters, TBSS informed ARBC that the latter could not preterminate the Service Contracts nor could it post security guards from GSIA as it would run counter to the provisions of their Service Contracts. On 23 March 1994 Molina wrote TBSS conceding that indeed the "security contract dated 15 August 1993 stipulates that the duration of the service shall be for a period of one year, ending on 15 August 1994 x x x and could not be preterminated until [1] then." Nevertheless, Molina decreased the security guards to only one (1) allegedly pursuant to Clause 2 of the Service Contracts which provides 2. The AGENCY shall adopt a guarding system and post guards in accordance thereof, in the premises of the client throughout the whole 24 hours daily, using variable shifts of the guards at such hours as may be designated by the CLIENT or AGENCY. As required by the CLIENT, the security guards to be assigned by the AGENCY shall consist initially of the following x x x subject to be increased or decreased by the CLIENT at its sole discretion depending on [2] the security situation or the exigency of the service, by giving the AGENCY at least SEVEN (7) days prior notice. Thus on 28 March 1994 TBSS filed a Complaint for Preliminary Injunction against ARBC and GSIA praying A. Forthwith and Ex-parte, that a Temporary Restraining Order be issued declaring the status quo and directing the Defendants or any person(s) acting in their behalf from performing acts of replacing the Plaintiffs security guards from other agencies; B. After due hearing that a Writ of Preliminary Injunction, in like tenor, be issued upon posting of such bond as the Honorable Court may require; C. After due hearing, that judgment be rendered 1. Declaring the two (2) contracts for Security Services between Plaintiff and ARBC to be subsisting until August 15, 1994; 2. Ordering Defendant GLOBAL to refrain from taking over the security services of ARBC and to withdraw its guards from the premises of ARBC, if they have been posted earlier; [3] 3. Ordering ARBC to pay Plaintiff attorneys fees in the amount of P50,000.00 x x x In Answer, ARBC claimed that it decreased the number of security guards being posted at its establishments to only one (1) as the security guards assigned by TBSS were found to be grossly negligent and inefficient, citing the following incidents 8. On February 6, 1994, a Mitsubishi roadgrader of herein defendant was stripped of parts amounting to P58,642.00; 9. On February 25, 1994, a concrete vibrator and mercury light assembly were stolen from the construction site of [4] the Multipurpose Hall beside the swimming pool of herein defendant which is worth P2,800.00 x x x x In conclusion, it prayed that the complaint against it be dismissed for lack of merit. On 16 May 1994 TBSS filed a Motion for Leave to File Attached Amended and Supplemental Complaint. TBSS submitted that it now desired to pursue a case for Sum of Money and Damages instead of the one previously filed for Preliminary Injunction. It maintained that the Amended and Supplemental Complaint would not substantially alter its cause of action as both the original and amended [5] complaint were based on the same set of facts. In addition to the allegations in its original complaint, TBSS alleged in its Amended and Supplemental Complaint that ARBC illegally deducted from the payroll the amounts of P15,500.00 and P2,800.00 representing the value of one (1) unit concrete vibrator and cassette recorder, respectively. It further argued that ARBC withheld additional amounts from its payroll as payment for the parts of [6] the grader that were stolen. TBSS maintained that ARBC had an outstanding obligation of P472,080.46. Corollarily, TBSS prayed for moral damages of P500,000.00, exemplary damages of P200.000.00 and attorney's fees of P50,000.00. On 2 May 1994 the trial court issued a temporary restraining order but due to the exigency of the situation TBSS decided to withdraw its security contingent from ARBC's premises on 13 May 1994. [7] ARBC opposed the Motion for Leave to File Amended and Supplemental Complaint contending that the cause of action had been substantially altered. On 9 September 1994 the RTC of Makati, Br. 59, granted the motion of TBSS to file the Amended and Supplemental Complaint rationalizing thus Should the court find the allegations in the pleadings to be inadequate, the Court should allow the party to file proper amendments in accordance with the mandate of the Rules of Court that amendments to pleadings are favored and should be liberally allowed, particularly in the early stages of the law suit, so that the actual merit of the controversy may be speedily determined without regard to technicalities and in the most expeditious and [8] inexpensive manner x x x x ARBC filed a Motion for Reconsideration but on 3 November 1994 the motion was denied.

Meanwhile, Mark Molina filed a Motion to Dismiss the Amended and Supplemental Complaint on the ground that it did not state a cause of action insofar as he was concerned. But on 9 December 1994 the trial court denied the motion to dismiss and directed Molina instead to file his answer within ten (10) days from receipt of the order. [10] On 30 January 1995 ARBC filed a Petition with the Court of Appeals alleging that the trial court committed grave abuse of discretion in issuing the Orders of 9 September 1994 and 3 November 1994. On 15 February 1995 Molina likewise filed a Petition before the Court of Appeals similarly attributing grave abuse of discretion to the trial court in issuing the order of 9 December 1994. Parenthetically, upon motion of TBSS, the petition of Mark Molina in CA-G.R. SP No. 36484 was consolidated with the petition of ARBC in CA-G.R. SP No. 36330. [11] On 16 August 1996 the Court of Appeals rendered a Decision denying both petitions of ARBC and Molina. On 3 October 1996 [12] petitionersMotion for Reconsideration was denied. Hence, this petition. In their consolidated Petition before this Court, petitioners first submit that THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE RESPONDENT HAD THE RIGHT TO CHANGE ITS CAUSE OF ACTION IN VIEW OF A CHANGE IN THE SITUATION OF THE PARTIES [13] AFTER THE FILING OF THE ORIGINAL COMPLAINT. In support of this assigned error petitioners insist that x x x (T)here was not only a substantial change in private respondents cause of action but there was even an alteration in the theory of the case x x x (W)hile in the original complaint the only thing alleged and is being prayed for is for petitioner ARB (ARBC) to be enjoined from replacing the security guards of private respondent x x x and for the two contracts x x x to be enforced until August 15, 1994 and for petitioner ARB (ARBC) to be ordered to pay x x x attorneys fees, what is alleged and is being prayed for in the amended and supplemental complaint is for both petitioners to be ordered to pay P171,853.80 (for unpaid services) x x x and P300,226.66 (for lost income) x x x plus moral and exemplary damages and attorneys fees. Obviously, petitioner ARB (ARBC) is being required to answer for a liability or legal obligation under the amended and supplemental complaint wholly different from that stated in the original complaint such as but not limited to the amount ofP171,852.80 which was never mentioned in the original contract. Under these circumstances, a different cause of action was introduced by the amendment. Also, there was a change in the theory of the case. Whereas in the original contract what is sought for by private respondent is the enforcement of the two (2) contracts which is what is known in legal parlance as specific performance, in the amended and supplemental complaint what is sought for is x x x a rescission of the contracts [14] with damages x x x x We cannot subscribe to the contention of petitioners that the Amended and Supplemental Complaint substantially changed TBSS' cause of action nor was there any alteration in the theory of the case. As correctly observed by the Court of Appeals, "the amendatory allegations are mere amplifications of the cause of action for damages x x x x An amendment will not be considered as stating a new cause of action if the facts alleged in the amended complaint show substantially the same wrong with respect to the same transaction, or if what are alleged refer to the same matter but are more fully and differently stated, or where averments which were implied are made in expressed terms, and the subject of the controversy or the liability sought to be enforced remains [15] the same." The original as well as amended and supplemental complaints readily disclose that the averments contained therein are almost identical. In the original complaint, TBSS prays, among others, that the two (2) Service Contracts be declared as subsisting until 15 [16] August 1994 and that petitioners be made to pay P50,000.00 as attorneys fees. Significantly, in its penultimate paragraph, TBSS [17] prays "for such other reliefs that are considered just and equitable under the premises." This is a "catch-all" phrase which definitely covers the amplifications and additional averments contained in the Amended and Supplemental Complaint. Due to events supervening after the filing of the original complaint, it became incumbent upon TBSS to amend its original complaint. One of the supervening events was the withholding by petitioner ARBC of some amounts intended for the payroll of TBSS due to pilferage or losses which allegedly occurred due to the negligence and inefficiency of TBSS' security guards. Plainly, this withholding of the payroll was only an offshoot of the pretermination of the two (2) Service Contracts on the part of ARBC. Significantly, the pretermination of the Service Contracts was already alleged in the original complaint. In fact it was one, if not the most basic, issue discussed therein. Since the withholding of the payroll was only an offshoot of the issue on the pretermination of the contract, we can safely conclude that the allegation on the withholding of the payroll in the Amended and Supplemental Complaint was only an amplification of an issue that was already included and discussed in the original complaint. It was therefore error on the part of petitioners to conclude that private respondent changed its cause of action in the Amended and Supplemental Complaint. Neither could they say that they were being made to answer for a liability or legal obligation that was wholly different from that stated in the original complaint. Grave abuse of discretion therefore could not be imputed to the trial court for admitting the Amended and Supplemental Complaint of private respondent TBSS. It also follows that the appellate court could not be faulted for putting its stamp of approval on the order of the trial court admitting the same. Petitioners also argue, as their second assigned error, that THE COURT OF APPEALS ERRED IN HOLDING THAT THE ALLEGATIONS IN THE AMENDED AND SUPPLEMENTAL COMPLAINT WERE SUFFICIENT TO HOLD PETITIONER MOLINA LIABLE TO PRIVATE RESPONDENT IN HIS PERSONAL CAPACITY. In support of their contention petitioners submit x x x (W)hen x x x Molina allegedly applied P171,853.80 payable to private respondent to the losses suffered by petitioner ARB (ARBC) due to the negligence and indifference of the private respondents security guards and when petitioner Molina replaced the said security guards x x x Molina was not acting in his personal capacity but x x x as officer of petitioner ARB (ARBC). Since petitioner Molina did not so act in his personal capacity but only in his official capacity as officer of petitioner ARB (ARBC) then petitioner Molina cannot be held personally liable for the alleged liability of petitioner ARB [18] (ARBC) x x x x In affirming the order of the trial court denying petitioner Molinas Motion to Dismiss, the appellate court ruled Similarly, We find no error committed by respondent Judge in denying the motion to dismiss. In paragraphs 5, 17, 18 of the amended and supplemental complaint, it is alleged: 5. But fate would have it that defendant ARBC would subsequently breach the aforesaid contracts by surreptitiously preterminating the same and as precursor thereto, defendant ARBC,

[9]

through defendant Mark Molina, would impute against plaintiff pretended and fabricated violations and baselessly blame plaintiff for alleged losses of company properties by just deducting the values thereof from plaintiffs billings without even complying with the procedure agreed upon in the contracts x x x x It may be pertinent to state that all these accusations and imputations, albeit false and concocted, were made by defendant Mark P. Molina x x x x 17. Such unsalutary breach of contract by defendant ARBC through defendant Mark Molina has resulted to plaintiffs damage and prejudice by way of lost income consisting of the unexpired portion of the contract, i.e., up to August 15, 1994, entailing a total amount of P300, 266.66 x x x x The above allegations, particularly the subparagraph, "It may be pertinent to state that all these accusations and imputations, albeit false and concocted, were made by defendant Mark P. Molina," are sufficient statement of a [19] cause of action against petitioner Mark Molina in his personal capacity. In this regard, we agree with petitioners. It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. As a general rule, a corporation may not be made to answer for acts or liabilities of its stockholders or those of the legal entities to which it may be connected and vice versa. However, the veil of corporate fiction may be pierced when it is used as a shield to further an end subversive of justice; or for purposes that could not have been intended by the law that created it; or to defeat public convenience, justify wrong, protect fraud, or defend crime; or to perpetuate deception; or as an alter ego, adjunct or business conduit for the sole [20] benefit of the stockholders. Prescinding from the foregoing, the general rule is that officers of a corporation are not personally liable for their official acts unless [21] it is shown that they have exceeded their authority. Article 31 of the Corporation Code is in point Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors, or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons x x x x On the basis hereof, petitioner Molina could not be held jointly and severally liable for any obligation which petitioner ARBC may be held accountable for, absent any proof of bad faith or malice on his part. Corollarily, it is also incorrect on the part of the Court of Appeals to conclude that there was a sufficient cause of action against Molina as to make him personally liable for his actuations as Vice President for Operations of ARBC. A cursory reading of the records of the instant case would reveal that Molina did not [22] summarily withhold certain amounts from the payroll of TBSS. Instead, he enumerated instances which in his view were enough bases to do so. Finally, petitioners contend that THE COURT OF APPEALS ERRED IN HOLDING THAT THE TRIAL COURT DID NOT GRAVELY ABUSE ITS DISCRETION IN GRANTING PRIVATE RESPONDENTS MOTION FOR LEAVE TO FILE AMENDED AND SUPPLEMENTAL COMPLAINT AND IN DENYING PETITIONER MOLINAS MOTION TO DISMISS. In support hereof, petitioners submit that x x x (T)he trial court admitted the amended and supplemental complaint which substantially changed the cause of action and theory of the case of the private respondent. Therefore, there is (sic) abuse of discretion on the part of [23] the trial court contrary to the ruling of the Court of Appeals that there is none. As already discussed, the Amended and Supplemental Complaint did not substantially alter the cause of action and theory of the case. Consequently, the trial court and the appellate court could not be charged with grave abuse of discretion in admitting the same. WHEREFORE, the PETITION is PARTIALLY GRANTED. The assailed Decision of the Court of Appeals in CA-G.R. SP No. 36489 affirming the 9 December 1994 Order of the Regional Trial Court-Br. 59, Makati City, which denied the Motion to Dismiss of petitioner Mark Molina is REVERSED and SET ASIDE. However, the assailed Decision of the appellate court in CA-G.R. SP No. 36330 affirming the 9 September 1994 Order of the Regional Trial Court-Br. 59, Makati City, granting TBS Security and Investigation Agency's Motion for Leave to File Amended and Supplemental Complaint is likewise AFFIRMED. The case is remanded to the trial court for further proceedings. No costs. SO ORDERED.

ASSOCIATED BANK, petitioner, vs. HON. COURT OF APPEALS, PROVINCE OF TARLAC and PHiLIPPINE NATIONAL BANK, respondents. [G.R. No. 107612. January 31, 1996] PHILIPPINE NATIONAL BANK, petitioner, vs. HONORABLE COURT OF APPEALS, PROVINCE OF TARLAC, and ASSOCIATED BANK, respondents. SYLLABUS 1. COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS; A FORGED SIGNATURE IS WHOLLY INOPERATIVE AND NO ONE CAN GAIN TITLE TO THE INSTRUMENT THROUGH IT. - A forged signature, whether it be that of the drawer or the payee, is wholly inoperative and no one can gain title to the instrument through it. A person whose signature to an instrument was forged was never aparty and never consented to the contract which allegedly gave rise to such instrument. Section 23 does not avoid the instrument but only the forged signature. Thus, a forged indorsement does not operate as the payees indorsement. 2. ID.; ID.; ID.; EXCEPTION. - The exception to the general rule in Section 23 is where a party against whom it is sought to enforce a right is precluded from setting up the forgery or want of authority. Parties who warrant or admit the genuineness of the signature in question and those who, by their acts, silence or negligence are estopped from setting up the defense of forgery, are precluded from using this defense. Indorsers, persons negotiating by delivery and acceptors are warrantors of the genuineness of the signatures on the instrument. 3. ID.; ID.; BEARER INSTRUMENT; SIGNATURE OF PAYEE OR HOLDER, NOT NECESSARY TO PASS TITLE TO THE INSTRUMENT. - In bearer instruments, the signature of the payee or holder is unnecessary to pass title to the instrument. Hence, when the indorsement is a forgery, only the person whose signature is forged can raise the defense of forgery against a holder in due course. 4. ID.; ID.; ORDER INSTRUMENT; SIGNATURE OF HOLDER, ESSENTIAL TO TRANSFER TITLE TO THE INSTRUMENT; EFFECT OF FORGED INDORSEMENT OF HOLDER. - Where the instrument is payable to order at the time of the forgery, such as the checks in this case, the signature of its rightful holder (here, the payee hospital) is essential to transfer title to the same instrument. When the holders indorsement is forged, all parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto. 5. ID.; ID.; ID.; LIABILITY OF GENERAL ENDORSER. - An indorser of an order instrument warrants that the instrument is genuine and in all respects what it purports to be; that he has a good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his indorsement valid and subsisting. He cannot interpose the defense that signatures prior to him are forged. 6. ID.; ID.; ID.; ID.; COLLECTING BANK WHERE CHECK IS DEPOSITED AND INDORSES CHECK, AN INDORSER. - A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank, is such an indorser. So even if the indorsement on the check deposited by the bankss client is forged, the collecting bank is bound by his warranties as an indorser and cannot set up the defense of forgery as against the drawee bank. 7. ID.; ID.; ID.; PAYMENT UNDER A FORGED INDORSEMENT IS NOT TO THE DRAWERS ORDER; REASON. - The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay the check to the order of the payee. The drawers instructions are reflected on the face and by the terms of the check. Payment under a forged indorsement is not to the drawers order. When the drawee bank pays a person other than the payee, it does not comply with the terms of the check and violates its duty to charge its customers (the drawer) account only for properly payable items. Since the drawee bank did not pay a holder or other person entitled to receive payment, it has no right to reimbursement from the drawer. The general rule then is that the drawee bank may not debit the drawers account and is not entitled to indemnification from the drawer. The risk of loss must perforce fall on the drawee bank. 8. ID.; ID.; ID.; ID.; EXCEPTIONS. - If the drawee bank can prove a failure by the customer/drawer to exercise ordinary care that substantially contributed to the making of the forged signature, the drawer is precluded from asserting the forgery. If at the same time the drawee bank was also negligent to the point of substantially contributing to the loss, then such loss from the forgery can be apportioned between the negligent drawer and the negligent bank. 9. ID.; ID.; ID.; WHERE THE DRAWERS SIGNATURE IS FORGED, THE DRAWER CAN RECOVER FROM THE DRAWEE BANK. - In cases involving a forged check, where the drawers signature is forged, the drawer can recover from the drawee bank. No drawee bank has a right to pay a forged check. If it does, it shall have to recredit the amount of the check to the account of the drawer. The liability chain ends with the drawee bank whose responsibility it is to know the drawers signature since the latter is its customer. 10. ID.; ID.; ID.; IN CASES OF FORGED INDORSEMENTS, THE LOSS FALLS ON THE PARTY WHO TOOK THE CHECK FROM THE FORGER OR THE FORGER HIMSELF. In cases involving checks with forged indorsements, such as the present petition, the chain of liability does not end with the drawee bank. The drawee bank may not debit the account of the drawer but may generally pass liability back through the collection chain to the party who took from the forger and, of course, to the forger himself, if available. In other words, the drawee bank can seek reimbursement or a return of the amount it paid from the presentor bank or person. Theoretically, the latter can demand reimbursement from the person who indorsed the check to it and so on. The loss falls on the party who took the check from the forger, or on the forger himself. Since a forged indorsement is inoperative, the collecting bank had no right to be paid by the drawee bank. The former must necessarily return the money paid by the latter because it was paid wrongfully. 11. ID.; ID.; ID.; ID.; CASE AT BAR. - In this case, the checks were indorsed by the collecting bank (Associated Bank) to the drawee bank (PNB). The former will necessarily be liable to the latter for the checks bearing forged indorsements. If the forgery is that of the payees or holders indorsement, the collecting bank is held liable, without prejudice to the latter proceeding against the forger. 12. ID.; ID.; ID.; GENERAL INDORSER; COLLECTING BANK OR LAST ENDORSER SUFFERS LOSS ON FORGED IN-DORSEMENT; REASON. - More importantly, by reason of the statutory warranty of a general indorser in Section 66 of the Negotiable Instruments Law, a collecting bank which indorses a check bearing a forged indorsement and presents it to .the drawee bank guarantees all prior indorsements, including the forged indorsement. It warrants that the instrument is genuine, and that it is valid and subsisting at the time of his indorsement. Because the indorsement is a forgery, the collecting bank commits a breach of this warranty and will be accountable to the drawee bank. This liability scheme operates without regard to fault on the part of the collecting/presenting bank. Even if the latter bank was not negligent, it would still be liable to the drawee bank because

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of its indorsement. The Court has consistently ruled that the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. Moreover, the collecting bank is made liable because it is privy to the depositor who negotiated the check. The bank knows him, his address and history because he is a client. It has taken a risk on his deposit. The bank is also in a better position to detect forgery, fraud or irregularity in the indorsement. ID.; ID.; ID.; DRAWEE BANK NOT LIABLE FOR LOSS ON FORGED INDORSEMENT; REASON. - The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the genuineness of any indorsement. The drawee banks duty is but to verify the genuineness of the drawers signature and not of the indorsement because the drawer is its client. ID.; ID.; ID.; ID.; DUTY OF DRAWEE BANK TO PROMPTLY INFORM PRESENTOR OF THE FORGERY UPON DISCOVERY; EFFECT OF FAILURE TO PROMPTLY INFORM. The drawee bank can recover the amount paid on the check bearing a forged indorsement from the collecting bank. However, a drawee bank has the duty to promptly inform the presentor of the forgery upon discovery. If the drawee bank delays in informing the presentor of the forgery, thereby depriving said presentor of the right to recover from the forger, the former is deemed negligent and can no longer recover from the presentor. ID.; ID.; ID.; ID.; ID.; ID.; EFFECT OF CON-TRIBUTORY NEGLIGENCE IN CASE AT BAR. - Applying these rules to the case at bench, PNB, the drawee bank, cannot debit the current account of the Province of Tarlac because it paid checks which bore forged indorsements. However, if the Province of Tarlac as drawer was negligent to the point of substantially contributing to the loss, then the drawee bank PNB can charge its account. If both drawee bank-PNB and drawer-Province of TarJac were negligent, the loss should be properly apportioned between them. The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated Bank which presented and indorsed the checks to it. Associated Bank can, in turn, hold the forger, Fausto Pangilinan, liable. If PNB negligently delayed in informing Associated Bank of the forgery, thus depriving the latter of the opportunity to recover from the forger, it forfeits its right to reimbursement and will be made to bear the loss. After careful examination of the records, the Court finds that the Province of Tarlac was equally negligent and should, therefore, share the burden of loss from the checks bearing a forged indorsement. The Province of Tarlac permitted Fausto Pangilinan to collect the checks when the latter, having already retired from government service, was no longer connected with the hospital. With the exception of the first check (dated January 17, 1978), all the checks were issued and released after Pangilinans retirement on February 28, 1978. After nearly three years, the Treasurers office was still releasing the checks to the retired cashier. In addition, some of the aid allotment checks were released to Pangilinan and the others to Elizabeth Juco, the new cashier. The fact that there were now two persons collecting the checks for the hospital is an unmistakable sign of an irregularity which should have alerted employees in the Treasurers office of the fraud being committed. There is also evidence indicating that the provincial employees were aware of Pangilinans retirement and consequent dissociation from the hospital. The failure of the Province of Tarlac to exercise due care contributed to a significant degree to the loss tantamount to negligence. Hence, the Province of Tarlac should be liable for part of the total amount paid on the questioned checks. The drawee bank PNB also breached its duty to pay only according to the terms of the check. Hence, it cannot escape liability and should also bear part of the loss. The Court finds as reasonable, the proportionate sharing of fifty percent - fifty percent(50%-50%). Due to the negligence of the Province of Tarlac in releasing the checks to an unauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to receive the checks for the payee hospital for a period close to three years and in not properly ascertaining why the retired hospital cashier was collecting checks for the payee hospital in addition to the hospitals real cashier, respondent Province contributed to the loss amounting to P203,300.00 and shall be liable to the PNB for fifty (50%) percent thereof. In effect, the Province of Tarlac can only recover fifty percent (50%) of P203,300.00 from PNB. The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of P203,300.00. It is liable on its warranties as indorser of the checks which were deposited by Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements, including that of the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to ascertain the genuineness of the payees indorsement. ID.; ID.; ID.; FORGERY; DELAY IN INFORMING COLLECTING BANK OF FORGERY BY THE DRAWEE BANK SIGNIFIES NEGLIGENCE. A delay in informing the collecting bank (Associated Bank) of the forgery, which deprives it of the opportunity to go after the forger, signifies negligence on the part of the drawee bank (PNB) and will preclude it from claiming reimbursement. ID.; ID.; ID.; RETURN OF FORGED INDORSEMENT; 24-HOUR PERIOD BUT NOT BEYOND PERIOD FOR FILING LEGAL ACTION FOR BANKS OUTSIDE METRO MANILA; CASE AT BAR. - Under Section 4(c) of CB Circular No. 580, items bearing a forged endorsement shall be returned within twenty-four (24) hours after discovery of the forgery but in no event beyond the period fixed or provided by law for filing of a legal action by the returning bank. Section 23 of the PCHC Rules deleted the requirement that items bearing a forged endorsement should be returned within twenty-four hours. Associated Bank now argues that the aforementioned Central Bank Circular is applicable. Since PNB did not return the questioned checks within twenty-four hours, but several days later, Associated Bank alleges that PNB should be considered negligent and not entitled to reimbursement of the amount it paid on the checks. The Central Bank circular was in force for all banks until June 1980 when the Philippine Clearing House Corporation (PCHC) was set up and commenced operations. Banks in Metro Manila were covered by the PCHC while banks located elsewhere still had to go through Central Bank Clearing. In any event, the twenty-four-hour return rule was adopted by the PCHC until it was changed in 1982. The contending banks herein, which are both branches in Tarlac province, are therefore not covered by PCHC Rules but by CB Circular No. 580. Clearly then, the CB circular was applicable when the forgery of the checks was discovered in 1981. ID.; ID.; ID.; ID.; RATIONALE. - The rule mandates that the checks be returned within twenty-four hours after discovery of the forgery but in no event beyond the period fixed by law for filing a legal action. The rationale of the rule is to give the collecting bank (which indorsed the check) adequate opportunity to proceed against the forger. If prompt notice is not given, the collecting bank maybe prejudiced and lose the opportunity to go after its depositor. ID.; ID.; ID.; ID.; FAILURE TO RETURN FORGED INDORSEMENT WITHIN 24 HOURS FROM DISCOVERY DOES NOT PREJUDICE COLLECTING BANK WHICH PRESENTED FORGER AS ITS REBUTTAL WITNESS. The Court finds that even if PNB did not return the questioned checks to Associated Bank within twenty-four hours, as mandated by the rule, PNB did not commit negligent delay. Under the circumstances, PNB gave prompt notice to Associated Bank and the latter bank was not prejudiced in going after Fausto Pangilinan. After the Province of Tarlac informed PNB of the forgeries, PNB necessarily had to inspect the checks

and conduct its own investigation. Thereafter, it requested the Provincial Treasurers office on March 31, 1981 to return the checks for verification. The Province of Tarlac returned the checks only on April 22, 1981. Two days later, Associated Bank received the checks from PNB. Associated Bank was also furnished a copy of the Provinces letter of demand to PNB dated March 20, 1981, thus giving it notice of the forgeries. At this time, however, Pangilinans account with Associated had only P24.63 in it. Had Associated Bank decided to debit Pangilinans account, it could not have recovered the amounts paid on the questioned checks. In addition, while Associated Bank filed a fourth-party complaint against Fausto Pangilinan, it did not present evidence against Pangilinan and even presented him as its rebuttal witness. Hence, Associated Bank was not prejudiced by PNBs failure to comply with the twenty-four-hour return rule. 20. REMEDIAL LAW; ACTIONS; ESTOPPEL; WILL NOT APPLY TO DRAWEE BANK WHO FAID AND CLEARED CHECKS WITH FORGED INDORSEMENT. - Associated Bank contends that PNB is estopped from requiring reimbursement because the latter paid and cleared the checks. The Court finds this contention unmeritorious. Even if PNB cleared and paid the checks, it can still recover from Associated Bank. This is true even if the payees Chief Officer who was supposed to have indorsed the checks is also a customer of the drawee bank. PNBs duty was to verify the genuineness of the drawers signature and not the genuineness of payees indorsement. Associated Bank, as the collecting bank, is the entity with the duty to verify the genuineness of the payees indorsement. 21. CIVIL LAW; OBLIGATIONS AND CON-TRACTS; THERE IS NO PRIVITY OF CONTRACT BETWEEN THE DRAWER AND COLLECTING BANK; DRAWER CAN RECOVER FROM DRAWEE BANK AND DRAWEE BANK CAN SEEK REIMBURSEMENT FROM COLLECTING BANK. - PNB also avers that respondent court erred in adjudging circuitous liability by directing PNB to return to the Province of Tarlac the amount of the checks and then directing Associated Bank to reimburse PNB. The Court finds nothing wrong with the mode of the award. The drawer, Province of Tarlac, is a client or customer of the PNB, not of Associated Bank. There is no privity of contract between the drawer and the collecting bank. 22. COMMERCIAL LAW; BANKS; BANK DEPOSITS ARE LOANS; RECOVERY OF AMOUNT DEPOSITED IN CURRENT ACCOUNT GIVEN 6% INTEREST PER ANNUM. - The trial court made PNB and Associated Bank liable with legal interest from March 20, 1981, the date of extrajudicial demand made by the Province of Tarlac on PNB. The payments to be made in this case stem from the deposits of the Province of Tarlac in its current account with the PNB. Bank deposits are considered under the law as loans. Central Bank Circular No. 416 prescribes a twelve percent (12%) interest per annum for loans, forebearance of money, goods or credits in the absence of express stipulation. Normally, current accounts are likewise interest-bearing, by express contract, thus excluding them from the coverage of CB Circular No. 416. In this case, however, the actual interest rate, if any, for the current account opened by the Province of Tarlac with PNB was not given in evidence. Hence, the Court deems it wise to affirm the trial courts use of the legal interest rate, or six percent (6%) per annum. The interest rate shall be computed from the date of default, or the date of judicial or extrajudicial demand. The trial court did not err in granting legal interest from March 20, 1981, the date of extrajudicial demand. APPEARANCES OF COUNSEL Jose A. Soluta, Jr. & Associates for Associated Bank. Santiago, Jr., Vidad, Corpus & Associates for PNB. The Solicitor General for public respondent. DECISION ROMERO, J.: Where thirty checks bearing forged endorsements are paid, who bears the loss, the drawer, the drawee bank or the collecting bank? This is the main issue in these consolidated petitions for review assailing the decision of the Court of Appeals in Province of 1 Tarlac v. Philippine National Bank v. Associated Bank v. Fausto Pangilinan, et. al. (CA-G.R. No. CV No. 17962). The facts of the case are as follows: The Province of Tarlac maintains a current account with the Philippine National Bank (PNB) Tarlac Branch where the provincial funds are deposited. Checks issued by the Province are signed by the Provincial Treasurer and countersigned by the Provincial Auditor or the Secretary of the Sangguniang Bayan. 2 A portion of the funds of the province is allocated to the Concepcion Emergency Hospital. The allotment checks for said government hospital are drawn to the order of Concepcion. Emergency Hospital, Concepcion, Tarlac or The Chief, Concepcion Emergency Hospital, Concepcion, Tarlac. The checks are released by the Office of the Provincial Treasurer and received for the hospital by its administrative officer and cashier. In January 1981, the books of account of the Provincial Treasurer were post-audited by the Provincial Auditor. It was then discovered that the hospital did not receive several allotment checks drawn by the Province. On February 19, 1981, the Provincial Treasurer requested the manager of the PNB to return all of its cleared checks which were issued from 1977 to 1980 in order to verify the regularity of their encashment. After the checks were examined, the Provincial Treasurer learned that 30 checks amounting to P203,300.00 were encashed by one Fausto Pangilinan, with the Associated Bank acting as collecting bank. It turned out that Fausto Pangilinan, who was the administrative officer and cashier of payee hospital until his retirement on February 28, 1978, collected the questioned checks from the office of the Provincial Treasurer. He claimed to be assisting or helping 3 4 the hospital follow up the release of the checks and had official receipts. Pangilinan sought to encash the first check with Associated Bank. However, the manager of Associated Bank refused and suggested that Pangilinan deposit the check in his personal savings account with the same bank. Pangilinan was able to withdraw the money when the check was cleared and paid by the drawee bank, PNB. After forging the signature of Dr. Adena Canlas who was chief of the payee hospital, Pangilinan followed the same procedure 5 for the second check, in the amount of P5,000.00 and dated April 20, 1978, as well as for twenty-eight other checks, of various 6 amounts and on various dates. The last check negotiated by Pangilinan was for P8,000.00 and dated February 10, 1981. All the checks bore the stamp of Associated Bank which reads All prior endorsements guaranteed ASSOCIATED BANK. Jesus David, the manager of Associated Bank testified that Pangilinan made it appear that the checks were paid to him for 7 certain projects with the hospital. He did not find as irregular the fact that the checks were not payable to Pangilinan but to the Concepcion Emergency Hospital. While he admitted that his wife and Pangilinans wife are first cousins, the manager denied having 8 given Pangilinan preferential treatment on this account.

On February 26, 1981, the Provincial Treasurer wrote the manager of the PNB seeking the restoration of the various amounts 9 debited from the current account of the Province. 10 In turn, the PNB manager demanded reimbursement from the Associated Bank on May 15, 1981. As both banks resisted payment, the Province of Tarlac brought suit against PNB which, in turn, impleaded Associated Bank as 11 third-party defendant. The latter then filed a fourth-party complaint against Adena Canlas and Fausto Pangilinan. After trial on the merits, the lower court rendered its decision on March 21, 1988, disposing as follows: WHEREFORE, in view of the foregoing, judgment is hereby rendered: 1. On the basic complaint, in favor of plaintiff Province of Tarlac and against defendant Philippine National Bank (PNB), ordering the latter to pay to the former, the sum of Two Hundred Three Thousand Three Hundred (P203,300.00) Pesos with legal interest thereon from March 20, 1981 until fully paid; 2. On the third-party complaint, in favor of defendant/third-party plaintiff Philippine National Bank (PNB) and against third-party defendant/fourth-party plaintiff Associated Bank ordering the latter to reimburse to the former the amount of Two Hundred Three Thousand Three Hundred (P203,300.00) Pesos with legal interests thereon from March 20, 1981 until fully paid;. 3. On the fourth-party complaint, the same is hereby ordered dismissed for lack of cause of action as against fourth-party defendant Adena Canlas and lack of jurisdiction over the person of fourth-party defendant Fausto Pangilinan as against the latter. 4. On the counterclaims on the complaint, third-party complaint and fourth-party complaint, the same are hereby ordered dismissed for lack of merit. 12 SO ORDERED. 13 PNB and Associated Bank appealed to the Court of AppealS. Respondent court affirmed the trial courts decision in toto on September 30, 1992. Hence these consolidated petitions which seek a reversal of respondent appellate courts decision. PNB assigned two errors. First, the bank contends that respondent court erred in exempting the Province of Tarlac from liability when, in fact, the latter was negligent because it delivered and released the questioned checks to Fausto Pangilinan who was then already retired as the hospitals cashier and administrative officer. PNB also maintains its innocence and alleges that as between two innocent persons, the one whose act was the cause of the loss, in this case the Province of Tarlac, bears the loss. Next, PNB asserts that it was error for the court to order it to pay the province and then seek reimbursement from Associated Bank. According to petitioner bank, respondent appellate Court should have directed Associated Bank to pay the adjudged liability 14 directly to the Province of Tarlac to avoid circuity. Associated Bank, on the other hand, argues that the order of liability should be totally reversed, with the drawee bank (PNB) solely and ultimately bearing the loss. Respondent court allegedly erred in applying Section 23 of the Philippine Clearing House Rules instead of Central Bank Circular 15 No. 580, which, being an administrative regulation issued pursuant to law, has the force and effect of law. The PCHC Rules are merely contractual stipulations among and between member-banks. As such, they cannot prevail over the aforesaid CB Circular. It likewise contends that PNB, the drawee bank, is estopped from asserting the defense of guarantee of prior indorsements against Associated Bank, the collecting bank. In stamping the guarantee (for all prior indorsements), it merely followed a mandatory requirement for clearing and had no choice but to place the stamp of guarantee; otherwise, there would be no clearing. The bank 16 will be in a no-win situation and will always bear the loss as against the drawee bank. Associated Bank also claims that since PNB already cleared and paid the value of the forged checks in question, it is now estopped from asserting the defense that Associated Bank guaranteed prior indorsements. The drawee bank allegedly has the 17 primary duty to verify the genuineness of payees indorsement before paying the check. While both banks are innocent of the forgery, Associated Bank claims that PNB was at fault and should solely bear the loss because it cleared and paid the forged checks. xxx xxx xxx The case at bench concerns checks payable to the order of Concepcion Emergency Hospital or its Chief. They were properly issued and bear the genuine signatures of the drawer, the Province of Tarlac. The infirmity in the questioned checks lies in the payees (Concepcion Emergency Hospital) indorsements which are forgeries. At the time of their indorsement, the checks were order instruments. Checks having forged indorsements should be differentiated from forged checks or checks bearing the forged signature of the drawer. Section 23 of the Negotiable Instruments Law (NIL) provides: Sec. 23. FORGED SIGNATURE, EFFECT OF. - When a signature is forged or made without authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. A forged signature, whether it be that of the drawer or the payee, is wholly inoperative and no one can gain title to the instrument through it. A person whose signature to an instrument was forged was never a party and never consented to the 18 contract which allegedly gave rise to such instrument. Section 23 does not avoid the instrument but only the forged 19 signature. Thus, a forged indorsement does not operate as the payees indorsement. The exception to the general rule in Section 23 is where a party against whom it is sought to enforce a right is precluded from setting up the forgery or want of authority. Parties who warrant or admit the genuineness of the signature in question and those who, by their acts, silence or negligence are estopped from setting up the defense of forgery, are precluded from using this defense. 20 Indorsers, persons negotiating by delivery and acceptors are warrantors of the genuineness of the signatures on the instIument. In bearer instruments, the signature of the payee or holder is unnecessary to pass title to the instrument. Hence, when the 21 indorsement is a forgery, only the person whose signature is forged can raise the defense of forgery against a holder in due course. The checks involved in this case are order instruments, hence, the following discussion is made with reference to the effects of a forged indorsement on an instrument payable to order. Where the instrument is payable to order at the time of the forgery, such as the checks in this case, the signature of its rightful holder (here, the payee hospital) is essential to transfer title to the same instrument. When the holders indorsement is forged, all 22 parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto.

An indorser of an order instrument warrants that the instrument is genuine and in all respects what it purports to be; that he has a good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his indorsement valid 23 and subsisting. He cannot interpose the defense that signatures prior to him are forged. A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank, is such an indorser. So even if the indorsement on the check deposited by the bankss client is forged, the collecting bank is bound by his warranties as an indorser and cannot set up the defense of forgery as against the drawee bank. The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay the check to the order of the payee. The drawers instructions are reflected on the face and by the terms of the check. Payment under a forged indorsement is not to the drawers order. When the drawee bank pays a person other than the payee, it does not comply with the terms of the check and violates its duty to charge its customers (the drawer) account only for properly payable items. Since the drawee bank did 24 not pay a holder or other person entitled to receive payment, it has no right to reimbursement from the drawer. The general rule 25 then is that the drawee bank may not debit the drawers account and is not entitled to indemnification from the drawer. The risk of loss must perforce fall on the drawee bank. However, if the drawee bank can prove a failure by the customer/drawer to exercise ordinary care that substantially contributed to the making of the forged signature, the drawer is precluded from asserting the forgery. If at the same time the drawee bank was also negligent to the point of substantially contributing to the loss, then such loss 26 from the forgery can be apportioned between the negligent drawer and the negligent bank. In cases involving a forged check, where the drawers signature is forged, the drawer can recover from the drawee bank. No drawee bank has a right to pay a forged check. If it does, it shall have to recredit the amount of the check to the account of the drawer. The liability chain ends with the drawee bank whose responsibility it is to know the drawers signature since the latter is its 27 customer. In cases involving checks with forged indorsements, such as the present petition, the chain of liability does not end with the drawee bank. The drawee bank may not debit the account of the drawer but may generally pass liability back through the collection 28 chain to the party who took from the forger and, of course, to the forger himself, if available. In other words, the drawee bank can 29 seek reimbursement or a return of the amount it paid from the presentor bank or person. Theoretically, the latter can demand reimbursement from the person who indorsed the check to it and so on. The loss falls on the party who took the check from the forger, or on the forger himself. In this case, the checks were indorsed by the collecting bank (Associated Bank) to the drawee bank (PNB). The former will necessarily be liable to the latter for the checks bearing forged indorsements. If the forgery is that of the payees or holders indorsement, the collecting bank is held liable, without prejudice to the latter proceeding against the forger. Since a forged indorsement is inoperative, the collecting bank had no right to be paid by the drawee bank. The former must 30 necessarily return the money paid by the latter because it was paid wrongfully. More importantly, by reason of the statutory warranty of a general indorser in Section 66 of the Negotiable Instruments Law, a collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement. It warrants that the instrument is genuine, and that it is valid and subsisting at the time of his indorsement. Because the indorsement is a forgery, the collecting bank commits a breach of this warranty and will be accountable to the drawee bank. This liability scheme operates without regard to fault on the part of the collecting/presenting bank. Even if the latter bank was not negligent, it would still be liable to the drawee bank because of its indorsement. The Court has consistently ruled that the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is 31 an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the genuineness 32 of any indorsement. The drawee banks duty is but to verify the genuineness of the drawers signature and not of the indorsement because the drawer is its client. Moreover, the collecting bank is made liable because it is privy to the depositor who negotiated the check. The bank knows him, his address and history because he is a client. It has taken a risk on his deposit. The bank is also in a better position to detect forgery, fraud or irregularity in the indorsement. Hence, the drawee bank can recover the amount paid on the check bearing a forged indorsement from the collecting bank. However, a drawee bank has the duty to promptly inform the presentor of the forgery upon discovery. If the drawee bank delays in informing the presentor of the forgery, thereby depriving said presentor of the right to recover from the forger, the former is 33 deemed negligent and can no longer recover from the presentor. Applying these rules to the case at bench, PNB, the drawee bank, cannot debit the current account of the Province of Tarlac because it paid checks which bore forged indorsements. However, if the Province of Tarlac as drawer was negligent to the point of substantially contributing to the loss, then the drawee bank PNB can charge its account. If both drawee bank-PNB and drawer-Province of Tarlac were negligent, the loss should be properly apportioned between them. The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated Bank which presented and indorsed the checks to it. Associated Bank can, in turn, hold the forger, Fausto Pangilinan, liable. If PNB negligently delayed in informing Associated Bank of the forgery, thus depriving the latter of the opportunity to recover from the forger, it forfeits its right to reimbursement and will be made to bear the loss. After careful examination of the records, the Court finds that the Province of Tarlac was equally negligent and should, therefore, share the burden of loss from the checks bearing a forged indorsement. The Province of Tarlac permitted Fausto Pangilinan to collect the checks when the latter, having already retired from government service, was no longer connected with the hospital. With the exception of the first check (dated January 17, 1978), all the checks were issued and released after Pangilinans retirement on February 28, 1978. After nearly three years, the Treasurers office was still releasing the checks to the retired cashier. In addition, some of the aid allotment checks were released to Pangilinan and the others to Elizabeth Juco, the new cashier. The fact that there were now two persons collecting the checks for the hospital is an unmistakable sign of an irregularity which should have alerted employees in the Treasurers office of the fraud being committed. There is also evidence indicating that the provincial employees were aware of Pangilinans retirement and consequent dissociation from the hospital. Jose Meru, the Provincial Treasurer, testified:. ATTY. MORGA:

Q : Now, is it true that for a given month there were two releases of checks, one went to Mr. Pangilinan and one went to Miss Juco? JOSE MERU: A : Yes, sir. Q : Will you please tell us how at the time (sic) when the authorized representative of Concepcion Emergency Hospital is and was supposed to be Miss Juco? A : Well, as far as my investigation show (sic) the assistant cashier told me that Pangilinan represented himself as also authorized to help in the release of these checks and we were apparently misled because they accepted the representation of Pangilinan that he was helping them in the release of the checks and besides according to them they were, Pangilinan, like the rest, was able to present an official receipt to acknowledge these receipts and according to them since this is a government check and believed that it will eventually go to the hospital following the standard procedure of negotiating government checks, they released the checks to Pangilinan aside from Miss 34 Juco. The failure of the Province of Tarlac to exercise due care contributed to a significant degree to the loss tantamount to negligence. Hence, theProvince of Tarlac should be liable for part of the total amount paid on the questioned checks. The drawee bank PNB also breached its duty to pay only according to the terms of the check. Hence, it cannot escape liability and should also bear part of the loss. As earlier stated, PNB can recover from the collecting bank. 35 In the case of Associated Bank v. CA, six crossed checks with forged indorsements were deposited in the forgers account with the collecting bank and were later paid by four different drawee banks. The Court found the collecting bank (Associated) to be negligent and held: The Bank should have first verified his right to endorse the crossed checks, of which he was not the payee, and to deposit the proceeds of the checks to his own account. The Bank was by reason of the nature of the checks put upon notice that they were issued for deposit only to the private respondents account. xxx The situation in the case at bench is analogous to the above case, for it was not the payee who deposited the checks with the collecting bank. Here, the checks were all payable to Concepcion Emergency Hospital but it was Fausto Pangilinan who deposited the checks in his personal savings account. Although Associated Bank claims that the guarantee stamped on the checks (All prior and/or lack of endorsements guaranteed) is merely a requirement forced upon it by clearing house rules, it cannot but remain liable. The stamp guaranteeing prior indorsements is not an empty rubric which a bank must fulfill for the sake of convenience. A bank is not required to accept all the checks negotiated to it. It is within the bahks discretion to receive a check for no banking institution would consciously or deliberately accept a check bearing a forged indorsement. When a check is deposited with the collecting bank, it takes a risk on its depositor. It is only logical that this bank be held accountable for checks deposited by its customers. A delay in informing the collecting bank (Associated Bank) of the forgery, which deprives it of the opportunity to go after the forger, signifies negligence on the part of the drawee bank (PNB) and will preclude it from claiming reimbursement. It is here that Associated Banks assignment of error concerning C.B. Circular No. 580 and Section 23 of the Philippine Clearing House Corporation Rules comes to fore. Under Section 4(c) of CB Circular No. 580, items bearing a forged endorsement shall be returned within twenty-four (24) hours after discovery of the forgery but in no event beyond the period fixed or provided by law for filing of a legal action by the returning bank. Section 23 of the PCHC Rules deleted the requirement that items bearing a forged endorsement should be returned within twenty-four hours. Associated Bank now argues that the aforementioned Central Bank Circular is applicable. Since PNB did not return the questioned checks within twenty-four hours, but several days later, Associated Bank alleges that PNB should be considered negligent and not entitled to reimbursement of the amount it paid on the checks. The Court deems it unnecessary to discuss Associated Banks assertions that CB Circular No. 580 is an administrative regulation issued pursuant to law and as such, must prevail over the PCHC rule. The Central Bank circular was in force for all banks until June 1980 when the Philippine Clearing House Corporation (PCHC) was set up and commenced operations. Banks in Metro Manila were covered by the PCHC while banks located elsewhere still had to go through Central Bank Clearing. In any event, the twenty-fourhour return rule was adopted by the PCHC until it was changed in 1982. The contending banks herein, which are both branches in Tarlac province, are therefore not covered by PCHC Rules but by CB Circular No. 580. Clearly then, the CB circular was applicable when the forgery of the checks was discovered in 1981. The rule mandates that the checks be returned within twenty-four hours after discovery of the forgery but in no event beyond the period fixed by law for filing a legal action. The rationale of the rule is to give the collecting bank (which indorsed the check) adequate opportunity to proceed against the forger. If prompt notice is not given, the collecting bank maybe prejudiced and lose the opportunity to go after its depositor. The Court finds that even if PNB did not return the questioned checks to Associated Bank within twenty-four hours, as mandated by the rule, PNB did not commit negligent delay. Under the circumstances, PNB gave prompt notice to Associated Bank and the latter bank was not prejudiced in going after Fausto Pangilinan. After the Province of Tarlac informed PNB of the forgeries, PNB necessarily had to inspect the checks and conduct its own investigation. Thereafter, it requested the Provincial Treasurers office on March 31, 1981 to return the checks for verification. The Province of Tarlac returned the checks only on April 22, 1981. Two 36 days later, Associated Bank received the checks from PNB. Associated Bank was also furnished a copy of the Provinces letter of demand to PNB dated March 20, 1981, thus giving it 37 notice of the forgeries. At this time, however, Pangilinans account with Associated had only P24.63 in it. Had Associated Bank decided to debit Pangilinans account, it could not have recovered the amounts paid on the questioned checks. In addition, while Associated Bank filed a fourth-party complaint against Fausto Pangilinan, it did not present evidence against Pangilinan and even 38 presented him as its rebuttal witness. Hence, Associated Bank was not prejudiced by PNBs failure to comply with the twenty-fourhour return rule. Next, Associated Bank contends that PNB is estopped from requiring reimbursement because the latter paid and cleared the checks. The Court finds this contention unmeritorious. Even if PNB cleared and paid the checks, it can still recover from Associated Bank. This is true even if the payees Chief Officer who was supposed to have indorsed the checks is also a customer of the drawee 39 bank. PNBs duty was to verify the genuineness of the drawers signature and not the genuineness of payees indorsement. Associated Bank, as the collecting bank, is the entity with the duty to verify the genuineness of the payees indorsement.

PNB also avers that respondent court erred in adjudging circuitous liability by directing PNB to return to the Province of Tarlac the amount of the checks and then directing Associated Bank to reimburse PNB. The Court finds nothing wrong with the mode of the award. The drawer,Province of Tarlac, is a client or customer of the PNB, not of Associated Bank. There is no privity of contract between the drawer and the collecting bank. The trial court made PNB and Associated Bank liable with legal interest from March 20, 1981, the date of extrajudicial demand made by theProvince of Tarlac on PNB. The payments to be made in this case stem from the deposits of the Province of Tarlac in its 40 current account with the PNB. Bank deposits are considered under the law as loans. Central Bank Circular No. 416 prescribes a twelve percent (12%) interest per annum for loans, forebearance of money, goods or credits in the absence of express stipulation. Normally, current accounts are likewise interest-bearing, by express contract, thus excluding them from the coverage of CB Circular No. 416. In this case, however, the actual interest rate, if any, for the current account opened by the Province of Tarlac with PNB was not given in evidence. Hence, the Court deems it wise to affirm the trial courts use of the legal interest rate, or six percent (6%) per 41 annum. The interest rate shall be computed from the date of default, or the date of judicial or extrajudicial demand. The trial court did not err in granting legal interest from March 20, 1981, the date of extrajudicial demand. The Court finds as reasonable, the proportionate sharing of fifty percent - fifty percent (50%-50%). Due to the negligence of the Province of Tarlac in releasing the checks to an unauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to receive the checks for the payee hospital for a period close to three years and in not properly ascertaining why the retired hospital cashier was collecting checks for the payee hospital in addition to the hospitals real cashier, respondent Province contributed to the loss amounting to. P203,300.00 and shall be liable to the PNB for fifty (50%) percent thereof. In effect, the Province of Tarlac can only recover fifty percent (50%) of P203,300.00 from PNB. The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of P203,300.00. It is liable on its warranties as indorser of the checks which were deposited by Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements, including that of the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to ascertain the genuineness of the payees indorsement. IN VIEW OF THE FOREGOING, the petition for review filed by the Philippine National Bank (G.R. No. 107612) is hereby PARTIALLY GRANTED. The petition for review filed by the Associated Bank (G.R. No. 107382) is hereby DENIED. The decision of the trial court is MODIFIED. The Philippine National Bank shall pay fifty percent (50%) of P203,300.00 to the Province of Tarlac, with legal interest from March 20, 1981 until the payment thereof. Associated Bank shall pay fifty percent (50%) of P203,300.00 to the Philippine National Bank, likewise, with legal interest from March 20, 1981 until payment is made. SO ORDERED.

G.R. No. 9321 September 24, 1914 NORBERTO ASUNCION, ET AL., petitioners-appellants, vs. MANUEL DE YRIARTE, respondent-appellee. Modesto Reyes for appellants. Attorney-General Villamor for appellee. MORELAND, J.: This is an action to obtain a writ of mandamus to compel the chief of the division of achieves of the Executive Bureau to file a certain articles of incorporation. The chief of the division of archives, the respondent, refused to file the articles of incorporation, hereinafter referred to, upon the ground that the object of the corporation, as stated in the articles, was not lawful and that, in pursuance of section 6 of Act No. 1459, they were not registerable. The proposed incorporators began an action in the Court of First Instance of the city of Manila to compel the chief of the division of archives to receive and register said articles of incorporation and to do any and all acts necessary for the complete incorporation of the persons named in the articles. The court below found in favor of the defendant and refused to order the registration of the articles mentioned, maintaining ad holding that the defendant, under the Corporation Law, had authority to determine both the sufficiency of the form of the articles and the legality of the object of the proposed corporation. This appeal is taken from that judgment. The first question that arises is whether or not the chief of the division of archives has authority, under the Corporation for registration, to decide not only as to the sufficiency of the form of the articles, but also as to the lawfulness of the purpose of the proposed corporation. It is strongly urged on the part of the appellants that the duties of the defendant are purely ministerial and that he has no authority to pass upon the lawfulness of the object for which the incorporators propose to organize. No authorities are cited to support this proposition and we are of the opinion that it is not sound. Section 6 of the Corporation Law reads in part as follows: Five or more persons, not exceeding fifteen, a majority of whom are residents of the Philippine Islands, may form a private corporation for any lawful purpose by filing with the division of archives, patents, copyrights, and trademarks if the Executive Bureau articles of incorporation duly executed and acknowledged before a notary public, . . . . Simply because the duties of an official happens to be ministerial, it does not necessarily follow that he may not, in the administration of his office, determine questions of law. We are of the opinion that it is the duty of the division of archives, when articles of incorporation are presented for registration, to determine whether the objects of the corporation as expressed in the articles are lawful. We do not believe that, simply because articles of incorporation presented foe registration are perfect in form, the division of archives must accept and register them and issue the corresponding certificate of incorporation no matter what the purpose of the corporation may be as expressed in the articles. We do not believe it was intended that the division of archives should issue a certificate of incorporation to, and thereby put the seal of approval of the Government upon, a corporation which was organized for base of immoral purposes. That such corporation might later, if it sought to carry out such purposes, be dissolved, or its officials imprisoned or itself heavily fined furnished no reason why it should have been created in the first instance. It seems to us to be not only the right but the duty of the divisions of archives to determine the lawfulness of the objects and purposes of the corporation before it issues a certificate of incorporation. It having determined that the division of archives, through its officials, has authority to determine not only the sufficiency as to form of the articles of incorporation offered for registration, but also the lawfulness of the purposes of leads us to the determination of the question whether or not the chief of the division of archives, who is the representative thereof and clothed by it with authority to deal subject to mandamus in the performance of his duties. We are of the opinion that he may be mandamused if he act in violation of law or if he refuses, unduly, to comply with the law. While we have held that defendant has power to pass upon the lawfulness of the purposes of the proposed corporation and that he may, in the fulfillment of his duties, determine the question of law whether or not those purposes are lawful and embraced within that class concerning which the law permits corporations to be formed, that does not necessarily mean, as we have already intimated, that his duties are not ministerial. On the contrary, there is no incompatibility in holding, as we do hold, that his duties are ministerial and that he has no authority to exercise discretion in receiving and registering articles of incorporation. He may exercise judgment that is, the judicial function in the determination of the question of law referred to, but he may not use discretion. The question whether or not the objects of a proposed corporation are lawful is one that can be decided one way only. If he err in the determination of that question and refuse to file articles which should be filed under the law, the decision is subject to review and correction and, upon proper showing, he will be ordered to file the articles. This is the same kind of determination which a court makes when it decides a case upon the merits, the court makes when it decides a case upon the merits. When a case is presented to a court upon the merits, the court can decide only one way and be right. As a matter of law, there is only one way and be right. As a matter of law, there is only one course to pursue. In a case where the court or other official has discretion in the resolution of a question, then, within certain limitations, he may decide the question either way and still be right. Discretion, it may be said generally, is a faculty conferred upon a court or other official by which he may decide a question either way and still be right. The power conferred upon the division of archives with respect to the registration of articles of incorporation is not of that character. It is of the same character as the determination of a lawsuit by a court upon the merits. It can be decided only one way correctly. If, therefore, the defendant erred in determining the question presented when the articles were offered for registration, then that error will be corrected by this court in this action and he will be compelled to register the articles as offered. If, however, he did not commit an error, but decided that question correctly, then, of course, his action will be affirmed to the extent that we will deny the relief prayed for. The next question leads us to the determination of whether or not the purposes of the corporation as stated in the articles of incorporation are lawful within the meaning of the Corporation Law. The purpose of the incorporation as stated in the articles is: "That the object of the corporation is (a) to organize and regulate the management, disposition, administration and control which the barrio of Pulo or San Miguel or its inhabitants or residents have over the common property of said residents or inhabitants or property belonging to the whole barrio as such; and (b) to use the natural

products of the said property for institutions, foundations, and charitable works of common utility and advantage to the barrio or its inhabitants." The municipality of Pasig as recognized by law contains within its limits several barrios or small settlements, like Pulo or San Miguel, which have no local government of their own but are governed by the municipality of Pasig through its municipal president and council. The president and members of the municipal council are elected by a general vote of the municipality, the qualified electors of all the barrios having the right to participate. The municipality of Pasig is a municipal corporation organized by law. It has the control of all property of the municipality. The various barrios of the municipality have no right to own or hold property, they not being recognized as legal entities by any law. The residents of the barrios participate in the advantages which accrue to the municipality from public property and receive all the benefits incident to residence in a municipality organized by law. If there is any public property situated in the barrio of Pulo or San Miguel not belonging to the general government or the province, it belongs to the municipality of Pasig and the sole authority to manage and administer the same resides in that municipality. Until the present laws upon the subject are charged no other entity can be the owner of such property or control or administer it. The object of the proposed corporation, as appears from the articles offered for registration, is to make of the barrio of Pulo or San Miguel a corporation which will become the owner of and have the right to control and administer any property belonging to the municipality of Pasig found within the limits of that barrio. This clearly cannot be permitted. Otherwise municipalities as now established by law could be deprived of the property which they now own and administer. Each barrio of the municipality would become under the scheme proposed, a separate corporation, would take over the ownership, administration, and control of that portion of the municipal territory within its limits. This would disrupt, in a sense, the municipalities of the Islands by dividing them into a series of smaller municipalities entirely independent of the original municipality. What the law does not permit cannot be obtained by indirection. The object of the proposed corporation is clearly repugnant to the provisions of the Municipal Code and the governments of municipalities as they have been organized thereunder. (Act No. 82, Philippine Commission.) The judgment appealed from is affirmed, with costs against appellants.

ATRIUM MANAGEMENT CORPORATION, petitioner, vs. COURT OF APPEALS, E.T. HENRY AND CO., LOURDES VICTORIA M. DE LEON, RAFAEL DE LEON, JR., AND HI-CEMENT CORPORATION,respondents. DECISION PARDO, J.: [1] What is before the Court are separate appeals from the decision of the Court of Appeals, ruling that Hi-Cement Corporation is not liable for four checks amounting to P2 million issued to E.T. Henry and Co. and discounted to Atrium Management Corporation. On January 3, 1983, Atrium Management Corporation filed with the Regional Trial Court, Manila an action for collection of the proceeds of four postdated checks in the total amount of P2 million. Hi-Cement Corporation through its corporate signatories, [2] petitioner Lourdes M. de Leon, treasurer, and the late Antonio de las Alas, Chairman, issued checks in favor of E.T. Henry and Co. Inc., as payee. E.T. Henry and Co., Inc., in turn, endorsed the four checks to petitioner Atrium Management Corporation for valuable consideration. Upon presentment for payment, the drawee bank dishonored all four checks for the common reason payment [3] stopped. Atrium, thus, instituted this action after its demand for payment of the value of the checks was denied. After due proceedings, on July 20, 1989, the trial court rendered a decision ordering Lourdes M. de Leon, her husband Rafael de Leon, E.T. Henry and Co., Inc. and Hi-Cement Corporation to pay petitioner Atrium, jointly and severally, the amount of P2 million [4] corresponding to the value of the four checks, plus interest and attorneys fees. On appeal to the Court of Appeals, on March 17, 1993, the Court of Appeals promulgated its decision modifying the decision of the trial court, absolving Hi-Cement Corporation from liability and dismissing the complaint as against it. The appellate court ruled that: (1) Lourdes M. de Leon was not authorized to issue the subject checks in favor of E.T. Henry, Inc.; (2) The issuance of the subject checks by Lourdes M. de Leon and the late Antonio de las Alas constituted ultra viresacts; and (3) The subject checks were [5] not issued for valuable consideration. At the trial, Atrium presented as its witness Carlos C. Syquia who testified that in February 1981, Enrique Tan of E.T. Henry approached Atrium for financial assistance, offering to discount four RCBC checks in the total amount of P2 million, issued by HiCement in favor of E.T. Henry. Atrium agreed to discount the checks, provided it be allowed to confirm with Hi-Cement the fact that the checks represented payment for petroleum products which E.T. Henry delivered to Hi-Cement. Carlos C. Syquia identified two letters, dated February 6, 1981 and February 9, 1981 issued by Hi-Cement through Lourdes M. de Leon, as treasurer, confirming the [6] issuance of the four checks in favor of E.T. Henry in payment for petroleum products. Respondent Hi-Cement presented as witness Ms. Erlinda Yap who testified that she was once a secretary to the treasurer of HiCement, Lourdes M. de Leon, and as such she was familiar with the four RCBC checks as the postdated checks issued by Hi-Cement to E.T. Henry upon instructions of Ms. de Leon. She testified that E.T. Henry offered to give Hi-Cement a loan which the subject [7] checks would secure as collateral. On July 20, 1989, the Regional Trial Court, Manila, Branch 09 rendered a decision, the dispositive portion of which reads: WHEREFORE, in view of the foregoing considerations, and plaintiff having proved its cause of action by preponderance of evidence, judgment is hereby rendered ordering all the defendants except defendant Antonio de las Alas to pay plaintiff jointly and severally the amount of TWO MILLION (P2,000,000.00) PESOS with the legal rate of interest from the filling of the complaint until fully paid, plus the sum of TWENTY THOUSAND (P20,000.00) PESOS as and for attorneys fees and the cost of suit. All other claims are, for lack of merit dismissed. [8] SO ORDERED. [9] In due time, both Lourdes M. de Leon and Hi-Cement appealed to the Court of Appeals. Lourdes M. de Leon submitted that the trial court erred in ruling that she was solidarilly liable with Hi-Cement for the amount of the check. Also, that the trial court erred in ruling that Atrium was an ordinary holder, not a holder in due course of the [10] rediscounted checks. Hi-Cement on its part submitted that the trial court erred in ruling that even if Hi-Cement did not authorize the issuance of the checks, it could still be held liable for the checks. And assuming that the checks were issued with its authorization, the same was without any consideration, which is a defense against a holder in due course and that the liability shall be borne alone by E.T. [11] Henry. On March 17, 1993, the Court of Appeals promulgated its decision modifying the ruling of the trial court, the dispositive portion of which reads: Judgement is hereby rendered: (1) dismissing the plaintiffs complaint as against defendants Hi-Cement Corporation and Antonio De las Alas; (2) ordering the defendants E.T. Henry and Co., Inc. and Lourdes M. de Leon, jointly and severally to pay the plaintiff the sum of TWO MILLION PESOS (P2,000,000.00) with interest at the legal rate from the filling of the complaint until fully paid, plus P20,000.00 for attorneys fees. (3) Ordering the plaintiff and defendants E.T. Henry and Co., Inc. and Lourdes M. de Leon, jointly and severally to pay defendant Hi-Cement Corporation, the sum of P20,000.00 as and for attorneys fees. With cost in this instance against the appellee Atrium Management Corporation and appellant Lourdes Victoria M. de Leon. [12] So ordered. [13] Hence, the recourse to this Court. The issues raised are the following: In G. R. No. 109491 (Atrium, petitioner): 1. Whether the issuance of the questioned checks was an ultra vires act; 2. Whether Atrium was not a holder in due course and for value; and 3. Whether the Court of Appeals erred in dismissing the case against Hi-Cement and ordering it to pay P20,000.00 as [14] attorneys fees. In G. R. No. 121794 (de Leon, petitioner): 1. Whether the Court of Appeals erred in holding petitioner personally liable for the Hi-Cement checks issued to E.T. Henry; 2. Whether the Court of Appeals erred in ruling that Atrium is a holder in due course; 3. Whether the Court of Appeals erred in ruling that petitioner Lourdes M. de Leon as signatory of the checks was personally liable for the value of the checks, which were declared to be issued without consideration;

4. Whether the Court of Appeals erred in ordering petitioner to pay Hi-Cement attorneys fees and costs. We affirm the decision of the Court of Appeals. We first resolve the issue of whether the issuance of the checks was an ultra vires act. The record reveals that Hi-Cement Corporation issued the four (4) checks to extend financial assistance to E.T. Henry, not as payment of the balance of the P30 million pesos cost of hydro oil delivered by E.T. Henry to Hi-Cement. Why else would petitioner de Leon ask for counterpart checks from E.T. Henry if the checks were in payment for hydro oil delivered by E.T. Henry to Hi-Cement? Hi-Cement, however, maintains that the checks were not issued for consideration and that Lourdes and E.T. Henry engaged in a kiting operation to raise funds for E.T. Henry, who admittedly was in need of financial assistance. The Court finds that there was no sufficient evidence to show that such is the case. Lourdes M. de Leon is the treasurer of the corporation and is authorized to sign checks for the corporation. At the time of the issuance of the checks, there were sufficient funds in the bank to cover payment of the amount of P2 million pesos. It is, however, our view that there is basis to rule that the act of issuing the checks was well within the ambit of a valid corporate act, for it was for securing a loan to finance the activities of the corporation, hence, not an ultra vires act. An ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its [16] organization and therefore beyond the power conferred upon it by law The term ultra vires is distinguished from an illegal act for the former is merely voidable which may be enforced by performance, ratification, or estoppel, while the latter is void and [17] cannot be validated. The next question to determine is whether Lourdes M. de Leon and Antonio de las Alas were personally liable for the checks issued as corporate officers and authorized signatories of the check. "Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule, only when: 1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; 2. He consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; 3. He agrees to hold himself personally and solidarily liable with the corporation; or [18] 4. He is made, by a specific provision of law, to personally answer for his corporate action. In the case at bar, Lourdes M. de Leon and Antonio de las Alas as treasurer and Chairman of Hi-Cement were authorized to issue the checks. However, Ms. de Leon was negligent when she signed the confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for the rediscounting of the crossed checks issued in favor of E.T. Henry. She was aware that the checks were strictly endorsed for deposit only to the payees account and not to be further negotiated. What is more, the confirmation letter contained a clause that was not true, that is, that the checks issued to E.T. Henry were in payment of Hydro oil bought by HiCement from E.T. Henry. Her negligence resulted in damage to the corporation. Hence, Ms. de Leon may be held personally liable therefor. The next issue is whether or not petitioner Atrium was a holder of the checks in due course. The Negotiable Instruments Law, Section 52 defines a holder in due course, thus: A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. In the instant case, the checks were crossed checks and specifically indorsed for deposit to payees account only. From the beginning, Atrium was aware of the fact that the checks were all for deposit only to payees account, meaning E.T. Henry. Clearly, then, Atrium could not be considered a holder in due course. However, it does not follow as a legal proposition that simply because petitioner Atrium was not a holder in due course for having taken the instruments in question with notice that the same was for deposit only to the account of payee E.T. Henry that it was altogether precluded from recovering on the instrument. The Negotiable Instruments Law does not provide that a holder not in [19] due course can not recover on the instrument. The disadvantage of Atrium in not being a holder in due course is that the negotiable instrument is subject to defenses as if it [20] [21] were non-negotiable. One such defense is absence or failure of consideration. We need not rule on the other issues raised, as they merely follow as a consequence of the foregoing resolutions. WHEREFORE, the petitions are hereby DENIED. The decision and resolution of the Court of Appeals in CA-G. R. CV No. 26686, are hereby AFFIRMED in toto. No costs. SO ORDERED.

[15]

WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES CHAMSAY, petitioners, vs. SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ, respondents. GUTIERREZ, JR., J.: These consolidated petitions seek the review of the amended decision of the Court of Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the earlier decision dated June 5, 1986, of the then Intermediate Appellate Court and directed that in all subsequent elections for directors of Sanitary Wares Manufacturing Corporation (Saniwares), American Standard Inc. (ASI) cannot nominate more than three (3) directors; that the Filipino stockholders shall not interfere in ASI's choice of its three (3) nominees; that, on the other hand, the Filipino stockholders can nominate only six (6) candidates and in the event they cannot agree on the six (6) nominees, they shall vote only among themselves to determine who the six (6) nominees will be, with cumulative voting to be allowed but without interference from ASI. The antecedent facts can be summarized as follows: In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of manufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin Young went abroad to look for foreign partners, European or American who could help in its expansion plans. On August 15, 1962, ASI, a foreign corporation domiciled in Delaware, United States entered into an Agreement with Saniwares and some Filipino investors whereby ASI and the Filipino investors agreed to participate in the ownership of an enterprise which would engage primarily in the business of manufacturing in the Philippines and selling here and abroad vitreous china and sanitary wares. The parties agreed that the business operations in the Philippines shall be carried on by an incorporated enterprise and that the name of the corporation shall initially be "Sanitary Wares Manufacturing Corporation." The Agreement has the following provisions relevant to the issues in these cases on the nomination and election of the directors of the corporation: 3. Articles of Incorporation (a) The Articles of Incorporation of the Corporation shall be substantially in the form annexed hereto as Exhibit A and, insofar as permitted under Philippine law, shall specifically provide for (1) Cumulative voting for directors: xxx xxx xxx 5. Management (a) The management of the Corporation shall be vested in a Board of Directors, which shall consist of nine individuals. As long as American-Standard shall own at least 30% of the outstanding stock of the Corporation, three of the nine directors shall be designated by American-Standard, and the other six shall be designated by the other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875) At the request of ASI, the agreement contained provisions designed to protect it as a minority group, including the grant of veto powers over a number of corporate acts and the right to designate certain officers, such as a member of the Executive Committee whose vote was required for important corporate transactions. Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered with the Board of Investments for availment of incentives with the condition that at least 60% of the capital stock of the corporation shall be owned by Philippine nationals. The joint enterprise thus entered into by the Filipino investors and the American corporation prospered. Unfortunately, with the business successes, there came a deterioration of the initially harmonious relations between the two groups. According to the Filipino group, a basic disagreement was due to their desire to expand the export operations of the company to which ASI objected as it apparently had other subsidiaries of joint joint venture groups in the countries where Philippine exports were contemplated. On March 8, 1983, the annual stockholders' meeting was held. The meeting was presided by Baldwin Young. The minutes were taken by the Secretary, Avelino Cruz. After disposing of the preliminary items in the agenda, the stockholders then proceeded to the election of the members of the board of directors. The ASI group nominated three persons namely; Wolfgang Aurbach, John Griffin and David P. Whittingham. The Philippine investors nominated six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled the last two nominations out of order on the basis of section 5 (a) of the Agreement, the consistent practice of the parties during the past annual stockholders' meetings to nominate only nine persons as nominees for the nine-member board of directors, and the legal advice of Saniwares' legal counsel. The following events then, transpired: ... There were protests against the action of the Chairman and heated arguments ensued. An appeal was made by the ASI representative to the body of stockholders present that a vote be taken on the ruling of the Chairman. The Chairman, Baldwin Young, declared the appeal out of order and no vote on the ruling was taken. The Chairman then instructed the Corporate Secretary to cast all the votes present and represented by proxy equally for the 6 nominees of the Philippine Investors and the 3 nominees of ASI, thus effectively excluding the 2 additional persons nominated, namely, Luciano E. Salazar and Charles Chamsay. The ASI representative, Mr. Jaqua protested the decision of the Chairman and announced that all votes accruing to ASI shares, a total of 1,329,695 (p. 27, Rollo, ACG.R. SP No. 05617) were being cumulatively voted for the three ASI nominees and Charles Chamsay, and instructed the Secretary to so vote. Luciano E. Salazar and other proxy holders announced that all the votes owned by and or represented by them 467,197 shares (p. 27, Rollo, AC-G.R. SP No. 05617) were being voted cumulatively in favor of Luciano E. Salazar. The Chairman, Baldwin Young, nevertheless instructed the Secretary to cast all votes equally in favor of the three ASI nominees, namely, Wolfgang Aurbach, John Griffin and David Whittingham and the six originally nominated by Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and Baldwin Young. The Secretary then certified for the election of the following Wolfgang Aurbach, John Griffin, David Whittingham Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A. Boncan, Baldwin Young. The representative of ASI then moved to recess the meeting which was duly seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617). This motion to adjourn was accepted by the Chairman, Baldwin Young, who announced that the motion was carried and declared the meeting adjourned. Protests against the adjournment were registered and having been ignored,

Mr. Jaqua the ASI representative, stated that the meeting was not adjourned but only recessed and that the meeting would be reconvened in the next room. The Chairman then threatened to have the stockholders who did not agree to the decision of the Chairman on the casting of votes bodily thrown out. The ASI Group, Luciano E. Salazar and other stockholders, allegedly representing 53 or 54% of the shares of Saniwares, decided to continue the meeting at the elevator lobby of the American Standard Building. The continued meeting was presided by Luciano E. Salazar, while Andres Gatmaitan acted as Secretary. On the basis of the cumulative votes cast earlier in the meeting, the ASI Group nominated its four nominees; Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay. Luciano E. Salazar voted for himself, thus the said five directors were certified as elected directors by the Acting Secretary, Andres Gatmaitan, with the explanation that there was a tie among the other six (6) nominees for the four (4) remaining positions of directors and that the body decided not to break the tie. (pp. 37-39, Rollo of 75975-76) These incidents triggered off the filing of separate petitions by the parties with the Securities and Exchange Commission (SEC). The first petition filed was for preliminary injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano Salazar and Charles Chamsay. The case was denominated as SEC Case No. 2417. The second petition was for quo warranto and application for receivership by Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles Chamsay against the group of Young and Lagdameo (petitioners in SEC Case No. 2417) and Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets of parties except for Avelino Cruz claimed to be the legitimate directors of the corporation. The two petitions were consolidated and tried jointly by a hearing officer who rendered a decision upholding the election of the Lagdameo Group and dismissing the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar appealed the decision to the SEC en banc which affirmed the hearing officer's decision. The SEC decision led to the filing of two separate appeals with the Intermediate Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed as AC-G.R. SP No. 05617). The petitions were consolidated and the appellate court in its decision ordered the remand of the case to the Securities and Exchange Commission with the directive that a new stockholders' meeting of Saniwares be ordered convoked as soon as possible, under the supervision of the Commission. Upon a motion for reconsideration filed by the appellees Lagdameo Group) the appellate court (Court of Appeals) rendered the questioned amended decision. Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles Chamsay in G.R. No. 75875 assign the following errors: I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF PRIVATE RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES WHEN IN FACT THERE WAS NO ELECTION AT ALL. II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING THEIR FULL VOTING RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN SANIWARES, THUS DEPRIVING PETITIONERS AND THE CORPORATION THEY REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW. III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS INTO THE AGREEMENT OF THE PARTIES WHICH WERE NOT THERE, WHICH ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo-75875) Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on the following grounds: 11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual agreements entered into by stockholders and the replacement of the conditions of such agreements with terms never contemplated by the stockholders but merely dictated by the CA . 11.2. The Amended decision would likewise sanction the deprivation of the property rights of stockholders without due process of law in order that a favored group of stockholders may be illegally benefitted and guaranteed a continuing monopoly of the control of a corporation. (pp. 14-15, Rollo-75975-76) On the other hand, the petitioners in G.R. No. 75951 contend that: I THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT THE STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC INTENT OF THE AGREEMENT AND THE LAW. II THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE PETITIONERS HEREIN WERE THE DULY ELECTED DIRECTORS DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS MEETING OF SANTWARES. (P. 24, Rollo-75951) The issues raised in the petitions are interrelated, hence, they are discussed jointly. The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during its annual stockholders' meeting held on March 8, 1983. To answer this question the following factors should be determined: (1) the nature of the business established by the parties whether it was a joint venture or a corporation and (2) whether or not the ASI Group may vote their additional 10% equity during elections of Saniwares' board of directors. The rule is that whether the parties to a particular contract have thereby established among themselves a joint venture or some other relation depends upon their actual intention which is determined in accordance with the rules governing the interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668) The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual intention of the parties should be viewed strictly on the "Agreement" dated August 15,1962 wherein it is clearly stated that the parties' intention was to form a corporation and not a joint venture. They specifically mention number 16 under Miscellaneous Provisions which states: xxx xxx xxx c) nothing herein contained shall be construed to constitute any of the parties hereto partners or joint venturers in respect of any transaction hereunder. (At P. 66, Rollo-GR No. 75875) They object to the admission of other evidence which tends to show that the parties' agreement was to establish a joint venture presented by the Lagdameo and Young Group on the ground that it contravenes the parol evidence rule under section 7, Rule 130 of

the Revised Rules of Court. According to them, the Lagdameo and Young Group never pleaded in their pleading that the "Agreement" failed to express the true intent of the parties. The parol evidence Rule under Rule 130 provides: Evidence of written agreements-When the terms of an agreement have been reduced to writing, it is to be considered as containing all such terms, and therefore, there can be, between the parties and their successors in interest, no evidence of the terms of the agreement other than the contents of the writing, except in the following cases: (a) Where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the parties or the validity of the agreement is put in issue by the pleadings. (b) When there is an intrinsic ambiguity in the writing. Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply and Answer to Counterclaim in SEC Case No. 2417 that the Agreement failed to express the true intent of the parties, to wit: xxx xxx xxx 4. While certain provisions of the Agreement would make it appear that the parties thereto disclaim being partners or joint venturers such disclaimer is directed at third parties and is not inconsistent with, and does not preclude, the existence of two distinct groups of stockholders in Saniwares one of which (the Philippine Investors) shall constitute the majority, and the other ASI shall constitute the minority stockholder. In any event, the evident intention of the Philippine Investors and ASI in entering into the Agreement is to enter into ajoint venture enterprise, and if some words in the Agreement appear to be contrary to the evident intention of the parties, the latter shall prevail over the former (Art. 1370, New Civil Code). The various stipulations of a contract shall be interpreted together attributing to the doubtful ones that sense which may result from all of them taken jointly (Art. 1374, New Civil Code). Moreover, in order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. (Art. 1371, New Civil Code). (Part I, Original Records, SEC Case No. 2417) It has been ruled: In an action at law, where there is evidence tending to prove that the parties joined their efforts in furtherance of an enterprise for their joint profit, the question whether they intended by their agreement to create a joint adventure, or to assume some other relation is a question of fact for the jury. (Binder v. Kessler v 200 App. Div. 40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871) In the instant cases, our examination of important provisions of the Agreement as well as the testimonial evidence presented by the Lagdameo and Young Group shows that the parties agreed to establish a joint venture and not a corporation. The history of the organization of Saniwares and the unusual arrangements which govern its policy making body are all consistent with a joint venture and not with an ordinary corporation. As stated by the SEC: According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the Agreement with ASI in behalf of the Philippine nationals. He testified that ASI agreed to accept the role of minority vis-a-vis the Philippine National group of investors, on the condition that the Agreement should contain provisions to protect ASI as the minority. An examination of the Agreement shows that certain provisions were included to protect the interests of ASI as the minority. For example, the vote of 7 out of 9 directors is required in certain enumerated corporate acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI is contractually entitled to designate a member of the Executive Committee and the vote of this member is required for certain transactions [Sec. 3 (b) (i)]. The Agreement also requires a 75% super-majority vote for the amendment of the articles and by-laws of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right to designate the president and plant manager [Sec. 5 (6)]. The Agreement further provides that the sales policy of Saniwares shall be that which is normally followed by ASI [Sec. 13 (a)] and that Saniwares should not export "Standard" products otherwise than through ASI's Export Marketing Services [Sec. 13 (6)]. Under the Agreement, ASI agreed to provide technology and know-how to Saniwares and the latter paid royalties for the same. (At p. 2). xxx xxx xxx It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes of the board of directors for certain actions, in effect gave ASI (which designates 3 directors under the Agreement) an effective veto power. Furthermore, the grant to ASI of the right to designate certain officers of the corporation; the super-majority voting requirements for amendments of the articles and by-laws; and most significantly to the issues of tms case, the provision that ASI shall designate 3 out of the 9 directors and the other stockholders shall designate the other 6, clearly indicate that there are two distinct groups in Saniwares, namely ASI, which owns 40% of the capital stock and the Philippine National stockholders who own the balance of 60%, and that 2) ASI is given certain protections as the minority stockholder. Premises considered, we believe that under the Agreement there are two groups of stockholders who established a corporation with provisions for a special contractual relationship between the parties, i.e., ASI and the other stockholders. (pp. 4-5) Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the selection of the nine directors on a six to three ratio. Each group is assured of a fixed number of directors in the board. Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young also testified that Section 16(c) of the Agreement that "Nothing herein contained shall be construed to constitute any of the parties hereto partners or joint venturers in respect of any transaction hereunder" was merely to obviate the possibility of the enterprise being treated as partnership for tax purposes and liabilities to third parties. Quite often, Filipino entrepreneurs in their desire to develop the industrial and manufacturing capacities of a local firm are constrained to seek the technology and marketing assistance of huge multinational corporations of the developed world. Arrangements are formalized where a foreign group becomes a minority owner of a firm in exchange for its manufacturing expertise, use of its brand names, and other such assistance. However, there is always a danger from such arrangements. The foreign group may, from the start, intend to establish its own sole or monopolistic operations and merely uses the joint venture

arrangement to gain a foothold or test the Philippine waters, so to speak. Or the covetousness may come later. As the Philippine firm enlarges its operations and becomes profitable, the foreign group undermines the local majority ownership and actively tries to completely or predominantly take over the entire company. This undermining of joint ventures is not consistent with fair dealing to say the least. To the extent that such subversive actions can be lawfully prevented, the courts should extend protection especially in industries where constitutional and legal requirements reserve controlling ownership to Filipino citizens. The Lagdameo Group stated in their appellees' brief in the Court of Appeal In fact, the Philippine Corporation Code itself recognizes the right of stockholders to enter into agreements regarding the exercise of their voting rights. Sec. 100. Agreements by stockholders.xxx xxx xxx 2. An agreement between two or more stockholders, if in writing and signed by the parties thereto, may provide that in exercising any voting rights, the shares held by them shall be voted as therein provided, or as they may agree, or as determined in accordance with a procedure agreed upon by them. Appellants contend that the above provision is included in the Corporation Code's chapter on close corporations and Saniwares cannot be a close corporation because it has 95 stockholders. Firstly, although Saniwares had 95 stockholders at the time of the disputed stockholders meeting, these 95 stockholders are not separate from each other but are divisible into groups representing a single Identifiable interest. For example, ASI, its nominees and lawyers count for 13 of the 95 stockholders. The YoungYutivo family count for another 13 stockholders, the Chamsay family for 8 stockholders, the Santos family for 9 stockholders, the Dy family for 7 stockholders, etc. If the members of one family and/or business or interest group are considered as one (which, it is respectfully submitted, they should be for purposes of determining how closely held Saniwares is there were as of 8 March 1983, practically only 17 stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of appellees' Rejoinder Memorandum dated 11 December 1984 and Annex "A" thereof). Secondly, even assuming that Saniwares is technically not a close corporation because it has more than 20 stockholders, the undeniable fact is that it is a close-held corporation. Surely, appellants cannot honestly claim that Saniwares is a public issue or a widely held corporation. In the United States, many courts have taken a realistic approach to joint venture corporations and have not rigidly applied principles of corporation law designed primarily for public issue corporations. These courts have indicated that express arrangements between corporate joint ventures should be construed with less emphasis on the ordinary rules of law usually applied to corporate entities and with more consideration given to the nature of the agreement between the joint venturers (Please see Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335; Chicago, M & St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline Ry v. Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md., 212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90, 90, 295 N.W. 571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint Venture Corporations", 11 Vand Law Rev. p. 680,1958). These American cases dealt with legal questions as to the extent to which the requirements arising from the corporate form of joint venture corporations should control, and the courts ruled that substantial justice lay with those litigants who relied on the joint venture agreement rather than the litigants who relied on the orthodox principles of corporation law. As correctly held by the SEC Hearing Officer: It is said that participants in a joint venture, in organizing the joint venture deviate from the traditional pattern of corporation management. A noted authority has pointed out that just as in close corporations, shareholders' agreements in joint venture corporations often contain provisions which do one or more of the following: (1) require greater than majority vote for shareholder and director action; (2) give certain shareholders or groups of shareholders power to select a specified number of directors; (3) give to the shareholders control over the selection and retention of employees; and (4) set up a procedure for the settlement of disputes by arbitration (See I O' Neal, Close Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of SEC Hearing Officer, P. 16) Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply that agreements regarding the exercise of voting rights are allowed only in close corporations. As Campos and Lopez-Campos explain: Paragraph 2 refers to pooling and voting agreements in particular. Does this provision necessarily imply that these agreements can be valid only in close corporations as defined by the Code? Suppose that a corporation has twenty five stockholders, and therefore cannot qualify as a close corporation under section 96, can some of them enter into an agreement to vote as a unit in the election of directors? It is submitted that there is no reason for denying stockholders of corporations other than close ones the right to enter into not voting or pooling agreements to protect their interests, as long as they do not intend to commit any wrong, or fraud on the other stockholders not parties to the agreement. Of course, voting or pooling agreements are perhaps more useful and more often resorted to in close corporations. But they may also be found necessary even in widely held corporations. Moreover, since the Code limits the legal meaning of close corporations to those which comply with the requisites laid down by section 96, it is entirely possible that a corporation which is in fact a close corporation will not come within the definition. In such case, its stockholders should not be precluded from entering into contracts like voting agreements if these are otherwise valid. (Campos & Lopez-Campos, op cit, p. 405) In short, even assuming that sec. 5(a) of the Agreement relating to the designation or nomination of directors restricts the right of the Agreement's signatories to vote for directors, such contractual provision, as correctly held by the SEC, is valid and binding upon the signatories thereto, which include appellants. (Rollo No. 75951, pp. 90-94) In regard to the question as to whether or not the ASI group may vote their additional equity during elections of Saniwares' board of directors, the Court of Appeals correctly stated: As in other joint venture companies, the extent of ASI's participation in the management of the corporation is spelled out in the Agreement. Section 5(a) hereof says that three of the nine directors shall be designated by ASI and the remaining six by the other stockholders, i.e., the Filipino stockholders. This allocation of board seats is obviously in consonance with the minority position of ASI.

Having entered into a well-defined contractual relationship, it is imperative that the parties should honor and adhere to their respective rights and obligations thereunder. Appellants seem to contend that any allocation of board seats, even in joint venture corporations, are null and void to the extent that such may interfere with the stockholder's rights to cumulative voting as provided in Section 24 of the Corporation Code. This Court should not be prepared to hold that any agreement which curtails in any way cumulative voting should be struck down, even if such agreement has been freely entered into by experienced businessmen and do not prejudice those who are not parties thereto. It may well be that it would be more cogent to hold, as the Securities and Exchange Commission has held in the decision appealed from, that cumulative voting rights may be voluntarily waived by stockholders who enter into special relationships with each other to pursue and implement specific purposes, as in joint venture relationships between foreign and local stockholders, so long as such agreements do not adversely affect third parties. In any event, it is believed that we are not here called upon to make a general rule on this question. Rather, all that needs to be done is to give life and effect to the particular contractual rights and obligations which the parties have assumed for themselves. On the one hand, the clearly established minority position of ASI and the contractual allocation of board seats Cannot be disregarded. On the other hand, the rights of the stockholders to cumulative voting should also be protected. In our decision sought to be reconsidered, we opted to uphold the second over the first. Upon further reflection, we feel that the proper and just solution to give due consideration to both factors suggests itself quite clearly. This Court should recognize and uphold the division of the stockholders into two groups, and at the same time uphold the right of the stockholders within each group to cumulative voting in the process of determining who the group's nominees would be. In practical terms, as suggested by appellant Luciano E. Salazar himself, this means that if the Filipino stockholders cannot agree who their six nominees will be, a vote would have to be taken among the Filipino stockholders only. During this voting, each Filipino stockholder can cumulate his votes. ASI, however, should not be allowed to interfere in the voting within the Filipino group. Otherwise, ASI would be able to designate more than the three directors it is allowed to designate under the Agreement, and may even be able to get a majority of the board seats, a result which is clearly contrary to the contractual intent of the parties. Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to cumulative voting. Moreover, this ruling will also give due consideration to the issue raised by the appellees on possible violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the nationalization requirements of the Constitution and the laws if ASI is allowed to nominate more than three directors. (Rollo75875, pp. 38-39) The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group has the right to vote their additional equity pursuant to Section 24 of the Corporation Code which gives the stockholders of a corporation the right to cumulate their votes in electing directors. Petitioner Salazar adds that this right if granted to the ASI Group would not necessarily mean a violation of the Anti-Dummy Act (Commonwealth Act 108, as amended). He cites section 2-a thereof which provides: And provided finally that the election of aliens as members of the board of directors or governing body of corporations or associations engaging in partially nationalized activities shall be allowed in proportion to their allowable participation or share in the capital of such entities. (amendments introduced by Presidential Decree 715, section 1, promulgated May 28, 1975) The ASI Group's argument is correct within the context of Section 24 of the Corporation Code. The point of query, however, is whether or not that provision is applicable to a joint venture with clearly defined agreements: The legal concept of ajoint venture is of common law origin. It has no precise legal definition but it has been generally understood to mean an organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact hardly distinguishable from the partnership, since their elements are similar community of interest in the business, sharing of profits and losses, and a mutual right of control. Blackner v. Mc Dermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242 [1955]). The main distinction cited by most opinions in common law jurisdictions is that the partnership contemplates a general business with some degree of continuity, while the joint venture is formed for the execution of a single transaction, and is thus of a temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine law, a joint venture is a form of partnership and should thus be governed by the law of partnerships. The Supreme Court has however recognized a distinction between these two business forms, and has held that although a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954]) (Campos and LopezCampos Comments, Notes and Selected Cases, Corporation Code 1981) Moreover, the usual rules as regards the construction and operations of contracts generally apply to a contract of joint venture. (O' Hara v. Harman 14 App. Dev. (167) 43 NYS 556). Bearing these principles in mind, the correct view would be that the resolution of the question of whether or not the ASI Group may vote their additional equity lies in the agreement of the parties. Necessarily, the appellate court was correct in upholding the agreement of the parties as regards the allocation of director seats under Section 5 (a) of the "Agreement," and the right of each group of stockholders to cumulative voting in the process of determining who the group's nominees would be under Section 3 (a) (1) of the "Agreement." As pointed out by SEC, Section 5 (a) of the Agreement relates to the manner of nominating the members of the board of directors while Section 3 (a) (1) relates to the manner of voting for these nominees. This is the proper interpretation of the Agreement of the parties as regards the election of members of the board of directors. To allow the ASI Group to vote their additional equity to help elect even a Filipino director who would be beholden to them would obliterate their minority status as agreed upon by the parties. As aptly stated by the appellate court:

... ASI, however, should not be allowed to interfere in the voting within the Filipino group. Otherwise, ASI would be able to designate more than the three directors it is allowed to designate under the Agreement, and may even be able to get a majority of the board seats, a result which is clearly contrary to the contractual intent of the parties. Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to cumulative voting. Moreover, this ruling will also give due consideration to the issue raised by the appellees on possible violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the nationalization requirements of the Constitution and the laws if ASI is allowed to nominate more than three directors. (At p. 39, Rollo, 75875) Equally important as the consideration of the contractual intent of the parties is the consideration as regards the possible domination by the foreign investors of the enterprise in violation of the nationalization requirements enshrined in the Constitution and circumvention of the Anti-Dummy Act. In this regard, petitioner Salazar's position is that the Anti-Dummy Act allows the ASI group to elect board directors in proportion to their share in the capital of the entity. It is to be noted, however, that the same law also limits the election of aliens as members of the board of directors in proportion to their allowance participation of said entity. In the instant case, the foreign Group ASI was limited to designate three directors. This is the allowable participation of the ASI Group. Hence, in future dealings, this limitation of six to three board seats should always be maintained as long as the joint venture agreement exists considering that in limiting 3 board seats in the 9-man board of directors there are provisions already agreed upon and embodied in the parties' Agreement to protect the interests arising from the minority status of the foreign investors. With these findings, we the decisions of the SEC Hearing Officer and SEC which were impliedly affirmed by the appellate court declaring Messrs. Wolfgang Aurbach, John Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. Boncan, Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly elected directors of Saniwares at the March 8,1983 annual stockholders' meeting. On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951) object to a cumulative voting during the election of the board of directors of the enterprise as ruled by the appellate court and submits that the six (6) directors allotted the Filipino stockholders should be selected by consensus pursuant to section 5 (a) of the Agreement which uses the word "designate" meaning "nominate, delegate or appoint." They also stress the possibility that the ASI Group might take control of the enterprise if the Filipino stockholders are allowed to select their nominees separately and not as a common slot determined by the majority of their group. Section 5 (a) of the Agreement which uses the word designates in the allocation of board directors should not be interpreted in isolation. This should be construed in relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1) relates to the manner of voting for these nominees which is cumulative voting while section 5(a) relates to the manner of nominating the members of the board of directors. The petitioners in G.R. No. 75951 agreed to this procedure, hence, they cannot now impugn its legality. The insinuation that the ASI Group may be able to control the enterprise under the cumulative voting procedure cannot, however, be ignored. The validity of the cumulative voting procedure is dependent on the directors thus elected being genuine members of the Filipino group, not voters whose interest is to increase the ASI share in the management of Saniwares. The joint venture character of the enterprise must always be taken into account, so long as the company exists under its original agreement. Cumulative voting may not be used as a device to enable ASI to achieve stealthily or indirectly what they cannot accomplish openly. There are substantial safeguards in the Agreement which are intended to preserve the majority status of the Filipino investors as well as to maintain the minority status of the foreign investors group as earlier discussed. They should be maintained. WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED and the petition in G.R. No. 75951 is partly GRANTED. The amended decision of the Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are declared as the duly elected directors of Saniwares at the March 8,1983 annual stockholders' meeting. In all other respects, the questioned decision is AFFIRMED. Costs against the petitioners in G.R. Nos. 75975-76 and G.R. No. 75875. SO ORDERED.

AVON DALE GARMENTS, INC., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, LILIA DUMANTAY, ET AL., respondents. RESOLUTION FRANCISCO, J.: This special civil action for certiorari seeks to set aside the decision of the National Labor Relations Commission, dated August 31, 1994, in NLRC CA 005068-93, for allegedly having been rendered with grave abuse of discretion. Private respondents were employees of petitioner Avon Dale Garments, Inc. and its predecessor-in-interest, Avon Dale Shirt Factory. Following a dispute brought about by the rotation of workers, a compromise agreement was entered into between petitioner and private respondents wherein the latter were terminated from service and given their corresponding separation pay. However, upon refusal of the petitioner to include in the computation of private respondents' separation pay the period during which the latter were employed by Avon Dale Shirt Factory, private respondents filed a complaint with the labor arbiter claiming a deficiency in their separation pay (docketed as NLRC-NCR-00-02-00810-93). According to private respondents, their previous employment with petitioner's predecessor-in-interest, Avon Dale Shirt Factory, should be credited in computing their separation pay considering that Avon Dale Shirt factory was not dissolved and they were not in turn hired as new employees by Avon Dale Garments, Inc. In its decision dated May 14, 1993, the labor arbiter dismissed private respondents' complaint and held that Avon Dale Shirt Factory and Avon Dale Garments, Inc. are not one and the same entity as the former was in fact dissolved on December 27, 1978, when it 1 filed its Articles of Dissolution with the Securities and Exchange Commission. Private respondents appealed to the NLRC and the latter reversed the decision of the labor arbiter after finding that upon dissolution of Avon Dale Shirt Factory, Inc., there was no showing that its terminated employees, as creditors insofar as their separation pay were concerned, were ever paid. Thus, petitioner Avon Dale Garments, Inc., as successor-in-interest, was held liable 2 for private respondents' unpaid claim. The instant petition is now brought before us by petitioner Avon Dale Garments, Inc., anchored on the sole ground that, as a separate and distinct entity, it should not be held liable for private respondents' separation pay from Avon Dale Shirt Factory. Pending resolution of the instant petition, counsel for private respondents, instead of filing a comment to the petition, filed a Manifestation indicating that the parties have already reached an amicable settlement on December 27, 1994, wherein private 3 respondents were paid their corresponding separation pay, after which, they executed a waiver and quitclaim. It appeared however, upon verification by the Office of the Solicitor General, that the aforementioned compromise agreement was executed 4 between the parties without the knowledge and participation of the NLRC. The established rule is that compromise agreements involving labor standard cases, like the one entered into by the parties herein, must be reduced in writing and signed in the presence of the Regional Director or his duly authorized representative. Otherwise, 5 they are not deemed to be duly executed. For this reason, the compromise agreement submitted by private respondents' counsel cannot be recognized by this court for being improperly executed. Nevertheless, we find the petition to be without merit as the assailed decision is in complete accord with the law and evidence on record. Petitioner failed to establish that Avon Dale Garments, Inc., is a separate and distinct entity from Avon Dale Shirt Factory, absent any showing that there was indeed an actual closure and cessation of the operations of the latter. The mere filing of the Articles of Dissolution with the Securities and Exchange Commission, without more, is not enough to support the conclusion that actual dissolution of an entity in fact took place. On the contrary, the prevailing circumstances in this case indicated that petitioner company is not distinct from its predecessor Avon Dale Shirt Factory, but in fact merely continued the operations of the latter under the same owners, the same business venture, at 6 same address , and even continued to hire the same employees (herein private respondents). Thus, conformably with established jurisprudence, the two entities cannot be deemed as separate and distinct where there is a 7 showing that one is merely the continuation of the other. In fact, even a change in the corporate name does not make a new corporation, whether effected by a special act or under a general law, it has no effect on the identity of the corporation, or on its 8 property, rights, or liabilities. Respondent NLRC therefore, did not commit any grave abuse of discretion in holding that petitioner should likewise include private respondents' employment with Avon Dale Shirt Factory in computing private respondents' separation pay as petitioner failed to substantiate its claim that it is a distinct entity. ACCORDINGLY, the instant petition is hereby DISMISSED. SO ORDERED.

AVON INSURANCE PLC. BRITISH RESERVE INSURANCE CO. LTD., vs. COURT OF APPEALS, REGIONAL TRIAL COURT OF MANILA, BRANCH 51. YUPANGCO COTTON MILLS. WORLDWIDE SURETY & INSURANCE CO., INC., respondents. TORRES, JR., J.: Just how far can our courts assert jurisdiction over the persons of foreign entities being charged with contractual liabilities by residents of the Philippines? 1 Appealing from the Court of Appeals' October 11, 1990 Decision in CA-G.R. No. 22005, petitioners claim that the trial court's jurisdiction does not extend to them, since they are foreign reinsurance companies that are not doing business in the Philippines. Having entered into reinsurance contracts abroad, petitioners are beyond the jurisdictional ambit of our courts and cannot be served summons through extraterritorial service, as under Section 17, Rule 14 of the Rules of Court, nor through the Insurance Commissioner, under Section 14. Private respondent Yupangco Cotton Mills contend on the other hand that petitioners are within 2 our courts' cognitive powers, having submitted voluntarily to their jurisdiction by filing motions to dismiss the private respondent's suit below. The antecedent facts, as found by the appellate court, are as follows: Respondent Yupangco Cotton Mills filed a complaint against several foreign reinsurance companies (among which are petitioners) to collect their alleged percentage liability under contract treaties between the foreign insurance companies and the international insurance broker C.J. Boatright, acting as agent for respondent Worldwide Surety and Insurance Company. Inasmuch as petitioners are not engaged in business in the Philippines with no offices, places of business or agents in the Philippines, the reinsurance treaties having been entered abroad, service of summons upon motion of respondent Yupangco, was made upon petitioners through the Office of the Insurance Commissioner. Petitioners, by counsel on special appearance, seasonably filed motions to dismiss disputing the jurisdiction of respondent Court and the extra-territorial service of summons. Respondent Yupangco filed its opposition to the motions to dismiss, petitioners filed their reply, and respondent Yupangco filed its rejoinder. In an Order dated April 30, 1990, respondent Court denied the motions to dismiss and directed petitioners to file their answer. On May 29, 1990, petitioners filed their notice of appeal. In 3 an order dated June 4, 1990, respondent court denied due course to the appeal. To this day, trial on the merits of the collection suit has not proceeded as in the present petition, petitioners continue vigorously to dispute the trial court's assumption of jurisdiction over them. 4 It will be remembered that in the plaintiff's complaint, it was contended that on July 6, 1979 and on October 1, 1980. Yupangco Cotton Mills engaged to secure with Worldwide Security and Insurance Co. Inc., several of its properties for the periods July 6, 1979 to July 6, 1980 as under Policy No. 20719 for a coverage of P100,000,000.00 and from October 1, 1980 to October 1, 1981, under Policy No. 25896, also for P100,000,000.00. Both contracts were covered by reinsurance treaties between Worldwide Surety and Insurance and several foreign reinsurance companies, including the petitioners. The reinsurance arrangements had been made through international broker C.J. Boatwright and Co. Ltd., acting as agent of Worldwide Surety and Insurance. As fate would have it, on December 16, 1979 and May 2, 1981, within the respective effectivity periods of Policies 20719 and 25896, the properties therein insured were razed by fire, thereby giving rise to the obligation of the insurer to indemnify the Yupangco Cotton Mills. Partial payments were made by Worldwide Surety and Insurance and some of the reinsurance companies. On May 2, 1983, Worldwide Surety and Insurance, in a Deed of Assignment, acknowledged a remaining balance of P19,444,447.75 still due Yupangco Cotton Mills, and assigned to the latter all reinsurance proceeds still collectible from all the foreign reinsurance companies. Thus, in its interest as assignee and original insured, Yupangco Cotton Mills instituted this collection suit against the petitioners. Service of summons upon the petitioners was made by notification to the Insurance Commissioner, pursuant to Section 14, Rule 14 of the Rules of 5 Court. In a Petition for Certiorari filed with the Court of Appeals, petitioners submitted that respondent Court has no jurisdiction over them, being all foreign corporations not doing business in the Philippines with no office, place of business or agents in the Philippines. The remedy of Certiorari was resorted to by the petitioners on the premise that if petitioners had filed an answer to the complaint as ordered by the respondent court, they would risk, abandoning the issue of jurisdiction. Moreover, extra-territorial service of summons on petitioners is null and void because the complaint for collection is not one affecting plaintiffs status and not relating to property within the Philippines. The Court of Appeals found the petition devoid of merit, stating that: 1. Petitioners were properly served with summons and whatever defect, if any, in the service of summons were cured by their voluntary appearance in court, via motion to dismiss. 2. Even assuming that petitioners have not yet voluntarily appeared as co-defendants in the case below even after having filed the motions to dismiss adverted to, still the situation does not deserve dismissal of the complaint as far as they are concerned, since as held by this Court in Lingner Fisher GMBH vs. IAC, 125 SCRA 523; A case should not be dismissed simply because an original summons was wrongfully served. It should be difficult to conceive for example, that when a defendant personally appears before a court complaining that he had not been validly summoned, that the case filed against him should be dismissed. An alias summons can be actually served on said defendant. 3. Being reinsurers of respondent Worldwide Surety and Insurance of the risk which the latter assumed when it issued the fire insurance policies in dispute in favor of respondent Yupangco, petitioners cannot now validly argue that they do not do business in this country. At the very least, petitioners must be deemed to have engaged in business in the Philippines no matter how isolated or singular such business might be, even on the assumption that among the local domestic insurance corporations of this country, it is only in favor of Worldwide Surety and Insurance that they have ever reinsured any risk arising from any reinsurance within the territory. 4. The issue of whether or not petitioners are doing business in the country is a matter best referred to a trial on the merits of the case, and so should be addressed there. Maintaining its submission that they are beyond the jurisdiction of Philippine Courts, petitioners are now before us, stating: Petitioners, being foreign corporations, as found by the trial court, not doing business in the Philippines with no office, place of business or agents in the Philippines, are not subject to the jurisdiction of Philippine courts.

The complaint for sum of money being a personal action not affecting status or relating to property, extraterritorial service of summons on petitioners all not doing business in the Philippines is null and void. The appearance of counsel for petitioners being explicitly "by special appearance without waiving objections to the jurisdiction over their persons or the subject matter" and the motions to dismiss having excluded non-jurisdictional 6 grounds, there is no voluntary submission to the jurisdiction of the trial court. For its part, private respondent Yupangco counter-submits: 1. Foreign corporations, such as petitioners, not doing business in the Philippines, can be sued in Philippine Courts, not withstanding petitioners' claim to the contrary. 2. While the complaint before the Honorable Trial Court is for a sum of money, not affecting status or relating to property, petitioners (then defendants) can submit themselves voluntarily to the jurisdiction of Philippine Courts, even if there is no extrajudicial (sic) service of summons upon them. 3. The voluntary appearance of the petitioners (then defendants) before the Honorable Trial Court amounted, in effect, to 7 voluntary submission to its jurisdiction over their persons. In the decisions of the courts below, there is much left to speculation and conjecture as to whether or not the petitioners were determined to be "doing business in the Philippines" or not. To qualify the petitioners' business of reinsurance within the Philippine forum, resort must be made to the established principles in determining what is meant by "doing business in the Philippines." In Communication Materials and Design, Inc. et. al. vs. Court of 8 Appeals, it was observed that. There is no exact rule or governing principle as to what constitutes doing or engaging in or transacting business. Indeed, such case must be judged in the light of its peculiar circumstances, upon its peculiar facts and upon the language of the statute applicable. The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized. Article 44 of the Omnibus Investments Code of 1987 defines the phrase to include: soliciting orders, purchases, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totaling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines, and any other act or acts that imply a continuity or commercial dealings or arrangements and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization. The term ordinarily implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of the functions normally incident to and in progressive prosecution of the purpose and 9 object of its organization. A single act or transaction made in the Philippines, however, could qualify a foreign corporation to be doing business in the Philippines, if such singular act is not merely incidental or casual, but indicates the foreign corporation's intention to do business in 10 the Philippines. There is no sufficient basis in the records which would merit the institution of this collection suit in the Philippines. More specifically, there is nothing to substantiate the private respondent's submission that the petitioners had engaged in business activities in this country. This is not an instance where the erroneous service of summons upon the defendant can be cured by the issuance and service of alias summons, as in the absence of showing that petitioners had been doing business in the country, they cannot be summoned to answer for the charges leveled against them. 11 The Court is cognizant of the doctrine in Signetics Corp. vs. Court of Appeals that for the purpose of acquiring jurisdiction by way of summons on a defendant foreign corporation, there is no need to prove first the fact that defendant is doing business in the Philippines. The plaintiff only has to allege in the complaint that the defendant has an agent in the Philippines for summons to be validly served thereto, even without prior evidence advancing such factual allegation. As it is, private respondent has made no allegation or demonstration of the existence of petitioners' domestic agent, but avers simply that they are doing business not only abroad but in the Philippines as well. It does not appear at all that the petitioners had performed any act which would give the general public the impression that it had been engaging, or intends to engage in its ordinary and usual business undertakings in the country. The reinsurance treaties between the petitioners and Worldwide Surety and Insurance were made through an international insurance broker, and not through any entity or means remotely connected with the Philippines. Moreover, there is authority to the effect that a reinsurance company is not doing business in a certain state merely 12 because the property or lives which are insured by the original insurer company are located in that state. The reason for this is that a contract of reinsurance is generally a separate and distinct arrangement from the original contract of insurance, whose contracted 13 14 risk is insured in the reinsurance agreement. Hence, the original insured has generally no interest in the contract of reinsurance. 15 A foreign corporation, is one which owes its existence to the laws of another state, and generally, has no legal existence within the 16 state in which it is foreign. In Marshall Wells Co. vs. Elser, it was held that corporations have no legal status beyond the bounds of the sovereignty by which they are created. Nevertheless, it is widely accepted that foreign corporations are, by reason of state comity, allowed to transact business in other states and to sue in the courts of such fora. In the Philippines foreign corporations are allowed such privileges, subject to certain restrictions, arising from the state's sovereign right of regulation. 17 Before a foreign corporation can transact business in the country, it must first obtain a license to transact business here and secure the proper authorizations under existing law. If a foreign corporation engages in business activities without the necessary requirements, it opens itself to court actions against it, but it shall not be allowed to maintain or intervene in an action, suit or proceeding for its own account in any court or tribunal or 18 agency in the Philippines. The purpose of the law in requiring that foreign corporations doing business in the country be licensed to do so, is to subject the 19 foreign corporations doing business in the Philippines to the jurisdiction of the courts, otherwise, a foreign corporation illegally doing business here because of its refusal or neglect to obtain the required license and authority to do business may successfully though unfairly plead such neglect or illegal act so as to avoid service and thereby impugn the jurisdiction of the local courts.

The same danger does not exist among foreign corporations that are indubitably not doing business in the Philippines. Indeed, if a foreign corporation does not do business here, there would be no reason for it to be subject to the State's regulation. As we observed, in so far as the State is concerned, such foreign corporation has no legal existence. Therefore, to subject such corporation to the courts' jurisdiction would violate the essence of sovereignty. In the alternative, private respondent submits that foreign corporations not doing business in the Philippines are not exempt from 20 suits leveled against them in courts, citing the case of Facilities Management Corporation vs.Leonardo Dela Osa, et. al. where we ruled "that indeed, if a foreign corporation, not engaged in business in the Philippines, is not barred from seeking redress from Courts in the Philippines, a fortiori, that same corporation cannot claim exemption from being sued in Philippine Courts for acts done against a person or persons in the Philippines." We are not persuaded by the position taken by the private respondent. In Facilities Management case, the principal issue presented was whether the petitioner had been doing business in the Philippines, so that service of summons upon its agent as under Section 14, Rule 14 of the Rules of Court can be made in order that the Court of First Instance could assume jurisdiction over it. The Court ruled that the petitioner was doing business in the Philippines, and that by serving summons upon its resident agent, the trial court had effectively acquired jurisdiction. In that case, the court made no prescription as the absolute suability of foreign corporations not doing business in the country, but merely discounts the absolute exemption of such foreign corporations from liabilities particularly arising from acts done against a person or persons in the Philippines. As we have found, there is no showing that petitioners had performed any act in the country that would place it within the sphere of the court's jurisdiction. A general allegation standing alone, that a party is doing business in the Philippines does not make it so. A conclusion of fact or law cannot be derived from the unsubstantiated assertions of parties, notwithstanding the demands of convenience or dispatch in legal actions, otherwise, the Court would be guilty of sorcery; extracting substance out of nothingness. In addition, the assertion that a resident of the Philippines will be inconvenienced by an out-of-town suit against a foreign entity, is irrelevant and unavailing to sustain the continuance of a local action, for jurisdiction is not dependent upon the convenience or 21 inconvenience of a party. It is also argued that having filed a motion to dismiss in the proceedings before the trial court, petitioners have thus acquiesced to the court's jurisdiction, and they cannot maintain the contrary at this juncture. This argument is at the most, flimsy. In civil cases, jurisdiction over the person of the defendant is acquired either by his voluntary appearance in court and his submission 22 to its authority or by service of summons. Fundamentally, the service of summons is intended to give official notice to the defendant or respondent that an action has been commenced against it. The defendant or respondent is thus put on guard as to the demands of the plaintiff as stated in the 23 complaint. The service of summons upon the defendant becomes an important element in the operation of a court's jurisdiction upon a party to a suit, as service of summons upon the defendant is the means by which the court acquires jurisdiction over his 24 person. Without service of summons, or when summons are improperly made, both the trial and the judgment, being in violation 25 of due process, are null and void, unless the defendant waives the service of summons by voluntarily appearing and answering the 26 suit. 27 When a defendant voluntarily appears, he is deemed to have submitted himself to the jurisdiction of the court. This is not, however, always the case. Admittedly, and without subjecting himself to the court's jurisdiction, the defendant in an action can, by special appearance object to the court's assumption on the ground of lack of jurisdiction. If he so wishes to assert this defense, he must do so seasonably by motion for the purpose of objecting to the jurisdiction of the court, otherwise, he shall be deemed to have 28 submitted himself to that jurisdiction. In the case of foreign corporations, it has been held that they may seek relief against the 29 wrongful assumption of jurisdiction by local courts. In Time, Inc. vs. Reyes, it was held that the action of a court in refusing to rule or deferring its ruling on a motion to dismiss for lack or excess of jurisdiction is correctable by a writ of prohibition or certiorari sued out in the appellate court even before trial on the merits is had. The same remedy is available should the motion to dismiss be denied, and the court, over the foreign corporation's objections, threatens to impose its jurisdiction upon the same. If the defendant, besides setting up in a motion to dismiss his objection to the jurisdiction of the court, alleges at the same time any 30 other ground for dismissing the action, or seeks an affirmative relief in the motion, he is deemed to have submitted himself to the jurisdiction of the court. In this instance, however, the petitioners from the time they filed their motions to dismiss, their submissions have been consistently and unfailingly to object to the trial court's assumption of jurisdiction, anchored on the fact that they are all foreign corporations not doing business in the Philippines. As we have consistently held, if the appearance of a party in a suit is precisely to question the jurisdiction of the said tribunal over the person of the defendant, then this appearance is not equivalent to service of summons, nor does it constitute an acquiescence 31 to the court's jurisdiction. Thus, it cannot be argued that the petitioners had abandoned their objections to the jurisdiction of the court, as their motions to dismiss in the trial court, and all their subsequent posturings, were all in protest of the private respondent's insistence on holding them to answer a charge in a forum where they believe they are not subject to. Clearly, to 32 continue the proceedings in a case such as those before Us would just "be useless and a waste of time." ACCORDINGLY, the decision appealed from dated October 11, 1990, is SET ASIDE and the instant petition is hereby GRANTED. The respondent Regional Trial Court of Manila, Branch 51 is declared without jurisdiction to take cognizance of Civil Case No. 86-37932, and all its orders and issuances in connection therewith are hereby ANNULLED and SET ASIDE. The respondent court is hereby ORDERED to DESIST from maintaining further proceeding in the case aforestated. SO ORDERED.

AZCOR MANUFACTURING INC., FILIPINAS PASO and/or ARTURO ZULUAGA/Owner, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION (NLRC) AND CANDIDO CAPULSO, respondents. DECISION BELLOSILLO, J.: AZCOR MANUFACTURING, INC., Filipinas Paso and Arturo Zuluaga instituted this petition for certiorari under Rule 65 of the Rules of Court to assail, for having been rendered with grave abuse of discretion amounting to lack or excess of jurisdiction, the Decision of the National Labor Relations Commission which reversed the decision of the Labor Arbiter dismissing the complaint of [1] respondent Candido Capulso against petitioners. Candido Capulso filed with the Labor Arbiter a complaint for constructive illegal dismissal and illegal deduction of P50.00 per day for the period April to September 1989. Petitioners Azcor Manufacturing, Inc. (AZCOR) and Arturo Zuluaga who were respondents before the Labor Arbiter (Filipinas Paso was not yet a party then in that case) moved to dismiss the complaint on the ground that there was no employer-employee relationship between AZCOR and herein respondent Capulso; that the latter became an employee of Filipinas Paso effective 1 March 1990 but voluntarily resigned therefrom a year after. Capulso later amended his complaint by impleading Filipinas Paso as additional respondent before the Labor Arbiter. On 14 January 1992, Labor Arbiter Felipe T. Garduque II denied the motion to dismiss holding that the allegation of lack of employer-employee relationship between Capulso and AZCOR was not clearly established. Thereafter, the Labor Arbiter ordered that hearings be conducted for the presentation of evidence by both parties. The evidence presented by Capulso showed that he worked for AZCOR as ceramics worker for more than two (2) years starting from 3 April 1989 to 1 June 1991 receiving a daily wage of P118.00 plus other benefits such as vacation and sick leaves. From April to September 1989 the amount of P50.00 was deducted from his salary without informing him of the reason therefor. In the second week of February 1991, upon his doctors recommendation, Capulso verbally requested to go on sick leave due to bronchial asthma. It appeared that his illness was directly caused by his job as ceramics worker where, for lack of the prescribed occupational safety gadgets, he inhaled and absorbed harmful ceramic dusts. His supervisor, Ms. Emily Apolinaria, approved his request. Later, on 1 June 1991, Capulso went back to petitioner AZCOR to resume his work after recuperating from his illness. He was not allowed to do so by his supervisors who informed him that only the owner, Arturo Zuluaga, could allow him to continue in his job. He returned five (5) times to AZCOR but when it became apparent that he would not be reinstated, he [2] immediately filed the instant complaint for illegal dismissal. Capulso presented the following documentary evidence in support of his claim: (a) His affidavit and testimony to prove that he [3] was terminated without just cause and without due process; (b) Identification card issued by AZCOR which he continued to use [4] [5] even after his supposed employment by Filipinas Paso; (c) Certification of SSS premium payments; (d) SSS Member Assistance [6] Form wherein he stated that he worked with AZCOR from March 1989 to April 1991; (e) Certification of Employee Contribution [7] [8] with SSS; and, (f) Payslips issued by AZCOR. On the other hand, petitioners alleged that Capulso was a former employee of AZCOR who resigned on 28 February 1990 as evidenced by a letter of resignation and joined Filipinas Paso on 1 March 1990 as shown by a contract of employment; in February 1991 Capulso allegedly informed his supervisor, Ms. Emilia Apolinaria, that he intended to go on terminal leave because he was not feeling well; on 1 March 1991 he submitted a letter of resignation addressed to the President of Filipinas Paso, Manuel Montilla; and, in the early part of June 1991 Capulso tried to apply for work again with Filipinas Paso but there was no vacancy. Petitioners submitted the following documentary evidence: (a) Sworn Statement of Ms. Emilia Apolinaria and her actual testimony to prove that respondent indeed resigned voluntarily from AZCOR to transfer to Filipinas Paso, and thereafter, from [9] Filipinas Paso due to failing health; (b) Contract of Employment between Filipinas Paso and respondent which took effect 1 March [10] [11] 1991; (c) Letter of resignation of respondent from AZCOR dated 28 February 1990, to take effect on the same date; (d) Undated [12] letter of resignation of respondent addressed to Filipinas Paso to take effect 1 March 1991; (e) BIR Form No. W-4 filed 6 June [13] [14] 1990; (f) Individual Income Tax Return of respondent for 1990; and, (g) BIR Form 1701-B which was an alphabetical list of [15] employees of Filipinas Paso for the year ending 31 December 1990. On 29 December 1992 the Labor Arbiter rendered a decision dismissing the complaint for illegal dismissal for lack of merit, but ordered AZCOR and/or Arturo Zuluaga to refund to Capulso the sum of P200.00 representing the amount illegally deducted from his salary. On appeal by Capulso, docketed as NLRC CA No. 004476-93 (NLRC NCR 00-09-05271-91), "Capulso v. Azcor Manufacturing Inc., Filipinas Paso and/or Arturo Zuluaga/owner," the NLRC modified the Labor Arbiters decision by: (a) declaring the dismissal of Capulso as illegal for lack of just and valid cause; (b) ordering petitioners to reinstate Capulso to his former or equivalent position without loss of seniority rights and without diminution of benefits; and, (c) ordering petitioners to jointly and solidarily pay Capulso his back wages computed from the time of his dismissal up to the date of his actual reinstatement. The NLRC held in part x x x x the contract of employment (Exh. 2, p. 187, Rollo) issued to complainant indicates that the work to be done during the period was contracted with Filipinas Paso. The said contract was signed by the Personnel Officer of Ascor Manufacturing Inc. Likewise, the contract period is for six (6) months, which establishes a presumption that the said contract could pass either as to cover the probationary period, or job contracting, the completion of which automatically terminates employment, whichever will work to respondents advantage should the case be filed. However, appellant continued working with respondent after the lapse of the contract and until the alleged termination of employment of appellant. Secondly, the two resignation letters allegedly executed by appellant are exactly worded, which only shows that the same were prepared by respondents-appellees plus after the fact that complainant denied having executed and signed the same. x x x x the letter of resignation (Exh. 3, p. 188, Rollo) supposed to have been executed by complainant-appellant shows that he resigned from Ascor Mfg., Inc. on February 28, 1990 while Exhibit 2, page 187, Rollo, which was the contract of Employment issued to Candido Capulso by the personnel officer of Ascor Mfg., Inc. shows that appellant was being hired from March 1, 1990 to August 31, 1990 by respondent Ascor Mfg., Inc. to do jobs for Filipinas Paso. A run-around of events and dates. The events that transpired clearly show that there was no interruption in the service of complainant with Ascor Mfg., Inc. from April 13 1989 up to June 1, 1991 when complainant was unceremoniously dismissed. Considering that Ascor Mfg., Inc. and Filipinas Paso orchestrated the events that appeared to be in order with the alleged execution of resignation letters which was disputed by complainant and confirmed spurious as explained above, likewise overwhelmingly show the bad faith of respondents in the treatment of their employees.

Petitioners motion for reconsideration was denied by the NLRC through its Resolution of 14 October 1994; hence, the instant petition. Meanwhile, during the pendency of the case before this Court, Capulso succumbed to asthma and heart disease. The issue to be resolved is whether the NLRC committed grave abuse of discretion in declaring that private respondent Capulso was illegally dismissed and in holding petitioners jointly and solidarily liable to Capulso for back wages. As a rule, the original and exclusive jurisdiction to review a decision or resolution of respondent NLRC in a petition for certiorari under Rule 65 of the Rules of Court does not include a correction of its evaluation of the evidence but is confined to issues of jurisdiction or grave abuse of discretion. The NLRCs factual findings, if supported by substantial evidence, are entitled to great respect and even finality, unless petitioner is able to show that it simply and arbitrarily disregarded the evidence before it or had misappreciated the evidence to such an extent as to compel a contrary conclusion if such evidence had been properly [16] appreciated. We find no cogent reason to disturb the findings of the NLRC. Petitioners insist that Capulso was not really dismissed but he voluntarily resigned from AZCOR and Filipinas Paso, and that there was nothing illegal or unusual in the letters of resignation he executed. We disagree. To constitute a resignation, it must be unconditional and with the intent to operate as such. There must be [17] an intention to relinquish a portion of the term of office accompanied by an act of relinquishment. In the instant case, the fact that Capulso signified his desire to resume his work when he went back to petitioner AZCOR after recuperating from his illness, and actively pursued his case for illegal dismissal before the labor courts when he was refused admission by his employer, negated any intention on his part to relinquish his job at AZCOR. Moreover, a closer look at the subject resignation letters readily reveals the following: (a) the resignation letter allegedly tendered by Capulso to Filipinas Paso was identically worded with that supposedly addressed by him to AZCOR; (b) both were predrafted with blank spaces filled up with the purported dates of effectivity of his resignation; and, (c) it was written in English, a language which Capulso was not conversant with considering his low level of education. No other plausible explanation can be drawn from these circumstances than that the subject letters of resignation were prepared by a person or persons other than Capulso. And the fact that he categorically disowned the signatures therein and denied having executed them clearly indicates that the resignation letters were drafted without his consent and participation. Even assuming for the sake of argument that the signatures were genuine, we still cannot give credence to those letters in the absence of any showing that Capulso was aware that what he was signing then were in fact resignation letters or that he fully understood the contents thereof. Having introduced those resignation letters in evidence, it was incumbent upon petitioners to prove clearly and convincingly their genuineness and due execution, especially considering the serious doubts on their authenticity. Petitioners miserably failed in this respect. The Labor Arbiter held that Capulsos repudiation of the signatures affixed in the letters of resignation was weakened by the fact that he filed the case only after almost four (4) months from the date of his dismissal. But it should be noted that private respondent still wanted his job and thus, understandably, refrained from filing the illegal dismissal case against his employer so as not to jeopardize his chances of continuing with his employment. True enough, when it became apparent that he was no longer welcome at AZCOR he immediately instituted the instant case. In addition, an action for reinstatement by reason of illegal dismissal is one based on an injury which may be brought within four (4) years from the time of dismissal pursuant to Art. 1146 of the Civil Code. Hence, Capulsos case which was filed after a measly delay of four (4) months should not be treated with skepticism or cynicism. By law and settled jurisprudence, he has four (4) years to file his complaint for illegal dismissal. A delay of merely four (4) months in instituting an illegal dismissal case is more than sufficient compliance with the prescriptive period. It may betray an unlettered mans lack of awareness of his rights as a lowly worker but, certainly, he must not be penalized for his tarrying. In illegal dismissal cases like the present one, the onus of proving that the dismissal of the employee was for a valid and [18] authorized cause rests on the employer and failure to discharge the same would mean that the dismissal is not justified and [19] therefore illegal. Petitioners failed in this regard. Petitioners also contend that they could not be held jointly and severally liable to Capulso for back wages since AZCOR and Filipinas Paso are separate and distinct corporations with different corporate personalities; and, the mere fact that the businesses of these corporations are interrelated and both owned and controlled by a single stockholder are not sufficient grounds to disregard their separate corporate entities. We are not persuaded. The doctrine that a corporation is a legal entity or a person in law distinct from the persons composing it is merely a legal fiction for purposes of convenience and to subserve the ends of justice. This fiction cannot be extended to a point [20] beyond its reason and policy. Where, as in this case, the corporate fiction was used as a means to perpetrate a social injustice or as a vehicle to evade obligations or confuse the legitimate issues, it would be discarded and the two (2) corporations would be [21] merged as one, the first being merely considered as the instrumentality, agency, conduit or adjunct of the other. In this particular case, there was much confusion as to the identity of Capulsos employer - whether it was AZCOR or Filipinas Paso; but, for sure, it was petitioners' own making, as shown by the following: First, Capulso had no knowledge that he was already working under petitioner Filipinas Paso since he continued to retain his AZCOR Identification card; Second, his payslips contained the name of AZCOR giving the impression that AZCOR was paying his salary;Third, he was paid the same salary and he performed the same kind of job, in the same work area, in the same location, using the same tools and under the same supervisor; Fourth, there was no gap in his employment as he continued to work from the time he was hired up to the last day of his work; Fifth, the casting department of AZCOR where Capulso was working was abolished when he, together with six (6) others, transferred to Filipinas Paso; and Sixth, the employment contract was signed by an AZCOR personnel officer, which showed that Capulso was being hired from 1 March 1990 to 31 August 1990 by AZCOR to do jobs for Filipinas Paso. The employment contract provided in part: The contract is for a specific job contract only and shall be effective for the period covered, unless sooner terminated when the job contract is completed earlier or withdrawn by client, or when the employee is dismissed for just and lawful causes provided by law and the companys rules and regulations, in which case the employment contract will automatically terminate. As correctly observed by the NLRC, the contract was only for six (6) months, which could pass either as a probationary period or a job contracting, the completion of which automatically terminated the employment. Observe further, however, that respondent continued working even after the lapse of the period in the contract - for whom it was not clear. It may be asked: Was the six (6)-month period probationary in nature, in which case, after the lapse of the period he became a regular employee of Filipinas Paso? Or was the period job-contracting in character, in which case, after the period he was deemed to have come back to AZCOR?

Interestingly, petitioners likewise argue that it was grave abuse of discretion for the NLRC to hold them solidarily liable to [22] Capulso when the latter himself testified that he was not even an employee of Filipinas Paso. After causing much confusion, petitioners have the temerity to use as evidence the ignorance of Capulso in identifying his true employer. It is evident from the foregoing discussion that Capulso was led into believing that while he was working with Filipinas Paso, his real employer was AZCOR. Petitioners never dealt with him openly and in good faith, nor was he informed of the developments within the company, i.e., his alleged transfer to Filipinas Paso and the closure of AZCORs manufacturing operations beginning 1 March [23] 1990. Understandably, he sued AZCOR alone and was constrained to implead Filipinas Paso as additional respondent only when it became apparent that the latter also appeared to be his employer. In fine, we see in the totality of the evidence a veiled attempt by petitioners to deprive Capulso of what he had earned through hard labor by taking advantage of his low level of education and confusing him as to who really was his true employer - such a callous and despicable treatment of a worker who had rendered faithful service to their company. However, considering that private respondent died during the pendency of the case before this Court, reinstatement is no longer feasible. In lieu thereof, separation pay shall be awarded. With respect to the amount of back wages, it shall be computed from the time of private respondents illegal dismissal up to the time of his death. WHEREFORE, the petition is DISMISSED. The NLRC Decision of 12 September 1994 is MODIFIED. Petitioners AZCOR MANUFACTURING, INC., FILIPINAS PASO and ARTURO ZULUAGA are ORDERED to pay, jointly and solidarily, the heirs of private respondent Candido Capulso the amounts representing his back wages, inclusive of allowances and other benefits, and separation pay to be computed in accordance with law. SO ORDERED.

BA SAVINGS BANK, petitioner, vs. ROGER T. SIA, TACIANA U. SIA and JOHN DOE, respondents. DECISION PANGANIBAN, J.: The certificate of non-forum shopping required by Supreme Court Circular 28-91 may be signed, for and on behalf of a corporation, by a specifically authorized lawyer who has personal knowledge of the facts required to be disclosed in such document. Unlike natural persons, corporations may perform physical actions only through properly delegated individuals; namely, its officers and/or agents.
The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the August 6, 1997 Resolution [2] the Court of Appeals (CA) in CA-GR SP No. 43209. [3] Also challenged by petitioner is the October 24, 1997 CA Resolution denying its Motion for Reconsideration.
The Facts

[1]

of

On August 6, 1997, the Court of Appeals issued a Resolution denying due course to a Petition for Certiorari filed by BA Savings Bank, on the ground that the Certification on anti-forum shopping incorporated in the petition was signed not by the duly authorized representative of the petitioner, as required under Supreme Court Circular No. 28-91, but by its counsel, in contravention of said circular x x x. A Motion for Reconsideration was subsequently filed by the petitioner, attached to which was a BA Savings Bank Corporate [4] Secretarys Certificate, dated August 14, 1997. The Certificate showed that the petitioners Board of Directors approved a Resolution on May 21, 1996, authorizing the petitioners lawyers to represent it in any action or proceeding before any court, tribunal or agency; and to sign, execute and deliver the Certificate of Non-forum Shopping, among others. On October 24, 1997, the Motion for Reconsideration was denied by the Court of Appeals on the ground that Supreme Court Revised Circular No. 28-91 requires that it is the petitioner, not the counsel, who must certify under oath to all of the facts and undertakings required therein. [5] Hence, this appeal.
Issue

In its Memorandum, petitioner submits the following issues for the consideration of the Court: I Whether or not petitioner-corporations lawyers are authorized to execute and sign the certificate of non-forum shopping. x xx II Whether or not the certification of petitioners authorized lawyers will bind the corporation. III Whether or not the certification by petitioner corporations lawyers is in compliance with the requirements on non-forum [6] shopping. Simply stated, the main issue is whether Supreme Court Revised Circular No. 28-91 allows a corporation to authorize its counsel to execute a certificate of non-forum shopping for and on its behalf.
The Courts Ruling Main Issue:

The Petition is meritorious.

Authority of Counsel

A corporation, such as the petitioner, has no powers except those expressly conferred on it by the Corporation Code and those that are implied by or are incidental to its existence. In turn, a corporation exercises said powers through its board of directors and/or its duly authorized officers and agents. Physical acts, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate bylaws or by a specific act of the board of directors. All acts within the powers of a corporation may be performed by agents of its selection; and, except so far as limitations or restrictions which may be imposed by special charter, by-law, or statutory provisions, the same general principles of law which govern the relation of agency for a natural person govern the officer or agent of a corporation, of whatever status or rank, in respect to his power to act for the corporation; and agents once appointed, or members acting in their stead, are subject to the same rules, liabilities and incapacities [7] as are agents of individuals and private persons. In the present case, the corporations board of directors issued a Resolution specifically authorizing its lawyers to act as their agents in any action or proceeding before the Supreme Court, the Court of Appeals, or any other tribunal or agency[;] and to sign, execute and deliver in connection therewith the necessary pleadings, motions, verification, affidavit of merit, certificate of nonforum shopping and other instruments necessary for such action and proceeding. The Resolution was sufficient to vest such persons with the authority to bind the corporation and was specific enough as to the acts they were empowered to do. In the case of natural persons, Circular 28-91 requires the parties themselves to sign the certificate of non-forum shopping. However, such requirement cannot be imposed on artificial persons, like corporations, for the simple reason that they cannot personally do the task themselves. As already stated, corporations act only through their officers and duly authorized agents. In fact, physical actions, like the signing and the delivery of documents, may be performed, on behalf of the corporate entity, only by specifically authorized individuals. It is noteworthy that the Circular does not require corporate officers to sign the certificate. More important, there is no prohibition against authorizing agents to do so. In fact, not only was BA Savings Bank authorized to name an agent to sign the certificate; it also exercised its appointing authority reasonably well. For who else knows of the circumstances required in the Certificate but its own retained counsel. Its regular officers, like its board chairman and president, may not even know the details required therein. [8] Consistent with this rationale, the Court en banc in Robern Development Corporation v. Judge Jesus Quitain has allowed even an acting regional counsel of the National Power Corporation to sign, among others, the certificate of non-forum shopping required by Circular 28-91. The Court held that the counsel was in the best position to verify the truthfulness and the correctness of the [9] allegations in the Complaint and to know and to certify if an action x x x had already been filed and pending with the courts. Circular 28-91 was prescribed by the Supreme Court to prohibit and penalize the evils of forum shopping. We see no circumvention of this rationale if the certificate was signed by the corporations specifically authorized counsel, who had personal [10] knowledge of the matters required in the Circular. In Bernardo v. NLRC, we explained that a literal interpretation of the Circular should be avoided if doing so would subvert its very rationale. Said the Court:

x x x. Indeed, while the requirement as to certificate of non-forum shopping is mandatory, nonetheless the requirements must not be interpreted too literally and thus defeat the objective of preventing the undesirable practice of forum-shopping. [11] Finally, we stress that technical rules of procedure should be used to promote, not frustrate, justice. While the swift unclogging of court dockets is a laudable objective, the granting of substantial justice is an even more urgent ideal. WHEREFORE, the Petition is GRANTED and the appealed Resolution is REVERSED and SET ASIDE. The case is REMANDED to the Court of Appeals, which is directed to continue the proceedings in CA-GR SP No. 43209 with all deliberate speed. No costs. SO ORDERED.

CHESTER BABST, petitioner, vs. COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS, ELIZALDE STEEL CONSOLIDATED, INC., and PACIFIC MULTI-COMMERCIAL CORPORATION, respondents. DECISION YNARES-SANTIAGO, J.: These consolidated petitions seek the review of the Decision dated April 29, 1991 of the Court of Appeals in CA-G.R. CV No. [1] 17282 entitled, Bank of the Philippine Islands, Plaintiff-Appellee versus Elizalde Steel Consolidated, Inc., Pacific Multi-Commercial Corporation, and Chester G. Babst, Defendants-Appellants. The complaint was commenced principally to enforce payment of a promissory note and three domestic letters of credit which Elizalde Steel Consolidated, Inc. (ELISCON) executed and opened with the Commercial Bank and Trust Company (CBTC). On June 8, 1973, ELISCON obtained from CBTC a loan in the amount of P8,015,900.84, with interest at the rate of 14% per [2] annum, evidenced by a promissory note. ELISCON defaulted in its payments, leaving an outstanding indebtedness in the amount of [3] P2,795,240.67 as of October 31, 1982. The letters of credit, on the other hand, were opened for ELISCON by CBTC using the credit facilities of Pacific MultiCommercial Corporation (MULTI) with the said bank, pursuant to the Resolution of the Board of Directors of MULTI adopted on August 31, 1977 which reads: WHEREAS, at least 90% of the Companys gross sales is generated by the sale of tin-plates manufactured by Elizalde Steel Consolidated, Inc.; WHEREAS, it is to the best interests of the Company to continue handling said tin-plate line; WHEREAS, Elizalde Steel Consolidated, Inc. has requested the assistance of the Company in obtaining credit facilities to enable it to maintain the present level of its tin-plate manufacturing output and the Company is willing to extend said requested assistance; NOW, THEREFORE, for and in consideration of the foregoing premises --BE IT RESOLVED AS IT IS HEREBY RESOLVED, That the PRESIDENT & GENERAL MANAGER, ANTONIO ROXAS CHUA, be, as he is hereby empowered to allow and authorize ELIZALDE STEEL CONSOLIDATED, INC. to avail and make use of the Credit Line of PACIFIC MULTICOMMERCIAL CORPORATION with the COMMERCIAL BANK & TRUST COMPANY OF THE PHILIPPINES, Makati, Metro Manila; RESOLVED, FURTHER, That the Pacific Multi-Commercial Corporation guarantee, as it does hereby guarantee, solidarily, the payment of the corresponding Letters of Credit upon maturity of the same; RESOLVED, FINALLY, That copies of this resolution be furnished the Commercial Bank & Trust Company of the Philippines, Makati, [4] Metro Manila, for their information. [5] Subsequently, on September 26, 1978, Antonio Roxas Chua and Chester G. Babst executed a Continuing Suretyship, whereby they bound themselves jointly and severally liable to pay any existing indebtedness of MULTI to CBTC to the extent of P8,000,000.00 each. Sometime in October 1978, CBTC opened for ELISCON in favor of National Steel Corporation three (3) domestic letters of credit [6] [7] [8] in the amounts of P1,946,805.73, P1,702,869.32 and P200,307.72, respectively, which ELISCON used to purchase tin black plates from National Steel Corporation. ELISCON defaulted in its obligation to pay the amounts of the letters of credit, leaving an [9] outstanding account, as of October 31, 1982, in the total amount of P3,963,372.08. On December 22, 1980, the Bank of the Philippine Islands (BPI) and CBTC entered into a merger, wherein BPI, as the surviving [10] corporation, acquired all the assets and assumed all the liabilities of CBTC. Meanwhile, ELISCON encountered financial difficulties and became heavily indebted to the Development Bank of the Philippines (DBP). In order to settle its obligations, ELISCON proposed to convey to DBP by way of dacion en pago all its fixed assets mortgaged with DBP, as payment for its total indebtedness in the amount of P201,181,833.16. On December 28, 1978, ELISCON and [11] DBP executed a Deed of Cession of Property in Payment of Debt. In June 1981, ELISCON called its creditors to a meeting to announce the take-over by DBP of its assets. In October 1981, DBP formally took over the assets of ELISCON, including its indebtedness to BPI. Thereafter, DBP proposed formulas for the settlement of all of ELISCONs obligations to its creditors, but BPI expressly rejected the formula submitted to it for [12] not being acceptable. Consequently, on January 17, 1983, BPI, as successor-in-interest of CBTC, instituted with the Regional Trial Court of Makati, [13] Branch 147, a complaint for sum of money against ELISCON, MULTI and Babst, which was docketed as Civil Case No. 49226. [14] ELISCON, in its Answer, argued that the complaint was premature since DBP had made serious efforts to settle its obligations with BPI. Babst also filed his Answer alleging that he signed the Continuing Suretyship on the understanding that it covers only obligations which MULTI incurred solely for its benefit and not for any third party liability, and he had no knowledge or information [15] of any transaction between MULTI and ELISCON. MULTI, for its part, denied knowledge of the merger between BPI and CBTC, and averred that the guaranty under its board resolution did not cover purchases made by ELISCON in the form of trust receipts. It set up a cross-claim against ELISCON alleging [16] that the latter should be held liable for any judgment which the court may render against it in favor of BPI. [17] On February 20, 1987, the trial court rendered its Decision, the dispositive portion of which reads: WHEREFORE, in view of all the foregoing, the Court hereby renders judgment in favor of the plaintiff and against all the defendants: 1) Ordering defendant ELISCON to pay the plaintiff the amount of P2,795,240.67 due on the promissory note, Annex A of the Complaint as of 31 October 1982 and the amount of P3,963,372.08 due on the three (3) domestic letters of credit, also as of 31 October 1982; 2) Ordering defendant ELISCON to pay the plaintiff interests and related charges on the principal of said promissory note of P2,102,232.02 at the rates provided in said note from and after 31 October 1982 until full payment thereof, and on the principal of the three (3) domestic letters of credit of P3,564,349.25 interests and related charges at the rates provided in said letters of credit, from and after 31 October 1982 until full payment; 3) Ordering defendant ELISCON to pay interests at the legal rate on all interests and related charges but unpaid as of the filing of this complaint, until full payment thereof; 4) Ordering defendant ELISCON to pay attorneys fees equivalent to 10% of the total amount due under the preceding paragraphs; 5) Ordering defendants Pacific Multi-Commercial Corporation and defendant Chester Babst to pay, jointly and severally with defendant ELISCON, the total sum of P3,963,372.08 due on the three (3) domestic letters of credit as of 31 October 1982 with

interests and related charges on the principal amount of P3,963,372.08 at the rates provided in said letters of credit from 30 October 1982 until fully paid, but to the extent of not more than P8,000,000.00 in the case of defendant Chester Babst; 6) Ordering defendant Pacific Multi-Commercial Corporation and defendant Chester Babst to pay, jointly and severally plaintiff interests at the legal rate on all interests and related charges already accrued but unpaid on said three (3) domestic letters of credit as of the date of the filing of this Complaint until full payment thereof; 7) Ordering defendant Pacific Multi-Commercial Corporation and defendant Chester Babst to pay, jointly and severally, attorneys fees of not less than 10% of the total amount due under paragraphs 5 and 6 hereof. With costs. SO ORDERED. [18] In due time, ELISCON, MULTI and Babst filed their respective notices of appeal. On April 29, 1991, the Court of Appeals rendered the appealed Decision as follows: WHEREFORE, the judgment appealed from is MODIFIED, to now read (with the underlining to show the principal changes from the decision of the lower court) thus: 1) Ordering appellant ELISCON to pay the appellee BPI the amount of P2,731,005.60 due on the promissory note, Annex A of the Complaint as of 31 October 1982 and the amount of P3,963,372.08 due on the three (3) domestic letters of credit, also as of 31 October 1982; 2) Ordering appellant ELISCON to pay the appellee BPI interests and related charges on the principal of said promissory note of P2,102,232.02 at the rates provided in said note from and after 31 October 1982 until full payment thereof, and on the principal of the three (3) domestic letters of credit of P3,564,349.25 interests and related charges at the rates provided in said letters of credit, from and after 31 October 1982 until full payment; 3) Ordering appellant ELISCON to pay appellee BPI interest at the legal rate on all interests and related charges but unpaid as of the filing of this complaint, until full payment thereof; 4) Ordering appellant Pacific Multi-Commercial Corporation and appellant Chester G. Babst to pay appellee BPI, jointly and severally with appellant ELISCON, the total sum of P3,963,372.08 due on the three (3) domestic letters of credit as of 31 October 1982 with interest and related charges on the principal amount of P3,963,372.08 at the rates provided in said letters of credit from 30 October 1982 until fully paid, but to the extent of not more than P8,000,000.00 in the case of defendant Chester Babst; 5) Ordering appellant Pacific Multi-Commercial Corporation and defendant Chester Babst to pay, jointly and severally, appellee BPI interests at the legal rate on all interests and related charges already accrued but unpaid on said three (3) domestic letters of credit as of the date of the filing of this Complaint until full payment thereof and the plaintiffs lawyers fees in the nominal amount of P200,000.00; 6) Ordering appellant ELISCON to reimburse appellants Pacific Multi-Commercial Corporation and Chester Babst whatever amount they shall have paid in said Eliscons behalf particularly referring to the three (3) letters of credit as of 31 October 1982 and other related charges. No costs. [19] SO ORDERED. ELISCON filed a Motion for Reconsideration of the Decision of the Court of Appeals which was, however, denied in a Resolution [20] dated March 9, 1992. Subsequently, ELISCON filed a petition for review on certiorari, docketed as G.R. No. 104625, on the following grounds: A. THE BANK OF THE PHILIPPINE ISLANDS IS NOT ENTITLED TO RECOVER FROM PETITIONER ELISCON THE LATTERS OBLIGATION WITH COMMERCIAL BANK AND TRUST COMPANY (CBTC) B. THERE WAS A VALID NOVATION OF THE CONTRACT BETWEEN ELISCON AND BPI THERE BEING A PRIOR CONSENT TO AND APPROVAL BY BPI OF THE SUBSTITUTION BY DBP AS DEBTOR IN LIEU OF THE ORIGINAL DEBTOR, ELISCON, THEREBY RELEASING ELISCON FROM ITS OBLIGATION TO BPI. C. PACIFIC MULTI COMMERCIAL CORPORATION AND CHESTER BABST CANNOT LAWFULLY RECOVER FROM ELISCON WHATEVER AMOUNT THEY MAY BE REQUIRED TO PAY TO BPI AS SURETIES OF ELISCONS OBLIGATION TO BPI; THEIR CAUSE OF ACTION MUST BE DIRECTED AGAINST DBP AS THE NEWLY SUBSTITUTED DEBTOR IN PLACE OF ELISCON. D. THE DBP TAKEOVER OF THE ENTIRE ELISCON AMOUNTED TO AN ACT OF GOVERNMENT WHICH WAS A FORTUITOUS EVENT EXCULPATING ELISCON FROM FURTHER LIABILITIES TO RESPONDENT BPI. E. PETITIONER ELISCON SHOULD NOT BE HELD LIABLE TO PAY RESPONDENT BPI THE AMOUNTS STATED IN THE [21] DISPOSITIVE PORTION OF RESPONDENT COURT OF APPEALS DECISION. [22] BPI filed its Comment raising the following arguments, to wit: 1. Respondent BPI is legally entitled to recover from ELISCON, MULTI and Babst the past due obligations with CBTC prior to the merger of BPI with CBTC. 2. BPI did not give its consent to the DBP take-over of ELISCON. Hence, no valid novation has been effected. 3. Express consent of creditor to substitution should be recorded in the books. 4. Petitioner Chester G. Babst and respondent MULTI are jointly and solidarily liable to BPI for the unpaid letters of credit of ELISCON. 5. The question of the liability of ELISCON to BPI has been clearly established. 6. Since MULTI and Chester G. Babst are guarantors of the debts incurred by ELISCON, they may recover from the latter what they may have paid for on account of that guaranty. [23] Chester Babst filed a Comment with Manifestation, wherein he contends that the suretyship agreement he executed with Antonio Roxas Chua was in favor of MULTI; and that there is nothing therein which authorizes MULTI, in turn, to guarantee the obligations of ELISCON. [24] In its Comment, MULTI maintained that inasmuch as BPI had full knowledge of the purpose of the meeting in June 1981, wherein the takeover by DBP of ELISCON was announced, it was incumbent upon the said bank to formally communicate its objection to the assumption of ELISCONs liabilities by DBP in answer to the call for the meeting. Moreover, there was no showing that the availment by ELISCON of MULTIs credit facilities with CBTC, which was supposedly guaranteed by Antonio Roxas Chua, was indeed authorized by the latter pursuant to the resolution of the Board of Directors of MULTI. [25] In compliance with this Courts Resolution dated March 17, 1993, the parties submitted their respective memoranda. Meanwhile, in a petition for review filed with this Court, which was docketed as G.R. No. 99398, Chester Babst alleged that the Court of Appeals acted without jurisdiction and/or with grave abuse of discretion when:

1. IT AFFIRMED THE LOWER COURTS HOLDING THAT THERE WAS NO NOVATION INASMUCH AS RESPONDENT BANK OF THE PHILIPPINE ISLANDS (OR BPI) HAD PRIOR CONSENT TO AND APPROVAL OF THE SUBSTITUTION AS DEBTOR BY THE DEVELOPMENT BANK OF THE PHILIPPINES (OR DBP) IN THE PLACE OF ELIZALDE STEEL CONSOLIDATED, INC. (OR ELISCON) IN THE LATTERS OBLIGATION TO BPI. 2. IT CONFIRMED THE LOWER COURTS CONCLUSION THAT THERE WAS NO IMPLIED CONSENT OF THE CREDITOR BANK OF THE PHILIPPINE ISLANDS TO THE SUBSTITUTION BY DEVELOPMENT BANK OF THE PHILIPPINES OF THE ORIGINAL DEBTOR ELIZALDE STEEL CONSOLIDATED, INC. 3. IT AFFIRMED THE LOWER COURTS FINDING OF LACK OF MERIT OF THE CONTENTION OF ELISCON THAT THE FAILURE OF THE OFFICER OF BPI, WHO WAS PRESENT DURING THE MEETING OF ELISCONS CREDITORS IN JUNE 1981 TO VOICE HIS OBJECTION TO THE ANNOUNCED TAKEOVER BY THE DBP OF THE ASSETS OF ELISCON AND ASSUMPTION OF ITS LIABILITIES, CONSTITUTED AN IMPLIED CONSENT TO THE ASSUMPTION BY DBP OF THE OBLIGATIONS OF ELISCON TO BPI. 4. IN NOT TAKING JUDICIAL NOTICE THAT THE DBP TAKEOVER OF THE ENTIRE ELISCON WAS AN ACT OF GOVERNMENT CONSTITUTING A FORTUITOUS EVENT EXCULPATING ELISCON FROM ANY LIABILITY TO BPI. 5. IN NOT FINDING THAT THE DACION EN PAGO BETWEEN DBP AND BPI RELIEVED ELISCON, MULTI AND BABST OF ANY LIABILITY TO BPI. 6. IN FINDING THAT MULTI AND BABST BOUND THEMSELVES SOLIDARILY WITH ELISCON WITH RESPECT TO THE OBLIGATION INVOLVED HERE. 7. IN RENDERING JUDGMENT IN FAVOR OF BPI AND AGAINST ELISCON ORDERING THE LATTER TO PAY THE AMOUNTS STATED IN THE DISPOSITIVE PORTION OF THE DECISION; AND ORDERING PETITIONER AND MULTI TO PAY SAID AMOUNTS JOINTLY AND [26] SEVERALLY WITH ELISCON. Petitioner Babst alleged that DBP sold all of ELISCONs assets to the National Development Company, for the latter to take over and continue the operation of its business. On September 11, 1981, the Board of Governors of the DBP adopted Resolution No. 2817 which states that DBP shall enter into a contractual arrangement with NDC for the latter to pay ELISCONs creditors, including BPI in the amount of P4,015,534.54. This was followed by a Memorandum of Agreement executed on May 4, 1983 by and between DBP and NDC, wherein they stipulated, inter alia, that NDC shall pay to ELISCONs creditors, through DBP, the amount of P299,524,700.00. Among the creditors mentioned in the agreement was BPI, with a listed credit of P4,015,534.54. Furthermore, petitioner Babst averred that the assets of ELISCON which were acquired by the DBP, and later transferred to the NDC, were placed under the Asset Privatization Trust pursuant to Proclamation No. 50, issued by then President Corazon C. Aquino on December 8, 1986. [27] In its Comment, BPI countered that by virtue of its merger with CBTC, it acquired all the latters rights and interest including all receivables; that in order to effect a valid novation by substitution of debtors, the consent of the creditor must be express; that in addition, the consent of BPI must appear in its books, it being a private corporation; that BPI intentionally did not consent to the assumption by DBP of the obligations of ELISCON because it wanted to preserve intact its causes of action and legal recourse against Pacific Multi-Commercial Corporation and Babst as sureties of ELISCON and not of DBP; that MULTI expressly bound itself solidarily for ELISCONs obligations to CBTC in its Resolution wherein it allowed the latter to use its credit facilities; and that the suretyship agreement executed by Babst does not exclude liabilities incurred by MULTI on behalf of third parties, such as ELISCON. [28] ELISCON likewise filed a Comment, wherein it manifested that of the seven errors raised by Babst in his petition, six are arguments which ELISCON itself raised in its previous pleadings. It is only the sixth assigned error --- that the Court of Appeals erred in finding that MULTI and Babst bound themselves solidarily with ELISCON --- that ELISCON takes exception to. More particularly, ELISCON pointed out the contradictory positions taken by Babst in admitting that he bound himself to pay the indebtedness of MULTI, while at the same time completely disavowing and denying any such obligation. It stressed that should MULTI or Babst be finally adjudged liable under the suretyship agreement, they cannot lawfully recover from ELISCON, but from the DBP which had been substituted as the new debtor. [29] MULTI filed its Comment, admitting the correctness of the petition and adopting the Comment of ELISCON insofar as it is not inconsistent with the positions of Babst and MULTI. At the outset, the preliminary issue of BPIs right of action must first be addressed. ELISCON and MULTI assail BPIs legal capacity to recover their obligation to CBTC. However, there is no question that there was a valid merger between BPI and CBTC. It is settled that in the merger of two existing corporations, one of the corporations survives and continues the business, while the [30] other is dissolved and all its rights, properties and liabilities are acquired by the surviving corporation. Hence, BPI has a right to institute the case a quo. We now come to the primordial issue in this case whether or not BPI consented to the assumption by DBP of the obligations of ELISCON. Article 1293 of the Civil Code provides: Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in articles 1236 and 1237. BPI contends that in order to have a valid novation, there must be an express consent of the creditor. In the case of Testate [31] Estate of Mota, et al. v. Serra, this Court held: It should be noted that in order to give novation its legal effect, the law requires that the creditor should consent to the substitution of a new debtor. This consent must be given expressly for the reason that, since novation extinguishes the personality of the first debtor who is to be substituted by a new one, it implies on the part of the creditor a waiver of the right that he had before the novation, which waiver must be express under the principle of renuntiatio non prsumitur, recognized by the law in declaring that a waiver of right may not be performed [should read: presumed] unless the will to waive is indisputably shown by him who holds the [32] right. The import of the foregoing ruling, however, was explained and clarified by this Court in the later case of Asia Banking [33] Corporation v. Elser in this wise: The aforecited article 1205 [now 1293] of the Civil Code does not state that the creditors consent to the substitution of the new debtor for the old be express, or given at the time of the substitution, and the Supreme Court of Spain, in its judgment of June 16, 1908, construing said article, laid down the doctrine that article 1205 of the Civil Code does not mean or require that the creditors consent to the change of debtors must be given simultaneously with the debtors consent to the substitution, its evident purpose

being to preserve the creditors full right, it is sufficient that the latters consent be given at any time and in any form whatever, while the agreement of the debtors subsists. The same rule is stated in the Enciclopedia Jurdica Espaola, volume 23, page 503, which reads: The rule that this kind of novation, like all others, must be express, is not absolute; for the existence of the consent may well be inferred from the acts of the creditor, since volition may as well be expressed by deeds as by words. The understanding between Henry W. Elser and the principal director of Yangco, Rosenstock & Co., Inc., with respect to Luis R. Yangcos stock in said corporation, and the acts of the board of directors after Henry W. Elser had acquired said shares, in substituting the latter for Luis R. Yangco, are a clear and unmistakable expression of its consent. When this court said in the case of Estate of Motavs. Serra (47 Phil., 464), that the creditors express consent is necessary in order that there may be a novation of a contract by the substitution of debtors, it did not wish to convey the impression that the word express was to be given an unqualified [34] meaning, as indicated in the authorities or cases, both Spanish and American, cited in said decision. [35] Subsequently, in the case of Vda. e Hijos de Pio Barretto y Ca., Inc. v. Albo & Sevilla, Inc., et al., this Court reiterated the rule that there can be implied consent of the creditor to the substitution of debtors. In the case at bar, Babst, MULTI and ELISCON all maintain that due to the failure of BPI to register its objection to the take-over by DBP of ELISCONs assets, at the creditors meeting held in June 1981 and thereafter, it is deemed to have consented to the substitution of DBP for ELISCON as debtor. We find merit in the argument. Indeed, there exist clear indications that BPI was aware of the assumption by DBP of the obligations of ELISCON. In fact, BPI admits that --the Development Bank of the Philippines (DBP), for a time, had proposed a formula for the settlement of Eliscons past obligations to its creditors, including the plaintiff [BPI], but the formula was expressly rejected by the plaintiff as not acceptable (long before the [36] filing of the complaint at bar). The Court of Appeals held that even if the account officer who attended the June 1981 creditors meeting had expressed consent to the assumption by DBP of ELISCONs debts, such consent would not bind BPI for lack of a specific authority therefor. In its petition, ELISCON counters that the mere presence of the account officer at the meeting necessarily meant that he was authorized to represent BPI in that creditors meeting. Moreover, BPI did not object to the substitution of debtors, although it objected to the payment formula submitted by DBP. Indeed, the authority granted by BPI to its account officer to attend the creditors meeting was an authority to represent the bank, such that when he failed to object to the substitution of debtors, he did so on behalf of and for the bank. Even granting arguendo that the said account officer was not so empowered, BPI could have subsequently registered its objection to the substitution, especially after it had already learned that DBP had taken over the assets and assumed the liabilities of ELISCON. Its failure to do so can only mean an acquiescence in the assumption by DBP of ELISCONs obligations. As repeatedly pointed out by ELISCON and MULTI, BPIs objection was to the proposed payment formula, not to the substitution itself. BPI gives no cogent reason in withholding its consent to the substitution, other than its desire to preserve its causes of action and legal recourse against the sureties of ELISCON. It must be remembered, however, that while a surety is solidarily liable with the principal debtor, his obligation to pay only arises upon the principal debtors failure or refusal to pay. A contract of surety is an accessory promise by which a person binds himself for another already bound, and agrees with the creditor to satisfy the obligation [37] [38] if the debtor does not. A surety is an insurer of the debt; he promises to pay the principals debt if the principal will not pay. In the case at bar, there was no indication that the principal debtor will default in payment. In fact, DBP, which had stepped [39] into the shoes of ELISCON, was capable of payment. Its authorized capital stock was increased by the government. More importantly, the National Development Company took over the business of ELISCON and undertook to pay ELISCONs creditors, and [40] earmarked for that purpose the amount of P4,015,534.54 for payment to BPI. Notwithstanding the fact that a reliable institution backed by government funds was offering to pay ELISCONs debts, not as mere surety but as substitute principal debtor, BPI, for reasons known only to itself, insisted in going after the sureties. The course of action chosen taxes the credulity of this Court. At the very least, suffice it to state that BPIs actuation in this regard runs counter to the good faith covenant in contractual relations, provided for by the Civil Code, to wit: ART. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. ART. 1159. Obligations arising from contract have the force of law between the contracting parties and should be complied with in good faith. BPIs conduct evinced a clear and unmistakable consent to the substitution of DBP for ELISCON as debtor. Hence, there was a valid novation which resulted in the release of ELISCON from its obligation to BPI, whose cause of action should be directed against DBP as the new debtor. Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement. An extinctive novation results either by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal). Under this mode, novation would have dual functions one to extinguish an existing obligation, the other to substitute a new one in its place requiring a conflux of four essential requisites, (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new [41] obligation. The original obligation having been extinguished, the contracts of suretyship executed separately by Babst and MULTI, being [42] accessory obligations, are likewise extinguished. Hence, BPI should enforce its cause of action against DBP. It should be stressed that notwithstanding the lapse of time within which these cases have remained pending, the prescriptive period for BPI to file its action was interrupted when it filed Civil Case [43] No. 49226. WHEREFORE, the consolidated petitions are GRANTED. The appealed Decision of the Court of Appeals, which held ELISCON, MULTI and Babst solidarily liable for payment to BPI of the promissory note and letters of credit, is REVERSED and SET ASIDE. BPIs complaint against ELISCON, MULTI and Babst is DISMISSED. SO ORDERED.

BAGUIO MIDLAND COURIER, REPRESENTED BY ITS PRESIDENT AND GENERAL MANAGER, OSEO HAMADA AND CECILLE AFABLE, TH EDITOR-IN-CHIEF, petitioners, vs. THE COURT OF APPEALS (FORMER SP, 6 DIVISION) AND RAMON LABO, JR., respondents. DECISION CHICO-NAZARIO, J.: [1] This is a petition for review on certiorari seeking to set aside the Decision of the Court of Appeals, dated 07 January 1992, and [2] the Resolution, dated 29 September 1992, reversing the decision of the Regional Trial Court (RTC), dated 14 June 1990, which dismissed herein private respondents claim for damages. Culled from the records are the following facts: During the time material to this case, petitioner Oseo C. Hamada (Hamada) was the president and general manager of the Baguio Printing and Publishing Co., Inc., which publishes the Baguio Midland Courier, a weekly newspaper published and circulated in Baguio City and other provinces within the Cordillera region. He was also, at that time, the business manager of said newsweekly. Petitioner Cecille Afable (Afable) was Baguio Midland Couriers editor-in-chief and one of its columnists who ran the column In and Out of Baguio. On the other hand, private respondent Ramon L. Labo, Jr., was among the mayoralty candidates in Baguio City for the 18 [3] January 1988 local elections. Prior to this, in 1984, private respondent had already embarked on a political career by running for a seat in the formerBatasang Pambansa during which time he appointed a certain Benedicto Carantes (Carantes) as his campaign manager. It appears that as part of the campaign propaganda for private respondent in the 1984 local elections, political ads appeared in the various issues of Baguio Midland Courier and campaign paraphernalia were printed by Baguio Printing and Publishing Co., Inc., on his behalf. Apart from his political endeavors, private respondent was also an active member of the civic group Lions Club having been elected governor of said organization in 1984, 1986, and 1988. Before the 18 January 1988 local elections, petitioner Afable wrote in her column a series of articles dealing with the candidates for the various elective positions in Baguio City. Quoted hereunder are excerpts from said articles, as well as the respective dates when they were published in the Baguio Midland Courier January 3, 1988 . . . Of all the candidates for mayor, Labo has the most imponderables about him, people would ask, Can he read and write? Why is he always talking about his Japanese father-in-law? Is he really a Japanese Senator or a barrio kapitan? Is it true that he will send P18 million aid to Baguio? Somebody wanted to put an advertisement of Labo in the Midland Courier but was refused because he has not yet paid his account of the last time he was a candidate for Congress. We will accept all advertisements for him if he pays [4] his old accounts first. January 10, 1988 I heard that the Dumpty in the egg is campaigning for Cortes. Not fair. Some real doctors are also busy campaigning against Labo, because he has not also paid their medical services with them. Since he is donating millions he should settle his small debts like the reportedly insignificant amount of P27,000 only. If he wins several teachers were signifying to resign and leave Baguio forever, and [5] Pangasinan will be the franca-liqua of Baguio. Claiming that the aforequoted portions of petitioner Afables column were tainted with malice, private respondent instituted separate criminal and civil actions for libel against herein petitioners. In a resolution, dated 26 December 1988, the Department of [6] Justice dismissed the criminal case due to insufficiency of evidence while the civil suit was raffled off to RTC, Branch 6, Baguio City. In the complaint for damages, private respondent alleged that in her 03 January 1988 and 10 January 1988 columns, petitioner Afable made it appear that he (private respondent) could not comply with his financial obligations; that Yuko Narukawa Labo (Narukawa Labo), his co-plaintiff in the case before the trial court, was accused of misrepresenting her social status to the general public thereby subjecting her to public ridicule; that the subject articles were written solely for the purpose of destroying his reputation, integrity, and personality as well as that of Ms. Narukawa Labo; and that said articles were false, untrue, libelous, and published with evil intent. Private respondent and Ms. Narukawa Labo, therefore, prayed for moral damages, exemplary damages, litigation expenses, attorneys fees, and costs of litigation. [7] Prior to filing their respective answers, petitioners filed separate motions to dismiss upon the ground that there was failure to [8] comply with Section 6 of Presidential Decree (P.D.) No. 1508, otherwise known as the Katarungang Pambarangay Law, which required the referral of certain disputes to the barangay conciliation process before they are filed in court. Petitioner Hamada also claimed that the complaint stated no cause of action. On 05 April 1988, private respondent and Ms. Narukawa Labo filed a motion with leave of court to amend and admit attached [9] [10] amended complaint. Impleaded in the amended complaint was the Baguio Printing and Publishing Co., Inc., as the publisher of the Baguio Midland Courier. [11] In its Order, dated 12 April 1988, the trial court denied petitioners motions to dismiss. According to the trial court, as one of the parties to this case was a corporation, P.D. No. 1508 was not applicable as said statute pertained only to actions involving natural persons. In the same order, the trial court granted private respondent and Ms. Narukawa Labos motion to admit their amended complaint and directed the petitioners to file their answers. [12] In their answer, petitioners Baguio Midland Courier and Hamada denied that petitioner Afables 03 and 10 January 1988 articles were libelous. They also claimed that per their companys records, private respondent still owed them a certain sum of money for the political ads and campaign paraphernalia printed by Baguio Printing and Publishing Co., Inc., during private respondents 1984 campaign, and that the 03 January 1988 column did not accuse Ms. Narukawa Labo of misrepresenting herself before the public. Moreover, they asserted that petitioner Afables write-ups were fair comments on facts and reports that were of public interest as private respondent was a mayoralty candidate at that time. Finally, petitioners Baguio Midland Courier and Hamada interposed counterclaims for moral damages, exemplary damages, attorneys fees, and costs. [13] In her answer, petitioner Afable also denied that the quoted portions of her 03 and 10 January 1988 column were libelous, [14] insisting that they were devoid of malice and at most contained valid and timely doubts. She also contended that the contents of her column were protected by the constitutional guarantees of freedom of speech and of the press and that the same were privileged as they dealt with a public figure. Petitioner Afable likewise sought counterclaims for moral damages, exemplary damages, and attorneys fees.

During the pre-trial of the case on 31 March 1989, the parties agreed to limit the issues to the following: (1) whether the published items were libelous, false and malicious; (2) whether plaintiffs below were entitled to damages; and (3) whether petitioners (defendants therein) were entitled to damages as claimed in their respective counterclaims. On 17 July 1989, private respondents counsel manifested before the trial court that Ms. Narukawa Labo would no longer [15] testify in support of the allegations in the amended complaint as far as they pertain to her. In addition, the 03 January 1988 article was no longer offered in evidence by the private respondents counsel thus, the trial court interpreted this development to mean that the same ceased to be a part of this suit. The court a quo thereafter proceeded with the trial of the case taking into consideration only the 10 January 1988 column. In the trial that ensued, private respondent testified that he felt that the phrase dumpty in the egg referred to him, [16] interpreting the same to mean someone who is a failure in his business undertakings. Private respondent asserted that such allegation was baseless as he was successful in his various endeavors abroad. With regard to the remainder of the article, private respondent insisted that petitioner Afable made it appear to the public that he owed P27,000 in unpaid medical expenses while in [17] truth, he could not remember having been hospitalized. Subsequently, private respondent presented Dr. Pedro Rovillos, his fellow Lions Club member, who testified that he [18] understood the term dumpty in the egg to mean a zero or a big lie. He further testified that the 10 January 1988 article [19] painted private respondent as abalasubas due to the latters alleged failure to pay his medical expenses. On the other hand, the petitioners presented Ms. Sylvia Lambino (Lambino), Baguio Printing and Publishing Co., Inc.s, bookkeeper and accountant, as their first witness. According to Lambino, Baguio Printing and Publishing Co., Inc., sent several statements of accounts and demand letters to private respondent pertaining to his unpaid obligations amounting to P27,415 which [20] he incurred during his campaign for theBatasang Pambansa in 1984. She further testified that despite the repeated demands to [21] private respondent, the aforementioned obligations remained unpaid. Thereafter, petitioner Hamada himself took the witness stand. In his testimony, petitioner Hamada stated that as the president and general manager of the Baguio Printing and Publishing Co., Inc., and as the business manager of the Baguio Midland Courier, he only dealt with the business and advertising aspects of their newspaper business and that the contents of the articles [22] appearing in the pages of the Baguio Midland Courier were overseen by the rest of the staff. In addition, petitioner Hamada also corroborated the earlier testimony of Lambino with respect to the outstanding obligations of private respondent. On 20 December 1989, Carantes took the witness stand for the petitioners. Carantes testified that he was appointed as private respondents campaign manager when the latter ran for assemblyman in Batasang Pambansa in 1984 and that in his capacity as [23] campaign manager, he hired the services of a certain Noli Balatero to oversee the printing of campaign paraphernalia and [24] publication of political advertisements of private respondent. Carantes further testified that the P27,415 indebtedness to Baguio Printing and Publishing Co., Inc., had remained unpaid because the campaign funds private respondent entrusted to him were already fully exhausted. Besides, according to Carantes, the campaign materials printed by the Baguio Printing and Publishing Co., Inc., and political advertisements published in Baguio Midland Courier were no longer covered by the agreement he had with Balatero. However, these materials were printed and published upon the instructions of one Atty. Conrado Bueno who acted as private respondents unofficial campaign manager during the said election. Carantes thus concluded that private respondent was supposed to pay for these campaign materials and advertisements before or after the 1984 election. For her part, petitioner Afable acknowledged having written the 10 January 1988 article but denied that the same was malicious and intended to destroy private respondents reputation and integrity; that the phrase dumpty in the egg referred to Horato Aquino who was among the candidates for the 1988 local elections in Baguio City; and that the P27,000 pertained to private respondents unpaid obligation to Baguio Printing and Publishing Co., Inc., the exact amount of which was P27,415. In its decision, dated 14 June 1990, the trial court dismissed the complaint for lack of merit. According to the trial court, the article in question was privileged and constituted fair comment on matters of public interest as it dealt with the integrity, reputation, and honesty of private respondent who was a candidate for local elective office at that time. This decision of the trial court was, however, reversed by the appellate court in a decision, dated 07 January 1992, the dispositive portion of which reads: Construed in the light of the facts and the principles on the matter, and under the plain language of the applicable law, We hold that the evidence was sufficient to prove by preponderance of evidence that the defendants were GUILTY of committing libel on the person of the complainant Ramon Labo, Jr. and should be liable to pay damages. The decision of the trial court is hereby REVERSED and SET ASIDE and the defendants are hereby ordered to pay the plaintiffs as follows: 1) The amount of P200,000.00 as moral damages; 2) The amount of P100,000.00 as exemplary damages; [25] 3) The amount of P50,000.00 for attorneys fees plus costs of litigation. In brushing aside the conclusion reached by the trial court, the Court of Appeals noted that private respondent was, at the time the article in question was published, not a public official but a private citizen seeking an elective office and petitioner Afables article was intended to impeach his honesty, virtue or reputation and to make him appear in the eyes of the public as unfit for public office. The appellate court also declared that the malicious nature of the article may be deduced from the fact that it was published in the Baguio Midland Courier a few days before the scheduled local elections and from the style and tone of writing employed by petitioner Afable. According to the Court of Appeals, while the entire article was composed of ten paragraphs and referred to several unnamed personalities, it was only in the disputed paragraph where a specific individual was named herein private respondent. The appellate court therefore concluded that the phrase dumpty in the egg could only refer to private respondent and the claimed P27,000 indebtedness is imputable solely to him. [26] Petitioners thereafter filed their respective motions for reconsideration of the aforementioned decision of the Court of [27] Appeals but these were denied through a resolution of the appellate court, dated 29 September 1992. Thus, petitioners now come before us raising the following issues: I THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THERE IS GOOD REASON AND REASONABLE GROUND TO ASSUME THAT THE PUBLICATION OF THE LIBELOUS ARTICLES WAS A MANIFESTATION OF THE SPOUSES (DEFENDANTS OSEO HAMADA and CECILLE AFABLE) THINKING ON THE MERIT OR DEMERIT OF CANDIDATES FOR BAGUIO CITY MAYOR FOR THE JANUARY 18, 1988 ELECTIONS SINCE THEY ARE NOT SPOUSES NOR RELATED TO ONE ANOTHER.

II THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT PLAINTIFF-APPELLANT RAMON LABO, JR. WAS THE ONE REFERRED TO AS THE DUMPTY IN THE EGG. III THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT THE PORTION OF THE SUBJECT ARTICLE WHICH STATES THAT SINCE HE IS DONATING MILLIONS HE SHOULD SETTLE HIS SMALL DEBTS LIKE THE REPORTEDLY INSIGNIFICANT AMOUNT OF P27,000.00 REFERS TO AN INDEBTEDNESS OF LABO TO THE REAL DOCTORS AND NOT TO THE BAGUIO MIDLAND COURIER. IV THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THERE WAS MALICE WHEN THE DEFENDANT-APPELL(ANT) CECILLE AFABLE INVITED PUBLIC ATTENTION ON LABOS PRIVATE LIFE BEING A CANDIDATE FOR THE HIGHEST PUBLIC OFFICE IN THE CITY OF BAGUIO OR THAT THE DEFENDANTS WERE ACTUALLY NOT MOTIVATED BY GOOD AND JUSTIFIABLE ENDS IN PUBLISHING SAID ARTICLES ABOUT THE PRIVATE RESPONDENT. V THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN REVERSING THE DECISION OF THE TRIAL COURT DISMISSING THE [28] COMPLAINT FOR LACK OF MERIT. In a manifestation dated 10 November 1993, we were informed of the death of petitioner Hamada. In our resolution of 08 [29] December 1993, we resolved to substitute the estate of Oseo C. Hamada, for the deceased petitioner Hamada. The Courts Ruling We shall first address the contention of petitioners with regard to alleged errors of facts committed by the Court of Appeals. [30] While we adhere to the principle that findings of fact of the appellate court are binding and conclusive upon us, such adherence has not prevented this Court from setting aside the findings of fact of the Court of Appeals when circumstances so warrant. In the [31] recent case of The Insular Life Assurance Company, Ltd. v. Court of Appeals and Sun Brothers & Company, this Court had the occasion to enumerate the exceptions to the general rule as regards the conclusiveness of the findings of fact of the appellate court, to wit: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to 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 and reply briefs are not disputed by the respondent; (10) when the findings of facts are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if [32] properly considered, would justify a different conclusion. In the case at bar, except for numbers (1), (6), (9), and (10), all of the above exceptions are present. First. Contrary to the findings of the Court of Appeals that private respondent was the only candidate named in petitioner Afables column on 10 January 1988, said article actually dealt with the other named candidates for the 1988 local elections in Baguio City and Benguet. A perusal of said article would likewise reveal that it contained not only the opinion of petitioner Afable regarding private respondent but also her take on the other issues involving the other candidates. It would be grave error to impute malice on the subject article based upon a finding that private respondent was unduly singled out by petitioner Afable in her column. In this regard, we dismiss the following conclusion of the appellate court: . . . Malice may also be inferred from the style and tone of the publication. The entire column on In and Out of Baguio on January 10 was composed of ten paragraphs and each paragraph featured or referred to a single person without knowing the person; however, in the second paragraph which mentions the non-payment of P27,000.00, the complainant [private respondent herein] was specifically mentioned in name; hence, no amount of reasoning would erase the fact that the dumpty in the egg was referring to [33] Labo. (Emphasis supplied) Second. From the abovequoted portion of the Court of Appeals ruling, it is daylight clear that the appellate court assumed that since the name of private respondent and the phrase dumpty in the egg appeared in the same paragraph, the epithet referred only to the former. We cannot, however, subscribe to such simplistic deduction. A perusal of the paragraph in question easily reveals that the person alluded to by petitioner Afable in her use of dumpty in the egg was someone who was campaigning for a certain Atty. Reynaldo Cortes - one of the mayoralty candidates in Baguio City at that time. If, indeed, dumpty in the egg referred to private respondent, it follows that he campaigned for his own opponent during the 1988 local elections. Although such gracious attitude on the part of private respondent towards his political opponent would have been commendable, nevertheless, the same is totally contrary to human experience. On this score, we uphold the following argument of petitioners: Clearly, the private respondent was hallucinating when he claims himself as the person referred to as the Dumpty in the egg. Otherwise, he would be the one making a mockery out of himself for campaigning against himself and in favor of his political opponent. Had he done that, it is doubtful whether he could have won as City Mayor of Baguio in the 1988 elections, which he [34] actually did. Third. In its assailed decision, the Court of Appeals likewise highlighted the fact that petitioners Hamada and Afable were husband and wife and went on to conclude, albeit erroneously, that (t)here is good reason and reasonable ground to assume that the publication of the libelous article was a manifestation of the spouses thinking on the merit or demerit of candidates for Baguio [35] City mayor for the 18 January 1988 elections. Again, we disagree in this conclusion of the appellate court. The records of this case clearly establish the fact that petitioners Hamada and Afable were siblings and not spouses in that during his testimony on 19 [36] December 1989, petitioner Hamada referred to petitioner Afable as his sister. The Court of Appeals supposition, therefore, that the article subject of this petition reflected the stance of the husband and wife team of the petitioners utterly lacks factual support. Having addressed the factual issues of this case, we shall now proceed to discuss its substantive question of whether the 10 January 1988 article of petitioner Afable was defamatory. It is a basic precept that in cases involving claims for damages arising out of alleged defamatory articles, it is essential that the [37] alleged victim be identifiable although it is not necessary that he be named. It is enough if by intrinsic reference the allusion is apparent or if the publication contains matters of descriptions or reference to facts and circumstances from which others reading

the article may know the plaintiff was intended, or if extraneous circumstances point to him such that persons knowing him could [38] and did understand that he was the person referred to. [39] In the case of Borjal v. Court of Appeals, this Court declared that *i+t is also not sufficient that the offended party recognized himself as the person attacked or defamed, but it must be shown that at least a third person could identify him as the object of the [40] libelous publication. Plainly, private respondent has the bounden duty to present before the court evidence that a third person could easily identify him as the person libeled. In this case, private respondent has utterly failed to dispose of this responsibility. To be sure, private respondents lone witness, Dr. Rovillos, was able to offer his own understanding of what the phrase [41] dumpty in the egg meant. However, during his cross-examination, he failed to sufficiently explain before the court a quo how he arrived at the conclusion that the term referred to private respondent, thus: Q Now, you said you read this first sentence that says: I heard that the Dumpty in the egg is campaigning for Cortes. Then you gave us what you thought was the meaning of Dumpty in the egg. You did not tell us, however, whether you thought that was Ramon Labo or somebody else. Could you tell us, Doctor, when you heard that, you understood that to be Ramon Labo? A That is what I understand. Q You understood that to be Ramon Labo because a dumpty in the egg means a big zero. Why? You consider Labo a big zero that is why you understood him to be referred to when Cecille C. Afable said dumpty in the egg? A That is what I understand. Q You also said a dumpty in the egg is a big lie. You consider Ramon Labo a big lie that you also thought he was referred to as dumpty in the egg? A No, sir. Q In fact, Ramon Labo, in your assessment, is the exact opposite of a dumpty [in] the egg? A That I cannot answer. A So, from your honest perception, some this this Labo (sic) is a big zero or a big lie that is why you cannot say he is the exact opposite? [42] A Maybe. This Court finds Dr. Rovilloss proposition as to what dumpty in the egg meant is insufficient to support any finding of liability on the part of the petitioners as he was unable to offer an iota of justification for his conclusion that it pertained to private respondent. The Court of Appeals also maintained that petitioners could not invoke public interest in their defense. It ruled that *a+n abuse of the freedom of speech and the press should not be tolerated and encouraged if the article published transcends the limit of decent, fair and impartial news reporting and instead becomes a bludgeon or a scalpel to brow beat or slice into shreds a private [43] citizen, of his rights to his good name. We do not agree. Concededly, private respondent was not yet a public official at the time the 10 January 1988 article was published. Nevertheless, this fact does not remove said article from the mantle of protection guaranteed by the freedom of expression [44] provision of the Constitution. Indeed, as early as 1909, in the case of United States v. Sedano, this Court had recognized the publics right to be informed on the mental, moral, and physical fitness of candidates for public office. [45] Subsequently, in the leading case of New York Times Co. vs. Sullivan, the US Supreme Court expounded on this principle, viz: . . . It is of the utmost consequence that the people should discuss the character and qualifications of candidates for their suffrages. The importance to the state and to society of such discussions is so vast, and the advantages derived are so great, that they more than counterbalance the inconvenience of private persons whose conduct may be involved, and occasional injury to the reputations of individuals must yield to the public welfare, although at times such injury may be great. The public benefit from publicity is so great, and the chance of injury to private character so small, that such discussion must be privileged. ... In such a case the occasion gives rise to a privilege, qualified to this extent: any one claiming to be defamed by the communication must show actual malice or go remediless. The privilege extends to a great variety of subjects, and includes matters of public [46] concern, public men, and candidates for office. Plainly, the rule only applies to fair comment on matters of public interest, fair comment being that which is true, or which if [47] false, expresses the real opinion of the author based upon reasonable degree of care and on reasonable grounds. The principle, therefore, does not grant an absolute license to authors or writers to destroy the persons of candidates for public office by exposing the latter to public contempt or ridicule by providing the general public with publications tainted with express or actual malice. In the latter case, the remedy of the person allegedly libeled is to show proof that an article was written with the authors knowledge that it was false or with reckless disregard of whether it was false or not. While the law itself creates the presumption that every [48] defamatory imputation is malicious, nevertheless, the privileged character of a communication destroys said presumption. The [49] burden of proving actual malice shall then rest on the plaintiff, private respondent herein. In the present case, private respondent was unable to prove that petitioner Afables column was tainted with actual malice. Verily, the records are replete with evidence that, indeed, private respondent incurred an obligation which had remained unpaid until the time the questioned article was published. While counsel for private respondent persistently harped at the difference between the P27,000 which appeared in petitioner Afables column and the P27,415 actual indebtedness of private respondent to Baguio Printing and Publishing Co., Inc., the minuscule difference in the amount fails to establish reckless disregard for truth on the part of petitioners. As held by this Court in the Borjalcase Even assuming that the contents of the articles are false, mere error, inaccuracy or even falsity alone does not prove actual malice. Errors or misstatements are inevitable in any scheme of truly free expression and debate. Consistent with good faith and reasonable care, the press should not be held to account, to a point of suppression, for honest mistakes or imperfections in the choice of language. There must be some room for misstatement of fact as well as for misjudgment. Only by giving them much leeway and [50] tolerance can they courageously and effectively function as critical agencies in our democracy. Lastly, we hold that petitioner Afables article constitutes a fair comment on a matter of public interest as it dealt with the character of private respondent who was running for the top elective post in Baguio City at the time. Considering that private respondent assured his would-be constituents that he would be donating millions of his own money, petitioner Afables column with respect to private respondents indebtedness provided the public with information as regards his financial status which, in all

probability, was still unbeknownst to them at that time. Indeed, the information might have dissuaded some members of the electorate from voting in favor of private respondent but such is the inevitable result of the application of the law. The effect would have been adverse to the private respondent but public interest in this case far outweighs the interest of private respondent. WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals, dated 07 January 1992, and its Resolution, dated 29 September 1992, denying reconsideration are REVERSED and SET ASIDE, and the trial courts Decision of 14 June 1990 is AFFIRMED. No costs. SO ORDERED.

IRINEO S. BALTAZAR, plaintiff-appellee, vs. LINGAYEN GULF ELECTRIC POWER, CO., INC., DOMINADOR C. UNGSON, BRIGIDO G. ESTRADA, MANUEL L. FERNANDEZ, BENEDICTO C. YUSON and BERNARDO ACENA, defendants-appellants. PAREDES, J.: In Civil Case G.R. No. L-16236 (CFI No. 13211), Irineo S. Baltazar, filed the complaint against Lingayen Gulf Electric Power Co., Inc., Dominador C. Ungson, Brigido G. Estrada, Manuel L. Fernandez, Benedicto C. Yuson and Bernardo Acena. In Civil Case G.R. No. L-16237 (CFI No. 13212), Marvin O. Rose filed the complaint against the same defendants. In Civil Case G.R. No. L-16238 (CFI No. 13340), Baltazar and Rose filed their complaint against Bernardo Acena alone. The Lingayen Gulf Electric Power Co., Inc., hereinafter referred to as Corporation, was doing business in the Philippines, with principal offices at Lingayen, Pangasinan, and with an authorized capital stock of P300.000.00 divided into 3,000 shares of voting stock at P100.00 par value, per share. Plaintiffs Baltazar and Rose were among the incorporators, having subscribed to 600 and 400 shares of the capital stock, or a total par value of P60,000.00 and P40.000.00, respectively. It is alleged that it has always been the practice and procedure of the Corporation to issue certificates of stock to its individual subscribers for unpaid shares of stock. Of the 600 shares of capital stock subscribed by Baltazar, he had fully paid 535 shares of stock, and the Corporation issued to him several fully paid up and non-assessable certificates of stock, corresponding to the 535 shares. After having made transfers to third persons and acquired new ones, Baltazar had to his credit, on the filing of the complaint 341 shares fully paid and non-assessable. He had also 65 shares with par value of P6,500.00, for which no certificate was issued to him. Of the 400 shares of stock subscribed by Rose, he had 375 shares of fully paid stock, duly covered by certificates of stock issued to him. The respondents Ungson, Estrada, Fernandez and Yuson were small stockholders of the Corporation, all holding a total number of fully paid-up shares of stock, of not more than 100 shares, with a par value of P10,000.00 and the defendant Acena, was likewise an incorporator and stockholder, holding 600 shares of stock, for which certificate of stock were issued to him and as such, was the largest individual stockholder thereof. Defendants Ungson, Estrada, Fernandez and Yuzon, constituted the majority of the holdover seven-member Board of Directors of the Corporation, in 1955, two (2) of said defendants having been elected as members of the Board in the annual stockholders' meeting held in May 1954, largely on the vote of their co-defendant Acena, while the other two (2) were elected mainly on the vote of the plaintiffs and their group of stockholders. Let the first group be called the Ungson group and the second, the Baltazar group. The date of the annual stockholders' meeting of the Corporation had been fixed, under its by-laws, on the first Tuesday of February of every year, but for one reason or another, the meeting was to be held on May 1, 1955, principally for the purpose of electing new officers and Board of Directors for the calendar year 1955. In connection with said meeting since January 1, 1955, there was a realignment effected, and the fight for control of the management and property of the corporation was close and keen. The total number of fully paid-up shares held by stockholders of one group, was almost equal the number of fully paid-up shares held by the other group. The Ungson group (specially defendant Acena), which had been in complete control of the management and property of the Corporation since January 1, 1955, in order to continue retaining such control, over the objection oil three majority members of the Board, in the regular meeting of the Board of Directors, held on January 30, 1955, passed three (3) resolutions (Exhs. A, B, C). Resolution No. 2 (Exh. A), declared all watered stocks issued to Acena, Baltazar, Rose and Jubenville, "of no value and consequently cancelled from the books of the Corporation. Resolution No. 3 (Exh. B) resolved that "... all unpaid subscriptions should bear interest annually from the year of subscription on the basis of quarterly payment, and any or all payments already made on said unpaid subscriptions should be credited to pay interest first, then the capital debt after all interest is fully paid. All shares of stock issued to and in favor of any stockholder or stockholders of the Lingayen Gulf Electric Power Co., Inc., on account of payments on unpaid subscriptions without the interest thereon accrued and collectible having been fully paid from the date of subscription as required by the Corporation Law, shall be declared of no value and cancelled from its books, and if the payments already made exceeded the interest accrued and collectible by virtue of the provision of law and the previous resolution of its board of directors, the excess should be applied to the payment of the unpaid subscription. For this purpose, the accountant of the corporation is directed to make and report the proper computation of the interest. Resolution No. 4 (Exh. C) resolved that "any and all shares of stock of the Lingayen Gulf Electric Power Co., Inc., issued as fully paidup to stockholders whose subscription to a number of shares have been declared delinquent with the accrued interest on the unpaid thereof per Resolution No. 42, S. 1954, of the Board of Directors which has been duly published in the "Manila Chronicle," are hereby incapacitated to utilize or avail of the voting power until such delinquency with the accrued interest is fully paid up as indicated in Resolution No. 3, S. 1955. On the authority of these resolutions, the Ungson group was threatening and procuring to expel and oust the plaintiffs and their companion stockholders, for the ultimate purpose of depriving them of their right to vote in the said annual stockholders' meeting scheduled for May 1, 1955. In their complaint, Baltazar and Rose prayed that a writ of preliminary injunction be issued against the defendants, enjoining them to desist and refrain from carrying out the objects and purposes of the three resolutions aforestated, and commanding them to allow plaintiffs and companions to vote in the stockholders' meeting, on May 1, 1955, their fully paid up shares of stocks, as evidenced by stock certificates issued to them and outstanding on the stock book of the defendant Corporation, on or before January 30, 1955, to declare said three resolutions illegal and invalid, and to pay plaintiffs the sum of P10,000.00 each, as damages. On April 29, 1955, the trial court, after due hearing, issued Preliminary Injunction, as prayed for. The defendants, in their answers, allege that during the years that plaintiffs and their allies were in control of the Corporation, no serious effort was attempted to retrieve it from its financial collapse, caused by accumulated indebtedness and by poor and inefficient management, resulting in losses of big sums of money from vicious manipulation of funds, nepotism, unconscionable grant of big salaries and allowances, illegal payments, unaccounted funds of Caltex business and sales department store, etc.; that during the time the management was in the hands of plaintiffs (Rose, as manager); attempts were made to release themselves from liability of their unpaid subscriptions; that the three resolutions were merely functional instruments to bolster the faith in the assets of the defendant Corporation and did not deprive the plaintiffs of their property without due process of law; that the issuance of a writ of injunction for the purpose of arresting the holding of the election of the Board, was beyond the jurisdiction of the court. They

set up counterclaims. They prayed that the resolutions be declared legal and valid, thus invalidating the "watered stocks" of plaintiffs, if not paid, and disqualifying the delinquent subscribers, among whom were the plaintiffs, from voting totally or partially, their subscriptions; to order plaintiffs to pay the defendant Corporation first, the interest due and payable quarterly at 6% per annum from January 11, 1946 to December 31, 1954, on their liability under their delinquent subscriptions, out of the installment made therein; to pay defendant entity damages under the counterclaims and expenses for the enforcement of the collection; and that after complete payment of the interests and the balance of their unpaid subscriptions, the defendant Corporation should issue the shares of stock to plaintiffs for their full subscription. Plaintiffs filed their answer to defendants' counterclaims, with counterclaims against defendants. On August 8, 1955, the lower court issued an order dismissing plaintiffs' counterclaims against Acena, Ungson and Fernandez "without prejudice to filing the proper separate actions therefor by the parties." Consequently, and as heretofore mentioned, Baltazar and Rose filed Case No. 13340 (supra). The following tentative amicable settlement, dated September 13, 1958, formulated and entered into by some of the parties and their respective attorneys, before presiding Judge Jesus P. Morfe, in the three cases, was submitted: 1. As to the so-called water stocks P30,000.00 each of the holders of said stock, namely, Irineo Baltazar, Marvin Rose, and Bernardo Acena, will return to the corporation P3,500 each of said stocks, thereby retaining P6,500 worth of stocks to be considered as valid for each under this compromise; 2. With respect to Dr. Bernardo Acena, of the certificates of stock allegedly representing, his profit, he will return to the corporation P3,500 of said share of stock and retain P7,500 worth thereof ; 3. With respect to the interest on unpaid balance of subscription it is agreed that the subscribers with unpaid subscription be given the opportunity to pay in two installments, the first installment to cover one-half of the unpaid balance to be paid in three months, and the second installment will be for the remaining unpaid half payable in another three months, from the time of the approval of this agreements, with the understanding that those who comply with this arrangement will not pay interest on the balance of their subscription, for the date of incorporation up to the grant of franchise on February 24, 1948, which shall be deemed as condoned, and from 1948 they will pay only as interest 3% compounded annually, it being understood that failure of any subscriber to pay any of the installment here provided will subject the stockholders concerned to the provision of the corporation law of the payment of 6% interest compounded quarterly. 4. All claims and counterclaims other than those covered by the preceding paragraph of stipulation will be deemed dismissed without prejudice, in all these three cases; 5. All the resolutions of the Board and the stockholders involved in these instant cases will be deemed modified in accordance with this agreement. On February 20, 1959, the lower court rendered a decision, approving the agreement and requiring the parties to comply with the same, and dissolved the writ of preliminary injunction, with costs. The pertinent portions of the decision are: In view of the agreement of the parties transcribed above, this Court is called upon to decide whether or not any of the agreements of the parties as above transcribed is contrary to law or public policy. First, as regards pars. 1 and 2, of said agreement, the legal capacity of the parties to sue and be sued carries with it the power to enter into an amicable settlement of pending litigations and to expressly or impliedly make admissions of facts; and they could, therefore, agree and recognize as fully paid for and valid the shares of stocks mentioned in said paragraphs of their agreement, which agreement must be held valid and binding among the parties, and even as against their persons who have no proof that said agreement was entered into in fraud of creditors. The next question for decision is whether or not a corporation may validly condone interest on unpaid subscriptions to its capital stock. The fact that our Corporation Law authorizes provisions in the by-laws of a corporation different from that set out in Sec. 37 of said law, shows that the provision of said law is to interest of unpaid stock subscriptions is merely directory, so that a corporation may fix a different interest rate, or condone the payment of interest altogether if such condonation would, as in the instant cases, serve as inducement for early payment of stock subscriptions. The condonation and reduction of interest agreed upon in par. 3 of the aforequoted agreement is, therefore, valid in the absence of proof that said agreement was entered into in fraud of creditors. In connection with par. 5 of the aforequoted agreement, in relation to par. 3 thereof, this, Court is of the opinion, and so holds, that the periods of time allowed for making payments under par. 3 of said agreement, must be counted from date of receipt of a copy of this decision by counsel of the parties, this decision constituting the final approval of said agreement, and as to stockholders who are not parties to these cases, from date of notice of the said time extension. The extension of time to pay, as granted in par. 3 of the repealing previous declaration of delinquency of the corresponding shares of stock, and all subscribed shares of stock, except those ordered to be returned as provided in pars. 1 and 2 of said agreement, will therefore be entitled to vote until once again declared delinquent after the expiration of the periods of time set out in par. 3 of said agreement. Defendants on March 14, 1959 filed a motion for reconsideration, alleging that the decision was partly against the spirit and intention of the parties to the agreement and portions of the decision, carried "prejudicial eventualities," and asking that the same be amended in the sense that "the payment of obligations of delinquent incorporators has been reduced by the agreement as stated in paragraphs 3 and 5" of said agreement; that delinquent stocks cannot be voted until fully paid in accordance with the agreement and that if the plaintiffs in the above entitled cases could not pay in full their obligations within the periods stated in the agreement, the resolutions of delinquency would automatically stand. On March 18, 1959, plaintiffs, in cases Nos. 13211 and 13212, filed a petition for immediate execution and for preliminary injunction and/or mandamus, praying that a writ be issued, ordering the defendants, as controlling majority of hold-over board of directors, to hold immediately the long delayed stockholders' meeting, and to allow the plaintiffs and all the stockholders, with still unpaid subscriptions, to vote all their stocks and subscriptions at said stockholders' meeting, as directed in the decision. On March 25, 1959, the Court issued an amending decision, pertinent portions of which are hereunder reproduced ... . After hearing the parties in extensive oral argument, this Court agrees with the defendants that par. 5 of the compromise agreement of the parties, dated September 13, 1958, contemplates a modification and not a repeal of the resolutions of the Board of Directors and of the Stockholders referred to in said agreement. The question is, therefore, to what extent has said resolutions been modified? Considering that the primary intention of each of said resolutions was to effect an early collection of unpaid balance of stock subscriptions and interest thereon, and the moving consideration for a compromise settlement of the instant cases is likewise the early collection of the obligations of stockholders of the defendant corporation, the extension of time to pay, as granted in par. 3 of said agreement, was clearly intended to cover not only the accrued interest but also the unpaid stock subscription of the stockholders, for to hold otherwise would be to defeat the primary purpose of early collection of said obligations. Considering the

same paramount intention of said resolution, and of the aforesaid compromise agreement, it likewise follows that the extension of time to pay and the reduction of interest embodied in the said agreement must apply to all stockholders similarly situated. Regarding the right to vote, this Court likewise agrees with the defends its that the facts considered during the negotiations for settlement effected by the parties in the Chambers of the presiding judge do not warrant repeal of the declaration of delinquency and complete restoration of voting rights until full payment of the unpaid stock subscriptions and interest within the time and to the extent mentioned in par. 3 of the aforesaid compromise agreement. To rule otherwise would be to encourage non-payment of the balance of stock subscriptions and thus defeat the paramount intention of the compromise agreement. Stated differently, this Court now holds that the extension of time to pay, as granted in par. 3 of the aforesaid compromise agreement, has the effect of lifting the previous declaration of delinquency effective as of full payment of the balance of said stock subscriptions and interest within the periods of time mentioned in par. 3 of said compromise agreement. In view of the uncertainty brought about by the motion for reconsideration and the motion for execution aforementioned, it would be unjust to count the periods of time mentioned in the aforesaid compromise agreement from the date of receipt of the original decision of this Court in these cases. The extension of time to pay should, therefore, be counted from receipt by counsel for the parties of a copy of this amending decision, and from receipt by the other stockholders of notice of said extension of time; and the injunction in the instant case should be deemed in force for the duration of said extension of time to pay. WHEREFORE, the decision of this Court rendered in these cases on February 20, 1959 is hereby modified in the manner set out above, maintaining said decision in all other respects. On April 4, 1959 , plaintiffs filed a motion for reconsideration and/or new trial, praying that the amending decision dated March 25, 1959, be reconsidered and/or further clarified. On July 16, 1959, the trial court reversed its amending decision in an order, the relevant parts thereof follow: WHEREFORE, by way of amendment to both the original and amending decisions of this Court in the instant case, this Court hereby expressly rules that all shares of the capital stock of the defendant corporation covered by fully paid capital stock shares certificates are entitled to vote in all meetings of the stockholders of this corporation, and Resolutions Nos. 2, 3 and 4 (Exhs. C, C-1 and C-2) of defendant's corporation's Board of Directors are hereby nullified insofar as they are inconsistent the this ruling. The extensions of time to pay, referred to in par. 3 of the settlement agreement of the parties, will start to run from the date of receipt by counsel for the parties of a copy of this Order, and from receipt by the other stockholders of notice of said extension of time. The injunction granted in the instant case is hereby dissolved, and the injunction bond filed by the plaintiffs is hereby cancelled and released. Defendants on August 14, 1959 perfected their appeal against the above ruling, on purely questions of law. Plaintiffs-appellees did not file any brief, manifesting that they were relying on their arguments contained in their motion for reconsideration, dated April 4, 1959 filed with the trial court. (pp. 213 to 218, rec. on appeal) and on the reasons set forth in the trial court's order, dated July 16, 1959, third decision (pp. 219 to 230 R.A.). Pending decision, the parties were required to show cause why the cases should not be dismissed for having become moot or academic, in view of the fact that the appellees, taking advantage of the decision of the trial court, "had paid all other delinquencies and interest thereon," but the appellants manifested that these cases should be decided on the issues raised, to determine, once and for all, the voting rights of the other delinquent subscribers, in the election of the company's Board of Directors which had been suspended since May 1, 1955, because of the litigation. The questions posted in the appeal, in view of the above facts would, therefore, be: 1. If a stockholder, in a stock corporation, subscribes to a certain number of shares of stock, and he pays only partially, for which he is issued certificates of stock, is he entitled to vote the latter, notwithstanding the fact that he has not paid the balance of his subscription, which has been called for payment or declared delinquent? 2. If a stockholder subscribes to a certain number of shares of stock and makes partial payment only and declared delinquent as to the rest, with interest, should previous payments on account of the capital, be first applied to interest, thus diminishing the voting power of the shares of stock already paid? In other words, if the entire subscribed shares of stock are not paid, will the paid shares of stock be deprived of the right to vote, until the entire subscribed shares of stock are fully paid, including interest? 3. Has estoppel or waiver, by virtue of the settlement agreement, set in? Defendants-appellants claim that resolution No. 4 (Exh. C-2), withdrawing or nullifying the voting power of all the aforesaid shares of stock is valid, notwithstanding the existence of partial payments, evidenced by certificates duly issued therefor. They invoke the ruling laid down by the Court in the Fua Cun v. Summers case (44 Phil, 705, March 27, 1923) pertinent portion of which states: In the absence of special agreement to the contrary, a subscriber for a certain number of shares of stock does not, upon payment of one-half of the subscription price, become entitled to the issuance of certificates for one-half of the number of shares subscribed for; the subscriber's right consists only in equity entitling him to a certificate for the total number of shares subscribed for by him upon payment of the remaining portion of the subscription price. The cited case connotes the principle that a partial payment of a subscription does not entitle the stockholder to a certificate for the total number of shares subscribed by him; his right consists only in equity to a certificate of the total number of shares subscribed for, upon payment of the remaining portion of the subscription price. In other words, it is contended, as in the present case, that if Baltazar subscribed to 600 shares of stock in a single subscription, and he merely paid for 300 shares, for which he was given fully paid certificates for 300 shares, he cannot vote said 300 shares, in any meeting of the Corporation, until he shall have paid the remaining 300 shares of stock. The saving clause in the quoted pronouncement, "in the absence of special agreement to the contrary," reveals that the doctrine is not mandatory, but merely directory, which is not violative of law, the rigor of the pronouncement may be relaxed. The plaintiffs-appellees seem to sustain an adverse concept, postulating that once a stockholder has subscribed to a certain number of shares, although he has made partial payments only, but is issued a certificate for the paid-up shares of stock, he is entitled to vote the whole number of shares subscribed by him, paid or not, until the said unpaid shares shall have been called for payment or declared delinquent. The cases at bar do not come under the aegis of the principle enunciated in the Fua Cun v. Summers case, because it was the practice and procedure, since the inception of the corporation, to issue certificates of stock to its individual subscribers for unpaid shares of stock and gave voting power to shares of stock fully paid. And even though no agreement existed, the ruling in said case, does not now reflect the correct view on the matter, for better than an agreement or practice, there is the law, which renders the said case of Fua Cun-Summers, obsolescent.

Section 37 of the Corporation Law, as amended by Act No. 3518, approved on March 1, 1929, six (6) years afterthe promulgation of the Fua-Summers case (decided in 1923), provides: SEC. 37. ... . No certificate of stock shall be issued to a subscriber as fully paid up until the full par value thereof, or the full subscription in the case of no par stock, has been paid by him to the corporation. Subscribed shares not fully paid up may be voted provided no subscription is unpaid and delinquent. The law just quoted was originally section 36 of the Corporation Law of 1906, which reads as follows: SEC. 36. ... . No certificate of stock shall be issued to a subscriber as fully paid up until the full par value thereof has been paid by him to the corporation. Subscribed shares not fully paid up may be voted provided no subscription is unpaid and delinquent. As may readily be seen, said Section 37 makes payment of the "par value" as prerequisite for the issuance of certificates of par value stocks, and makes payment of the "full subscription" as prerequisite for the issuance of certificates of no par value stocks. No such distinction was contained in section 36 of our Corporation Law of 1906, corresponding to section 37 now. The present law could have simply provided that no certificate of par value and no par value stock shall be issued to a subscriber, as fully paid up, until the full subscription has been paid by him to the corporation, if full payment of subscription were intended is the criterion in the issuance of certificates, for both the par value and no par value stocks. Stated in another way, the present law requires as a condition before a share holder can vote his shares, that his full subscription be paid in the case of no par value stock; and in case of stock corporation with par value, the stockholder can vote the shares fully paid by him only, irrespective of the unpaid delinquent shares. As well-observed by the trial court, a corporation may now, in the absence of provisions in their by-laws to the contrary, apply payment made by , subscribers-stockholders, either as: "(a) full payment for the corresponding number of shares of stock, the par value of each of which is covered by such payment; or (b) as payment pro-rata to each and all the entire number of shares subscribed for" (amended decision). In the cases at bar, the defendant-corporation had chosen to apply payments by its stockholders to definite shares of the capital stock of the corporation and had fully paid capital stock shares certificates for said payments; its call for payment of unpaid subscription and its declaration of delinquency for non-payment of said call affecting only the remaining number of shares of its capital stock for which no fully paid capital stock shares certificates have been issued, "and only these have been legally shorn of their voting rights by said declaration of delinquency" (amended decision). The third paragraph of the settlement agreement relates to interest on the unpaid balance of subscription to the capital stock. The second paragraph of resolution No. 3 (Exh. C-1), unilaterally declared as of no value and cancelled all capital stock shares certificates issued as fully paid up, upon payments made by stockholders, when interests on unpaid subscription from date of subscription were not previously and/or then and there paid. Defendants-appellants, invoking Art. 1253 NCC (Art. 1173 of the Old Civil Code) which provides that "if the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered," and relying on an opinion of the Securities and Exchange Commission, claim that said unilateral nullification and/or cancellation of previously issued capital stock shares certificates was valid. This provision of law only applies in the absence of verbal or written agreement, to the contrary (8 Manresa, p. 317); it is likewise merely directory, and not mandatory. (Art. 1252 NCC). In the present case, the defendant-corporation had applied the payments made by the stockholders to the full par value of the shares of stock subscribed by them, instead of the accepted interest, as shown by the capital stock shares certificate issued for the payments made, and the stockholders had accepted such certificates issued for such payments. This being the case, the said application of payments must be deemed to have been agreed upon by the Corporation and the stockholders, and the same cannot now be changed without the consent of the stockholders concerned. The Corporation Law and the by-laws of the defendant Corporation do not contain any provision, prohibiting the application of stockholders' payments to the full par value of a corporation's capital stock, ahead of the payment of accrued interest for unpaid subscriptions. It would, therefore, result that a corporation may, upon request of an interested stockholder, as his option, apply payment by them to the full par value of shares of capital leaving its collection later of the accrued interest on unpaid subscriptions, and that once such option has been exercised and the corresponding stock certificates have been issued, the corporation cannot, by a unilateral act, legally nullify and cancel the capital stock certificates so issued. It is finally argued by defendants-appellants that the plaintiffs-appellees waived, under the agreement heretofore quoted, the right to enforce the voting power they were claiming to exercise, and upon the principle of estoppel, they are now prohibited from insisting on the existence of such power, ending with the exhortation, that "they should lie upon the bed they helped built, for a lasting peace in the interest of the corporation." It should, however, be stated as heretofore exposed, that certain clauses of the agreement are contrary to law and public policy and would cause injury to plaintiffs-appellees and other stockholders similarly situated. Estoppel cannot be predicated on acts which are prohibited by law or are against public policy (Benguet Cons. Mining Co. v. Pineda, 52 Off. Gaz. 1961, L-7231, March 28, 1956; Eugenio v. Perdido L-7083, May 19, 1955; III Rep. of the Philippines Digest, p. 269-270). WHEREFORE, the order of the trial court of July 16, 1959, (1) Expressly ruling "that all shares of the capital stocks of the defendant corporation covered by fully paid capital stock shares of certificates are entitled to vote in all meetings of the stockholders of this corporation and resolutions Nos. 2, 3 and 4 (Exhs. C, C-1 and C-2) of defendant corporation's Board of Directors are hereby nullified insofar as they are inconsistent with this ruling"; and (2) Dissolving the injunction granted in the cases and releasing the injunction bond filed by the plaintiffs-appellees, is correct and the same should be, as it is hereby affirmed. Costs taxed against the defendantsappellants.

VIOLETA TUDTUD BANATE, MARY MELGRID M. CORTEL, BONIFACIO CORTEL, ROSENDO MAGLASANG, and PATROCINIA MONILAR, Petitioners,

G.R. No. 163825 Present: CARPIO, J., BRION, Acting Chairperson, *** ABAD, VILLARAMA, JR., and **** MENDOZA, JJ.
** *

versus -

PHILIPPINE COUNTRYSIDE RURAL BANK (LILOAN, CEBU), INC. and TEOFILO SOON, JR., Respondents. --

Promulgated:

July 13, 2010 x------------------------------------------------------------------------------------------------x DECISION

BRION, J.: Before the Court is a petition for review on certiorari assailing the December 19, 2003 decision and the May 5, 2004 [3] resolution of the Court of Appeals (CA) in CA-G.R. CV No. 74332. The CA decision reversed the Regional Trial Court (RTC) [4] decision of June 27, 2001 granting the petitioners complaint for specific performance and damages against the respondent [5] Philippine Countryside Rural Bank, Inc. (PCRB). THE FACTUAL ANTECEDENTS On July 22, 1997, petitioner spouses Rosendo Maglasang and Patrocinia Monilar (spouses Maglasang) obtained a loan (subject loan) from PCRB for P1,070,000.00. The subject loan was evidenced by a promissory note and was payable on January 18, 1998. To secure the payment of the subject loan, the spouses Maglasang executed, in favor of PCRB a real estate mortgage over their [6] property, Lot 12868-H-3-C, including the house constructed thereon (collectively referred to as subject properties), owned by petitioners Mary Melgrid and Bonifacio Cortel (spouses Cortel), the spouses Maglasangs daughter and son-in-law, respectively. Aside from the subject loan, the spouses Maglasang obtained two other loans from PCRB which were covered by separate [7] promissory notes and secured by mortgages on their other properties. Sometime in November 1997 (before the subject loan became due), the spouses Maglasang and the spouses Cortel asked PCRBs permission to sell the subject properties. They likewise requested that the subject properties be released from the mortgage since the two other loans were adequately secured by the other mortgages. The spouses Maglasang and the spouses Cortel claimed that the PCRB, acting through its Branch Manager, Pancrasio Mondigo, verbally agreed to their request but required first the full payment of the subject loan. The spouses Maglasang and the spouses Cortel thereafter sold to petitioner Violeta Banate the subject properties for P1,750,000.00. The spouses Magsalang and the spouses Cortel used the amount to pay the subject loan with PCRB. After settling the subject loan, PCRB gave the owners duplicate certificate of title of Lot 12868-H-3-C to Banate, who was able to secure a new title in her name. The title, however, carried the mortgage lien in favor of PCRB, prompting the petitioners to request from PCRB a Deed of Release of Mortgage. As PCRB refused to comply with the petitioners request, the petitioners instituted an action for specific performance before the RTC to compel PCRB to execute the release deed. The petitioners additionally sought payment of damages from PCRB, which, they claimed, caused the publication of a news report stating that they surreptitiously caused the transfer of ownership of Lot 12868-H-3-C. The petitioners considered the news report false and malicious, as PCRB knew of the sale of the subject properties and, in fact, consented thereto. PCRB countered the petitioners allegations by invoking the cross-collateral stipulation in the mortgage deed which states: 1. That as security for the payment of the loan or advance in principal sum of one million seventy thousand pesos only (P1,070,000.00) and such other loans or advances already obtained, or still to be obtained by the MORTGAGOR(s) as MAKER(s), CO-MAKER(s) or GUARANTOR(s) from the MORTGAGEE plus interest at the rate of _____ per annum and penalty and litigation charges payable on the dates mentioned in the corresponding promissory notes, the MORTGAGOR(s) hereby transfer(s) and convey(s) to MORTGAGEE by way of first mortgage the parcel(s) of land described hereunder, together with the improvements now existing for which may hereafter be made thereon, of which MORTGAGOR(s) represent(s) and warrant(s) that MORTGAGOR(s) is/are the absolute owner(s) and that the same is/are free from all liens and encumbrances; TRANSFER CERTIFICATE OF TITLE NO. 82746
[8] [1] [2]

Accordingly, PCRB claimed that full payment of the three loans, obtained by the spouses Maglasang, was necessary before any of the mortgages could be released; the settlement of the subject loan merely constituted partial payment of the total obligation. Thus, the payment does not authorize the release of the subject properties from the mortgage lien. PCRB considered Banate as a buyer in bad faith as she was fully aware of the existing mortgage in its favor when she purchased the subject properties from the spouses Maglasang and the spouses Cortel. It explained that it allowed the release of the owners

duplicate certificate of title to Banate only to enable her to annotate the sale. PCRB claimed that the release of the title should not indicate the corresponding release of the subject properties from the mortgage constituted thereon. After trial, the RTC ruled in favor of the petitioners. It noted that the petitioners, as necessitous men, could not have bargained on equal footing with PCRB in executing the mortgage, and concluded that it was a contract of adhesion. Therefore, any obscurity in [9] the mortgage contract should not benefit PCRB. The RTC observed that the official receipt issued by PCRB stated that the amount owed by the spouses Maglasang under the subject loan was only about P1.2 million; that Mary Melgrid Cortel paid the subject loan using the check which Banate issued as payment of the purchase price; and that PCRB authorized the release of the title further indicated that the subject loan had already been settled. Since the subject loan had been fully paid, the RTC considered the petitioners as rightfully entitled to a deed of release of mortgage, pursuant to the verbal agreement that the petitioners made with PCRBs branch manager, Mondigo. Thus, the RTC ordered PCRB to [10] execute a deed of release of mortgage over the subject properties, and to pay the petitioners moral damages and attorneys fees. On appeal, the CA reversed the RTCs decision. The CA did not consider as valid the petitioners new agreement with Mondigo, which would novate the original mortgage contract containing the cross-collateral stipulation. It ruled that Mondigo cannot orally amend the mortgage contract between PCRB, and the spouses Maglasang and the spouses Cortel; therefore, the claimed commitment allowing the release of the mortgage on the subject properties cannot bind PCRB. Since the cross-collateral stipulation in the mortgage contract (requiring full settlement of all three loans before the release of any of the mortgages) is clear, the parties must faithfully comply with its terms. The CA did not consider as material the release of the owners duplicate copy of the title, as it [11] was done merely to allow the annotation of the sale of the subject properties to Banate. Dismayed with the reversal by the CA of the RTCs ruling, the petitioners filed the present appeal by certiorari, claiming that the CA ruling is not in accord with established jurisprudence. THE PETITION The petitioners argue that their claims are consistent with their agreement with PCRB; they complied with the required full payment of the subject loan to allow the release of the subject properties from the mortgage. Having carried out their part of the bargain, the petitioners maintain that PCRB must honor its commitment to release the mortgage over the subject properties. The petitioners disregard the cross-collateral stipulation in the mortgage contract, claiming that it had been novated by the subsequent agreement with Mondigo. Even assuming that the cross-collateral stipulation subsists for lack of authority on the part of Mondigo to novate the mortgage contract, the petitioners contend that PCRB should nevertheless return the amount paid to settle the subject loan since the new agreement should be deemed rescinded. The basic issues for the Court to resolve are as follows: 1. Whether the purported agreement between the petitioners and Mondigo novated the mortgage contract over the subject properties and is thus binding upon PCRB. 2. If the first issue is resolved negatively, whether Banate can demand restitution of the amount paid for the subject properties on the theory that the new agreement with Mondigo is deemed rescinded.

THE COURTS RULING

We resolve to deny the petition.

The purported agreement did not novate the mortgage contract, particularly the cross- collateral stipulation thereon Before we resolve the issues directly posed, we first dwell on the determination of the nature of the cross-collateral stipulation in the mortgage contract. As a general rule, a mortgage liability is usually limited to the amount mentioned in the contract. However, the amounts named as consideration in a contract of mortgage do not limit the amount for which the mortgage may stand as security if, from the four corners of the instrument, the intent to secure future and other indebtedness can be gathered. This stipulation isvalid and binding between the parties and is known as the blanket mortgage clause (also known as the dragnet [12] clause). In the present case, the mortgage contract indisputably provides that the subject properties serve as security, not only for the payment of the subject loan, but also for such other loans or advances already obtained, or still to be obtained. The crosscollateral stipulation in the mortgage contract between the parties is thus simply a variety of a dragnet clause. After agreeing to such stipulation, the petitioners cannot insist that the subject properties be released from mortgage since the security covers not only the subject loan but the two other loans as well. The petitioners, however, claim that their agreement with Mondigo must be deemed to have novated the mortgage contract. They posit that the full payment of the subject loan extinguished their obligation arising from the mortgage contract, including the stipulated cross-collateral provision. Consequently, consistent with their theory of a novated agreement, the petitioners maintain that it devolves upon PCRB to execute the corresponding Deed of Release of Mortgage.

We find the petitioners argument unpersuasive. Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent that it remains compatible with the amendatory agreement. An extinctivenovation results either by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal). Under this mode, novation would have dual functions one to extinguish an existing obligation, the other to substitute a new one in its place requiring a conflux of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the [13] extinguishment of the old obligation; and (4) the birth of a valid new obligation. The second requisite is lacking in this case. Novation presupposes not only the extinguishment or modification of an existing [14] obligation but, more importantly, the creation of a valid new obligation. For the consequent creation of a new contractual obligation, consent of both parties is, thus, required. As a general rule, no form of words or writing is necessary to give effect to a novation. Nevertheless, where either or both parties involved are juridical entities, proof that the second contract was executed by [15] persons with the proper authority to bind their respective principals is necessary. Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors. The power and the responsibility to decide whether the corporation should enter into a contract that will bind the corporation are lodged in the board, subject to the articles of incorporation, bylaws, or relevant provisions of law. In the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. However, just as a natural person may authorize another to do certain acts for and on his behalf, the board of directors may validly delegate some of its functions and powers to its officers, committees or agents. The authority of these individuals to bind the corporation is generally derived from law, corporate bylaws or authorization from the board, either expressly or impliedly by habit, [17] custom or acquiescence in the general course of business. The authority of a corporate officer or agent in dealing with third persons may be actual or apparent. Actual authority is either express or implied. The extent of an agents express authority is to be measured by the power delegated to him by the corporation, while the extent of his implied authority is measured by his prior acts which have been ratified or approved, or their benefits [18] accepted by his principal. The doctrine of apparent authority, on the other hand, with special reference to banks, had long been recognized in this jurisdiction. The existence of apparent authority may be ascertained through: 1) the general manner in which the corporation holds out an officer or agent as having the power to act, or in other words, the apparent authority to act in general, with which it clothes him; or 2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within or beyond the scope of his ordinary powers.
[16]

Accordingly, the authority to act for and to bind a corporation may be presumed from acts of recognition in other instances when [19] the power was exercised without any objection from its board or shareholders. Notably, the petitioners action for specific performance is premised on the supposed actual or apparent authority of the branch manager, Mondigo, to release the subject properties from the mortgage, although the other obligations remain unpaid. In light of our discussion above, proof of the branch managers authority becomes indispensable to support the petitioners contention. The petitioners make no claim that Mondigo had actual authority from PCRB, whether express or implied. Rather, adopting the trial courts observation, the petitioners posited that PCRB should be held liable for Mondigos commitment, on the basis of the latters apparent authority. We disagree with this position. Under the doctrine of apparent authority, acts and contracts of the agent, as are within the apparent scope of the authority conferred on him, although no actual authority to do such acts or to make such contracts has been conferred, bind the [20] principal. The principals liability, however, is limited only to third persons who have been led reasonably to believe by the conduct of the principal that such actual authority exists, although none was given. In other words, apparent authority is determined only by [21] the acts of the principal and not by the acts of the agent. There can be no apparent authority of an agent without acts or conduct on the part of the principal; such acts or conduct must have been known and relied upon in good faith as a result of the exercise of reasonable prudence by a third party as claimant, and such acts or conduct must have produced a change of position to the third [22] partys detriment. In the present case, the decision of the trial court was utterly silent on the manner by which PCRB, as supposed principal, has clothed or held out its branch manager as having the power to enter into an agreement, as claimed by petitioners. No proof of the course of business, usages and practices of the bank about, or knowledge that the board had or is presumed to have of, its responsible officers acts regarding bank branch affairs, was ever adduced to establish the branch managers apparent authority to [23] verbally alter the terms of mortgage contracts. Neither was there any allegation, much less proof, that PCRB ratified Mondigos [24] act or is estopped to make a contrary claim. Further, we would be unduly stretching the doctrine of apparent authority were we to consider the power to undo or nullify solemn agreements validly entered into as within the doctrines ambit. Although a branch manager, within his field and as to third persons, is the general agent and is in general charge of the corporation, with apparent authority commensurate with the ordinary business [25] entrusted him and the usual course and conduct thereof, yet the power to modify or nullify corporate contracts remains

generally in the board of directors. Being a mere branch manager alone is insufficient to support the conclusion that Mondigo has been clothed with apparent authority to verbally alter terms of written contracts, especially when viewed against the telling circumstances of this case: the unequivocal provision in the mortgage contract; PCRBs vigorous denial that any agreement to release the mortgage was ever entered into by it; and, the fact that the purported agreement was not even reduced into writing considering its legal effects on the parties interests. To put it simply, the burden of proving the authority of Mondigo to alter or [27] novate the mortgage contract has not been established. It is a settled rule that persons dealing with an agent are 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 the agents authority, and in case either is controverted, the burden of [28] proof is upon them to establish it. As parties to the mortgage contract, the petitioners are expected to abide by its terms. The subsequent purported agreement is of no moment, and cannot prejudice PCRB, as it is beyond Mondigos actual or apparent authority, as above discussed. Rescission has no legal basis; there can be no restitution of the amount paid The petitioners, nonetheless, invoke equity and alternatively pray for the restitution of the amount paid, on the rationale that if PCRBs branch manager was not authorized to accept payment in consideration of separately releasing the mortgage, then the agreement should be deemed rescinded, and the amount paid by them returned. PCRB, on the other hand, counters that the petitioners alternative prayer has no legal and factual basis, and insists that the clear agreement of the parties was for the full payment of the subject loan, and in return, PCRB would deliver the title to the subject properties to the buyer, only to enable the latter to obtain a transfer of title in her own name. We agree with PCRB. Even if we were to assume that the purported agreement has been sufficiently established, since it is not binding on the bank for lack of authority of PCRBs branch manager, then the prayer for restitution of the amount paid would have no legal basis. Of course, it will be asked: what then is the legal significance of the payment made by Banate? Article 2154 of the Civil Code reads: Art 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.

[26]

Notwithstanding the payment made by Banate, she is not entitled to recover anything from PCRB under Article 2154. There could not have been any payment by mistake to PCRB, as the check which Banate issued as payment was to her co-petitioner Mary Melgrid Cortel (the payee), and not to PCRB. The same check was simply endorsed by the payee to PCRB in payment of the subject [29] loan that the Maglasangs owed PCRB. The mistake, if any, was in the perception of the authority of Mondigo, as branch manager, to verbally alter the mortgage contract, and not as to whether the Cortels, as sellers, were entitled to payment. This mistake (on Mondigos lack of authority to alter the mortgage) did not affect the validity of the payment made to the bank as the existence of the loan was never disputed. The dispute [30] was merely on the effect of the payment on the security given. Consequently, no right to recover accrues in Banates favor as PCRB never dealt with her. The borrowers-mortgagors, on the other hand, merely paid what was really owed. Parenthetically, the subject loan was due on January 18, 1998, but was paid sometime in November 1997. It appears, however, that at the time the complaint was filed, the subject loan had already matured. Consequently, recovery of the amount paid, even under a claim of premature payment, will not prosper. In light of these conclusions, the claim for moral damages must necessarily fail. On the alleged injurious publication, we quote with approval the CAs ruling on the matter, viz: Consequently, there is no reason to hold [respondent] PCRB liable to [petitioners] for damages. x x x [Petitioner] Maglasang cannot hold [respondent] PCRB liable for the publication of the extra-judicial sale. There was no evidence submitted to prove that *respondent+ PCRB authored the words Mortgagors surreptitiously caused the transfer of ownership of Lot 12868-H-3-C x x x contained in the publication since at the bottom was x x x Sheriff Teofilo C. Soon, Jr.s name. Moreover, there was not even an [31] iota of proof which shows damage on the part of [petitioner] Mary Melgrid M. Cortel[VAC1] .

WHEREFORE, we DENY the petitioners petition for review on certiorari for lack of merit, and AFFIRM the decision of the Court of Appeals dated December 19, 2003 and its resolution dated May 5, 2004 in CA-G.R. CV No. 74332. No pronouncement as to costs. SO ORDERED.

BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner, vs. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO SALONGA, COMMISSIONER MARY CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ, COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S. DOROMAL, CAPT. JORGE B. SIACUNCO, et al., respondents. Apostol, Bernas, Gumaru, Ona and Associates for petitioner. Vicente G. Sison for intervenor A.T. Abesamis. NARVASA, J.: Challenged in this special civil action of certiorari and prohibition by a private corporation known as the Bataan Shipyard and Engineering Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by President Corazon C. Aquino on February 28, 1986 and March 12, 1986, respectively, and (2) the sequestration, takeover, and other orders issued, and acts done, in accordance with said executive orders by the Presidential Commission on Good Government and/or its Commissioners and agents, affecting said corporation. 1. The Sequestration, Takeover, and Other Orders Complained of a. The Basic Sequestration Order The sequestration order which, in the view of the petitioner corporation, initiated all its misery was issued on April 14, 1986 by Commissioner Mary Concepcion Bautista. It was addressed to three of the agents of the Commission, hereafter simply referred to as PCGG. It reads as follows: RE: SEQUESTRATION ORDER By virtue of the powers vested in the Presidential Commission on Good Government, by authority of the President of the Philippines, you are hereby directed to sequester the following companies. 1. Bataan Shipyard and Engineering Co., Inc. (Engineering Island Shipyard and Mariveles Shipyard) 2. Baseco Quarry 3. Philippine Jai-Alai Corporation 4. Fidelity Management Co., Inc. 5. Romson Realty, Inc. 6. Trident Management Co. 7. New Trident Management 8. Bay Transport 9. And all affiliate companies of Alfredo "Bejo" Romualdez You are hereby ordered: 1. To implement this sequestration order with a minimum disruption of these companies' business activities. 2. To ensure the continuity of these companies as going concerns, the care and maintenance of these assets until such time that the Office of the President through the Commission on Good Government should decide otherwise. 3. To report to the Commission on Good Government periodically. Further, you are authorized to request for Military/Security Support from the Military/Police authorities, and such other acts essential to the achievement of this sequestration order. 1 b. Order for Production of Documents On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG, addressed a letter dated April 18, 1986 to the President and other officers of petitioner firm, reiterating an earlier request for the production of certain documents, to wit: 1. Stock Transfer Book 2. Legal documents, such as: 2.1. Articles of Incorporation 2.2. By-Laws 2.3. Minutes of the Annual Stockholders Meeting from 1973 to 1986 2.4. Minutes of the Regular and Special Meetings of the Board of Directors from 1973 to 1986 2.5. Minutes of the Executive Committee Meetings from 1973 to 1986 2.6. Existing contracts with suppliers/contractors/others. 3. Yearly list of stockholders with their corresponding share/stockholdings from 1973 to 1986 duly certified by the Corporate Secretary. 4. Audited Financial Statements such as Balance Sheet, Profit & Loss and others from 1973 to December 31, 1985. 5. Monthly Financial Statements for the current year up to March 31, 1986. 6. Consolidated Cash Position Reports from January to April 15, 1986. 7. Inventory listings of assets up dated up to March 31, 1986. 8. Updated schedule of Accounts Receivable and Accounts Payable. 9. Complete list of depository banks for all funds with the authorized signatories for withdrawals thereof. 2 10. Schedule of company investments and placements. The letter closed with the warning that if the documents were not submitted within five days, the officers would be cited for "contempt in pursuance with Presidential Executive Order Nos. 1 and 2." c. Orders Re Engineer Island (1) Termination of Contract for Security Services A third order assailed by petitioner corporation, hereafter referred to simply as BASECO, is that issued on April 21, 1986 by a Capt. Flordelino B. Zabala, a member of the task force assigned to carry out the basic sequestration order. He sent a letter to BASECO's 3 Vice-President for Finance, terminating the contract for security services within the Engineer Island compound between BASECO and "Anchor and FAIRWAYS" and "other civilian security agencies," CAPCOM military personnel having already been assigned to the area, (2) Change of Mode of Payment of Entry Charges On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to "Truck Owners and Contractors," particularly a "Mr. Buddy Ondivilla National Marine Corporation," advising of the amendment in part of their contracts with BASECO in the sense that

the stipulated charges for use of the BASECO road network were made payable "upon entry and not anymore subject to monthly 4 billing as was originally agreed upon." d. Aborted Contract for Improvement of Wharf at Engineer Island On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract in behalf of BASECO with Deltamarine Integrated Port Services, Inc., in virtue of which the latter undertook to introduce improvements costing approximately P210,000.00 on the BASECO wharf at Engineer Island, allegedly then in poor condition, avowedly to "optimize its utilization and in return maximize the revenue which would flow into the government coffers," in consideration of Deltamarine's being granted "priority in using the improved portion of the wharf ahead of anybody" and exemption "from the payment of any charges for the use of wharf including the area 5 where it may install its bagging equipments" "until the improvement remains in a condition suitable for port operations." It seems however that this contract was never consummated. Capt. Jorge B. Siacunco, "Head- (PCGG) BASECO Management Team," advised Deltamarine by letter dated July 30, 1986 that "the new management is not in a position to honor the said contract" and thus 6 "whatever improvements * * (may be introduced) shall be deemed unauthorized * * and shall be at * * (Deltamarine's) own risk." e. Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG agent, Mayor Melba O. Buenaventura, "to plan and implement progress towards maximizing the continuous operation of the BASECO Sesiman Rock Quarry * * by conventional methods;" but afterwards, Commissioner Bautista, in representation of the PCGG, authorized another party, A.T. Abesamis, to operate the quarry, located at Mariveles, Bataan, an agreement to this effect having been executed by them on September 17, 7 1986. f. Order to Dispose of Scrap, etc. By another Order of Commissioner Bautista, this time dated June 26, 1986, Mayor Buenaventura was also "authorized to clean and beautify the Company's compound," and in this connection, to dispose of or sell "metal scraps" and other materials, equipment and 8 machineries no longer usable, subject to specified guidelines and safeguards including audit and verification. g. The TAKEOVER Order By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the provisional takeover by the PCGG of BASECO, "the Philippine 9 Dockyard Corporation and all their affiliated companies." Diaz invoked the provisions of Section 3 (c) of Executive Order No. 1, empowering the Commission * * To provisionally takeover in the public interest or to prevent its disposal or dissipation, business enterprises and properties taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos, until the transactions leading to such acquisition by the latter can be disposed of by the appropriate authorities. A management team was designated to implement the order, headed by Capt. Siacunco, and was given the following powers: 1. Conducts all aspects of operation of the subject companies; 2. Installs key officers, hires and terminates personnel as necessary; 3. Enters into contracts related to management and operation of the companies; 4. Ensures that the assets of the companies are not dissipated and used effectively and efficiently; revenues are duly accounted for; and disburses funds only as may be necessary; 5. Does actions including among others, seeking of military support as may be necessary, that will ensure compliance to this order; 6. Holds itself fully accountable to the Presidential Commission on Good Government on all aspects related to this take-over order. h. Termination of Services of BASECO Officers Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. Mendoza, Moises M. Valdez, Gilberto Pasimanero, and Benito R. Cuesta I, advising of the termination of their services by the PCGG. 10 2. Petitioner's Plea and Postulates It is the foregoing specific orders and acts of the PCGG and its members and agents which, to repeat, petitioner BASECO would have this Court nullify. More particularly, BASECO prays that this Court1) declare unconstitutional and void Executive Orders Numbered 1 and 2; 2) annul the sequestration order dated April- 14, 1986, and all other orders subsequently issued and acts done on the basis thereof, inclusive of the takeover order of July 14, 1986 and the termination of the services of the BASECO executives. 11 a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover Orders While BASECO concedes that "sequestration without resorting to judicial action, might be made within the context of Executive Orders Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution was promulgated, under the principle that the law promulgated by the ruler under a revolutionary regime is the law of the land, it ceased to be acceptable when the same ruler opted to promulgate the Freedom Constitution on March 25, 1986 wherein under Section I of the same, Article IV (Bill of Rights) of the 1973 Constitution was adopted providing, among others, that "No person shall be deprived of life, liberty and property without due process of law." (Const., Art. I V, Sec. 1)." 12 It declares that its objection to the constitutionality of the Executive Orders "as well as the Sequestration Order * * and Takeover Order * * issued purportedly under the authority of said Executive Orders, rests on four fundamental considerations: First, no notice and hearing was accorded * * (it) before its properties and business were taken over; Second, the PCGG is not a court, but a purely investigative agency and therefore not competent to act as prosecutor and judge in the same cause; Third, there is nothing in the issuances which envisions any proceeding, process or remedy by which petitioner may expeditiously challenge the validity of the takeover after the same has been effected; and Fourthly, being directed against specified persons, and in disregard of the constitutional presumption of innocence and general rules and procedures, they constitute a Bill of Attainder." 13 b. Re Order to Produce Documents It argues that the order to produce corporate records from 1973 to 1986, which it has apparently already complied with, was issued without court authority and infringed its constitutional right against self-incrimination, and unreasonable search and seizure. 14 c. Re PCGG's Exercise of Right of Ownership and Management BASECO further contends that the PCGG had unduly interfered with its right of dominion and management of its business affairs by 1) terminating its contract for security services with Fairways & Anchor, without the consent and against the will of the contracting parties; and amending the mode of payment of entry fees stipulated in its Lease Contract with National Stevedoring & Lighterage Corporation, these acts being in violation of the non-impairment clause of the constitution; 15

2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with Deltamarine Integrated Port Services, Inc., giving the latter free use of BASECO premises; 16 3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and operate its rock quarry at Sesiman, Mariveles; 17 4) authorizing the same mayor to sell or dispose of its metal scrap, equipment, machinery and other materials; 18 5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their affiliated companies; 6) terminating the services of BASECO executives: President Hilario M. Ruiz; EVP Manuel S. Mendoza; GM Moises M. Valdez; Finance Mgr. Gilberto Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19 20 7) planning to elect its own Board of Directors; 8) allowing willingly or unwillingly its personnel to take, steal, carry away from petitioner's premises at Mariveles * * rolls of cable 21 wires, worth P600,000.00 on May 11, 1986; 22 9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed to have been buried therein. 3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover Orders Many misconceptions and much doubt about the matter of sequestration, takeover and freeze orders have been engendered by misapprehension, or incomplete comprehension if not indeed downright ignorance of the law governing these remedies. It is needful that these misconceptions and doubts be dispelled so that uninformed and useless debates about them may be avoided, and arguments tainted b sophistry or intellectual dishonesty be quickly exposed and discarded. Towards this end, this opinion will essay an exposition of the law on the matter. In the process many of the objections raised by BASECO will be dealt with. 4. The Governing Law a. Proclamation No. 3 The impugned executive orders are avowedly meant to carry out the explicit command of the Provisional Constitution, ordained by 23 Proclamation No. 3, that the President-in the exercise of legislative power which she was authorized to continue to wield "(until a legislature is elected and convened under a new Constitution" "shall give priority to measures to achieve the mandate of the people," among others to (r)ecover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect 24 the interest of the people through orders of sequestration or freezing of assets or accounts." b. Executive Order No. 1 Executive Order No. 1 stresses the "urgent need to recover all ill-gotten wealth," and postulates that "vast resources of the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both 25 26 here and abroad." Upon these premises, the Presidential Commission on Good Government was created, "charged with the task of assisting the President in regard to (certain specified) matters," among which was precisely* * The recovery of all in-gotten wealth accumulated by former President Ferdinand E. Marcos, his immediate family, relatives, subordinates and close associates, whether located in the Philippines or abroad, including thetakeover or sequestration of all business enterprises and entities owned or controlled by them, during his administration, directly or through nominees, by taking 27 undue advantage of their public office and/or using their powers, authority, influence, connections or relationship. In relation to the takeover or sequestration that it was authorized to undertake in the fulfillment of its mission, the PCGG was granted "power and authority" to do the following particular acts, to wit: 1. To sequester or place or cause to be placed under its control or possession any building or office wherein any ill-gotten wealth or properties may be found, and any records pertaining thereto, in order to prevent their destruction, concealment or disappearance which would frustrate or hamper the investigation or otherwise prevent the Commission from accomplishing its task. 2. To provisionally take over in the public interest or to prevent the disposal or dissipation, business enterprises and properties taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos, until the transactions leading to such acquisition by the latter can be disposed of by the appropriate authorities. 3. To enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot and academic, or 28 frustrate or otherwise make ineffectual the efforts of the Commission to carry out its task under this order. So that it might ascertain the facts germane to its objectives, it was granted power to conduct investigations; require submission of 29 evidence by subpoenae ad testificandum and duces tecum; administer oaths; punish for contempt. It was given power also to 30 promulgate such rules and regulations as may be necessary to carry out the purposes of * * (its creation). c. Executive Order No. 2 Executive Order No. 2 gives additional and more specific data and directions respecting "the recovery of ill-gotten properties amassed by the leaders and supporters of the previous regime." It declares that: 1) * * the Government of the Philippines is in possession of evidence showing that there are assets and properties purportedly pertaining to former Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents or nominees which had been or were acquired by them directly or indirectly, through or as a result of the improper or illegal use of funds or properties owned by the government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their office, authority, influence, connections or relationship, resulting in their unjust enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the Philippines:" and 2) * * said assets and properties are in the form of bank accounts, deposits, trust accounts, shares of stocks, buildings, shopping centers, condominiums, mansions, residences, estates, and other kinds of real and personal properties in the Philippines and in 31 various countries of the world." Upon these premises, the President1) froze "all assets and properties in the Philippines in which former President Marcos and/or his wife, Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents, or nominees have any interest or participation; 2) prohibited former President Ferdinand Marcos and/or his wife * *, their close relatives, subordinates, business associates, duties, agents, or nominees from transferring, conveying, encumbering, concealing or dissipating said assets or properties in the Philippines and abroad, pending the outcome of appropriate proceedings in the Philippines to determine whether any such assets or properties were acquired by them through or as a result of improper or illegal use of or the conversion of funds belonging to the Government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their official position, authority, relationship, connection or influence to unjustly enrich themselves at the expense and to the grave damage and prejudice of the Filipino people and the Republic of the Philippines;

3) prohibited "any person from transferring, conveying, encumbering or otherwise depleting or concealing such assets and properties or from assisting or taking part in their transfer, encumbrance, concealment or dissipation under pain of such penalties as are prescribed by law;" and 4) required "all persons in the Philippines holding such assets or properties, whether located in the Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of the same to the Commission on Good Government within thirty 32 (30) days from publication of * (the) Executive Order, * *. d. Executive Order No. 14 33 A third executive order is relevant: Executive Order No. 14, by which the PCGG is empowered, "with the assistance of the Office of the Solicitor General and other government agencies, * * to file and prosecute all cases investigated by it * * as may be warranted by 34 its findings." All such cases, whether civil or criminal, are to be filed "with the Sandiganbayan which shall have exclusive and 35 original jurisdiction thereof." Executive Order No. 14 also pertinently provides that civil suits for restitution, reparation of damages, or indemnification for consequential damages, forfeiture proceedings provided for under Republic Act No. 1379, or any other civil actions under the Civil Code or other existing laws, in connection with * * (said Executive Orders Numbered 1 and 2) may be filed separately from and proceed independently of any criminal proceedings and may be proved by a preponderance of 36 evidence;" and that, moreover, the "technical rules of procedure and evidence shall not be strictly applied to* * (said)civil cases." 5. Contemplated Situations The situations envisaged and sought to be governed are self-evident, these being: 37 1) that "(i)ll-gotten properties (were) amassed by the leaders and supporters of the previous regime"; a) more particularly, that ill-gotten wealth (was) accumulated by former President Ferdinand E. Marcos, his immediate family, relatives, subordinates and close associates, * * located in the Philippines or abroad, * * (and) business enterprises and entities (came to be) owned or controlled by them, during * * (the Marcos) administration, directly or through nominees, by taking undue 38 advantage of their public office and/or using their powers, authority, influence, Connections or relationship; b) otherwise stated, that "there are assets and properties purportedly pertaining to former President Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents or nominees which had been or were acquired by them directly or indirectly, through or as a result of the improper or illegal use of funds or properties owned by the Government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their office, authority, influence, connections or relationship, resulting in their unjust 39 enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the Philippines"; c) that "said assets and properties are in the form of bank accounts. deposits, trust. accounts, shares of stocks, buildings, shopping centers, condominiums, mansions, residences, estates, and other kinds of real and personal properties in the Philippines and in 40 various countries of the world;" and 2) that certain "business enterprises and properties (were) taken over by the government of the Marcos Administration or by 41 entities or persons close to former President Marcos. 6. Government's Right and Duty to Recover All Ill-gotten Wealth There can be no debate about the validity and eminent propriety of the Government's plan "to recover all ill-gotten wealth." Neither can there be any debate about the proposition that assuming the above described factual premises of the Executive Orders and Proclamation No. 3 to be true, to be demonstrable by competent evidence, the recovery from Marcos, his family and his dominions of the assets and properties involved, is not only a right but a duty on the part of Government. But however plain and valid that right and duty may be, still a balance must be sought with the equally compelling necessity that a proper respect be accorded and adequate protection assured, the fundamental rights of private property and free enterprise which are deemed pillars of a free society such as ours, and to which all members of that society may without exception lay claim. * * Democracy, as a way of life enshrined in the Constitution, embraces as its necessary components freedom of conscience, freedom of expression, and freedom in the pursuit of happiness. Along with these freedoms are included economic freedom and freedom of enterprise within reasonable bounds and under proper control. * * Evincing much concern for the protection of property, the Constitution distinctly recognizes the preferred position which real estate has occupied in law for ages. Property is bound up with every aspect of social life in a democracy as democracy is conceived in the Constitution. The Constitution realizes the indispensable role which property, owned in reasonable quantities and used legitimately, plays in the stimulation to economic effort and the formation and growth of a solid social middle class that is said to be the bulwark of democracy and the backbone of every 42 progressive and happy country. a. Need of Evidentiary Substantiation in Proper Suit Consequently, the factual premises of the Executive Orders cannot simply be assumed. They will have to be duly established by adequate proof in each case, in a proper judicial proceeding, so that the recovery of the ill-gotten wealth may be validly and properly adjudged and consummated; although there are some who maintain that the fact-that an immense fortune, and "vast resources of the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad," and they have resorted to all sorts of clever schemes and manipulations to disguise and hide their illicit acquisitions-is within the realm of judicial notice, being of so extensive notoriety as to dispense with proof thereof, Be this as it may, the requirement of evidentiary substantiation has been expressly acknowledged, and the procedure to be followed explicitly laid down, in Executive Order No. 14. b. Need of Provisional Measures to Collect and Conserve Assets Pending Suits Nor may it be gainsaid that pending the institution of the suits for the recovery of such "ill-gotten wealth" as the evidence at hand may reveal, there is an obvious and imperative need for preliminary, provisional measures to prevent the concealment, disappearance, destruction, dissipation, or loss of the assets and properties subject of the suits, or to restrain or foil acts that may render moot and academic, or effectively hamper, delay, or negate efforts to recover the same. 7. Provisional Remedies Prescribed by Law To answer this need, the law has prescribed three (3) provisional remedies. These are: (1) sequestration; (2) freeze orders; and (3) provisional takeover. Sequestration and freezing are remedies applicable generally to unearthed instances of "ill-gotten wealth." The remedy of "provisional takeover" is peculiar to cases where "business enterprises and properties (were) taken over by the government of the 43 Marcos Administration or by entities or persons close to former President Marcos." a. Sequestration

By the clear terms of the law, the power of the PCGG to sequester property claimed to be "ill-gotten" means to place or cause to be placed under its possession or control said property, or any building or office wherein any such property and any records pertaining thereto may be found, including "business enterprises and entities,"-for the purpose of preventing the destruction, concealment or dissipation of, and otherwise conserving and preserving, the same-until it can be determined, through appropriate judicial proceedings, whether the property was in truth will- gotten," i.e., acquired through or as a result of improper or illegal use of or the conversion of funds belonging to the Government or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of official position, authority relationship, connection or influence, resulting in unjust 44 enrichment of the ostensible owner and grave damage and prejudice to the State. And this, too, is the sense in which the term is 45 commonly understood in other jurisdictions. b. "Freeze Order" A "freeze order" prohibits the person having possession or control of property alleged to constitute "ill-gotten wealth" "from transferring, conveying, encumbering or otherwise depleting or concealing such property, or from assisting or taking part in its 46 transfer, encumbrance, concealment, or dissipation." In other words, it commands the possessor to hold the property and conserve it subject to the orders and disposition of the authority decreeing such freezing. In this sense, it is akin to a garnishment by which the possessor or ostensible owner of property is enjoined not to deliver, transfer, or otherwise dispose of any effects or 47 credits in his possession or control, and thus becomes in a sense an involuntary depositary thereof. c. Provisional Takeover In providing for the remedy of "provisional takeover," the law acknowledges the apparent distinction between "ill gotten" "business enterprises and entities" (going concerns, businesses in actual operation), generally, as to which the remedy of sequestration applies, it being necessarily inferred that the remedy entails no interference, or the least possible interference with the actual management and operations thereof; and "business enterprises which were taken over by the government government of the Marcos Administration or by entities or persons close to him," in particular, as to which a "provisional takeover" is authorized, "in the 48 public interest or to prevent disposal or dissipation of the enterprises." Such a "provisional takeover" imports something more than sequestration or freezing, more than the placing of the business under physical possession and control, albeit without or with the least possible interference with the management and carrying on of the business itself. In a "provisional takeover," what is taken into custody is not only the physical assets of the business enterprise or entity, but the business operation as well. It is in fine the assumption of control not only over things, but over operations or on- going activities. But, to repeat, such a "provisional takeover" is allowed only as regards "business enterprises * * taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos." d. No Divestment of Title Over Property Seized It may perhaps be well at this point to stress once again the provisional, contingent character of the remedies just described. Indeed the law plainly qualifies the remedy of take-over by the adjective, "provisional." These remedies may be resorted to only for a particular exigency: to prevent in the public interest the disappearance or dissipation of property or business, and conserve it pending adjudgment in appropriate proceedings of the primary issue of whether or not the acquisition of title or other right thereto by the apparent owner was attended by some vitiating anomaly. None of the remedies is meant to deprive the owner or possessor of his title or any right to the property sequestered, frozen or taken over and vest it in the sequestering agency, the Government or other person. This can be done only for the causes and by the processes laid down by law. That this is the sense in which the power to sequester, freeze or provisionally take over is to be understood and exercised, the language of the executive orders in question leaves no doubt. Executive Order No. 1 declares that the sequestration of property the acquisition of which is suspect shall last "until the transactions leading to such acquisition * * can be disposed of by the appropriate 49 authorities." Executive Order No. 2 declares that the assets or properties therein mentioned shall remain frozen "pending the outcome of appropriate proceedings in the Philippines to determine whether any such assets or properties were acquired" by illegal means. Executive Order No. 14 makes clear that judicial proceedings are essential for the resolution of the basic issue of whether or not particular assets are "ill-gotten," and resultant recovery thereof by the Government is warranted. e. State of Seizure Not To Be Indefinitely Maintained; The Constitutional Command 50 There is thus no cause for the apprehension voiced by BASECO that sequestration, freezing or provisional takeover is designed to be an end in itself, that it is the device through which persons may be deprived of their property branded as "ill-gotten," that it is intended to bring about a permanent, rather than a passing, transitional state of affairs. That this is not so is quite explicitly declared by the governing rules. Be this as it may, the 1987 Constitution should allay any lingering fears about the duration of these provisional remedies. Section 26 51 of its Transitory Provisions, lays down the relevant rule in plain terms, apart from extending ratification or confirmation (although not really necessary) to the institution by presidential fiat of the remedy of sequestration and freeze orders: SEC. 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986 in relation to the recovery of ill-gotten wealth shag remain operative for not more thaneighteen months after the ratification of this Constitution. However, in the national interest, as certified by the President, the Congress may extend said period. A sequestration or freeze order shall be issued only upon showing of a prima facie case. The order and the list of the sequestered or frozen properties shall forthwith be registered with the proper court. For orders issued before the ratification of this Constitution, the corresponding judicial action or proceeding shall be filed within six months from its ratification. For those issued after such ratification, the judicial action or proceeding shall be commenced within six months from the issuance thereof. The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding is commenced as herein 52 provided. f. Kinship to Attachment Receivership As thus described, sequestration, freezing and provisional takeover are akin to the provisional remedy of preliminary attachment, or 53 receivership. By attachment, a sheriff seizes property of a defendant in a civil suit so that it may stand as security for the satisfaction of any judgment that may be obtained, and not disposed of, or dissipated, or lost intentionally or otherwise, pending the 54 action. By receivership, property, real or personal, which is subject of litigation, is placed in the possession and control of a 55 receiver appointed by the Court, who shall conserve it pending final determination of the title or right of possession over it. All these remedies sequestration, freezing, provisional, takeover, attachment and receivership are provisional, temporary, designed for-particular exigencies, attended by no character of permanency or finality, and always subject to the control of the issuing court or agency.

g. Remedies, Non-Judicial Parenthetically, that writs of sequestration or freeze or takeover orders are not issued by a court is of no moment. The Solicitor General draws attention to the writ of distraint and levy which since 1936 the Commissioner of Internal Revenue has been by law 56 authorized to issue against property of a delinquent taxpayer. BASECO itself declares that it has not manifested "a rigid insistence on sequestration as a purely judicial remedy * * (as it feels) that the law should not be ossified to a point that makes it insensitive to change." What it insists on, what it pronounces to be its "unyielding position, is that any change in procedure, or the institution of a 57 new one, should conform to due process and the other prescriptions of the Bill of Rights of the Constitution." It is, to be sure, a proposition on which there can be no disagreement. h. Orders May Issue Ex Parte Like the remedy of preliminary attachment and receivership, as well as delivery of personal property in replevinsuits, sequestration 58 and provisional takeover writs may issue ex parte. And as in preliminary attachment, receivership, and delivery of personality, no objection of any significance may be raised to the ex parte issuance of an order of sequestration, freezing or takeover, given its fundamental character of temporariness or conditionality; and taking account specially of the constitutionally expressed "mandate of the people to recover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect the interest 59 of the people;" as well as the obvious need to avoid alerting suspected possessors of "ill-gotten wealth" and thereby cause that disappearance or loss of property precisely sought to be prevented, and the fact, just as self-evident, that "any transfer, disposition, concealment or disappearance of said assets and properties would frustrate, obstruct or hamper the efforts of the Government" at 60 the just recovery thereof. 8. Requisites for Validity What is indispensable is that, again as in the case of attachment and receivership, there exist a prima facie factual foundation, at least, for the sequestration, freeze or takeover order, and adequate and fair opportunity to contest it and endeavor to cause its 61 negation or nullification. Both are assured under the executive orders in question and the rules and regulations promulgated by the PCGG. a. Prima Facie Evidence as Basis for Orders 62 Executive Order No. 14 enjoins that there be "due regard to the requirements of fairness and due process." Executive Order No. 2 declares that with respect to claims on allegedly "ill-gotten" assets and properties, "it is the position of the new democratic government that President Marcos * * (and other parties affected) be afforded fair opportunity to contest these claims before 63 appropriate Philippine authorities." Section 7 of the Commission's Rules and Regulations provides that sequestration or freeze (and takeover) orders issue upon the authority of at least two commissioners, based on the affirmation or complaint of an interested 64 party, or motu proprio when the Commission has reasonable grounds to believe that the issuance thereof is warranted. A similar requirement is now found in Section 26, Art. XVIII of the 1987 Constitution, which requires that a "sequestration or freeze order shall 65 be issued only upon showing of a prima facie case." b. Opportunity to Contest And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by which a party may seek to set aside a writ of sequestration or freeze order, viz: SECTION 5. Who may contend.-The person against whom a writ of sequestration or freeze or hold order is directed may request the lifting thereof in writing, either personally or through counsel within five (5) days from receipt of the writ or order, or in the case of a hold order, from date of knowledge thereof. SECTION 6. Procedure for review of writ or order.-After due hearing or motu proprio for good cause shown, the Commission may lift the writ or order unconditionally or subject to such conditions as it may deem necessary, taking into consideration the evidence and the circumstance of the case. The resolution of the commission may be appealed by the party concerned to the Office of the President of the Philippines within fifteen (15) days from receipt thereof. Parenthetically, even if the requirement for a prima facie showing of "ill- gotten wealth" were not expressly imposed by some rule or regulation as a condition to warrant the sequestration or freezing of property contemplated in the executive orders in question, it would nevertheless be exigible in this jurisdiction in which the Rule of Law prevails and official acts which are devoid of rational basis 66 in fact or law, or are whimsical and capricious, are condemned and struck down. 9. Constitutional Sanction of Remedies If any doubt should still persist in the face of the foregoing considerations as to the validity and propriety of sequestration, freeze and takeover orders, it should be dispelled by the fact that these particular remedies and the authority of the PCGG to issue them have received constitutional approbation and sanction. As already mentioned, the Provisional or "Freedom" Constitution recognizes the power and duty of the President to enact "measures to achieve the mandate of the people to * * * (recover ill- gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the people through orders of sequestration or freezing of assets or accounts." And as also already adverted to, Section 26, Article XVIII of the 1987 67 Constitution treats of, and ratifies the "authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986." The institution of these provisional remedies is also premised upon the State's inherent police power, regarded, as t lie power of 68 promoting the public welfare by restraining and regulating the use of liberty and property," and as "the most essential, insistent 69 and illimitable of powers * * in the promotion of general welfare and the public interest," and said to be co-extensive with self70 protection and * * not inaptly termed (also) the'law of overruling necessity." " 10. PCGG not a "Judge"; General Functions It should also by now be reasonably evident from what has thus far been said that the PCGG is not, and was never intended to act as, a judge. Its general function is to conduct investigations in order to collect evidenceestablishing instances of "ill-gotten wealth;" issue sequestration, and such orders as may be warranted by the evidence thus collected and as may be necessary to preserve and conserve the assets of which it takes custody and control and prevent their disappearance, loss or dissipation; and eventually file and prosecute in the proper court of competent jurisdiction all cases investigated by it as may be warranted by its findings. It does not try and decide, or hear and determine, or adjudicate with any character of finality or compulsion, cases involving the essential issue of whether or not property should be forfeited and transferred to the State because "ill-gotten" within the meaning of the Constitution and the executive orders. This function is reserved to the designated court, in this case, the 71 72 Sandiganbayan. There can therefore be no serious regard accorded to the accusation, leveled by BASECO, that the PCGG plays the perfidious role of prosecutor and judge at the same time.

11. Facts Preclude Grant of Relief to Petitioner Upon these premises and reasoned conclusions, and upon the facts disclosed by the record, hereafter to be discussed, the petition cannot succeed. The writs of certiorari and prohibition prayed for will not be issued. The facts show that the corporation known as BASECO was owned or controlled by President Marcos "during his administration, through nominees, by taking undue advantage of his public office and/or using his powers, authority, or influence, " and that it was by and through the same means, that BASECO had taken over the business and/or assets of the National Shipyard and Engineering Co., Inc., and other government-owned or controlled entities. 12. Organization and Stock Distribution of BASECO BASECO describes itself in its petition as "a shiprepair and shipbuilding company * * incorporated as a domestic private corporation * * (on Aug. 30, 1972) by a consortium of Filipino shipowners and shipping executives. Its main office is at Engineer Island, Port Area, 73 Manila, where its Engineer Island Shipyard is housed, and its main shipyard is located at Mariveles Bataan." Its Articles of Incorporation disclose that its authorized capital stock is P60,000,000.00 divided into 60,000 shares, of which 12,000 shares with a value of P12,000,000.00 have been subscribed, and on said subscription, the aggregate sum of P3,035,000.00 has been paid by the 74 incorporators. The same articles Identify the incorporators, numbering fifteen (15), as follows: (1) Jose A. Rojas, (2) Anthony P. Lee, (3) Eduardo T. Marcelo, (4) Jose P. Fernandez, (5) Generoso Tanseco, (6) Emilio T. Yap, (7) Antonio M. Ezpeleta, (8) Zacarias Amante, (9) Severino de la Cruz, (10) Jose Francisco, (11) Dioscoro Papa, (12) Octavio Posadas, (13) Manuel S. Mendoza, (14) Magiliw Torres, and (15) Rodolfo Torres. By 1986, however, of these fifteen (15) incorporators, six (6) had ceased to be stockholders, namely: (1) Generoso Tanseco, (2) Antonio Ezpeleta, (3) Zacarias Amante, (4) Octavio Posadas, (5) Magiliw Torres, and (6) Rodolfo Torres. As of this year, 1986, there 75 were twenty (20) stockholders listed in BASECO's Stock and Transfer Book. Their names and the number of shares respectively held by them are as follows: 1. Jose A. Rojas 2. Severino G. de la Cruz 3. Emilio T. Yap 4. Jose Fernandez 5. Jose Francisco 6. Manuel S. Mendoza 7. Anthony P. Lee 8. Hilario M. Ruiz 9. Constante L. Farias 10. Fidelity Management, Inc. 11. Trident Management 12. United Phil. Lines 13. Renato M. Tanseco 14. Fidel Ventura 15. Metro Bay Drydock 16. Manuel Jacela 17. Jonathan G. Lu 18. Jose J. Tanchanco 19. Dioscoro Papa 20. Edward T. Marcelo TOTAL 1,248 shares 1,248 shares 2,508 shares 1,248 shares 128 shares 96 shares 1,248 shares 32 shares 8 shares 65,882 shares 7,412 shares 1,240 shares 8 shares 8 shares 136,370 shares 1 share 1 share 1 share 128 shares 4 shares 218,819 shares.

13 Acquisition of NASSCO by BASECO Barely six months after its incorporation, BASECO acquired from National Shipyard & Steel Corporation, or NASSCO, a governmentowned or controlled corporation, the latter's shipyard at Mariveles, Bataan, known as the Bataan National Shipyard (BNS), and except for NASSCO's Engineer Island Shops and certain equipment of the BNS, consigned for future negotiation all its structures, buildings, shops, quarters, houses, plants, equipment and facilities, in stock or in transit. This it did in virtue of a "Contract of Purchase and Sale with Chattel Mortgage" executed on February 13, 1973. The price was P52,000,000.00. As partial payment thereof, BASECO delivered to NASSCO a cash bond of P11,400,000.00, convertible into cash within twenty-four (24) hours from completion of the inventory undertaken pursuant to the contract. The balance of P41,600,000.00, with interest at seven percent (7%) per annum, compounded semi-annually, was stipulated to be paid in equal semi-annual installments over a term of nine (9) 76 years, payment to commence after a grace period of two (2) years from date of turnover of the shipyard to BASECO.

14. Subsequent Reduction of Price; Intervention of Marcos Unaccountably, the price of P52,000,000.00 was reduced by more than one-half, to P24,311,550.00, about eight (8) months later. A document to this effect was executed on October 9, 1973, entitled "Memorandum Agreement," and was signed for NASSCO by 77 Arturo Pacificador, as Presiding Officer of the Board of Directors, and David R. Ines, as General Manager. This agreement bore, at the top right corner of the first page, the word "APPROVED" in the handwriting of President Marcos, followed by his usual full signature. The document recited that a down payment of P5,862,310.00 had been made by BASECO, and the balance of P19,449,240.00 was payable in equal semi-annual installments over nine (9) years after a grace period of two (2) years, with interest at 7% per annum. 15. Acquisition of 300 Hectares from Export Processing Zone Authority On October 1, 1974, BASECO acquired three hundred (300) hectares of land in Mariveles from the Export Processing Zone Authority for the price of P10,047,940.00 of which, as set out in the document of sale, P2,000.000.00 was paid upon its execution, and the 78 balance stipulated to be payable in installments. 16. Acquisition of Other Assets of NASSCO; Intervention of Marcos Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again with the intervention of President Marcos, acquired ownership of the rest of the assets of NASSCO which had not been included in the first two (2) purchase documents. This was 79 accomplished by a deed entitled "Contract of Purchase and Sale," which, like the Memorandum of Agreement dated October 9, 1973 supra also bore at the upper right-hand corner of its first page, the handwritten notation of President Marcos reading, "APPROVED, July 29, 1973," and underneath it, his usual full signature. Transferred to BASECO were NASSCO's "ownership and all its titles, rights and interests over all equipment and facilities including structures, buildings, shops, quarters, houses, plants and expendable or semi-expendable assets, located at the Engineer Island, known as the Engineer Island Shops, including all the equipment of the Bataan National Shipyards (BNS) which were excluded from the sale of NBS to BASECO but retained by BASECO and all other selected equipment and machineries of NASSCO at J. Panganiban Smelting Plant." In the same deed, NASSCO committed itself to cooperate with BASECO for the acquisition from the National Government or other appropriate Government entity of Engineer Island. Consideration for the sale was set at P5,000,000.00; a down payment of P1,000,000.00 appears to have been made, and the balance was stipulated to be paid at 7% interest per annum in equal semi annual installments over a term of nine (9) years, to commence after a grace period of two (2) years. Mr. Arturo Pacificador again signed for NASSCO, together with the general manager, Mr. David R. Ines. 17. Loans Obtained It further appears that on May 27, 1975 BASECO obtained a loan from the NDC, taken from "the last available Japanese war damage 80 fund of $19,000,000.00," to pay for "Japanese made heavy equipment (brand new)." On September 3, 1975, it got another loan also from the NDC in the amount of P30,000,000.00 (id.). And on January 28, 1976, it got still another loan, this time from the GSIS, 81 82 in the sum of P12,400,000.00. The claim has been made that not a single centavo has been paid on these loans. 18. Reports to President Marcos In September, 1977, two (2) reports were submitted to President Marcos regarding BASECO. The first was contained in a letter dated 83 September 5, 1977 of Hilario M. Ruiz, BASECO president. The second was embodied in a confidential memorandum dated 84 September 16, 1977 of Capt. A.T. Romualdez. They further disclose the fine hand of Marcos in the affairs of BASECO, and that of a Romualdez, a relative by affinity. a. BASECO President's Report In his letter of September 5, 1977, BASECO President Ruiz reported to Marcos that there had been "no orders or demands for ship construction" for some time and expressed the fear that if that state of affairs persisted, BASECO would not be able to pay its debts 85 to the Government, which at the time stood at the not inconsiderable amount of P165,854,000.00. He suggested that, to "save the situation," there be a "spin-off (of their) shipbuilding activities which shall be handled exclusively by an entirely new corporation to be created;" and towards this end, he informed Marcos that BASECO was * * inviting NDC and LUSTEVECO to participate by converting the NDC shipbuilding loan to BASECO amounting to P341.165M and assuming and converting a portion of BASECO's shipbuilding loans from REPACOM amounting to P52.2M or a total of P83.365M as NDC's equity contribution in the new corporation. LUSTEVECO will participate by absorbing and converting a portion of the 86 REPACOM loan of Bay Shipyard and Drydock, Inc., amounting to P32.538M. b. Romualdez' Report Capt. A.T. Romualdez' report to the President was submitted eleven (11) days later. It opened with the following caption: MEMORANDUM: FOR : The President SUBJECT: An Evaluation and Re-assessment of a Performance of a Mission FROM: Capt. A.T. Romualdez. Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting its loan obligations due chiefly to the fact that "orders to build ships as expected * * did not materialize." He advised that five stockholders had "waived and/or assigned their holdings inblank," these being: (1) Jose A. Rojas, (2) Severino de la Cruz, (3) Rodolfo Torres, (4) Magiliw Torres, and (5) Anthony P. Lee. Pointing out that "Mr. Magiliw Torres * * is already dead and Mr. Jose A. Rojas had a major heart attack," he made the following quite revealing, and it may be added, quite cynical and indurate recommendation, to wit: * * (that) their replacements (be effected) so we can register their names in the stock book prior to the implementation of your instructions to pass a board resolution to legalize the transfers under SEC regulations; 2. By getting their replacements, the families cannot question us later on; and 87 3. We will owe no further favors from them. 88 He also transmitted to Marcos, together with the report, the following documents: 89 1. Stock certificates indorsed and assigned in blank with assignments and waivers; 2. The articles of incorporation, the amended articles, and the by-laws of BASECO; 3. Deed of Sales, wherein NASSCO sold to BASECO four (4) parcels of land in "Engineer Island", Port Area, Manila; 4. Transfer Certificate of Title No. 124822 in the name of BASECO, covering "Engineer Island"; 5. Contract dated October 9, 1973, between NASSCO and BASECO re-structure and equipment at Mariveles, Bataan; 6. Contract dated July 16, 1975, between NASSCO and BASECO re-structure and equipment at Engineer Island, Port Area Manila;

7. Contract dated October 1, 1974, between EPZA and BASECO re 300 hectares of land at Mariveles, Bataan; 8. List of BASECO's fixed assets; 9. Loan Agreement dated September 3, 1975, BASECO's loan from NDC of P30,000,000.00; 10. BASECO-REPACOM Agreement dated May 27, 1975; 90 11. GSIS loan to BASECO dated January 28, 1976 of P12,400,000.00 for the housing facilities for BASECO's rank-and-file employees. Capt. Romualdez also recommended that BASECO's loans be restructured "until such period when BASECO will have enough orders for ships in order for the company to meet loan obligations," and that An LOI may be issued to government agencies using floating equipment, that a linkage scheme be applied to a certain percent of 91 BASECO's net profit as part of BASECO's amortization payments to make it justifiable for you, Sir. It is noteworthy that Capt. A.T. Romualdez does not appear to be a stockholder or officer of BASECO, yet he has presented a report on BASECO to President Marcos, and his report demonstrates intimate familiarity with the firm's affairs and problems. 19. Marcos' Response to Reports President Marcos lost no time in acting on his subordinates' recommendations, particularly as regards the "spin-off" and the "linkage scheme" relative to "BASECO's amortization payments." a. Instructions re "Spin-Off" Under date of September 28, 1977, he addressed a Memorandum to Secretary Geronimo Velasco of the Philippine National Oil Company and Chairman Constante Farias of the National Development Company, directing them "to participate in the formation of a new corporation resulting from the spin-off of the shipbuilding component of BASECO along the following guidelines: a. Equity participation of government shall be through LUSTEVECO and NDC in the amount of P115,903,000 consisting of the following obligations of BASECO which are hereby authorized to be converted to equity of the said new corporation, to wit: 1. NDC P83,865,000 (P31.165M loan & P52.2M Reparation) 2. LUSTEVECO P32,538,000 (Reparation) b. Equity participation of government shall be in the form of non- voting shares. 92 For immediate compliance. Mr. Marcos' guidelines were promptly complied with by his subordinates. Twenty-two (22) days after receiving their president's memorandum, Messrs. Hilario M. Ruiz, Constante L. Farias and Geronimo Z. Velasco, in representation of their respective 93 corporations, executed a PRE-INCORPORATION AGREEMENT dated October 20, 1977. In it, they undertook to form a shipbuilding corporation to be known as "PHIL-ASIA SHIPBUILDING CORPORATION," to bring to realization their president's instructions. It would 94 seem that the new corporation ultimately formed was actually named "Philippine Dockyard Corporation (PDC)." b. Letter of Instructions No. 670 Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of instructions. On February 14, 1978, he issued Letter of Instructions No. 670 addressed to the Reparations Commission REPACOM the Philippine National Oil Company (PNOC), the Luzon Stevedoring Company (LUSTEVECO), and the National Development Company (NDC). What is commanded therein is summarized by the Solicitor General, with pithy and not inaccurate observations as to the effects thereof (in italics), as follows: * * 1) the shipbuilding equipment procured by BASECO through reparations be transferred to NDC subject to reimbursement by NDC to BASECO (of) the amount of s allegedly representing the handling and incidental expenses incurred by BASECO in the installation of said equipment (so instead of NDC getting paid on its loan to BASECO, it was made to pay BASECO instead the amount of P18.285M); 2) the shipbuilding equipment procured from reparations through EPZA, now in the possession of BASECO and BSDI (Bay Shipyard & Drydocking, Inc.) be transferred to LUSTEVECO through PNOC; and 3) the shipbuilding equipment (thus) transferred be invested by LUSTEVECO, acting through PNOC and NDC, as the government's equity participation in a shipbuilding corporation to be established in partnership with the private sector. xxx xxx xxx And so, through a simple letter of instruction and memorandum, BASECO's loan obligation to NDC and REPACOM * * in the total 95 amount of P83.365M and BSD's REPACOM loan of P32.438M were wiped out and converted into non-voting preferred shares. 20. Evidence of Marcos' Ownership of BASECO It cannot therefore be gainsaid that, in the context of the proceedings at bar, the actuality of the control by President Marcos of BASECO has been sufficiently shown. Other evidence submitted to the Court by the Solicitor General proves that President Marcos not only exercised control over BASECO, but also that he actually owns well nigh one hundred percent of its outstanding stock. It will be recalled that according to petitioner- itself, as of April 23, 1986, there were 218,819 shares of stock outstanding, ostensibly 96 owned by twenty (20) stockholders. Four of these twenty are juridical persons: (1)Metro Bay Drydock, recorded as holding 136,370 shares; (2) Fidelity Management, Inc., 65,882 shares; (3)Trident Management, 7,412 shares; and (4) United Phil. Lines, 1,240 shares. The first three corporations, among themselves, own an aggregate of 209,664 shares of BASECO stock, or 95.82% of the outstanding stock. Now, the Solicitor General has drawn the Court's attention to the intriguing circumstance that found in Malacanang shortly after the sudden flight of President Marcos, were certificates corresponding to more than ninety-five percent (95%) of all the outstanding shares of stock of BASECO, endorsed in blank, together with deeds of assignment of practically all the outstanding shares of stock of the three (3) corporations above mentioned (which hold 95.82% of all BASECO stock), signed by the owners thereof although not 97 notarized. More specifically, found in Malacanang (and now in the custody of the PCGG) were: 1) the deeds of assignment of all 600 outstanding shares of Fidelity Management Inc. which supposedly owns as aforesaid 65,882 shares of BASECO stock; 2) the deeds of assignment of 2,499,995 of the 2,500,000 outstanding shares of Metro Bay Drydock Corporation which allegedly owns 136,370 shares of BASECO stock; 3) the deeds of assignment of 800 outstanding shares of Trident Management Co., Inc. which allegedly owns 7,412 shares of 98 BASECO stock, assigned in blank; and 4) stock certificates corresponding to 207,725 out of the 218,819 outstanding shares of BASECO stock; that is, all but 5 % all 99 endorsed in blank.

While the petitioner's counsel was quick to dispute this asserted fact, assuring this Court that the BASECO stockholders were still in possession of their respective stock certificates and had "never endorsed * * them in blank or to anyone else," 100 that denial is exposed by his own prior and subsequent recorded statements as a mere gesture of defiance rather than a verifiable factual declaration. By resolution dated September 25, 1986, this Court granted BASECO's counsel a period of 10 days "to SUBMIT,as undertaken by him, * * the certificates of stock issued to the stockholders of * * BASECO as of April 23, 1986, as listed in Annex 'P' of the petition.' 101 Counsel thereafter moved for extension; and in his motion dated October 2, 1986, he declared inter alia that "said certificates of stock are in the possession of third parties, among whom being the respondents themselves * * and petitioner is still endeavoring to secure copies thereof from them." 102On the same day he filed another motion praying that he be allowed "to secure copies of the Certificates of Stock in the name of Metro Bay Drydock, Inc., and of all other Certificates, of Stock of petitioner's stockholders in possession of respondents." 103 In a Manifestation dated October 10, 1986,, 104 the Solicitor General not unreasonably argued that counsel's aforestated motion to secure copies of the stock certificates "confirms the fact that stockholders of petitioner corporation are not in possession of * * (their) certificates of stock," and the reason, according to him, was "that 95% of said shares * * have been endorsed in blank and found in Malacaang after the former President and his family fled the country." To this manifestation BASECO's counsel replied on November 5, 1986, as already mentioned, Stubbornly insisting that the firm's stockholders had not really assigned their stock. 105 In view of the parties' conflicting declarations, this Court resolved on November 27, 1986 among other things "to require * * the petitioner * * to deposit upon proper receipt with Clerk of Court Juanito Ranjo the originals of the stock certificates alleged to be in its possession or accessible to it, mentioned and described in Annex 'P' of its petition, (and other pleadings) * * within ten (10) days from notice." 106 In a motion filed on December 5, 1986, 107BASECO's counsel made the statement, quite surprising in the premises, that "it will negotiate with the owners (of the BASECO stock in question) to allow petitioner to borrow from them, if available, the certificates referred to" but that "it needs a more sufficient time therefor" (sic). BASECO's counsel however eventually had to confess inability to produce the originals of the stock certificates, putting up the feeble excuse that while he had "requested the stockholders to allow * * (him) to borrow said certificates, * * some of * * (them) claimed that they had delivered the certificates to third parties by way of pledge and/or to secure performance of obligations, while others allegedly have entrusted them to third parties in view of last national emergency." 108 He has conveniently omitted, nor has he offered to give the details of the transactions adverted to by him, or to explain why he had not impressed on the supposed stockholders the primordial importance of convincing this Court of their present custody of the originals of the stock, or if he had done so, why the stockholders are unwilling to agree to some sort of arrangement so that the originals of their certificates might at the very least be exhibited to the Court. Under the circumstances, the Court can only conclude that he could not get the originals from the stockholders for the simple reason that, as the Solicitor General maintains, said stockholders in truth no longer have them in their possession, these having already been assigned in blank to then President Marcos. 21. Facts Justify Issuance of Sequestration and Takeover Orders In the light of the affirmative showing by the Government that, prima facie at least, the stockholders and directors of BASECO as of April, 1986 109 were mere "dummies," nominees or alter egos of President Marcos; at any rate, that they are no longer owners of any shares of stock in the corporation, the conclusion cannot be avoided that said stockholders and directors have no basis and no standing whatever to cause the filing and prosecution of the instant proceeding; and to grant relief to BASECO, as prayed for in the petition, would in effect be to restore the assets, properties and business sequestered and taken over by the PCGG to persons who are "dummies," nominees or alter egos of the former president. From the standpoint of the PCGG, the facts herein stated at some length do indeed show that the private corporation known as BASECO was "owned or controlled by former President Ferdinand E. Marcos * * during his administration, * * through nominees, by taking advantage of * * (his) public office and/or using * * (his) powers, authority, influence * *," and that NASSCO and other property of the government had been taken over by BASECO; and the situation justified the sequestration as well as the provisional takeover of the corporation in the public interest, in accordance with the terms of Executive Orders No. 1 and 2, pending the filing of the requisite actions with the Sandiganbayan to cause divestment of title thereto from Marcos, and its adjudication in favor of the Republic pursuant to Executive Order No. 14. As already earlier stated, this Court agrees that this assessment of the facts is correct; accordingly, it sustains the acts of sequestration and takeover by the PCGG as being in accord with the law, and, in view of what has thus far been set out in this opinion, pronounces to be without merit the theory that said acts, and the executive orders pursuant to which they were done, are fatally defective in not according to the parties affected prior notice and hearing, or an adequate remedy to impugn, set aside or otherwise obtain relief therefrom, or that the PCGG had acted as prosecutor and judge at the same time. 22. Executive Orders Not a Bill of Attainder Neither will this Court sustain the theory that the executive orders in question are a bill of attainder. 110 "A bill of attainder is a legislative act which inflicts punishment without judicial trial." 111 "Its essence is the substitution of a legislative for a judicial determination of guilt." 112 In the first place, nothing in the executive orders can be reasonably construed as a determination or declaration of guilt. On the contrary, the executive orders, inclusive of Executive Order No. 14, make it perfectly clear that any judgment of guilt in the amassing or acquisition of "ill-gotten wealth" is to be handed down by a judicial tribunal, in this case, the Sandiganbayan, upon complaint filed and prosecuted by the PCGG. In the second place, no punishment is inflicted by the executive orders, as the merest glance at their provisions will immediately make apparent. In no sense, therefore, may the executive orders be regarded as a bill of attainder. 23. No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures BASECO also contends that its right against self incrimination and unreasonable searches and seizures had been transgressed by the Order of April 18, 1986 which required it "to produce corporate records from 1973 to 1986 under pain of contempt of the Commission if it fails to do so." The order was issued upon the authority of Section 3 (e) of Executive Order No. 1, treating of the PCGG's power to "issue subpoenas requiring * * the production of such books, papers, contracts, records, statements of accounts and other documents as may be material to the investigation conducted by the Commission, " and paragraph (3), Executive Order No. 2 dealing with its power to "require all persons in the Philippines holding * * (alleged "ill-gotten") assets or properties, whether located in the Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of the same * *." The contention lacks merit. It is elementary that the right against self-incrimination has no application to juridical persons.

While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises, may refuse to show its hand when charged with an abuse ofsuchprivileges * * 113 Relevant jurisprudence is also cited by the Solicitor General. 114 * * corporations are not entitled to all of the constitutional protections which private individuals have. * * They are not at all within the privilege against self-incrimination, although this court more than once has said that the privilege runs very closely with the 4th Amendment's Search and Seizure provisions.It is also settled that an officer of the company cannot refuse to produce its records in its possession upon the plea that they will either incriminate him or may incriminate it." (Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's). * * The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It received certain special privileges and franchises, and holds them subject to the laws of the state and the limitations of its charter. Its powers are limited by law. It can make no contract not authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it obeys the laws of its creation. There is a reserve right in the legislature to investigate its contracts and find out whether it has exceeded its powers. It would be a strange anomaly to hold that a state, having chartered a corporation to make use of certain franchises, could not, in the exercise of sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the production of the corporate books and papers for that purpose. The defense amounts to this, that an officer of the corporation which is charged with a criminal violation of the statute may plead the criminality of such corporation as a refusal to produce its books. To state this proposition is to answer it. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises may refuse to show its hand when charged with an abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771, 780 [emphasis, the Solicitor General's]) At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures protection to individuals required to produce evidence before the PCGG against any possible violation of his right against self-incrimination. It gives them immunity from prosecution on the basis of testimony or information he is compelled to present. As amended, said Section 4 now provides that xxx xxx xxx The witness may not refuse to comply with the order on the basis of his privilege against self-incrimination; but no testimony or other information compelled under the order (or any information directly or indirectly derived from such testimony, or other information) may be used against the witness in any criminal case, except a prosecution for perjury, giving a false statement, or otherwise failing to comply with the order. The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar either. There has been no search undertaken by any agent or representative of the PCGG, and of course no seizure on the occasion thereof. 24. Scope and Extent of Powers of the PCGG One other question remains to be disposed of, that respecting the scope and extent of the powers that may be wielded by the PCGG with regard to the properties or businesses placed under sequestration or provisionally taken over. Obviously, it is not a question to which an answer can be easily given, much less one which will suffice for every conceivable situation. a. PCGG May Not Exercise Acts of Ownership One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion over property sequestered, frozen or provisionally taken over. AS already earlier stressed with no little insistence, the act of sequestration; freezing or provisional takeover of property does not import or bring about a divestment of title over said property; does not make the PCGG the owner thereof. In relation to the property sequestered, frozen or provisionally taken over, the PCGG is a conservator, not an owner. Therefore, it can not perform acts of strict ownership; and this is specially true in the situations contemplated by the sequestration rules where, unlike cases of receivership, for example, no court exercises effective supervision or can upon due application and hearing, grant authority for the performance of acts of dominion. Equally evident is that the resort to the provisional remedies in question should entail the least possible interference with business operations or activities so that, in the event that the accusation of the business enterprise being "ill gotten" be not proven, it may be returned to its rightful owner as far as possible in the same condition as it was at the time of sequestration. b. PCGG Has Only Powers of Administration The PCGG may thus exercise only powers of administration over the property or business sequestered or provisionally taken over, much like a court-appointed receiver, 115 such as to bring and defend actions in its own name; receive rents; collect debts due; pay outstanding debts; and generally do such other acts and things as may be necessary to fulfill its mission as conservator and administrator. In this context, it may in addition enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot and academic, or frustrate or otherwise make ineffectual its efforts to carry out its task; punish for direct or indirect contempt in accordance with the Rules of Court; and seek and secure the assistance of any office, agency or instrumentality of the government. 116 In the case of sequestered businesses generally (i.e., going concerns, businesses in current operation), as in the case of sequestered objects, its essential role, as already discussed, is that of conservator, caretaker, "watchdog" or overseer. It is not that of manager, or innovator, much less an owner. c. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him; Limitations Thereon Now, in the special instance of a business enterprise shown by evidence to have been "taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos," 117 the PCGG is given power and authority, as already adverted to, to "provisionally take (it) over in the public interest or to prevent * * (its) disposal or dissipation;" and since the term is obviously employed in reference to going concerns, or business enterprises in operation, something more than mere physical custody is connoted; the PCGG may in this case exercise some measure of control in the operation, running, or management of the business itself. But even in this special situation, the intrusion into management should be restricted to the minimum degree necessary to accomplish the legislative will, which is "to prevent the disposal or dissipation" of the business enterprise. There should be no hasty, indiscriminate, unreasoned replacement or substitution of management officials or change of policies, particularly in respect of viable establishments. In fact, such a replacement or substitution should be avoided if at all possible, and undertaken only when justified by demonstrably tenable grounds and in line with the stated objectives of the PCGG. And it goes without saying that where replacement of management officers may be called for, the greatest prudence, circumspection, care and attention - should accompany that undertaking to the end that truly competent, experienced and honest managers may be recruited. There should be no role to be played in this area by rank amateurs, no matter how wen meaning. The road to hell, it has been said, is paved with

good intentions. The business is not to be experimented or played around with, not run into the ground, not driven to bankruptcy, not fleeced, not ruined. Sight should never be lost sight of the ultimate objective of the whole exercise, which is to turn over the business to the Republic, once judicially established to be "ill-gotten." Reason dictates that it is only under these conditions and circumstances that the supervision, administration and control of business enterprises provisionally taken over may legitimately be exercised. d. Voting of Sequestered Stock; Conditions Therefor So, too, it is within the parameters of these conditions and circumstances that the PCGG may properly exercise the prerogative to vote sequestered stock of corporations, granted to it by the President of the Philippines through a Memorandum dated June 26, 1986. That Memorandum authorizes the PCGG, "pending the outcome of proceedings to determine the ownership of * * (sequestered) shares of stock," "to vote such shares of stock as it may have sequestered in corporations at all stockholders' meetings called for the election of directors, declaration of dividends, amendment of the Articles of Incorporation, etc." The Memorandum should be construed in such a manner as to be consistent with, and not contradictory of the Executive Orders earlier promulgated on the same matter. There should be no exercise of the right to vote simply because the right exists, or because the stocks sequestered constitute the controlling or a substantial part of the corporate voting power. The stock is not to be voted to replace directors, or revise the articles or by-laws, or otherwise bring about substantial changes in policy, program or practice of the corporation except for demonstrably weighty and defensible grounds, and always in the context of the stated purposes of sequestration or provisional takeover, i.e., to prevent the dispersion or undue disposal of the corporate assets. Directors are not to be voted out simply because the power to do so exists. Substitution of directors is not to be done without reason or rhyme, should indeed be shunned if at an possible, and undertaken only when essential to prevent disappearance or wastage of corporate property, and always under such circumstances as assure that the replacements are truly possessed of competence, experience and probity. In the case at bar, there was adequate justification to vote the incumbent directors out of office and elect others in their stead because the evidence showed prima facie that the former were just tools of President Marcos and were no longer owners of any stock in the firm, if they ever were at all. This is why, in its Resolution of October 28, 1986; 118 this Court declared that Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents' calling and holding of a stockholders' meeting for the election of directors as authorized by the Memorandum of the President * * (to the PCGG) dated June 26, 1986, particularly, where as in this case, the government can, through its designated directors, properly exercise control and management over what appear to be properties and assets owned and belonging to the government itself and over which the persons who appear in this case on behalf of BASECO have failed to show any right or even any shareholding in said corporation. It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the management of the company's affairs should henceforth be guided and governed by the norms herein laid down. They should never for a moment allow themselves to forget that they are conservators, not owners of the business; they are fiduciaries, trustees, of whom the highest degree of diligence and rectitude is, in the premises, required. 25. No Sufficient Showing of Other Irregularities As to the other irregularities complained of by BASECO, i.e., the cancellation or revision, and the execution of certain contracts, inclusive of the termination of the employment of some of its executives, 119 this Court cannot, in the present state of the evidence on record, pass upon them. It is not necessary to do so. The issues arising therefrom may and will be left for initial determination in the appropriate action. But the Court will state that absent any showing of any important cause therefor, it will not normally substitute its judgment for that of the PCGG in these individual transactions. It is clear however, that as things now stand, the petitioner cannot be said to have established the correctness of its submission that the acts of the PCGG in question were done without or in excess of its powers, or with grave abuse of discretion. WHEREFORE, the petition is dismissed. The temporary restraining order issued on October 14, 1986 is lifted.

BATONG BUHAY GOLD MINES, INC., petitioner, vs. THE COURT OF APPEALS and INC. MINING CORPORATION, respondents. Taada, Sanchez, Taada & Taada Law Office for petitioner. Quisumbing, Caparas, Ilagan Alcantara & Mosqueda Law Office for private respondent. PARAS, J.: This is a petition to review the decision dated August 27, 1976 of the Court of Appeals (CA) in CA-G.R. No. 51313-R which modified the decision of the then Court of First Instance (CFI) of Manila, Branch 11 in Civil Case No. 79183 Also sought for review are the resolutions of the aforenamed court dated October 21, 1976 and November 12, 1976 which denied petitioner's motion for reconsideration of the subject decision and petition and/or motion for new trial, respectively. The dispositive portion of the CFI judgment reads: WHEREFORE, the Court renders judgment enjoining the defendants to effect the transfer of the shares covered by Stock Certificate No. 16807 to and in the name of plaintiff INCORPORATED Mining Corporation, and the writ of preliminary mandatory injunction issued on March 16, 1970 is hereby declared permanent. SO ORDERED. Upon the other hand, the decretal portion of the CA decision states: WHEREFORE, the judgment appealed from is hereby modified by adding the following to the dispositive portion thereof: Ordering defendant Batong Buhay Gold Mines, Inc. to pay to the plaintiff the sum of P5,625.55, with interest at the legal rate from March 5, 1970 until full payment; and dismissing the complaint with respect to defendant Del Rosario and Company. Defendant Batong Buhay shall pay the costs. IT IS SO ORDERED. (pp. 67-68, Rollo) The antecedent facts, as found by the Court of Appeals, are as follows: The defendant Batong Buhay Gold Mines, Inc. issued Stock Certificate No. 16807 covering 62,495 shares with a par value of P0.01 per share to Francisco Aguac who was then legally married to Paula G. Aguac, but the said spouses had lived separately for more than fourteen (14) years prior to the said date. On December 16, 1969, Francisco Aguac sold his 62,495 shares covered by Stock Certificate No. 16807 for the sum of P9,374.70 in favor of the plaintiff, the said transaction being evidenced by a deed of sale (Exhibit D). The said sale was made by Francisco Aguac without the knowledge or consent of his wife Paula G. Aguac. On the same date of the sale, December 16, 1969, Paula G. Aguac wrote a letter to the president of defendant Batong Buhay Gold Mines, Inc. asking that the transfer of the shares sold by her husband be withheld, inasmuch as the same constituted conjugal property and her share of proceeds of the sale was not given to her (Exhibit 1). On January 5, 1970, under a covering letter dated December 26, 1969, plaintiff's counsel presented Stock Certificate No. 16807 duly endorsed by Francisco Aguac for registration and transfer of the said stock certificate in the name of the plaintiff (Exhibit F). The said letter was addressed to defendant Del Rosario and Company which was the transfer agent of Batong Buhay at that time. In a letter dated February 24, 1970 also addressed to Del Rosario and Company, plaintiff's counsel requested information as to the action taken on the transfer of Stock Certificate No. 16807 in favor of the plaintiff, nothing about which having heard despite the lapse of over a month (Exhibit H). In a reply letter dated February 28, 1970, Del Rosario and Company informed plaintiff's counsel that Batong Buhay has referred the matter to their attorneys, inasmuch as there was a "technical problem that has developed in the transfer of stock," and further advised that the plaintiff communicate directly with Batong Buhay for further details (Exhibit 1).lwphl@it It developed that when Batong Buhay was about to effect the cancellation of Stock Certificate No. 16807 and transfer the 62,495 shares covered thereby to the plaintiff and had, in fact, prepared new Stock Certificate No. 27650 dated January 5, 1970, it received the letter of Paula G. Aguac advising it to withhold the transfer of the subject shares of stock on the ground that the same are conjugal property. On March 2, 1970 Francisco Aguac was charged in a criminal complaint Pasil Kalinga-Apayao, docketed as Criminal Case No. 10, entitled "People vs. Francisco Aguac, et al." The defendants justify their refusal to transfer the shares of stock of Francisco Aguac in the name of the plaintiff in view of their apprehension that they might he held liable for damages under Article 173 of the Civil Code and the ruling of the Supreme Court in Bucoy vs. Paulino, 23 SCRA 248. On March 5, 1970, in view of the defendant's inaction on the request for the transfer of the stock certificate in its name, the plaintiff commenced this action before the Court of First Instance of Manila, praying that the defendants be ordered to issue and release the transfer stock certificate covering 62,495 shares of defendant Batong Buhay, formerly registered in the name of Francisco Aguac, in favor of the plaintiff, and for the recovery of compensatory, exemplary and corrective damages and attorney's fees. A writ of preliminary mandatory injunction was prayed for to order the defendants to issue immediately the transfer certificate covering the aforesaid shares of stock of defendant Batong Buhay in the name of the plaintiff. The trial court granted the prayer for the issuance of the writ of preliminary mandatory injunction in its order of March 16, 1970. In compliance therewith, Stock Certificate No. 16807 was cancelled and new Stock Certificate No. 27650 dated January 5, 1970 was issued to and received by the plaintiff on July 20, 1970." On October 28, 1971, the trial court handed down its judgment ordering the defendant (herein petitioner) to effect the transfer of the shares covered by Stock Certificate No. 16807 in the name of herein respondent Incoporated Mining Corporation and declaring permanent the writ of preliminary mandatory injunction issued on March 16, 1970. Private respondent seasonably appealed the aforesaid decision to the Court of Appeals anchored on the lower court's alleged failure to award damages for the wrongful refusal of petitioner to transfer the subject shares of stock and alleged failure to award attorney's fees, cost of injunction bond and expenses of litigation. On August 27, 1986, respondent appellate court rendered the subject decision the dispositive portion of which has already been quoted hereinabove. Hence, this petition. In assailing the decision of the Court of Appeals, petitioner poses the following issues:

1. May the Court of Appeals award damages by way of unrealized profits despite the absence of supporting evidence, or merely on the basis of pure assumption, speculation or conjecture; or can the respondent recover damages by way of unrealized profits when it has not shown that it was damaged in any manner by the act of petitioner? 2. May the appellate court deny the petitioner the chance to present evidence discovered after judgment which were not only very material to its case, but would also show the untenability and illegality of private respondent's position? We answer the first issue in the negative. The petitioner alleges that the appellate court gravely and categorically erred in awarding damages by way of unrealized profit (or lucro cesante) to private respondent. Petitioner company also alleges that the claim for unrealized profit must be duly and sufficiently established, that is, that the claimant must submit proof that it was in fact damaged because of petitioner's act or omission. The stipulation of facts of the parties does not at all show that private respondent intended to sell, or would sell or would have sold the stocks in question on specified dates. While it is true that shares of stock may go up or down in value (as in fact the concerned shares here really rose from fifteen (15) centavos to twenty three or twenty four (23/24) centavos per share and then fell to about two (2) centavos per share, still whatever profits could have been made are purely SPECULATIVE, for it was difficult to predict with any decree of certainty the rise and fall in the value of the shares. Thus this Court has ruled that speculative damages cannot be recovered. It is easy to say now that had private respondent gained legal title to the shares, it could have sold the same and reaped a profit of P5,624.95 but it could not do so because of petitioner's refusal to transfer the stocks in the former's name at the time demand was made, but then it is also true that human nature, being what it is, private respondent's officials could also have refused to sell and instead wait for expected further increases in value. In view of what has been said, We find no necessity to discuss the second issue. WHEREFORE, the assailed decision and resolutions of the Court of Appeals are hereby SET ASIDE, and a new one is hereby rendered REINSTATING the decision of the trial court. No costs. SO ORDERED.

SOFRONIO T. BAYLA, ET AL., petitioners, vs. SILANG TRAFFIC CO., INC., respondent. SILANG TRAFFIC CO., petitioner, vs. SOFRONIO BAYLA, ET AL., respondents. E. A. Beltran for petitioners. Conrado V. Sanchez, Melchor C. Benitez, and Enrique M. Fernando for respondent. OZAETA, J.: Petitioners in G.R. No. 48195 instituted this action in the Court of First Instance of Cavite against the respondent Silang Traffic Co., Inc. (cross-petitioner in G.R. No. 48196), to recover certain sums of money which they had paid severally to the corporation on account of shares of stock they individually agreed to take and pay for under certain specified terms and conditions, of which the following referring to the petitioner Josefa Naval, is typical: AGREEMENT FOR INSTALLMENT SALE OF SHARES IN THE "SILANG TRAFFIC COMPANY, INC.," Silang, Cavite, P. I. THIS AGREEMENT, made and entered into between Mrs. Josefa Naval, of legal age, married and resident of the Municipality of Silang, Province of Cavite, Philippine Islands, party of the First Part, hereinafter called the subscriber, and the "Silang Traffic Company, Inc.," a corporation duly organized and existing by virtue of and under the laws of the Philippine Islands, with its principal office in the Municipality of Silang, Province of Cavite, Philippine Islands, party of the Second Part, hereinafter called the seller, WITNESSETH: That the subscriber promises to pay personally or by his duly authorized agent to the seller at the Municipality of Silang, Province of Cavite, Philippine Islands, the sum of one thousand five hundred pesos (P1,500), Philippine currency, as purchase price of FIFTEEN (15) shares of capital stock, said purchase price to be paid as follows, to wit: five (5%) per cent upon the execution of the contract, the receipt whereof is hereby acknowledged and confessed, and the remainder in installments of five per cent, payable within the first month of each and every quarter thereafter, commencing on the 1st day of July, 1935, with interest on deferred payments at the rate of SIX (6%) per cent per annum until paid. That the said subscriber further agrees that if he fails to pay any of said installment when due, or to perform any of the aforesaid conditions, or if said shares shall be attached or levied upon by creditors of the said subscriber, then the said shares are to revert to the seller and the payments already made are to be forfeited in favor of said seller, and the latter may then take possession, without resorting to court proceedings. The said seller upon receiving full payment, at the time and manner hereinbefore specified, agrees to execute and deliver to said subscriber, or to his heirs and assigns, the certificate of title of said shares, free and clear of all encumbrances. In testimony whereof, the parties have hereunto set their hands in the Municipality of Silang, Province of Cavite, Philippine Islands, this 30th day of March, 1935. (Sgd.) JOSEFA NAVAL SILANG TRAFFIC COMPANY, INC. Subscriber By (Sgd.) LINO GOMEZ President. (Exhibit 1. Notarial acknowledgment omitted.) The agreements signed by the other petitioners were of the same date (March 30, 1935) and in identical terms as the foregoing except as to the number of shares and the corresponding purchase price. The petitioners agreed to purchase the following number of shares and, up to April 30, 1937, had paid the following sums on account thereof: Sofronio T. Bayla....... Venancio Toledo........ Josefa Naval.............. Paz Toledo................ 8 shares 8 shares P360 375

15 shares 15 shares

675 675

Petitioners' action for the recovery of the sums above mentioned is based on a resolution by the board of directors of the respondent corporation on August 1, 1937, of the following tenor: A mocion sel Sr. Marcos Caparas y secundado por el Sr. Alejandro Bayla, que para el bien de la corporacion y la pronta terminacion del asunto civil No. 3125 titulado "Vicente F. Villanueva et al. vs. Lino Gomez et al.," en el Juzgado de Primera Instancia de Cavite, donde se gasto y se gastara no poca cantidad de la Corporacion, se resolvio y se aprobo por la Junta Directiva los siguientes: (a) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3 de marzo, 1935, art. 11, sec. 162, sobre las cobranzas que se haran por el Secretario Tesorero de la Corporacion a los accionistas que habian tomado o suscrito nuevas acciones y que se permitia a estos pagar 20% del valor de las acciones suscritas en un ao, con interes de 6% y el pago o jornal que se hara por trimestre. (b) Se dejara sin efecto, en vista de que aun no esta pagado todo el valor de las 123 acciones, tomadas de las acciones no expedidas (unissued stock) de la Corporacion y que fueron suscritas por los siguienes: Lino Gomez..................... Venancio Toledo............. Melchor P. Benitez........ Isaias Videa................. Esteban Velasco............ 10 Acciones 8 Acciones 17 Acciones 14 Acciones 10 Acciones

Numeriano S. Aldaba.... Inocencio Cruz................. Josefa Naval .................. Sofronio Bayla................. Dionisio Dungca.............

15 Acciones 8 Acciones

15 Acciones 8 Acciones 3 Acciones

y devolver a las personas arriba descritas toda la cantidad que estas habian pagado por las 123 acciones. (c) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3 marzo, 1935, art. V. sec. 165, sobre el cambio o trueque de las 31 acciones del Treasury Stock, contra las 32 acciones del Sr. Numeriano Aldaba, en la corporacion Northern Luzon Transportation Co. y que se devuelva al Sr. Numeriano Aldaba las 32 acciones mencionadas despues que el haya devuelto el certificado de las 31 acciones de la Silang Traffic Co., Inc. (d) Permitir al Tesorero de la Corporacion para que devuelva a las personas arriba indicadas, las cantidades pagadas por las 123 acciones. (Exhibit A-1.) The respondent corporation set up the following defenses: (1) That the above-quoted resolution is not applicable to the petitioners Sofronio T. Bayla, Josefa Naval, and Paz Toledo because on the date thereof "their subscribed shares of stock had already automatically reverted to the defendant, and the installments paid by them had already been forfeited"; and (2) that said resolution of August 1, 1937, was revoked and cancelled by a subsequent resolution of the board of directors of the defendant corporation dated August 22, 1937. The trial court absolved the defendant from the complaint and declared canceled (forfeited) in favor of the defendant the shares of stock in question. It held that the resolution of August 1, 1937, was null and void, citingVelasco vs. Poizat (37 Phil., 802), wherein this Court held that "a corporation has no legal capacity to release an original subscriber to its capital stock from the obligation to pay for shares; and any agreement to this effect is invalid" Plaintiffs below appealed to the Court of Appeals, which modified of the trial court as follows: That part of the judgment dismissing plaintiff's complaint is affirmed, but that part thereof declaring their subscription canceled is reversed. Defendant is directed to grant plaintiffs 30 days after final judgment within which to pay the arrears on their subscription. Without pronouncement as to costs. Both parties appealed to this Court by petition and cross-petition for certiorari. Petitioners insist that they have the right to recover the amounts involved under the resolution of August 1, 1937, while the respondent and cross-petitioner on its part contends that said amounts have been automatically forfeited and the shares of stock have reverted to the corporation under the agreement hereinabove quoted. The parties litigant, the trial court, and the Court of Appeals have interpreted or considered the said agreement as a contract of subscription to the capital stock of the respondent corporation. It should be noted, however, that said agreement is entitled "Agreement for Installment Sale of Shares in the Silang Traffic Company, Inc.,"; that while the purchaser is designated as "subscriber," the corporation is described as "seller"; that the agreement was entered into on March 30, 1935, long after the incorporation and organization of the corporation, which took place in 1927; and that the price of the stock was payable in quarterly installments spread over a period of five years. It also appears that in civil case No. 3125 of the Court of First Instance of Cavite mentioned in the resolution of August 1, 1937, the right of the corporation to sell the shares of stock to the person named in said resolution (including herein petitioners) was impugned by the plaintiffs in said case, who claimed a preferred right to buy said shares. Whether a particular contract is a subscription or a sale of stock is a matter of construction and depends upon its terms and the intention of the parties (4 Fletcher, Cyclopedia of Corporation [permanent edition], 29, cited in Salmon, Dexter & Co. vs. Unson (47 Phil. 649, 652). In the Unson case just cited, this Court held that a subscription to stock in an existing corporation is, as between the subscriber and the corporation, simply a contract of purchase and sale. It seems clear from the terms of the contracts in question that they are contracts of sale and not of subscription. The lower courts erred in overlooking the distinction between subscription and purchase "A subscription, properly speaking, is the mutual agreement of the subscribers to take and pay for the stock of a corporation, while a purchase is an independent agreement between the individual and the corporation to buy shares of stock from it at stipulated price." (18 C. J. S., 760.) In some particulars the rules governing subscriptions and sales of shares are different. For instance, the provisions of our Corporation Law regarding calls for unpaid subscription and assessment of stock (sections 37-50) do not apply to a purchase of stock. Likewise the rule that corporation has no legal capacity to release an original subscriber to its capital stock from the obligation to pay for his shares, is inapplicable to a contract of purchase of shares. The next question to determine is whether under the contract between the parties the failure of the purchaser to pay any of the quarterly installments on the purchase price automatically gave rise to the forfeiture of the amounts already paid and the reversion of the shares to the corporation. The contract provides for interest of the rate of six per centum per annum on deferred payments. It is also provides that if the purchaser fails to pay any of said installments when due, the said shares are to revert to the seller and the payments already made are to be forfeited in favor of said seller. The respondent corporation contends that when the petitioners failed to pay the installment which fell due on or before July 31, 1937, forfeiture automatically took place, that is to say, without the necessity of any demand from the corporation, and that therefore the resolution of August 1, 1937, authorizing the refund of the installments already paid was inapplicable to the petitioners, who had already lost any and all rights under said contract. The contention is, we think, untenable. The provision regarding interest on deferred payments would not have been inserted if it had been the intention of the parties to provide for automatic forfeiture and cancelation of the contract. Moreover, the contract did not expressly provide that the failure of the purchaser to pay any installment would give rise to forfeiture and cancelation without the necessity of any demand from the seller; and under article 1100 of the Civil Code persons obliged to deliver or do something are not in default until the moment the creditor demands of them judicially or extrajudicially the fulfillment of their obligation, unless (1) the obligation or the law expressly provides that demand shall not be necessary in order that default may arise, (2) by reason of the

nature and circumstances of the obligation it shall appear that the designation of the time at which that thing was to be delivered or the service rendered was the principal inducement to the creation of the obligation. Is the resolution of August 1, 1937, valid? The contract in question being one of purchase and not subscription as we have heretofore pointed out, we see no legal impediment to its rescission by agreement of the parties. According to the resolution of August 1, 1937, the recission was made for the good of the corporation and in order to terminate the then pending civil case involving the validity of the sale of the shares in question among others. To that rescission the herein petitioners apparently agreed, as shown by their demand for the refund of the amounts they had paid as provided in said resolution. It appears from the record that said civil case was subsequently dismissed, and that the purchasers of shares of stock, other than the herein petitioners, who were mentioned in said resolution were able to benefit by said resolution. It would be an unjust discrimination to deny the same benefit to the herein petitioners. We may add that there is no intimation in this case that the corporation was insolvent, or that the right of any creditor of the same was in any way prejudiced by the rescission. The attempted revocation of said rescission by the resolution of August 22, 1937, was invalid, it not having been agreed to by the petitioners. Wherefore, the judgment of the court of appeals is hereby reversed and another judgment will be entered against the defendant Silang Traffic Co., Inc., ordering it to pay to the plaintiffs Sofronio T. Bayla, Venancio Toledo, Josefa Naval, and Paz Toledo, the sums of P360, P375, P675, and P675, respectively, with legal interest on each of said sums from May 28, 1938, the date of the filing of the complaint, until the date of payment, and with costs in the three instances. So ordered.

NORA A. BITONG, petitioner, vs. COURT OF APPEALS (FIFTH DIVISION), EUGENIA D. APOSTOL, JOSE A. APOSTOL, MR. & MS. PUBLISHING CO., LETTY J. MAGSANOC, AND ADORACION G. NUYDA,respondents. NORA A. BITONG, petitioner, vs. COURT OF APPEALS (FIFTH DIVISION) and EDGARDO B. ESPIRITU, respondents. DECISION BELLOSILLO, J.: [1] These twin cases originated from a derivative suit filed by petitioner Nora A. Bitong before the Securities and Exchange Commission(SEC hereafter) allegedly for the benefit of private respondent Mr. & Ms. Publishing Co., Inc. (Mr. & [2] Ms. hereafter), among others, to hold respondent spouses Eugenia D. Apostol and Jose A. Apostol liable for fraud, misrepresentation, disloyalty, evident bad faith, conflict of interest and mismanagement in directing the affairs of Mr. & Ms. to the damage and prejudice of Mr. & Ms. and its stockholders, including petitioner. Alleging before the SEC that she had been the Treasurer and a Member of the Board of Directors of Mr. & Ms. from the time it was incorporated on 29 October 1976 to 11 April 1989, and was the registered owner of 1,000 shares of stock out of the 4,088 total outstanding shares, petitioner complained of irregularities committed from 1983 to 1987 by Eugenia D. Apostol, President and Chairperson of the Board of Directors. Petitioner claimed that except for the sale of the name Philippine Inquirer to Philippine Daily Inquirer (PDI hereafter) all other transactions and agreements entered into by Mr. & Ms. with PDI were not supported by any bond and/or stockholders resolution. And, upon instructions of Eugenia D. Apostol, Mr. & Ms. made several cash advances to PDI on various occasions amounting to P3.276 million. On some of these borrowings PDI paid no interest whatsoever. Despite the fact that the advances made by Mr. & Ms. to PDI were booked as advances to an affiliate, there existed no board or stockholders resolution, contract nor any other document which could legally authorize the creation of and support to an affiliate. Petitioner further alleged that respondents Eugenia and Jose Apostol were stockholders, directors and officers in both Mr. & Ms.and PDI. In fact on 2 May 1986 respondents Eugenia D. Apostol, Leticia J. Magsanoc and Adoracion G. Nuyda subscribed to PDI shares of stock at P50,000.00 each or a total of P150,000.00. The stock subscriptions were paid for by Mr. & Ms. and initially treated as receivables from officers and employees. But, no payments were ever received from respondents, Magsanoc and Nuyda. The petition principally sought to (a) enjoin respondents Eugenia D. Apostol and Jose A. Apostol from further acting as presidentdirector and director, respectively, of Mr. & Ms. and disbursing any money or funds except for the payment of salaries and similar expenses in the ordinary course of business, and from disposing of their Mr. & Ms. shares; (b) enjoin respondents Apostol spouses, Magsanoc and Nuyda from disposing of the PDI shares of stock registered in their names; (c) compel respondents Eugenia and Jose Apostol to account for and reconvey all profits and benefits accruing to them as a result of their improper and fraudulent acts; (d) compel respondents Magsanoc and Nuyda to account for and reconvey to Mr. & Ms. all shares of stock paid from cash advances from it and all accessions or fruits thereof; (e) hold respondents Eugenia and Jose Apostol liable for damages suffered by Mr. & Ms. and the other stockholders, including petitioner, by reason of their improper and fraudulent acts; (f) appoint a management committee for Mr. & Ms. during the pendency of the suit to prevent further dissipation and loss of its assets and funds as well as paralyzation of business operations; and, (g) direct the management committee for Mr. & Ms. to file the necessary action to enforce its rights against PDI and other third parties. Private respondents Apostol spouses, Magsanoc, Nuyda, and Mr. & Ms., on the other hand, refuted the allegations of petitioner by starting with a narration of the beginnings of Mr. & Ms. They recounted that on 9 March 1976 Ex Libris Publishing Co., Inc. (Ex Libris hereafter) was incorporated for the purpose of publishing a weekly magazine. Its original principal stockholders were spouses Senator Juan Ponce Enrile (then Minister of National Defense) and Cristina Ponce Enrile through Jaka Investments Corporation (JAKA hereafter), and respondents Eugenia and Jose Apostol. When Ex Libris suffered financial difficulties, JAKA and the Apostols, together with new investors Luis Villafuerte and Ramon Siy, restructured Ex Libris by organizing a new corporation known as Mr. & Ms. The original stockholders of Mr. & Ms., i.e., JAKA, Luis Villafuerte, Ramon Siy, the Apostols and Ex Libris continued to be virtually the same up to 1989. Thereafter it was agreed among them that, they being close friends, Mr. & Ms. would be operated as a partnership or a close corporation; respondent Eugenia D. Apostol would manage the affairs of Mr. & Ms.; and, no shares of stock would be sold to third parties without first offering the shares to the other stockholders so that transfers would be limited to and only among the original stockholders. Private respondents also asserted that respondent Eugenia D. Apostol had been informing her business partners of her actions as manager, and obtaining their advice and consent. Consequently the other stockholders consented, either expressly or impliedly, to her management. They offered no objections. As a result, the business prospered. Thus, as shown in a statement prepared by the accounting firmPunongbayan and Araullo, there were increases from 1976 to 1988 in the total assets of Mr. & Ms. from P457,569.00 to P10,143,046.00; in the total stockholders equity from P203,378.00 to P2,324,954.00; and, in the net sales, from P301,489.00 to P16,325,610.00. Likewise, cash dividends were distributed and received by the stockholders. Private respondents further contended that petitioner, being merely a holder-in-trust of JAKA shares, only represented and continued to represent JAKA in the board. In the beginning, petitioner cooperated with and assisted the management until mid1986 when relations between her and her principals on one hand, and respondent Eugenia D. Apostol on the other, became strained due to political differences. Hence from mid-1986 to mid-1988 petitioner refused to speak with respondent Eugenia D. Apostol, and in 1988 the former became openly critical of the management of the latter. Nevertheless, respondent Eugenia D. Apostol always made available to petitioner and her representatives all the books of the corporation. Private respondents averred that all the PDI shares owned by respondents Eugenia and Jose Apostol were acquired through their own private funds and that the loan of P750,000.00 by PDI from Mr. & Ms. had been fully paid with 20% interest per annum. And, it was PDI, not Mr. & Ms., which loaned off P250,000.00 each to respondents Magsanoc and Nuyda. Private respondents further argued that petitioner was not the true party to this case, the real party being JAKA which continued to be the true stockholder of Mr. & Ms.; hence, petitioner did not have the personality to initiate and prosecute the derivative suit which, consequently, must be dismissed. [3] On 6 December 1990, the SEC Hearing Panel issued a writ of preliminary injunction enjoining private respondents from disbursing any money except for the payment of salaries and other similar expenses in the regular course of business. The Hearing Panel also enjoined respondent Apostol spouses, Nuyda and Magsanoc from disposing of their PDI shares, and further ruled x x x respondents contention that petitioner is not entitled to the provisional reliefs prayed for because she is not the real party in interest x x x x is bereft of any merit. No less than respondents Amended Answer, specifically paragraph V, No. 8 on Affirmative Allegations/Defenses states that `The petitioner being herself a minor stockholder and holder-in-trust of JAKA shares represented

and continues to represent JAKA in the Board. This statement refers to petitioner sitting in the board of directors of Mr. & Ms. in two capacities, one as a minor stockholder and the other as the holder in trust of the shares of JAKA in Mr. & Ms. Such reference alluded to by the respondents indicates an admission on respondents part of the petitioners legal personality to file a derivative suit for the benefit of the respondent Mr. & Ms. Publishing Co., Inc. The Hearing Panel however denied petitioners prayer for the constitution of a management committee. On 25 March 1991 private respondents filed a Motion to Amend Pleadings to Conform to Evidence alleging that the issue of whether petitioner is the real party-in-interest had been tried by express or implied consent of the parties through the admission of documentary exhibits presented by private respondents proving that the real party-in-interest was JAKA, not petitioner Bitong. As such, No. 8, par. V (Affirmative Allegations/Defenses), Answer to the Amended Petition, was stipulated due to inadvertence and excusable mistake and should be amended. On 10 October 1991 the Hearing Panel denied the motion for amendment. Petitioner testified at the trial that she became the registered and beneficial owner of 997 shares of stock of Mr. & Ms. out of the 4,088 total outstanding shares after she acquired them from JAKA through a deed of sale executed on 25 July 1983 and recorded in the Stock and Transfer Book of Mr. & Ms. under Certificate of Shares of Stock No. 008. She pointed out that Senator Enrile decided that JAKA should completely divest itself of its holdings in Mr. & Ms. and this resulted in the sale to her of JAKAs interest and holdings in that publishing firm. Private respondents refuted the statement of petitioner that she was a stockholder of Mr. & Ms. since 25 July 1983 as respondent Eugenia D. Apostol signed Certificate of Stock No. 008 only on 17 March 1989, and not on 25 July 1983. Respondent Eugenia D. Apostol explained that she stopped using her long signature (Eugenia D. Apostol) in 1987 and changed it to E.D. Apostol, the signature which appeared on the face of Certificate of Stock No. 008 bearing the date 25 July 1983. And, since the Stock and Transfer Book which petitioner presented in evidence was not registered with the SEC, the entries therein including Certificate of Stock No. 008 were fraudulent. Respondent Eugenia D. Apostol claimed that she had not seen the Stock and Transfer Book at any time until 21 March 1989 when it was delivered by petitioner herself to the office of Mr. & Ms., and that petitioner repeatedly referred to Senator Enrile as "my principal" during the Mr. & Ms. board meeting of 22 September 1988, seven (7) times no less. On 3 August 1993, after trial on the merits, the SEC Hearing Panel dismissed the derivative suit filed by petitioner and dissolved the writ of preliminary injunction barring private respondents from disposing of their PDI shares and any of Mr. & Ms. assets. The Hearing Panel ruled that there was no serious mismanagement of Mr. & Ms. which would warrant drastic corrective measures. It gave credence to the assertion of respondent Eugenia D. Apostol that Mr. & Ms. was operated like a close corporation where important matters were discussed and approved through informal consultations at breakfast conferences. The Hearing Panel also concluded that while the evidence presented tended to show that the real party-in-interest indeed was JAKA and/or Senator Enrile, it viewed the real issue to be the alleged mismanagement, fraud and conflict of interest on the part of respondent Eugenia D. Apostol, and allowed petitioner to prosecute the derivative suit if only to resolve the real issues. Hence, for this purpose, the Hearing Panel considered petitioner to be the real party-in-interest. On 19 August 1993 respondent Apostol spouses sold the PDI shares registered in the name of their holding company, JAED Management Corporation, to Edgardo B. Espiritu. On 25 August 1993 petitioner Bitong appealed to the SEC En Banc. [4] On 24 January 1994 the SEC En Banc reversed the decision of the Hearing Panel and, among others, ordered private respondents to account for, return and deliver to Mr. & Ms. any and all funds and assets that they disbursed from the coffers of the corporation including shares of stock, profits, dividends and/or fruits that they might have received as a result of their investment in PDI, including those arising from the P150,000.00 advanced to respondents Eugenia D. Apostol, Leticia J. Magsanoc and Adoracion G. Nuyda; account for and return any profits and fruits of all amounts irregularly or unlawfully advanced to PDI and other third persons; and, cease and desist from managing the affairs of Mr. & Ms. for reasons of fraud, mismanagement, disloyalty and conflict of interest. The SEC En Banc also declared the 19 August 1993 sale of the PDI shares of JAED Management Corporation to Edgardo B. Espiritu to be tainted with fraud, hence, null and void, and considered Mr. & Ms. as the true and lawful owner of all the PDI shares acquired by respondents Eugenia D. Apostol, Magsanoc and Nuyda. It also declared all subsequent transferees of such shares as trustees for the benefit of Mr. & Ms.and ordered them to forthwith deliver said shares to Mr. & Ms. Consequently, respondent Apostol spouses, Magsanoc, Nuyda, and Mr. & Ms. filed a petition for review before respondent Court of Appeals, docketed as CA-GR No. SP 33291, while respondent Edgardo B. Espiritu filed a petition for certiorari and prohibition also before respondent Court of Appeals, docketed as CA-GR No. SP 33873. On 8 December 1994 the two (2) petitions were consolidated. On 31 August 1995 respondent appellate court rendered a decision reversing the SEC En Banc and held that from the evidence on record petitioner was not the owner of any share of stock in Mr. & Ms. and therefore not the real party-in-interest to prosecute the complaint she had instituted against private respondents. Accordingly, petitioner alone and by herself as an agent could not file a derivative suit in behalf of her principal. For not being the real party-in-interest, petitioners complaint did not state a cause of action, a defense which was never waived; hence, her petition should have been dismissed. Respondent appellate court ruled that [5] the assailed orders of the SEC were issued in excess of jurisdiction, or want of it, and thus were null and void. On 18 January 1996, petitioner's motion for reconsideration was denied for lack of merit. Before this Court, petitioner submits that in paragraph 1 under the caption "I. The Parties" of her Amended Petition before the SEC, she stated that she was a stockholder and director of Mr. & Ms. In par. 1 under the caption "II. The Facts" she declared that she "is the registered owner of 1,000 shares of stock of Mr. & Ms. out of the latters 4,088 total outstanding shares" and that she was a member of the Board of Directors of Mr. & Ms. and treasurer from its inception until 11 April 1989. Petitioner contends that private respondents did not deny the above allegations in their answer and therefore they are conclusively bound by this judicial admission. Consequently, private respondents admission that petitioner has 1,000 shares of stock registered in her name in the books of Mr. & Ms. forecloses any question on her status and right to bring a derivative suit on behalf of Mr. & Ms. Not necessarily. A party whose pleading is admitted as an admission against interest is entitled to overcome by evidence the apparent inconsistency, and it is competent for the party against whom the pleading is offered to show that the statements were inadvertently made or were made under a mistake of fact. In addition, a party against whom a single clause or paragraph of a pleading is offered may have the right to introduce other paragraphs which tend to destroy the admission in the paragraph offered [6] by the adversary. The Amended Petition before the SEC alleges -

I. THE PARTIES 1. Petitioner is a stockholder and director of Mr. & Ms. x x x x II. THE FACTS 1. Petitioner is the registered owner of 1,000 shares of stock of Mr. & Ms. out of the latters 4,088 total outstanding shares. Petitioner, at all times material to this petition, is a member of the Board of Directors of Mr. & Ms. and from the inception of Mr. & Ms. until 11 April 1989 was its treasurer x x x x On the other hand, the Amended Answer to the Amended Petition states I. PARTIES 1. Respondents admit the allegations contained in Caption I, pars. 1 to 4 of the Petition referring to the personality, addresses and capacity of the parties to the petition except x x x x but qualify said admission insofar as they are limited, qualified and/or expanded by allegations in the Affirmative Allegations/Defenses x x x x II. THE FACTS 1. Respondents admit paragraph 1 of the Petition, but qualify said admission as to the beneficial ownership of the shares of stock registered in the name of the petitioner, the truth being as stated in the Affirmative Allegations/Defenses of this Answer x x x x V. AFFIRMATIVE ALLEGATIONS/DEFENSES Respondents respectfully allege by way of Affirmative Allegations/Defenses, that x x x x 3. Fortunately, respondent Apostol was able to convince Mr. Luis Villafuerte to take interest in the business and he, together with the original investors, restructured the Ex Libris Publishing Company by organizing a new corporation known as Mr. & Ms. Publishing Co., Inc.x x x x Mr. Luis Villafuerte contributed his own P100,000.00. JAKA and respondent Jose Z. Apostol, original investors of Ex Libris contributed P100,000.00 each; Ex Libris Publishing Company was paid 800 shares for the name of Mr. & Ms. magazine and goodwill. Thus, the original stockholders of respondent Mr. & Ms. were: Cert./No./Date Name of Stockholder No. of Shares % 001-9-15-76 JAKA Investments Corp. 1,000 21% 002-9-15-76 Luis Villafuerte 1,000 21% 003-9-15-76 Ramon L. Siy 1,000 21% 004-9-15-76 Jose Z. Apostol 1,000 21% 005-9-15-76 Ex Libris Publishing Co. 800 16% 4,800 96% 4. The above-named original stockholders of respondent Mr. & Ms. continue to be virtually the same stockholders up to this date x xxx 8. The petitioner being herself a minor stockholder and holder-in-trust of JAKA shares, represented and continues to represent JAKA in the Board x x x x 21. Petitioner Nora A. Bitong is not the true party to this case, the true party being JAKA Investments Corporation which continues to be the true stockholder of respondent Mr. & Ms. Publishing Co., Inc., consequently, she does not have the personality to initiate and prosecute this derivative suit, and should therefore be dismissed x x x x The answer of private respondents shows that there was no judicial admission that petitioner was a stockholder of Mr. & Ms. to entitle her to file a derivative suit on behalf of the corporation. Where the statements of the private respondents were qualified with phrases such as, "insofar as they are limited, qualified and/or expanded by," "the truth being as stated in the Affirmative Allegations/Defenses of this Answer" they cannot be considered definite and certain enough, cannot be construed as judicial [7] admissions. More so, the affirmative defenses of private respondents directly refute the representation of petitioner that she is a true and genuine stockholder of Mr. & Ms. by stating unequivocally that petitioner is not the true party to the case but JAKA which continues to be the true stockholder of Mr. & Ms. In fact, one of the reliefs which private respondents prayed for was the dismissal of the petition on the ground that petitioner did not have the legal interest to initiate and prosecute the same. When taken in its totality, the Amended Answer to the Amended Petition, or even the Answer to the Amended Petition alone, clearly raises an issue as to the legal personality of petitioner to file the complaint. Every alleged admission is taken as an entirety of the fact which makes for the one side with the qualifications which limit, modify or destroy its effect on the other side. The reason for this is, where part of a statement of a party is used against him as an admission, the court should weigh any other portion connected with the statement, which tends to neutralize or explain the portion which is against interest. In other words, while the admission is admissible in evidence, its probative value is to be determined from the whole statement and others intimately related or connected therewith as an integrated unit. Although acts or facts admitted do not require proof and cannot be contradicted, however, evidence aliunde can be presented to show that the admission was made through palpable [8] mistake. The rule is always in favor of liberality in construction of pleadings so that the real matter in dispute may be submitted to [9] the judgment of the court. Petitioner also argues that since private respondents failed to appeal the 6 December 1990 Order and the 3 August 1993 Decision of the SEC Hearing Panel declaring that she was the real party-in-interest and had legal personality to sue, they are now estopped from questioning her personality. Not quite. The 6 December 1990 Order is clearly an interlocutory order which cannot be considered as having finally resolved on the merits the issue of legal capacity of petitioner. The SEC Hearing Panel discussed the issue of legal capacity solely for the purpose of ruling on the application for writ of preliminary injunction as an incident to the main issues raised in the complaint. Being a mere interlocutory order, it is not appealable. For, an interlocutory order refers to something between the commencement and end of the suit which decides some point or [10] matter but it is not the final decision of the whole controversy. Thus, even though the 6 December 1990 Order was adverse to private respondents, they had the legal right and option not to elevate the same to the SEC En Banc but rather to await the decision which resolves all the issues raised by the parties and to appeal therefrom by assigning all errors that might have been committed by the Hearing Panel. On the other hand, the 3 August 1993 Decision of the Hearing Panel dismissing the derivative suit for failure to prove the charges of mismanagement, fraud, disloyalty and conflict of interest and dissolving the writ of preliminary injunction, was favorable to private respondents. Hence, they were not expected to appeal therefrom.

In fact, in the 3 August 1993 Decision, the Hearing Panel categorically stated that the evidence presented showed that the real partyin-interest was not petitioner Bitong but JAKA and/or Senator Enrile. Petitioner was merely allowed to prosecute her complaint so as not to sidetrack "the real issue to be resolved (which) was the allegation of mismanagement, fraud and conflict of interest allegedly committed by respondent Eugenia D. Apostol." It was only for this reason that petitioner was considered to be capacitated and competent to file the petition. Accordingly, with the dismissal of the complaint of petitioner against private respondents, there was no compelling reason for the latter to appeal to the SEC En Banc. It was in fact petitioners turn as the aggrieved party to exercise her right to appeal from the decision. It is worthy to note that even during the appeal of petitioner before the SEC En Banc private respondents maintained their vigorous objection to the appeal and reiterated petitioners lack of legal capacity to sue before the SEC. Petitioner then contends that she was a holder of the proper certificates of shares of stock and that the transfer was recorded in the Stock and Transfer Book of Mr. & Ms. She invokes Sec. 63 of The Corporation Code which provides that no transfer shall be valid except as between the parties until the transfer is recorded in the books of the corporation, and upon its recording the corporation is bound by it and is estopped to deny the fact of transfer of said shares. Petitioner alleges that even in the absence of a stock certificate, a stockholder solely on the strength of the recording in the stock and transfer book can exercise all the rights as stockholder, including the right to file a derivative suit in the name of the corporation. And, she need not present a separate deed of sale or transfer in her favor to prove ownership of stock. Section 63 of The Corporation Code expressly provides Sec. 63. Certificate of stock and transfer of shares. - The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer however shall be valid except as between the parties until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred x x x x This provision above quoted envisions a formal certificate of stock which can be issued only upon compliance with certain requisites. First, the certificates must be signed by the president or vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation. A mere typewritten statement advising a stockholder of the extent of his ownership in a corporation without qualification and/or authentication cannot be considered as a formal certificate of [11] stock. Second, delivery of the certificate is an essential element of its issuance. Hence, there is no issuance of a stock certificate where it is never detached from the stock books although blanks therein are properly filled up if the person whose name is inserted [12] therein has no control over the books of the company. Third, the par value, as to par value shares, or the full subscription as to no par value shares, must first be fully paid. Fourth, the original certificate must be surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder. The certificate of stock itself once issued is a continuing affirmation or representation that the stock described therein is valid and genuine and is at least prima facie evidence that it was legally issued in the absence of evidence to the contrary. However, this [13] presumption may be rebutted. Similarly, books and records of a corporation which include even the stock and transfer book are generally admissible in evidence in favor of or against the corporation and its members to prove the corporate acts, its financial status and other matters including ones status as a stockholder. They are ordinarily the best evidence of corporate acts and proceedings. However, the books and records of a corporation are not conclusive even against the corporation but are prima facie evidence only. Parol evidence may be admitted to supply omissions in the records, explain ambiguities, or show what transpired where no [14] records were kept, or in some cases where such records were contradicted. The effect of entries in the books of the corporation which purport to be regular records of the proceedings of its board of directors or stockholders can be destroyed by testimony of a [15] more conclusive character than mere suspicion that there was an irregularity in the manner in which the books were kept. The foregoing considerations are founded on the basic principle that stock issued without authority and in violation of law is void [16] and confers no rights on the person to whom it is issued and subjects him to no liabilities. Where there is an inherent lack of power in the corporation to issue the stock, neither the corporation nor the person to whom the stock is issued is estopped to [17] question its validity since an estoppel cannot operate to create stock which under the law cannot have existence. As found by the Hearing Panel and affirmed by respondent Court of Appeals, there is overwhelming evidence that despite what appears on the certificate of stock and stock and transfer book, petitioner was not a bona fide stockholder of Mr. & Ms. before March 1989 or at the time the complained acts were committed to qualify her to institute a stockholders derivative suit against private respondents. Aside from petitioners own admissions, several corporate documents disclose that the true party-in-interest is not petitioner but JAKA. Thus, while petitioner asserts in her petition that Certificate of Stock No. 008 dated 25 July 1983 was issued in her name, private respondents argue that this certificate was signed by respondent Eugenia D. Apostol as President only in 1989 and was fraudulently antedated by petitioner who had possession of the Certificate Book and the Stock and Transfer Book. Private respondents stress that petitioners counsel entered into a stipulation on record before the Hearing Panel that the certificate was indeed signed by respondent Apostol only in 1989 and not in 1983. In her reply, petitioner admits that while respondent Eugenia D. Apostol signed the Certificate of Stock No. 008 in petitioners name only in 1989, it was issued by the corporate secretary in 1983 and that the other certificates covering shares in Mr. & Ms. had not yet been signed by respondent Eugenia D. Apostol at the time of the filing of the complaint with the SEC although they were issued years before. Based on the foregoing admission of petitioner, there is no truth to the statement written in Certificate of Stock No. 008 that the same was issued and signed on 25 July 1983 by its duly authorized officers specifically the President and Corporate Secretary because the actual date of signing thereof was 17 March 1989. Verily, a formal certificate of stock could not be considered issued in contemplation of law unless signed by the president or vice-president and countersigned by the secretary or assistant secretary. In this case, contrary to petitioners submission, the Certificate of Stock No. 008 was only legally issued on 17 March 1989 when it was actually signed by the President of the corporation, and not before that date. While a certificate of stock is not necessary to make one a stockholder, e.g., where he is an incorporator and listed as stockholder in the articles of incorporation although no certificate of stock has yet been issued, it is supposed to serve as paper representative of the stock itself and of the owners interest

therein. Hence, when Certificate of Stock No. 008 was admittedly signed and issued only on 17 March 1989 and not on 25 July 1983, even as it indicates that petitioner owns 997 shares of stock of Mr. & Ms., the certificate has no evidentiary value for the purpose of proving that petitioner was a stockholder since 1983 up to 1989. And even the factual antecedents of the alleged ownership by petitioner in 1983 of shares of stock of Mr. & Ms. are indistinctive if not enshrouded in inconsistencies. In her testimony before the Hearing Panel, petitioner said that early in 1983, to relieve Mr. & Ms. from political pressure, Senator Enrile decided to divest the family holdings in Mr. & Ms. as he was then part of the government and Mr. & Ms. was evolving to be an opposition newspaper. The JAKA shares numbering 1,000 covered by Certificate of Stock No. [18] 001 were thus transferred to respondent Eugenia D. Apostol in trust or in blank. Petitioner now claims that a few days after JAKAs shares were transferred to respondent Eugenia D. Apostol, Senator Enrile sold to [19] petitioner 997 shares of JAKA. For this purpose, a deed of sale was executed and antedated to 10 May 1983. This submission of petitioner is however contradicted by the records which show that a deed of sale was executed by JAKA transferring 1,000 shares [20] of Mr. & Ms. to respondent Apostol on 10 May 1983 and not to petitioner. Then Senator Enrile testified that in May or June 1983 he was asked at a media interview if his family owned shares of stock in Mr. & Ms.Although he and his family were stockholders at that time he denied it so as not to embarrass the magazine. He called up petitioner and instructed her to work out the documentation of the transfer of shares from JAKA to respondent Apostol to be covered by a declaration of trust. His instruction was to transfer the shares of JAKA in Mr. & Ms. and Ex Libris to respondent Apostol [21] as a nominal holder. He then finally decided to transfer the shareholdings to petitioner. When asked if there was any document or any written evidence of that divestment in favor of petitioner, Senator Enrile answered that there was an endorsement of the shares of stock. He said that there was no other document evidencing the assignment to [22] petitioner because the stocks were personal property that could be transferred even orally. Contrary to Senator Enriles testimony, however, petitioner maintains that Senator Enrile executed a deed of sale in her favor. A careful perusal of the records shows that neither the alleged endorsement of Certificate of Stock No. 001 in the name of JAKA nor the alleged deed of sale executed by Senator Enrile directly in favor of petitioner could have legally transferred or assigned on 25 July 1983 the shares of stock in favor of petitioner because as of 10 May 1983 Certificate of Stock No. 001 in the name of JAKA was already cancelled and a new one, Certificate of Stock No. 007, issued in favor of respondent Apostol by virtue of a Declaration of [23] Trust and Deed of Sale. It should be emphasized that on 10 May 1983 JAKA executed a deed of sale over 1,000 Mr. & Ms. shares in favor of respondent Eugenio D. Apostol. On the same day, respondent Apostol signed a declaration of trust stating that she was the registered owner of 1,000 Mr. & Ms.shares covered by Certificate of Stock No. 007. The declaration of trust further showed that although respondent Apostol was the registered owner, she held the shares of stock and dividends which might be paid in connection therewith solely in trust for the benefit of JAKA, her principal. It was also stated therein that being a trustee, respondent Apostol agreed, on written request of the principal, to assign and transfer the shares of stock and any and all such distributions or dividends unto the principal or such other person as the principal would nominate or appoint. Petitioner was well aware of this trust, being the person in charge of this documentation and being one of the witnesses to the [24] execution of this document. Hence, the mere alleged endorsement of Certificate of Stock No. 001 by Senator Enrile or by a duly authorized officer ofJAKA to effect the transfer of shares of JAKA to petitioner could not have been legally feasible because Certificate of Stock No. 001 was already canceled by virtue of the deed of sale to respondent Apostol. And, there is nothing in the records which shows that JAKA had revoked the trust it reposed on respondent Eugenia D. Apostol. Neither was there any evidence that the principal had requested her to assign and transfer the shares of stock to petitioner. If it was true that the shares of stock covered by Certificate of Stock No. 007 had been transferred to petitioner, the person who could legally endorse the certificate was private respondent Eugenia D. Apostol, she being the registered owner and trustee of the shares of stock covered by Certificate of Stock No. 007. It is a settled rule that the trustee should endorse the stock [25] certificate to validate the cancellation of her share and to have the transfer recorded in the books of the corporation. In fine, the records are unclear on how petitioner allegedly acquired the shares of stock of JAKA. Petitioner being the chief executive [26] officer of JAKA and the sole person in charge of all business and financial transactions and affairs of JAKA was supposed to be in the best position to show convincing evidence on the alleged transfer of shares to her, if indeed there was a transfer. Considering that petitioners status is being questioned and several factual circumstances have been presented by private respondents disproving petitioners claim, it was incumbent upon her to submit rebuttal evidence on the manner by which she allegedly became a stockholder. Her failure to do so taken in the light of several substantial inconsistencies in her evidence is fatal to her case. The rule is that the endorsement of the certificate of stock by the owner or his attorney-in-fact or any other person legally authorized to make the transfer shall be sufficient to effect the transfer of shares only if the same is coupled with delivery. The delivery of the stock certificate duly endorsed by the owner is the operative act of transfer of shares from the lawful owner to the new transferee. Thus, for a valid transfer of stocks, the requirements are as follows: (a) There must be delivery of the stock certificate; (b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the transfer; and, (c) [27] to be valid against third parties, the transfer must be recorded in the books of the corporation. At most, in the instant case, petitioner has satisfied only the third requirement. Compliance with the first two requisites has not been clearly and sufficiently shown. Considering that the requirements provided under Sec. 63 of The Corporation Code should be mandatorily complied with, the rule on presumption of regularity cannot apply. The regularity and validity of the transfer must be proved. As it is, even the credibility of the stock and transfer book and the entries thereon relied upon by petitioner to show compliance with the third requisite to prove that she was a stockholder since 1983 is highly doubtful. The records show that the original stock and transfer book and the stock certificate book of Mr. & Ms. were in the possession of [28] petitioner before their custody was transferred to the Corporate Secretary, Atty. Augusto San Pedro. On 25 May 1988, Assistant Corporate Secretary Renato Jose Unson wrote Mr. & Ms. about the lost stock and transfer book which was also noted by the corporations external auditors,Punongbayan and Araullo, in their audit. Atty. Unson even informed respondent Eugenia D. Apostol as President of Mr. & Ms. that steps would be undertaken to prepare and register a new Stock and Transfer Book with the SEC. Incidentally, perhaps strangely, upon verification with theSEC, it was discovered that the general file of the corporation with the SEC was missing. Hence, it was even possible that the original Stock and Transfer Book might not have been registered at all.

On 20 October 1988 respondent Eugenia D. Apostol wrote Atty. Augusto San Pedro noting the changes he had made in the Stock [29] and Transfer Book without prior notice to the corporate officers. In the 27 October 1988 directors' meeting, respondent Eugenia D. Apostol asked about the documentation to support the changes in the Stock and Transfer Book with regard to the JAKA shares. Petitioner answered that Atty. San Pedro made the changes upon her instructions conformably with established [30] practice. This simply shows that as of 1988 there still existed certain issues affecting the ownership of the JAKA shares, thus raising doubts whether the alleged transactions recorded in the Stock and Transfer Book were proper, regular and authorized. Then, as if to magnify and compound the uncertainties in the ownership of the shares of stock in question, when the corporate secretary [31] resigned, the Stock and Transfer Book was delivered not to the corporate office where the book should be kept but to petitioner. That JAKA retained its ownership of its Mr. & Ms. shares was clearly shown by its receipt of the dividends issued in December [32] 1986. This only means, very obviously, that Mr. & Ms. shares in question still belonged to JAKA and not to petitioner. For, dividends are distributed to stockholders pursuant to their right to share in corporate profits. When a dividend is declared, it belongs to the person who is the substantial and beneficial owner of the stock at the time regardless of when the distribution profit [33] was earned. Finally, this Court takes notice of the glaring and open admissions of petitioner made, not just seven (7) but nine (9) times, during the 22 September 1988 meeting of the board of directors that the Enriles were her principals or shareholders, as shown by the [34] minutes thereof which she duly signed 5. Mrs. E. Apostol explained to the Directors that through her efforts, the asset base of the Company has improved and profits were realized. It is for this reason that the Company has declared a 100% cash dividend in 1986. She said that it is up for the Board to decide based on this performance whether she should continue to act as Board Chairman or not. In this regard, Ms. N.A. Bitong expressed her recollection of how Ex-Libris/Mr. & Ms. were organized and her participation for and on behalf of her principals, as follows: She recalled that her principals were invited by Mrs. E. Apostol to invest in Ex-Libris and eventually Mr. & Ms. The relationship between her principals and Mrs. E. Apostol made it possible for the latter to have access to several information concerning certain political events and issues. In many instances, her principals supplied first hand and newsworthy information that made Mr. & Ms. a popular paper x x x x 6. According to Ms. Bitong, her principals were instrumental in helping Mr. & Ms. survive during those years that it was cash strapped x x x x Ms. N.A. Bitong pointed out that the practice of using the former Ministers influence and stature in the government is one thing which her principals themselves are strongly against x x x x 7. x x x x At this point, Ms. N. Bitong again expressed her recollection of the subject matter as follows: (a) Mrs. E. Apostol, she remembers, brought up the concept of a cooperative-ran newspaper company in one of her breakfast session with her principals sometime during the end of 1985. Her principals when asked for an opinion, said that they recognized the concept as something very noble and visible x x x x Then Ms. Bitong asked a very specific question - "When you conceptualized Ex-Libris and Mr. & Ms., did you not think of my shareholders the Ponce Enriles as liabilities? How come you associated yourself with them then and not now? What is the difference?" Mrs. Apostol did not answer the question. The admissions of a party against his interest inscribed upon the record books of a corporation are competent and persuasive [35] evidence against him. These admissions render nugatory any argument that petitioner is a bona fide stockholder of Mr. & Ms. at any time before 1988 or at the time the acts complained of were committed. There is no doubt that petitioner was an employee [36] of JAKA as its managing officer, as testified to by Senator Enrile himself. However, in the absence of a special authority from the board of directors of JAKA to institute a derivative suit for and in its behalf, petitioner is disqualified by law to sue in her own name. The power to sue and be sued in any court by a corporation even as a stockholder is lodged in the board of directors that [37] exercises its corporate powers and not in the president or officer thereof. It is well settled in this jurisdiction that where corporate directors are guilty of a breach of trust, not of mere error of judgment or abuse of discretion, and intracorporate remedy is futile or useless, a stockholder may institute a suit in behalf of himself and other stockholders and for the benefit of the corporation, to bring about a redress of the wrong inflicted directly upon the corporation and [38] indirectly upon the stockholders. The stockholders right to institute a derivative suit is not based on any express provision of The Corporation Code but is impliedly recognized when the law makes corporate directors or officers liable for damages suffered by the corporation and its stockholders for violation of their fiduciary duties. Hence, a stockholder may sue for mismanagement, waste or dissipation of corporate assets because of a special injury to him for [39] which he is otherwise without redress. In effect, the suit is an action for specific performance of an obligation owed by the corporation to the stockholders to assist its rights of action when the corporation has been put in default by the wrongful refusal of [40] the directors or management to make suitable measures for its protection. The basis of a stockholders suit is always one in equity. However, it cannot prosper without first complying with the legal requisites for its institution. The most important of these is the bona fide ownership by a stockholder of a stock in his own right at the time of [41] the transaction complained of which invests him with standing to institute a derivative action for the benefit of the corporation. WHEREFORE, the petition is DENIED. The 31 August 1995 Decision of the Court of Appeals dismissing the complaint of petitioner Nora A. Bitong in CA-G.R. No. SP 33291, and granting the petition for certiorari and prohibition filed by respondent Edgardo B. Espiritu as well as annulling the 5 November 1993, 24 January 1994 and 18 February 1994 Orders of the SEC En Banc in CA-G.R. No. SP 33873, is AFFIRMED. Costs against petitioner. SO ORDERED.

BATANGAS LAGUNA TAYABAS BUS COMPANY, INC., DOLORES A. POTENCIANO, MAX JOSEPH A. POTENCIANO, MERCEDELIN A. POTENCIANO, and DELFIN C. YORRO, petitioners, vs. BENJAMIN M. BITANGA, RENATO L. LEVERIZA, LAUREANO A. SIY, JAMES A. OLAYVAR, EDUARDO A. AZUCENA, MONINA GRACE S. LIM, and GEMMA M. SANTOS, respondents. DECISION YNARES-SANTIAGO, J.: These cases involve the Batangas Laguna Tayabas Bus Company, Inc., which has been owned by four generations of the Potenciano family. Immediately prior to the events leading to this controversy, the Potencianos owned 87.5% of the outstanding capital stock of [1] BLTB. On October 28, 1997, Dolores A. Potenciano, Max Joseph A. Potenciano, Mercedelin A. Potenciano, Delfin C. Yorro, and Maya [2] Industries, Inc., entered into a Sale and Purchase Agreement, whereby they sold to BMB Property Holdings, Inc., represented by its President, Benjamin Bitanga, their 21,071,114 shares of stock in BLTB. The said shares represented 47.98% of the total outstanding capital stock of BLTB. The purchase price for the shares of stock was P72,076,425.00, the downpayment of which, in the sum of P44,354,723.00, was made payable upon signing of Agreement, while the balance of P27,721,702.00 was payable on November 26, 1997. The contracting parties stipulated that the downpayment was conditioned upon receipt by the buyer of certain documents upon signing of the Agreement, namely, the Secretarys Certificate stating that the Board of Directors of Maya Industries, Inc. authorized the sale of its shares in BLTB and the execution of the Agreement, and designating Dolores A. Potenciano as its Attorney-in-Fact; the Special Power of Attorney executed by each of the sellers in favor of Dolores A. Potenciano for purposes of the Agreement; the undated written resignation letters of the Directors of BLTB, except Henry John A. Potenciano, Michael A. Potenciano and Candido A. Potenciano); a revocable proxy to vote the subject shares made by the sellers in favor of the buyer; a Declaration of Trust made by the sellers in favor of the buyer acknowledging that the subject shares shall be held in trust by the sellers for the buyer pending their transfer to [3] the latters name; and the duly executed capital gains tax return forms covering the sale, indicating no taxable gain on the same. Furthermore, the buyer guaranteed that it shall take over the management and operations of BLTB but shall immediately surrender [4] the same to the sellers in case it fails to pay the balance of the purchase price on November 26, 1997. Barely a month after the Agreement was executed, on November 21, 1997, at a meeting of the stockholders of BLTB, Benjamin Bitanga and Monina Grace Lim were elected as directors of the corporation, replacing Dolores and Max Joseph Potenciano. Subsequently, on November 28, 1997, another stockholders meeting was held, wherein Laureano A. Siy and Renato L. Leveriza were elected as directors, replacing Candido Potenciano and Delfin Yorro who had both resigned as such. At the same meeting, the Board of Directors of BLTB elected the following officers: Benjamin Bitanga as Chairman of the Board, President and Chief Executive Officer; Monina Grace Lim as Vice President for Finance and Supply and Treasurer; James Olayvar as Vice President for Operations and Maintenance; Eduardo Azucena as Vice President for Administration; Evelio Custodia as Corporate Secretary; and [5] Gemma Santos as Assistant Corporate Secretary. During a meeting of the Board of Directors on April 14, 1998, the newly elected directors of BLTB scheduled the annual stockholders meeting on May 19, 1998, to be held at the principal office of BLTB in San Pablo, Laguna. Before the scheduled meeting, on May 16, 1998, Michael Potenciano wrote Benjamin Bitanga, requesting for a postponement of the stockholders meeting due to the absence of a thirty-day advance notice. However, there was no response from Bitanga on whether or not the request for postponement was favorably acted upon. On the scheduled date of the meeting, May 19, 1998, a notice of postponement of the stockholders meeting was published in the Manila Bulletin. Inasmuch as there was no notice of postponement prior to that, a total of two hundred eighty six stockholders, representing 87% of the shares of stock of BLTB, arrived and attended the meeting. The majority of the stockholders present rejected the postponement and voted to proceed with the meeting. The Potenciano group was re-elected to the Board of [6] [7] Directors, and a new set of officers was thereafter elected. However, the Bitanga group refused to relinquish their positions and continued to act as directors and officers of BLTB. The conflict between the Potencianos and the Bitanga group escalated to levels of unrest and even violence among laborers and employees of the bus company. On May 21, 1998, the Bitanga group filed with the Securities and Exchange Commission a Complaint for Damages and Injunction, [8] docketed as SEC Case No. 05-98-5973. Their prayer for the issuance of a temporary restraining order was, however, denied at the ex-parte summary hearing conducted by SEC Chairman Perfecto Yasay, Jr. Likewise, the Potenciano group filed on May 25, 1998, a Complaint for Injunction and Damages with Preliminary Injunction and [9] Temporary Restraining Order with the SEC, docketed as SEC Case No. 05-98-5978. SEC Chairman Perfecto Yasay, Jr. issued a temporary restraining order enjoining the Bitanga group from acting as officers and directors of BLTB. On June 8, 1998, the Bitanga group filed another complaint with application for a writ of preliminary injunction and prayer for temporary restraining order, seeking to annul the May 19, 1998 stockholders meeting. The complaint was docketed as SEC Case No. 06-98-5994. A Hearing Panel of the SEC conducted joint hearings of SEC Cases Nos. 05-98-5973 and 05-98-5978. On June 17, 1998, the SEC Hearing Panel granted the Bitanga groups application for a writ of preliminary injunction upon the posting of a bond in the amount [10] of P20,000,000.00. It declared that the May 19, 1998 stockholders meeting was void on the grounds that, first, Michael Potenciano had himself asked for its postponement due to improper notice; and, second, there was no quorum, since BMB Holdings, Inc., represented by the Bitanga group, which then owned 50.26% of BLTBs shares having purchased the same from the Potenciano group, was not present at the said meeting. The Hearing Panel further held that the Bitanga Board remains the legitimate Board in a hold-over capacity. [11] The Potenciano group filed a petition for certiorari with the SEC En Banc on June 29, 1998, seeking a writ of preliminary injunction to restrain the implementation of the Hearing Panels assailed Order. On July 21, 1998, the SEC En Banc set aside the June 17, 1998 Order of the Hearing Panel and issued the writ of preliminary [12] injunction prayed for. [13] The Bitanga group immediately filed a petition for certiorari with the Court of Appeals on July 22, 1998, followed by a Supplemental Petition on August 10, 1998. The petition was docketed as CA-G.R. SP No. 48374. Meanwhile, on July 29, 1998, the SEC En Banc issued a writ of preliminary injunction against the Bitanga group, after the [14] Potencianos posted the required bond of P20,000,000.00.

On November 23, 1998, the Court of Appeals rendered the now assailed Decision, reversing the assailed Orders of the SEC En Banc [15] and reinstating the Order of the Hearing Panel ordered dated June 17, 1998. The Court of Appeals denied the Motions for [16] Reconsideration in a Resolution dated March 25, 1999. Petitioners Batangas Laguna Tayabas Bus Company, Inc., Dolores A. Potenciano, Max Joseph A. Potenciano, Mercedelin A. Potenciano and Delfin C. Yorro filed the instant petition for review, docketed as G.R. No. 137934, against respondents Benjamin M. Bitanga, Renato L. Leveriza, Laureano A. Siy, James A. Olayvar, Eduardo A. Azucena, Monina Grace S. Lim and Gemma M. Santos. Petitioners contend that --I WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT DISREGARDED, CONTRARY TO WELLESTABLISHED JURISPRUDENCE, THE FACTUAL FINDINGS OF THE SEC WHICH IS A SPECIALIZED QUASI-JUDICIAL AGENCY, AND INVALIDATED THE PRELIMINARY INJUNCTION ISSUED BY THE LATTER. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR BECAUSE THERE IS NO SHOWING THAT THE SEC MADE ANY ERROR IN EITHER JURISDICTION OR JUDGMENT. II WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT RESPONDENTS WERE DEPRIVED OF THEIR RIGHT TO DUE PROCESS BECAUSE: (1) A FULL-BLOWN HEARING WAS CONDUCTED ON 6 JULY 1998 WHERE THE PARTIES FULLY ARGUED THEIR POSITIONS AND WERE HEARD BY THE SEC EN BANC; (2) THE LAW DOES NOT REQUIRE A SEPARATE HEARING FOR THE FIXING OF THE AMOUNT OF THE INJUNCTION BOND; AND (3) IN ANY CASE, THE ALLEGED FAILURE OF THE SEC TO FIX THE AMOUNT OF THE INJUNCTION BOND IN ITS 21 JULY 1998 ORDER AND SUBSEQUENT FIXING THEREOF IN ITS 26 JULY 1998 ORDER IS NOT A FATAL ERROR. III WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE 21 JULY 1998 ORDER OF THE SEC RESOLVED THE MAIN CASE. THE SEC, ACTING WITHIN THE BOUNDS OF ITS JURISDICTION, MERELY MADE A PRELIMINARY EVALUATION TO RESOLVE THE PRAYER FOR PRELIMINARY INJUNCTION, WHICH, BY ITS VERY NATURE, IS AN ANCILLARY [17] REMEDY. THE MAIN PETITION REMAINS PENDING BEFORE THE SEC FOR THE RESOLUTION OF ITS MERITS. Another petition for review, docketed as G.R. No. 137936, was filed by petitioners Danilo L. Concepcion, Fe Eloisa Gloria and Edijer A. Martinez, in their capacities as Associate Commissioners of the Securities and Exchange Commission, Batangas Laguna Tayabas Bus Company, Inc., Dolores A. Potenciano, Max Joseph A. Potenciano, Michael A. Potenciano, Mercedelin A. Potenciano, Candido A. Potenciano, Henry John A. Potenciano, Delfin C. Yorro, Reynaldo Magtibay, Lorna Navarro and Restituto Baylon based on the following grounds: I THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN HOLDING THAT THE JULY 21, 1998 ORDER OF THE SEC IN SEC EN BANC CASE NO. 611 RESOLVED THE MAIN CASE. II THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN HOLDING THAT THE PRIVATE RESPONDENTS WERE DENIED THEIR RIGHT TO DUE PROCESS. III THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE SEC ORDER OF JULY 21, 1998 IS VALID AND IN DISREGARDING [18] THE FACTUAL FINDINGS OF THE SEC. The two petitions for review were consolidated. We find that the petitions are impressed with merit. Contrary to the findings of the Court of Appeals, the Bitanga group was not deprived of due process when the SEC En Banc issued its Order dated July 21, 1998. [19] Due process, in essence, is simply an opportunity to be heard. It cannot be denied that in the case at bar, a hearing on the prayer for injunction was held on July 9, 1998. Both parties were represented at the said hearing, and the Bitanga group presented its arguments in opposition to the injunctive relief. This alone negates any proposition that the Bitanga group was denied due process. In applications for preliminary injunction, the requirement of hearing and prior notice before injunction may issue has been relaxed to the point that not all petitions for preliminary injunction must undergo a trial-type hearing, it being hornbook doctrine that a formal or trial-type is not at all times and in all instances essential to due process. Due process simply means giving every contending party the opportunity to be heard and the court to consider every piece of evidence presented in their favor. Accordingly, this Court has recently rejected a claim of denial of due process where such claimant was given the opportunity [20] to be heard, having submitted his counter-affidavit and memorandum in support of his position. Much ado has been made over the fact that the injunction order was issued with deliberate speed even before the Bitanga group filed its Comment to the Potenciano groups Petition. However, the said Comment is rather directed to the petition of the Potenciano group; it is not essential to the resolution of the prayer for injunction. The Rules of Court do not require that issues be joined before preliminary injunction may issue. Preliminary injunction may be granted at any stage of an action or proceeding prior to the judgment or final order, ordering a party or a court, agency or a person to refrain from a particular act or acts. For as long as [21] the requisites for its issuance are present in the case, the injunctive writ was properly issued. Respondents argue that the SEC En Bancs July 21, 1998 Order amounted to a ruling on the main case. We disagree. A reading of the said Order readily reveals that it merely delved on the propriety of granting a writ of preliminary injunction against the Bitanga group. The main case is far from being disposed of as there are several issues still awaiting resolution, including, whether or not the Bitanga group has taken funds and assets of BLTB and if so, in what amount and consisting of what assets; and whether or not the Potenciano group is entitled to the payment of exemplary damages, attorneys fees and costs of suit. There is no merit, therefore, in the statement that the SEC En Bancs ruling is a prejudgment of the main case, as several matters need yet to be addressed. The fact that the aforesaid Order was merely provisional in character may be gleaned from the very nature of the injunctive writ granted. Generally, injunction is a preservative remedy for the protection of one's substantive right or interest. It is not a cause of [22] action in itself but merely a provisional remedy, an adjunct to a main suit. Thus, it has been held that an order granting a writ of [23] preliminary injunction is an interlocutory order. As distinguished from a final order which disposes of the subject matter in its entirety or terminates a particular proceeding or action, leaving nothing else to be done but to enforce by execution what has been determined by the court, an interlocutory order does not dispose of a case completely, but leaves something more to be adjudicated [24] upon.

In the case at bar, it cannot be said that the July 21, 1998 Order of the SEC En Banc terminated the Potenciano groups petition in its entirety. As mentioned above, there remain several issues which have yet to be resolved and adjudicated upon by the SEC. The next issue --- whether or not the SEC En Banc committed error in jurisdiction as to entitle the Bitanga group to the extraordinary remedy of certiorari --- should likewise be resolved in the negative. In the July 21, 1998 Order of the SEC En Banc, the validity of the BLTB stockholders meeting held on May 19, 1998 was sustained, in light of the time-honored doctrine in corporation law that a transfer of shares is not valid unless recorded in the books of the corporation. The SEC En Banc went on to rule that It is not disputed that the transfer of the shares of the group of Dolores Potenciano to the Bitanga group has not yet been recorded in the books of the corporation. Hence, the group of Dolores Potenciano, in whose names those shares still stand, were the ones entitled to attend and vote at the stockholders meeting of the BLTB on 19 May 1998. This being the case, the Hearing Panel [25] committed grave abuse of discretion in holding otherwise and in concluding that there was no quorum in said meeting. Based on the foregoing premises, the SEC En Banc issued a writ of preliminary injunction against the Bitanga group. In so ruling, the SEC En Banc merely exercised its wisdom and competence as a specialized administrative agency specifically tasked to deal with corporate law issues. We are in full accord with the SEC En Banc on this matter. Indeed, until registration is accomplished, the transfer, though valid between the parties, cannot be effective as against the corporation. Thus, the unrecorded transferee, the Bitanga group in this case, cannot vote nor be voted for. The purpose of registration, therefore, is two-fold: to enable the transferee to exercise all the rights of a stockholder, including the right to vote and to be voted for, and to inform the corporation of any change in share ownership so that it can ascertain the persons entitled to the rights and subject to the liabilities of a [26] [27] stockholder. Until challenged in a proper proceeding, a stockholder of record has a right to participate in any meeting; his vote can be properly counted to determine whether a stockholders resolution was approved, despite the claim of the alleged [28] transferee. On the other hand, a person who has purchased stock, and who desires to be recognized as a stockholder for the [29] purpose of voting, must secure such a standing by having the transfer recorded on the corporate books. Until the transfer is [30] registered, the transferee is not a stockholder but an outsider. We find no error either in jurisdiction or judgment on the part of the SEC En Banc, since its conclusions of law were anchored on established principles and jurisprudence. Indeed, nowhere in the Bitanga groups petition for certiorari before the Court of Appeals was it shown that the SEC En Banc committed such patent, gross and prejudicial errors of law or fact, or a capricious disregard of settled law and jurisprudence, as to amount to a grave abuse of discretion or lack of jurisdiction on its part. Absent such showing, neither the Court of Appeals nor this Court should engage in a review of the facts found nor even of the law as interpreted or applied by the SEC En Banc, for the writ of certiorari is an extraordinary remedy, and certiorari jurisdiction is not to be equated with appellate jurisdiction. The main thrust of a petition for certiorari under Rule 65 of the Rules of Court is only the correction of errors of jurisdiction including the commission of grave abuse of discretion amounting to lack or excess of jurisdiction. However, for this Court or the Court of Appeals to properly exercise the power of judicial review over a decision of an administrative agency, such as the SEC, it must first be shown that the tribunal, board or officer exercising judicial or quasi-judicial functions has indeed acted without or in excess of its or his jurisdiction, and that there is no appeal, or any plain, speedy and adequate remedy in the ordinary course of law. In the absence of any showing of lack of jurisdiction or grave abuse tantamount to lack or excess of jurisdiction, judicial review may not be had over an [31] administrative agencys decision. We have gone over the records of the case at bar and we see no cogent reason to hold that the SEC En Banc had abused its discretion. Moreover, it is a fundamental rule that factual findings of quasi-judicial agencies like the SEC, if supported by substantial evidence, are generally accorded not only great respect but even finality, and are binding upon this Court, unless petitioner is able to show that it had arbitrarily disregarded evidence before it or had misapprehended evidence to such an extent as to compel a contrary conclusion if such evidence had 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 [32] respective fields of specialization or expertise. In light of all the foregoing, we find that the Court of Appeals erred in granting the extraordinary remedy of certiorari to the Bitanga group. It is elementary that a special civil action for certiorari is limited to correcting errors of jurisdiction or grave abuse of [33] discretion. None of these have been found to obtain in the petition before the Court of Appeals. What is more, it is also settled that the issuance of the writ of preliminary injunction as an ancillary or preventive remedy to secure the rights of a party in a pending case is entirely within the discretion of the court taking cognizance of the case, the only limitation being that this discretion should be exercised based upon the grounds and in the manner provided by law. The exercise of sound judicial discretion by the [34] lower court in injunctive matters should not be interfered with except in cases of manifest abuse. WHEREFORE, in view of all the foregoing, the instant petitions for review are GRANTED. The Decision of the Court of Appeals dated November 23, 1998 in CA-G.R. SP No. 48374 and its resolution dated March 25, 1999 are SET ASIDE. The Orders of the SEC En Banc dated July 21, 1998 and July 27, 1998 in SEC Case No. EB 611 are ordered REINSTATED. SO ORDERED.

G.R. No. L-18805 August 14, 1967 1 THE BOARD OF LIQUIDATORS representing THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES,plaintiff-appellant, vs. 2 3 HEIRS OF MAXIMO M. KALAW, JUAN BOCAR, ESTATE OF THE DECEASED CASIMIRO GARCIA, and LEONOR MOLL, defendantsappellees. Simeon M. Gopengco and Solicitor General for plaintiff-appellant. L. H. Hernandez, Emma Quisumbing, Fernando and Quisumbing, Jr.; Ponce Enrile, Siguion Reyna, Montecillo and Belo for defendantsappellees. SANCHEZ, J.: The National Coconut Corporation (NACOCO, for short) was chartered as a non-profit governmental organization on May 7, 1940 by Commonwealth Act 518 avowedly for the protection, preservation and development of the coconut industry in the Philippines. On August 1, 1946, NACOCO's charter was amended [Republic Act 5] to grant that corporation the express power "to buy, sell, barter, export, and in any other manner deal in, coconut, copra, and dessicated coconut, as well as their by-products, and to act as agent, broker or commission merchant of the producers, dealers or merchants" thereof. The charter amendment was enacted to stabilize copra prices, to serve coconut producers by securing advantageous prices for them, to cut down to a minimum, if not altogether 4 eliminate, the margin of middlemen, mostly aliens. General manager and board chairman was Maximo M. Kalaw; defendants Juan Bocar and Casimiro Garcia were members of the Board; defendant Leonor Moll became director only on December 22, 1947. NACOCO, after the passage of Republic Act 5, embarked on copra trading activities. Amongst the scores of contracts executed by general manager Kalaw are the disputed contracts, for the delivery of copra, viz: (a) July 30, 1947: Alexander Adamson & Co., for 2,000 long tons, $167.00: per ton, f. o. b., delivery: August and September, 1947. This contract was later assigned to Louis Dreyfus & Co. (Overseas) Ltd. (b) August 14, 1947: Alexander Adamson & Co., for 2,000 long tons $145.00 per long ton, f.o.b., Philippine ports, to be shipped: September-October, 1947. This contract was also assigned to Louis Dreyfus & Co. (Overseas) Ltd. (c) August 22, 1947: Pacific Vegetable Co., for 3,000 tons, $137.50 per ton, delivery: September, 1947. (d) September 5, 1947: Spencer Kellog & Sons, for 1,000 long tons, $160.00 per ton, c.i.f., Los Angeles, California, delivery: November, 1947. (e) September 9, 1947: Franklin Baker Division of General Foods Corporation, for 1,500 long tons, $164,00 per ton, c.i.f., New York, to be shipped in November, 1947. (f) September 12, 1947: Louis Dreyfus & Co. (Overseas) Ltd., for 3,000 long tons, $154.00 per ton, f.o.b., 3 Philippine ports, delivery: November, 1947. (g) September 13, 1947: Juan Cojuangco, for 2,000 tons, $175.00 per ton, delivery: November and December, 1947. This contract was assigned to Pacific Vegetable Co. (h) October 27, 1947: Fairwood & Co., for 1,000 tons, $210.00 per short ton, c.i.f., Pacific ports, delivery: December, 1947 and January, 1948. This contract was assigned to Pacific Vegetable Co. (i) October 28, 1947: Fairwood & Co., for 1,000 tons, $210.00 per short ton, c.i.f., Pacific ports, delivery: January, 1948. This contract was assigned to Pacific Vegetable Co. An unhappy chain of events conspired to deter NACOCO from fulfilling these contracts. Nature supervened. Four devastating typhoons visited the Philippines: the first in October, the second and third in November, and the fourth in December, 1947. Coconut trees throughout the country suffered extensive damage. Copra production decreased. Prices spiralled. Warehouses were destroyed. Cash requirements doubled. Deprivation of export facilities increased the time necessary to accumulate shiploads of copra. Quick turnovers became impossible, financing a problem. When it became clear that the contracts would be unprofitable, Kalaw submitted them to the board for approval. It was not until December 22, 1947 when the membership was completed. Defendant Moll took her oath on that date. A meeting was then held. Kalaw made a full disclosure of the situation, apprised the board of the impending heavy losses. No action was taken on the contracts. Neither did the board vote thereon at the meeting of January 7, 1948 following. Then, on January 11, 1948, President Roxas made a statement that the NACOCO head did his best to avert the losses, emphasized that government concerns faced the same risks that confronted private companies, that NACOCO was recouping its losses, and that Kalaw was to remain in his post. Not long thereafter, that is, on January 30, 1948, the board met again with Kalaw, Bocar, Garcia and Moll in attendance. They unanimously approved the contracts hereinbefore enumerated. As was to be expected, NACOCO but partially performed the contracts, as follows: Buyers Pacific Vegetable Oil Spencer Kellog Franklin Baker Louis Dreyfus Louis Dreyfus (Adamson contract of July 30, 1947) Tons Delivered Undelivered 2,386.45 None 1,000 800 1,150 4,613.55 1,000 500 2,200 850 245 9,408.55

Louis Dreyfus (Adamson Contract of August 14, 1947) 1,755 TOTALS 7,091.45

The buyers threatened damage suits. Some of the claims were settled, viz: Pacific Vegetable Oil Co., in copra delivered by NACOCO, P539,000.00; Franklin Baker Corporation, P78,210.00; Spencer Kellog & Sons, P159,040.00. But one buyer, Louis Dreyfus & Go. (Overseas) Ltd., did in fact sue before the Court of First Instance of Manila, upon claims as follows: For the undelivered copra under the July 30 contract (Civil Case 4459); P287,028.00; for the balance on the August 14

contract (Civil Case 4398), P75,098.63; for that per the September 12 contract reduced to judgment (Civil Case 4322, appealed to this Court in L-2829), P447,908.40. These cases culminated in an out-of-court amicable settlement when the Kalaw management was already out. The corporation thereunder paid Dreyfus P567,024.52 representing 70% of the total claims. With particular reference to the Dreyfus claims, NACOCO put up the defenses that: (1) the contracts were void because Louis Dreyfus & Co. (Overseas) Ltd. did not have license to do business here; and (2) failure to deliver was due to force majeure, the typhoons. To project the utter unreasonableness of this compromise, we reproduce in haec verba this finding below: x x x However, in similar cases brought by the same claimant [Louis Dreyfus & Co. (Overseas) Ltd.] against Santiago Syjuco for nondelivery of copra also involving a claim of P345,654.68 wherein defendant set upsame defenses as above, plaintiff accepted a promise of P5,000.00 only (Exhs. 31 & 32 Heirs.) Following the same proportion, the claim of Dreyfus against NACOCO should have been compromised for only P10,000.00, if at all. Now, why should defendants be held liable for the large sum paid as compromise by the Board of Liquidators? This is just a sample to show how unjust it would be to hold defendants liable for the readiness with which the Board of Liquidators disposed of the NACOCO funds, although there was much possibility of successfully resisting the claims, or at 5 least settlement for nominal sums like what happened in the Syjuco case. All the settlements sum up to P1,343,274.52. In this suit started in February, 1949, NACOCO seeks to recover the above sum of P1,343,274.52 from general manager and board chairman Maximo M. Kalaw, and directors Juan Bocar, Casimiro Garcia and Leonor Moll. It charges Kalaw with negligence under Article 1902 of the old Civil Code (now Article 2176, new Civil Code); and defendant board members, including Kalaw, with bad faith and/or breach of trust for having approved the contracts. The fifth amended complaint, on which this case was tried, was filed on July 2, 1959. Defendants resisted the action upon defenses hereinafter in this opinion to be discussed. The lower court came out with a judgment dismissing the complaint without costs as well as defendants' counterclaims, except that plaintiff was ordered to pay the heirs of Maximo Kalaw the sum of P2,601.94 for unpaid salaries and cash deposit due the deceased Kalaw from NACOCO. Plaintiff appealed direct to this Court. Plaintiff's brief did not, question the judgment on Kalaw's counterclaim for the sum of P2,601.94. Right at the outset, two preliminary questions raised before, but adversely decided by, the court below, arrest our attention. On appeal, defendants renew their bid. And this, upon established jurisprudence that an appellate court may base its decision of 6 affirmance of the judgment below on a point or points ignored by the trial court or in which said court was in error. 1. First of the threshold questions is that advanced by defendants that plaintiff Board of Liquidators has lost its legal personality to continue with this suit. Accepted in this jurisdiction are three methods by which a corporation may wind up its affairs: (1) under Section 3, Rule 104, of the 7 Rules of Court [which superseded Section 66 of the Corporation Law] whereby, upon voluntary dissolution of a corporation, the court may direct "such disposition of its assets as justice requires, and may appoint a receiver to collect such assets and pay the debts of the corporation;" (2) under Section 77 of the Corporation Law, whereby a corporation whose corporate existence is terminated, "shall nevertheless be continued as a body corporate for three years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and close its affairs, to dispose of and convey its property and to divide its capital stock, but not for the purpose of continuing the business for which it was established;" and (3) under Section 78 of the Corporation Law, by virtue of which the corporation, within the three year period just mentioned, "is authorized and empowered to convey all of its property to trustees for the benefit of members, 8 stockholders, creditors, and others interested." It is defendants' pose that their case comes within the coverage of the second method. They reason out that suit was commenced in February, 1949; that by Executive Order 372, dated November 24, 1950, NACOCO, together with other government-owned corporations, was abolished, and the Board of Liquidators was entrusted with the function of settling and closing its affairs; and that, since the three year period has elapsed, the Board of Liquidators may not now continue with, and prosecute, the present case to its conclusion, because Executive Order 372 provides in Section 1 thereof that Sec.1. The National Abaca and Other Fibers Corporation, the National Coconut Corporation, the National Tobacco Corporation, the National Food Producer Corporation and the former enemy-owned or controlled corporations or associations, . . . are hereby abolished. The said corporations shall be liquidated in accordance with law, the provisions of this Order, and/or in such manner as the President of the Philippines may direct; Provided, however, That each of the said corporations shall nevertheless be continued as a body corporate for a period of three (3) years from the effective date of this Executive Order for the purpose of prosecuting and defending suits by or against it and of enabling the Board of Liquidators gradually to settle and close its affairs, to dispose of and, convey its property in the manner hereinafter provided. Citing Mr. Justice Fisher, defendants proceed to argue that even where it may be found impossible within the 3 year period to reduce disputed claims to judgment, nonetheless, "suits by or against a corporation abate when it ceases to be an entity capable of suing or being sued" (Fisher, The Philippine Law of Stock Corporations, pp. 390-391). Corpus Juris Secundum likewise is authority for the statement that "[t]he dissolution of a corporation ends its existence so that there must be statutory authority for prolongation 9 of its life even for purposes of pending litigation" and that suit "cannot be continued or revived; nor can a valid judgment be 10 rendered therein, and a judgment, if rendered, is not only erroneous, but void and subject to collateral attack." So it is, that 11 abatement of pending actions follows as a matter of course upon the expiration of the legal period for liquidation, unless the 12 statute merely requires a commencement of suit within the added time. For, the court cannot extend the time alloted by 13 statute. We, however, express the view that the executive order abolishing NACOCO and creating the Board of Liquidators should be examined in context. The proviso in Section 1 of Executive Order 372, whereby the corporate existence of NACOCO was continued for a period of three years from the effectivity of the order for "the purpose of prosecuting and defending suits by or against it and of enabling the Board of Liquidators gradually to settle and close its affairs, to dispose of and convey its property in the manner hereinafter provided", is to be read not as an isolated provision but in conjunction with the whole. So reading, it will be readily observed that no time limit has been tacked to the existence of the Board of Liquidators and its function of closing the affairs of the various government owned corporations, including NACOCO. By Section 2 of the executive order, while the boards of directors of the various corporations were abolished, their powers and functions and duties under existing laws were to be assumed and exercised by the Board of Liquidators. The President thought it best to do away with the boards of directors of the defunct corporations; at the same time, however, the President had chosen to

see to it that the Board of Liquidators step into the vacuum. And nowhere in the executive order was there any mention of the lifespan of the Board of Liquidators. A glance at the other provisions of the executive order buttresses our conclusion. Thus, liquidation by the Board of Liquidators may, under section 1, proceed in accordance with law, the provisions of the executive order, "and/or in such manner as the President of the Philippines may direct." By Section 4, when any property, fund, or project is transferred to any governmental instrumentality "for administration or continuance of any project," the necessary funds therefor shall be taken from the corresponding special fund created in Section 5. Section 5, in turn, talks of special funds established from the "net proceeds of the liquidation" of the various corporations abolished. And by Section, 7, fifty per centum of the fees collected from the copra standardization and inspection service shall accrue "to the special fund created in section 5 hereof for the rehabilitation and development of the coconut industry." Implicit in all these, is that the term of life of the Board of Liquidators is without time limit. Contemporary history gives us the fact that the Board of Liquidators still exists as an office with officials and numerous employees continuing the job of liquidation and prosecution of several court actions. Not that our views on the power of the Board of Liquidators to proceed to the final determination of the present case is without jurisprudential support. The first judicial test before this Court is National Abaca and Other Fibers Corporation vs. Pore, L-16779, August 16, 1961. In that case, the corporation, already dissolved, commenced suit within the three-year extended period for liquidation. That suit was for recovery of money advanced to defendant for the purchase of hemp in behalf of the corporation. She failed to account for that money. Defendant moved to dismiss, questioned the corporation's capacity to sue. The lower court ordered plaintiff to include as co-party plaintiff, The Board of Liquidators, to which the corporation's liquidation was entrusted by Executive Order 372. Plaintiff failed to effect inclusion. The lower court dismissed the suit. Plaintiff moved to reconsider. Ground: excusable negligence, in that its counsel prepared the amended complaint, as directed, and instructed the board's incoming and outgoing correspondence clerk, Mrs. Receda Vda. de Ocampo, to mail the original thereof to the court and a copy of the same to defendant's counsel. She mailed the copy to the latter but failed to send the original to the court. This motion was rejected below. Plaintiff came to this Court on appeal. We there said that "the rule appears to be well settled that, in the absence of statutory provision to the contrary, pending actions by or against a corporation are abated upon expiration of the period allowed by law for the liquidation of its affairs." We there said that "[o]ur Corporation Law contains no provision authorizing a corporation, after three (3) years from the expiration of its lifetime, to continue in its corporate name actions instituted by it within said period of three (3) 14 years." However, these precepts notwithstanding, we, in effect, held in that case that the Board of Liquidators escapes from the operation thereof for the reason that "[o]bviously, the complete loss of plaintiff's corporate existence after the expiration of the period of three (3) years for the settlement of its affairs is what impelled the President to create a Board of Liquidators, to continue 15 the management of such matters as may then be pending." We accordingly directed the record of said case to be returned to the lower court, with instructions to admit plaintiff's amended complaint to include, as party plaintiff, the Board of Liquidators. Defendants' position is vulnerable to attack from another direction. By Executive Order 372, the government, the sole stockholder, abolished NACOCO, and placed its assets in the hands of the Board of Liquidators. The Board of Liquidators thus became the trustee on behalf of the government. It was an express trust. The legal interest became vested in the trustee the Board of Liquidators. The beneficial interest remained with the sole stockholder the government. At no time had the government withdrawn the property, or the authority to continue the present suit, from the Board of Liquidators. If for this reason alone, we cannot stay the hand of the Board of Liquidators from prosecuting this case to its final 16 conclusion. The provisions of Section 78 of the Corporation Law the third method of winding up corporate affairs find application. We, accordingly, rule that the Board of Liquidators has personality to proceed as: party-plaintiff in this case. 2. Defendants' second poser is that the action is unenforceable against the heirs of Kalaw. 17 Appellee heirs of Kalaw raised in their motion to dismiss, which was overruled, and in their nineteenth special defense, that 18 plaintiff's action is personal to the deceased Maximo M. Kalaw, and may not be deemed to have survived after his death. They say 19 that the controlling statute is Section 5, Rule 87, of the 1940 Rules of Court. which provides that "[a]ll claims for money against the decedent, arising from contract, express or implied", must be filed in the estate proceedings of the deceased. We disagree. The suit here revolves around the alleged negligent acts of Kalaw for having entered into the questioned contracts without prior approval of the board of directors, to the damage and prejudice of plaintiff; and is against Kalaw and the other directors for having subsequently approved the said contracts in bad faith and/or breach of trust." Clearly then, the present case is not a mere action for the recovery of money nor a claim for money arising from contract. The suit involves alleged tortious acts. And the action is 20 embraced in suits filed "to recover damages for an injury to person or property, real or personal", which survive. The leading expositor of the law on this point is Aguas vs. Llemos, L-18107, August 30, 1962. There, plaintiffs sought to recover damages from defendant Llemos. The complaint averred that Llemos had served plaintiff by registered mail with a copy of a petition for a writ of possession in Civil Case 4824 of the Court of First Instance at Catbalogan, Samar, with notice that the same would be submitted to the Samar court on February 23, 1960 at 8:00 a.m.; that in view of the copy and notice served, plaintiffs proceeded to the said court of Samar from their residence in Manila accompanied by their lawyers, only to discover that no such petition had been filed; and that defendant Llemos maliciously failed to appear in court, so that plaintiffs' expenditure and trouble turned out to be in vain, causing them mental anguish and undue embarrassment. Defendant died before he could answer the complaint. Upon leave of court, plaintiffs amended their complaint to include the heirs of the deceased. The heirs moved to dismiss. The court dismissed the complaint on the ground that the legal representative, and not the heirs, should have been made the party defendant; and that, anyway, the action being for recovery of money, testate or intestate proceedings should be initiated and the claim filed therein. This Court, thru Mr. Justice Jose B. L. Reyes, there declared: Plaintiffs argue with considerable cogency that contrasting the correlated provisions of the Rules of Court, those concerning claims that are barred if not filed in the estate settlement proceedings (Rule 87, sec. 5) and those defining actions that survive and may be prosecuted against the executor or administrator (Rule 88, sec. 1), it is apparent that actions for damages caused by tortious conduct of a defendant (as in the case at bar) survive the death of the latter. Under Rule 87, section 5, the actions that are abated by death are: (1) claims for funeral expenses and those for the last sickness of the decedent; (2) judgments for money; and (3) "all claims for money against the decedent, arising from contract express or implied." None of these includes that of the plaintiffsappellants; for it is not enough that the claim against the deceased party be for money, but it must arise from "contract express or implied", and these words (also used by the Rules in connection with attachments and derived from the common law) were construed in Leung Ben vs. O'Brien, 38 Phil. 182, 189-194, "to include all purely personal obligations other than those which have their source in delict or tort."

Upon the other hand, Rule 88, section 1, enumerates actions that survive against a decedent's executors or administrators, and they are: (1) actions to recover real and personal property from the estate; (2) actions to enforce a lien thereon; and (3) actions to recover damages for an injury to person or property. The present suit is one for damages under the last class, it having been held that "injury to property" is not limited to injuries to specific property, but extends to other wrongs by which personal estate is injured or diminished (Baker vs. Crandall, 47 Am. Rep. 126; also 171 A.L.R., 1395). To maliciously cause a party to incur unnecessary expenses, as charged in this case, is certainly injury to that party's property (Javier vs. Araneta, L-4369, Aug. 31, 1953). The ruling in the preceding case was hammered out of facts comparable to those of the present. No cogent reason exists why we should break away from the views just expressed. And, the conclusion remains: Action against the Kalaw heirs and, for the matter, against the Estate of Casimiro Garcia survives. The preliminaries out of the way, we now go to the core of the controversy. 3. Plaintiff levelled a major attack on the lower court's holding that Kalaw justifiedly entered into the controverted contracts without the prior approval of the corporation's directorate. Plaintiff leans heavily on NACOCO's corporate by-laws. Article IV (b), Chapter III thereof, recites, as amongst the duties of the general manager, the obligation: "(b) To perform or execute on behalf of the Corporation upon prior approval of the Board, all contracts necessary and essential to the proper accomplishment for which the Corporation was organized." Not of de minimis importance in a proper approach to the problem at hand, is the nature of a general manager's position in the corporate structure. A rule that has gained acceptance through the years is that a corporate officer "intrusted with the general management and control of its business, has implied authority to make any contract or do any other act which is necessary or 21 appropriate to the conduct of the ordinary business of the corporation. As such officer, "he may, without any special authority from the Board of Directors perform all acts of an ordinary nature, which by usage or necessity are incident to his office, and may 22 bind the corporation by contracts in matters arising in the usual course of business. The problem, therefore, is whether the case at bar is to be taken out of the general concept of the powers of a general manager, given the cited provision of the NACOCO by-laws requiring prior directorate approval of NACOCO contracts. The peculiar nature of copra trading, at this point, deserves express articulation. Ordinary in this enterprise are copra sales for future delivery. The movement of the market requires that sales agreements be entered into, even though the goods are not yet in the hands of the seller. Known in business parlance as forward sales, it is concededly the practice of the trade. A certain amount of speculation is inherent in the undertaking. NACOCO was much more conservative than the exporters with big capital. This shortselling was inevitable at the time in the light of other factors such as availability of vessels, the quantity required before being accepted for loading, the labor needed to prepare and sack the copra for market. To NACOCO, forward sales were a necessity. Copra could not stay long in its hands; it would lose weight, its value decrease. Above all, NACOCO's limited funds necessitated a quick turnover. Copra contracts then had to be executed on short notice at times within twenty-four hours. To be appreciated then is the difficulty of calling a formal meeting of the board. Such were the environmental circumstances when Kalaw went into copra trading. Long before the disputed contracts came into being, Kalaw contracted by himself alone as general manager for forward sales of copra. For the fiscal year ending June 30, 1947, Kalaw signed some 60 such contracts for the sale of copra to divers parties. During that period, from those copra sales, NACOCO reaped a gross profit of P3,631,181.48. So pleased was NACOCO's board of directors that, on December 5, 1946, in Kalaw's absence, it voted to grant him a special bonus "in recognition of the signal achievement rendered by him in putting the Corporation's business on a self-sufficient basis within a few months after assuming office, despite numerous handicaps and difficulties." These previous contract it should be stressed, were signed by Kalaw without prior authority from the board. Said contracts were known all along to the board members. Nothing was said by them. The aforesaid contracts stand to prove one thing: Obviously, NACOCO board met the difficulties attendant to forward sales by leaving the adoption of means to end, to the sound discretion of NACOCO's general manager Maximo M. Kalaw. Liberally spread on the record are instances of contracts executed by NACOCO's general manager and submitted to the board after their consummation, not before. These agreements were not Kalaw's alone. One at least was executed by a predecessor way back in 1940, soon after NACOCO was chartered. It was a contract of lease executed on November 16, 1940 by the then general manager and board chairman, Maximo Rodriguez, and A. Soriano y Cia., for the lease of a space in Soriano Building On November 14, 1946, NACOCO, thru its general manager Kalaw, sold 3,000 tons of copra to the Food Ministry, London, thru Sebastian Palanca. On December 22, 1947, when the controversy over the present contract cropped up, the board voted to approve a lease contract previously executed between Kalaw and Fidel Isberto and Ulpiana Isberto covering a warehouse of the latter. On the same date, the board gave its nod to a contract for renewal of the services of Dr. Manuel L. Roxas. In fact, also on that date, the board requested Kalaw to report for action all copra contracts signed by him "at the meeting immediately following the signing of the contracts." This practice was observed in a later instance when, on January 7, 1948, the board approved two previous contracts for the sale of 1,000 tons of copra each to a certain "SCAP" and a certain "GNAPO". And more. On December 19, 1946, the board resolved to ratify the brokerage commission of 2% of Smith, Bell and Co., Ltd., in the sale of 4,300 long tons of copra to the French Government. Such ratification was necessary because, as stated by Kalaw in that same meeting, "under an existing resolution he is authorized to give a brokerage fee of only 1% on sales of copra made through brokers." On January 15, 1947, the brokerage fee agreements of 1-1/2% on three export contracts, and 2% on three others, for the sale of copra were approved by the board with a proviso authorizing the general manager to pay a commission up to the amount of 1-1/2% "without further action by the Board." On February 5, 1947, the brokerage fee of 2% of J. Cojuangco & Co. on the sale of 2,000 tons of copra was favorably acted upon by the board. On March 19, 1947, a 2% brokerage commission was similarly approved by the board for Pacific Trading Corporation on the sale of 2,000 tons of copra. It is to be noted in the foregoing cases that only the brokerage fee agreements were passed upon by the board,not the sales contracts themselves. And even those fee agreements were submitted only when the commission exceeded the ceiling fixed by the board. Knowledge by the board is also discernible from other recorded instances.1wph1.t When the board met on May 10, 1947, the directors discussed the copra situation: There was a slow downward trend but belief was entertained that the nadir might have already been reached and an improvement in prices was expected. In view thereof, Kalaw 23 informed the board that "he intends to wait until he has signed contracts to sell before starting to buy copra."

In the board meeting of July 29, 1947, Kalaw reported on the copra price conditions then current: The copra market appeared to have become fairly steady; it was not expected that copra prices would again rise very high as in the unprecedented boom during January-April, 1947; the prices seemed to oscillate between $140 to $150 per ton; a radical rise or decrease was not indicated by the trends. Kalaw continued to say that "the Corporation has been closing contracts for the sale of copra generally with a margin of 24 P5.00 to P7.00 per hundred kilos." We now lift the following excerpts from the minutes of that same board meeting of July 29, 1947: 521. In connection with the buying and selling of copra the Board inquired whether it is the practice of the management to close contracts of sale first before buying. The General Manager replied that this practice is generally followed but that it is not always possible to do so for two reasons: (1) The role of the Nacoco to stabilize the prices of copra requires that it should not cease buying even when it does not have actual contracts of sale since the suspension of buying by the Nacoco will result in middlemen taking advantage of the temporary inactivity of the Corporation to lower the prices to the detriment of the producers. (2) The movement of the market is such that it may not be practical always to wait for the consummation of contracts of sale before beginning to buy copra. The General Manager explained that in this connection a certain amount of speculation is unavoidable. However, he said that the 25 Nacoco is much more conservative than the other big exporters in this respect. Settled jurisprudence has it that where similar acts have been approved by the directors as a matter of general practice, custom, and 26 policy, the general manager may bind the company without formal authorization of the board of directors. In varying language, existence of such authority is established, by proof of the course of business, the usage and practices of the company and by the knowledge which the board of directors has, or must bepresumed to have, of acts and doings of its subordinates in and about 27 the affairs of the corporation. So also, x x x authority to act for and bind a corporation may be presumed from acts of recognition in other instances where the power was 28 in fact exercised. x x x Thus, when, in the usual course of business of a corporation, an officer has been allowed in his official capacity to manage its affairs, his authority to represent the corporation may be implied from the manner in which he has been permitted by the directors 29 to manage its business. In the case at bar, the practice of the corporation has been to allow its general manager to negotiate and execute contracts in its copra trading activities for and in NACOCO's behalf without prior board approval. If the by-laws were to be literally followed, the board should give its stamp of prior approval on all corporate contracts. But that board itself, by its acts and through acquiescence, practically laid aside the by-law requirement of prior approval. Under the given circumstances, the Kalaw contracts are valid corporate acts. 4. But if more were required, we need but turn to the board's ratification of the contracts in dispute on January 30, 1948, though it is our (and the lower court's) belief that ratification here is nothing more than a mere formality. Authorities, great in number, are one in the idea that "ratification by a corporation of an unauthorized act or contract by its officers or others relates back to the time of the act or contract ratified, and is equivalent to original authority;" and that " [t]he corporation and the other party to the transaction are in precisely the same position as if the act or contract had been authorized at the 30 time." The language of one case is expressive: "The adoption or ratification of a contract by a corporation is nothing more or less than the making of an original contract. The theory of corporate ratification is predicated on the right of a corporation to contract, 31 and any ratification or adoption is equivalent to a grant of prior authority." 32 Indeed, our law pronounces that "[r]atification cleanses the contract from all its defects from the moment it was constituted." By 33 corporate confirmation, the contracts executed by Kalaw are thus purged of whatever vice or defect they may have. In sum, a case is here presented whereunder, even in the face of an express by-law requirement of prior approval, the law on corporations is not to be held so rigid and inflexible as to fail to recognize equitable considerations. And, the conclusion inevitably is that the embattled contracts remain valid. 5. It would be difficult, even with hostile eyes, to read the record in terms of "bad faith and/or breach of trust" in the board's ratification of the contracts without prior approval of the board. For, in reality, all that we have on the government's side of the scale is that the board knew that the contracts so confirmed would cause heavy losses. As we have earlier expressed, Kalaw had authority to execute the contracts without need of prior approval. Everybody, including Kalaw himself, thought so, and for a long time. Doubts were first thrown on the way only when the contracts turned out to be unprofitable for NACOCO. Rightfully had it been said that bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of a known duty thru some motive or interest or ill will; it 34 partakes of the nature of fraud. Applying this precept to the given facts herein, we find that there was no "dishonest purpose," or "some moral obliquity," or "conscious doing of wrong," or "breach of a known duty," or "Some motive or interest or ill will" that "partakes of the nature of fraud." Nor was it even intimated here that the NACOCO directors acted for personal reasons, or to serve their own private interests, or to 35 pocket money at the expense of the corporation. We have had occasion to affirm that bad faith contemplates a "state of mind 36 affirmatively operating with furtive design or with some motive of self-interest or ill will or for ulterior purposes." Briggs vs. Spaulding, 141 U.S. 132, 148-149, 35 L. ed. 662, 669, quotes with approval from Judge Sharswood (in Spering's App., 71 Pa. 11), the following: "Upon a close examination of all the reported cases, although there are many dicta not easily reconcilable, yet I have found no judgment or decree which has held directors to account, except when they have themselves been personally guilty of some fraud on the corporation, or have known and connived at some fraud in others, or where such fraud might have been prevented had they given ordinary attention to their duties. . . ." Plaintiff did not even dare charge its defendant-directors with any of these malevolent acts. Obviously, the board thought that to jettison Kalaw's contracts would contravene basic dictates of fairness. They did not think of raising their voice in protest against past contracts which brought in enormous profits to the corporation. By the same token, fair dealing disagrees with the idea that similar contracts, when unprofitable, should not merit the same treatment. Profit or loss resulting from business ventures is no justification for turning one's back on contracts entered into. The truth, then, of the matter is that in the words of the trial court the ratification of the contracts was "an act of simple justice and fairness to the general

manager and the best interest of the corporation whose prestige would have been seriously impaired by a rejection by the board of 37 those contracts which proved disadvantageous." 38 The directors are not liable." 6. To what then may we trace the damage suffered by NACOCO. The facts yield the answer. Four typhoons wreaked havoc then on our copra-producing regions. Result: Copra production was impaired, prices spiralled, warehouses destroyed. Quick turnovers could not be expected. NACOCO was not alone in this misfortune. The record discloses that private traders, old, experienced, with bigger facilities, were not spared; also suffered tremendous losses. Roughly estimated, eleven principal trading concerns did run losses to about P10,300,000.00. Plaintiff's witness Sisenando Barretto, head of the copra marketing department of NACOCO, observed that from late 1947 to early 1948 "there were many who lost money 39 in the trade." NACOCO was not immune from such usual business risk. The typhoons were known to plaintiff. In fact, NACOCO resisted the suits filed by Louis Dreyfus & Co. by pleading in its answers force majeure as an affirmative defense and there vehemently asserted that "as a result of the said typhoons, extensive damage was caused to the coconut trees in the copra producing regions of the Philippines and according to estimates of competent authorities, it will take about one year until the coconut producing regions will be able to produce their normal coconut yield and it will take some time until the price of copra will reach normal levels;" and that "it had never been the intention of the contracting parties in entering into the contract in question that, in the event of a sharp rise in the price of copra in the Philippine market produce by force majeureor by caused beyond defendant's control, the defendant should buy the copra contracted for at exorbitant prices far beyond 40 the buying price of the plaintiff under the contract." A high regard for formal judicial admissions made in court pleadings would suffice to deter us from permitting plaintiff to stray away therefrom, to charge now that the damage suffered was because of Kalaw's negligence, or for that matter, by reason of the board's 41 ratification of the contracts. 42 Indeed, were it not for the typhoons, NACOCO could have, with ease, met its contractual obligations. Stock accessibility was no problem. NACOCO had 90 buying agencies spread throughout the islands. It could purchase 2,000 tons of copra a day. The various contracts involved delivery of but 16,500 tons over a five-month period. Despite the typhoons, NACOCO was still able to deliver a little short of 50% of the tonnage required under the contracts. As the trial court correctly observed, this is a case of damnum absque injuria. Conjunction of damage and wrong is here absent. 43 There cannot be an actionable wrong if either one or the other is wanting. 7. On top of all these, is that no assertion is made and no proof is presented which would link Kalaw's acts ratified by the board 44 to a matrix for defraudation of the government. Kalaw is clear of the stigma of bad faith. Plaintiff's corporate counsel concedes that Kalaw all along thought that he had authority to enter into the contracts, that he did so in the best interests of the corporation; that he entered into the contracts in pursuance of an overall policy to stabilize prices, to free the producers from the clutches of the middlemen. The prices for which NACOCO contracted in the disputed agreements, were at a level calculated to produce profits and higher than those prevailing in the local market. Plaintiff's witness, Barretto, categorically stated that "it would be foolish to think that one would sign (a) contract when you are going to lose money" and that no contract was executed "at a price unsafe for the 45 46 Nacoco." Really, on the basis of prices then prevailing, NACOCO envisioned a profit of around P752,440.00. Kalaw's acts were not the result of haphazard decisions either. Kalaw invariably consulted with NACOCO's Chief Buyer, Sisenando Barretto, or the Assistant General Manager. The dailies and quotations from abroad were guideposts to him. Of course, Kalaw could not have been an insurer of profits. He could not be expected to predict the coming of unpredictable typhoons. And even as typhoons supervened Kalaw was not remissed in his duty. He exerted efforts to stave off losses. He asked the Philippine National Bank to implement its commitment to extend a P400,000.00 loan. The bank did not release the loan, not even the sum of P200,000.00, which, in October, 1947, was approved by the bank's board of directors. In frustration, on December 12, 1947, Kalaw turned to the President, complained about the bank's short-sighted policy. In the end, nothing came out of the negotiations with the bank. NACOCO eventually faltered in its contractual obligations. That Kalaw cannot be tagged with crassa negligentia or as much as simple negligence, would seem to be supported by the fact that even as the contracts were being questioned in Congress and in the NACOCO board itself, President Roxas defended the actuations of Kalaw. On December 27, 1947, President Roxas expressed his desire "that the Board of Directors should reelect Hon. Maximo M. 47 Kalaw as General Manager of the National Coconut Corporation." And, on January 7, 1948, at a time when the contracts had already been openly disputed, the board, at its regular meeting, appointed Maximo M. Kalaw as acting general manager of the corporation. Well may we profit from the following passage from Montelibano vs. Bacolod-Murcia Milling Co., Inc., L-15092, May 18, 1962: "They (the directors) hold such office charged with the duty to act for the corporation according to their best judgment, and in so doing they cannot be controlled in the reasonable exercise and performance of such duty. Whether the business of a corporation should be operated at a loss during a business depression, or closed down at a smaller loss, is a purely business and economic problem to be determined by the directors of the corporation, and not by the court. It is a well known rule of law that questions of policy of management are left solely to the honest decision of officers and directors of a corporation, and the court is without authority to substitute its judgment for the judgment of the board of directors; the board is the business manager of the corporation, and solong as it acts in good faith its orders are not reviewable by the courts." (Fletcher on Corporations, Vol. 2, p. 48 390.) 49 Kalaw's good faith, and that of the other directors, clinch the case for defendants. Viewed in the light of the entire record, the judgment under review must be, as it is hereby, affirmed. Without costs. So ordered.

THE BOARD OF DIRECTORS AND ELECTION COMMITTEE OF THE SMB WORKERS SAVINGS AND LOAN ASSOCIATION, INC., ET AL., petitioners, vs. HON. BIENVENIDO A. TAN, ETC., ET AL., respondents. Panfilo M. Manguera and Restituto L. Opiz for petitioners. Cipriano Cid and Associates for respondents. PADILLA, J.: Petitioners pray for a writ of certiorari with the preliminary injunction. On 17 January 1957 John Castillo et al., commenced a suit in the court of First Instance of Manila to declare null and void election of the members of the board of directors of the SMB Workers Savings and Loan Association, Inc. and of the members of the board of directors of the association to call for and hold another election in accordance with its constitution and by-laws and the Corporation Law; to restain the defendants who had been illegally elected as members of the board of directors from exercising the functions of their office; to order the defendants to pay the plaintiffs attorney's fees and costs of the suit; and to grant them other just and equitable relief (civil No. 31584, Annex A). The defendants filed an answer (Annex B), and after joinder of issues the Court set the case for trial. On the day set for trial of the case, neither the defendants nor their attorney appeared. The Court proceeded to received the plaintiffs' evidence. On 11 February, the Court rendered judgment declaring the election held on 11 and 12 January null and void, ordering the defendants to call for and hold another election in accordance with the constitution and by-laws of the association and the Corporation Law, and sentencing the defendants to pay the plaintiffs the sum of P1,500 as attorney's fees, and 1 to pay the cost of the suit (Annex C). On 15 February, before the expiration of the time to appeal, the plaintiffs move for immediate execution of the judgment (Annex F). On 4 March the Court granted the plaintiffs motion and issued the writ of execution prayed for (Annex G). On 9 March the defendants moved for stay of execution of the judgment, for which they offered to file a supersedeas bond in the amount to be fixed by the Court (Annex H). On 23 March the Court denied the defendants' motion. In compliance with the judgment rendered by the Court, on 26 March the election committee composed of Quintin Tesalona, Manuel Dumaup and Jose' Capinio Santos set the meeting of the members of the association for 28 March at 5:30 o'clock in the afternoon to elect the new members of the board of directors (Annexes J & 4). On 27 March the plaintiff filed an ex-parte motion alleging that the election committee that had called the meeting of members of the association is composed of the same members that had conducted and supervised the election of the members of the board of directors that was declared null and void by the Court; that in view thereof it would be inequitable to allow them to conduct and supervise again the forthcoming election; that the election to be conducted and supervised by the said committee would not be held in accordance with the constitution and by laws of the association providing for five days notice to the members before the election, since the notice was posted and sent out only on 26 March, and the election would be held on 28 March, or two days after notice; that the notice that beginning 26 March any member could secure his ballot and proxy from the office of the association is in violation of section 5, article III of the constitution and by laws, which prohibits 2 voting by proxy in the election of members of the board of directors, and that the defendant did not show that arrangement is being made "to guarantee that the election will be held in accordance with the constitution and by laws." They prayed that the Court appoint its representative or representatives, whose compensation shall be paid out of the funds of the association, to supervise and conduct the election ordered by it (Annex 4). On the same day, 27 March the Court entered an order providing as follows: . . . the Court hereby orders that the election scheduled for March 28, 1957 be, as it hereby is, cancelled, and a committee of three is hereby constituted and appointed to call, conduct and supervise the election of the members of the board of directors of the association for 1957, said committee to be composed of: Mr. Candido C. Viernes as representative of the Court and to act as Chairman; and one representative each from the plaintiffs and defendant, as members. The committee is vested with the sole and exclusive power and authority to call conduct and supervise the election of the members of the board of directors of the association for the year 1957. The chairman of the committee shall received a compensation of P50.00 per day and the members thereof P30.00 each per day, said compensation to be paid by the association. SO ORDERED. (Annexes E & 3.) On 28 March the defendants moved for reconsideration of the foregoing order (Annex L). On 30 March the Court denied the motion for reconsideration. Claiming that in issuing the order of 27 March 1957 (Annexes E & 3) and in denying their motion for reconsideration, the Court acted without or in excess of jurisdiction or with grave abuse of discretion; and that there being no appeal or any plain, speedy and adequate remedy in the ordinary course of law, the petitioners pray for a writ of certiorari to annul and set aside the order assailed, and a writ of preliminary injunction to restrain the respondent court from enforcing its order of 27 March 1957 (Annexes E & 3) after filing of a bond in the amount to be fixed by this Court; for costs to be taxed against the respondents, and for such other just and equitable relief as may be granted to them. On 14 May 1957, after the petitioners had filed a bond in the sum of P200, this Court issued a writ of preliminary injunction prayed for. Section 3, article III, of the constitution and by-laws the association provides: Notice of the time and place of holding of any annual meeting, or any special meeting, the members, shall be given either by posting the same in a postage prepaid envelope, addressed to each member on the record at the address left by such member with the Secretary of the Association, or at his known post-office address or by delivering the same person at least (5) days before the date set for such meeting. . . . In lieu of addressing or serving personal notices to the members, notice of the members, notice of a regular annual meeting or of a special meeting of the members may be given by posting copies of said notice at the different departments and plants of the San Miguel Brewery Inc., not less than five (5) days prior to the date of the meeting. (Annex K.) Notice of a special meeting of the members should be given at leasts five days before the date of the meeting. Therefore, the five days previous notice required would not be complied with. As regards the creation of a committee of three vested with the authority to call, conduct and supervise the election, and the appointment thereto of Candido C. Viernes as chairman and the representative of the court and one representative each from the parties, the Court in the exercise of its equity jurisdiction may appointment such committee, it having been shown that the Election Committee provided for in section 7 of the by-laws of the association that conducted the election annulled by the respondent court if allowed to act as such may jeopardise the rights of the respondents.

In a proper proceeding a court for equity may direct the holding of a stockholders' meeting under the control of a special master, and the action taken at such a meeting will not be set aside because of a wrongful use of the court' interlocutory decree, where not brought to the attention of the court prior to the meeting. (18 C.J.S. 1270.) A court of equity may, on showing of good reason, appoint a master to conduct and supervise an election of directors when it appears that a fair election cannot make directions contrary to statute and public policy with respect to the conduct of such election. (19 C.J.S. 41) The writ prayed for is denied and the writ of preliminary injunction heretofore issued dissolved, with costs against the petitioners

BOMAN ENVIRONMENTAL DEVELOPMENT CORPORATION, petitioners, vs. HON. COURT OF APPEALS and NILCAR Y. FAJILAN, respondents. Lim, Duran & Associates for petitioner. Renato J. Dilag for private respondent. GRIO-AQUINO, J.: The only issue in this case is whether or not a suit brought by a withdrawing stockholder against the corporation to enforce payment of the balance due on the consideration (evidenced by a corporate promissory note) for the surrender of his shares of stock and interests in the corporation, involves an intra-corporate dispute. The resolution of that issue will determine whether the Securities and Exchange Commission (SEC) or a regular court has jurisdiction over the action. On May 7, 1984, respondent Nilcar Y. Fajilan offered in writing to resign as President and Member of the Board of Directors of petitioner, Boman Environmental Development Corporation (BEDECO), and to sell to the company all his shares, rights, and interests therein for P 300,000 plus the transfer to him of the company's Isuzu pick-up truck which he had been using. The letter-offer (Exh. A1) reads as follows: 07 May 1984 THE BOARD OF DIRECTORS, BOMAN ENVIRONMENTAL DEVELOPMENT CORPORATION 2nd Floor, AGS Building, 466 EDSA, Makati, Metro Manila Gentlemen: With deepest regrets, I am tendering my resignation as member of the Board of Directors and President of the Company effective as soon as my shares and interests thereto are sold and fully paid. It is really painful to leave the Company which we painstakingly labored and nortured for years to attain its success today, however, family interests and other considerations dictate me otherwise. Thank you for your interest of buying my shares and other interests on the Company. It is really my intention to divest myself of these investments and sell them all for PESOS: THREE HUNDRED THOUSAND (P 300,000) payable in cash in addition to the Isuzu pick up I am presently using for and in behalf of the Company. Thank you. NILCAR Y. FAJILAN Director/President (p. 239, Rollo.) At a meeting of the Board of Directors of BEDECO on June 14, 1984, Fajilan's resignation as president was accepted and new officers were elected. Fajilan's offer to sell his shares back to the corporation was approved, the Board promising to pay for them on a staggered basis from July 15, 1984 to December 15, 1984 (Annex B).<re||an1w>The resolution of the Board was com