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China Banking Corporation vs.

Court of Appeals, 270 SCRA 503 , March 26, 1997 Case Title : CHINA BANKING CORPORATION, petitioner, vs. COURT OF APPEALS, and VALLEY GOLF and COUNTRY CLUB, INC., respondents.Case Nature : PETITION for review on certiorari of a decision of the Court of Appeals. Syllabi Class : Securities and Exchange Commission| Appeals| Loans| Corporation Law| Actions| Jurisdiction|Corporation Law| By-Laws| Estoppel| Procedural Rules| Remand of Cases| Pledge| Words and Phrases| Syllabi: 1. Securities and Exchange Commission; Actions; Jurisdiction; The better policy in determining which body has jurisdiction over a case would be to consider not only the status of relationship of the parties but also the nature of the question that is the subject of their controversy.The basic issue we must first hurdle is which body has jurisdiction over the controversy, the regular courts or the SEC. P.D. No. 902-A conferred upon the SEC the following pertinent powers: * * * The aforecited law was expounded upon in Viray v. CA and in the recent cases of Mainland Construction Co., Inc. v. Movilla and Bernardo v. CA, thus: . . . . The better policy in determining which body has jurisdiction over a case would be to consider not only the status or relationship of the parties but also the nature of the question that is the subject of their controversy. 2. Securities and Exchange Commission; Actions; Jurisdiction; Corporation Law; The purchase of a share or membership certificate at public auction by a party (and the issuance to it of the corresponding Certificate of Sale) transfers ownership of the same to the latter and thus entitle it to have the said share registered in its name as a member.As to the first query, there is no question that the purchase of the subject share or membership certificate at public auction by petitioner (and the issuance to it of the corresponding Certificate of Sale) transferred ownership of the same to the latter and thus entitled petitioner to have the said share registered in its name as a member of VGCCI. It is readily observed that VGCCI did not assail the transfer directly and has in fact, in its letter of 27 September 1974, expressly recognized the pledge agreement executed by the original owner, Calapatia, in favor of petitioner and has even noted said agreement in its corporate books. In addition, Calapatia, the original owner of the subject share, has not contested the said transfer. By virtue of the aforementioned sale, petitioner became a bona fide stockholder of VGCCI and, therefore, the conflict that arose between petitioner and VGCCI aptly exemplifies an intra-corporate controversy between a corporation and its stockholder under Sec. 5(b) of P.D. 902-A. 3. Securities and Exchange Commission; Actions; Jurisdiction; Corporation Law; ByLaws; The proper interpretation and application of a corporations by-laws is a subject which irrefutably calls for the special competence of the SEC.An important consideration, moreover, is the nature of the controversy between petitioner and private respondent corporation. VGCCI claims a prior right over the subject share anchored

mainly on Sec. 3, Art. VIII of its by-laws which provides that after a member shall have been posted as delinquent, the Board may order his/her/its share sold to satisfy the claims of the Club . . . It is pursuant to this provision that VGCCI also sold the subject share at public auction, of which it was the highest bidder. VGCCI caps its argument by asserting that its corporate bylaws should prevail. The bone of contention, thus, is the proper interpretation and application of VGCCIs aforequoted bylaws, a subject which irrefutably calls for the special competence of the SEC. 4. Securities and Exchange Commission; Actions; Jurisdiction; Estoppel; The plaintiff who files a complaint with one court which has no jurisdiction over it is not estopped from filing the same complaint later with the competent court.In Zamora v. Court of Appeals, this Court, through Mr. Justice Isagani A. Cruz, declared that: It follows that as a rule the filing of a complaint with one court which has no jurisdiction over it does not prevent the plaintiff from filing the same complaint later with the competent court. The plaintiff is not estopped from doing so simply because it made a mistake before in the choice of the proper forum. . . . 5. Appeals; Procedural Rules; Remand of Cases; The remand of the case or of an issue to the lower court for further reception of evidence is not necessary where the Supreme Court is in position to resolve the dispute based on the records before it and particularly where the ends of justice would not be subserved by the remand thereof.+ 6. Loans; Pledge; The contracting parties to a pledge agreement may stipulate that the said pledge will also stand as security for any future advancements (or renewals thereof) that the pledgor may procure from the pledgee.+ 7. Corporation Law; By-Laws; In order to be bound, a third party must have acquired knowledge of the pertinent by-laws at the time the transaction or agreement between said third person and the shareholder was entered into.8. Corporation Law; Words and Phrases; A membership share is quite different in character from a pawn ticket.Similarly, VGCCIs contention that petitioner is duty-bound to know its by-laws because of Art. 2099 of the Civil Code which stipulates that the creditor must take care of the thing pledged with the diligence of a good father of a family, fails to convince. The case of Cruz Serrano v. Chua A. H. Lee, is clearly not applicable: In applying this provision to the situation before us it must be borne in mind that the ordinary pawn ticket is a document by virtue of which the property in the thing pledged passes from hand to hand by mere delivery of the ticket; and the contract of the pledge is, therefore, absolvable to bearer. It results that one who takes a pawn ticket in pledge acquires domination over the pledge; and it is the holder who must renew the pledge, if it is to be kept alive. It is quite obvious from the aforequoted case that a membership share is quite different in character from a pawn ticket and to reiterate, petitioner was never informed of Calapatias unpaid accounts and the restrictive provisions in VGCCIs by-laws.

9. Corporation Law; Words and Phrases; The term unpaid claim in Sec. 63 of the Corporation Code refers to any unpaid claim arising from unpaid sub-scription, and not to any indebtedness which a subscriber or stockholder may owe the corporation arising from any other transaction, such as monthly dues.Finally, Sec. 63 of the Corporation Code which provides that no shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation cannot be utilized by VGCCI. The term unpaid claim refers to any unpaid claim arising from unpaid subscription, and not to any indebtedness which a subscriber or stockholder may owe the corporation arising from any other transaction. In the case at bar, the subscription for the share in question has been fully paid as evidenced by the issuance of Membership Certificate No. 1219. What Calapatia owed the corporation were merely the monthly dues. Hence, the aforequoted provision does not apply. Division: FIRST DIVISION Docket Number: G.R. No. 117604 Counsel: Lim, Vigilia & Orencia, Jose F. Manacop Ponente: KAPUNAN Dispositive Portion: WHEREFORE, premises considered, the assailed decision Court of Appeals is REVERSED and the order of the SEC en banc dated 4 June 1993 is hereby AFFIRMED.

CHINA BANKING CORPORATION, petitioner, vs. COURT OF APPEALS, and VALLEY GOLF and COUNTRY CLUB, INC., respondents.

KAPUNAN, J.: Through a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner China Banking Corporation seeks the reversal of the decision of the Court of Appeals dated 15 August 1994 nullifying the Securities and Exchange Commission's order and resolution dated 4 June 1993 and 7 December 1993, respectively, for lack of jurisdiction. Similarly impugned is the Court of Appeals' resolution dated 4 September 1994 which denied petitioner's motion for reconsideration. The case unfolds thus:

On 21 August 1974, Galicano Calapatia, Jr. (Calapatia, for brevity) a stockholder of private respondent Valley Golf & Country Club, Inc. (VGCCI, for brevity), pledged his Stock Certificate No. 1219 to petitioner China Banking Corporation (CBC, for brevity). 1 On 16 September 1974, petitioner wrote VGCCI requesting that the aforementioned pledge agreement be recorded in its books. 2 In a letter dated 27 September 1974, VGCCI replied that the deed of pledge executed by Calapatia in petitioner's favor was duly noted in its corporate books. 3 On 3 August 1983, Calapatia obtained a loan of P20,000.00 from petitioner, payment of which was secured by the aforestated pledge agreement still existing between Calapatia and petitioner. 4 Due to Calapatia's failure to pay his obligation, petitioner, on 12 April 1985, filed a petition for extrajudicial foreclosure before Notary Public Antonio T. de Vera of Manila, requesting the latter to conduct a public auction sale of the pledged stock. 5 On 14 May 1985, petitioner informed VGCCI of the above-mentioned foreclosure proceedings and requested that the pledged stock be transferred to its (petitioner's) name and the same be recorded in the corporate books. However, on 15 July 1985, VGCCI wrote petitioner expressing its inability to accede to petitioner's request in view of Calapatia's unsettled accounts with the club. 6 Despite the foregoing, Notary Public de Vera held a public auction on 17 September 1985 and petitioner emerged as the highest bidder at P20,000.00 for the pledged stock. Consequently, petitioner was issued the corresponding certificate of sale. 7 On 21 November 1985, VGCCI sent Calapatia a notice demanding full payment of his overdue account in the amount of P18,783.24. 8 Said notice was followed by a demand letter dated 12 December 1985 for the same amount 9 and another notice dated 22 November 1986 for P23,483.24. 10 On 4 December 1986, VGCCI caused to be published in the newspaper Daily Express a notice of auction sale of a number of its stock certificates, to be held on 10 December 1986 at 10:00 a.m. Included therein was Calapatia's own share of stock (Stock Certificate No. 1219). Through a letter dated 15 December 1986, VGCCI informed Calapatia of the termination of his membership due to the sale of his share of stock in the 10 December 1986 auction. 11 On 5 May 1989, petitioner advised VGCCI that it is the new owner of Calapatia's Stock Certificate No. 1219 by virtue of being the highest bidder in the 17 September 1985 auction and requested that a new certificate of stock be issued in its name. 12 On 2 March 1990, VGCCI replied that "for reason of delinquency" Calapatia's stock was sold at the public auction held on 10 December 1986 for P25,000.00. 13

On 9 March 1990, petitioner protested the sale by VGCCI of the subject share of stock and thereafter filed a case with the Regional Trial Court of Makati for the nullification of the 10 December 1986 auction and for the issuance of a new stock certificate in its name. 14 On 18 June 1990, the Regional Trial Court of Makati dismissed the complaint for lack of jurisdiction over the subject matter on the theory that it involves an intra-corporate dispute and on 27 August 1990 denied petitioner's motion for reconsideration. On 20 September 1990, petitioner filed a complaint with the Securities and Exchange Commission (SEC) for the nullification of the sale of Calapatia's stock by VGCCI; the cancellation of any new stock certificate issued pursuant thereto; for the issuance of a new certificate in petitioner's name; and for damages, attorney's fees and costs of litigation. On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision in favor of VGCCI, stating in the main that "(c)onsidering that the said share is delinquent, (VGCCI) had valid reason not to transfer the share in the name of the petitioner in the books of (VGCCI) until liquidation of delinquency." 15 Consequently, the case was dismissed. 16 On 14 April 1992, Hearing Officer Perea denied petitioner's motion for reconsideration. 17 Petitioner appealed to the SEC en banc and on 4 June 1993, the Commission issued an order reversing the decision of its hearing officer. It declared thus: The Commission en banc believes that appellant-petitioner has a prior right over the pledged share and because of pledgor's failure to pay the principal debt upon maturity, appellant-petitioner can proceed with the foreclosure of the pledged share. WHEREFORE, premises considered, the Orders of January 3, 1992 and April 14, 1992 are hereby SET ASIDE. The auction sale conducted by appelleerespondent Club on December 10, 1986 is declared NULL and VOID. Finally, appellee-respondent Club is ordered to issue another membership certificate in the name of appellant-petitioner bank. SO ORDERED. 18 VGCCI sought reconsideration of the abovecited order. However, the SEC denied the same in its resolution dated 7 December 1993. 19 The sudden turn of events sent VGCCI to seek redress from the Court of Appeals. On 15 August 1994, the Court of Appeals rendered its decision nullifying and setting aside the orders of the SEC and its hearing officer on ground of lack of jurisdiction over the subject matter and, consequently, dismissed petitioner's original complaint. The Court of Appeals declared that the controversy between CBC and VGCCI is not intra-corporate. It ruled as follows: In order that the respondent Commission can take cognizance of a case, the controversy must pertain to any of the following relationships: (a) between the corporation, partnership or association and the public; (b) between the corporation, partnership or association and its stockholders, partners, members,

or officers; (c) between the corporation, partnership or association and the state in so far as its franchise, permit or license to operate is concerned, and (d) among the stockholders, partners or associates themselves (Union Glass and Container Corporation vs. SEC, November 28, 1983, 126 SCRA 31). The establishment of any of the relationship mentioned will not necessarily always confer jurisdiction over the dispute on the Securities and Exchange Commission to the exclusion of the regular courts. The statement made in Philex Mining Corp. vs. Reyes, 118 SCRA 602, that the rule admits of no exceptions or distinctions is not that absolute. The better policy in determining which body has jurisdiction over a case would be to consider not only the status or relationship of the parties but also the nature of the question that is the subject of their controversy (Viray vs. Court of Appeals, November 9, 1990, 191 SCRA 308, 322323). Indeed, the controversy between petitioner and respondent bank which involves ownership of the stock that used to belong to Calapatia, Jr. is not within the competence of respondent Commission to decide. It is not any of those mentioned in the aforecited case. WHEREFORE, the decision dated June 4, 1993, and order dated December 7, 1993 of respondent Securities and Exchange Commission (Annexes Y and BB, petition) and of its hearing officer dated January 3, 1992 and April 14, 1992 (Annexes S and W, petition) are all nullified and set aside for lack of jurisdiction over the subject matter of the case. Accordingly, the complaint of respondent China Banking Corporation (Annex Q, petition) is DISMISSED. No pronouncement as to costs in this instance. SO ORDERED. 20 Petitioner moved for reconsideration but the same was denied by the Court of Appeals in its resolution dated 5 October 1994. 21 Hence, this petition wherein the following issues were raised: II ISSUES WHETHER OR NOT RESPONDENT COURT OF APPEALS (Former Eighth Division) GRAVELY ERRED WHEN: 1. IT NULLIFIED AND SET ASIDE THE DECISION DATED JUNE 04, 1993 AND ORDER DATED DECEMBER 07, 1993 OF THE SECURITIES AND EXCHANGE COMMISSION EN BANC, AND WHEN IT DISMISSED THE COMPLAINT OF PETITIONER AGAINST RESPONDENT VALLEY GOLF ALL FOR LACK OF JURISDICTION OVER THE SUBJECT MATTER OF THE CASE; 2. IT FAILED TO AFFIRM THE DECISION OF THE SECURITIES AND EXCHANGE COMMISSION EN BANC DATED JUNE 04, 1993 DESPITE PREPONDERANT EVIDENCE SHOWING THAT PETITIONER IS THE LAWFUL

OWNER OF MEMBERSHIP CERTIFICATE NO. 1219 FOR ONE SHARE OF RESPONDENT VALLEY GOLF. The petition is granted. The basic issue we must first hurdle is which body has jurisdiction over the controversy, the regular courts or the SEC. P. D. No. 902-A conferred upon the SEC the following pertinent powers: Sec. 3. The Commission shall have absolute jurisdiction, supervision and control over all corporations, partnerships or associations, who are the grantees of primary franchises and/or a license or permit issued by the government to operate in the Philippines, and in the exercise of its authority, it shall have the power to enlist the aid and support of and to deputize any and all enforcement agencies of the government, civil or military as well as any private institution, corporation, firm, association or person. xxx xxx xxx 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 associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, members of associations or organizations registered with the Commission. b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the State insofar as it concerns their individual franchise or right to exist as such entity; c) Controversies in the election or appointment of directors, trustees, officers, or managers of such corporations, partnerships or associations. d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the corporation, partnership or association possesses property to cover all of its debts but foresees the impossibility of meeting them when they respectively fall due or in cases where the corporation,

partnership or association has no sufficient assets to cover its liabilities, but is under the Management Committee created pursuant to this Decree. The aforecited law was expounded upon in Viray v. CA 22 and in the recent cases of Mainland Construction Co., Inc.v. Movilla 23 and Bernardo v. CA, 24 thus: . . . .The better policy in determining which body has jurisdiction over a case would be to consider not only the status or relationship of the parties but also the nature of the question that is the subject of their controversy. Applying the foregoing principles in the case at bar, to ascertain which tribunal has jurisdiction we have to determine therefore whether or not petitioner is a stockholder of VGCCI and whether or not the nature of the controversy between petitioner and private respondent corporation is intra-corporate. As to the first query, there is no question that the purchase of the subject share or membership certificate at public auction by petitioner (and the issuance to it of the corresponding Certificate of Sale) transferred ownership of the same to the latter and thus entitled petitioner to have the said share registered in its name as a member of VGCCI. It is readily observed that VGCCI did not assail the transfer directly and has in fact, in its letter of 27 September 1974, expressly recognized the pledge agreement executed by the original owner, Calapatia, in favor of petitioner and has even noted said agreement in its corporate books. 25 In addition, Calapatia, the original owner of the subject share, has not contested the said transfer. By virtue of the afore-mentioned sale, petitioner became a bona fide stockholder of VGCCI and, therefore, the conflict that arose between petitioner and VGCCI aptly exemplies an intracorporate controversy between a corporation and its stockholder under Sec. 5(b) of P.D. 902-A. An important consideration, moreover, is the nature of the controversy between petitioner and private respondent corporation. VGCCI claims a prior right over the subject share anchored mainly on Sec. 3, Art VIII of its by-laws which provides that "after a member shall have been posted as delinquent, the Board may order his/her/its share sold to satisfy the claims of the Club. . ." 26 It is pursuant to this provision that VGCCI also sold the subject share at public auction, of which it was the highest bidder. VGCCI caps its argument by asserting that its corporate by-laws should prevail. The bone of contention, thus, is the proper interpretation and application of VGCCI's aforequoted by-laws, a subject which irrefutably calls for the special competence of the SEC. We reiterate herein the sound policy enunciated by the Court in Abejo v. De la Cruz 27: 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 "sense-making and expeditious doctrine of primary jurisdiction . . . the courts cannot or will not 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 services of the administrative tribunal to determine technical and intricate matters of fact, and a uniformity of ruling is essential to comply with the purposes of the regulatory statute administered. 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.]'" The Court in the earlier case of Ebon v. De Guzman, 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." In this case, the need for the SEC's technical expertise cannot be over-emphasized involving as it does the meticulous analysis and correct interpretation of a corporation's by-laws as well as the applicable provisions of the Corporation Code in order to determine the validity of VGCCI's claims. The SEC, therefore, took proper cognizance of the instant case. VGCCI further contends that petitioner is estopped from denying its earlier position, in the first complaint it filed with the RTC of Makati (Civil Case No. 90-1112) that there is no intra-corporate relations between itself and VGCCI. VGCCI's contention lacks merit. In Zamora v. Court of Appeals, 28 this Court, through Mr. Justice Isagani A. Cruz, declared that: It follows that as a rule the filing of a complaint with one court which has no jurisdiction over it does not prevent the plaintiff from filing the same complaint later with the competent court. The plaintiff is not estopped from doing so simply because it made a mistake before in the choice of the proper forum. . . . We remind VGCCI that in the same proceedings before the RTC of Makati, it categorically stated (in its motion to dismiss) that the case between itself and petitioner is intra-corporate and insisted that it is the SEC and not the regular courts which has jurisdiction. This is precisely the reason why the said court dismissed petitioner's complaint and led to petitioner's recourse to the SEC. Having resolved the issue on jurisdiction, instead of remanding the whole case to the Court of Appeals, this Court likewise deems it procedurally sound to proceed and rule on its merits in the same proceedings.

It must be underscored that petitioner did not confine the instant petition for review on certiorari on the issue of jurisdiction. In its assignment of errors, petitioner specifically raised questions on the merits of the case. In turn, in its responsive pleadings, private respondent duly answered and countered all the issues raised by petitioner. Applicable to this case is the principle succinctly enunciated in the case of Heirs of Crisanta Y. Gabriel-Almoradie v.Court of Appeals, 29 citing Escudero v. Dulay 30 and The Roman Catholic Archbishop of Manila v. Court of Appeals.31 In the interest of the public and for the expeditious administration of justice the issue on infringement shall be resolved by the court considering that this case has dragged on for years and has gone from one forum to another. It is a rule of procedure for the Supreme Court to 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 a case or the determination of an issue in a case is remanded to the trial court only to have its decision raised again to the Court of Appeals and from there to the Supreme Court. We have laid down the rule that the remand of the case or of an issue to the lower court for further reception of evidence is not necessary where the Court is in position to resolve the dispute based on the records before it and particularly where the ends of justice would not be subserved by the remand thereof. Moreover, the Supreme Court is clothed with ample authority to review matters, even those not raised on appeal if it finds that their consideration is necessary in arriving at a just disposition of the case. In the recent case of China Banking Corp., et al. v. Court of Appeals, et al., 32 this Court, through Mr. Justice Ricardo J. Francisco, ruled in this wise: At the outset, the Court's attention is drawn to the fact that since the filing of this suit before the trial court, none of the substantial issues have been resolved. To avoid and gloss over the issues raised by the parties, as what the trial court and respondent Court of Appeals did, would unduly prolong this litigation involving a rather simple case of foreclosure of mortgage. Undoubtedly, this will run counter to the avowed purpose of the rules, i.e., to assist the parties in obtaining just, speedy and inexpensive determination of every action or proceeding. The Court, therefore, feels that the central issues of the case, albeit unresolved by the courts below, should now be settled specially as they involved pure questions of law. Furthermore, the pleadings of the respective parties on file have amply ventilated their various positions and arguments on the matter necessitating prompt adjudication. In the case at bar, since we already have the records of the case (from the proceedings before the SEC) sufficient to enable us to render a sound judgment and since only questions of law were raised (the proper jurisdiction for Supreme Court review), we can, therefore, unerringly take cognizance of and rule on the merits of the case. The procedural niceties settled, we proceed to the merits.

VGCCI assails the validity of the pledge agreement executed by Calapatia in petitioner's favor. It contends that the same was null and void for lack of consideration because the pledge agreement was entered into on 21 August 1974 33 but the loan or promissory note which it secured was obtained by Calapatia much later or only on 3 August 1983. 34 VGCCI's contention is unmeritorious. A careful perusal of the pledge agreement will readily reveal that the contracting parties explicitly stipulated therein that the said pledge will also stand as security for any future advancements (or renewals thereof) that Calapatia (the pledgor) may procure from petitioner: xxx xxx xxx This pledge is given as security for the prompt payment when due of all loans, overdrafts, promissory notes, drafts, bills or exchange, discounts, and all other obligations of every kind which have heretofore been contracted, or which may hereafter be contracted, by the PLEDGOR(S) and/or DEBTOR(S) or any one of them, in favor of the PLEDGEE, including discounts of Chinese drafts, bills of exchange, promissory notes, etc., without any further endorsement by the PLEDGOR(S) and/or Debtor(s) up to the sum of TWENTY THOUSAND (P20,000.00) PESOS, together with the accrued interest thereon, as hereinafter provided, plus the costs, losses, damages and expenses (including attorney's fees) which PLEDGEE may incur in connection with the collection thereof. 35 (Emphasis ours.) The validity of the pledge agreement between petitioner and Calapatia cannot thus be held suspect by VGCCI. As candidly explained by petitioner, the promissory note of 3 August 1983 in the amount of P20,000.00 was but a renewal of the first promissory note covered by the same pledge agreement. VGCCI likewise insists that due to Calapatia's failure to settle his delinquent accounts, it had the right to sell the share in question in accordance with the express provision found in its by-laws. Private respondent's insistence comes to naught. It is significant to note that VGCCI began sending notices of delinquency to Calapatia after it was informed by petitioner (through its letter dated 14 May 1985) of the foreclosure proceedings initiated against Calapatia's pledged share, although Calapatia has been delinquent in paying his monthly dues to the club since 1975. Stranger still, petitioner, whom VGCCI had officially recognized as the pledgee of Calapatia's share, was neither informed nor furnished copies of these letters of overdue accounts until VGCCI itself sold the pledged share at another public auction. By doing so, VGCCI completely disregarded petitioner's rights as pledgee. It even failed to give petitioner notice of said auction sale. Such actuations of VGCCI thus belie its claim of good faith. In defending its actions, VGCCI likewise maintains that petitioner is bound by its by-laws. It argues in this wise: The general rule really is that third persons are not bound by the by-laws of a corporation since they are not privy thereto (Fleischer v. Botica Nolasco, 47 Phil. 584). The exception to this is when third persons have actual or constructive

knowledge of the same. In the case at bar, petitioner had actual knowledge of the by-laws of private respondent when petitioner foreclosed the pledge made by Calapatia and when petitioner purchased the share foreclosed on September 17, 1985. This is proven by the fact that prior thereto, i.e., on May 14, 1985 petitioner even quoted a portion of private respondent's by-laws which is material to the issue herein in a letter it wrote to private respondent. Because of this actual knowledge of such by-laws then the same bound the petitioner as of the time when petitioner purchased the share. Since the by-laws was already binding upon petitioner when the latter purchased the share of Calapatia on September 17, 1985 then the petitioner purchased the said share subject to the right of the private respondent to sell the said share for reasons of delinquency and the right of private respondent to have a first lien on said shares as these rights are provided for in the by-laws very very clearly. 36 VGCCI misunderstood the import of our ruling in Fleischer v. Botica Nolasco Co.: 37 And moreover, the by-law now in question cannot have any effect on the appellee. He had no knowledge of such by-law when the shares were assigned to him. He obtained them in good faith and for a valuable consideration. He was not a privy to the contract created by said by-law between the shareholder Manuel Gonzales and the Botica Nolasco, Inc. Said by-law cannot operate to defeat his rights as a purchaser. An unauthorized by-law forbidding a shareholder to sell his shares without first offering them to the corporation for a period of thirty days is not binding upon an assignee of the stock as a personal contract, although his assignor knew of the by-law and took part in its adoption. (10 Cyc., 579; Ireland vs. Globe Milling Co., 21 R.I., 9.) When no restriction is placed by public law on the transfer of corporate stock, a purchaser is not affected by any contractual restriction of which he had no notice. (Brinkerhoff-Farris Trust & Savings Co. vs. Home Lumber Co., 118 Mo., 447.) The assignment of shares of stock in a corporation by one who has assented to an unauthorized by-law has only the effect of a contract by, and enforceable against, the assignor; the assignee is not bound by such by-law by virtue of the assignment alone. (Ireland vs. Globe Milling Co., 21 R.I., 9.) A by-law of a corporation which provides that transfers of stock shall not be valid unless approved by the board of directors, while it may be enforced as a reasonable regulation for the protection of the corporation against worthless stockholders, cannot be made available to defeat the rights of third persons. (Farmers' and Merchants' Bank of Lineville vs. Wasson, 48 Iowa, 336.) (Emphasis ours.) In order to be bound, the third party must have acquired knowledge of the pertinent by-laws at the time the transaction or agreement between said third party and the shareholder was entered into, in this case, at the time the pledge agreement was executed. VGCCI could have easily informed petitioner of its by-laws when it sent notice formally recognizing petitioner as pledgee

of one of its shares registered in Calapatia's name. Petitioner's belated notice of said by-laws at the time of foreclosure will not suffice. The ruling of the SEC en banc is particularly instructive: By-laws signifies the rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and its stockholders or members and directors and officers with relation thereto and among themselves in their relation to it. In other words, by-laws are the relatively permanent and continuing rules of action adopted by the corporation for its own government and that of the individuals composing it and having the direction, management and control of its affairs, in whole or in part, in the management and control of its affairs and activities. (9 Fletcher 4166, 1982 Ed.) The purpose of a by-law is to regulate the conduct and define the duties of the members towards the corporation and among themselves. They are self-imposed and, although adopted pursuant to statutory authority, have no status as public law. (Ibid.) Therefore, it is the generally accepted rule that third persons are not bound by by-laws, except when they have knowledge of the provisions either actually or constructively. In the case of Fleisher v. Botica Nolasco, 47 Phil. 584, the Supreme Court held that the by-law restricting the transfer of shares cannot have any effect on the transferee of the shares in question as he "had no knowledge of such by-law when the shares were assigned to him. He obtained them in good faith and for a valuable consideration. He was not a privy to the contract created by the by-law between the shareholder . . . and the Botica Nolasco, Inc. Said bylaw cannot operate to defeat his right as a purchaser. (Emphasis supplied.) By analogy of the above-cited case, the Commission en banc is of the opinion that said case is applicable to the present controversy. Appellant-petitioner bank as a third party can not be bound by appellee-respondent's by-laws. It must be recalled that when appellee-respondent communicated to appellant-petitioner bank that the pledge agreement was duly noted in the club's books there was no mention of the shareholder-pledgor's unpaid accounts. The transcript of stenographic notes of the June 25, 1991 Hearing reveals that the pledgor became delinquent only in 1975. Thus, appellant-petitioner was in good faith when the pledge agreement was contracted. The Commission en banc also believes that for the exception to the general accepted rule that third persons are not bound by by-laws to be applicable and binding upon the pledgee, knowledge of the provisions of the VGCI By-laws must be acquired at the time the pledge agreement was contracted. Knowledge of said provisions, either actual or constructive, at the time of foreclosure will not affect pledgee's right over the pledged share. Art. 2087 of the Civil Code provides that it is also of the essence of these contracts that when the principal obligation becomes due, the things in which the pledge or mortgage consists maybe alienated for the payment to the creditor. In a letter dated March 10, 1976 addressed to Valley Golf Club, Inc., the Commission issued an opinion to the effect that:

According to the weight of authority, the pledgee's right is entitled to full protection without surrender of the certificate, their cancellation, and the issuance to him of new ones, and when done, the pledgee will be fully protected against a subsequent purchaser who would be charged with constructive notice that the certificate is covered by the pledge. (12-A Fletcher 502) The pledgee is entitled to retain possession of the stock until the pledgor pays or tenders to him the amount due on the debt secured. In other words, the pledgee has the right to resort to its collateral for the payment of the debts. (Ibid, 502) To cancel the pledged certificate outright and the issuance of new certificate to a third person who purchased the same certificate covered by the pledge, will certainly defeat the right of the pledgee to resort to its collateral for the payment of the debt. The pledgor or his representative or registered stockholders has no right to require a return of the pledged stock until the debt for which it was given as security is paid and satisfied, regardless of the length of time which have elapsed since debt was created. (12-A Fletcher 409) A bona fide pledgee takes free from any latent or secret equities or liens in favor either of the corporation or of third persons, if he has no notice thereof, but not otherwise. He also takes it free of liens or claims that may subsequently arise in favor of the corporation if it has notice of the pledge, although no demand for a transfer of the stock to the pledgee on the corporate books has been made. (12A Fletcher 5634, 1982 ed., citing Snyder v. Eagle Fruit Co., 75 F2d739) 38 Similarly, VGCCI's contention that petitioner is duty-bound to know its by-laws because of Art. 2099 of the Civil Code which stipulates that the creditor must take care of the thing pledged with the diligence of a good father of a family, fails to convince. The case of Cruz & Serrano v. Chua A. H. Lee, 39 is clearly not applicable: In applying this provision to the situation before us it must be borne in mind that the ordinary pawn ticket is a document by virtue of which the property in the thing pledged passes from hand to hand by mere delivery of the ticket; and the contract of the pledge is, therefore, absolvable to bearer. It results that one who takes a pawn ticket in pledge acquires domination over the pledge; and it is the holder who must renew the pledge, if it is to be kept alive. It is quite obvious from the aforequoted case that a membership share is quite different in character from a pawn ticket and to reiterate, petitioner was never informed of Calapatia's unpaid accounts and the restrictive provisions in VGCCI's by-laws. Finally, Sec. 63 of the Corporation Code which provides that "no shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation" cannot be utilized by VGCCI. The term "unpaid claim" refers to "any unpaid claim arising from unpaid subscription, and not to any indebtedness which a subscriber or stockholder may owe the corporation arising from any other transaction." 40 In the case at bar, the subscription for the

share in question has been fully paid as evidenced by the issuance of Membership Certificate No. 1219. 41 What Calapatia owed the corporation were merely the monthly dues. Hence, the aforequoted provision does not apply. WHEREFORE, premises considered, the assailed decision of the Court of Appeals is REVERSED and the order of the SEC en banc dated 4 June 1993 is hereby AFFIRMED. SO ORDERED. Padilla, Bellosillo, Vitug and Hermosisima, Jr., JJ., concur.

Grace Christian High School vs. Court of Appeals, 281 SCRA 133 , October 23, 1997 Case Title : GRACE CHRISTIAN HIGH SCHOOL, petitioner, vs. THE COURT OF APPEALS, GRACE VILLAGE ASSOCIATION, INC., ALEJANDRO G. BELTRAN, and ERNESTO L. GO, respondents.Case Nature : PETITION for review on certiorari of a decision of the Court of Appeals. Syllabi Class : Corporation Law| Board of Directors| By-Laws| Syllabi: 1. Corporation Law; Board of Directors; The board of directors of corporations must be elected from among the stockholders or mem-bers.These provisions of the former and present corporation law leave no room for doubt as to their meaning: the board of directors of corporations must be elected from among the stockholders or members. There may be corporations in which there are unelected members in the board but it is clear that in the examples cited by petitioner the unelected members sit as ex officio members, i.e., by virtue of and for as long as they hold a particular office. But in the case of petitioner, there is no reason at all for its representative to be given a seat in the board. Nor does petitioner claim a right to such seat by virtue of an office held. In fact it was not given such seat in the beginning. It was only in 1975 that a proposed amendment to the by-laws sought to give it one. 2. Corporation Law; Board of Directors; By-Laws; No provision of the by-laws can be adopted if it is contrary to law.Since the provision in question is contrary to law, the fact that for fifteen years it has not been questioned or challenged but, on the contrary, appears to have been implemented by the members of the association cannot forestall a later challenge to its validity. Neither can it attain validity through acquiescence because, if it is contrary to law, it is beyond the power of the members of the association to waive its invalidity. For that matter the members of the association may have formally adopted the provision in question, but their action would be of no avail because no provision of the by-laws can be adopted if it is contrary to law. 3. Corporation Law; Board of Directors; By-Laws; Tolerance cannot be considered a ratification.It is probable that, in allowing petitioners representative to sit on the board, the members of the association were not aware that this was contrary to law. It should be noted that they did not actually implement the provision in question except perhaps insofar as it increased the number of directors from 11 to 15, but certainly not the allowance of petitioners representative as an unelected member of the board of directors. It is more accurate to say that

the members merely tolerated petitioners representative and tolerance cannot be considered ratification. 4. Corporation Law; Board of Directors; By-Laws; Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law.Nor can petitioner claim a vested right to sit in the board on the basis of practice. Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law. Even less tenable is petitioners claim that its right is coterminus with the existence of the association. Division: SECOND DIVISION Docket Number: G.R. No. 108905 Counsel: Padilla Law Office, Racela, Manguera & Fabie Ponente: MENDOZA Dispositive Portion: WHEREFORE, the decision of the Court of Appeals is AFFIRMED.

GRACE CHRISTIAN HIGH SCHOOL, petitioner, vs. THE COURT OF APPEALS, GRACE VILLAGE ASSOCIATION, INC., ALEJANDRO G. BELTRAN, and ERNESTO L. GO, respondents. DECISION
MENDOZA, J.:

The question for decision in this case is the right of petitioners representative to sit in the board of directors of respondent Grace Village Association, Inc. as a permanent member thereof. For fifteen years from 1975 until 1989 petitioners representative had been recognized as a permanent director of the association. But on February 13, 1990, petitioner received notice from the associations committee on election that the latter was reexamining (actually, reconsidering) the right of petitioners representative to continue as an unelected member of the board. As the board denied petitioners request to be allowed representation without election, petitioner brought an action for mandamus in the Home Insurance

and Guaranty Corporation. Its action was dismissed by the hearing officer whose decision was subsequently affirmed by the appeals board. Petitioner appealed to the Court of Appeals, which in turn upheld the decision of the HIGCs appeals board. Hence this petition for review based on the following contentions: 1. The Petitioner herein has already acquired a vested right to a permanent seat in the Board of Directors of Grace Village Association; 2. The amended By-laws of the Association drafted and promulgated by a Committee on December 20, 1975 is valid and binding; and 3. The Practice of tolerating the automatic inclusion of petitioner as a permanent member of the Board of Directors of the Association without the benefit of election is allowed under the law.
[1]

Briefly stated, the facts are as follows: Petitioner Grace Christian High School is an educational institution offering preparatory, kindergarten and secondary courses at the Grace Village in Quezon City. Private respondent Grace Village Association, Inc., on the other hand, is an organization of lot and/or building owners, lessees and residents at Grace Village, while private respondents Alejandro G. Beltran and Ernesto L. Go were its president and chairman of the committee on election, respectively, in 1990, when this suit was brought. As adopted in 1968, the by-laws of the association provided in Article IV, as follows: The annual meeting of the members of the Association shall be held on the first Sunday of January in each calendar year at the principal office of the Association at 2:00 P.M. where they shall elect by plurality vote and by secret balloting, the Board of Directors, composed of eleven (11) members to serve for one (1) year until their successors are duly elected and have qualified.
[2]

It appears, that on December 20, 1975, a committee of the board of directors prepared a draft of an amendment to the by-laws, reading as follows:
[3]

VI. ANNUAL MEETING

The Annual Meeting of the members of the Association shall be held on the second Thursday of January of each year. Each Charter or Associate Member of the Association is entitled to vote. He shall be entitled to as many votes as he has acquired thru his monthly membership fees only computed on a ratio of TEN (P10.00) PESOS for one vote. The Charter and Associate Members shall elect the Directors of the Association. The candidates receiving the first fourteen (14) highest number of votes shall be declared and proclaimed elected until their successors are elected and qualified. GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION. This draft was never presented to the general membership for approval. Nevertheless, from 1975, after it was presumably submitted to the board, up to 1990, petitioner was given a permanent seat in the board of directors of the association. On February 13, 1990, the associations committee on election in a letter informed James Tan, principal of the school, that it was the sentiment that all directors should be elected by members of the association because to make a person or entity a permanent Director would deprive the right of voters to vote for fifteen (15) members of the Board, and it is undemocratic for a person or entity to hold office in perpetuity. For this reason, Tan was told that the proposal to make the Grace Christian High School representative as a permanent director of the association, although previously tolerated in the past elections should be reexamined. Following this advice, notices were sent to the members of the association that the provision on election of directors of the 1968 by-laws of the association would be observed.
[4]

Petitioner requested the chairman of the election committee to change the notice of election by following the procedure in previous elections, claiming that the notice issued for the 1990 elections ran counter to the practice in previous years and was in violation of the by-laws (of 1975) and unlawfully deprive[d] Grace Christian High School of its vested right [to] a permanent seat in the board.
[5]

As the association denied its request, the school brought suit for mandamus in the Home Insurance and Guaranty Corporation to compel the board of directors of the association to recognize its right to a permanent seat in the board. Petitioner based its claim on the following portion of the proposed amendment which, it contended, had become part of the by-laws of the association as Article VI, paragraph 2, thereof:

The Charter and Associate Members shall elect the Directors of the Association. The candidates receiving the first fourteen (14) highest number of votes shall be declared and proclaimed elected until their successors are elected and qualified. GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION. It appears that the opinion of the Securities and Exchange Commission on the validity of this provision was sought by the association and that in reply to the query, the SEC rendered an opinion to the effect that the practice of allowing unelected members in the board was contrary to the existing by-laws of the association and to 92 of the Corporation Code (B.P. Blg. 68). Private respondent association cited the SEC opinion in its answer. Additionally, the association contended that the basis of the petition for mandamus was merely a proposed by-laws which has not yet been approved by competent authority nor registered with the SEC or HIGC. It argued that the by-laws which was registered with the SEC on January 16, 1969 should be the prevailing by-laws of the association and not the proposed amended by-laws.
[6]

In reply, petitioner maintained that the amended by-laws is valid and binding and that the association was estopped from questioning the by-laws.
[7]

A preliminary conference was held on March 29, 1990 but nothing substantial was agreed upon. The parties merely agreed that the board of directors of the association should meet on April 17, 1990 and April 24, 1990 for the purpose of discussing the amendment of the by-laws and a possible amicable settlement of the case. A meeting was held on April 17, 1990, but the parties failed to reach an agreement. Instead, the board adopted a resolution declaring the 1975 provision null and void for lack of approval by members of the association and the 1968 by-laws to be effective. On June 20, 1990, the hearing officer of the HIGC rendered a decision dismissing petitioners action. The hearing officer held that the amended bylaws, upon which petitioner based its claim, [was] merely a proposed by-laws which, although implemented in the past, had not yet been ratified by the members of the association nor approved by competent authority; that, on the contrary, in the meeting held on April 17, 1990, the directors of the association declared the proposed by-law dated December 20, 1975 prepared by the committee on by-laws . . . null and void and the by-laws of December 17, 1968 as the prevailing by-laws under which the association is to operate until such time that the proposed amendments to the by-laws are approved and ratified by a majority of the members of the association and

duly filed and approved by the pertinent government agency. The hearing officer rejected petitioners contention that it had acquired a vested right to a permanent seat in the board of directors. He held that past practice in election of directors could not give rise to a vested right and that departure from such practice was justified because it deprived members of association of their right to elect or to be voted in office, not to say that allowing the automatic inclusion of a member representative of petitioner as permanent director [was] contrary to law and the registered by-laws of respondent association.
[8]

The appeals board of the HIGC affirmed the decision of the hearing officer in its resolution dated September 13, 1990. It cited the opinion of the SEC based on 92 of the Corporation Code which reads: 92. Election and term of trustees. - Unless otherwise provided in the articles of incorporation or the by-laws, the board of trustees of non-stock corporations, which may be more than fifteen (15) in number as may be fixed in their articles of incorporation or by-laws, shall, as soon as organized, so classify themselves that the term of office of one-third (1/3) of the number shall expire every year; and subsequent elections of trustees comprising one-third (1/3) of the board of trustees shall be held annually and trustees so elected shall have a term of three (3) years. Trustees thereafter elected to fill vacancies occurring before the expiration of a particular term shall hold office only for the unexpired period. The HIGC appeals board denied claims that the school [was] being deprived of its right to be a member of the Board of Directors of respondent association, because the fact was that it may nominate as many representatives to the Associations Board as it may deem appropriate. It said that what is merely being upheld is the act of the incumbent directors of the Board of correcting a long standing practice which is not anchored upon any legal basis.
[9]

Petitioner appealed to the Court of Appeals but petitioner again lost as the appellate court on February 9, 1993, affirmed the decision of the HIGC. The Court of Appeals held that there was no valid amendment of the associations by-laws because of failure to comply with the requirement of its existing bylaws, prescribing the affirmative vote of the majority of the members of the association at a regular or special meeting called for the adoption of amendment to the by-laws. Article XIX of the by-laws provides:
[10]

The members of the Association by an affirmative vote of the majority at any regular or special meeting called for the purpose, may alter, amend, change or adopt any new by-laws.

This provision of the by-laws actually implements 22 of the Corporation Law (Act No. 1459) which provides: 22. The owners of a majority of the subscribed capital stock, or a majority of the members if there be no capital stock, may, at a regular or special meeting duly called for the purpose, amend or repeal any by-law or adopt new by-laws. The owners of two-thirds of the subscribed capital stock, or two-thirds of the members if there be no capital stock, may delegate to the board of directors the power to amend or repeal any by-law or to adopt new by-laws: Provided, however, That any power delegated to the board of directors to amend or repeal any by-law or adopt new by-laws shall be considered as revoked whenever a majority of the stockholders or of the members of the corporation shall so vote at a regular or special meeting. And provided, further, That the Director of the Bureau of Commerce and Industry shall not hereafter file an amendment to the by-laws of any bank, banking institution or building and loan association, unless accompanied by certificate of the Bank Commissioner to the effect that such amendments are in accordance with law. The proposed amendment to the by-laws was never approved by the majority of the members of the association as required by these provisions of the law and by-laws. But petitioner contends that the members of the committee which prepared the proposed amendment were duly authorized to do so and that because the members of the association thereafter implemented the provision for fifteen years, the proposed amendment for all intents and purposes should be considered to have been ratified by them. Petitioner contends:
[11]

Considering, therefore, that the agents or committee were duly authorized to draft the amended by-laws and the acts done by the agents were in accordance with such authority, the acts of the agents from the very beginning were lawful and binding on the homeowners (the principals) per se without need of any ratification or adoption. The more has the amended by-laws become binding on the homeowners when the homeowners followed and implemented the provisions of the amended bylaws. This is not merely tantamount to tacit ratification of the acts done by duly authorized agents but express approval and confirmation of what the agents did pursuant to the authority granted to them. Corollarily, petitioner claims that it has acquired a vested right to a permanent seat in the board. Says petitioner: The right of the petitioner to an automatic membership in the board of the Association was granted by the members of the Association themselves and this grant has been implemented by members of the board themselves all through the years. Outside the

present membership of the board, not a single member of the Association has registered any desire to remove the right of herein petitioner to an automatic membership in the board. If there is anybody who has the right to take away such right of the petitioner, it would be the individual members of the Association through a referendum and not the present board some of the members of which are motivated by personal interest. Petitioner disputes the ruling that the provision in question, giving petitioners representative a permanent seat in the board of the association, is contrary to law. Petitioner claims that that is not so because there is really no provision of law prohibiting unelected members of boards of directors of corporations. Referring to 92 of the present Corporation Code, petitioner says: It is clear that the above provision of the Corporation Code only provides for the manner of election of the members of the board of trustees of non-stock corporations which may be more than fifteen in number and which manner of election is even subject to what is provided in the articles of incorporation or by-laws of the association thus showing that the above provisions [are] not even mandatory. Even a careful perusal of the above provision of the Corporation Code would not show that it prohibits a non-stock corporation or association from granting one of its members a permanent seat in its board of directors or trustees. If there is no such legal prohibition then it is allowable provided it is so provided in the Articles of Incorporation or in the by-laws as in the instant case. .... If fact, the truth is that this is allowed and is being practiced by some corporations duly organized and existing under the laws of the Philippines. One example is the Pius XII Catholic Center, Inc. Under the by-laws of this corporation, that whoever is the Archbishop of Manila is considered a member of the board of trustees without benefit of election. And not only that. He also automatically sits as the Chairman of the Board of Trustees, again without need of any election. Another concrete example is the Cardinal Santos Memorial Hospital, Inc. It is also provided in the by-laws of this corporation that whoever is the Archbishop of Manila is considered a member of the board of trustees year after year without benefit of any election and he also sits automatically as the Chairman of the Board of Trustees.

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

23. The Board of Directors or Trustees. - Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where

there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified. (Emphasis added) These provisions of the former and present corporation law leave no room for doubt as to their meaning: the board of directors of corporations must be elected from among the stockholders or members. There may be corporations in which there are unelected members in the board but it is clear that in the examples cited by petitioner the unelected members sit as ex officio members, i.e., by virtue of and for as long as they hold a particular office. But in the case of petitioner, there is no reason at all for its representative to be given a seat in the board. Nor does petitioner claim a right to such seat by virtue of an office held. In fact it was not given such seat in the beginning. It was only in 1975 that a proposed amendment to the bylaws sought to give it one. Since the provision in question is contrary to law, the fact that for fifteen years it has not been questioned or challenged but, on the contrary, appears to have been implemented by the members of the association cannot forestall a later challenge to its validity. Neither can it attain validity through acquiescence because, if it is contrary to law, it is beyond the power of the members of the association to waive its invalidity. For that matter the members of the association may have formally adopted the provision in question, but their action would be of no avail because no provision of the bylaws can be adopted if it is contrary to law.
[13]

It is probable that, in allowing petitioners representative to sit on the board, the members of the association were not aware that this was contrary to law. It should be noted that they did not actually implement the provision in question except perhaps insofar as it increased the number of directors from 11 to 15, but certainly not the allowance of petitioners representative as an unelected member of the board of directors. It is more accurate to say that the members merely tolerated petitioners representative and tolerance cannot be considered ratification. Nor can petitioner claim a vested right to sit in the board on the basis of practice. Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law. Even less tenable is petitioners claim that its right is coterminus with the existence of the association.
[14]

Finally, petitioner questions the authority of the SEC to render an opinion on the validity of the provision in question. It contends that jurisdiction over this case is exclusively vested in the HIGC.

But this case was not decided by the SEC but by the HIGC. The HIGC merely cited as authority for its ruling the opinion of the SEC chairman. The HIGC could have cited any other authority for the view that under the law members of the board of directors of a corporation must be elected and it would be none the worse for doing so. WHEREFORE, the decision of the Court of Appeals is AFFIRMED. SO ORDERED. Puno, and Torres, Jr., JJ., concur.

HENRY FLEISCHER, plaintiff and appellee, vs. BOTICA NoLASCO Co., INC., defendant and appellant., 47 Phil. 583 , March 14, 1925 Case Title : HENRY FLEISCHER, plaintiff and appellee, vs. BOTICA NoLASCO Co., INC., defendant and appellant.Case Nature : APPEAL from a judgment of the Court of First Instance of Oriental Negros. Capistrano, J. Syllabi Class : CORPORATIONS| CORPORATE STOCK| Syllabi:

1. CORPORATIONS; CORPORATE STOCK; RlGHT OF CORPORATIONS TO IMPOSE A LIMITATION ON TRANSFERS OF STOCK.A stock corporation in adopting by-laws governing the transfer of shares of stock should take into consideration the specific provisions of the Corporation Law. The by-laws of corporations should be made to harmonize with the provisions of the Corporation Law. By-laws must not be inconsistent with the provisions of the Corporation Law. By-laws of a corporation are valid if they are reasonable and calculated to carry into effect the objects of the corporation provided they are not contradictory to the general policy of the laws of the land. Under a statute authorizing by-laws for the transfer of stock of a corporation, it can do no more than prescribe a general mode of transfer on the corporate books and cannot justify an unreasonable restriction upon the right to sell. The shares of stock of a corporation are personal property and the holder thereof may transfer the same without unreasonable restrictions . 2. CORPORATIONS; TRANSFER OF SHARES OF STOCK.The power to enact by-laws restraining the sale and transfer of stock must be found in the governing statute or charter. Restrictions upon the traffic in stock must have their source in legislative enactments, as the corporation itself cannot create such impediments. By-laws of a corporation are intended merely for the protection of the corporation, and prescribe regulations and not restrictions; they are always subject to the charter of the corporation. The corporation, in the absence of such a power, cannot ordinarily inquire into or pass upon the legality of the transaction by which its stock passes from one person to another, nor can it question the consideration upon which a sale is based. A by-law of a corporation cannot take away or abridge the substantial rights of stockholders. Courts will carefully scrutinize any attempt on the part of a corporation to impose restrictions or limitations upon the right of stockholders to sell and assign their stock. Restrictions cannot be imposed upon a stockholder by a by-law without statutory or charter authority. The owner of corporate stock has the same uncontrollable right to sell or alienate, which attaches to the ownership of any other species of property.

Docket Number: No. 23241 Counsel: Antonio Gonzalez, Emilio M. Javier Ponente: JOHNSON Dispositive Portion: In view of all the foregoing, we are of the opinion, and so hold, that the decision of the lower court is in accordance with law and should be and is hereby affirmed, with costs. So ordered.

HENRY FLEISCHER, plaintiff-appellee, vs. BOTICA NOLASCO CO., INC., defendant-appellant. Antonio Gonzalez for appellant. Emilio M. Javier for appellee. JOHNSON, J.: This action was commenced in the Court of First Instance of the Province of Oriental Negros on the 14th day of August, 1923, against the board of directors of the Botica Nolasco, Inc., a corporation duly organized and existing under the laws of the Philippine Islands. The plaintiff prayed that said board of directors be ordered to register in the books of the corporation five shares of its stock in the name of Henry Fleischer, the plaintiff, and to pay him the sum of P500 for damages sustained by him resulting from the refusal of said body to register the shares of stock in question. The defendant filed a demurrer on the ground that the facts alleged in the complaint did not constitute sufficient cause of action, and that the action was not brought against the proper party, which was the Botica Nolasco, Inc. The demurrer was sustained, and the plaintiff was granted five days to amend his complaint. On November 15, 1923, the plaintiff filed an amended complaint against the Botica Nolasco, Inc., alleging that he became the owner of five shares of stock of said corporation, by purchase from their original owner, one Manuel Gonzalez; that the said shares were fully paid; and that the defendant refused to register said shares in his name in the books of the corporation in spite of repeated demands to that effect made by him upon said corporation, which refusal caused him damages amounting to P500. Plaintiff prayed for a judgment ordering the Botica Nolasco, Inc. to register in his name in the books of the corporation the five shares of stock recorded in said books in the name of Manuel Gonzalez, and to indemnify him in the sum of P500 as damages, and to pay the costs. The defendant again filed a demurrer on the ground that the amended complaint did not state facts sufficient to constitute a cause of action, and that said amended complaint was ambiguous, unintelligible, uncertain, which demurrer was overruled by the court.

The defendant answered the amended complaint denying generally and specifically each and every one of the material allegations thereof, and, as a special defense, alleged that the defendant, pursuant to article 12 of its by-laws, had preferential right to buy from the plaintiff said shares at the par value of P100 a share, plus P90 as dividends corresponding to the year 1922, and that said offer was refused by the plaintiff. The defendant prayed for a judgment absolving it from all liability under the complaint and directing the plaintiff to deliver to the defendant the five shares of stock in question, and to pay damages in the sum of P500, and the costs. Upon the issue presented by the pleadings above stated, the cause was brought on for trial, at the conclusion of which, and on August 21, 1924, the Honorable N. Capistrano, judge, held that, in his opinion, article 12 of the by-laws of the corporation which gives it preferential right to buy its shares from retiring stockholders, is in conflict with Act No. 1459 (Corporation Law), especially with section 35 thereof; and rendered a judgment ordering the defendant corporation, through its board of directors, to register in the books of said corporation the said five shares of stock in the name of the plaintiff, Henry Fleischer, as the shareholder or owner thereof, instead of the original owner, Manuel Gonzalez, with costs against the defendant. The defendant appealed from said judgment, and now makes several assignment of error, all of which, in substance, raise the question whether or not article 12 of the by-laws of the corporation is in conflict with the provisions of the Corporation Law (Act No. 1459). There is no controversy as to the facts of the present case. They are simple and may be stated as follows: That Manuel Gonzalez was the original owner of the five shares of stock in question, Nos. 16, 17, 18, 19 and 20 of the Botica Nolasco, Inc.; that on March 11, 1923, he assigned and delivered said five shares to the plaintiff, Henry Fleischer, by accomplishing the form of endorsement provided on the back thereof, together with other credits, in consideration of a large sum of money owed by Gonzalez to Fleischer (Exhibits A, B, B-1, B-2, B-3, B-4); that on March 13, 1923, Dr. Eduardo Miciano, who was the secretary-treasurer of said corporation, offered to buy from Henry Fleischer, on behalf of the corporation, said shares of stock, at their par value of P100 a share, for P500; that by virtue of article 12 of the by-laws of Botica Nolasco, Inc., said corporation had the preferential right to buy from Manuel Gonzalez said shares (Exhibit 2); that the plaintiff refused to sell them to the defendant; that the plaintiff requested Doctor Miciano to register said shares in his name; that Doctor Miciano refused to do so, saying that it would be in contravention of the by-laws of the corporation. It also appears from the record that on the 13th day of March, 1923, two days after the assignment of the shares to the plaintiff, Manuel Gonzales made a written statement to the Botica Nolasco, Inc., requesting that the five shares of stock sold by him to Henry Fleischer be noted transferred to Fleischer's name. He also acknowledged in said written statement the preferential right of the corporation to buy said five shares (Exhibit 3). On June 14, 1923, Gonzalez wrote a letter to the Botica Nolasco, withdrawing and cancelling his written statement of March 13, 1923 (Exhibit C), to which letter the Botica Nolasco on June 15, 1923, replied, declaring that his written statement was in conformity with the by-laws of the corporation; that his letter of June 14th was of no effect, and that the shares in question had been registered in the name of the Botica Nolasco, Inc., (Exhibit X).

As indicated above, the important question raised in this appeal is whether or not article 12 of the by-laws of the Botica Nolasco, Inc., is in conflict with the provisions of the Corporation Law (Act No. 1459). Appellant invoked said article as its ground for denying the request of the plaintiff that the shares in question be registered in his (plaintiff's) name, and for claiming that it (Botica Nolasco, Inc.) had the preferential right to buy said shares from Gonzalez. Appellant now contends that article 12 of the said by-laws is in conformity with the provisions of Act No. 1459. Said article is as follows: ART. 12. Las acciones de la Corporacion pueden ser transferidas a otra persona, pero para que estas transferencias tengan validez legal, deben constar en los registros de la Corporacion con el debido endoso del accionista a cuyo nombre se ha expedido la accion o acciones que se transfieran, o un documento de transferencia. Entendiendose que, ningun accionista transferira accion alguna a otra persona sin participar antes por escrito al Secretario-Tesorero. En igualdad de condiciones, la sociedad tendra el derecho de adquirir para si la accion o acciones que se traten de transferir. (Exhibit 2.) The above-quoted article constitutes a by-law or regulation adopted by the Botica Nolasco, Inc., governing the transfer of shares of stock of said corporation. The latter part of said article creates in favor of the Botica Nolasco, Inc., a preferential right to buy, under the same conditions, the share or shares of stock of a retiring shareholder. Has said corporation any power, under the Corporation Law (Act. No. 1459), to adopt such by-law? The particular provisions of the Corporation Law referring to transfer of shares of stock are as follows: SEC. 13. Every corporation has the power: xxx xxx xxx

(7) To make by-laws, not inconsistent with any existing law, for the fixing or changing of the number of its officers and directors within the limits prescribed by law, and for the transferring of its stock, the administration of its corporate affairs, etc. xxx xxx xxx

SEC. 35. The capital stock of stock corporations shall de divided into shares for which certificates signed by the president or the vice-president, countersigned by the secretary or clerk 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 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 entered and noted upon the books of the corporation so as to show the names of the parties to the transaction, that date of the transfer, the number of the certificate, and the number of shares transferred. No share of stock against which the corporation holds any unpaid claim shall be transferable on the books of the corporation. Section 13, paragraph 7, above-quoted, empowers a corporation to make by-laws, not inconsistent with any existing law, for the transferring of its stock. It follows from said provision,

that a by-law adopted by a corporation relating to transfer of stock should be in harmony with the law on the subject of transfer of stock. The law on this subject is found in section 35 of Act No. 1459 above quoted. Said section specifically provides that the shares of stock "are personal property and may be transferred by delivery of the certificate indorsed by the owner, etc." Said section 35 defines the nature, character and transferability of shares of stock. Under said section they are personal property and may be transferred as therein provided. Said section contemplates no restriction as to whom they may be transferred or sold. It does not suggest that any discrimination may be created by the corporation in favor or against a certain purchaser. The holder of shares, as owner of personal property, is at liberty, under said section, to dispose of them in favor of whomsoever he pleases, without any other limitation in this respect, than the general provisions of law. Therefore, a stock corporation in adopting a by-law governing transfer of shares of stock should take into consideration the specific provisions of section 35 of Act No. 1459, and said by-law should be made to harmonize with said provisions. It should not be inconsistent therewith. The by-law now in question was adopted under the power conferred upon the corporation by section 13, paragraph 7, above quoted; but in adopting said by-law the corporation has transcended the limits fixed by law in the same section, and has not taken into consideration the provisions of section 35 of Act No. 1459. As a general rule, the by-laws of a corporation are valid if they are reasonable and calculated to carry into effect the objects of the corporation, and are not contradictory to the general policy of the laws of the land. (Supreme Commandery of the Knights of the Golden Rule vs. Ainsworth, 71 Ala., 436; 46 Am. Rep., 332.) On the other hand, it is equally well settled that by-laws of a corporation must be reasonable and for a corporate purpose, and always within the charter limits. They must always be strictly subordinate to the constitution and the general laws of the land. They must not infringe the policy of the state, nor be hostile to public welfare. (46 Am. Rep., 332.) They must not disturb vested rights or impair the obligation of a contract, take away or abridge the substantial rights of stockholder or member, affect rights of property or create obligations unknown to the law. (People's Home Savings Bank vs. Superior Court, 104 Cal., 649; 43 Am. St. Rep., 147; Ireland vs. Globe Milling Co., 79 Am. St. Rep., 769.) The validity of the by-law of a corporation is purely a question of law. (South Florida Railroad Co. vs. Rhodes, 25 Fla., 40.) The power to enact by-laws restraining the sale and transfer of stock must be found in the governing statute or the charter. Restrictions upon the traffic in stock must have their source in legislative enactment, as the corporation itself cannot create such impediments. By-law are intended merely for the protection of the corporation, and prescribe regulation and not restriction; they are always subject to the charter of the corporation. The corporation, in the absence of such a power, cannot ordinarily inquire into or pass upon the legality of the transaction by which its stock passes from one person to another, nor can it question the consideration upon which a sale is based. A by-law cannot take away or abridge the substantial rights of stockholder. Under a statute authorizing by- laws for the transfer of stock, a corporation can do no more than prescribe a general mode of transfer on the corporate books and cannot justify an unreasonable restriction upon the right of sale. (4 Thompson on Corporations, sec. 4137, p. 674.

The right of unrestrained transfer of shares inheres in the very nature of a corporation, and courts will carefully scrutinize any attempt to impose restrictions or limitations upon the right of stockholders to sell and assign their stock. The right to impose any restraint in this respect must be conferred upon the corporation either by the governing statute or by the articles of the corporation. It cannot be done by a by-law without statutory or charter authority. (4 Thompson on Corporations, sec. 4334, pp. 818, 819.) The jus disponendi, being an incident of the ownership of property, the general rule (subject to exceptions hereafter pointed out and discussed) is that every owner of corporate shares has the same uncontrollable right to alien them which attaches to the ownership of any other species of property. A shareholder is under no obligation to refrain from selling his shares at the sacrifice of his personal interest, in order to secure the welfare of the corporation, or to enable another shareholder to make gains and profits. (10 Cyc., p. 577.) It follows from the foregoing that a corporation has no power to prevent or to restrain transfers of its shares, unless such power is expressly conferred in its charter or governing statute. This conclusion follows from the further consideration that by-laws or other regulations restraining such transfers, unless derived from authority expressly granted by the legislature, would be regarded as impositions in restraint of trade. (10 Cyc., p. 578.) The foregoing authorities go farther than the stand we are taking on this question. They hold that the power of a corporation to enact by-laws restraining the sale and transfer of shares, should not only be in harmony with the law or charter of the corporation, but such power should be expressly granted in said law or charter. The only restraint imposed by the Corporation Law upon transfer of shares is found in section 35 of Act No. 1459, quoted above, as follows: "No transfer, however, shall be valid, except as between the parties, until the transfer is entered and noted upon the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate, and the number of shares transferred." This restriction is necessary in order that the officers of the corporation may know who are the stockholders, which is essential in conducting elections of officers, in calling meeting of stockholders, and for other purposes. but any restriction of the nature of that imposed in the by-law now in question, is ultra vires, violative of the property rights of shareholders, and in restraint of trade. And moreover, the by-laws now in question cannot have any effect on the appellee. He had no knowledge of such by-law when the shares were assigned to him. He obtained them in good faith and for a valuable consideration. He was not a privy to the contract created by said by-law between the shareholder Manuel Gonzalez and the Botica Nolasco, Inc. Said by-law cannot operate to defeat his rights as a purchaser. An unauthorized by-law forbidding a shareholder to sell his shares without first offering them to the corporation for a period of thirty days is not binding upon an assignee of the stock as a personal contract, although his assignor knew of the by-law and took part in its adoption. (10 Cyc., 579; Ireland vs. Globe Milling Co., 21 R.I., 9.)

When no restriction is placed by public law on the transfer of corporate stock, a purchaser is not affected by any contractual restriction of which he had no notice. (Brinkerhoff-Farris Trust and Savings Co. vs. Home Lumber Co., 118 Mo., 447.) The assignment of shares of stock in a corporation by one who has assented to an unauthorized by-law has only the effect of a contract by, and enforceable against, the assignor; the assignee is not bound by such by-law by virtue of the assignment alone. (Ireland vs. Globe Milling Co., 21 R.I., 9.) A by-law of a corporation which provides that transfers of stock shall not be valid unless approved by the board of directors, while it may be enforced as a reasonable regulation for the protection of the corporation against worthless stockholders, cannot be made available to defeat the rights of third persons. (Farmers' and Merchants' Bank of Lineville vs. Wasson, 48 Iowa, 336.) Counsel for defendant incidentally argues in his brief, that the plaintiff does not have any right of action against the defendant corporation, but against the president and secretary thereof, inasmuch as the signing and registration of shares is incumbent upon said officers pursuant to section 35 of the Corporation Law. This contention cannot be sustained now. The question should have been raised in the lower court. It is too late to raise it now in this appeal. Besides, as stated above, the corporation was made defendant in this action upon the demurrer of the attorney of the original defendant in the lower court, who contended that the Botica Nolasco, Inc., should be made the party defendant in this action. Accordingly, upon order of the court, the complaint was amended and the said corporation was made the party defendant. Whenever a corporation refuses to transfer and register stock in cases like the present, mandamus will lie to compel the officers of the corporation to transfer said stock upon the books of the corporation. (26 Cyc. 347; Hager vs. Bryan, 19 Phil., 138.) In view of all the foregoing, we are of the opinion, and so hold, that the decision of the lower court is in accordance with law and should be and is hereby affirmed, with costs. So ordered. Malcolm, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.

Loyola Grand Villas Homeowners (South) Association, Inc. vs. Court of Appeals, 276 SCRA 681 , August 07, 1997 Case Title : LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC., petitioner, vs. HON. COURT OF APPEALS, HOME INSURANCE AND GUARANTY CORPORATION, EMDEN ENCARNACION and HORATIO AYCARDO, respondents.Case Nature : PETITION for review on certiorari of a decision of the Court of Appeals. Syllabi Class : Corporation Law| Statutory Construction| Words and Phrases| By-Laws| Due Process| Presidential Decree 902-A| Statutes in Materia| Securities and Exchange Commission| Administrative Law| Subdivisions| Home Insurance and Guaranty Corporation| Jurisdiction| Syllabi: 1. Corporation Law; Statutory Construction; Words and Phrases; Ordinarily, the word must connotes an imperative act or operates to impose a duty which may be enforcedit is synonymous with ought which connotes compulsion or mandatoriness though the word must in a statute, like shall, is not always imperative and may be consistent with an exercise of discretion.As correctly postulated by the petitioner, interpretation of this provision of law begins with the determination of the meaning and import of the word must in this section. Ordinarily, the word must connotes an imperative act or operates to impose a duty which may be enforced. It is synonymous with ought which connotes compulsion or mandatoriness. However, the word must in a statute, like shall, is not always imperative. It may be consistent with an exercise of discretion. In this jurisdiction, the tendency has been to interpret shall as the context or a reasonable construction of the statute in which it is used demands or requires. This is equally true as regards the word must. Thus, if the language of a statute considered as a whole and with due regard to its nature and object reveals that the legislature intended to use the words shall and must to be directory, they should be given that meaning. 2. Same; Administrative Law; Subdivisions; Home Insurance and Guaranty Corporation; Jurisdiction;With respect to homeowners associations, the HIGC shall exercise all the powers, authorities and responsibilities that are vested on the Securities and Exchange Commission.That the corporation involved herein is under the supervision of the HIGC does not alter the result of this case. The HIGC has taken over the specialized functions of the former Home Financing Corporation by virtue of Executive Order No. 90 dated December 17, 1986. With respect to homeowners associations, the HIGC shall exercise all the powers, authorities and responsibilities that are vested on the Securities and

Exchange Commission x x x, the provision of Act 1459, as amended by P.D. 902-A, to the contrary notwithstanding. 3. Same; By-Laws; Failure to file the by-laws within the period required by law by no means tolls the automatic dissolution of a corporation.As the rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and its stockholders or members and directors and officers with relation thereto and among themselves in their relation to it, by-laws are indispensable to corporations in this jurisdiction. These may not be essential to corporate birth but certainly, these are required by law for an orderly governance and management of corporations. Nonetheless, failure to file them within the period required by law by no means tolls the automatic dissolution of a corporation. 4. Same; Same; Same; Presidential Decree 902-A; Statutes in Materia; Securities and Exchange Commission; The failure of the Corporation Code to provide for the consequences of the non-filing of by-laws on time has been rectified by P.D. No. 902-A; Every statute must be so construed and harmonized with other statutes as to form a uniform system of jurisprudence.Although the Corporation Code requires the filing of by-laws, it does not expressly provide for the consequences of the non-filing of the same within the period provided for in Section 46. However, such omission has been rectified by Presidential Decree No. 902-A, the pertinent provisions on the jurisdiction of the Securities and Exchange Commission of which state: * * * That the failure to file by-laws is not provided for by the Corporation Code but in another law is of no moment. P.D. No. 902-A, which took effect immediately after its promulgation on March 11, 1976, is very much apposite to the Code. Accordingly, the provisions abovequoted supply the law governing the situation in the case at bar, inasmuch as the Corporation Code and P.D. No. 902-A are statutes in pari materia. Interpretare et concordare legibus est optimus interpretandi. Every statute must be so construed and harmonized with other statutes as to form a uniform system of jurisprudence. 5. Same; Same; Same; Due Process; There can be no automatic corporate dissolution simply because the incorporators failed to abide by the required filing of by-lawsthe incorporators must be given the chance to explain their neglect or omission and to remedy the same.Even under the foregoing express grant of power and authority, there can be no automatic corporate dissolution simply because the incorporators failed to abide by the required filing of bylaws embodied in Section 46 of the Corporation Code. There is no outright demise of corporate existence. Proper notice and hearing are cardinal

components of due process in any democratic institution, agency or society. In other words, the incorporators must be given the chance to explain their neglect or omission and remedy the same. 6. Same; Same; Same; By-laws may be necessary for the government of the corporation but these are subordinate to the articles of incorporation as well as to the Corporation Code and related statutes.By-laws may be necessary for the government of the corporation but these are subordinate to the articles of incorporation as well as to the Corporation Code and related statutes. There are in fact cases where bylaws are unnecessary to corporate existence or to the valid exercise of corporate powers, thus: In the absence of charter or statutory provisions to the contrary, by-laws are not necessary either to the existence of a corporation or to the valid exercise of the powers conferred upon it, certainly in all cases where the charter sufficiently provides for the government of the body; and even where the governing statute in express terms confers upon the corporation the power to adopt by-laws, the failure to exercise the power will be ascribed to mere nonaction which will not render void any acts of the corporation which would otherwise be valid. (Italics supplied.) 7. Same; Same; Same; Taken as a whole and under the principle that the best interpreter of a statute is the statute itself (optima statuli interpretatix est ipsum statutum), Section 46 of the Corporation Code reveals the legislative intent to attach a directory, and not mandatory, meaning for the word must in the first sentence thereof.Taken as a whole and under the principle that the best interpreter of a statute is the statute itself (optima statuti interpretatix est ipsum statutum), Section 46 aforequoted reveals the legislative intent to attach a directory, and not mandatory, meaning for the word must in the first sentence thereof. Note should be taken of the second paragraph of the law which allows the filing of the by-laws even prior to incorporation. This provision in the same section of the Code rules out mandatory compliance with the requirement of filing the by-laws within one (1) month after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission. It necessarily follows that failure to file the by-laws within that period does not imply the demise of the corporation. 8. Same; Same; By-Laws; The legislative deliberations demonstrate that automatic corporate dissolution for failure to file the bylaws on time was never the intention of the legislature.This exchange of views demonstrates clearly that automatic corporate dissolution for failure to file the by-laws on time was never the intention of the legislature. Moreover, even without resorting to the records of

deliberations of the Batasang Pambansa, the law itself provides the answer to the issue propounded by petitioner. Division: SECOND DIVISION Docket Number: G.R. No. 117188 Counsel: Rene A. Diokno, Reyno, De Vera, Tiu, Domingo & Santos Ponente: ROMERO Dispositive Portion: WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the questioned Decision of the Court of Appeals AFFIRMED. This Decision is immediately executory. Costs against petitioner.

LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC., petitioner, vs. HON. COURT OF APPEALS, HOME INSURANCE AND GUARANTY CORPORATION, EMDEN ENCARNACION and HORATIO AYCARDO, respondents.

ROMERO, J.: May the failure of a corporation to file its by-laws within one month from the date of its incorporation, as mandated by Section 46 of the Corporation Code, result in its automatic dissolution? This is the issue raised in this petition for review on certiorari of the Decision 1 of the Court of Appeals affirming the decision of the Home Insurance and Guaranty Corporation (HIGC). This quasi-judicial body recognized Loyola Grand Villas Homeowners Association (LGVHA) as the sole homeowners' association in Loyola Grand Villas, a duly registered subdivision in Quezon City and Marikina City that was owned and developed by Solid Homes, Inc. It revoked the certificates of registration issued to Loyola Grand Villas homeowners (North) Association Incorporated (the North Association for brevity) and Loyola Grand Villas Homeowners (South) Association Incorporated (the South Association). LGVHAI was organized on February 8, 1983 as the association of homeowners and residents of the Loyola Grand Villas. It was registered with the Home Financing Corporation, the predecessor of herein respondent HIGC, as the sole homeowners' organization in the said subdivision under Certificate of Registration No. 04-197. It was organized by the developer of the subdivision and its first president was Victorio V. Soliven, himself the owner of the developer. For unknown reasons, however, LGVHAI did not file its corporate by-laws.

Sometime in 1988, the officers of the LGVHAI tried to register its by-laws. They failed to do so. 2 To the officers' consternation, they discovered that there were two other organizations within the subdivision the North Association and the South Association. According to private respondents, a non-resident and Soliven himself, respectively headed these associations. They also discovered that these associations had five (5) registered homeowners each who were also the incorporators, directors and officers thereof. None of the members of the LGVHAI was listed as member of the North Association while three (3) members of LGVHAI were listed as members of the South Association. 3 The North Association was registered with the HIGC on February 13, 1989 under Certificate of Registration No. 04-1160 covering Phases West II, East III, West III and East IV. It submitted its by-laws on December 20, 1988. In July, 1989, when Soliven inquired about the status of LGVHAI, Atty. Joaquin A. Bautista, the head of the legal department of the HIGC, informed him that LGVHAI had been automatically dissolved for two reasons. First, it did not submit its by-laws within the period required by the Corporation Code and, second, there was non-user of corporate charter because HIGC had not received any report on the association's activities. Apparently, this information resulted in the registration of the South Association with the HIGC on July 27, 1989 covering Phases West I, East I and East II. It filed its by-laws on July 26, 1989. These developments prompted the officers of the LGVHAI to lodge a complaint with the HIGC. They questioned the revocation of LGVHAI's certificate of registration without due notice and hearing and concomitantly prayed for the cancellation of the certificates of registration of the North and South Associations by reason of the earlier issuance of a certificate of registration in favor of LGVHAI. On January 26, 1993, after due notice and hearing, private respondents obtained a favorable ruling from HIGC Hearing Officer Danilo C. Javier who disposed of HIGC Case No. RRM-5-89 as follows: WHEREFORE, judgment is hereby rendered recognizing the Loyola Grand Villas Homeowners Association, Inc., under Certificate of Registration No. 04-197 as the duly registered and existing homeowners association for Loyola Grand Villas homeowners, and declaring the Certificates of Registration of Loyola Grand Villas Homeowners (North) Association, Inc. and Loyola Grand Villas Homeowners (South) Association, Inc. as hereby revoked or cancelled; that the receivership be terminated and the Receiver is hereby ordered to render an accounting and turn-over to Loyola Grand Villas Homeowners Association, Inc., all assets and records of the Association now under his custody and possession. The South Association appealed to the Appeals Board of the HIGC. In its Resolution of September 8, 1993, the Board 4dismissed the appeal for lack of merit. Rebuffed, the South Association in turn appealed to the Court of Appeals, raising two issues. First, whether or not LGVHAI's failure to file its by-laws within the period prescribed by Section 46 of the Corporation Code resulted in the automatic dissolution of LGVHAI. Second, whether or not two homeowners' associations may be authorized by the HIGC in one "sprawling subdivision." However, in the Decision of August 23, 1994 being assailed here, the Court of Appeals affirmed the Resolution of the HIGC Appeals Board.

In resolving the first issue, the Court of Appeals held that under the Corporation Code, a private corporation commences to have corporate existence and juridical personality from the date the Securities and Exchange Commission (SEC) issues a certificate of incorporation under its official seal. The requirement for the filing of by-laws under Section 46 of the Corporation Code within one month from official notice of the issuance of the certificate of incorporation presupposes that it is already incorporated, although it may file its by-laws with its articles of incorporation. Elucidating on the effect of a delayed filing of by-laws, the Court of Appeals said: We also find nothing in the provisions cited by the petitioner, i.e., Section 46 and 22, Corporation Code, or in any other provision of the Code and other laws which provide or at least imply that failure to file the by-laws results in an automatic dissolution of the corporation. While Section 46, in prescribing that by-laws must be adopted within the period prescribed therein, may be interpreted as a mandatory provision, particularly because of the use of the word "must," its meaning cannot be stretched to support the argument that automatic dissolution results from non-compliance. We realize that Section 46 or other provisions of the Corporation Code are silent on the result of the failure to adopt and file the by-laws within the required period. Thus, Section 46 and other related provisions of the Corporation Code are to be construed with Section 6 (1) of P.D. 902-A. This section empowers the SEC to suspend or revoke certificates of registration on the grounds listed therein. Among the grounds stated is the failure to file by-laws (see also II Campos: The Corporation Code, 1990 ed., pp. 124-125). Such suspension or revocation, the same section provides, should be made upon proper notice and hearing. Although P.D. 902-A refers to the SEC, the same principles and procedures apply to the public respondent HIGC as it exercises its power to revoke or suspend the certificates of registration or homeowners association. (Section 2 [a], E.O. 535, series 1979, transferred the powers and authorities of the SEC over homeowners associations to the HIGC.) We also do not agree with the petitioner's interpretation that Section 46, Corporation Code prevails over Section 6, P.D. 902-A and that the latter is invalid because it contravenes the former. There is no basis for such interpretation considering that these two provisions are not inconsistent with each other. They are, in fact, complementary to each other so that one cannot be considered as invalidating the other. The Court of Appeals added that, as there was no showing that the registration of LGVHAI had been validly revoked, it continued to be the duly registered homeowners' association in the Loyola Grand Villas. More importantly, the South Association did not dispute the fact that LGVHAI had been organized and that, thereafter, it transacted business within the period prescribed by law. On the second issue, the Court of Appeals reiterated its previous ruling 5 that the HIGC has the authority to order the holding of a referendum to determine which of two contending associations should represent the entire community, village or subdivision. Undaunted, the South Association filed the instant petition for review on certiorari. It elevates as sole issue for resolution the first issue it had raised before the Court of Appeals, i.e., whether or not the LGVHAI's failure to file its by-laws within the period prescribed by Section 46 of the Corporation Code had the effect of automatically dissolving the said corporation.

Petitioner contends that, since Section 46 uses the word "must" with respect to the filing of bylaws, noncompliance therewith would result in "self-extinction" either due to non-occurrence of a suspensive condition or the occurrence of a resolutory condition "under the hypothesis that (by) the issuance of the certificate of registration alone the corporate personality is deemed already formed." It asserts that the Corporation Code provides for a "gradation of violations of requirements." Hence, Section 22 mandates that the corporation must be formally organized and should commence transaction within two years from date of incorporation. Otherwise, the corporation would be deemed dissolved. On the other hand, if the corporation commences operations but becomes continuously inoperative for five years, then it may be suspended or its corporate franchise revoked. Petitioner concedes that Section 46 and the other provisions of the Corporation Code do not provide for sanctions for non-filing of the by-laws. However, it insists that no sanction need be provided "because the mandatory nature of the provision is so clear that there can be no doubt about its being an essential attribute of corporate birth." To petitioner, its submission is buttressed by the facts that the period for compliance is "spelled out distinctly;" that the certification of the SEC/HIGC must show that the by-laws are not inconsistent with the Code, and that a copy of the by-laws "has to be attached to the articles of incorporation." Moreover, no sanction is provided for because "in the first place, no corporate identity has been completed." Petitioner asserts that "non-provision for remedy or sanction is itself the tacit proclamation that non-compliance is fatal and no corporate existence had yet evolved," and therefore, there was "no need to proclaim its demise." 6 In a bid to convince the Court of its arguments, petitioner stresses that: . . . the word MUST is used in Sec. 46 in its universal literal meaning and corollary human implication its compulsion is integrated in its very essence MUST is always enforceable by the inevitable consequence that is, "OR ELSE". The use of the word MUST in Sec. 46 is no exception it means file the by-laws within one month after notice of issuance of certificate of registration OR ELSE. The OR ELSE, though not specified, is inextricably a part of MUST . Do this or if you do not you are "Kaput". The importance of the by-laws to corporate existence compels such meaning for as decreed the by-laws is "the government" of the corporation. Indeed, how can the corporation do any lawful act as such without by-laws. Surely, no law is indeed to create chaos. 7 Petitioner asserts that P.D. No. 902-A cannot exceed the scope and power of the Corporation Code which itself does not provide sanctions for non-filing of by-laws. For the petitioner, it is "not proper to assess the true meaning of Sec. 46 . . . on an unauthorized provision on such matter contained in the said decree." In their comment on the petition, private respondents counter that the requirement of adoption of by-laws is not mandatory. They point to P.D. No. 902-A as having resolved the issue of whether said requirement is mandatory or merely directory. Citing Chung Ka Bio v. Intermediate Appellate Court, 8 private respondents contend that Section 6(I) of that decree provides that non-filing of by-laws is only a ground for suspension or revocation of the certificate of registration of corporations and, therefore, it may not result in automatic dissolution of the corporation. Moreover, the adoption and filing of by-laws is a condition subsequent which does not affect the corporate personality of a corporation like the LGVHAI. This is so because Section 9 of the Corporation Code provides that the corporate existence and juridical personality of a corporation begins from the date the SEC issues a certificate of incorporation under its official seal. Consequently, even if the by-laws have not yet been filed, a corporation may be

considered a de facto corporation. To emphasize the fact the LGVHAI was registered as the sole homeowners' association in the Loyola Grand Villas, private respondents point out that membership in the LGVHAI was an "unconditional restriction in the deeds of sale signed by lot buyers." In its reply to private respondents' comment on the petition, petitioner reiterates its argument that the word " must" in Section 46 of the Corporation Code is mandatory. It adds that, before the ruling in Chung Ka Bio v. Intermediate Appellate Court could be applied to this case, this Court must first resolve the issue of whether or not the provisions of P.D. No. 902-A prescribing the rules and regulations to implement the Corporation Code can "rise above and change" the substantive provisions of the Code. The pertinent provision of the Corporation Code that is the focal point of controversy in this case states: Sec. 46. Adoption of by-laws. Every corporation formed under this Code, must within one (1) month after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission, adopt a code of by-laws for its government not inconsistent with this Code. For the adoption of by-laws by the corporation, the affirmative vote of the stockholders representing at least a majority of the outstanding capital stock, or of at least a majority of the members, in the case of non-stock corporations, shall be necessary. The by-laws shall be signed by the stockholders or members voting for them and shall be kept in the principal office of the corporation, subject to the stockholders or members voting for them and shall be kept in the principal office of the corporation, subject to inspection of the stockholders or members during office hours; and a copy thereof, shall be filed with the Securities and Exchange Commission which shall be attached to the original articles of incorporation. Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted and filed prior to incorporation; in such case, such by-laws shall be approved and signed by all the incorporators and submitted to the Securities and Exchange Commission, together with the articles of incorporation. In all cases, by-laws shall be effective only upon the issuance by the Securities and Exchange Commission of a certification that the by-laws are not inconsistent with this Code. The Securities and Exchange Commission shall not accept for filing the by-laws or any amendment thereto of any bank, banking institution, building and loan association, trust company, insurance company, public utility, educational institution or other special corporations governed by special laws, unless accompanied by a certificate of the appropriate government agency to the effect that such by-laws or amendments are in accordance with law. As correctly postulated by the petitioner, interpretation of this provision of law begins with the determination of the meaning and import of the word "must" in this section Ordinarily, the word "must" connotes an imperative act or operates to impose a duty which may be enforced. 9 It is synonymous with "ought" which connotes compulsion or mandatoriness. 10 However, the word "must" in a statute, like "shall," is not always imperative. It may be consistent with an exercise of discretion. In this jurisdiction, the tendency has been to interpret "shall" as the context or a

reasonable construction of the statute in which it is used demands or requires. 11 This is equally true as regards the word "must." Thus, if the languages of a statute considered as a whole and with due regard to its nature and object reveals that the legislature intended to use the words "shall" and "must" to be directory, they should be given that meaning. 12 In this respect, the following portions of the deliberations of the Batasang Pambansa No. 68 are illuminating: MR. FUENTEBELLA. Thank you, Mr. Speaker. On page 34, referring to the adoption of by-laws, are we made to understand here, Mr. Speaker, that by-laws must immediately be filed within one month after the issuance? In other words, would this be mandatory or directory in character? MR. MENDOZA. This is mandatory. MR. FUENTEBELLA. It being mandatory, Mr. Speaker, what would be the effect of the failure of the corporation to file these by-laws within one month? MR. MENDOZA. There is a provision in the latter part of the Code which identifies and describes the consequences of violations of any provision of this Code. One such consequences is the dissolution of the corporation for its inability, or perhaps, incurring certain penalties. MR. FUENTEBELLA. But it will not automatically amount to a dissolution of the corporation by merely failing to file the by-laws within one month. Supposing the corporation was late, say, five days, what would be the mandatory penalty? MR. MENDOZA. I do not think it will necessarily result in the automatic or ipso facto dissolution of the corporation. Perhaps, as in the case, as you suggested, in the case of El Hogar Filipino where a quo warranto action is brought, one takes into account the gravity of the violation committed. If the by-laws were late the filing of the by-laws were late by, perhaps, a day or two, I would suppose that might be a tolerable delay, but if they are delayed over a period of months as is happening now because of the absence of a clear requirement that by-laws must be completed within a specified period of time, the corporation must suffer certain consequences. 13 This exchange of views demonstrates clearly that automatic corporate dissolution for failure to file the by-laws on time was never the intention of the legislature. Moreover, even without resorting to the records of deliberations of the Batasang Pambansa, the law itself provides the answer to the issue propounded by petitioner. Taken as a whole and under the principle that the best interpreter of a statute is the statute itself (optima statuli interpretatix est ipsum statutum), 14 Section 46 aforequoted reveals the legislative intent to attach a directory, and not mandatory, meaning for the word "must" in the first sentence thereof. Note should be taken of the second paragraph of the law which allows the filing of the by-laws even prior to incorporation. This provision in the same section of the Code rules out mandatory compliance with the requirement of filing the by-laws "within one (1) month after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission." It necessarily follows that failure to file the by-laws within that period

does not imply the "demise" of the corporation. By-laws may be necessary for the "government" of the corporation but these are subordinate to the articles of incorporation as well as to the Corporation Code and related statutes. 15 There are in fact cases where by-laws are unnecessary to corporate existence or to the valid exercise of corporate powers, thus: In the absence of charter or statutory provisions to the contrary, by-laws are not necessary either to the existence of a corporation or to the valid exercise of the powers conferred upon it, certainly in all cases where the charter sufficiently provides for the government of the body; and even where the governing statute in express terms confers upon the corporation the power to adopt by-laws, the failure to exercise the power will be ascribed to mere nonaction which will not render void any acts of the corporation which would otherwise be valid. 16 (Emphasis supplied.) As Fletcher aptly puts it: It has been said that the by-laws of a corporation are the rule of its life, and that until bylaws have been adopted the corporation may not be able to act for the purposes of its creation, and that the first and most important duty of the members is to adopt them. This would seem to follow as a matter of principle from the office and functions of bylaws. Viewed in this light, the adoption of by-laws is a matter of practical, if not one of legal, necessity. Moreover, the peculiar circumstances attending the formation of a corporation may impose the obligation to adopt certain by-laws, as in the case of a close corporation organized for specific purposes. And the statute or general laws from which the corporation derives its corporate existence may expressly require it to make and adopt by-laws and specify to some extent what they shall contain and the manner of their adoption. The mere fact, however, of the existence of power in the corporation to adopt by-laws does not ordinarily and of necessity make the exercise of such power essential to its corporate life, or to the validity of any of its acts. 17 Although the Corporation Code requires the filing of by-laws, it does not expressly provide for the consequences of the non-filing of the same within the period provided for in Section 46. However, such omission has been rectified by Presidential Decree No. 902-A, the pertinent provisions on the jurisdiction of the SEC of which state: Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers: xxx xxx xxx (1) To suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law, including the following: xxx xxx xxx 5. Failure to file by-laws within the required period; xxx xxx xxx

In the exercise of the foregoing authority and jurisdiction of the Commission or by a Commissioner or by such other bodies, boards, committees and/or any officer as may be created or designated by the Commission for the purpose. The decision, ruling or order of any such Commissioner, bodies, boards, committees and/or officer may be appealed to the Commission sitting en banc within thirty (30) days after receipt by the appellant of notice of such decision, ruling or order. The Commission shall promulgate rules of procedures to govern the proceedings, hearings and appeals of cases falling with its jurisdiction. The aggrieved party may appeal the order, decision or ruling of the Commission sitting en banc to the Supreme Court by petition for review in accordance with the pertinent provisions of the Rules of Court. Even under the foregoing express grant of power and authority, there can be no automatic corporate dissolutionsimply because the incorporators failed to abide by the required filing of bylaws embodied in Section 46 of the Corporation Code. There is no outright "demise" of corporate existence. Proper notice and hearing are cardinal components of due process in any democratic institution, agency or society. In other words, the incorporators must be given the chance to explain their neglect or omission and remedy the same. That the failure to file by-laws is not provided for by the Corporation Code but in another law is of no moment. P.D. No. 902-A, which took effect immediately after its promulgation on March 11, 1976, is very much apposite to the Code. Accordingly, the provisions abovequoted supply the law governing the situation in the case at bar, inasmuch as the Corporation Code and P.D. No. 902-A are statutes in pari materia. Interpretare et concordare legibus est optimus interpretandi. Every statute must be so construed and harmonized with other statutes as to form a uniform system of jurisprudence. 18 As the "rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and its stockholders or members and directors and officers with relation thereto and among themselves in their relation to it," 19 by-laws are indispensable to corporations in this jurisdiction. These may not be essential to corporate birth but certainly, these are required by law for an orderly governance and management of corporations. Nonetheless, failure to file them within the period required by law by no means tolls the automatic dissolution of a corporation. In this regard, private respondents are correct in relying on the pronouncements of this Court in Chung Ka Bio v.Intermediate Appellate Court, 20 as follows: . . . . Moreover, failure to file the by-laws does not automatically operate to dissolve a corporation but is now considered only a ground for such dissolution. Section 19 of the Corporation Law, part of which is now Section 22 of the Corporation Code, provided that the powers of the corporation would cease if it did not formally organize and commence the transaction of its business or the continuation of its works within two years from date of its incorporation. Section 20, which has been reproduced with some modifications in Section 46 of the Corporation Code, expressly declared that "every corporation formed under this Act, must within one month after the filing of the articles of incorporation with the Securities and Exchange Commission, adopt a code of by-laws." Whether this provision should be given mandatory or only directory effect

remained a controversial question until it became academic with the adoption of PD 902A. Under this decree, it is now clear that the failure to file by-laws within the required period is only a ground for suspension or revocation of the certificate of registration of corporations. Non-filing of the by-laws will not result in automatic dissolution of the corporation. Under Section 6(I) of PD 902-A, the SEC is empowered to "suspend or revoke, after proper notice and hearing, the franchise or certificate of registration of a corporation" on the ground inter alia of "failure to file by-laws within the required period." It is clear from this provision that there must first of all be a hearing to determine the existence of the ground, and secondly, assuming such finding, the penalty is not necessarily revocation but may be only suspension of the charter. In fact, under the rules and regulations of the SEC, failure to file the by-laws on time may be penalized merely with the imposition of an administrative fine without affecting the corporate existence of the erring firm. It should be stressed in this connection that substantial compliance with conditions subsequent will suffice to perfect corporate personality. Organization and commencement of transaction of corporate business are but conditions subsequent and not prerequisites for acquisition of corporate personality. The adoption and filing of bylaws is also a condition subsequent. Under Section 19 of the Corporation Code, a Corporation commences its corporate existence and juridical personality and is deemed incorporated from the date the Securities and Exchange Commission issues certificate of incorporation under its official seal. This may be done even before the filing of the bylaws, which under Section 46 of the Corporation Code, must be adopted "within one month after receipt of official notice of the issuance of its certificate of incorporation." 21 That the corporation involved herein is under the supervision of the HIGC does not alter the result of this case. The HIGC has taken over the specialized functions of the former Home Financing Corporation by virtue of Executive Order No. 90 dated December 17, 1989. 22 With respect to homeowners associations, the HIGC shall "exercise all the powers, authorities and responsibilities that are vested on the Securities and Exchange Commission . . . , the provision of Act 1459, as amended by P.D. 902-A, to the contrary notwithstanding." 23 WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the questioned Decision of the Court of Appeals AFFIRMED. This Decision is immediately executory. Costs against petitioner. SO ORDERED. Regalado, Puno and Mendoza, JJ., concur.

Salafranca vs. Philamlife (Pamplona) Village Homeowners Association, Inc., 300 SCRA 469 , December 23, 1998 Case Title : ENRIQUE SALAFRANCA, petitioner, vs. PHILAMLIFE (PAMPLONA) VILLAGE HOMEOWNERS ASSOCIATION, INC., BONIFACIO DAZO and THE SECOND DIVISION, NATIONAL LABOR RELATIONS COMMISSION (NLRC), respondents.Case Nature : SPECIAL CIVIL ACTION in the Supreme Court. Certiorari. Syllabi Class : Labor Law| Appeals| Security of Tenure| Dismissals| Evidence| Affidavits| Due Process| Management Prerogatives| Corporation Law| By-Laws| Contracts| Non-Impairment Clause| Pleadings and Practice| Syllabi: 1. Labor Law; Security of Tenure; The services of an employee who enjoys the right to security of tenure may be terminated only for causes provided by law.+ 2. Labor Law; Dismissals; The substantive and procedural requirements attendant to dismissal of employees are mandatory and noncompliance therewith renders any judgment reached by the management void and inexistent.+ 3. Labor Law; Dismissals; Evidence; Affidavits; It is settled that no undue importance should be given to a sworn statement or affidavit as a piece of evidence because, being taken ex-parte, an affidavit is almost always incomplete and inaccurate.+ 4. Labor Law; Dismissals; Evidence; Unsubstantiated accusations without more, are not tantamount to guilt.+ 5. Labor Law; Dismissals; Due Process; The essence of due process is to afford the party an opportunity to be heard and defend himself, to cleanse his name and reputation from any taintit includes the twin requirements of notice and hearing.+ 6. Labor Law; Dismissals; Due Process; Management Prerogatives; A decision to terminate an employee without fully apprising him of the facts, on the pretext that the twin requirements of notice and hearing are unnecessary or useless, is an invalid and obnoxious exercise of management prerogative.In light of the foregoing, private respondents arguments are clearly baseless and without merit. In truth, instead of protecting petitioners reputation, private respondent succeeded in doing exactly the opposite it condemned the petitioner without even hearing his side. It is stating the obvious that dismissal, being the ultimate penalty that can be meted out to an employee, should be based on a clear or convincing ground. As such, a decision to terminate an employee without fully apprising him of the facts, on the

pretext that the twin requirements of notice and hearing are unnecessary or useless, is an invalid and obnoxious exercise of management prerogative. 7. Labor Law; Dismissals; Due Process; Management Prerogatives; Corporation Law; By-Laws;Contracts; Non-Impairment Clause; The right to amend the by-laws by the employer, extensive as it may be, cannot impair the obligation of existing contracts or rights.Admittedly, the right to amend the by- laws lies solely in the discretion of the employer, this being in the exercise of management prerogative or business judgment. However this right, extensive as it may be, cannot impair the obligation of existing contracts or rights. 8. Appeals; Pleadings and Practice; Matters, theories or arguments not brought out in the proceedings below will ordinarily not be considered by a reviewing court, as they cannot be raised for the first time on appeal.+ Division: THIRD DIVISION Docket Number: G.R. No. 121791 Counsel: Claro F. Certeza, Gregorio D. David Ponente: ROMERO Dispositive Portion: WHEREFORE, in view of the foregoing, the instant petition is GRANTED. The NLRC decision dated June 15, 1995 is hereby REVERSED and SET ASIDE. Private respondent Philamlife Village Homeowners Association is ORDERED: (1) to pay petitioner Enrique Salafranca separation pay equivalent to one month salary for every year of service; (2) to pay his full backwages in accordance with our ruling in Bustamante v. NLRC;and ten thousand (P10,000.00) pesos, respectively;

ENRIQUE SALAFRANCA, petitioner, vs. PHILAMLIFE (PAMPLONA) VILLAGE HOMEOWNERS ASSOCIATION, INC., BONIFACIO DAZO and THE SECOND DIVISION, NATIONAL LABOR RELATIONS COMMISSION (NLRC), respondents.

ROMERO, J.:

Petitioner Enrique Salafranca started working with the private respondent Philamlife Village Homeowners Association on May 1, 1981 as administrative officer for a period of six months. From this date until December 31, 1983, petitioner was reappointed to his position three more times. 1 As administrative officer, petitioner was generally responsible for the management of the village's day to day activities. 2 After petitioner's term of employment expired on December 31, 1983, he still continued to work in the same capacity, albeit, without the benefit of a renewed contract. Sometime in 1987, private respondent decided to amend its by-laws. Included therein was a provision regarding officers, specifically, the position of administrative officer under which said officer shall hold office at the pleasure of the Board of Directors. In view of this development, private respondent, on July 3, 1987, informed the petitioner that his term of office shall be coterminus with the Board of Directors which appointed him to his position. Furthermore, until he submits a medical certificate showing his state of health, his employment shall be on a month-to-month basis. 3 Oddly, notwithstanding the failure of herein petitioner to submit his medical certificate, he continued working until his termination in December 1992. 4 Claiming that his services had been unlawfully and unceremoniously dispensed with, petitioner filed a complaint for illegal dismissal with money claims and for damages. 5 After the submission by the parties of their respective position papers and other pleadings, the Labor Arbiter rendered a decision 6 ordering private respondent to pay the petitioner the amount of P257,833.33 representing his backwages, separation pay and 13th month pay. In justifying the award, the Labor Arbiter elucidated: Respondents' contention that complainant's term of employment was co-terminus with the term of Office of the Board of Directors, is wanting in merit. Records show that complainant had been hired in 1981 while the Amendment of the respondents' By-Laws making the position of an Administrative Officer coterminus with the term of the Board of Directors was made in 1987. Evidently, the said Amendment would not be applicable to the case of complainant who had become a regular employee long time before the Amendment took place. Moreover, the Amendment should be applied prospectively and not retroactively. On appeal by the private respondent, the NLRC reversed the decision of the Labor Arbiter and rendered a new one 7reducing petitioner's monetary award to only one-half (1/2) month pay for every year of service representing his retirement pay. In other words, the NLRC viewed the dismissal of the petitioner as a valid act by the private respondent. The fact that he continued to perform the function of the office of administrative officer without extension or re-appointment thereafter, to our mind, did not in any way make his employment permanent as in fact, he was even reminded of the nature of his position by then president of the association Jaime Y. Ladao in a letter of 3 July 1987. His reply to the aforesaid letter, claiming his employment regular, and viz a viz, referring to submit his medical certificate, notwithstanding, to our mind, merely underscored the need to define his position as, in fact, the Association's Rules and Regulations were amended if but to put to rest the tenural (sic) limit of the office of the Administrative Officer in accordance with its earlier intention, that it is co-terminus with that of the members of the Board of Directors.

WHEREFORE, the decision appealed from is hereby set aside. Respondents are hereby ordered to pay herein appellee one half (1/2) month pay for every year of service representing his retirement pay. In view of the sudden turn of events, petitioner has elevated the case to this Court assigning the following errors: 8 1. The NLRC gravely abused its discretion when it ruled that the employment of the Petitioner is not purely based on considerations of Employer-Employee relationship. 2. Petitioner was illegally dismissed by private respondents. As to the first assigned error by the petitioner, we need not dwell on this at length. We agree with the Solicitor General's observation that an employer-employee relationship exists between the petitioner and the private respondent.9 xxx xxx xxx The first element is present in this case. Petitioner was hired as Administrative Officer by respondents. In fact, he was extended successive appointments by respondents. The second element is also present since it is not denied that respondent PVHA paid petitioner a fixed salary for his services. As to the third element, it can be seen from the Records that respondents had the power of dismissal over petitioner. In their letter dated December 7, 1992, respondents informed petitioner that they had decided to discontinue his services. In their Position Paper submitted to the Labor Arbiter, respondents stated that petitioner "was dismissed for cause." (p. 17, Record). With respect to the fourth and most important element, respondents controlled the work of petitioner not only with respect to the ends to be achieved but also the means used in reaching such ends. Relative to the second assigned error of the petitioner, both the Solicitor General and the private respondent take the stance that petitioner was not illegally dismissed. 10 On this aspect, we disagree with their contentions. On the outset, there is no dispute that petitioner had already attained the status of a regular employee, as evidenced by his eleven years of service with the private respondent. Accordingly, petitioner enjoys the right to security of tenure 11and his services may be terminated only for causes provided by law. 12 Viewed in this light, while private respondent has the right to terminate the services of petitioner, this is subject to both substantive and procedural grounds. 13 The substantive causes for dismissal are those provided in Articles 282 and 283 of the, Labor Code, 14 while the procedural

grounds refer to the observance of the requirement of due process. 15In all these instances, it is the private respondent, being the employer, who must prove the validity of the dismissal. 16 Having reviewed the records of this case carefully, we conclude that private respondent utterly failed to substantiate petitioner's dismissal, rendering the latter's termination illegal. At the risk of being redundant, it must be stressed that these requirements are mandatory and noncompliance therewith renders any judgment reached by the management void and inexistent. 17 While private respondent imputes "gross negligence," and "serious misconduct" as the causes of petitioner's dismissal,18 not a shred of evidence was offered in support thereof, other than bare and uncorroborated allegations. The facts and circumstances regarding such alleged infractions were never explained, While it is true that private respondent, through its president Bonifacio Dazo, executed an affidavit narrating the alleged violations of the petitioner, 19 these were never corroborated by concrete or competent evidence. It is settled that no undue importance should be given to a sworn statement or affidavit as a piece of evidence because, being taken ex-parte, an affidavit is almost always incomplete and inaccurate. 20 Furthermore, it must be noted that when petitioner was terminated in 1992, these alleged infractions were never raised nor communicated to him. In fact, these were only revealed after the complaint was filed by the petitioner in 1993. Why there was a delay was never adequately explained by private respondent. Likewise, we note that Dazo himself was not presented as a witness to give the petitioner an opportunity to cross-examine him and propound clarificatory questions regarding matters averred in his affidavit. All told, the foregoing lapses and the belated submission of the affidavit, cast doubt as to the credibility of the allegations. In sum, the dismissal of the petitioner had no factual basis whatsoever. The rule is that unsubstantiated accusations without more, are not tantamount to guilt. 21 As regards the issue of procedural due process, private respondent justifies its non-compliance therewith in this wise: The Association Officers, being his peers and friends had a problem however in terminating his services. He had been found to have committed infractions as previously enumerated. PVHA could have proceeded with a full-blown investigation to hear these charges, but the ordeal might break the old man's heart as this will surely affect his standing in the community. So they decided to make their move as discreetly (but legally) as possible to save the petitioner's reputation. Terminating him in accordance with the provision of the by-laws of the Association without pointing out his numerous faults and malfeasance in office and with one-half month pay for every year of service in accordance with the Retirement Law was the best and only alternative. We are not impressed. The reasoning advanced by the private respondent is as puerile as it is preposterous. The essence of due process is to afford the party an opportunity to be heard and defend himself, to cleanse his name and reputation from any taint. It includes the twin requirements of notice and hearing. 22 This concept evolved from the basic tenet that one's employment or profession is a property right protected by the constitutional guaranty of due process of

law. 23 Hence, an individual's separation from work must be founded on clearly-established facts, not on mere conjectures and suspicions. 24 In light of the foregoing, private respondent's arguments are clearly baseless and without merit. In truth, instead of protecting petitioner's reputation, private respondent succeeded in doing exactly the opposite it condemned the petitioner without even hearing his side. It is stating the obvious that dismissal, being the ultimate penalty that can be meted out to an employee, should be based on a clear or convincing ground. 25 As such, a decision to terminate an employee without fully apprising him of the facts, on the pretext that the twin requirements of notice and hearing are unnecessary or useless, is an invalid and obnoxious exercise of management prerogative. Furthermore, private respondent, in an effort to validate the dismissal of the petitioner, posits the theory that the latter's position is coterminus with that of the Village's Board of Directors, as provided for in its amended by-laws. 26 Admittedly, the right to amend the by-laws lies solely in the discretion of the employer, this being in the exercise of management prerogative or business judgment. However this right, extensive as it may be, cannot impair the obligation of existing contracts or rights. Prescinding from these premises, private respondent's insistence that it can legally dismiss petitioner on the ground that his tenure has expired is untenable. To reiterate, petitioner, being a regular employee, is entitled to security of tenure, hence, his services may only be terminated for causes provided by law. 27 A contrary interpretation would not find justification in the laws or the Constitution. If we were to rule otherwise, it would enable an employer to remove any employee from his employment by the simple expediency of amending its by-laws and providing that his/her position shall cease to exist upon the occurrence of a specified event. If private respondent wanted to make the petitioner's position co-terminus with that of the Board of Directors, then the amendment must be effective after petitioner's stay with the private respondent, not during his term. Obviously, the measure taken by the private respondent in amending its by-laws is nothing but a devious, but crude, attempt to circumvent petitioner's right to security of tenure as a regular employee guaranteed under the Labor Code. 28 Interestingly, the Solicitor General is of the view that what actually transpired was that petitioner was retired from his employment, considering the fact that in 1992 he was already 70 years old and not terminated. 29 While there seems to be a semblance of plausibility in this contention for the matter of extension of service of such employee or official is addressed to the sound discretion of the employer, still we have no doubt that this was just a mere after-thought a dismissal disguised as retirement. In the proceedings before the Labor Arbiter, it is noteworthy that private respondent never raised the issue of compulsory retirement, 30 as a cause for terminating petitioner's service. In its appeal before the NLRC, this ground was never discussed. In fact, private respondent, in justifying the termination of the petitioner, still anchored its claim on the applicability of the amended by-laws. This omission is fatal to private respondent's cause, for the rule is wellsettled that matters, theories or arguments not brought out in the proceedings below will ordinarily not be considered by a reviewing court, as they cannot be raised for the first time on appeal. 31

Undaunted, private respondent now asserts that the instant petition was filed out of time, 32 considering that the assailed NLRC decision was received on June 28, 1995 while this petition was filed on September 20, 1995. At this juncture, we take this opportunity to state that under the 1997 Rules of Civil Procedure, a petition for certiorari must now be instituted within sixty days of receipt of the assailed judgment, order or resolution. 33 However, since this case arose in 1995 and the aforementioned rule only took effect on July 1, 1997 then the old rule is applicable. Since prior to the effectivity of the new rule, a special civil action of certiorari should be instituted within a period of three months,34 the instant petition which was filed on September 20, 1995 or two months and twenty-two days thereafter, was still within the reglementary period. With respect to the issue of the monetary award to be given to the petitioner, private respondent argues that he deserves only retirement pay and nothing more. This position would have been tenable had petitioner not been illegally dismissed. However, since we have already ruled petitioner's dismissal as without just cause and lacking due process, the award of backwages and reinstatement is proper. 35 In this particular case, reinstatement is no longer feasible since petitioner was already 70 years old at the time he was removed from his employment. As a substitute thereof, separation pay is generally awarded, 36 the amount of which must be equivalent to one-month salary for every year of service. 37 With respect to the amount of backwages which, incidentally is different from separation pay, 38 it now settled that an illegally dismissed employee is entitled to its full payment as long as the cause of action accrued after March 21, 1989.39 Considering that petitioner was terminated from the service on December 9, 1992, which is after March 21, 1989, he is entitled to full backwages from the time of the illegal dismissal without any, qualification or deduction. 40 As regards the issue of retirement pay, private respondent asserts that the correct amount should be one-half (1/2) month salary for every year of service. This time we agree with private respondent's contention. The pertinent law is Article 287 of the Labor Code, as amended by Republic Act No. 7641, which reads: Art. 287. Retirement. Any employee may be retired upon reaching the retirement age established in the collective bargaining agreement or other applicable employment contract. In case of retirement, the employee shall he entitled to receive such retirement benefits as he may have earned under existing laws and any collective bargaining agreement and other agreements: Provided,however, That an employee's retirement benefits under any collective bargaining and other agreements shall not be less than those provided herein. In the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment, an employee upon reaching the age of sixty (60) years or more, but not beyond sixty-five (65) years which is hereby declared the compulsory retirement age, who has served at least five (5) years in the said establishment, may retire and shall be entitled to retirement pay equivalent to at least one-half (1/2) month salary for every year of service, a fraction of al least six (6) months being considered as one whole year.

xxx xxx xxx With respect to the issue that petitioner, being a managerial employee, is not entitled to thirteenth month pay, Memorandum Order No. 28, as implemented by the Revised Guidelines on the Implementation of the 13th Month Pay Law dated November 16, 1987, provides: Sec. 1 of Presidential Decree No. 851 is hereby modified to the extent that all employers are hereby required to pay all their rank and file employees a 13th month pay not later than December 24 of every year. Clearly, therefore, the foregoing exempts managerial employees from this benefit. Of course, this does not preclude an employer from granting other bonuses, in lieu of the 13th month pay, to managerial employees in its discretion. Finally, we cannot simply ignore private respondent's malicious scheme to remove petitioner from his position which is contrary to good customs and effected in an oppressive manner, thus warranting an award of moral and exemplary damages to the petitioner. 41 Moreover, since petitioner was forced to litigate and incur expenses to protect his right and interests, he is entitled to attorney's fees. 42 WHEREFORE, in view of the foregoing, the instant petition is GRANTED. The NLRC decision dated June 15, 1995 is hereby REVERSED and SET ASIDE. Private respondent Philamlife Village Homeowners Association is ORDERED: (1) to pay petitioner Enrique Salafranca separation pay equivalent to one month salary for every year of service; (2) to pay his full backwages in accordance with our ruling in Bustamante v. NLRC; 43 (3) to pay his retirement pay in accordance with Article 287 of the Labor Code, as amended by Republic Act No. 7641, (4) to pay moral and exemplary damages in the amount of twenty thousand (P20,000.00) pesos and ten thousand (P10,000.00) pesos, respectively; 44 and (5) to pay ten (10%) percent of the total amount due to petitioner, as attorney's fees. Consequently, the respondent NLRC is ORDERED to COMPUTE the total monetary benefits awarded in accordance with this decision and to submit its compliance thereon within thirty (30) days from notice of this decision. SO ORDERED. Kapunan, Purisima and Pardo, JJ., concur.

PMI Colleges vs. National Labor Relations Commission, 277 SCRA 462 , August 15, 1997 Case Title : PMI COLLEGES, petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION and ALEJANDRO GALVAN, respondents.Case Nature : SPECIAL CIVIL ACTION in the Supreme Court. Certiorari. Syllabi Class : Labor Law| Actions| Certiorari| Employer-Employee Relationship| Contracts| Corporation Law| By-Laws|Evidence| Words and Phrases| Administrative Law| Pleadings and Practice| Due Process| Syllabi: 1. Labor Law; Actions; Certiorari; The corrective power of the Supreme Court in the exercise of its certiorari jurisdiction is confined only to jurisdictional issues and a determination of whether there is such grave abuse of discretion amounting to lack or excess of jurisdiction on the part of a tribunal or agency.+ 2. Same; Same; Same; Due Process; The essence of due process is merely that a party be afforded a reasonable opportunity to be heard and to submit any evidence he may have in support of his defense.+ 3. Same; Administrative Law; Pleadings and Practice; The absence of a formal hearing or trial before the Labor Arbiter is no cause for a party to impute grave abuse of discretion+ 4. Same; Same; Evidence; Words and Phrases; Self-serving evidence is not to be literally taken as evidence that serves ones selfish interest+ 5. Same; Same; Corporation Law; By-Laws; Since by-laws operate merely as internal rules among the stockholders, they cannot affect or prejudice third persons who deal with the corporation, unless they have knowledge of the same.Neither can we concede that such contract would be invalid just because the signatory thereon was not the Chairman of the Board which allegedly violated petitioners bylaws. Since by-laws operate merely as internal rules among the stockholders, they cannot affect or prejudice third persons who deal with the corporation, unless they have knowledge of the same. No proof appears on record that private respondent ever knew anything about the provisions of said by-laws. In fact, petitioner itself merely asserts the same without even bothering to attach a copy or excerpt thereof to show that there is such a provision. How can it now expect 6. Same; Same; Same; The absence of a copy of the alleged employment contract does not nullify an employees claim for compensation.At any rate, the vouchers prepared by petitioners own accounting department and the letter-request of its Acting Director asking for payment of private respondents services suffice to support a reasonable conclusion that private respondent was employed with petitioner. How else could one

explain the fact that private respondent was supposed to be paid the amounts mentioned in those documents if he were not employed? Petitioners evidence is wanting in this respect while private respondent affirmatively stated that the same arose out of his employment with petitioner. As between the two, the latter is weightier inasmuch as we accord affirmative testimony greater value than a negative one. For the foregoing reasons, we find it difficult to agree with petitioners assertion that the absence of a copy of the alleged contract should nullify private respondents claims. 7. Same; Employer-Employee Relationship; Contracts; The absence of a copy does not in any manner negate the existence of a contract of employment since [C]ontracts shall be obligatory, in whatever form they have been entered into, provided all the essential requisites for their validity are present.+ 8. Same; Same; Same; Administrative Law; The Courts deference to the expertise acquired by quasi-judicial agencies and the limited scope granted to it in the exercise of certiorari jurisdiction restrain it from going so far as to probe into the correctness of a tribunals evaluation of the evidence, unless there is palpable mistake and complete disregard thereof.+ Division: SECOND DIVISION Docket Number: G.R. No. 121466 Counsel: Esteban M. Mendoza, N.L. Dasig Law Office Ponente: ROMERO Dispositive Portion: WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED for lack of merit while the resolution of the National Labor Relations Commission dated August 4, 1995 is hereby AFFIRMED.

PMI COLLEGES, petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION and ALEJANDRO GA LVA N, respondents.

ROMERO, J.:

Subject of the instant petition for certiorari under Rule 65 of the Rules of Court is the resolution 1 of public respondent National Labor Relations Commission 2 rendered on August 4, 1995, affirming in toto the December 7, 1994 decision 3of Labor Arbiter Pablo C. Espiritu declaring petitioner PMI Colleges liable to pay private respondent Alejandro Galvan P405,000.00 in unpaid wages and P40,532.00 as attorney's fees. A chronicle of the pertinent events on record leading to the filing of the instant petition is as follows: On July 7, 1991, petitioner, an educational institution offering courses on basic seaman's training and other marine-related courses, hired private respondent as contractual instructor with an agreement that the latter shall be paid at an hourly rate of P30.00 to P50.00, depending on the description of load subjects and on the schedule for teaching the same. Pursuant to this engagement, private respondent then organized classes in marine engineering. Initially, private respondent and other instructors were compensated for services rendered during the first three periods of the abovementioned contract. However, for reasons unknown to private respondent, he stopped receiving payment for the succeeding rendition of services. This claim of non-payment was embodied in a letter dated March 3, 1992, written by petitioner's Acting Director, Casimiro A. Aguinaldo, addressed to its President, Atty. Santiago Pastor, calling attention to and appealing for the early approval and release of the salaries of its instructors including that of private respondent. It appeared further in said letter that the salary of private respondent corresponding to the shipyard and plant visits and the ongoing on-the-job training of Class 41 on board MV "Sweet Glory" of Sweet Lines, Inc. was not yet included. This request of the Acting Director apparently went unheeded. Repeated demands having likewise failed, private respondent was soon constrained to file a complaint 4 before the National Capital Region Arbitration Branch on September 14, 1993 seeking payment for salaries earned from the following: (1) basic seaman course Classes 41 and 42 for the period covering October 1991 to September 1992; (2) shipyard and plant visits and on-the-job training of Classes 41 and 42 for the period covering October 1991 to September 1992 on board M/V "Sweet Glory" vessel; and (3) as Acting Director of Seaman Training Course for 3-1/2 months. In support of the abovementioned claims, private respondent submitted documentary evidence which were annexed to his complaint, such as the detailed load and schedule of classes with number of class hours and rate per hour (Annex "A"); PMI Colleges Basic Seaman Training Course (Annex "B"); the aforementioned letter-request for payment of salaries by the Acting Director of PMI Colleges (Annex "C"); unpaid load of private respondent (Annex "D"); and vouchers prepared by the accounting department of petitioner but whose amounts indicated therein were actually never paid to private respondent (Exhibit "E"). Private respondent's claims, as expected, were resisted by petitioner. It alleged that classes in the courses offered which complainant claimed to have remained unpaid were not held or conducted in the school premises of PMI Colleges. Only private respondent, it was argued, knew whether classes were indeed conducted. In the same vein, petitioner maintained that it exercised no appropriate and proper supervision of the said classes which activities allegedly violated certain rules and regulations of the Department of Education, Culture and Sports (DECS). Furthermore, the claims, according to petitioner, were all exaggerated and that, at any rate, private respondent abandoned his work at the time he should have commenced the same. In reply, private respondent belied petitioner's allegations contending, among others, that he conducted lectures within the premises of petitioner's rented space located at 5th Floor, Manufacturers Bldg., Sta. Cruz, Manila; that his students duly enrolled with the Registrar's Office of petitioner; that shipyard and plant visits were conducted at Fort San Felipe, Cavite Naval Base; that petitioner was fully aware of said shipyard and plant visits because it even wrote a letter for that

purpose; and that basic seaman courses 41 and 42 were sanctioned by the DECS as shown by the records of the Registrar's Office. Later in the proceedings below, petitioner manifested that Mr. Tomas G. Cloma, Jr., a member of the petitioner's Board of Trustees wrote a letter 5 to the Chairman of the Board on May 23, 1994, clarifying the case of private respondent and stating therein, inter alia, that under petitioner's by-laws only the Chairman is authorized to sign any contract and that private respondent, in any event, failed to submit documents on the alleged shipyard and plant visits in Cavite Naval Base. Attempts at amicable settlement having failed, the parties were required to submit their respective position papers. Thereafter, on June 16, 1994, the Labor Arbiter issued an order declaring the case submitted for decision on the basis of the position papers which the parties filed. Petitioner, however, vigorously opposed this order insisting that there should be a formal trial on the merits in view of the important factual issues raised. In another order dated July 22, 1994, the Labor Arbiter impliedly denied petitioner's opposition, reiterating that the case was already submitted for decision. Hence, a decision was subsequently rendered by the Labor Arbiter on December 7, 1994 finding for the private respondent. On appeal, the NLRC affirmed the same in toto in its decision of August 4, 1995. Aggrieved, petitioner now pleads for the Court to resolve the following issues in its favor, to wit: I. Whether the money claims of private respondent representing salaries/wages as contractual instructor for class instruction, on-the-job training and shipboard and plant visits have valid legal and factual bases; II. Whether claims for salaries/wages for services relative to on-the-job training and shipboard and plant visits by instructors, assuming the same were really conducted, have valid bases; III. Whether the petitioner was denied its right to procedural due process; and IV. Whether the NLRC findings in its questioned resolution have sound legal and factual support. We see no compelling reason to grant petitioner's plea; the same must, therefore, be dismissed. At once, a mere perusal of the issues raised by petitioner already invites dismissal for demonstrated ignorance and disregard of settled rules on certiorari. Except perhaps for the third issue, the rest glaringly call for a re-examination, evaluation and appreciation of the weight and sufficiency of factual evidence presented before the Labor Arbiter. This, of course, the Court cannot do in the exercise of its certiorari jurisdiction without transgressing the well-defined limits thereof. The corrective power of the Court in this regard is confined only to jurisdictional issues and a determination of whether there is such grave abuse of discretion amounting to lack or excess of jurisdiction on the part of a tribunal or agency. So unyielding and consistent are the decisional rules thereon that it is indeed surprising why petitioner's counsel failed to accord them the observance they deserve. Thus, in San Miguel Foods, Inc. Cebu B-Men Feed Plant v. Hon. Bienvenido Laguesma, 6 we were emphatic in declaring that: This Court is definitely not the proper venue to consider this matter for it is not a trier of facts. . . . Certiorari is a remedy narrow in its scope and inflexible in character. It is not a general

utility tool in the legal workshop.Factual issues are not a proper subject for certiorari, as the power of the Supreme Court to review labor cases is limited to the issue of jurisdiction and grave abuse of discretion. . . . (Emphasis supplied). Of the same tenor was our disquisition in Ilocos Sur Electric Cooperative, Inc. v. NLRC 7 where we made plain that: In certiorari proceedings under Rule 65 of the Rules of Court, judicial review by this Court does not go so far as to evaluate the sufficiency of evidence upon which the Labor Arbiter and the NLRC based their determinations, the inquiry being limited essentially to whether or not said public respondents had acted without or in excess of its jurisdiction or with grave abuse of discretion. (Emphasis supplied). To be sure, this does not mean that the Court would disregard altogether the evidence presented. We merely declare that the extent of review of evidence we ordinarily provide in other cases is different when it is a special civil action ofcertiorari. The latter commands us to merely determine whether there is basis established on record to support the findings of a tribunal and such findings meet the required quantum of proof, which in this instance, is substantial evidence. Our deference to the expertise acquired by quasi-judicial agencies and the limited scope granted to us in the exercise of certiorari jurisdiction restrain us from going so far as to probe into the correctness of a tribunal's evaluation of evidence, unless there is palpable mistake and complete disregard thereof in which case certiorari would be proper. In plain terms, in certiorari proceedings, we are concerned with mere "errors of jurisdiction" and not "errors of judgment." Thus:
The rule is settled that the original and exclusive jurisdiction of this Court to review a decision of respondent NLRC (or Executive Labor Arbiter as in this case) in a petition for certiorari under Rule 65 does not normally include an inquiry into the correctness of its evaluation of the evidence. Errors of judgment, as distinguished from errors of jurisdiction, are not within the province of a special civil action for certiorari, which is merely confined to issues of jurisdiction or grave abuse of discretion. It is thus incumbent upon petitioner to satisfactorily establish that respondent Commission or executive labor arbiter acted capriciously and whimsically in total disregard of evidence material to or even decisive of the controversy , in order that the extraordinary writ of certiorari will lie. By grave abuse of discretion is meant such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction, and it must be shown that the discretion was exercised arbitrarily or despotically. For certiorari to lie there must be capricious, arbitrary and whimsical exercise of power, the very antithesis of the judicial prerogative in accordance with centuries of both civil law and common law traditions. 8

The Court entertains no doubt that the foregoing doctrines apply with equal force in the case at bar. In any event, granting that we may have to delve into the facts and evidence of the parties, we still find no puissant justification for us to adjudge both the Labor Arbiter's and NLRC's appreciation of such evidence as indicative of any grave abuse of discretion. First. Petitioner places so much emphasis on its argument that private respondent did not produce a copy of the contract pursuant to which he rendered services. This argument is, of course, puerile. The absence of such copy does not in any manner negate the existence of a contract of employment since "(C)ontracts shall be obligatory, in whatever form they have been entered into, provided all the essential requisites for their validity are present." 9 The only exception to this rule is "when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way." However, there is no requirement under the law that the contract of employment of the kind entered into by petitioner with private respondent should be in any particular form. While it may have been desirable for private respondent

to have produced a copy of his contract if one really exists, but the absence thereof, in any case, does not militate against his claims inasmuch as:
No particular form of evidence is required to prove the existence of an employer-employee relationship. Any competent and relevant evidence to prove the relationship may be admitted. For, if only documentary evidence would be required to show that relationship, no scheming employer would ever be brought before the bar of justice, as no employer would wish to come out with any trace of the illegality he has authored considering that it should take much weightier proof to invalidate a written instrument. . . . 10

At any rate, the vouchers prepared by petitioner's own accounting department and the letter-request of its Acting Director asking for payment of private respondent's services suffice to support a reasonable conclusion that private respondent was employed with petitioner. How else could one explain the fact that private respondent was supposed to be paid the amounts mentioned in those documents if he were not employed? Petitioner's evidence is wanting in this respect while private respondent affirmatively stated that the same arose out of his employment with petitioner. As between the two, the latter is weightier inasmuch as we accord affirmative testimony greater value than a negative one. For the foregoing reasons, we find it difficult to agree with petitioner's assertion that the absence of a copy of the alleged contract should nullify private respondent's claims. Neither can we concede that such contract would be invalid just because the signatory thereon was not the Chairman of the Board which allegedly violated petitioner's by-laws. Since by-laws operate merely as internal rules among the stockholders, they cannot affect or prejudice third persons who deal with the corporation, unless they have knowledge of the same." 11 No proof appears on record that private respondent ever knew anything about the provisions of said by-laws. In fact, petitioner itself merely asserts the same without even bothering to attach a copy or excerpt thereof to show that there is such a provision. How can it now expect the Labor Arbiter and the NLRC to believe it? That this allegation has never been denied by private respondent does not necessarily signify admission of its existence because technicalities of law and procedure and the rules obtaining in the courts of law do not strictly apply to proceedings of this nature. Second. Petitioner bewails the fact that both the Labor Arbiter and the NLRC accorded due weight to the documents prepared by private respondent since they are said to be self-serving. "Self-serving evidence" is not to be literally taken as evidence that serves one's selfish interest. 12 The fact alone that most of the documents submitted in evidence by private respondent were prepared by him does not make them self-serving since they have been offered in the proceedings before the Labor Arbiter and that ample opportunity was given to petitioner to rebut their veracity and authenticity. Petitioner, however, opted to merely deny them which denial, ironically, is actually what is considered selfserving evidence 13 and, therefore, deserves scant consideration. In any event, any denial made by petitioner cannot stand against the affirmative and fairly detailed manner by which private respondent supported his claims, such as the places where he conducted his classes, on-the-job training and shipyard and plant visits; the rate he applied and the duration of said rendition of services; the fact that he was indeed engaged as a contractual instructor by petitioner; and that part of his services was not yet remunerated. These evidence, to reiterate, have never been effectively refuted by petitioner. Third. As regards the amounts demanded by private respondent, we can only rely upon the evidence presented which, in this case, consists of the computation of private respondent, as well as the findings of both the Labor Arbiter and the NLRC. Petitioner, it must be stressed, presented no satisfactory proof to the contrary. Absent such proof, we are constrained to rely upon private respondent's otherwise straightforward explanation of his claims.

Fourth. The absence of a formal hearing or trial before the Labor Arbiter is no cause for petitioner to impute grave abuse of discretion. Whether to conduct one or not depends on the sole discretion of the Labor Arbiter, taking into account the position papers and supporting documents submitted by the parties on every issue presented. If the Labor Arbiter, in his judgment, is confident that he can rely on the documents before him, he cannot be faulted for not conducting a formal trial anymore, unless it would appear that, in view of the particular circumstances of a case, the documents, without more, are really insufficient. As applied to the instant case, we can understand why the Labor Arbiter has opted not to proceed to trial, considering that private respondent, through annexes to his position paper, has adequately established that, first of all, he was an employee of petitioner; second, the nature and character of his services, and finally, the amounts due him in consideration of his services. Petitioner, it should be reiterated, failed to controvert them. Actually, it offered only four documents later in the course of the proceedings. It has only itself to blame if it did not attach its supporting evidence with its position paper. It cannot now insist that there be a trial to give it an opportunity to ventilate what it should have done earlier. Section 3, Rule V of the New Rules of Procedure of the NLRC is very clear on the matter: Sec. 3. . . . These verified position papers . . . shall be accompanied by all supporting documents including the affidavits of their respective witnesses which shall take the place of the latter's direct testimony. The parties shall thereafter not be allowed to allege facts, or present evidence to prove facts, not referred to and any cause or causes of action not included in the complaint or position papers, affidavits and other documents. . . . (Emphasis supplied). Thus, given the mandate of said rule, petitioner should have foreseen that the Labor Arbiter, in view of the non-litigious nature of the proceedings before it, might not proceed at all to trial. Petitioner cannot now be heard to complain of lack of due process. The following is apropos: The petitioners should not have assumed that after they submitted their position papers, the Labor Arbiter would call for a formal trial or hearing. The holding of a trial is discretionary on the Labor Arbiter, it is not a matter of right of the parties, especially in this case, where the private respondents had already presented their documentary evidence. xxx xxx xxx
The petitioners did ask in their position paper for a hearing to thresh out some factual matters pertinent to their case. However, they had no right or reason to assume that their request would be granted. The petitioners should have attached to their position paper all the documents that would prove their claim in case it was decided that no hearing should be conducted or was necessary. In fact, the rules require that position papers shall be accompanied by all supporting documents, including affidavits of witnesses in lieu of their direct testimony. 14

It must be noted that adequate opportunity was given to petitioner in the presentation of its evidence, such as when the Labor Arbiter granted petitioner's Manifestation and Motion 15 dated July 22, 1994 allowing it to submit four more documents. This opportunity notwithstanding, petitioner still failed to fully proffer all its evidence which might help the Labor Arbiter in resolving the issues. What it desired instead, as stated in its petition, 16 was to "require presentation of witnesses buttressed by relevant documents in support thereof." But this is precisely the opportunity given to petitioner when the Labor Arbiter granted its Motion and Manifestation. It should have presented the documents it was proposing to submit. The affidavits of its witnesses would have sufficed in lieu of their direct

testimony 17 to clarify what it perceives to be complex factual issues. We rule that the Labor Arbiter and the NLRC were not remiss in their duty to afford petitioner due process. The essence of due process is merely that a party be afforded a reasonable opportunity to be heard and to submit any evidence he may have in support of his defense. 18 WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED for lack of merit while the resolution of the National Labor Relations Commission dated August 4, 1995 is hereby AFFIRMED. SO ORDERED.

Thomson vs. Court of Appeals, 298 SCRA 280 , October 28, 1998 Case Title : MARSH THOMSON, petitioner, vs. COURT OF APPEALS and THE AMERICAN CHAMBER OF COMMERCE OF THE PHILIPPINES, INC., respondents.Case Nature : PETITION for review on certiorari of a decision of the Court of Appeals. Syllabi Class : Contracts| Evidence| Waivers| Corporation Law| Trusts| Trusts| Loans| Words and Phrases| Intent|Denials| Witnesses| Quitclaims and Releases| Prescription| Syllabi: 1. Contracts; Trusts; Loans; Words and Phrases; Trust and Debt, Distinguished.+ 2. Trusts; Prescription; So long as there has been no denial or repudiation of the trust, the possession of the trustee of an express and continuing trust is presumed to be that of the beneficiary, and the statute of limitations does not run between them.+ 3. Corporation Law; Authority granted to a corporation to regulate the transfer of its stock does not empower it to restrict the right of a stockholder to transfer his shares, but merely authorizes the adoption of regulations as to the formalities and procedure to be followed in effecting transfer.The Manila Polo Club does not necessarily prohibit the transfer of proprietary shares by its members. The Club only restricts members to deserving applicants in accordance with its rules, when the amended Articles of Incorporation states that: no transfer shall be valid except between the parties, and shall not be registered in the Membership book unless made in accordance with these Articles and the By-Laws. Thus, as between parties herein, there is no question that a transfer is feasible. Moreover, authority granted to a corporation to regulate the transfer of its stock does not empower it to restrict the right of a stockholder to transfer his shares, but merely authorizes the adoption of regulations as to the formalities and procedure to be followed in effecting transfer. 4. Same; Same; The intention to waive a right or advantage must be shown clearly and convincingly, and when the only proof of intention rests in what a party does, his act should be so manifestly consistent with, and indicative of, an intent to voluntarily relinquish the particular right or advantage that no other reasonable explanation of his conduct is possible.The intention to waive a right or advantage must be shown clearly and convincingly, and when the only proof of intention rests in what a party does, his act should be so manifestly consistent with, and indicative of, an intent to voluntarily relinquish the particular right or advantage that no other reasonable explanation of his conduct is possible. Considering the terms of the quitclaim executed by the President of private respondent, the tenor of

the document does not lead to the purported conclusion that he intended to renounce private respondents beneficial title over its share in the Manila Polo Club. We, therefore, find no reversible error in the respondent Courts holding that private respondent, AmCham, is the beneficial owner of the share in dispute. 5. Waivers; Quitclaims and Releases; Settled is the rule that a waiver to be valid and effective must, in the first place, be couched in clear and unequivocal terms which leave no doubt as to the intention of a party to give up a right or benefit which legally pertains to him; General terms in a release and quitclaim indicates merely a clearance from general accountability, not specifically a waiver of a partys beneficial ownership of the disputed property.+ 6. Evidence; Intent; Denials; Witnesses; In deciding whether a property was wrongfully appropriated or retained and what the intent of the parties was at the time of the conveyance, the court must rely upon its impression of the credibility of the witnesses; Denials, if unsubstantiated by clear and convincing evidence, are deemed negative and self-serving evidence, unworthy of credence.+ 7. Same; Same; Same; A trust arises in favor of one who pays the purchase money of property in the name of another, because of the presumption that he who pays for a thing intends a beneficial interest therein for himself.Petitioner failed to present evidence to support his allegation of being merely a debtor when the private respondent paid the purchase price of the MPC share. Applicable here is the rule that a trust arises in favor of one who pays the purchase money of property in the name of another, because of the presumption that he who pays for a thing intends a beneficial interest therein for himself. Division: FIRST DIVISION Docket Number: G.R. No. 116631 Counsel: Quasha, Ancheta, Pea & Nolasco, Tanjuatco, Sta. Maria, Tanjuatco Ponente: QUISUMBING Dispositive Portion: WHEREFORE, the Petition for Review on Certiorari is DENIED. The Decision of the Court of Appeals of May 19, 1994, is AFFIRMED.

MARSH THOMSON, petitioner, vs. COURT OF APPEALS and THE AMERICAN CHAMPER OF COMMERCE OF THE PHILIPPINES, INC, respondents.

QUISUMBING, J.: This is a petition for review on certiorari seeking the reversal of the Decision 1 of the Court of Appeals on May 19, 1994, disposing as follows: WHEREFORE, THE DECISION APPEALED FROM IS HEREBY SET ASIDE. ANOTHER JUDGMENT IS ENTERED ORDERING DEFENDANT-APPELLEE MARSH THOMSON TO TRANSFER THE SAID MPC [Manila Polo Club] SHARE TO THE NOMINEE OF THE APPELLANT. The facts of the case are: Petitioner Marsh Thomson (Thomson) was the Executive Vice-President and, later on, the Management Consultant of private respondent, the American Chamber of Commerce of the Philippines, Inc. (AmCham) for over ten years, 1979-1989. While petitioner was still working with private respondent, his superior, A. Lewis Burridge, retired as AmCham's President. Before Burridge decided to return to his home country, he wanted to transfer his proprietary share in the Manila Polo Club (MPC) to petitioner. However, through the intercession of Burridge, private respondent paid for the share but had it listed in petitioner's name. This was made clear in an employment advice dated January 13, 1986, wherein petitioner was informed by private respondent as follows: xxx xxx xxx 11. If you so desire, the Chamber is willing to acquire for your use a membership in the Manila Polo Club. The timing of such acquisition shall be subject to the discretion of the Board based on the Chamber's financial position. All dues and other charges relating to such membership shall be for your personal account. If the membership is acquired in your name, you would execute such documents as necessary to acknowledge beneficial ownership thereof by the Chamber. 2 xxx xxx xxx On April 25, 1986, Burridge transferred said proprietary share to petitioner, as confirmed in a letter 3 of notification to the Manila Polo Club. Upon his admission as a new member of the MPC, petitioner paid the transfer fee of P40,000.00 from his own funds; but private respondent subsequently reimbursed this amount. On November 19, 1986, MPC issued Proprietary Membership Certificate Number 3398 in favor

of petitioner. But petitioner, however, failed to execute a document recognizing private respondent's beneficial ownership over said share. Following AmCham's policy and practice, there was a yearly renewal of employment contract between the petitioner and private respondent. Separate letters of employment advice dated October 1, 1986 4, as well March 4, 1988 5 and January 7, 1989 6, mentioned the MPC share. But petitioner never acknowledged that private respondent is the beneficial owner of the share as requested in follow-up requests, particularly one dated March 4, 1988 as follows: Dear Marsh: xxx xxx xxx All other provisions of your compensation/benefit package will remain the same and are summarized as follows: xxx xxx xxx 9) The Manila Polo Club membership provided by the Chamber for you and your family will continue on the same basis, to wit: all dues and other charges relating to such membership shall be for your personal account and, if you have not already done so, you will execute such documents as are necessary to acknowledge that the Chamber is the beneficial owner of your membership in the Club. 7 When petitioner's contract of employment was up for renewal in 1989, he notified private respondent that he would no longer be available as Executive Vice President after September 30, 1989. Still, the private respondent asked the petitioner to stay on for another six (6) months. Petitioner indicated his acceptance of the consultancy arrangement with a counter-proposal in his letter dated October 8, 1989, among others as follows: 11.) Retention of the Polo Club share, subject to my reimbursing the purchase price to the Chamber, or one hundred ten thousand pesos (P110,000.00). 8 Private respondent rejected petitioner's counter-proposal. Pending the negotiation for the consultancy arrangement, private respondent executed on September 29, 1989 a Release and Quitclaim, 9 stating that "AMCHAM, its directors, officers and assigns, employees and/or representatives do hereby release, waive, abandon and discharge J. MARSH THOMSON from any and all existing claims that the AMCHAM, its directors, officers and assigns, employees and/or representatives may have against J. MARSH THOMSON." 10 The quitclaim, expressed in general terms, did not mention specifically the MPC share. On April 5, 1990, private respondent, through counsel sent a letter to the petitioner demanding the return and delivery of the MPC share which "it (AmCham) owns and placed in your (Thomson's) name." 11

Failing to get a favorable response, private respondent filed on May 15, 1990, a complaint against petitioner praying,inter alia, that the Makati Regional Trial Court render judgment ordering Thomson "to return the Manila Polo Club share to the plaintiff and transfer said share to the nominee of plaintiff." 12 On February 28, 1992, the trial court promulgated its decision,
13

thus:

The foregoing considered judgment is rendered as follows: 1) The ownership of the contested Manila Polo Club share is adjudicated in favor of defendant Marsh Thomson; and; 2) Defendant shall pay plaintiff the sum of P300,000.00 Because both parties thru their respective faults have somehow contributed to the birth of this case, each shall bear the incidental expenses incurred. 14 In said decision, the trial court awarded the MPC share to defendant (petitioner now) on the ground that the Articles of Incorporation and By-laws of Manila Polo Club prohibit artificial persons, such as corporations, to be club members, ratiocinating in this manner: An assessment of the evidence adduced by both parties at the trial will show clearly that it was the intention of the parties that a membership to Manila Polo Club was to be secured by plaintiff [herein private respondent] for defendant's [herein petitioner] use. The latter was to execute the necessary documents to acknowledge ownership of the Polo membership in favor of plaintiff. (Exh. C par 9) However, when the parties parted ways in disagreement and with some degree of bitterness, the defendant had second thoughts and decided to keep the membership for himself. This is evident from the exhibits (E & G) where defendant asked that he retained the Polo Club membership upon reimbursement of its purchase price; and where he showed his "profound disappointment, both at the previous Board's unfair action, and at what I consider to be harsh terms, after my long years of dedication to the Chamber's interest. " xxx xxx xxx Notwithstanding all these evidence in favor of plaintiff, however, defendant may not be declared the owner of the contested membership be compelled to execute documents transferring the Polo Membership to plaintiff or the latter's nominee for the reason that this is prohibited by Polo Club's Articles & By-Laws. . . . It is for the foregoing reasons that the Court rules that the ownership of the questioned Polo Club membership be retained by defendant. 15 . . . . Not satisfied with the trial court's decision, private respondent appealed to the Court of Appeals. On May 19, 1994, the Court of Appeals (Former Special Sixth Division) promulgated its decision 16 in said CA-G.R. CV No. 38417, reversing the, trial court's judgment and ordered

herein petitioner to transfer the MPC share to the nominee of private respondent, reasoning thus: xxx xxx xxx The significant fact in the instant case is that the appellant [herein private respondent] purchased the MPC share for the use of the appellee [herein petitioner] and the latter expressly conformed thereto as shown in Exhibits A-1, B, B-1, C, C-1, D, D-1. By such express conformity of the appellee, the former was bound to recognize the appellant as the owner of the said share for a contract has the force of law between the parties. (Alim vs. CA, 200 SCRA 450; Sasuhura Company, Inc., Ltd. vs. IAC, 205 SCRA 632) Aside from the foregoing, the appellee conceded the true ownership of the said share to the appellant when (1) he offered to buy the MPC share from the appellant (Exhs. E and E-1) upon the termination of his employment; (2) he obliged himself to return the MPC share after his six month consultancy contract had elapsed, unless its return was earlier requested in writting (Exh. I); and (3) on cross-examination, he admitted that the proprietary share listed as one of the assets of the appellant corporation in its 1988 Corporate Income Tax Return, which he signed as the latter's Executive Vice President (prior to its filing), refers to the Manila Polo Club Share (tsn., pp. 19-20, August 30, 1991). . . . 17 On 16 June 1994, petitioner filed a motion for reconsideration 18 of said decision. By resolution 19 promulgated on August 4, 1994, the Court of Appeals denied the motion for reconsideration. In this petition for review, petitioner alleges the following errors of public respondent as grounds for our review: I. The respondent Court of Appeals erred in setting aside the Decision dated 28 February 1992 of the Regional Trial Court, NCJR, Branch 65, Makati, Metro Manila, in its Civil Case No. 901286, and in not confirming petitioner's ownership over the MPC membership share. II. The respondent Court of Appeals erred in ruling that "the Quitclaim executed by AmCham in favor of petitioner of September 29, 1989 was superseded by the contractual agreement entered into by the parties on October 13, 1989 wherein again the appellee acknowledged that the appellant owned the MPC share, there being absolutely no evidence to support such a conclusion and/or such inference is manifestly mistaken. III. The respondent Court of Appeals erred in rendering judgment ordering petitioner to transfer the contested MPC share to a nominee of respondent AmCham notwithstanding that: (a) AmCham has no standing in the Manila Polo Club (MPG), and being an artificial person, it is precluded under MPC's Articles of Incorporation and governing rules and regulations from owning a

proprietary share or from becoming a member thereof: and (b) even under AmCham's Articles of Incorporation, the purposes for which it is dedicated, becoming a stockholder or shareholder in other corporation is not one of the express implied powers fixed in AmCham's said corporate franchise. 20 As posited above, these assigned errors show the disputed matters herein are mainly factual. As such they are best left to the trial and appellate courts' disposition. And this Court could have dismissed the petition outright, were it not for the opposite results reached by the courts below. Moreover, for the enhanced appreciation of the jural relationship between the parties involving trust, this Court has given due course to the petition, which we now decide. After carefully considering the pleadings on record, we find there are two main issues to be resolved: (1) Did respondent court err in holding that private respondent is the beneficial owner of the disputed share? (2) Did the respondent court err in ordering petitioner to transfer said share to private respondent's nominees? Petitioner claims ownership of the MPC share, asserting that he merely incurred a debt to respondent when the latter advanced the funds for the purchase of the share. On the other hand, private respondent asserts beneficial ownership whereby petitioner only holds the share in his name, but the beneficial title belongs to private respondent. To resolve the first issue, we must clearly distinguish a debt from a trust. The beneficiary of a trust has beneficial interest in the trust property, while a creditor has merely a personal claim against the debtor. In trust, there is a fiduciary relation between a trustee and a beneficiary, but there is no such relation between a debtor and creditor. While a debt implies merely an obligation to pay a certain sum of money, a trust refers to a duty to deal with a specific property for the benefit of another. If a creditor-debtor relationship exists, but not a fiduciary relationship between the parties, there is no express trust. However, it is understood that when the purported trustee of funds is entitled to use them as his or her own (and commingle them with his or her own money), a debtor-creditor relationship exists, not a trust. 21 In the present case, as the Executive Vice-President of AmCham, petitioner occupied a fiduciary position in the business of AmCham. AmCham released the funds to acquire a share in the Club for the use of petitioner but obliged him to "execute such document as necessary to acknowledge beneficial ownership thereof by the Chamber". 22 A trust relationship is, therefore, manifestly indicated. Moreover, petitioner failed to present evidence to support his allegation of being merely a debtor when the private respondent paid the purchase price of the MPC share. Applicable here is the rule that a trust arises in favor of one who pays the purchase money of property in the name of another, because of the presumption that he who pays for a thing intends a beneficial interest therein for himself. 23 Although petitioner initiated the acquisition of the share, evidence on record shows that private respondent acquired said share with its funds. Petitioner did not pay for said share, although he later wanted to, but according to his own terms, particularly the price thereof. Private respondent's evident purpose in acquiring the share was to provide additional incentive and perks to its chosen executive, the petitioner himself. Such intention was repeated in the

yearly employment advice prepared by AmCham for petitioner's concurrence. In the cited employment advice, dated March 4, 1988, private respondent once again, asked the petitioner to execute proof to recognize the trust agreement in writing: The Manila Polo membership provided by the Chamber for you and your family will continue on the same basis, to wit: all dues and other charges relating to such membership shall be for your personal account and, if you have not already done so, you will execute such documents as are necessary to acknowledge that the Chamber is the beneficial owner of your membership in the Club. 24 Petitioner voluntarily affixed his signature to conform with the employment advice, including his obligation stated therein for him to execute the necessary document to recognize his employer as the beneficial owner of the MPC share. Now, we cannot hear him claiming otherwise, in derogation of said undertaking, without legal and equitable justification. For private respondent's intention to hold on to its beneficial ownership is not only presumed; it was expressed in writing at the very outset. Although the share was placed in the name of petitioner, his title is limited to the usufruct, that is, to enjoy the facilities and privileges of such membership in the club appertaining to the share. Such arrangement reflects a trust relationship governed by law and equity. While private respondent paid the purchase price for the share, petitioner was given legal title thereto. Thus, a resulting trust is presumed as a matter of law. The burden then shifted to the transferee to show otherwise, that it was just a loan. Such resulting trust could have been rebutted by proof of a contrary intention by a showing that, in fact, no trust was intended. Petitioner could have negated the trust agreement by contrary, consistent and convincing evidence on rebuttal. However, on the witness stand, petitioner failed to do so persuasively. On cross-examination, the petitioner testified as follows: ATTY. AQUINO (continuing) Q. Okay, let me go to the cash advance that you mentioned Mr. Witness, is there any document proving that you claimed cash advance signed by an officer of the Chamber? A. I believe the best evidence is the check. Q. Is there any document? COURT Other than the Check? MR. THOMSON Nothing more. ATTY. AQUINO

Is there any application filed in the Chamber to avail of this cash advance? A. Verbal only. Q. Nothing written, and can you tell to this Honorable Court what are the stipulations or conditions, or terms of this transaction of securing this cash advance or loan? xxx xxx xxx COURT How are you going to repay the cash advance? MR. THOMSON The cash advance, we never stipulate when I have to repay it, but I presume that I would, when able to repay the money. 25 In deciding whether the property was wrongfully appropriated or retained and what the intent of the parties was at the time of the conveyance, the court must rely upon its impression of the credibility of the witnesses. 26 Intent is a question of fact, the determination of which is not reviewable unless the conclusion drawn by the trier is one which could not reasonably be drawn. 27 Petitioner's denial is not adequate to rebut the trust. Time and again, we have ruled that denials, if unsubstantiated by clear and convincing evidence, are deemed negative and self-serving evidence, unworthy of credence. 28 The trust between the parties having been established, petitioner advanced an alternative defense that the private respondent waived the beneficial ownership of MPC share by issuing the Release and Quitclaim in his favor. This argument is less than persuasive. The quitclaim executed by private respondent does not clearly show the intent to include therein the ownership over the MPC share. Private respondent even asserts that at the time the Release and Quitclaim was executed on September 29, 1989, the ownership of the MPC share was not controversial nor contested. Settled is the rule that a waiver to be valid and effective must, in the first place, be couched in clear and unequivocal terms which leave no doubt as to the intention of a party to give up a right or benefit which legally pertains to him. 29 A waiver may not be attributed to a person when the terms thereof do not explicitly and clearly evidence an intent to abandon a right vested in such person. 30 If we apply the standard rule that waiver must be cast in clear and unequivocal terms, then clearly the general terms of the cited release and quitclaim indicates merely a clearance from general accountability, not specifically a waiver of AmCham's beneficial ownership of the disputed shares. Additionally, the intention to waive a right or advantage must be shown clearly and convincingly, and when the only proof of intention rests in what a party does, his act should be so manifestly consistent with, and indicative of, an intent to voluntarily relinquish the particular right or advantage that no other reasonable explanation of his conduct is possible.31 Considering the terms of the quitclaim executed by the President of private respondent, the tenor of the

document does not lead to the purported conclusion that be intended to renounce private respondent's beneficial title over its share in the Manila Polo Club. We, therefore, find no reversible error in the respondent Court's holding that private respondent, AmCham, is the beneficial owner of the share in dispute. Turning now to the second issue, the petitioner contends that the Articles of Incorporation and By-laws of Manila Polo Club prohibit corporate membership. However, private respondent does not insist nor intend to transfer the club membership in its name but rather to its designated nominee. For as properly ruled by the Court of Appeals: The matter prayed for does not involve the transfer of said share to the appellant, an artificial person. The transfer sought is to the appellant's nominee. Even if the MPC By-Laws and Articles prohibit corporate membership, there would be no violation of said prohibition for the appellant's nominee to whom the said share is sought to be transferred would certainly be a natural person. . . . As to whether or not the transfer of said share the appellant's nominee would be disapproved by the MPC, is a matter that should be raised at the proper time, which is only if such transfer is disapproved by the MPC. 32 The Manila Polo Club does not necessarily prohibit the transfer of proprietary shares by its members. The Club only restricts membership to deserving applicants in accordance with its rules, when the amended Articles of Incorporation states that: "No transfer shall be valid except between the parties, and shall be registered in the Membership Book unless made in accordance with these Articles and the By-Laws". 33 Thus, as between parties herein, there is no question that a transfer is feasible. Moreover, authority granted to a corporation to regulate the transfer of its stock does not empower it to restrict the right of a stockholder to transfer his shares, but merely authorizes the adoption of regulations as to the formalities and procedure to be followed in effecting transfer. 34 In this case, the petitioner was the nominee of the private respondent to hold the share and enjoy the privileges of the club. But upon the expiration of petitioner's employment as officer and consultant of AmCham, the incentives that go with the position, including use of the MPC share, also ceased to exist. It now behooves petitioner to surrender said share to private respondent's next nominee, another natural person. Obviously this arrangement of trust and confidence cannot be defeated by the petitioner's citation of the MPC rules to shield his untenable position, without doing violence to basic tenets of justice and fair dealing. However, we still have to ascertain whether the rights of herein parties to the trust still subsist. It has been held that so long as there has been no denial or repudiation of the trust, the possession of the trustee of an express and continuing trust is presumed to be that of the beneficiary, and the statute of limitations does not run between them. 35 With regard to a constructive or a resulting trust, the statute of limitations does not begin to run until the trustee clearly repudiates or disavows the trust and such disavowal is brought home to the other party, "cestui que trust". 36 The statute of limitations runs generally from the time when the act was done by which the party became chargeable as a trustee by operation of law or when the beneficiary knew that he had a cause of action, 37 in the absence of fraud or concealment. Noteworthy in the instant case, there was no declared or explicit repudiation of the trust existing between the parties. Such repudiation could only be inferred as evident when the petitioner

showed his intent to appropriate the MPC share for himself. Specifically, this happened when he requested to retain the MPC share upon his reimbursing the purchase price of P110,000, a request denied promptly by private respondent. Eventually, petitioner refused to surrender the share despite the written demand of private respondent. This act could then be construed as repudiation of the trust. The statute of limitation could start to set in at this point in time. But private respondent took immediate positive action. Thus, on May 15, 1990, private respondent filed an action to recover the MPC share. Between the time of implicit repudiation of the trust on October 9, 1989, as evidenced by petitioner's letter of said date, and private respondent's institution of the action to recover the MPC share on May 15, 1990, only about seven months bad lapsed. Our laws on the matter provide that actions to recover movables shall prescribe eight years from the time the possession thereof is lot, 38 unless the possessor has acquired the ownership by prescription for a less period of four years if in good faith.39 Since the private respondent filed the necessary action on time and the defense of good faith is not available to the petitioner, there is no basis for any purported claim of prescription, after repudiation of the trust, which will entitle petitioner to ownership of the disputed share. As correctly held by the respondent court, petitioner has the obligation to transfer now said share to the nominee of private respondent. WHEREFORE, the Petition for Review on Certiorari is DENIED. The Decision of the Court of Appeals of May 19, 1994, is AFFIRMED. COSTS against petitioner. SO ORDERED.