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G.R. No. L-45911 April 11, 1979 JOHN GOKONGWEI, JR., petitioner, vs. SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M.

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

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

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

until after the hearing on the merits of the principal issues in the above-entitled case. on December 10.thereof for the reason that he had already obtained the same. This motion was duly opposed by respondents. while the petition was yet to be heard. In view of the fact that the annul stockholders' meeting of respondent corporation had been scheduled for May 10. respondents conducted the special stockholders' meeting wherein the amendments to the by-laws were ratified. petitioner was not heard prior to the date of the stockholders' meeting. praying that pending the determination of petitioner's application for the issuance of a preliminary injunction and/or petitioner's motion for summary judgment. alleging that private respondents were seeking to nullify and render ineffectual the exercise of jurisdiction by the respondent Commission. Allegedly despite a subsequent Manifestation to prod respondent Commission to act. respondents filed a Manifestation with respondent Commission. 1977. the motion for reconsideration of the order granting in part and denying in part petitioner's motion for production of record had not yet been resolved. This Order is immediately executory upon its approval. private respondents admitted the invalidity of the amendments of September 18. 1977 that he does not come within the disqualifications specified in the amendment to the by-laws. Petitioner alleges that there appears a deliberate and concerted inability on the part of the SEC to act hence petitioner came to this Court. petitioner filed a manifestation and motion to resolve pending incidents in the case and to issue a writ of injunction. for the alleged reason that by calling a special stockholders' meeting for the aforesaid purpose. submitting a Resolution of the Board of Directors of respondent corporation disqualifying and precluding petitioner from being a candidate for director unless he could submit evidence on May 3. to petitioner's irreparable damage and prejudice. 1977. Inc. The motion for summary judgment was opposed by private respondents. 1976. Meanwhile. setting such meeting for February 10. CASE NO. 1977. 1375. Pending action on the motion. the said motion had not yet been scheduled for hearing. Petitioner alleges that up to the time of the filing of the instant petition. and 4. After receipt of the order of denial. respondent corporation issued a notice of special stockholders' meeting for the purpose of "ratification and confirmation of the amendment to the By-laws".. petitioner filed an "Urgent Motion for the Issuance of a Temporary Restraining Order". the Commission holds in abeyance the resolution on the matter of production and inspection of the authority of the stockholders of San Miguel Corporation to invest the funds of respondent corporation in San Miguel International. By reason thereof. restraining respondents from holding the special stockholder's meeting as scheduled. the Commission takes note thereof. SEC. petitioner filed a consolidated motion for contempt and for nullification of the special stockholders' meeting. 1976. Likewise. respondent Commission issued an order denying the motion for issuance of temporary restraining order. petitioner filed with respondent Commission a Manifestation stating that he intended to run for the position of director of respondent corporation. 1977. subject matter of SEC Case No. petitioner moved for its reconsideration. a temporary restraining order be issued. Finally. 1977. 2 Dissatisfied with the foregoing Order. 1423 . A motion for reconsideration of the order denying petitioner's motion for summary judgment was filed by petitioner before respondent Commission on March 10. This prompted petitioner to ask respondent Commission for a summary judgment insofar as the first cause of action is concerned. On February 10. On February 14. Thereafter.

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

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

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

. ". Security Credit and Acceptance Corporation. et al." Respondents Andres M. resolved to decide the case on the merits "because public interest demands an 7 early disposition of the case". and that in the stockholders' annual meeting held in 1972 and 1977. otherwise "the time spent and effort exerted by the parties concerned and. all foreign investments and operations of San Miguel Corporation were ratified by the stockholders.. that in a special meeting on February 10. Central Surety and Insurance Company. there are facts which cannot be denied. this Court resolved to decide the case on the merits instead of remanding it to the trial court for further proceedings since the ends of justice would not be subserved by the remand 6 of the case. It is settled that the doctrine of primary jurisdiction 8 has no application where only a question of law is involved.. that the foreign investment in the Hongkong Brewery and Distellery." Respondent Eduardo R. It is an accepted rule of procedure that the Supreme Court should always strive to settle the entire 4 controversy in a single proceeding.Whether or not amended by-laws are valid is purely a legal question which public interest requires to be resolved — It is the position of the petitioner that "it is not necessary to remand the case to respondent SEC for an appropriate ruling on the intrinsic validity of the amended by-laws in compliance with the principle of exhaustion of administrative remedies"... Thus. To the same effect is the prayer of San Miguel Corporation that this Court resolve on the merits the validity of its amended by laws and the rights and obligations of the parties thereunder. citing Gayong v. 1977 held specially for that purpose. 5 in Francisco v. second: "it is for the interest and guidance of the public that an immediate and final ruling on the question be made . It is only the Solicitor General who contends that the case should be remanded to the SEC for hearing and decision of the issues involved. and Jose M. was made by the San Miguel Corporation in 1948. and finally: "to remand the case to SEC would only entail delay rather than serve the ends of justice. viz. would have been for naught because the main question will come back to this Honorable Court for final resolution.. is purely a legal question. approved the amended by-laws ex-parte and obviously found the same intrinsically valid. Visaya submits a similar appeal. or (c) where the trial court had already received all the evidence presented by both parties and the Supreme Court is now in a position. Soriano. finding that the main issue is one of law. leaving nor root or branch to bear the seeds of future litigation. and in Republic v. Gayos. based 8 upon said evidence. invoking the latter's primary jurisdiction to hear and decide case involving intra-corporate controversies.. to decide the case on its merits. or (b) where public interest demand an early disposition of the case. In Republic v. this Court. a beer manufacturing company in Hongkong. in similar situations resolved to decide the cases on the merits.. Soriano similarly pray that this Court resolve the legal issues raised by the parties in keeping with the "cherished rules of procedure" that "a court should always strive to settle the entire controversy in a single proceeding leaving no root or branch to bear the seeds of 3 future ligiation". Jr. a Because uniformity may be secured through review by a single Supreme Court. There is no factual dispute as to what the provisions are and evidence is not necessary to determine whether such amended by-laws are valid as framed and approved .. more importantly.. the amended by-laws were ratified by more than 80% of the stockholders of record. b In the case at bar. citing precedent where this Court.. considering that: first: "whether or not the provisions of the amended by-laws are intrinsically valid . City of Davao. instead of remanding them to the trial court where (a) the ends of justice would not be subserved by the remand of the case. third: "petitioner was denied due process by SEC" when "Commissioner de Guzman had openly shown prejudice against petitioner . by this Honorable Court.: that the amended by-laws were adopted by the Board of Directors of the San Miguel Corporation in the exercise of the power delegated by the stockholders ostensibly pursuant to section 22 of the Corporation Law. II . this Court denied remand of the third-party complaint to the trial court for further proceedings. ". questions of law may appropriately be determined in the first 8 instance by courts. ". and "Commissioner Sulit .

the areas of. personally or thru two corporations owned or controlled by him. Upon the other hand.0% 40. at the same time depriving petitioner of his "vested right" to be voted for and to vote for a person of his choice as director. conclusion of a competitor from the Board is legitimate corporate purpose. or is in a legal sense 10 unreasonable and therefore unlawful is a question of law. Whether the bylaw is in conflict with the law of the land.: (a) John Gokongwei. petitioner cannot devote an unselfish and undivided Loyalty to the corporation.403. therefore. a court would not be warranted in substituting its judgment instead of the 11 judgment of those who are authorized to make by-laws and who have exercised their authority. It is alleged that petitioner.0% . Soriano and San Miguel Corporation content that ex. This rule is subject.0% 49.6% 0. It is further argued that there is not vested right of any stockholder under Philippine Law to be voted as director of a corporation.0% 14. and one upon which reasonable minds must necessarily differ.0% 52. 1978. vis. or a total of 1. however.0% 85. ALLEGED AREAS OF COMPETITION BETWEEN PETITIONER'S CORPORATIONS AND SAN MIGUEL CORPORATION According to respondent San Miguel Corporation.00.0% 45. Petitioner claims that the amended by-laws are invalid and unreasonable because they were tailored to suppress the minority and prevent them from having representation in the Board". that access to confidential information by a competitor may result either in the promotion of the interest of the competitor at the expense of the San Miguel Corporation. which may. Since the outstanding capital stock of San Miguel Corporation. to the limitation that where the reasonableness of a by-law is a mere matter of judgment. respondents Andres M.5% 9.325 shares. It is also contended that petitioner is the president and substantial stockholder of Universal Robina Corporation and CFC Corporation.0% 12. or with the charter of the corporation. the total shares owned or controlled by petitioner represents 4. as of May 6. It is also claimed that both the Universal Robina Corporation and the CFC Corporation are engaged in businesses directly and substantially competing with the alleged businesses of San Miguel Corporation.Whether or not the amended by-laws of SMC of disqualifying a competitor from nomination or election to the Board of Directors of SMC are valid and reasonable — The validity or reasonableness of a by-law of a corporation in purely a question of law.285 shares.0% 10. Jr. (c) CFC Corporation — 658.6% 33.139. Soriano..6% 57. has exercised. result in a combination or agreement in violation of Article 186 of the Revised Penal Code by destroying free competition to the detriment of the consuming public.0% 24. control over the following shareholdings in San Miguel Corporation.0% 10.0% Feeds 70. 1978. Jose M.0% 13.2344% of the total outstanding capital stock of San Miguel Corporation.1% 26.313 shares. that it is essentially a preventive measure to assure stockholders of San Miguel Corporation of reasonable protective from the unrestrained self-interest of those charged with the promotion of the corporate enterprise. — 6. considering that being a competitor.0% 40.0% 35.749 shares with a par value of P10.0% 83. (b) Universal Robina Corporation — 738. both of which are allegedly controlled by petitioner and members of his family. as of the present date. is represented by 33. Jr. competition are enumerated in its Board the areas of competition are enumerated in its Board Resolution dated April 28.647 shares. or the promotion of both the interests of petitioner and respondent San Miguel Corporation. thus: Product Line 1977 SMC Robina-CFC Estimated Market Share Total 9 Table Eggs Layer Pullets Dressed Chicken Poultry & Hog Ice Cream Instant Coffee Woven Fabrics 17. and of corporations in which SMC has substantial investments.

which product line represented sales for SMC amounting to more than P275 million.436. officers and employees ." On September 18. CFC-Robina was directly competing in the sale of coffee with Filipro. According to private respondents. disqualify a competitor from nomination and election to its Board of Directors.894 stockholders. every private corporation has this inherent power as one of its necessary and inseparable legal incidents. the areas of competition affecting SMC involved product sales of over P400 million or more than 20% of the P2 billion total product sales of SMC.945 shares. is the issue — whether or not respondent San Miguel Corporation could. duties and compensation of directors. The areas of competition between SMC and CFC-Robina in 1977 represented. " In Government v.. excluding Litton Mills recently acquired by petitioner) is purportedly also in direct competition with Ramie Textile. rejected petitioner's candidacy. the Board of Directors of SMC. 9. or more than 90% of the outstanding shares. Significantly.. under section 21 of the Corporation Law.014 shares. in person or by proxy. for SMC. 1978.Thus. in 1976. a corporation may prescribe in its by-laws "the qualifications. Inc. poultry and hog feeds ice cream. It is recognized by an authorities that 'every corporation has the inherent power to adopt by-laws 'for its internal government. 1977. On the May 9. opposed the confirmation and ratification. for SMC. And it is settled throughout the United States that in the absence of positive legislative provisions limiting it. therefore." approved the amendment to ' he by-laws in question. At the Annual Stockholders' Meeting of May 10. At the meeting of February 10.754 shares in SMC. and to regulate the conduct and prescribe the rights and duties of its members 12 towards itself and among themselves in reference to the management of its affairs... subsidiary of SMC. Only 12 shareholders. as a measure of self.005 shares. independent of any specific enabling provision in its charter or in general law. such power of self-government being essential to enable the corporation to 13 accomplish the purposes of its creation. therefore.349 shareholders. In addition. owning 27. voted against petitioner. represented sales amounting to more than ?478 million. a measure of self-defense to protect the corporation from the clear and present danger that the election of a business competitor to the Board may cause upon the corporation and the other stockholders inseparable prejudice. 1978 Annual Stockholders' Meeting. at the Annual Stockholders' Meeting of March 18. The CFC-Robina group (Robitex. AUTHORITY OF CORPORATION TO PRESCRIBE QUALIFICATIONS OF DIRECTORS EXPRESSLY CONFERRED BY LAW Private respondents contend that the disputed amended by laws were adopted by the Board of Directors of San Miguel Corporation a-. 12. representing 7. It is further asserted that in 1977. instant coffee and woven fabrics would result in a position of such dominance as to affect the prevailing market factors. the combined market shares of SMC and CFC-Robina in layer pullets dressed chicken.716 shareholders owning 24.801 shares voted for him. rejected petitioner's candidacy for the Board of Directors because they "realized the grave dangers to the corporation in the event a competitor gets a board seat in SMC.480 shareholders. these amendments were confirmed and ratified by 5. El Hogar. which provides that "every director must own in his right at least one share of the capital stock of the stock 14 corporation of which he is a director .257. the CFC-Robina group was in direct competition on product lines which. Submitted for resolution. 1977. or more than 80% of the total outstanding shares. In this jurisdiction. " This must necessarily refer to a qualification in addition to that specified by section 30 of the Corporation Law.648. the rule was "that the power to make and adopt by-laws was inherent in every corporation as one of its necessary and inseparable legal incidents. representing 1.protection. 11. 1976. At common law. owning 23. or more than 90% of the total outstanding shares of SMC. the Court sustained the validity of a provision in the corporate by-law requiring that persons elected to the Board of Directors must be . product sales of more than P849 million. while 946 stockholders. or more than 90% of the total outstanding shares. a subsidiary of SMC. according to respondent SMC. by "virtue of powers delegated to it by the stockholders..283. in product sales amounting to more than P95 million. owning more than 30 million shares.

therefore. in Pepper v. He cannot by the intervention of a corporate entity violate the ancient precept against serving two masters . express or implied... the next question that must be considered is whether the disqualification of a competitor from being elected to the Board of Directors is a reasonable exercise of corporate authority." To this extent. between the corporation and the 16 stockholders is infringed . He cannot manipulate the affairs of his corporation to their detriment and in disregard of the standards of common decency. It cannot be said.000.. "they occupy a fiduciary relation..: "to object thereto in writing and demand payment for his share.. alteration and modification. that petitioner has a vested right to be elected director. the stockholder may be considered to have "parted with his personal right or privilege to regulate the disposition of his property which he has invested in the capital stock of the corporation. He cannot use his power for his personal advantage and to the detriment of the stockholders . . Equity recognizes that stockholders are the proprietors of the corporate interests and are ultimately the only beneficiaries thereof * * *.. directors of corporations. He who is in such fiduciary position cannot serve himself first and his cestuis second. He cannot violate rules of fair play by doing indirectly through the corporation what he could not do so directly.. diminishes or restricts the rights of the existing shareholders then the disenting minority has only one right. by any act of the former which is authorized by a majority .. and in this sense the relation is 18 one of trust. . on the ground that section 21 of the Corporation Law expressly gives the power to the corporation to provide in its by-laws for the qualifications of directors and is "highly prudent and in conformity with good practice." Under section 22 of the same law.. according 19 to Ashaman v. therefore.. thus: 20 emphatically restated the standard of fiduciary obligation of the A director is a fiduciary. Justice Douglas. It cannot therefore be justly said that the contract. It springs from the fact that directors have the control and guidance of corporate affairs and property and hence of the property interests of the stockholders. any corporation may amend its articles of incorporation by a vote or written assent of the stockholders representing at least two-thirds of the subscribed capital stock of the corporation If the amendment changes. "is not a matter of statutory or technical law. As agents entrusted with the management of the corporation for the collective benefit of the stockholders. and surrendered it to the will of the majority of his fellow incorporators.holders of shares of the paid up value of P5.. there cannot be any doubt that their character is that of a fiduciary insofar as the corporation and the stockholders as a body are concerned." "The ordinary trust relationship of directors of a corporation and stockholders". Litton. . A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE CORPORATION AND ITS SHAREHOLDERS Although in the strict and technical sense. Miller. ." Pursuant to section 18 of the Corporation Law. in the face of the fact that the law at the time such right as stockholder was acquired contained the prescription that the corporate charter and the by-law shall be 17 subject to amendment. . which shall be held as security for their action. " NO VESTED RIGHT OF STOCKHOLDER TO BE ELECTED DIRECTOR Any person "who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and that he impliedly contracts that the will of the majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted by-laws and not forbidden by 15 law. the owners of the majority of the subscribed capital stock may amend or repeal any by-law or adopt new by-laws. directors of a private corporation are not regarded as trustees... viz.00. He cannot violate rules of fair play by doing indirectly though the corporation what he could not do so directly. He cannot utilize his inside information and strategic position for his own preferment. Their powers are powers in trust.. It being settled that the corporation has the power to provide for the qualifications of its directors.

but must betray one or the other. R.. (A)n amendment which renders ineligible.. and in none will you find any express prohibition against a discretion to select directors having the company's interest at heart. Human nature is too weak -for this. and after establishing a rival business... preference or advantage of the fiduciary to the exclusion or detriment of the cestuis. Thus. and it would simply be going far to deny by mere implication the existence of such a salutary power . the court held that equity would regard the new contract as an offshoot of the old contract . that corporations have the power to make by-laws declaring a person employed in the service of a rival company to be ineligible for the corporation's Board of Directors. Co. IF HE BE ALSO DIRECTOR IN A CORPORATION WHOSE BUSINESS IS IN COMPETITION WITH THAT OF THE OTHER CORPORATION. 23 AN AMENDMENT TO THE CORPORATION BY-LAW WHICH RENDERS A STOCKHOLDER INELIGIBLE TO BE DIRECTOR. he cannot serve both. This is the exact opposite of the situation in the Philippines because as stated heretofore. under "the established law that a director or officer of a corporation may not enter into a competing enterprise which cripples or injures the business of the corporation of which he is an officer or 26 director.. a director if he be also a director in a corporation whose business is in competition with or is 24 antagonistic to the other corporation is valid. the same reasoning would apply to disqualify the wife and immediate member of the family of such stockholder. according to Fletcher. A judge cannot be impartial if personally interested in the cause. Such an amendment "advances the benefit of the corporation and is good.. . No more can a director.. So it is also true that we cannot condemn as selfish and dangerous and unreasonable the action of the board in passing the by-law. & P. on account of the supposed interest of the wife in her husband's affairs. For that power is at all times subject to the equitable limitation that it may not be exercised for the aggrandizement.and creditors no matter how absolute in terms that power may be and no matter how meticulous he is to satisfy technical requirements.. and his suppose influence over her. or if elected. These principles have been applied by this Court in previous cases. and therefore the corporation was not empowered to add additional qualifications. West Virginia Cent. it has been held that an officer of a corporation cannot engage in a business in direct competition with that of the corporation where he is a director by utilizing information he has received as such officer. Take whatever statute provision you please giving power to stockholders to choose directors. subjects to removal." This is based upon the principle that where the director is so employed in the service of a rival company. . section 21 of the Corporation Law expressly provides that a corporation may make by-laws for the qualifications of directors. A person cannot serve two hostile and adverse master. the directors entered into a new contract themselves with the foreign firm for exclusive sale of its products. If the by-law is to be held reasonable in disqualifying a stockholder in a competing company from being a director. 21 it was said: . HAS BEEN SUSTAINED AS VALID It is a settled state law in the United States." In a case where directors of a corporation cancelled a contract of the corporation for exclusive sale of a foreign firm's products. The strife over the matter of control in this corporation as in many others is perhaps carried on not altogether in the spirit of brotherly love and affection. without detriment to one of them. It is perhaps true that such stockholders ought not to be condemned as selfish and dangerous to the best interest of the corporation until tried and tested." An exception exists in New Jersey. And in Cross v. R. where the Supreme Court held that the Corporation Law in New Jersey prescribed the only 25 qualification. . The only test that we can apply is as to whether or 22 not the action of the Board is authorized and sanctioned by law. It is also well established that corporate officers "are not permitted to use their position of trust and 27 confidence to further their private interests..

from taking advantage of the information which he acquires as director to promote his individual or corporate interests to the prejudice of San Miguel Corporation and its stockholders. who is also the officer or owner of a competing corporation. (c) research and development. nominee. Thus. nominees or attorneys of any other banking corporation.explained the reasons of the court. (3) A director shall not be an officer. supra the court sustained as valid and reasonable an amendment to the by-laws of a bank. The Ashkins case. of an officer or director taking advantage of an opportunity for his own personal profit when the interest of the corporation justly 30 calls for protection. therefore. A bank director has access to a great deal of information concerning the business and plans of a bank which would likely be injurious to the bank if known to another bank. if he were to discharge effectively his duty. for the benefit of the corporation. in addition to the direct conflict or potential conflict of interest. Chief Judge Parker.and.. (b) budget for expansion and diversification. Certainly. or association which compete with the subject corporation. employee. or trustee in any other firm. company. agent. in McKee & Co. proposals of mergers or tie-ups with other firms. or association which competes with the subject corporation. availability of personnel. if not impossible. It is not denied that a member of the Board of Directors of the San Miguel Corporation has access to sensitive and highly confidential information. that the questioned amendment of the by-laws was made. where two corporations are competitive in a substantial sense. attorney. First National Bank of San Diego .. v. such as: (a) marketing strategies and pricing structure. With respect to attorneys or persons associated with a firm which is attorney for another bank. or association which competes with the subject corporation. (4) A director shall be of good moral character as an essential qualification to holding office. for the director. as follows: (1) A director shall not be directly or indirectly interested as a stockholder in any other firm. or attorney of any other bank in California. agent. and it was reasonable and prudent to enlarge this minimum disqualification to include any director. officers. agents. company. employees. affiliate or subsidiary thereof. in McKee. it would seem improbable. as a "faultless fiduciary may not reap the fruits of his 28 misconduct to the exclusion of his principal. In McKee the Court further listed qualificational by-laws upheld by the courts. employee. there is also the danger of inadvertent leakage of confidential information through casual office discussions or accessibility of files. specifically recognizes protection against rivals and others who might acquire information which might be used against the interests of the corporation as a legitimate object of by-law protection. and (d) sources of funding. This doctrine rests fundamentally on the unfairness. 29 . to satisfy his loyalty to both corporations and place the performance of his corporation duties above his personal concerns. company. The doctrine of "corporate opportunity" is precisely a recognition by the courts that the fiduciary standards could not be upheld where the fiduciary was acting for two entities with competing interests. requiring that its directors should not be directors. supra. thus: . Defendant's directors determined that its welfare was best protected if this opportunity for conflicting loyalties and potential misuse and leakage of confidential information was foreclosed. It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel Corporation. in particular circumstances. (2) A director shall not be the immediate member of the family of any stockholder in any other firm. officer.

(5) No person who is an attorney against the corporation in a law suit is eligible for service on the board. (At p. 7.) These are not based on theorical abstractions but on human experience — that a person cannot serve two hostile masters without detriment to one of them. The offer and assurance of petitioner that to avoid any possibility of his taking unfair advantage of his position as director of San Miguel Corporation, he would absent himself from meetings at which confidential matters would be discussed, would not detract from the validity and reasonableness of the by-laws here involved. Apart from the impractical results that would ensue from such arrangement, it would be inconsistent with petitioner's primary motive in running for board membership — which is to protect his investments in San Miguel Corporation. More important, such a proposed norm of conduct would be against all accepted principles underlying a director's duty of fidelity to the corporation, for the policy of the law is to encourage and enforce responsible corporate management. As explained by 31 Oleck: "The law win not tolerate the passive attitude of directors ... without active and conscientious participation in the managerial functions of the company. As directors, it is their duty to control and supervise the day to day business activities of the company or to promulgate definite policies and rules of guidance with a vigilant eye toward seeing to it that these policies are carried out. It is only then that directors may be said to have fulfilled their duty of fealty to the corporation." Sound principles of corporate management counsel against sharing sensitive information with a director whose fiduciary duty of loyalty may well require that he disclose this information to a competitive arrival. These dangers are enhanced considerably where the common director such as the petitioner is a controlling stockholder of two of the competing corporations. It would seem manifest that in such situations, the director has an economic incentive to appropriate for the benefit of his own corporation the corporate plans and policies of the corporation where he sits as director. Indeed, access by a competitor to confidential information regarding marketing strategies and pricing policies of San Miguel Corporation would subject the latter to a competitive disadvantage and unjustly enrich the competitor, for advance knowledge by the competitor of the strategies for the development of existing or new markets of existing or new products could enable said competitor to utilize such 32 knowledge to his advantage. There is another important consideration in determining whether or not the amended by-laws are reasonable. The Constitution and the law prohibit combinations in restraint of trade or unfair competition. Thus, section 2 of Article XIV of the Constitution provides: "The State shall regulate or prohibit private monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be snowed." Article 186 of the Revised Penal Code also provides: Art. 186. Monopolies and combinations in restraint of trade. —The penalty of prision correccional in its minimum period or a fine ranging from two hundred to six thousand pesos, or both, shall be imposed upon: 1. Any person who shall enter into any contract or agreement or shall take part in any conspiracy or combination in the form of a trust or otherwise, in restraint of trade or commerce or to prevent by artificial means free competition in the market. 2. Any person who shag monopolize any merchandise or object of trade or commerce, or shall combine with any other person or persons to monopolize said merchandise or object in order to alter the price thereof by spreading false rumors or making use of any other artifice to restrain free competition in the market.

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

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

this was SMC's first venture abroad. The test must be whether the business does in fact compete. One of these is inherent in the very convert and definition of the terms "competition" and "competitor".6 million investment in associated companies and other companies as of December 31. 1976.Although it is asserted that the amended by-laws confer on the present Board powers to perpetua themselves in power such fears appear to be misplaced. incorporated in Bermuda and wholly owned by SMC. a fully owned subsidiary of San Miguel Corporation — Respondent San Miguel Corporation stated in its memorandum that petitioner's claim that he was denied inspection rights as stockholder of SMC "was made in the teeth of undisputed facts that. or is ultra vires. (6) a copy of the US $100 million Euro-Dollar Loan Agreement of SMC. it is 48 the responsibility of directors to act with fairness to the stockholders. obvious that not every person or entity engaged in business of the same kind is a competitor. therefore.000. "Competition" implies a struggle for advantage between two or more forces. dissipation or 50 misapplication of the corporation assets. the late Col. It is. It is.00." to wit: (1) a complete list of stockholders and their stockholdings. or is against public policy. (2) that as of December 31. 1975. Andres Soriano. SMI did not declare cash or stock dividends. necessary to show that petitioner's business covers a substantial portion of the same markets for similar products to the extent of not less than 10% of respondent corporation's market for competing products.4 million. it does not follow as a necessary consequence that petitioner is ipso facto disqualified. petitioner had been furnished numerous documents and information... the estimated value of SMI would amount to almost P400 million (3) that the total cash dividends received by SMC from SMI since 1953 has amount to US $ 9. or will result in waste. As trustees of the corporation and of the stockholders. therefore. While We here sustain the validity of the amended by-laws. Inc. Indeed. augmented by a loan of Hongkong $6 million from a foreign bank under the personal guaranty of SMC's former President. Further. It means an independent endeavor of two or more persons to obtain the business 46 patronage of a third by offering more advantageous terms as an inducement to secure trade. not whether it is capable of an indirect and highly 47 unsubstantial duplication of an isolated or non-characteristics activity. but is very nature. or forbidden by statute. 1975. having started in 1948 with an initial outlay of ?500. with deletions of sensitive data. Such factors as quantum and place of business. (2) a complete list of proxies given by the stockholders for use at the annual stockholders' meeting of May 18. all earnings having been used in line with a program for the setting up of breweries by SMI . in substantially similar if not Identical degree.1976. (4) a breakdown of SMC's P186. allowances. petitioner was informed in writing on September 18. Pursuant to this obligation and to remove any suspicion that this power may be utilized by the incumbent members of the Board to perpetuate themselves in power. it was averred that upon request. which deletions were not objected to by petitioner. (5) a listing of the salaries. any decision of the Board to disqualify a candidate for the Board of Directors should be reviewed by the Securities behind Exchange Commission en banc and its decision 49 shall be final unless reversed by this Court on certiorari. and (4) that from 1972-1975. it is a settled principle that where the action of a Board of Directors is an abuse of discretion. over a specific period. Consonant with the requirement of due process. Identity of products and area of competition should be taken into consideration. bonuses and other compensation or remunerations received by the directors and corporate officers of SMC. or is a fraud upon minority stockholders or creditors. is subject to certain well established limitations. This power. 1975. and (7) copies of the minutes of all meetings of the Board of Directors from January 1975 to May 1976. (1) that SMC's foreign investments are handled by San Miguel International. (3) a copy of the minutes of the stockholders' meeting of March 18. III Whether or not respondent SEC gravely abused its discretion in denying petitioner's request for an examination of the records of San Miguel International Inc. a court of equity has the power to grant appropriate relief. each possessing. there must be due hearing at which the petitioner must be given the fullest opportunity to show that he is not covered by the disqualification. certain characteristics essential to the business sought.

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

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

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

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

ID. DECISION CORTES. AFREDO C. .. WALTER W. WALTER W. Respondents. represented by its President. ANSELMO TRINIDAD. and in behalf of SIPALAY MINING EXPLORATION CORPORATION.R. JURISDICTION. nominees or substitutes from voting the disputed 198. does not meet the standard of proof that would warrant the issuance of the injunctive writ. as it is a right inherent in stock ownership. POWER TO COMPEL OFFICERS TO CALL STOCKHOLDERS’ MEETING. Petitioners must establish their right to the relief demanded. SUNICO.000 shares of the capital stock of Sipalay Mining at the forthcoming regular annual stockholders’ meeting. SALES and GEORGE V. — Under Section 6(f) of P. POWER TO CREATE COMMITTEE TO SUPERVISE ANNUAL STOCKHOLDERS’ ANNUAL MEETING. 1989. January 13. MANUEL C.. ID. — The prayer for the exclusion of the questioned shares from the annual stockholders’ meeting may be considered either as one arising out of intra-corporate relations or one between and among the stockholders of the corporation.[G. 6. No.500. ANNABELLE P. ID. 1980 and July 17. represented by its President.. RAMOS. representatives. in their own behalf. — The order of the Securities and Exchange Commission creating a committee to supervise and control the conduct of the proceedings in the corporation’s annual stockholders’ meeting is allowed by P. PRAYER FOR EXCLUSION OF SHARES IS ONE ARISING OUT OF INTRA-CORPORATE RELATIONS. — The grant or denial of an injunction rests upon the sound discretion of the lower tribunal. ID. in the absence of any support in the record. its successors.: Alleging grave abuse of discretion amounting to lack of jurisdiction. COMMERCIAL LAW. — A mere allegation. PETITIONERS MUST ESTABLISH THEIR RIGHT.. ISSUANCE RESTS ON THE SOUND DISCRETION OF THE LOWER TRIBUNAL. J. represented by its President. 3. STATE INVESTMENT HOUSE. ANSELMO TRINIDAD. its officers and agents from enforcing its order to create the committee to supervise and control the conduct of the proceedings in the annual stockholders’ meeting of Sipalay Mining Exploration Corporation and from stopping the Board of Directors and officers of Sipalay Mining from calling and conducting said meeting.. ID.. and VULCAN INDUSTRIAL AND MINING CORP. in the exercise of which this Court will not interfere except in a clear case of abuse. 2. assigns. SECURITIES AND EXCHANGE COMMISSION. which falls within the original and exclusive jurisdiction of the SEC.. — The Court will not deprive a stockholder of his right to vote his shares in the annual stockholders’ meeting. ID. RIGHT TO VOTE. 902-A.. SYLLABUS 1. REMEDIAL LAW. BROWN. BROWN.. AGONIAS. 1980. 4. BROWN. INC. T.. ID. DIAZ. SECURITIES AND EXCHANGE COMMISSION... and SIPALAY MINING EXPLORATION CORPORATION..D. seek to have this Court set aside the orders of respondent Securities and Exchange Commission (hereinafter referred to as SEC) dated June 13. ID. No. ID. STOCKHOLDERS’ NOT DEPRIVED OR RIGHT EXCEPT UPON A CLEAR SHOWING OF LAWFUL DENIAL.. ID. SEC has the power to compel the officers of a corporation to call a stockholders’ meeting under its supervision. ID. WILL NOT ISSUE ON MERE ALLEGATION. as minority stockholders thereof. INJUNCTION. ID. CORPORATION LAW.. 902-A. as would entitle them to the issuance of a writ of preliminary injunction.D. Petitioners. 54330. ID.. v. and the issuance of an order: (1) restraining the SEC. and AUGUSTO B. in this petition forcertiorari and prohibition with preliminary injunction. Petitioners.. INC. except upon a clear showing of its lawful denial under the articles of incorporation or by-laws of the corporation. ANSELMO TRINIDAD CO. PROVISIONAL REMEDIES.] JULIO E. No. 5. and (2) restraining private respondent Vulcan Industrial and Mining Corporation (hereinafter referred to as VULCAN).

with a prayer for the issuance of a writ of preliminary injunction to enjoin VULCAN from voting the shares. hearings on petitioners’ petition for injunction continued. Meanwhile. 1974. The sales agreement between Sipalay Mining and State Investment contained the following terms and conditions: chanrob 1es vi rtua l 1aw lib rary 1. Inc.00. 4. whether with Sipalay Mining and Exploration Corporation or any other corporation organized by Sipalay Mining Exploration Corporation.600. 1978. In an order dated July 16. calling for the payment of twenty percent (20%) of unpaid subscriptions in Sipalay Mining on or before April 15.000. In the March 10.500. 1979. the SEC temporarily restrained VULCAN from voting its 198. (hereinafter referred to as ATCO).000.000. Eight days prior to the scheduled annual stockholders’ meeting of Sipalay Mining on July 18. sell or assign these shares to the general public through a duly licensed stockbroker after the approval of the registration and/or licensing of shares of the Corporation under terms and conditions and at the price determined by us. to which it had sold the shares. 2. Subsequently. That State Financing Center. 1980. as culled from the numerous pleadings filed by the parties. On October 19. State Investment addressed a letter to Sipalay Mining requesting that the latter transfer the 200.000 of the shares to respondent VULCAN. 1975. the Board of Directors of Sipalay Mining approved the amendment of the sales agreement by allowing sale in blocks of 5.000 shares to Anselmo Trinidad & Co. During the time that ATCO held the shares. The Corporation shall as soon as practicable after the offering period of our shares. it voted them in the stockholders’ meetings of Sipalay Mining. (formerly State Financing Center.000 shares to the name of VULCAN. The timing of the date of listing shall be mutually decided by us. Inc. In the event you decide to make a public offering [of] additional shares in the future. 1979 without the participation of VULCAN’s 198.500. VULCAN immediately petitioned the SEC to issue a writ of injunction. covered by ten certificates of stock. a Notice of Call was published.000 shares of stock of Sipalay Mining. Inc. pp. 47-48. you hereby grant us a right of first refusal to undertake the same.500. That the stockbroker shall not sell more than 1. The annual stockholders’ meeting of Sipalay Mining proceeded on July 18. respondent State Investment House. its President was directed to sign the certificate of stock that would effect the transfer.500.000 shares per buyer. 1974. chan robles.000. That we shall dispose. On July 17. or some two and a half years later. 1979. Inc. Sipalay Mining was requested by ATCO to transfer the 198. 3. .000 shares at the 1979 annual stockholders’ meeting pending resolution of petitioners’ petition for the issuance of a writ of preliminary injunction. the restriction on the sale of the shares was modified.) entered into a sales agreement with Sipalay Mining whereby the latter sold to the former 200. [Rollo. 1980.000 common shares of its capital stock in the amount of P2. are as follows: chan rob1es v irt ual 1aw li bra ry On or about June 13. apply for listing in the Stock Exchange in accordance with the rules and regulations of the Securities and Exchange Commission.] The 200. By resolution of the Board of Directors of Sipalay Mining.000 shares and the members of the Board of Directors were elected. the SEC issued a temporary restraining order suspending the effects and implementation of the call. 1980 issue of the Bulletin Today. were delivered to State Investment.The undisputed facts. 5.000..000 shares per buyer. shall issue a voting trust in favor of the Board of Directors of Sipalay Mining Exploration Corporation which shall only be good up to the time the sale to the public of said shares has been effected. Sipalay Mining complied with this request. to the extent practicable.000. petitioners filed before the SEC a petition to nullify the sale of the shares to VULCAN. ATCO in turn sold 198. com:c ralaw:red On December 22. On April 16.

Atty. To ensure an orderly stockholders’ meeting and forestall possible controversy in the sending of notices. finding petitioners’ application for the issuance of the writ of preliminary injunction and respondents’ motion to dismiss to be both without merit. 1980 be constituted. the following acts: chanro b1es vi rtua l 1aw li bra ry a) closing of the stock and transfer book. Let the stockholders’ meeting set by Sipalay Mining Exploration Corporation for July 18. [Rollo. is hereby appointed to act as Chairman of the Committee. * petitioners on July 23. the Restraining Order dated July 16. pp. REYES. and h) such other acts and functions as the Committee may perform for the orderly and peaceful conduct of the stockholders’ meeting. At said meeting. the dispositive portion of which reads as follows: chan rob1es v irt ual 1aw l ibra ry WHEREFORE. 1980 should be. Considering that the annual stockholders’ meeting of Sipalay for the year 1980 is forthcoming as prescribed in its By-laws. through counsel. 124. 1980 and July 17. is hereby formed to supervise and control the conduct of the proceedings and perform the functions of the Corporate Secretary. as well as the respondents are hereby given a period of three (3) days upon receipt of this Order to submit to the Commission their respective representatives to the Committee. accordingly. otherwise. including the determination of all issues related thereto. chan robles law lib rary On July 17. they shall be considered to have waived their right to be represented in said Committee. the SEC issued the first of the questioned orders. 1979 LIFTED and DISSOLVED. d) certification of proper notice to stockholders. 1980 be cancelled and the Committee created under the Order dated June 13. the motion of respondent Vulean seeking reconsideration of the Order of the Commission dated June 20. 1980 which suspended the effect and implementation of the call. 1980 filed the instant petition before this Court. is likewise DENIED. including but not limited to. let the 198.] On June 20. the SEC issued the second questioned order. 1980. e) determination of presence of quorum. VULCAN filed a motion for reconsideration. a Committee composed of one representative of the Securities and Exchange Commission. To this. Supervising S. f) supervision of the casting and canvassing of the elections. 1980. b) sending of notices of the stockholders’ meeting c) validation of proxies. the SEC issued an order lifting its previous order dated April 16. 1980.500. p.] As the appeal of the assailed orders to the SEC en banc was not allowed under the rules of the Commission.000 shares in question be counted for quorum and allowed to vote and be voted for. On August 1. as it is hereby DENIED and the Motion for Reconsideration filed by petitioners. 119-120. the Court issued a temporary restraining order enjoining the SEC from enforcing its orders dated June 13. 1980. the dispositive portion of which states: chanrob1es vi rt ual 1aw li bra ry WHEREFORE. as Chairman. [Rollo. Petitioner is hereby directed to submit the name of its representative within five (5) days from receipt of this Order. 1980.E. processing and validation of proxies and closing of the stock and transfer book. and one representatives each from the respondents and the petitioners. the same are hereby DENIED and. EUGENIO E. particularly from enforcing its order to create the committee to supervise and control the conduct of the proceeding in the annual stockholders’ meeting of Sipalay Mining and from stopping the Board of Directors and officers of Sipalay Mining from calling and conducting said .On June 13. Accordingly. The petitioners. as members. Specialist. the Board of Directors and officers of the corporation are directed to call and hold said regular meeting as mandated in the corporation’s By-laws. g) certification of the results of the elections.

Respondent August B. 902-A. p. and (2) Whether or not the SEC acted with grave abuse of discretion when it found that petitioners have not sufficiently shown that they are entitled to the injunctive relief prayed for in their petition and denied their prayer for the issuance of a writ of preliminary injunction. partnerships and other forms of associations registered with it as expressly granted under .] Thereafter. who are the grantees of primary franchise and/or a license or permit issued by the government to operate in the Philippines. Brown and Alfredo C. provides: x x x c hanrob1es vi rt ual 1aw li bra ry Sec. Petitioners claim that the SEC acted arbitrarily and with grave abuse of discretion when its ordered the creation of the committee. p. in relation to the regular annual stockholders’ meeting of Sipalay Mining. on the grounds: (1) that the controversy is not one of those mentioned in Presidential Decree No. for purposes of clarity. 5. A. The Court finds that the order of the SEC creating the committee is fully supported by P. respondent VULCAN filed its comment. the Court resolved to give due course to the petition and to consider the case submitted for decision on the basis of the pleadings already on file [Rollo. tantamount to lack of jurisdiction. and in the exercise of its authority.500.] The question to be resolved by the Court is whether or not the SEC acted with grave abuse of discretion when it issued the two (2) questioned orders. The Commission shall have absolute jurisdiction. 1987. 202-03. 129-30.D.] Thereafter. Accordingly. 1980 and praying that the restraining order issued by the Court be lifted or that the annual stockholders’ meeting of Sipalay Mining be enjoined pending resolution of the case. to supervise and control the conduct of the proceedings and perform the functions of the Corporate Secretary. which was adopted in toto by respondents Walter W.D. and one representative each from petitioners and private respondents. 1980. x x x Sec. as Chairman. Replies were filed by petitioners to the comments of respondents VULCAN and the SEC. partnerships or associations. supervision and control over all corporations. and respondent VULCAN from voting the questioned 198. 1653 (1979). it may be divided into two (2) issues: cha nrob 1es vi rtual 1aw lib rary (1) Whether or not the SEC acted arbitrarily and with grave abuse of discretion. Ramos. as amended by P.000 shares of capital stock of Sipalay Mining at the forthcoming regular annual stockholders’ meeting [Rollo. No. 1980 [Rollo. 902-A. 1980 issued a temporary restraining order enjoining petitioners from holding the annual stockholders’ meeting on August 21. 4] 1. In a resolution dated July 27. No. P. pp. However. the Court on August 20. 3. No. respondents ATCO. as members. 407. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations. 902-A. Brown. On August 18. civil or military.D. and (2) that P. when it ordered the creation of the committee composed of the SEC representative. to which rejoinders were filed by the latter. it shall have the power to enlist the aid and support of any and all enforcement agencies of the government. respondent VULCAN filed a manifestation alleging that it had received a Notice of Stockholders’ Meeting from Sipalay Mining notifying its stockholders that the annual stockholders’ meeting shall be held on August 21. No. State Investment and the SEC filed their respective comments. Each issue shall be discussed separately. 902-A specifies that only in appropriate cases may the SEC compel officers of any corporation or association registered by it to call meetings of stockholders or members thereof under its supervision.D. Sunico filed a comment adopting VULCAN’s comment which included supplementary comments. pp. [Rollo.meeting. Annabelle P.

It is this election of members of the board of directors on July 18. since petitioners. In its answer to the petition.500. 1979. 1751. between and among stockholders. or associates. herein petitioners prayed. processing and validation of proxies and closing of the stock and transfer book. its shall have original and exclusive jurisdiction to hear and decide cases involving: c han rob1es v irt ual 1aw l ibra ry x x x b) Controversies arising out of intra-corporate or partnership relations.500.500. that a restraining order be issued enjoining Vulcan from exercising the rights of a stockholder over 198. therefore. petitioners were able to elect candidates from their group. 5(c) of P. 902-A would. 1751 pending before the Commission. between any or all of them and the corporation. 1979.000 shares of capital stock in Sipalay Mining. directing the holding of the annual stockholders’ meeting of Sipalay Mining for the year 1980 as mandated in its by-laws.500. it was prevented from voting its shares in the stockholders’ meeting of Sipalay Mining held on July 18. the controversy may be considered either as one arising out of intra-corporate relations or one between and among the stockholders of the corporation. Certainly. From another vantage point. pray for the exclusion of the 198. the Commission cannot be faulted. members or associates.500. partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity: chanrob1e s virt ual 1aw l ibra ry c) Controversies in the election or appointments of directors. the right to vote in the then forthcoming regular annual stockholders’ meeting of Sipalay Mining on July 18. that by reason of the restraining order issued by the Commission.000 shares of VULCAN from the annual stockholders’ meeting. respectively. Respondent Commission had to address itself to the controversy by issuing its questioned order dated June 13. 1979 annual stockholders’ meeting of the corporation. Since said 198. respondent Commission issued a restraining order enjoining Vulcan from voting the questioned 198. much less can it be said that it exceeded its jurisdiction. 1751.000 shares to be voted on at the July 18.E.existing laws and decrees. Pursuant to said application of petitioners.000 shares of stock were not allowed to vote due to the restraining order of the Commission.000 shares at said meeting (Annex "B" Petition). the case before the SEC involves a controversy regarding the election of directors of a corporation: chan rob1e s virtual 1aw l ibra ry x x x It should be pointed out that in their amended petition in S. 1979. as first compulsory counterclaim. thus. partnerships or associations. among other things. for having taken all proper measures to insure that an orderly meeting and election are held in Sipalay Mining in the light of the issues raised in SEC Case No. which is being questioned by respondent Vulcan in its answer in SEC Case No. 1751 wherein it prays that the stockholders’ meeting on the aforementioned date be declared null and void. 1980.D. The controversy regarding the election of directors in Sipalay Mining was. No. in SEC Case No. partnership or association of which they are stockholders. and petitioners. x x x Sec. x x x As correctly pointed out by the Solicitor General. particularly. Case No. caused the "election" of a new set of members of the board of directors in the corporation. in their petition before the SEC. trustees. thus. cralawnad It is apparent from the foregoing that a controversy in the election of directors of Sipalay Mining came about because it was petitioners themselves who had asked the Commission not to allow the disputed 198. officers or managers of such corporations. . and creating a committee to supervise and control the conduct of the proceedings to insure an orderly stockholders’ meeting and forestall possible controversy in the sending of notices. clothe the SEC with jurisdiction over the matter. Vulcan alleged. a natural consequence of the relief sought by petitioners themselves that the shares of stocks of Vulcan aforementioned be barred from voting. and between such corporation. members.C.

" (Sunset View Condominium Corporation v. partners. 1983. partnerships and associations and those dealing with the internal affairs of such corporations. in order that the SEC can take cognizance of a case. 1982).In Union Glass & Container Corporation v. May 19. [at p. partnership or association. 57586." (Philex Mining Corporation v. partnerships or associations. the Court held that the controversy fell within the jurisdiction of the SEC. Such dispute clearly involves controversies "between and among stockholders. Nos. partnerships or associations." The principal function of the SEC is the supervision and control over corporations. It is in aid of this office that the adjudicative power of the SEC must be exercised. partnership or association and its stock-holders. P. Inc. 1987. the Court expounded on what constitutes an intra-corporate controversy: chan rob 1es vi rtual 1aw lib rary It has already been settled that an intra-corporate controversy would call for the jurisdiction of the Securities and Exchange Commission. 1984). who are grantees of primary franchise and/or license or permit issued by the government to operate in the Philippines . November 19. There is no distinction. Lanao.] cha\\\les libra ry Viewed from any angle. claiming alleged pre-emptive rights in the case of the Abejos’ shares and alleged loss of the certificates and lack of consent and consideration in the case of Virginia Braga’s shares. 104 SCRA 303.] But more recently.R. No. Florendo. No. (c) between the corporation.R. qualification. No. partnership or association and the public. February 24.D.R. . 38. the validity of the latter’s acquisition of Virginia Braga’a shares. of which they are stockholders. members.D.R. partnerships and associations with the end in view that investment in these entities may be encouraged and protected. On the other hand. 902-A confers upon the latter "absolute jurisdiction. or officers. cannot be a "controversy arising out of intra-corporate or partnership relations between and among stockholders. an intra-corporate controversy has been defined as "one which arises between a stockholder and the corporation.D. permit or license to operate is concerned. in a case where the respondents therein likewise sought to ultimately annul a transfer of shares of stock and. 149 SCRA 654. 664. with the right to elect the corporate officers and the management and control of its operations. (Philippine School of Business Administration v. No. 127 SCRA 781. v. Otherwise stated. De la Cruz. October 8. This Court has also ruled that cases of private respondents who are not stockholders of the corporation. nor any exemption whatsoever. respectively. April 27. the Court explained the jurisdiction of the SEC: chanrob1e s virtual 1aw lib rary This grant of jurisdiction must be viewed in the light of the nature and function of the SEC under the law. Reyes. there is no denying that the controversy over the sale of the shares to VULCAN and the right to vote them in the annual stockholders’ meeting squarely falls within the original and exclusive jurisdiction of the SEC. partners or associates themselves. and their activities pursued for the promotion of economic development. 656. 1981). members or associates.] In a later decision. partnership or association and the state in so far as its franchise. supervision. 68450-51. Campos. in the meantime. Such a dispute and case clearly fall within the original and exclusive jurisdiction of the SEC to decide. 63558 and Pocket Bel Phils. and control over all corporations. No. G. 1986. G. under Section 5 of P. The court likewise finds that it was within the powers of the SEC to compel the officers of Sipalay Mining to call a stockholders’ meeting under its supervision. 64013. 902-A above quoted." as to the Abejos’ right to sell and dispose of their shares to Teletronics. to wit: chanro b1es vi rt ual 1aw li bra ry The very complaint of the Bragas for the annulment of the sales and transfers as filed by them in the regular court questions the validity of the transfer and endorsement of the certificates of stock. November 28. between any or all of them and the corporation.. Thus the law explicitly specified and delimited its jurisdiction to matters intrinsically connected with the regulation of corporations. and (d) among the stockholders. (b) between the corporation. 144 SCRA 643. who between the Bragas and the Abejos’ transferee should be recognized as the controlling shareholders of the corporation. . Securities and Exchange Commission. [Rivera v. [Abejo v. to prevent the shares from being registered in the name of the transferee. Section 3 of P.. 2. the controversy must pertain to any of the following relationships: (a) between the corporation. Jr. Securities and Exchange Commission G. G. 902-A states: chanrob 1es vi rtual 1aw lib rary . 118 SCRA 605. members or associates. 126 SCRA 31].

which they contend should bar the shares from being voted. Petitioners assail the SEC for finding that they have not shown convincingly that they are entitled to the injunctive relief and for denying their petition for the issuance of a writ of preliminary injunction.D. dated October 22. namely: (1) that the sale was violative of the condition in the sales agreement that the stockbroker shall not sell more than 5. Stated otherwise.000 shares constitute the maximum number that may be sold to a single buyer. without any exception or qualification. In order to effectively exercise such jurisdiction. 1. that the SEC ordered the creation of the committee. They assert that. No. originally.000.000 share per buyer.000 shares per buyer. It will be noted that the letter precisely used the term "five (5) million shares per buyer" without restating the previous qualification of "to the extent practicable.000. Inc. without any qualification. Thus. thus indicating the intent to make 5. 902-A. 5-6 of this Decision. B. and consequently the sale to VULCAN is null and void for violating this proviso.D. 902-A.000. under Section 5 of P. The Court.000." cralaw irtua 1aw lib rary However. 1974.000. 6. 1974. Petitioners argue that 5. the sales agreement provided that the stockbroker shall not sell more than 1. the SEC has found that petitioners have not established a clear right to the issuance of a writ of preliminary injunction: chanro b1es vi rt ual 1aw li bra ry . The Court finds the functions delegated to the committee to be in accordance with the SEC’s mandate. 902-A. but this condition was modified in a resolution of Sipalay Mining’s Board of Directors increasing the maximum to 5. finds no basis to sustain petitioners’ contention that the SEC acted arbitrarily and gravely abused its discretion when it ordered the creation of a committee to supervise the stockholders’ meeting and election of directors.D. therefore. It was "in order to effectively exercise such jurisdiction".] This displays the circumspect and cautious manner in which the SEC exercised its broad powers under P.000. No. to the extent practicable. despite these facts. No.500.000. it is stated: ibra ry x x x Also please be informed that by resolution of the Board of Directors of this Corporation. the increase of the maximum number of shares that can be sold to a single buyer to 5.000 shares to VULCAN. the SEC had original and exclusive jurisdiction over the controversy. and (2) that VULCAN’s ownership of the shares is contrary to the provisions of Section 13 (5-A) of the old Corporation Law.000. to borrow the language of P. in the letter of Sipalay Mining to State Financing Center.x x x Sec. in the exercise of its broad powers of control and supervision over corporations and its more specific power to compel the officers of a corporation to call meetings of stockholders under its supervision. the Commission shall possess the following powers: cha nrob 1es vi rtual 1aw lib rary x x x f) To compel the officers of any corporation or association registered by it to call meetings of stockholders or members thereof under its supervision: c han rob1es v irt ual 1aw l ibra ry x x x As discussed above.000 shares per buyer. Petitioners raise two grounds for the invalidity of the sale of the 198.000 manifested the clear intent to limit the number of shares that may be sold to a single buyer to only 5. approved on October 19.000 shares the absolute maximum. it was agreed that the restriction on sales to the public of a maximum of 1-million shares be modified to make the maximum five (5) million shares per buyer. The powers delegated to the committee were all confined to the holding of the stockholders’ meeting and the conduct of the election of directors in connection therewith [See pp.

August 14. 1011. 385.] The Court is not at liberty to review whether or not the decision of the board to direct its President to sign the stock certificate was to the best interest of the corporation: ..x x x From the pleadings on record. the directive of the Board of Directors of Sipalay Mining to its President to sign the stock certificate that would evidence the ownership of the shares by VULCAN militates against a finding that petitioners have established a case for injunction. Further. and so long as it acts in good faith its orders are not reviewable by courts. as early as July 17. [Montelibano v. As stated in the first assailed resolution. The fact remains that the questioned sales of stock had. G. It will be noted also that the questioned 198. . Board of Liquidators v. It is a well known rule of law that questions of policy or of management are left solely to the honest decision of officers and directors of a corporation. 123. the board is the business manager of the corporation.] Moreover. x x x After considering the facts and the arguments of the parties. No.] With more reason. Revised Rules of Court. As against this presumption. p. In the absence of clear and convincing evidence to merit the issuance of the preliminary injunction prayed for. petitioners’ prayer for the issuance of a writ of preliminary injunction cannot prevail as the issue of the validity of the sale of the shares is still to be resolved by the SEC. L18805.R. Inc. May 13. the whole or part of which consists in restraining the SEC of the act complained of. 20 SCRA 987. it would appear that to sustain the restraining order further or the issuance of preliminary injunction would necessarily cause greater damage to the respondents. It should be resorted to only when the necessity is clear . Vol. the Court will not deprive a stockholder of his right to vote his shares in the annual stockholders’ meeting. Kalaw. No.R. were voted in previous stockholders’ meetings which right was merely transferred to respondent Vulcan. . L-15092. 1978." [Chase v. been perfected and afford the buyer thereof the presumption of validity until otherwise declared invalid and void. Sr.R. 42..500. Bacolod-Murcia Milling Co. particularly Vulcan. it is more equitable that the same be allowed to vote rather than be enjoined" [Rollo. G. compared to the alleged injury which may be caused the petitioners. G. the Court finds no grave abuse of discretion amounting to lack or excess of jurisdiction attributable to the respondent SEC.000 shares while in the hands of respondent ATCO. 5 SCRA 36. . Considering that the questioned shares constitute the majority. x x x That the issuance of the writ was not forthcoming was reiterated by the SEC in the other questioned order dated July 17. 136 SCRA 365. Rule 58. it is but logical and reasonable to apply that presumption. . No. p. 1985. 3(c). The issue principally on the defect of transfer of said shares from ATCO to Vulcan is not sufficient basis to enjoin said shares from being votes in a stockholders’ meeting. 1967. 1980: chan rob1es v irt ual 1aw l ibra ry x x x The Commission is not bent to reconsider its ruling earlier issued and denying the issuance of a writ of preliminary injunction. 390. the Commission is convinced that petitioners have failed to show clearly that they are entitled as a matter of right to the injunctive relief prayed for. it cannot be said that petitioners have established their right to the relief demanded. Buencamino.. there is legal basis to support the SEC’s view that "considering that the questioned shares constitute the majority. the Commission is constrained to deny the same. L-20395. Hence. citing. it is more equitable that the same be allowed to vote rather than be enjoined. Likewise. and the court is without authority to substitute its judgment for the judgment of the board of directors. At this stage of the proceedings. the sale of the shares of stock had long been perfected and is presumed valid until declared otherwise. May 18. 1962. as would entitle them to the issuance of a writ of preliminary injunction. Fletcher on Corporations. [See Sec. except upon a . 2.] The court has stated before that "the removal of a [majority] stockholder from the management of the corporation and/or the dissolution of a corporation in a suit filed by a minority stockholder is a drastic measure.

clear showing of its lawful denial under the articles of incorporation or by-laws of the corporation, as it is a right inherent in stock ownership. 2. With regard to their second ground, the alleged violation of Section 13 (5-A) of the Corporation Law, this Court finds that petitioners have not satisfactorily shown how respondent VULCAN committed the violation. Petitioners allege that VULCAN, by holding 198,500,000 shares of Sipalay Mining, has violated the following provision of Section 13 (5-A):
chan rob1e s virtua l 1aw lib rary

Any domestic or foreign corporation, and its stockholders organized for the purpose of engaging in mining may acquire and hold not more than forty per centum of the capital stock then outstanding and entitled to vote of only one other corporation organized for the purpose of engaging in mining in the Philippines; Provided, that it shall likewise be unlawful for said latter corporation to be in any wise interested in any other corporation organized for the purpose of engaging in mining . . . In their petition filed before this Court, petitioners merely made the general allegation that: x x x
chanrob1es v irt ual 1aw l ibra ry

5.10. While being the owner of 20% equity of Sipalay Mining, Vulcan Mining was likewise the holder of shares of stock outstanding and entitled to vote of some other corporations organized for the purpose of engaging in mining, in contravention of the injunction that as a corporation engaged in mining, it may acquire or hold not more than 40% of the capital stock outstanding and entitled to vote of only one other corporation organized for the purpose of engaging in mining. x x x
chanrob1es vi rt ual 1aw li bra ry

which is but a restatement of the allegation in petitioners’ amended petition filed before the SEC: x x x

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

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

In the recent case of Buayan Cattle Co., Inc. v. Quintillan [G.R. No. L-26970, March 19, 1984, 128 SCRA 276], the Court summarized these principles, to wit:
hanrob 1es vi rtua l1aw lib rary

Two requisites are necessary if an injunction is to issue, namely, the existence of the right to be protected, and that the facts against which the injunction is to be directed are violative of said right. In particular, for a

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

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

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

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

750. In the meantime. 27). On Dec. Lucia. . 1977. plaintiff Yap wrote defendant Peña asking payment of back rentals in the amount of P42. ordered the Register of Deeds of Pampanga . until further orders: (a) Deed of Assignment dated March 18. . (Original Record. entitled Dante Gutierrez. . (c) Deed of Sale dated August 16. 4315 on June 16. 1975. the case was dismissed without prejudice.properties under TCT Nos. any of the following documents under contract. G). the CFI Branch III. 4314. 148983-R. In an order dated February 17.1975 . . 1978 in the name of the spouses Yap under TCT Nos. Enriquez on August 15. 4310. 244) On November 17. formerly under TCT Nos. 1975.00 "for the use and occupancy of the land and house located at Sta. 30. Marcelino B. The LRC Resolution No. the subject lots. Pampanga in the aforementioned Civil Case No. (b) A Certificate of Redemption issued by defendant Deputy Sheriff Edgardo Zabat in favor of defendant Marcelino Enriquez dated August 15. 1975. . . Peña wrote the Sheriff notifying him that the redemption was not valid as it was made under a void deed of assignment. with an annotation of a levy on attachment in favor of Capitol Allied Trading.000. . 4315 and 4316 were registered on June 16. 1975 was cancelled on the same date. D). 10. On Sept. . 1029 that "the levy on attachment in favor of Capitol Allied Trading (represented by Dante Gutierrez) should be carried over on the new title that would be issued in the name of Rising Yap in the event that he is able to present the owner's duplicates of the certificates of title herein involved" (Exh. 148984-R and 148985-R. . 1029 allowing the conditioned registration of the subject lots in the name of the spouses Yap was also annotated on TCT No. to desist from registering or noting in his registry of property . p." and that she may now get her money at the Sheriffs Office (Exh. (Exh. otherwise. . 1983. . She then requested the recall of the said redemption and a restraint on any registration or transaction regarding the lots in question (Exh." and informing her of an increase in monthly rental to P2. 1975 executed by defendant Marcelino Enriquez in favor of defendant Rising Yap. J and J-1). 28). Meanwhile. No Trial on the merits was held concerning Civil Case No. et al. 1978 and the notice of a pending consulta noted thereon on August 18. through counsel. to vacate the premises or face an eviction cum collection suit (Exh. Pampanga. .. PAMBUSCO. were all redeemed by Mr. defendant Peña. . 4314. 1975 executed by the defendant Pampanga Bus Company in virtue of a resolution of its Board of Directors in favor of defendant Marcelino Enriquez. 1975. the Land Registration Commission opined under LRC Resolution No. vs." hence she "will now refuse to receive the redemption money . 4310. On September 8. et al. wrote the Sheriff asking for the execution of a deed of final sale in her favor on the ground that "the one (1) year period of redemption has long elapsed without any valid redemption having been exercised. 4315 and 4316 . San Fernando.

p.. 148984-R. . Yap and Catalina Lugue. . The defendants. Inc. 5). against PAMBUSCO . defendants Rosita Peña and Washington Distillery denied the material allegations of the complaint and by way of an affirmative and special defense asserted that Peña is now the legitimate owner of the subject lands for having purchased the same in a foreclosure proceeding instituted by the DBP . are the registered owners of the lots in question under Transfer Certificate of Title (TCT) Nos. covering these parcels issued in the plaintiffs name be cancelled and. prayed that the complaint be dismissed.Despite the foregoing.000.00 'and the further sum of P2. premises in question with interest at the legal rate (Record. they have to enforce their right to possession against defendants who have been allegedly in unlawful possession thereof since October 1974 "when the previous owners assigned (their) right to collect rentals . 11). hence. corresponding certificates of title over these same parcels be issued in the name of defendant Rosita Peña. The amount claimed as damages is pegged on the total amount of unpaid rentals from October 1974 (as taken from the allegations in the complaint) up to December 1978 at a monthly rate of P1. It was contended that plaintiffs could not have acquired ownership over the subject properties under a deed of absolute sale executed in their favor by one Marcelino B. . . vs. . 1978. (Record.500. et al. p. entitled Dante Gutierrez. Pampanga in Civil Case No. and further. the PAMBUSCO. it was alleged in the same Answer that plaintiffs are buyers in bad faith because they have caused the titles of the subject properties with the Register of Deeds to be issued in their names despite an order from the then CFI. The antecedents of the present petition are as follows: Plaintiffs-appellants. all the acts which flowed from it and all the rights and obligations which derived from the aforesaid void deed are likewise void and without any legal effect. defendant Washington Distillery stated that it has never occupied the subject lots hence they should not have been impleaded in the complaint. Further. 61). the spouses Rising T. until further orders. 1975 (Exh. and the deed of sale of these parcels of land executed by Marcelino Enriquez in favor of the plaintiffs herein be all declared null and void. . 148983-R. to desist from registering or noting in his registry of property . therefore. 4310. Enriquez who likewise could not have become [the] owner of the properties in question by redeeming the same on August 18. that TCT Nos. III. 148983-R. Pampanga Bus Company. that the deed of assignment executed in favor of Marcelino Enriquez. any of the above-mentioned documents under contest. for being without any valuable consideration. In their answer. .00 a month from January 1979 until the defendants finally vacate the . 148984-R and 148985-R. it could not have had any legal effect. The defense was that since the deed of assignment executed by PAMBUSCO in favor of Enriquez was void ab initio for being an ultra vires act of its board of directors and. in favor of plaintiffs" (Record. 148985-R. p. et al. 1975 by the original owners of the land in question. Br. . . and no valid redemption having been effected within the period provided by law. defendant-appellee Peña remained in possession of the lots in 1 question hence. appellants sought to recover possession over the subject lands from defendants Rosita Peña and Washington Distillery on the ground that being registered owners. the spouses Yap were prompted to file the instant case. . in lieu thereof. . In the complaint filed on December 15. 26) under an alleged[ly] void deed of assignment executed in his favor on March 18.. For its part. the certificate of redemption issued by the Provincial Sheriff also in favor of Marcelino Enriquez.

an appeal from said judgment of the trial court was interposed by private respondents to the Court of Appeals wherein in due course a decision was rendered on June 20. All these third-party defendants. Finally. the defendants with prior leave of court filed a third-party complaint third-party defendants PAMBUSCO. Third-party defendant Edgardo Zabat.000. 1975 issued by Deputy Sheriff Edgardo Zabat in favor of Marcelino Enriquez concerning these parcels. Salvador Bernardez (as members of the Board of Directors of PAMBUSCO). 1974 in the amount of . 148984-R and 148985-R of the Register of Deeds of Pampanga in the name of the plaintiffs also covering these parcels. except Edgardo Zabat who did file his answer but failed to appear at the pre-trial. After trial. how ever. the dispositive part of which reads as follows: WHEREFORE. 1975 executed in favor of Marcelino Enriquez pursuant to the resolution referred to in the preceding paragraph. and in view of all the foregoing. 1974 assigning the PAMBUSCO's right of redemption concerning the parcels involved herein (b) The deed of assignment dated March 18. jointly and severally. and Deputy Sheriff Edgardo Zabat of Pampanga. 1974 for which a certificate of sale had been issued to her. 1989. premises considered. were declared as in default for failure to file their answer. Defendant-appellee Peña is hereby ordered to vacate the lands in question and pay the plaintiffs-appellants the accrued rentals from October. (c) The certificate of redemption dated August 15. 148983-R. the amount of P10.00 as attorney's fees plus 2 costs. the judgment of the trial court on appeal is REVERSED. Joaquin Briones. to wit: WHEREFORE. Thus. in his capacity as Deputy Sheriff of Pampanga is directed to execute in favor of defendant Rosita Peña the corresponding certificate of final sale involving the parcels bought by her in the auction sale of October 25. 1975 executed by Marcelino Enriquez in favor of the plaintiffs concerning the same parcels and (e) TCT Nos. (d) The deed of absolute sale dated August 15. the third-party defendants herein except Deputy Sheriff Edgardo Zabat are hereby ordered to pay the defendants/third party plaintiffs. Marcelino Enriquez. a decision was rendered by the court in favor of the defendants-appellees.Thereafter. judgment is hereby rendered dismissing the complaint filed by the plaintiffs against the defendants and declaring as null and void the following: (a) The resolution of the Board of Directors of PAMBUSCO approved on November 19. Jesus Domingo.

Sixth Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENTS YAP ARE PURCHASERS IN GOOD FAITH AND IN FURTHER HOLDING THAT IT WAS TOO LATE FOR PETITIONER TO INTERPOSE THE ISSUE THAT RESPONDENTS YAP WERE PURCHASERS IN BAD FAITH. Fourth Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ASSIGNMENT. ASSIGNING ITS RIGHT OF REDEMPTION IS NOT VOID OR AT THE VERY LEAST LEGALLY DEFECTIVE. 1989. Second Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAS NO LEGAL STANDING TO ASSAIL THE VALIDITY OF THE QUESTIONED RESOLUTION AND THE SERIES OF SUCCEEDING TRANSACTIONS LEADING TO THE REGISTRATION OF THE SUBJECT PROPERTIES IN FAVOR OF THE RESPONDENTS YAP. Third Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE RESOLUTION OF RESPONDENT PAMBUSCO.000. SO ORDERED. DATED 8 MARCH 1975.500.00 per month thereafter. until appellee finally vacate (sic) the premises with interest at the legal rate. IN FAVOR OF RESPONDENT ENRIQUEZ IS NOT VOID OR AT THE VERY LEAST VOIDABLE OR RESCISSIBLE. Hence. ADOPTED ON 19 NOVEMBER 1974.00 per month up to December. this petition for review on certiorari of said decision and resolution of the appellate court predicated on the following assigned errors: First Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE TRIAL COURT HAD NO JURISDICTION TO RULE ON THE VALIDITY OF THE QUESTIONED RESOLUTION AND TRANSFERS.P1. DATED 8 MARCH 1975. 3 A motion for reconsideration filed by the appellee was denied in a resolution dated December 27. Seventh Assignment of Error . 1978 and the amount of P2. WAS VOID AB INITIO FOR FAILING TO COMPLY WITH THE FORMALITIES MANDATORILY REQUIRED UNDER THE LAW FOR DONATIONS. Fifth Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE QUESTIONED DEED OF ASSIGNMENT.

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

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

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

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

. petitioners. which case was entitled Aquilino Rivera. JANINA ESTARES NORMA MENDOZA. respondent corporation immediately opened a Japanese establishment. p. (Private respondent's memorandum. 4). Upon assuming management. et al. ELVIE BAUTISTA.R. NESTOR GORGOLLO. 1978 with Aquilino Rivera holding a majority interest in the corporation. -versusNATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION) and FUJIYAMA RESTAURANT AND HOTEL. PARAS. Lourdes Jureidini and Milagros Tsuchiya. J. 1982.. for brevity) promulgated January 15. allegedly pretending to be stockholders of the corporation. Hon. BENJAMIN BORJA. MARIBEL BASAG. ELLEN SACRAMENTO. Jureidini and Tsuchiya replaced almost all of the existing employees with new ones. INC. CIRILO RAMOS. MACHAELA LUCERO. No. GRACE SULLETA FELY TAPAY. majority of whom are the present petitioners in the instant case. Manila. MARIO CHIONG NESTOR ESTARES. private respondent hired the services of Isamu Akasako as its chef and restaurant supervisor. RAQUEL PONCIANO. ADELAIDA CANALDA. known as Fujiyama Hotel & Restaurant. EPIFANIA OBLIGADO. DIVINA MARIANO. PABLO AJERO.:p Assailed in the instant petition is the Resolution of public respondent National Labor Relations Commission (NLRC. ERIC BONDOLO. the new employees were extended probationary appointments for six (6) months from December 15. Adriatico St. REY ZAMORA. TERESA ANAVISO. The stockholders and directors of the corporation were thereby excluded from the management and operation of the restaurant. 1981. LITO MONTERON. ANAINO AMPLAYO. Ermita. SUSAN VILLAMOR. 1985 for being contrary to law and jurisprudence and arrived at in grave abuse of discretion amounting to lack or in excess of jurisdiction. VIOLETA DAGUISA. BOMBOM PAUSAMOS. located at 1413 M. In order to fully offer an authentic Japanese cuisine and traditional Japanese style of service. 1991 LUZVIMINDA VISAYAN. 1981 to June 1 5. In June. filed a case with the then Court of First Instance of Manila. Upon organization in 1978. 1980. The facts are briefly stated as follows: Private respondent Fujiyama Hotel & Restaurant.G. Inc. LAILA DIMLA. Apparently. Rivera and the rest of the stockholders elevated the civil case to the Supreme Court through a petition for certiorari assailing the ground for the issuance of the writ of preliminary mandatory injunction by the said Court of First Instance. In June. ROMEO OMAGBON. vs. LIGAYA SYDUA and JANETTE VILLAREAL. Branch XXXVI against Rivera and Akasako to wrest control over the establishment. LORETO DEDOYCO. and its MANAGER/OPERATOR. EVELYN BACULINAO. DOMINGO METRAN. 69999 April 30. was formally organized in April. The rest of the four (4) incorporators composed the minority stockholders of respondent corporation. respondents. MARCOS SISON. In the meantime. ALELI ALEJO. the said court issued a writ of preliminary mandatory injunction transferring possession of all the assets of the company and the management thereof to Jureidini and Tsuchiya.

On motion of private respondent corporation. 1982 directing both Jureidini and Tsuchiya to strictly and immediately comply with the Court's injunction. the NLRC temporarily stayed execution and directed the Labor Arbiter to transmit the entire record of the case to the NLRC for appropriate action. refused to recognize as employees of the corporation all persons that were hired by Jureidini and Tsuchiya during the one-year period that the latter had operated the company and reinstated the employees previously hired by them. submitted their respective position papers and affidavits in support of their contentions. 1983 as well as the Labor Arbiter's decision dated September 21. to turn over all assets and the management of petitioner corporation. p. 1981 issued a writ of preliminary injunction to enjoin enforcement of the June 23.. Pursuant to the above-quoted resolution.R. "their agents. to Aquilino Rivera and Isamu Akasako. docketed as G. upon motion of private respondent. the memorandum of appeal was not filed until November 24. the parties. the aforesaid decision of the Labor Arbiter was received by private respondent's counsel. except Jureidini and Tsuchiya. Thereafter. 57586. p. Isamu Akasako. et al. the Resolution sought to be reconsidered and the Decision appealed from are hereby SET ASIDE and a new Decision is entered. Rivera and Akasako regained control and management of Fujiyama Hotel & Restaurant. Since Jureidini and Tsuchiya disregarded the writ We had previously issued. Consequently. 6-411082. On October 12. said counsel filed a notice of appeal with an accompanying supersedeas bond in the sum of P80. Inc.000. Rivera et al.Rollo. 1985 issued by the NLRC setting aside its previous resolution of December 28. the establishment and its present operator. is absolved of any liability to them but the entire record is remanded for further appropriate proceedings to determine who are the complainants hired by said Jureidini and Tsuchiya. the Labor Arbiter rendered a decision on September 21. Jureidini and Tsuchiya to reinstate all the complainants to their former positions plus backwages and to pay jointly and severally the complainants their unpaid wages plus their share in the service charges.Alfredo C. No. or on October 22. a motion for reconsideration was seasonably filed by private respondent which became the basis of another resolution dated January 15. 1982. Rollo. 4. . representatives. Thus. which case was docketed as NLRC-NCR Case No. 1981 writ of preliminary mandatory injunction issued by the said Court of First Instance. the NLRC resolved to deny the appeal of private respondent for having been filed out of time. Inc. this Court on August 21. .. On motion of Rivera. et al. this Court ordered Jureidini and Tsuchiya. Fujiyama Hotel & Restaurant. 4-5. On December 28. for illegal dismissal. Ten (10) days thereafter. declaring respondents Lourdes Jureidini and Mila Tsuchiya as the previous employer of the complainants hired by them while operating the Fujiyama Restaurant & Hotel. 1982. pp. . 1982 ordering respondent company and/or Akasako. the Labor Arbiter included Jureidini and Tsuchiya as third-party respondents therein. This gave rise to the filing of the present case by the dismissed employees hired by Jureidini and Tsuchiya (some of whom had allegedly been hired by Rivera and Akasako even before Jureidini and Tsuchiya assumed management of the corporation) against Fujiyama Hotel & Restaurant." (NLRC. Thus. and/or any person or persons acting upon their orders or in their place or stead to refrain from further managing and/or interfering with the management of the business and assets of petitioner corporation and . Florendo. 1982 decision by the complainants. Resolution. 1982. Notably. Inc. 1982 when the attention of private respondent's counsel was called by the filing on November 19. (NLRC Decision.. Inc. thus: WHEREFORE. Subsequently. Immediately upon assumption of the management of the corporation. 1982 NLRC Resolution is quoted. On the basis of said position papers and affidavits. 25-26). We issued another resolution on May 26. 1982 of a motion for execution of the September 21. .00 as fixed by the Labor Arbiter. 1983. pp. in the said case. 116). The decretal portion of the January 15.

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

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

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

the instant petition is hereby DISMISSED for lack of merit and the assailed decision of the National Labor Relations Commission dated January 15. Thus. it is quite evident that private respondent seriously intended to appeal the Labor Arbiter's decision and We hereby quote a portion of the herein assailed NLRC Resolution: . Otherwise.00 bond but it was fixed at P80. praying that it be allowed to file a P50. it even filed an urgent petition for reduction of supersedeas bond. We are convinced that respondent's failure to file its memorandum on appeal with its notice of appeal was through excusable mistake only on the part of the messenger-clerk. et al. in the interest of substantial justice and in line with the repeated rulings of the Supreme Court lately which abhors dismissal of cases based solely on technicalities. 1985 is AFFIRMED in toto. the respondent again manifested after no settlement was arrived at that it will file its appeal. it would not have gone through the burden of going through the rigors of having the supersedeas bond reduced and abiding with the amount fixed which entailed expenses.. Rollo) Finally' it is clear that petitioners were not abandoned by the NLRC as the latter ordered that the case be remanded to the Arbitration Branch for further proceedings to determine who among the petitioners were really hired by respondent corporation or by Jureidini. 15-16.00 by the Labor Arbiter which it filed with its notice of appeal. Besides. In fact. that would result in an absurd situation wherein the corporation will have employees very much more in excess of what the business would require. .000. petitioners are not without recourse relative to their claims. With these in mind. We set aside the Resolution sought to be reconsidered and give due course to the appeal. . In the conference on 15 October 1982 called by the Labor Arbiter issuing his decision for the purpose of settling the case amicably. (pp.000. Consequently.petitioners are reinstated. SO ORDERED. ACCORDINGLY. in order to ultimately determine who is responsible for the settlement of petitioners' claims. .

On August 16.e. From the records of the instant case. 1988. respondents. the DBP claimed that it was not authorized to receive summons on behalf of ALFA since the DBP had not taken over the company which has a separate and distinct corporate personality and existence. and THOMAS GONZALES. 1985. No. PABLO GONZALES. 1986. February 4. petitioners. 1988. On September 17. On August 4. GUTIERREZ. JR. 1988. the following antecedent facts appear: On November 15. on July 12. the trial court issued an order requiring the issuance of an alias summons upon ALFA through the DBP as a consequence of the petitioner's letter informing the court that the summons for ALFA was erroneously served upon them considering that the management of ALFA had been transferred to the DBP.. against the private respondents who. JR. for short). In their Comment to the Motion for Reconsideration dated September 27. Inc. of the subject corporation after the execution of a voting trust agreement between ALFA and the Development Bank of the Philippines (DBP. allegedly. vs. Branch 58 denied in an Order dated June 27. section 13 of the Revised Rules of Court is not applicable since they were no longer officers of ALFA and that the private respondents should have availed of another mode of service under Rule 14.G. 1981 did not divest the petitioners of their positions as president and executive vice-president of ALFA so that service of summons upon ALFA through the petitioners as corporate officers was proper. On July 18.. through publication to effect proper service upon ALFA. for short) through the petitioners as president and vice-president. the trial court issued an order advising the private respondents to take the appropriate steps to serve the summons to ALFA.. 1988. COURT OF APPEALS. THE HON.R. On September 12. the private respondents filed a Manifestation and Motion for the Declaration of Proper Service of Summons which the trial court granted on August 17. LACDAO. filed a third party complaint against ALFA and the petitioners on March 17. Section 16 of the said Rules. 93695. i. . a complaint for a sum of money was filed by the International Corporate Bank. Meanwhile. the private respondents argued that the voting trust agreement dated March 11. 1988. SACOBA MANUFACTURING CORP. In a manifestation dated July 22. in turn. the petitioners filed a motion to dismiss the third party complaint which the Regional Trial Court of Makati. 1988.: What is the nature of the voting trust agreement executed between two parties in this case? Who owns the stocks of the corporation under the terms of the voting trust agreement? How long can a voting trust agreement remain valid and effective? Did a director of the corporation cease to be such upon the creation of the voting trust agreement? These are the questions the answers to which are necessary in resolving the principal issue in this petition for certiorari — whether or not there was proper service of summons on Alfa Integrated Textile Mills (ALFA. 1987. 1988. the petitioners filed a motion for reconsideration submitting that Rule 14. J. LEE and ANTONIO DM. the petitioners filed their answer to the third party complaint. 1992 RAMON C. 1988. 1988.

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

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

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

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

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

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

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

Go were its president and chairman of the committee on election. Petitioner appealed to the Court of Appeals. He shall be entitled to as many votes . respectively. For fifteen years – from 1975 until 1989 – petitioner‘s representative had been recognized as a ―permanent director‖ of the association.[2] It appears. a committee of the board of directors prepared a draft of an [3] amendment to the by-laws. DECISION MENDOZA. Beltran and Ernesto L. As the board denied petitioner‘s request to be allowed representation without election. 1975 is valid and binding. October 23. The amended By-laws of the Association drafted and promulgated by a Committee on December 20.[G. the facts are as follows: Petitioner Grace Christian High School is an educational institution offering preparatory. Each Charter or Associate Member of the Association is entitled to vote. Hence this petition for review based on the following contentions: 1. But on February 13. and 3. lessees and residents at Grace Village. The Petitioner herein has already acquired a vested right to a permanent seat in the Board of Directors of Grace Village Association. petitioner received notice from the associat ion‘s committee on election that the latter was ―reexamining‖ (actually. respondents.M.: The question for decision in this case is the right of petitioner‘s representative to sit in the board of directors of respondent Grace Village Association. 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. and ERNESTO L. 1975.. the by-laws of the association provided in Article IV. Inc.R. that on December 20. petitioner. 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. GO. reading as follows: VI. composed of eleven (11) members to serve for one (1) year until their successors are duly elected and have qualified. [1] Briefly stated. 2. where they shall elect by plurality vote and by secret balloting. Private respondent Grace Village Association. while private respondents Alejandro G. ALEJANDRO G. on the other hand. in 1990. vs. is an organization of lot and/or building owners. BELTRAN. 1997] GRACE CHRISTIAN HIGH SCHOOL. THE COURT OF APPEALS. No. 1990. petitioner brought an action for mandamus in the Home Insurance and Guaranty Corporation. when this suit was brought. GRACE VILLAGE ASSOCIATION. reconsidering) the right of petitioner‘s representative to continue as an unelected member of the board.. As adopted in 1968. kindergarten and secondary courses at the Grace Village in Quezon City. which in turn upheld the decision of the HIGC‘s appeals board. as a permanent member thereof. the Board of Directors. Inc. J. Its action was dismissed by the hearing officer whose decision was subsequently affirmed by the appeals board. ANNUAL MEETING The Annual Meeting of the members of the Association shall be held on the second Thursday of January of each year. INC. 108905.

Additionally. This draft was never presented to the general membership for approval. paragraph 2. On June 20. the association‘s committee on election in a letter informed James Tan. On February 13. 1990 but nothing substantial was agreed upon.P. The candidates receiving the first fourteen (14) highest number of votes shall be declared and proclaimed elected until their successors are elected and qualified. Blg. 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. 1990 for the purpose of discussing the amendment of the by-laws and a possible amicable settlement of the case. GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION. Private respondent association cited the SEC opinion in its answer. Petitioner requested the chairman of the election committee to change the notice of election by following the procedure in previous elections.‖ It argued that ―the by-laws which was registered with the SEC on January 16.‖ As the association denied its request. GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION. 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. The Charter and Associate Members shall elect the Directors of the Association. principal of the school.‖ Following this advice. claiming that the notice issued for the 1990 elections ran ―counter to the practice in previous years‖ and was ―in violation of the by-laws (of 1975)‖ and ―unlawfully [5] deprive[d] Grace Christian High School of its vested right [to] a permanent seat in the board. after it was presumably submitted to the board. Nevertheless.00) PESOS for one vote. 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. upon which petitioner based its claim. petitioner maintained that the ―amended by-laws is valid and binding‖ and that the [7] association was estopped from questioning the by-laws. ―[was] merely a . 1969 should be the prevailing by-laws of the [6] association and not the proposed amended by-laws. that ―it was the sentiment that all directors should be elected by members of the association‖ because ―to make a person or entity a permanent Director would deprive the right of voters to vote for fifteen (15) m embers of the Board. Petitioner based its claim on the following portion of the proposed amendment which. The candidates receiving the first fourteen (14) highest number of votes shall be declared and proclaimed elected until their successors are elected and qualified. 1990. although previously tolerated in the past elections should be reexamined. up to 1990. The hearing officer held that the amended by-laws. 1990 and April 24. the SEC rendered an opinion to the effect that the practice of allowing unelected members in the board was contrary to the existing bylaws of the association and to §92 of the Corporation Code (B.as he has acquired thru his monthly membership fees only computed on a ratio of TEN (P10. 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. thereof: The Charter and Associate Members shall elect the Directors of the Association. but the parties failed to reach an agreement. the hearing officer of the HIGC rendered a decision dismissing petitioner‘s action. A preliminary conference was held on March 29. Instead. 1990.‖ and ―it is undemocratic for a [4] person or entity to hold office in perpetuity. had become part of the by-laws of the association as Article VI.‖ In reply. 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. 1990. it contended. The parties merely agreed that the board of directors of the association should meet on April 17.‖ For this reason. 68). A meeting was held on April 17. Tan was told that ―the proposal to mak e the Grace Christian High School representative as a permanent director of the association. from 1975. petitioner was given a permanent seat in the board of directors of the association.

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

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. 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. And not only that.. Petitioner claims that that is not so because there is really no provision of law prohibiting unelected members of boards of directors of corporations. The more has the amended by-laws become binding on the homeowners when the homeowners followed and implemented the provisions of the amended by-laws. again without need of any election. 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. 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 proposed amendment for all intents and purposes should be considered to have been ratified by [11] them. Inc.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. . therefore. Inc. Another concrete example is the Cardinal Santos Memorial Hospital. Under the by-laws of this corporation. giving petitioner‘s representative a permanent seat in the board of the association. that whoever is the Archbishop of Manila is considered a member of the board of trustees without benefit of election. Corollarily. the truth is that this is allowed and is being practiced by some corporations duly organized and existing under the laws of the Philippines.. If there is anybody who has the right to take away such right of the petitioner. 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. 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. 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. . Petitioner disputes the ruling that the provision in question. Referring to §92 of the present Corporation Code. 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. is contrary to law. 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. If fact.. Outside the present membership of the board. 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. He also automatically sits as the Chairman of the Board of Trustees. One example is the Pius XII Catholic Center. Petitioner contends: Considering. 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.

Nor does petitioner claim a right to such seat by virtue of an office held. then to each member. if it is contrary to law. and by written notice deposited in the post-office. in the place where the principal office of the corporation is established or located. it is beyond the power of the members of the association to waive its invalidity. (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. In fact it was not given such seat in the beginning. or where there is no stock. It was only in 1975 that a proposed amendment to the by-laws sought to give it one. (emphasis added) §29. Unless otherwise provided in the by-laws. [12] similarly provides: §23. But in the case of petitioner. 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. as amended. These provisions read: §28. the directors need not be elected from among the holders of the stock. Blg. on the contrary. or at such subsequent meeting as may be then determined. .Unless otherwise provided in this Code. or by Executive Order No.P. It is probable that. i. or. or both. addressed to each stockholder. appears to have been implemented by the members of the association cannot forestall a later challenge to its validity. That in corporations. in allowing petitioner‘s representative to sit on the board. from among the members of the corporation. For that matter the members of the association may have formally adopted the provision in question. 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. There may be corporations in which there are unelected members in the board but it is clear that in the examples cited by petitioner the unelected members sit as ex officiomembers. by virtue of and for as long as they hold a particular office. 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. the corporate powers of all corporations formed under this Code shall be exercised. 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. from the members of the corporation: Provided. other than banks. 68). the fact that for fifteen years it has not been questioned or challenged but. as heretofore or hereafter amended. Since the provision in question is contrary to law. at his last known place of residence. if there be no stockholders. (Emphasis added) The present Corporation Code (B. who shall hold office for one (1) year and until their successors are elected and qualified.It is actually §§28 and 29 of the Corporation Law ¾ not §92 of the present law or §29 of the former one ¾ which require members of the boards of directors of corporations to be elected. in which the United States has or may have a vested interest. The Board of Directors or Trustees. At the meeting for the adoption of the original by-laws. 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.e. and similar Acts of Congress of the United States relating to the same subject. postage pre-paid. pursuant to the powers granted or delegated by the Trading with the Enemy Act. Neither can it attain validity through acquiescence because. 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 . there is no reason at all for its representative to be given a seat in the board. but their action would be of no avail because no provision of the by-laws can be [13] adopted if it is contrary to law. or. 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. which took effect on May 1. however. 9095 of the President of the United States. where there is no stock from the members of the corporation.. Unless otherwise provided in this Act. where there is no stock. the members of the association were not aware that this was contrary to law. the corporate powers of all corporations formed under this Act shall be exercised. 1980.

.‖ Finally.‖ Practice. It contends that jurisdiction over this case is exclusively vested in the HIGC. the decision of the Court of Appeals is AFFIRMED. SO ORDERED. Even less tenable [14] is petitioner‘s claim that its right is ―coterminus with the existence of the association. but certainly not the allowance of petitioner‘s representative as an unelected member of the board of directors. The HIGC merely cited as authority for its ruling the opinion of the SEC chairman. Nor can petitioner claim a vested right to sit in the board on the basis of ―practice.11 to 15. petitioner questions the authority of the SEC to render an opinion on the validity of the provision in question. no matter how long continued. But this case was not decided by the SEC but by the HIGC. cannot give rise to any vested right if it is contrary to law. It is more accurate to say that the members merely tolerated petitioner‘s representative and tolerance cannot be considered ratification. WHEREFORE. 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.

who were separated from service due to the closure of Clark Air Base. ("CFTI"). NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION). from which Clark Air Base was not spared.[G. Eduardo Castillo. Incorporated ("Naguiat Enterprises"). & CLARK FIELD TAXI. The AAFES Taxi Drivers Association ("drivers' union"). vs. in what amount? Are officers of corporations ipso facto liable jointly and severally with the companies they represent for the payment of separation pay? These questions are answered by the Court in resolving this petition for certiorari under Rule 65 of the Rules of Court assailing the Resolutions of the National Labor Relations Commission (Third [1] [2] [3] Division) promulgated on February 28.00 for every year of service as severance pay. INC. Inc. and US$27.: Are private respondent-employees of petitioner Clark Field Taxi. which they could later withdraw every fifteen days. the AAFES was dissolved. and the services of individual respondents were officially terminated on November 26.. NATIONAL ORGANIZATION OF WORKINGMEN and its members. they were required to pay a daily "boundary fee" in the amount of US$26. and May 31. NAGUIAT ENT.00 daily.m. Sergio F. 116123. 1991. and CFTI held negotiations as regards separation benefits that should be awarded in favor of the drivers.. 1994. The drivers worked at least three to four times a week. to 12:00 noon. Inc... They arrived at an agreement that the separated drivers will be given P500. INC. Naguiat Enterprises. GALANG. Santos in NLRC Case No. RAB-III-122477-91. it was a family-owned corporation. jointly and severally liable with Clark Field Taxi.R. The Facts The following facts are derived from the records of the case: Petitioner CFTI held a concessionaire's contract with the Army Air Force Exchange Services ("AAFES") for the operation of taxi services within Clark Air Base. No. NAGUIAT. DECISION PANGANIBAN. entitled to separation pay and. Naguiat was CFTI's president. Like Sergio F. J. During their employment. Due to the phase-out of the US military bases in the Philippines. All incidental expenses for the maintenance of the vehicles they were driving were accounted against them. The second Resolution denied the motion for reconsideration of herein petitioners..00 for every year of service or its peso equivalent. Individual respondents were previously employed by CFTI as taxicab drivers. Inc. if so. while Antolin T. they were required to make cash deposits to the company. petitioners. depending on the availability of taxicabs. In excess of that amount.. et al. through its local president. respondents. Naguiat and Antolin T. LEONARDO T.00 for those working from 12:00 noon to 12:00 midnight. a trading firm. doing business under the name and style SERGIO F. Naguiat Enterprises. Sergio F. They earned not less than US$15. Most of the . The NLRC modified the decision of the labor arbiter by granting separation pay to herein individual respondents in the increased amount of US$120. however.50 for those working from 1:00 a. 1997] SERGIO F. The February 28. March 13. Naguiat. Naguiat was its vice-president. 1994 Resolution [4] affirmed with modifications the decision of Labor Arbiter Ariel C. and holding Sergio F. including gasoline expenses. 1994.

herein petitioners claimed that the cessation of business of CFTI on November 26. They averred further that they were entitled to separation pay based on their latest daily earnings of US$15. Instead. the table of conversion (exchange rate) at the time of payment or satisfaction of the judgment should be used. to grant its taxi driver-employees separation pay equivalent to P500.S. One-half month salary should be US$120. 1991.' (Phoenix Assurance Co. simply awarded an amount for "humanitarian consideration. (respondents) they may choose to pay in US dollar. May 13. Naguiat Enterprises. through the National Organization of Workingmen ("NOWM"). 7. Naguiat doing business under the name and style Sergio F. Army-Air Force Exchange Services (AAFES) with Mark Hooper as Area Service Manager. a labor organization which they subsequently joined. father and son at the same time the President and Vice-President and General Manager. the labor-arbiter explained: "To allow respondents exemption from its (sic) obligation to pay separation pay would be inhuman to complainants but to impose a monetary obligation to an employer whose profitable business was abruptly shot (sic) down by force majeure would be unfair and unjust to say the least. filed a complaint[5]against "Sergio F.200. vs. (Sec. 1975) In discharging the above obligations. Rule 3. Said complaint was later amended[6] to include additional taxi drivers who were similarly situated as complainants. They claimed to have been assigned to Naguiat Enterprises after having been hired by CFTI. In their position paper submitted to the labor arbiter. at the time it ceased operations. although their individual applications for employment were approved by CFTI. finding the individual complainants to be regular workers of CFTI. The complainants who are the creditors in this instance can be compelled to accept the Philippine peso which is the legal tender. was due to "great financial losses and lost business opportunity" resulting from the phase-out of Clark Air Base brought about by the Mt. respectively.00 for every year of service. herein private respondents alleged that they were regular employees of Naguiat Enterprises. Inc. In not awarding separation pay in accordance with the Labor Code.00 for every year of service. defines legal tender as 'that which a debtor may compel a creditor to accept in payment of the debt. Dollar which is not the legal tender in the Philippines. should be joined as indispensable party whose liability is joint and several. Naguiat as vice president and general manager. which is headed by Sergio F." [7] and thus. and AAFES Taxi Drivers Association with Eduardo Castillo as President. In their complaint. However.. The labor arbiter. and CFTI with Antolin T.00 for every year of service "for humanitarian consideration. However. Pacific Region. The concluding paragraphs of the NLRC Resolution read: "The contention of complainant is partly correct.00 for working sixteen (16) days a month. The labor arbiter rejected the allegation of CFTI that it was forced to close business due to "great financial losses and lost business opportunity" since. and that the former thence managed. In its Resolution. Inc. Naguiat and Antolin Naguiat. individual respondents herein refused to accept theirs. They admitted that CFTI had agreed with the drivers' union. individual respondents. L-25048. through its President Eduardo Castillo who claimed to have had blanket authority to negotiate with CFTI in behalf of union members. the NLRC modified the decision of the labor arbiter by granting separation pay to the private respondents. in commenting on Art.. ordered the latter to pay them P1.drivers accepted said amount in December 1991 and January 1992. Pinatubo eruption and the expiration of the RP-US military bases agreement. 1249 of the New Civil Code. Rules of Court)"[8] . after disaffiliating themselves from the drivers' union. in which case. Paras." Herein individual private respondents appealed to the NLRC. controlled and supervised their employment.00 but this amount can not be paid to the complainant in U. CFTI was profitably earning and the cessation of its business was due to the untimely closure of Clark Air Base." for payment of separation pay due to termination/phase-out. as party respondent. Macondray & Co." setting aside the earlier agreement between CFTI and the drivers' union of P500. Sergio F. since the choice is left to the debtor. Naguiat Enterprises.

Whether or not Messrs. And similarly. As a consequence. Whether or not public respondent NLRC (3rd Div. petitioners incessantly insist that Sergio F. however. for nonpayment of their separation pay. the motion for reconsideration of herein petitioners was denied by the NLRC. III.00. Naguiat Enterprises. being their indirect employer. and that Naguiat Enterprises. is a separate and distinct juridical entity which cannot be held jointly and severally liable for the obligations of CFTI. that individual respondents became members of NOWM after disaffiliating themselves from the AAFES Taxi Drivers Association which. and that petitioners were not furnished copies of private respondents' appeal to the NLRC. is solidarily liable under the law for violation of the Labor Code. he submits that the separate personalities of respondent corporations and their officers should be disregarded and considered one and the same as these were used to perpetrate injustice to their employees. On the second issue. In sum. the taxi drivers' claim of having an average monthly earning of $240.) committed grave abuse of discretion amounting to lack of jurisdiction in issuing the appealed resolution. Lastly.As mentioned earlier. be bound by the decision of the union (AAFES Taxi Drivers Association) of which they were members. Hence. petitioners aver that NOWM cannot make legal representations in behalf of individual respondents who should. As to the third issue. They. Issues The petitioners raise the following issues before this Court for resolution: "I. Inc. in this case. unconscionably compromised their separation pay. petitioners contend that NLRC committed grave abuse of discretion amounting to lack or excess of jurisdiction in unilaterally increasing the amount of severance pay granted by the labor arbiter.00. the proper forum before which petitioners should have raised it is the NLRC. In addition. through the manipulations of its President Eduardo Castillo. a temporary restraining order was issued by this Court enjoining execution of the assailed Resolutions. could not be held personally accountable for corporate debts. they are deemed to have waived the same and voluntarily submitted themselves to the jurisdiction of the appellate body. Individual respondents filed a comment separate from that of NOWM. II. thus. instead. and. Whether or not the resolution issued by public respondent is contrary to law. Naguiat and Antolin Naguiat were denied due process. to Wit: that Petitioners Sergio F. Anent the first issue raised in their original petition. Teofilo Rafols and Romeo N. failed to question this in their motion for reconsideration. [11] The Court's Ruling . As to the procedural lapse of insufficient copies of the appeal. Naguiat and Antolin Naguiat were merely officers and stockholders of CFTI and." [10] Petitioners also submit two additional issues by way of a supplement to their petition. Upon posting by [9] the petitioners of a surety bond. The Solicitor General unqualifiedly supports the allegations of private respondents. this petition with prayer for issuance of a temporary restraining order. Lopez could validly represent herein private respondents. Sergio and Antolin Naguiat assail the Resolution of NLRC holding them solidarily liable despite not having been impleaded as parties to the complaint. Sergio F. both aver that petitioners had the opportunity but failed to refute. They claim that this was not supported by substantial evidence since it was based simply on the self-serving allegation of respondents that their monthly takehome pay was not lower than $240.

as affirmed by NLRC. correctly found that petitioners stopped their taxi business within Clark Air Base because of the phase-out of U. A fraction of at least six (6) months shall be considered one (1 ) whole year. the petition is partially meritorious. In their amended complaint before the Regional Arbitration Branch in San Fernando.00 (one-half of $240. this Court carefully perused the records of the instant case if only to determine whether public respondent committed grave abuse of discretion. which have acquired expertise because their jurisdiction is confined to specific matters. Article 283 of the Labor Code provides: "x x x In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses. allegedly their minimum monthly earnings as taxi drivers of petitioners. we find that NLRC did not commit grave abuse of discretion in ruling that [15] individual respondents were entitled to separation pay in the amount $120. Second Issue: NOWM's Personality to Represent Individual Respondents-Employees . herein private respondents set forth in detail the work schedule and financial arrangement they had with their employer. Private respondents. or where it is [13] clearly shown that they were arrived at arbitrarily or in disregard of the evidence on record. in order to sustain retrenchment of personnel or closure of business and warrant exemption from payment of separation pay. the separation pay shall be equivalent to one (1) month pay or at least one-half (½) month pay for every year of service. With respect to the amount of separation pay that should be granted. we reiterate the rule that in a petition for certiorari filed pursuant to Rule 65 of the Rules of Court. Herein petitioners did not bother to refute nor offer any evidence to controvert said allegations. are bound by the factual findings of Respondent Commission. Petitioners also claim that the closure of their taxi business was due to great financial losses brought about by the eruption of Mt. [14] must be proved with clear and satisfactory evidence. and are binding upon this Court unless there is a showing of grave abuse of discretion. Remaining undisputed. petitioners are in estoppel for not having questioned such facts when they had all opportunity to do so. First Issue: Amount of Separation Pay Firmly. Petitioners did not even appeal from the decision of the labor arbiter nor manifest any error in his findings and conclusions. like petitioners. which is the only way a labor case may reach the Supreme Court. The records. It was not due to any great financial loss because petitioners' taxi business was earning profitably at the time of its closure." Considering the above. Pinatubo which made the roads practically impassable to their taxicabs. Long-standing and well-settled in Philippine jurisprudence is the judicial dictum that findings of fact of administrative agencies and quasi-judicial bodies. military presence thereat. the petitioner/s must clearly [12] show that the NLRC acted without or in excess of jurisdiction or with grave abuse of discretion. however. The labor arbiter. amounting to lack of jurisdiction. Thus.00.00.S. Therefrom they inferred that their monthly take-home pay amounted to not less than $240. are generally accorded not only great respect but even finality.As will be discussed below.00 monthly pay) or its peso equivalent for every year of service. whichever is higher. the labor arbiter adopted such facts in his decision. are devoid of such evidence. in granting the clamor of private respondents that their separation pay should be based on the amount of $240. Likewise well-settled is the rule that business losses or financial reverses. Nevertheless. Pampanga.

they are now estopped from raising such question before this Court. among others. 107 and 109 of the Labor Code. petitioners acknowledged before this Court that the taxi drivers allegedly [16] represented by NOWM. equipment. Moreover. supervised and controlled employment terms of the taxi drivers. and work premises. Naguiat Enterprises. in the contract between CFTI and AAFES. As adverted to earlier. They presumed that Sergio F. are themselves parties in this case. In any event.. Based on factual submissions of the parties. the former. We again remind those concerned that decisions. as a separate corporate entity with a separate business. This rule applies as well to dispositions by quasijudicial and administrative bodies. petitioners submitted documents such as the drivers' applications for employment with [23] [24] [25] CFTI. Unfortunately. and social security remittances and payroll of Naguiat Enterprises showing that none of the [26] individual respondents were its employees. pursuant to their concessionaire's contract. however concisely written. respondents rely on [18] [19] [20] Articles 106.On the question of NOWM's authority to represent private respondents. Third Issue: Liability of PetitionerCorporations and Their Respective Officers The resolution of this issue involves another factual finding that Naguiat Enterprises actually managed. there is no substantial basis to hold that Naguiat Enterprises is an indirect employer of individual respondents much less a labor only contractor. From the evidence proffered by both parties. making it their indirect employer. are those who exercise independent employment. agreed to purchase from AAFES for a certain amount within a specified period a fleet of vehicles to be "ke(pt) on the road" by CFTI. Independent contractors. It appears that they were confused on the personalities of Sergio F. Inc. found that individual respondents were regular employees of CFTI who received wages on a boundary or commission basis. we hold petitioners in estoppel for not having seasonably raised this issue before the labor arbiter or the NLRC. We find no reason to make a contrary finding. and Sergio F. Private respondents failed to substantiate their claim that Naguiat Enterprises managed. machinery. On the contrary. meanwhile. however. factual findings of quasi-judicial bodies are binding upon the court in the absence of a showing of grave abuse of discretion. the labor arbiter. must distinctly and clearly set [17] forth the facts and law upon which they are based. who was at . Therefore. Naguiat. Naguiat Enterprises Not Liable In impleading Naguiat Enterprises as solidarily liable for the obligations of CFTI. This indicates that CFTI became the owner of the taxicabs which became the principal investment and asset of the company. Labor-only contracting exists where: (1) the person supplying workers to an employer does not have substantial capital or investment in the form of tools. and (2) the workers recruited and placed by such person are performing activities which are directly related to the principal business of the [21] employer. the NLRC did not discuss or give any explanation for holding Naguiat Enterprises and its officers jointly and severally liable in discharging CFTI's liability for payment of separation pay. But petitioners who were party-respondents in said complaint did not assail the juridical personality of NOWM and the validity of its representations in behalf of the complaining taxi drivers before the quasi-judicial bodies. supervised and controlled their employment. NOWM was already a party-litigant as the organization representing the taxi driver-complainants before the labor arbiter. Naguiat as an individual who was the president of CFTI. as concessionaire. contracting to do a piece of work according to their own methods without being subject to control of their [22] employer except as to the result of their work.

Suarez Sergio F. Suarez How about Mr. Naguiat. we refer to the testimony of a driver-claimant on cross examination. Naguiat Enterprises? Witness He is the owner. Suarez What is exactly the position of Sergio F. sir. "Atty.' Atty. Suarez Is it not true that you applied not with Sergio F. xxx Atty. Incorporated? Witness Yes. Naguiat Enterprises and he is the one whom we believe as our employer. Naguiat but with Clark Field Taxi? Witness I applied for (sic) Sergio F. however. Atty. Naguiat Enterprises as a separate corporation does not appear to be involved at all in the taxi business. was managing and controlling the taxi business on behalf of the latter. Hence. evince the truth of the matter: that Sergio F. Naguiat Atty. Atty. Incorporated? xxx xxx [27] . Suarez But do you also know that Sergio F. Suarez Who is Sergio F. A closer scrutiny and analysis of the records. Naguiat? Witness What I know is that he is a concessionaire. Naguiat as an individual or the corporation? Witness 'Sergio F. Inc. Naguiat? Witness He is the one managing the Sergio F. in supervising the-taxi drivers and determining their employment terms. Atty. Naguiat is the President of Clark Field Taxi.. Naguiat Enterprises. Naguiat with the Sergio F. sir. the operation of the Clark Field Taxi. Naguiat na tao. Suarez How about with Clark Field Taxi Incorporated what is the position of Mr.the same time a stockholder and director of Sergio F. To illustrate further. was rather carrying out his responsibilities as president of CFTI. Antolin Naguiat what is his role in the taxi services.

In 1973. without prejudice to the right of employees to seek redress of grievance." [28] And. in their individual. the union filed about ten (10) motions for execution against the corporation. the Court. [31] CFTI president solidarily liable Petitioner-corporations would likewise want to avoid the solidary liability of their officers. ratiocinated this wise: "(b) How can the foregoing (Articles 265 and 273 of the Labor Code) provisions be implemented when the employer is a corporation? The answer is found in Article 212(c) of the Labor Code which provides: '(c) 'Employer' includes any person acting in the interest of an employer. and that Naguiat Enterprises was neither their indirect employer nor labor-only contractor. only in the technical sense. was the union of individual respondents while still working at Clark Air Base. is the employer. although the witness insisted that Naguiat Enterprises was his employer. The corporation. it filed an application for clearance to close or cease operations. In its last motion for execution. being the 'person acting in the interest of (the) employer' RANSOM.00. presumably for failure to find leviable assets of said corporation. on the ground that officers of a corporation are not liable personally for official acts unless they exceeded the scope of their authority. that Naguiat [30] Enterprises was in the trading business while CFTI was in taxi services. In the corporation's appeal to the NLRC. On certiorari. we. Naguiat specifically aver that they were denied due [32] process since they were not parties to the complaint below. To bolster their position. the stockholders of which were members of the Hernandez family. In the broader interest of justice. if any. one of the issues raised was: "Is the judgment against a corporation to reinstate its dismissed employees with backwages. Ransom Corporation was a family corporation. upon the prodding of counsel for the corporations." From the foregoing. This was granted by the labor arbiter. [33] . A. Justice Ameurfina Melencio-Herrera. this Court reversed the NLRC and upheld the labor arbiter. Naguiat. who were not parties in the case where the judgment was rendered?" The NLRC answered in the negative. states that members thereof are the employees of CFTI and "(f)or collective bargaining purposes.984. private and personal capacities. the Constitution of CFTI-AAFES Taxi Drivers Association which. Naguiat and Antolin T. Since RANSOM is an artificial person. It was not involved at all in the taxi business.C. In imposing joint and several liability upon the company president. he could not deny that [29] he received his salary from the office of CFTI inside the base. Sergio F. Ransom Labor Union-CCLU vs. A. The term shall not include any labor organization or any of its officers or agents except when acting as employer. admittedly. the ineludible conclusion is that CFTI was the actual and direct employer of individual respondents. it must have an officer who can be presumed to be the employer. but none could be implemented. Backwages of 22 employees. however. the Minimum Wage Law. cannot be exonerated from joint and several liability in the payment of separation pay to individual respondents. which was duly granted by the Ministry of Labor and Employment.C. NLRC is the case in point. hold that Sergio F. speaking through Mme. the definite employer is the Clark Field Taxi Inc. were subsequently computed at P164.' The foregoing was culled from Section 2 of RA 602. directly or indirectly . enforceable against its officer and agents. in his capacity as president of CFTI. Up to September 1976. In addition. the union asked that officers and agents of the company be held personally liable for payment of the backwages.Witness He is the vice president. who engaged in a strike prior to the closure. Another driver-claimant admitted.

" (underscoring supplied) Nothing in the records show whether CFTI obtained "reasonably adequate liability insurance. principally bound himself to comply with the obligation thereunder. states: "(5) To the extent that the stockholders are actively engage(d) in the management or operation of the business and affairs of a close corporation. That is the policy of the law. x x x (c) If the policy of the law were otherwise. may act only through its directors.The responsible officer of an employer corporation can be held personally. i. we believe it should be presumed that the responsible officer is the President of the corporation who can be deemed the chief operation officer thereof. he falls within the meaning of an "employer" as contemplated by the Labor Code. Thus. liable for nonpayment of back wages. only Sergio F. the corporation employer can have devious ways for evading payment of back wages. Furthermore. being a juridical entity. Said stockholders shall be personally liable for corporate torts unless the corporation has obtained reasonably adequate liability insurance. Naguiat. CFTI failed to comply with this law-imposed duty or obligation. tort is a breach of [36] a legal duty. Thus: "x x x A corporation. in the following cases:  xxx xxx xxx [37] 4. the fifth paragraph of Section 100 of the Corporation Code specifically imposes personal liability upon the stockholder actively managing or operating the business and affairs of the close corporation. admittedly. When a director. in posting the surety bond required by this Court for the issuance of a temporary restraining order enjoining the execution of the assailed NLRC Resolutions. Obligations incurred by them. Article 283 of the Labor Code mandates the employer to grant separation pay to employees in case of closure or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses. personally liable for his corporate action. its stockholder who was actively engaged in the management or operation of the business should be held personally liable. applying the ruling in A.) Sergio F. are not theirs but the direct accountabilities of the corporation they represent. Naguiat. trustee or officer is made. NLRC. acting as such corporate agents." thus. x x x (d) The record does not clearly identify 'the officer or officers' of RANSOM directly responsible for failure to pay the back wages of the 22 strikers. Ransom. Consequently. criminal responsibility is with the 'Manager or in his default. in MAM Realty Development vs." Essentially.. In fact. the person acting as such. Our jurisprudence is wanting as to the definite scope of "corporate tort. In the absence of definite proof in that regard. the President appears to be the Manager. generally. C. was the president of CFTI who actively managed the business. which is the condition obtaining at bar. officers and employees." (footnotes omitted) As pointed out earlier. "to .' In RANSOM. paragraph 5. the stockholders shall be held to strict fiduciary duties to each other and among themselves. who may be held jointly and severally liable for the obligations of the corporation to its dismissed employees." (Underscoring supplied.e. "tort" consists in [35] the violation of a right given or the omission of a duty imposed by law. the Court recognized that a director or officer may still be held solidarily liable with a corporation by specific provision of law. solidary liabilities may at times be incurred but only when exceptional circumstances warrant such as. Thus. by specific provision of law. in RA 602. Simply stated. (under Title XII on Close Corporations) of the Corporation Code. Moreover. Section 100. what remains is to determine whether there was corporate tort. True. not to say even criminally. petitioners also conceded that both CFTI and Naguiat Enterprises were "close family [34] corporations" owned by the Naguiat family. in his individual and personal capacity.

Naguiat jointly and severally liable with petitioner-corporations in the payment of separation pay. Ransom once more. Incorporated. if it should be finally adjudged that said principals were [38] not entitled thereto. the petition is PARTLY GRANTED. it had not been shown that he had acted in such capacity. averring denial of due process since the individual Naguiats were not impleaded as parties to the complaint. In the present case. Fourth Issue: No Denial of Due Process Lastly. Incorporated. Furthermore. Furthermore. In this light. They cannot now claim to have been denied due process since they availed of the opportunity to present their positions. SO ORDERED. jointly and severally. The assailed February 28. and Antolin T. Naguiat and Antolin T. the foregoing premises considered. In spite of this." The Court here finds no application to the rule that a corporate officer cannot be held solidarily liable [39] with a corporation in the absence of evidence that he had acted in bad faith or with malice. The officers of the corporation were not parties to the case when the judgment in favor of the employees was rendered. in their individual capacities. Naguiat Enterprises. . Sergio Naguiat is held solidarily liable for corporate tort because he had actively engaged in the management and operation of CFTI. the individual respondents their separation pay computed at US$120. filed a position paper together with CFTI. Although he carried the title of "general manager" as well. they assail the NLRC Resolution holding Sergio F.00 for every year of service. We advert to the case of A. WHEREFORE. The corporate officers raised this issue when the labor arbiter granted the motion of the employees to enforce the judgment against them. a close corporation. Sergio and Antolin Naguiat voluntarily submitted themselves to the jurisdiction of the [40] labor arbiter when they.C.guarantee the payment to private respondents of any damages which they may incur by reason of the issuance of a temporary restraining order sought. are ORDERED to pay. Naguiat. Naguiat was the vice president of the CFTI. he cannot be held solidarily liable for the obligations of CFTI and Sergio Naguiat to the private respondents. the Court held the corporation president solidarily liable with the corporation. Naguiat are ABSOLVED from liability in the payment of separation pay to individual respondents. (2) Petitioner Sergio F. or its peso equivalent at the time of payment or satisfaction of the judgment. and Sergio F. president and co-owner thereof. no evidence on the extent of his participation in the management or operation of the business was proffered. before the arbiter. in petitioners' Supplement to their original petition. Antolin Naguiat not personally liable Antolin T. 1994 Resolution of the NLRC is hereby MODIFIED as follows: (1) Petitioner Clark Field Taxi.

Terms of Payment — Down payment of PESOS: TWO HUNDRED FORTY THREE THOUSAND (P243.." The root of this controversy is the undated letter-offer of Constancio B. and conditions. which describes itself as "a business concern of single proprietorship. Bag/Container — a) All be made of Standard Kraft (water resistant paper. to Yao Ka Sin Trading.000) bags minimum effective from June. bag net. President and Chairman of the Board of private respondent Prime White Cement Corporation. Commodity — Prime White Cement 2). .R. No. 224-73 by Bureau of Public Works. 4 ply. J. 7). 4).: Assailed in this petition for review is the decision of the respondent Court of Appeals in C." 3 and is represented by its manager. and b) P23.R. 1992 YAO KA SIN TRADING. Henry Yao. DAVIDE. 3). net per bag withdrawable in guaranteed monthly quantity of Fifteen Thousand (15.A. Price — At your option: a) P24. Quantity — Forty-five Thousand (45. MALAGNA. FOB Cebu City. vs. 61072R. Quality — As fully specified in certificate No. bag net.G. FOB Asturias Cebu. terms. represented by its President-Chairman. Manila Yao Ka Sin Tacloban City Gentlemen: We have the pleasure to submit hereby our firm offer to you under the following quotations. CONSTANCIO B. No. 5). to wit: 1). 1973 to August 1973. Republic of the Philippines. hereinafter referred to as PWCC. Delivery Schedule — Shipment be made within four (4) days upon receipt of your shipping instruction. and b) Breakage allowance — additional four percent (4%) over the quantity of each shipment. the letter reads as follows: PRIME WHITE CEMENT CORPORATION 602 Cardinal Life Building Herran Street. HONORABLE COURT OF APPEALS and PRIME WHITE CEMENT CORPORATION. petitioner. respondents. Maglana.30 per 94 lbs. 5064 entitled "Yao Ka Sin Trading versus Prime White Cement Corporation.00) payable on the signing of this contract and the balance to be paid upon presentation of corresponding shipping documents. owned and operated by YAO KA SIN. 1 promulgated on 21 December 1979. hereinafter referred to as YKS. 6).30 per 94 lbs.000.-G. Mr. L-53820 June 15. JR. reversing the decision 2 of the then Court of First Instance (now Regional Trial Court) of Leyte dated 20 November 1975 in Civil Case No.000) bags at 94 lbs. with bursting strength of 220 pounds.

as accepted by YKS. PRIME WHITE CEMENT CORPORATION BY: (SGD) CONSTANCIO B. each is made by us. hereinafter referred to as Exhibit "A". grant (sic) you the option to extend this contract until the complete delivery of Forty Five Thousand (45. The trial court rule in favor of the petitioner. is a contract that binds the PWCC.It is understood that in the event of a delay in our shipment. Please countersign on the space provided for below as your acknowledgement and confirmation of the above transaction. CATINDIG (SGD) ERNESTO LIM RECEIVED from Mr. . 1973. Teodoro Catindig. and has in no way to do with the letter-offer which they (sic) as consummated is by this resolution totally disapproved and is unacceptable to the corporation. the rejection is evidenced by the following Minutes (Exhibit "10"): the 10.000) bags of 94 lbs. MAGLANA President & Chairman CONFORME: YAO KA SIN TRADING BY: (SGD) HENRY YAO WITNESSES: (SGD) T. the Board of Directors of PWCC disapproved the same.00) in the form of Producers' Bank of the Philippines Check No. You are also hereby granted the option to renew this contract under the same price. Thank You. in pursuance of the above offer. 5 The principal issue raised in this case is whether or not the aforesaid letter-offer. C-153576 dated June 7.000. but the respondent Court held otherwise. Very truly yours. PRIME WHITE CEMENT CORPORATION BY: (SGD) CONSTANCIO B. was prepared. terms and conditions. MAGLANA President & Chairman 4 This letter-offer. Henry Yao of Yao Ka Sin Trading. or twenty-three (23) days after the signing of Exhibit "A". The records disclose the following material operative facts: In its meeting in Cebu City on 30 June 1973. In addition. typed and signed on 7 June 1973 in the office of Mr. the sum of Pesos: TWO HUNDRED FORTY THREE THOUSAND ONLY (P243.000 bags of white cement sold to Yao Ka Sin Trading is sold not because of the alledged letter-contract adhered to by them. you hold the option to discount any price differential resulting from a lower market price vis-a-vis the contract price. but must be understood as a new and separate contract. Senior Vice-President of the Consolidated Bank and Trust Corporation (Solid Bank).

Cebu.030 bags of white cement. PWCC reminded YKS of its (PWCC's) 5 July 1973 letter (Exhibit "1") and told the latter that PWCC "only committed to you and which you correspondingly paid 10. to its decision with respect to the 10. Cebu. YKS filed with the then Court of First Instance of Leyte a complaint for Specific Performance with Damages against PWCC. for the last time. 10 On 12 September 1973." In said reply. filed on 1 July 1974. but under a separate contract prepared by the Board. PWCC wrote a letter (Exhibit "1") to YKS informing it of the disapproval of Exhibit "A".On 5 July 1973. but this was returned to sender as unclaimed. YKS insisted on the delivery of 45.150 bags were already delivered to you as of August 11. particularly the price change from P23. PWCC wrote a letter (Exhibit "2") to YKS in answer to the latter's 4 August 1973 letter stating that it is "withdrawing or taking delivery of not less than 10. YKS accepted without protest both the Delivery and Official Receipts. however. PWCC denied under oath the material averments in the complaint and alleged that: (a) YKS "has no legal personality to sue having no legal personality even by fiction to represent itself. 11 On 2 November 1973.00 This is the same amount received and acknowledged by Maglana in Exhibit "A". wrote a letter 9 to PWCC as a follow-up to the letter of 15 August 1973. the original was left at the latter's office and this fact was duly noted in Exhibit "1" (Exhibit "l-A"). no copy of the said 4 August 1973 letter of YKS was presented in evidence. Henry Yao. bag net FOB Asturias. While the records reveal that YKS received this reply also on 21 August 1973 (Exhibit "3" "A"). PWCC sent an answer (Exhibit "7") to the aforementioned letter of 9 February 1974.000 bags of white cement of which 4. While YKS denied having received a copy of Exhibit "1". Likewise.30 to P24. The complaint 16 was based on Exhibit "A" and was docketed as Civil Case No. 5064.775 bags of white cement. 1973. On 4 August 1973. compliance by the latter with its obligation under Exhibit "A".000 bags of white cement on August 6-7. YKS sent a telegram (Exhibit "C") 12 to PWCC insisting on the full compliance with the terms of Exhibit "A" and informing the latter that it is exercising the option therein stipulated. since no one would sign a receipt for it. it was established that the original thereof was shown to Mr. YKS sent to PWCC a letter (Exhibit "D") as a follow-up to the 2 November 1973 telegram. no copy of the so-called 15 August 1973 letter was presented in evidence. PWCC reiterated the unenforceability of Exhibit "A". 13 As of 7 December 1973. PWCC had delivered only 9. (c) such signing was subject to the condition that Exhibit "A" be approved by the Board of Directors of PWCC. 15 On 4 March 1974. Henry Yao sent a letter (Exhibit "G") to PWCC calling the latter's attention to the statement of delivery dated 24 August 1973. On 10 September 1973. On 9 February 1974. thru M/V Taurus. On 3 November 1973. as corporate commitments are made through it. 0394 (Exhibit "5") for the payment of the same in the amount of P243. not under Exhibit "A". (e) it agreed to sell 10. 8 it still denied having received it. YKS wrote PWCC a letter (Exhibit "H") requesting. 1973 at Asturias. Maglana. 6 Unfortunately. PWCC wrote another letter (Exhibit "3") 7 to YKS in reply to the latter's letter of 15 August 1973. through Henry Yao. 14 On 27 February 1974. YKS. it is issued the corresponding Delivery Order (Exhibit "4") and Official Receipt No. Pursuant. (d) the latter disapproved it. was lured into signing Exhibit "A". On 21 August 1973. its President and Chairman." (b) Mr.000 bags of white cement. hence Exhibit "A" was never consummated and is not enforceable against PWCC.000.30 per 94 lbs. Enclosed in the reply was a copy of Exhibit "2".000 bags of cement. (f) the rejection by In its Answer with Counterclaim 17 .

SO ORDERED. no cause of action. In its Counterclaim. exemplary damages in the sum of P500. Finally. Per its By-Laws (Exhibit "8"). Because of its interest in the PWCC. therefore. . (7) To enter into (sic) agreement or contract of any kind with any person in the name and for and in behalf of the corporation through its President. shall be given to the board of directors of defendant Corporation. 27 In disregarding PWCC's theory. copies of which were attached to the Answer as Annexes 1. On 24 July 1974. While the president.000. Maglana was not authorized to make the offer and sign the contract in behalf of the corporation. among the duties of its legal counsel is to review proposed contracts before they are submitted to the Board. (2) Ordering defendant to pay P50. and (i) YKS has. PWCC presented evidence to prove that Exhibit "A" is not binding upon it because Mr. and that all contracts of the corporation should meet the approval of the NIDC and/or the PNB Board because of an exposure and financial involvement of around P10 million therein. (h) YKS is solely to blame for the failure to take complete delivery of 10. directives or resolutions.00 as attorney's fees. 26 On 20 November 1975. YKS filed its Answer to the Counterclaim. 21 Issues having been joined.00 as exemplary damages. may be tasked with the preparation of a contract.00. "has the power to execute and sign. contracts should first pass through the marketing and intelligence unit before they are finalized. all contracts or agreements which the corporation enters into.00. goes over contracts involving funds of and white cement produced by the PWCC. whenever the same is not expressly limited by such orders. the trial court conducted a pre-trial. net per bag at the price agreed.000. who is also the President of the corporation. . subject only to the declared objects and purpose of the corporation and the existing provisions of law.000 bags for it did not send its boat or truck to PWCC's plant. the court handed down its decision in favor of herein petitioner.000 bags were sold to it without any terms or conditions. at P24. and the costs of these proceedings." subject to the qualification that "all the president's actuations.000.000." It then concluded: .the Board of Exhibit "A" was made known to YKS through various letters sent to it. prior to and after he had signed and executed said contracts. as moral damages. the dispositive portion of which reads: WHEREFORE." 25 Per standard practice of the corporation. through its comptroller. after trial on the merits. 2 and 3. the Chairman of the Board. 23 During the trial. judgment is hereby rendered: (1) Ordering defendant: to complete the delivery of 45. 22 On that occasion. per Delivery Order 19 and Official Receipt 20 issued by PWCC.30 per bag FOB Asturias." Furthermore. — to mean that the latter may enter into such contract or agreement at any time and that the same is not subject to the ratification of the board of directors but "subject only to the declared objects and purpose of the corporation and existing laws. for and in behalf of the corporation. it must first pass through the legal counsel and the comptroller of the corporation. 24 Among the powers of the President is "to operate and conduct the business of the corporation according to his own judgment and discretion. only the Board of Directors has the power . the trial court interpreted the provision of the By-Laws — granting its Board of Directors the power to enter into an agreement or contract of any kind with any person through the President. PWCC asks for moral damages in the amount of not less than P10.000 bags of prime white cement at 94 lbs. the NIDC. the parties admitted that according to the By-Laws of PWCC.000. Cebu. 18 (g) YKS knew. with a breakage allowance of empty bags at 4% over the quantity agreed. P5. P3.000. that only 10. in view of the foregoing.00. it was likewise stated for the record "that the corporation is a semi-subsidiary of the government because of the NIDC participation in the same.00 and attorney's fees in the sum of P10.

" 28 It likewise interpreted the provision on the power of the president to "operate and conduct the business of the corporation according to the orders. It is likewise crystal clear that this automatic representation of the board by the president is limited only by the "declared objects and purpose of the corporation and existing provisions of law. does not require that Exhibit "A" be approved by the Board of Directors. IN FACT EXHIBIT "A" WAS TOTALLY REJECTED AND DISAPPROVED IN TOTO BY THE DEFENDANT'S BOARD OF DIRECTORS IN CLEAR. directives or resolutions of the board of directors and according to his own judgment and discretion whenever the same is not expressly limited by such orders. but only its president." 30 Hence. in the light of the Chairman's power to "execute and sign for and in behalf of the corporation all contracts or agreements which the corporation may enter into" (Exhibit "I-1")." to mean that the president can operate and conduct the business of the corporation according to his own judgment and discretion as long as it is not expressly limited by the orders. Finally. SUFFICIENT EXEMPLARY DAMAGES AND ATTORNEY'S FEES AS ALLEGED IN THE COMPLAINT AND PROVEN DURING THE TRIAL. ruled that the option to sell is not valid because it is not supported by any consideration distinct from the price. Maglana merely followed the By-Laws "presumably both as president and chairman of the board thereof. II THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFF CAN LEGALLY UTILIZE THE COURTS AS THE FORUM TO GIVE LIFE AND VALIDITY TO A TOTALLY UNENFORCEABLE OR NON-EXISTING CONTRACT." 31 while the private respondent cited the following errors: I THE TRIAL COURT ERRED IN HOLDING THAT EXHIBIT "A" IS A VALID CONTRACT OR PLAINTIFF CAN CLAIM THAT THE PROPOSED LETTER-CONTRACT. it concluded that Mr. AS THE SAME IS A MERE UNACCEPTED PROPOSAL. directives and resolutions. it further ruled that the By-Laws. II THE TRIAL COURT ERRED IN NOT AWARDING TO THE PLAINTIFF ACTUAL DAMAGES. 29 The trial court found no evidence that the board had set a prior limitation upon the exercise of such judgment and discretion. it was exercised before compliance with the original contract by PWCC. . EXHIBIT "A" IS LEGALLY ENFORCEABLE. however. NOT HAVING BEEN PREVIOUSLY AUTHORIZED TO BE ENTERED INTO OR LATER ON RATIFIED BY THE DEFENDANTS BOARD OF DIRECTORS. directives or resolutions of the board of directors. that it is not the whole membership of the board of directors who actually enters into any contract with any person in the name and for and in behalf of the corporation. Exhibit "A" was validly entered into by Maglana and thus binds the corporation.It is obvious therefore. The trial court. and the repudiation of the original contract by PWCC was deemed a withdrawal of the option before acceptance by the petitioner. Both parties appealed from the said decision to the respondent Court of Appeals before which petitioner presented the following Assignment of Errors: I THE TRIAL COURT ERRED IN HOLDING THAT THE OPTION TO RENEW THE CONTRACT OF SALE IS NOT ENFORCEABLE BECAUSE THE OPTION WAS MADE EVEN BEFORE THE COMPLIANCE OF (sic) THE ORIGINAL CONTRACT BY DEFENDANT AND THAT DEFENDANT'S PROMISE TO SELL IS NOT SUPPORTED BY ANY CONSIDERATION DISTINCT FROM THE PRICE. PLAIN LANGUAGE AND DULY INFORMED AND TRANSMITTED TO PLAINTIFF.

000 bags of white cement delivered to plaintiff was not by reason of the letter contract.000 bags of white cement of which 4.00 exemplary damages. Second. 32 In its decision 33 promulgated on 21 December 1979. This fact is very material to the issue of whether defendant corporations president can bind the corporation with his own act. to defendant's Answer). 3. then we will deposit your check of P243. The resolution contained in defendant's letter to plaintiff dated July 5. the defendant corporation is supervised and principally financed by the National Investment and Development Corporation (NIDC). which was totally disapproved by defendant corporation's board of directors.III THE TRIAL COURT ERRED IN ALLOWING YAO KA SIN TO IMPUGN AND CONTRADICT HIS VERY OWN ACTUATIONS AND REPUDIATE HIS ACCEPTANCE AND RECEIPTS OF BENEFITS FROM THE COUNTER-OFFER OF DEFENDANT FOR 10. for failure to deny under oath the following actionable documents in support of defendant's counterclaim: 1. and P10. 1973 to plaintiff reiterating defendant's letter of August 4. a subsidiary investment of the Philippine National Bank (PNB). per instruction of the Board.000. 4.000. the respondent Court reversed the decision of the trial court. Letter of defendant to plaintiff dated August 4. IV THE TRIAL COURT ERRED IN DISMISSING DEFENDANT'S COUNTER-CLAIMS AS THE SAME ARE DULY SUPPORTED BY CLEAR AND INDUBITABLE EVIDENCE. Letter to stores dated August 21.150 bags were already delivered to you as of August 1. TERMS AND CONDITIONS TOTALLY FOREIGN TO AND WHOLLY DIFFERENT FROM THOSE WHICH APPEAR IN EXHIBIT "A".000 bags of white cement at P24.00 dated June 7.000.00. the judgment appealed from is REVERSED and set aside. it is helpful to bring out some preliminary facts. Plaintiff is ordered to pay defendant corporation P25. with cash financial exposure of some P10. Plaintiff's complaint is dismissed with costs. Receipt from plaintiff (sic) P243. clearly stating that "If within ten (10) days from date hereof.30 per bag from our plant. 1973 (Annex "3" to defendant's Answer).000.00 in payment of 10. we will not hear from you but you will withdraw cement at P24. thus: WHEREFORE. SO ORDERED.000. 1973 issued by the Producers Bank of the Philippines.00 attorney's fees. 1973. UNDER THE PRICE.30 per bag (Annex "5". 2. 1973" (Annex "2" of defendant's Answer). Exhibit "A". First. Letter dated August 21.000 BAGS OF CEMENT ONLY. . 1973 that defendant "only committed to you and which you accordingly paid 10. 1973. to wit: Before resolving the issue. Such conclusion is based on its findings. 5. PNB is a government financial institution whose Board is chairmaned (sic) by the Minister of National Defense. on the 10.000." (Annex "I" to defendant's Answer).

therefore. 8. is: 38 . Civil Code). concerns the lack of capacity of plaintiff/petitioner to sue. and contracts entered into through. That Sec. petitioner filed the instant petition based on the following grounds: 1. 43 O-G. 343. A corporate officers power as an agent must be sought from the law. The issue. In the caption of both the complaint and the instant petition. the express authority of the Board of Directors (Sec. Having no cause of action against defendant corporation. All of the foregoing documents tend to prove that the letter-offer. Exh "I" or "8"). this Court must first resolve an issue which. for the court a quo's awards in its favor. 3. respectively. 13 CA Rep. That the option to renew the contract as contained in Exhibit "A" is enforceable. "A") was never novated nor superceded (sic) by a subsequent contract. While it may be true that Maglana is President of defendant corporation nowhere in the Articles of Incorporation nor in the By-Laws of said corporation was he empowered to enter into any contract all by himself and bind the corporation without first securing the authority and consent of the Board of Directors. the agreement is unenforceable (Art. And because Maglana was not authorized by the Board of Directors of defendant corporation nor was his. Maglana's signing the letter-offer prepared for him in the Solidbank was made clearly upon the condition that it was subject to the approval of the board of directors of defendant corporation. . 1974. "A") entered into by the President and Chairman of the Board of Directors Constancio B. Sec. Rule 8 of the Rules of Court only applies when the adverse party appear (sic) to be a party to the instrument but not to one who is not a party to the instrument and Sec. Corp. (Rule 8 Sec. That the contract (Exh. Rules of Court). 2. when he threatened legal action. Maglana in behalf of the respondent corporation binds the said corporation. plaintiff is not entitled to any relief. Raquiza et al. Board of Liquidators vs. Kalaw. As proof of which plaintiff did not complain nor protest until February 9. although raised in the Answer of private respondent. Law. 4. which the parties subsequently complied with. Lilles et al. 28. Rule 9 of the said Rules with regards (sic) to denying under oath refers only to allegations of usury. It clearly results from the foregoing that the judgment appealed from is untenable. 1. Rules of Court) but also the allegations therein (Rule 9. and the By-Laws of defendant corporation. 20 SCRA 987). Third. 1403 (1). Fourth. Civil Code. not only the due execution and genuiness (sic) of said documents. 34 Its motion for reconsideration having been denied by the respondent Court in its resolution 35 dated 15 April 1980. all corporate commitments and business are conducted by. the plaintiff and the petitioner. was an unauthorized contract (Arts. It also eluded the attention of the trial court and the respondent Court. was neither pursued in its appeal before the respondent Court nor in its Comment and Memorandum in this case. 3224). That the contract (Exh.000. Geraldez. Exhibit "A". . 1317 and 1403 (1). . Gana vs. 8. vs. actuation ratified by the Board. Whatever authority Maglana may have must be derived from the Board of Directors of defendant corporation.00 check was considered by both parties as payment of the 10. 52 SCRA 227. We find consistency herein because according to the Corporation Law. 39 Before going any further. 36 We gave due course 37 to the petition after private respondent filed its Comment and required the parties to submit simultaneously their Memoranda. was rejected by defendant corporation's Board of Directors and plaintiff was duly notified thereof and that the P243. the articles of incorporation and the By-Laws or from a resolution of the Board (Vicente vs. We see no justification.. which is of paramount importance. Archbishop of Manila. 1.000 bags of cement under a separate transaction.plaintiff is deemed to have admitted. What Henry Yao and Maglana agreed upon as embodied in Exhibit "A". insofar as defendant corporation is concerned.

that Mr. . And even admitting. as gathered from the decision of the trial court." 42 It also appears that. Maglana was not so authorized under the By-Laws." 47 We hold and declare that Yao Ka Sin should be deemed as the plaintiff in Civil Case No. it is not an entity authorized by law to bring suit in court: The law merely recognizes the existence of a sole proprietorship as a form of business organization conducted for profit by a single individual. 5064 and the petitioner in the instant case. In Juasing Hardware vs. subject only to the declared objects and purpose of the corporation and the existing provisions of law. its President and Chairman. . (Exhibit "8-A"). and the same evidence. The respondent Court correctly ruled that Exhibit "A" is not binding upon the private respondent. as We held in Juasing. Petitioner. 40 and is described in the body thereof as "a business concern of single proprietorship owned and operated by Yao Ka Sin. The name of the plaintiff would constitute the only difference between the old trial and the new. it is described as "a single proprietorship business concern. However. 46 The complaint then should have been amended to implead Yao Ka Sin as plaintiff in substitution of Yao Ka Sin Trading. the same interests. possess any juridical personality separate and apart from the personality of the owner of the enterprise and the personality of the persons acting in the name of such proprietorship. Mendoza. the same answer. In our judgment there is not enough in a name to justify such action. Rule 10 of the Rules of Court which provides that "[a] defect in the designation of the parties may be summarily corrected at any stage of the action provided no prejudice is caused thereby to the adverse party. and pair taxes to the national government." and that "[a] sole proprietorship does not. there would be on the retrial the same complaint. Government Service Insurance . the same witnesses. Maglana. and an amendment to cure such defect is expressly authorized by Section 4. all contracts or agreements which the corporation may enter into" (Exhibit "I-1"). enter into (sic) agreement or contract of any kind with any person in the name and for and in behalf of the corporation through its President. maintains that it is a valid contract because the Maglana has the power to enter into contracts for the corporation as implied from the following provisions of the By-Laws of private respondent: a) The power of the Board of Directors to . Villamor: 48 No one has been misled by the error in the name of the party plaintiff. only natural or juridical persons or entities authorized by law may be parties in a civil action. the same defense. and requires the proprietor or owner thereof to secure licenses and permits.YAO KA SIN TRADING. Considering that private respondent did not pursue this issue before the respondent Court and this Court. nullify all proceedings had before the trial court and the respondent Court on the sole ground of petitioner's lack of capacity to sue. for the sake of argument. and b) The power of the Chairman of the Board of Directors to "execute and sign. the defect is merely formal and not substantial. Mr. on the other hand. the private respondent. in effect. It does not vest juridical or legal personality upon the sole proprietorship nor empower it to file or defend an action in court. Rule 3 of the Rules of Court. one Henry Yao took the witness stand and testified that he is the "manager of Yao Ka Sin Trading" and "it was in representation of the plaintiff" that he signed Exhibit "A" 43 Under Section 1. for and in behalf of the corporation. And now to the merits of the petition. the proper party plaintiff/petitioner should be YAO KA SIN. 44 this Court held that a single proprietorship is neither a natural person nor a juridical person under Article 44 of the Civil Code. As this Court stated nearly eighty (80) years ago in Alonso vs. pursuant to the doctrine laid down by this Court in Francisco vs. was not empowered to execute it. Instead. If we should by reason of this error send this case back for amendment and new trial." 41 In the body of the petition. of coarse. it is now too late in the history of this case to dismiss this petition and. no Yao Ka Sin testified. register the business name. 45 Accordingly. owned and operated by YAO KA SIN. that.

liabilities and incapacities as are agents of individuals and private persons. Although there is authority "that if the president is given general control and supervision over the affairs of the corporation. That power is exclusively lodged in the latter. and. are subject to the same rules. such as the private respondent. . but limited. "if a private corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for it. or may be implied from. for a considerable time. in other words. Besides. We note that the private corporation has a general manager who. conducting the same accordingly to the order. of whatever status or rank. as usually pertaining to the particular officer or agent. or so much thereof as are required for the act — shall sign it for the corporation. No greater power can be implied from such express. the following powers: "(a) to have the active and direct management of the business and operation of the corporation. 56 . 52 While there can be no question that Mr." 55 This "apparent authority may result from (1) the general manner. Petitioner's last refuge then is his alternative proposition. Nevertheless. the above provisions of said private respondent's By-Laws do not in any way confer upon the President the authority to enter into contracts for the corporation independently. "all acts within the powers of said corporation may be performed by agents of its selection. Kalaw." 54 Also. Since a corporation. the corporation will be estopped to deny that such apparent authority in real. except so far as limitations or restrictions may be imposed by special charter. of the Board of Directors. continuously and publicly. powers added by custom and usage. or in excess of. it will be presumed that he has authority to make contract and do acts within the course of its ordinary business. his actual authority if he acts within the scope of an apparent authority with which the corporation has clothed him by holding him out or permitting him to appear as having such authority. 50 is still bound by his act for clothing him with apparent authority." 53 We find such inapplicable in this case. with actual or constructive knowledge thereof. Maglana with the apparent power to act for it and had caused persons dealing with it to believe that he was conferred with such power. Neither can it be logically claimed that any power greater than that expressly conferred is inherent in Mr. and such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has conferred. or a particular branch of it. We are not persuaded. the apparent authority with which it clothes him to act in general or (2) acquiescence in his acts of a particular nature. no evidence was adduced to show that Mr. in respect to his power to act for the corporation. namely." It goes without saying then that Mr. a corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that authority to do so has been conferred upon him. can act only through its officers and agents. Both powers presuppose a prior act of the corporation exercised through the Board of Directors. by-law. and agents when once appointed. that private respondent had clothed Mr." 51 Moreover. This is the import of the words through the president in Exhibit "8-A" and the clear intent of the power of the chairman "to execute and sign for and in behalf of the corporation all contracts and agreements which the corporation may enter into" in Exhibit "I-1". delegated authority. to expedite or facilitate the execution of the contract. in the usual course of the particular business. the corporation is bound thereby in favor of a person who deals with him in good faith in reliance on such apparent authority. Maglana was an officer — the President and Chairman — of private respondent corporation at the time he signed Exhibit "A". as to innocent third persons dealing in good faith with such officers or agents. Maglana's position as president and chairman of the corporation. and also such powers as. by which the corporation holds out an officer or agent as having power to act or. only the President — and not all the members of the Board. whether within or without the scope of his ordinary powers. inter alia. and this includes powers which have been intentionally conferred. Maglana did not have a direct and active and in the management of the business and operations of the corporation. or statutory provisions. " . as where an officer is allowed to exercise a particular authority with respect to the business. The rule is of course settled that "[a]lthough an officer or agent acts without. Maglana had. are incidental to. directives or resolutions of the Board of Directors or of the president. or members acting in their stead. the same general principles of law which govern the relation of agency for a natural person govern the officer or agent of a corporation.System 49 and Board of Liquidators vs. the powers intentionally conferred. entered into contracts similar to that of Exhibit "A" either with the petitioner or with other parties. under its By-Laws has. in the past. .

000. per instruction of the Board. Exhibit "A". This Court then ruled that: This silence. plaintiff quoted verbatim the telegram of acceptance. unless it is ratified. shall be unenforceable. Ratification may be effected expressly or tactly it is understood that there is a tacit ratification if. at least. the Kalaw contracts are valid corporate acts. it was established that the offer of compromise made by plaintiff in the letter. that Exhibit "A" is a valid contract binding upon the private respondent. who is the NIDC representative.000 advanced by her father. The second ground is based on a wrong premise. or unless he has by law a right to represent him. practically laid aside the by-laws requirement of prior approval. before it is revoked by the other contracting party. considered the amount of P243. by the person on whose behalf it. GSIS and Board of Liquidators vs.000. the comptroller. 1393. based on the conduct and actuations of the corporations concerned. Moreover. of apparent authority conferred upon the officer involved which bound the corporations on the basis of ratification. It was sent by the GSIS Board Secretary and defendant did not disown the same.30 per bag from our plant. The cases then of Francisco vs. 1393). Upon the other hand. Kalaw are hopelessly unavailing to the petitioner. contrary to Our conclusion above. was validly accepted by the GSIS. the board should give its stamp of prior approval on all corporate contracts. private respondent's evidence overwhelmingly shows that no contract can be signed by the president without first being approved by the Board of Directors.00 received Mr. The terms of the trial offer were clear. constitutes in itself a binding ratification of the original agreement (Civil Code. The inevitable conclusion then is that Exhibit "A" is an unenforceable contract under Article 1317 of the Civil Code which provides as follows: Art." Petitioner received the copy of this notification and thereafter accepted without any protest the Delivery Receipt covering the 10. It assumes. 1317. . Petitioner miserably failed to do that.000 bags of white cement. A contract entered into in the name of another by one who has no authority or legal representation. the practice of the corporation has been to allow its general manager to negotiate and execute contracts in its copra trading activities for and in NACOCO's behalf without prior board approval.000 bags of white cement. In the first case. GSIS pocketed the amount and kept silent about the telegram.000 bags and the Official Receipt for the P243. this Court found: In the case at bar. in a letter remitting the payment of P30. has been execrated. If the by-laws were to be literally followed. In said cases. Art. taken together with the unconditional acceptance of three other subsequent remittances from plaintiff. But that board itself. with knowledge of the reason which renders the contract voidable and such reason having ceased. Maglana as payment for 10.00. Notwithstanding this notice. then we will deposit your check of P243. expressly or impliedly.000. Under the given circumstances. by its acts and through acquiescence. 1973 issued by the Producers Bank of 57 the Philippines. or who has acted beyond his powers. Art. and forthwith notified petitioner of its decision that "If within ten (10) days from date hereof we will not hear from you but you will withdraw cement at P24.00 dated June 7. Maglana with the apparent power to execute Exhibit "A" or any similar contract.It was incumbent upon the petitioner to prove that indeed the private respondent had clothed Mr. the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right In the second case. and over the signature of defendant's general manager Rodolfo Andal. plaintiff was informed telegraphically that her proposal had been accepted. treated as an entirely different contract. This was in itself notice to the corporation of the terms of the allegedly unauthorized telegram. This could have been easily done by evidence of similar acts executed either in its favor or in favor of other parties. at the same time. such approval may only be given after the contract passes through. and the legal counsel. The respondent Court thus correctly ruled that petitioner had in fact agreed to a new transaction involving only 10. this Court found sufficient evidence. No one may contract in the name of another without being authorized by the latter. It was effectively disapproved and rejected by the Board of Directors which.

WHEREFORE. to be a party to the instrument or when compliance with an order for an inspection of the original instrument is refused. No. the above quoted rule is not applicable. nevertheless. Rule 8 of the Rules of Court provides: Sec. meritorious. except when the option is founded upon a consideration. it can not validly bind the private respondent. the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party. the option granted in. In any event. this case is without any consideration Article 1324 of the Civil Code expressly provides that: When the offerer has allowed the offeree a certain period to accept. judgment is hereby rendered AFFIRMING the decision of respondent Court of Appeals in C. The fourth ground is. even if it were accepted. specifically denies them. The river cannot rise higher than its source. Thus. G. How to contest genuineness of such documents — When an action or defense is founded upon a written instrument.R. 59 While the respondent Court. however.The third ground must likewise fail. while Article 1749 of the same Code provides: A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. 8. Cost against the petitioner. stand in view of the above disquisitions on the first to the third grounds of the petition. copied in or attached in the corresponding pleading as provided in the preceding section. as something paid or promised. erred in holding otherwise. but this provision does not apply when the adverse party does not appear. Exhibit "A" being unenforceable.A. 61072-R promulgated on 21 December 1979. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. Section 8. . Accordingly. under oath. and sets forth what he claims to be the facts. the 58 challenged decision must. the option to renew it would have no leg to stand on. It is clear that the petitioner is not a party to any of the documents attached to the private respondent's Answer. the offer may be withdrawn at any time before acceptance by communicating such withdrawal.

On 3 November 1982. This Audit Report noted and enumerated irregularities in the utilization of funds amounting to P37 Million released by NEA to Beneco.G. COA issued another Memorandum — Audit Memorandum No.R. and struck his name out as a principal signatory to transactions of petitioner Beneco. These Board Resolutions abolished the housing allowance of respondent Cosalan. reduced his salary and his representation and commutable allowances. The respondent members of the Board of Beneco reacted by adopting a series of resolutions during the period from 23 June to 24 July 1984. . On 12 November 1982.48 had been virtually written off in the books of Beneco. No. that the services of Peter M. respondent Cosalan received Audit Memorandum No. petitioner. INC. and recommended that appropriate remedial action be taken. * respondents. with the approval of the National Electrification Administrator. NATIONAL LABOR RELATIONS COMMISSION. 1992 BENGUET ELECTRlC COOPERATIVE. On 19 May 1983.618. . Cosalan as General Manager of BENECO is terminated upon approval of the National Electrification Administration. the COA directed petitioner Beneco to secure the approval of the National Electrification Administration ("NEA") before writing off or condoning those cash advances. effective 16 October 1982. directed him to hold in abeyance all pending personnel disciplinary actions. the respondent Beneco Board members adopted another series of resolutions which resulted in the ouster of respondent Cosalan as General Manager of Beneco and his exclusion from performance of his regular duties as such. This Memorandum noted that cash advances received by officers and employees of petitioner Beneco in the amount of P129. FELICIANO. 91-4 dated 28 July 1984: . Resolution No. . 89070 May 18.. These resolutions were as follows: 1.: Private respondent Peter Cosalan was the General Manager of Petitioner Benguet Electric Cooperative.. vs. Mr. INC. 2 –– addressed to respondent Peter Cosalan. PETER COSALAN and BOARD OF DIRECTORS OF BENGUET ELECTRIC COOPERATIVE. Inc. J. having been elected as such by the Board of Directors of Beneco. petitioner Beneco received the COA Audit Report on the financial status and operations of Beneco for the eight (8) month period ended 30 September 1982. Having been made aware of the serious financial condition of Beneco and what appeared to be mismanagement. respondent Cosalan initiated implementation of the remedial measures recommended by the COA. The Audit Memorandum once again directed the taking of immediate action in conformity with existing NEA regulations. as well as the withholding of his salary and allowances. inviting attention to the fact that the audit of per diems and allowances received by officials and members of the Board of Directors of Beneco showed substantial inconsistencies with the directives of the NEA. During the period from 28 July to 25 September 1984. 1 issued by the Commission on Audit ("COA"). In the Audit Memorandum. and recommended the adoption of remedial measures. Pedro Dumol. ("Beneco").

in the belief that he could be suspended or removed only by duly authorized officials of NEA. Cosalan is hereby suspended from his position as General Manager of the Benguet Electric Cooperative. denied the written request of respondent Cosalan. 151-84 dated September 15. By this time. although opposed by petitioner Beneco. Resolution No. 176-84 dated September 25. . but moved to dismiss the appeal filed by respondent Board members and for execution of judgment. Petitioner Beneco complied with the Labor Arbiter's order on 28 October 1987 through Resolution No. the latter in their respective dual capacities as Directors and as private individuals. On 18 February 1985. . No. . 1984 stands as preventive suspension for GM Peter M. revoked or rescinded by the Board of Directors. Cosalan amended his complaint to implead petitioner Beneco and respondent Board members. 3. that all monies due him are withheld until cleared. Cosalan. Cosalan filed a motion for reinstatement which. (BENECO) effective as of the start of the office hours on September 24. providing for its capitalization. 269. 1984. Respondent Board members appealed to the NLRC. and not respondent Board members. that Resolution No. Beneco. dated September 15. in accordance with provisions of P.D. 1984. 1645 (the statute creating the NEA. . Adquilen. 3Accordingly. jointly and severally. . was granted on 23 October 1987 by Labor Arbiter Amado T. petitioner Beneco had a new set of directors.00 plus attorney's fees of ten percent (10%) of the wages and allowances awarded him. (b) ordering payment to Cosalan of his backwages and allowances by petitioner Beneco and respondent Board members. and there filed a Memorandum on Appeal. In the course of the proceedings before the Labor Arbiter. Petitioner Beneco did not appeal.D. until a final decision has been reached by the NEA on his dismissal. 151-84. and (3) ordering the individual Board members to pay. powers and functions and organization). Resolution No. amounting to P344. as amended by P.2. . for a period of three (3) years without deduction or qualification. on 5 October and 10 November 1984. No. that Peter M. .00. .000. 1 Respondent Cosalan nevertheless continued to work as General Manager of Beneco.000. Inc. that GM Cosalan's suspension from office shall remain in full force and effect until such suspension is sooner lifted. . In a decision dated 21 November 1988. public respondent NLRC modified the award rendered by the Labor Arbiter by declaring that petitioner Beneco alone. . jointly and severally. Respondent Cosalan then filed a complaint with the National Labor Relations Commission ("NLRC") on 5 December 1984 against respondent members of the Beneco Board. 10-90. the loan agreement between NEA and petitioner Beneco 2 and the NEA Memorandum of 2 July 1980. challenging the legality of the Board resolutions which ordered his suspension and termination from the service and demanding payment of his salaries and allowances. 1984. acting through respondent Board members. to Cosalan moral damages of P50. On 5 April 1988. respondent Cosalan requested petitioner Beneco to release the compensation due him. the Labor Arbiter rendered a decision (a) confirming Cosalan's reinstatement.

Accordingly. they had only up to 2 May 1988 within which to perfect their appeal by filing their memorandum on appeal. It is also not disputed that the respondent Board members' memorandum on appeal was posted by registered mail on 3 May 1988 and received by the NLRC the following day. that the NLRC had acted with grave abuse of discretion in accepting and giving due course to respondent Board members' appeal although such appeal had been filed out of time. Rule XIV of the Omnibus Rules Implementing the Labor Code. but without success. Beneco's principal contentions are two-fold: first. 4 Clearly. 7 The respondent Board members had thus lost their right to appeal from the decision of the Labor Arbiter and the NLRC should have forthwith dismissed their appeal memorandum. the applicable rule was that the ten-day reglementary period to perfect an appeal is mandatory and jurisdictional in nature. therefore. the date of actual receipt by the court. That illegality flowed. from the fact that the suspension of Cosalan was continued long after expiration of the period of thirty (30) days. that failure to file an appeal within the reglementary period renders the assailed decision final and executory and no longer subject to review. Secondly. Cosalan had been deprived of procedural due process by the respondent Board members. through its new set of directors. which is the maximum period of preventive suspension that could be lawfully imposed under Section 4. and by ruling that there was no legal basis for the award of moral damages and attorney's fees made by the Labor Arbiter. 5 The established rule is that the date of delivery of pleadings to a private letter-forwarding agency is not to be considered as the date of filing thereof in court. was. There is no dispute about the fact that the respondent Beneco Board members received the decision of the labor Arbiter on 21 April 1988. firstly.was liable for respondent Cosalan's backwages and allowances. He was never informed of the charges raised against him and was given no opportunity to meet those charges and present his side of whatever dispute existed. Respondent Board member's contention runs counter to the established rule that transmission through a private carrier or letter-forwarder –– instead of the Philippine Post Office –– is not a recognized mode of filing pleadings. and that in such cases. moved for reconsideration of the NLRC decision. Respondent Board members. a licensed private letter carrier. In the present Petition for Certiorari. insist that their Memorandum on Appeal was filed on time because it was delivered for mailing on 1 May 1988 to the Garcia Communications Company. The Board members in effect contend that the date of delivery to Garcia Communications was the date of filing of their appeal memorandum. Beneco. however. is deemed the date of filing of that pleading. he was kept totally in the dark as to the reason or . There is another and more compelling reason why the respondent Board members' appeal should have been dismissed forthwith: that appeal was quite bereft of merit. 6 There. that the NLRC had acted with grave abuse of discretion amounting to lack of jurisdiction in holding petitioner alone liable for payment of the backwages and allowances due to Cosalan and releasing respondent Board members from liability therefor. We consider that petitioner's first contention is meritorious. the memorandum on appeal was filed out of time. and because 1 May 1988 was a legal holiday. no reason grounded upon substantial justice and the prevention of serious miscarriage of justice that might have justified the NLRC in disregarding the ten-day reglementary period for perfection of an appeal by the respondent Board members. and second. and not the date of delivery to the private carrier. Accordingly. Both the Labor Arbiter and the NLRC had found that the indefinite suspension and termination of services imposed by the respondent Board members upon petitioner Cosalan was illegal.

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

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

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

Branch 36. This Court finds the following facts as relevant: In Criminal Case No.. counsel of Louis Vuitton. on the ground that the latter knowingly rendered a manifestly unjust judgment.V. trademarks and logo of "LOUIS VUITTON " and "LV". S. complainant. sell and offer for sale lady's bags. 1989. before judgment. unlawfully and feloniously manufacture. Store . No. Louis Vuitton. Rosario be declared guilty beyond reasonable doubt of having committed the offense described in the criminal information against him. the evidence presented and the arguments advanced by the parties. accused the latter of unfair competition as defined by paragraph 1 of Article 189. Atty.A.A. the above named accused. that private complainant is suing the accused for the protection of the trade mark Louis Vuitton and the L. where the prosecution prayed: Premises considered. in unfair competition and for the purpose of deceiving or defrauding it of its 1 legitimate trade or the public in general. Felino Padlan of the Quasha Law . XXXVI-62431. giving to them the general appearance of goods or products of said private complainant. . wilfully. . thus. 1992 LOUIS VUITTON S. On February 8. France. . . JUDGE FRANCISCO DIAZ VILLANUEVA. should (sic) bags. respondent. presiding Judge. . logo which are duly registered with the Philippine Patent Office. The information stated: . vs. did then and there. or such appearance which would be likely to induce the public to believe that said goods offered are those of private complainant. wallets. represented by counsel. Revised Penal Code. Quasha Asperilla Ancheta Peña and Nolasco Law Office. Metro Manila.A. against Judge Francisco Diaz Villanueva of the Metropolitan Trial Court of Quezon City. In the alternative.M.. S. 1991. The Metropolitan Trial Court at Quezon City.A. JR.A. French Company with business address at Paris. . .: This is a complaint filed by Louis Vuitton. The trial court summarized its factual findings as follows: From the records of the case. Jose V. it is respectfully moved that the accused be committed to answer for the proper offense of "giving other persons (the supposed concessionaire) a chance or opportunity to commit unfair competition" (Section 1.A. prosecution filed the Prosecution's Memorandum with Motion found in Annex "A" of the Complaint. . Rosario". . if the accused cannot be held responsible for the criminal information against him. MTJ-92-643 November 27. it is most respectfully prayed that the accused Jose V. that on May 10. entitled "People of the Philippines vs. CAMPOS. Article 189 of the Revised Penal 2 Code in conjunction with Rule 119 of the 1985 Rules on Criminal Procedure). which are exclusive trademarks owned and registered with the Philippine Patent Office in the name of private complainant LOUIS VUITTON S. distribute. S. Branch 36. purses and other similar goods made of leather with the labels. the Court finds that the complaining witness in this case is the representative and attorney-in-fact. . J. as owner/proprietor of Manila COD Department.

but the prosecution did not do this and relied only on the inventory of the seized goods prepared by the NBI agents with the typewritten word owner/representative. An examination of the inventory . Miguel trade mark and logo of Louis Vuitton . From the appearance of all the seized goods. The accused. Further. that the application was granted and the Search Warrant was issued against COD and was enforced on the same date. that again on September 6. .00) PESOS to FIVE THOUSAND (P5. Aside from this. claimed: that he is not the manufacturer or seller of the seized articles.Office brought a letter to the COD informing the latter to cease and desist from selling leather articles bearing the trade marks Louis Vuitton and L. From the price tags attached to a seized bag.00) PESOS. upon the request of the Quasha law Firm applied for a Search Warrant at the Metropolitan Trial Court in Quezon City. the test of unfair competition is whether the goods have been made to appear that will likely deceive the ordinary purchaser exercising ordinary care. . The prosecution evidence shows that long before the raid of September 28. With respect to the seized goods. . . but from the evidence presented. when the case was filed the Prosecutor's Office. prosecution witness. . it is very apparent that these . it could be seen that the article carried a price tag of ONE HUNDRED FORTY-SEVEN (P147. that from the implementation of the said Search Warrant. 1989. the NBI. . surveys have been caused to be made by the Quasha Law Firm.00) PESOS. about seventy-two (72) leather products were seized. that these seized products were being sold not only t the COD but also in some big department (sic) store such as Cash and Carry. that the said articles were sold in the store by a concessionaire by the name of Erlinda Tan who is doing business under the name of Hi-Tech Bags and wallets. 1989. The prosecution relied as their evidence against the accused the inventory which was signed by him (accused) with a notation under his signature "owner/representative".V.000. would show that the same was a prepared form of the NBI and that the accused was made to sign only on the space on the typewritten word owner/representative. considering that the accused denied being the manufacturer or seller of the seized articles. . the buckle of the bag also carries the logo of Gucci. said Mrs. It is apparent that the seized articles did not come close to the appearance of a genuine Louis Vuitton product. 3 In acquitting the accused.000. on the other hand. it is incumbent upon the prosecution to prove that said articles are owned and being sold by the accused. logo as the same is the registered trade marks belonging to the private complainant which has not authorized any person in the Philippines to sell such articles. whereas. . The seized goods which were marked as exhibits and presented to the Court would easily show that there was no attempt on the part of the manufacturer or seller to pass these goods as products of Louis Vuitton. Further. 1989. Domingo again bought from the same store a wallet with a trade mark and logo of Louis Vuitton . it stated the name of the accused as the owner of the COD. that on August 4. that from the implementation of the said date. upon examination of the expert witness presented by the prosecution. that the accuse signed the inventory of the seized articles. he testified that a genuine bag of Louis Vuitton would cost about FOUR THOUSAND (P4. no other evidence was presented by the prosecution to show that there is a link between the Manufacturers of the seized goods and the accused. it appears that the accused is not the owner by the stockholder and the executive-vice president thereof. not only at the COD but also in other department stores as far as Baguio City and Cebu City. that on September 28 1989. another trade mark. the trial court gave the following reasons: From all the foregoing. They could have easily verified from the Securities and Exchange Commission who the actual officers of the COD [are] to be charged.

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

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

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

. called upon to try the facts or interpret the law in the process of administering justice can be infallible in his judgment. it is a fundamental rule of long standing that a judicial officer when required to exercise his judgment or discretion is not criminally liable for any error he commits provided he acts in good faith. We said: 21 where Well established is the rule that mere errors in the appreciation of evidence." and "to hold a judge administratively accountable for every erroneous ruling or decision he renders assuming that he has erred. . unless so gross and patent as to produce an inference of ignorance or bad faith. the Supreme Court spoke of the rationale for this immunity. an inexpliacable grave error bereft of any redeeming feature. . This pronouncement has been reiterated by Us in the case of Miranda vs. criminal. its purpose being to preserve the integrity and independence of the judiciary. or a manifestly deliberate intent to wreak ( sic) an . the evidence for the defense was entitled to more weight and credence.. In Mendoza vs. there was on the face of the assailed decisions. shall be free to act upon his own convictions. We have ruled that: In these res ipsa loquitur resolutions. complainant failed to show any unmistakable indication that bad faith motivated the alleged unjust actuations of the respondent judge . . any positive evidence on record that the respondent judge rendered judgment in question with conscious and deliberate intent to do an injustice. . If in the mind of the respondent. not 22 23 matter how erroneous." This concept of judicial immunity rests upon consideration of public policy. Absent.Valenzuela. In Re: Wenceslao 26 27 Laureta. would be nothing short of harrasment or would make his position unbearable. or administrative — for any his official acts. thus: . without apprehension of personal consequences to himself. In similar administrative cases separately 28 29 filed against Judge Liwag and Judge Dizon. . the cannot held to account administratively for the result of his ratiocination. shall be free to act the authority vested in him. Romillo. as long as he acts in good faith. All that is expected of him is that he follows the rules prescribed to ensure a fair and impartial hearing. thus. 20 this Court has also held: . a patent railroading of a case to bring about an unjust decision. assess the different factors that emerge therefrom and bear on the issues presented. . the . . Guevarra. No one called upon to try the facts or interpret the law in the process of administering justice is infallible in his judgment. is not applicable to the case at bar. . complainant wants Us to apply the Res Ipsa Loquitur Doctrine as applied by this Court in the cases 24 25 of People vs. and on the basis of the conclusions he find established. Still. . the judge cannot be held administratively responsible . it is a general principle of the highest importance to the proper administration of justice that a judicial officer. . . and Consolidated Bank and Trust Corporation vs. that in the absence of malice or any wrongful conduct . For that is the very essence of judicial inquiry: otherwise the burdens of judicial office will be intolerable. . Judge Manalastas. That doctrine. (Emphasis supplied) A judge cannot be subjected to liability –– civil. In Pabalan vs. charge of the complainant must fall. adjudicate the case accordingly. Villaluz. . . in exercising the authority vested in him. Capistrano. . with only his conscience and knowledge of the law to guide him. We held. . Cathay Pacific Airways vs. however. are irrelevant and immaterial in administrative proceedings against him. or that the judge knowingly rendered an unjust decision. for "no one.

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

1988. Rollo). Rollo) which certified that in a special meeting of the Board of Directors of Quilts and All. 1988. secured by his house and lot at Angeles City and the property owned by Quilts covered by Transfer Certificate of Title No. allegedly. Inc. Rollo) On October 4. Dizon and de los Santos for annulment and cancellation of mortgage (CC 5570. 74172 (Annex "B". 1989. Atty. 33. Balane. Rollo). MELO. Metrobank moved to dismiss the complaint based on 1) lack of jurisdiction and 2) . In addition. 74172 on April 10. Angeles City) (Annex "E". 10. de los Santos anent the authority of Senen B. de los Santos (de los Santos) then Corporate Secretary then issued a Secretary's Certificate (Annex "A". Dizon and Relita P. petitioner. Rollo). 103. Metrobank received a letter from Atty.000. 1977. Mr. Quilt's new counsel wrote Metrobank. p.R. 121. "Mr. On July 7." Metrobank refused the offer since the amount offered did not approximate the appraised value of the mortgaged property. leaving several creditors. which disposed: WHEREFORE. 37. Dizon (Dizon) was authorized and empowered to mortgage in favor of Metrobank.: The petition for review before us was filed under Rule 45 of the Revised Rules of Court and seeks to set aside the decision of the Court of Appeals in CA-G. 18666 (Annex "L". Cesar Villanueva. Barican. p. 35. reiterating the mortgage cancellation. p. judgment is hereby rendered giving due course to the petition and declaring that the honorable respondent court is without jurisdiction to pass upon the issue against defendants Senen B. p. the secretary's Certificate was likewise annotated on TCT No. Rollo). 1988. On December 12. 1987 special meeting could not have taken place for lack of the requisite number of directors present to constitute a quorum since the Chairman and 2 other members of the Board of Directors were aboard on that date. Rollo) On April 7. pp. Dizon to enter into a mortgage contract as this falls within the original and exclusive jurisdiction of the Securities and Exchange Commission. p.Trinidad for private respondent. 31. more than a year later. Senen Dizon had left the Philippines. 5570 until said issue shall have been resolved by the Securities and Exchange Commission. vs. On October 20. Without pronouncement as to costs.00 (Comment. 58. RTC-Br.000. No. Trinidad. counsel claimed that the alleged April 7. and ordering the suspension of further proceedings in Civil Case No. Aside from the mortgage lien. Senen B. INC. p. 32. 1987. Metrobank restructured Dizon's existing personal loan in the amount of P700.00 for the cancellation of the mortgage on the property owned by Quilts because. Rollo) offering the amount of P200.R. J. 98-104. 91436 May 24. Cruz. Alampay Law Office for petitioner. QUILTS & ALL. Rollo) dated November 27. (Annex "C". (p. (Quilts) its President. p. (Petition. an property belonging to Quilts.G. Ranel L. respondent. SP No. Ranel L. 1993 METROPOLITAN BANK & TRUST COMPANY. Quilts filed a complaint against Metrobank. Quilt's counsel (Annex "D". Relita P. 1988. & Mrs. On the basis of this Secretary's Certificate..

Rollo) reconsidering and setting aside the dismissal order because the grounds relied upon by Metrobank "did not appear to be indubitable". 1989. That sometime on 7 April 1987. granted the motion on February 9. plaintiff corporation had for its Board of Directors five (5) members namely: Romeo V.000. as security of the loan of SEVEN HUNDRED THOUSAND (P700. 51.. the Court of Appeals directed the suspension of the proceedings against Metrobank. That on 7 April 1987. Pending the outcome of the case that would be filed in the SEC. Pangilinan.00) Philippine Pesos obtained by Mr. 74172. containing an area of 823 square meters. 5. Jr. upon Quilt's motion. prohibition or mandamus. Dizon. Rollo). Romeo N. Pertinent allegations of Quilt's complaint are quoted below: 4. Dizon to sign. and Relita P.failure to state a cause of action. for and in behalf of the plaintiff corporation relating to the said loan. Rosas. Judge Reynaldo B. Daway. 6. was never informed and never attended a . contesting the reinstatement of the complaint and in the process reiterating as grounds lack of jurisdiction on the part of the trial court and failure of Quilt's complaint to state a cause of action. as amended. That verifications made later by the stockholders and some members of the Board of Directors of the plaintiff corporation with the Registry of Deeds of Angeles City revealed that the parcel of land owned by the plaintiff corporation covered by TCT No. Delos Santos issued and signed a secretary's certificate certifying that she was the incumbent corporate secretary of plaintiff corporation and that a special meeting of the Board of Directors thereof was held on the same date at its principal office and that a resolution was passed and approved authorizing and empowering Senen B. 1989. Romeo N. Senen B. It dismissed the case against Dizon and de los Santos. 73. The Court of Appeals upheld the jurisdiction of the lower Court only with respect to Metrobank. covered by Transfer Certificate of Title No. was then in New Zealand.00 (see Annex "A-2" hereof). Hence. Rosas was in the United States of America while Mr. That on 7 April 1987. at least three (3) members thereof should be present thereat. however. Delos Santos. The appellate court also stated that paragraph 10 of Quilt's complaint was sufficient basis for Quilt's case against Metrobank. Romeo V. Arcadio R. Sarmiento. to mortgage in favor of defendant Metropolitan bank & Trust Company-Dau Branch the plaintiff's corporation's real property located at the Riverside Subd. and deferred the determination of the motion until the trial. although in the country on the said date.000. the then president of plaintiff corporation as the latter's attorney-in-fact. Sarmiento. Senen B. Angeles City. A machine copy of the said secretary's certificate is hereto attached as Annex "B" hereof. 7. since the issue of whether or not these two persons had committedultra vires acts is an intra-corporate matter which falls within the original and exclusive jurisdiction of the Securities and Exchange commission (SEC) pursuant to section 5 of Presidential Decree 902-A. Dizon. the instant petition in which the central and key issue is whether or not Quilt's complaint sufficiently states a cause of action against Metrobank. for purposes of holding a valid meeting of the Board of Directors.. Mr. acknowledge and deliver. Dizon in the principal amount of P700. execute. defendant Relita P. with full power and authority for Mr. Pangilinan. and for a quorum to be had. Dizon in his personal capacity from the said bank. on August 4. (Annex "G". Mr. p. Senen B. Arcadio R. p. Judge Daway issued an Order (Annex "J". Metrobank filed an original petition for certiorari. Registry of Deeds of Angeles City. Jr. 74172 was mortgaged in favor of the defendant Metropolitan bank & Trust Company to guaranty the personal obligation of defendant Senen B. However.

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

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

DECISION MENDOZA. Sulit St. 133710 of the Registry of Deeds for Makati. petitioners. Book No. M. married. all surnamed RECARIO.: This is a petition for review of the resolution of the Court of Appeals dismissing petitioners‘ appeal from a decision of the Regional Trial Court. ms. as per instrument denominated as ―Extra-Judicial Settlement of the Estate of the Deceased Manuel E. COURT OF APPEALS. . XI. Francisco Agustin. Filipino. Pateros. Aguho. Muntinlupa City. made and executed by and between: CARMEN C. M. widow and a resident of 690 T. No. in whose Notarial Register. RECARIO. Makati Metro Manila. and a resident of 3344 Ibarra St. Recario‖ acknowledged before Notary Public. 66.M. On August 1. Muntinlupa City and Heirs of the deceased SPOUSES MANUEL and CARMEN RECARIO. the same was entered as Doc.C. Series of 1985. Branch 276. respondents. more or less. Alabang. of the City of Manila. the PARTY OF THE SECOND PART has proposed to reimburse and/or pay the PARTY OF THE FIRST PART the expenses incurred and still to be incurred in completing the construction of the said [1] . hereinafter referred to as the PARTY OF THE FIRST PART. Brando. PERELLO. as per Power of Attorney acknowledged on 15 July 1985 before Notary Public. Page No.. Filipino. the same was entered as Doc. ordering petitioners to vacate a piece of land in Alabang. WHEREAS. Maridel. entered into a contract with Carmen C. Marivic.[G. Recario with regard to the land in question which the latter owned. vs. THATWHEREAS. Mariveluza. HON. 2000] JOSE and ANITA LEE. Muntinlupa and to pay rents and damages. 642. hereinafter referred to as the PARTY OF THE SECOND PART. 1986. the PARTY OF THE FIRST PART is the absolute owner of a parcel of commercial lot consisting of FIFTY TWO (52) sq. of legal age. 7. of legal age. The contract reads: AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This Indenture. 66. Marites. 136421.. Int. embraced by TCT NO.. Page No. petitioner Anita Lee.R. The undisputed facts are as follows. Francisco Agustin.. Muntinlupa. for herself and as Attorney-in-Fact of her children. N. nee Anita Rivero. constructed on the said lot is an unfinished two-storey commercial building of mixed materials. Branch 276. Series of 1985.M. WITNESSETH. Maricarl and Renrickz. namely: Maribeth. as Judge of RTC.and ANITA RIVERO. 641. located at Rotonda. Book No. November 23.. WHEREAS. XI. Metro Manila. No. No. J. in whose Notarial Register.

. as approved. and the latter hereby acknowledges receipt of said amount from the former to her full satisfaction as and by way of reimbursement and/or payment for the total amount spent and still to be spent by the PARTY OF THE FIRST PART in the construction of the aforecited unfinished building and its completion. the PARTY OF THE FIRST PART hereby lets and leases the above-referred parcel of land in favor of the PARTY OF THE SECOND PART subject to the terms and conditions hereinafter stipulated. However. transfers. water and other facilities. the latter is hereby given the first priority or opportunity to purchase the same and to exercise the said priority or opportunity within 90 days from receipt of written notice to such effect. However. Insurance policy or benefit covering the building during the duration of the agreement after the first 7 1/2 years shall be in favor of both parties hereto in equal share and the premium shall be equally borne by then. or the lot and building during any time thereafter while this agreement is in force or while the PARTY OF THE SECOND PART occupies the building. Immediately upon the completion of the construction.00) PESOS from the start of the 11th year up to the 15th year of this agreement. the former shall. possesses or co-owns the same. within a period of thirty (30) days from the execution hereof.unfinished building and to rent/lease the lot on which the same is erected. the monthly rentals shall be due and payable within the last five days of the month.000. for and in consideration of the foregoing and the covenants mutually entered into. THEREFORE. upon execution of this agreement. and the latter shall automatically become the exclusive owner thereof without the necessity of executing another instrument to effect the transfer of ownership of the referred building. After the term or duration of this agreement expires. the co-ownership shall automatically terminate and the PARTY OF THE FIRST PART shall become the exclusive owner of the referred building without need of executing any other instrument to consolidate and transfer absolute ownership of the building in favor of the PARTY OF THE FIRST PART. for or against whom this agreement shall be binding. NOW. to wit: 1. Philippine Currency. and renewable for such terms. during the entire term or duration of this agreement. alienate or encumber the lot within the first 7 1/2 years of this agreement. complete with electrical. conditions and duration as may be agreed upon by the parties hereto or their heirs. lighting. she shall pay only one-half of the agreed monthly rentals and the same shall be as they are hereby considered full satisfaction of the rentals.00)PESOS. after the lapse of seven and one half (7 1/2) years therefrom. among others. that. the PARTY OF THE FIRST PART shall deliver the said building to the PARTY OF THE SECOND PART. THE PARTY OF THE SECOND PART shall. This agreement shall have a term or duration of FIFTEEN (15) years from the completion and delivery of the building as above-contemplated.000. with a five-year extension. The monthly rentals on the lot and/or both lot and building shall be FIVE THOUSAND (P5. In the event the PARTY OF THE FIRST PART shall desire to sell. ipso facto become a co-owner of one-half (1/2) undivided portion of the building until the expiration of the term or duration of this agreement. successors and assignee. starting from the month of the completion and delivery of the building. Moreover.000. 6. provided. 2. considering that the PARTY OF THE SECOND PART has paid and invested the corresponding amount of the construction or its costs. During the period of extension the rentals shall be subject to negotiation. 4. as cited heretofore.00) PESOS during the first ten (10) years and the same shall be increased to SIX THOUSAND (P6. said party shall pursue with and continue the construction until the same is completely finished in accordance with the plan and specification. 5. 3. and the latter has accepted and agreed to each proposal subject to the terms and conditions hereinafter setforth. pay as he does hereby pay the PARTY OF THE FIRST PART a sum of TWO HUNDRED SEVENTY FIVE THOUSAND (P275.

000. Expenses for electricity. of the Regional Trial Court. led by Marivic F. WHEREFORE. 1994 up to the time of the filing of the complaint in the sum of P10. the Metropolitan Trial Court. [4] . however. 1994 up to the time of the filing of the complaint in the sum of P2. 3 and no. demanded that petitioners vacate one-half of the building on the ground that they needed the space for a dental clinic. telephone and other facilities shall be for the account of the [2] PARTY OF THE SECOND PART. On March 1. 3. Private respondents appealed to the Regional Trial Court. the heirs of Carmen C. dated May 21. gas. The PARTY OF THE SECOND PART has absolute right and authority to transfer. To immediately vacate and remove themselves from the premises having violated the agreement which is now terminated.‖ This is exemplified by paragraph no. Branch 80. sell. Recario. 5. stated: Premises considered. the former (Carmen Recairo) shall ipso facto. It said: Paragraph no.000. Petitioners refused the demand on the ground that there was an existing lease over the building pursuant to the above agreement which would not expire until the year 2001. 2 of the agreement (Annex ―C‖ of the complaint) states that ―after the lapse of seven and 1 one-half (7 /2) therefrom. Precisely because the premises is ―under lease. 1995. defendant will surrender to the plaintiff (Carmen Recario) possession of the one-half ( /2) undivided portion of the building.00 per month or a total amount of P150. Muntinlupa City. this Court reverses on Appeal the DECISION by the Metropolitan Trial Court. for lack of cause of action the complaint against the defendants are hereby DISMISSED. To pay the attorneys fees of Plaintiff in the sum of P10. lease or in any manner encumber and alienate the building. it does not state that after the lapse of seven and one-half (7 /2) years of the lease 1 agreement. Carmen C. water. On October 17. 8.500.000. at the end of the 7 1/2 year-term.7.00. and directs Defendants as follows: 1. private respondents filed a case for unlawful detainer in the Metropolitan Trial Court of Muntinlupa City. As several letters of demand sent by them had been ignored by petitioners. Muntinlupa City rendered a decision dismissing the complaint for lack of cause of action. 4. Before the expiration of the 7 1/2 year-term. become a co-owner of one-half 1 ( /2) undivided portion of the building until the expiration of the term or duration of this 1 agreement. The dispositive portion of the decision. and cost of litigation. Recario died. 4 of the same agreement which fixed the duration of the term of lease for fifteen (15) years covering both the lot and the building. 2. 1994. Branch 276.00 per month or a total of P22. which reversed the decision of the Metropolitan Trial Court.00. Branch 80 of Muntinlupa City. The building was thereafter completed and petitioners occupied it as absolute owners thereof.00. However.500. or her rights and interests over the same under and by virtue of this agreement. 1996. Recario. The counterclaims are likewise dismissed it appearing that the complaint was not filed in [3] bad faith. To pay damages in the form of reasonable monthly rentals for the use of the remaining one half part of the building which Defendant continued to occupy from March 2. To pay the unpaid rentals for the whole lot and the 1/2 undivided portion of the building from September 1.

00 more.In reversing the Metropolitan Trial Court. was actually making installment paying for the same building by offsetting a part of the agreed rental. and in the next five (5) years more. The building was initially constructed by the father of Plaintiff. First. that a copy of a decision or resolution attached to a petition for review is a duplicate original.500.00. Defendant will pay only P2. or a total of P40. their motion was denied.00 per month for the first ten (10) years and P6. Whether or not the respondent Court of Appeals erred in dismissing the petition for review despite the fact that duplicate originals of the assailed issuances had been attached. but was finished by Defendant at a total sum of P275.00. Further.000. certified correct by the clerk of court of the Regional Trial Court. However.00 a month. Hence this petition. Plaintiff will become the owner of one half of the building.000.‖ It suffices.000. §3(b) of the Revised Internal Rules of the Court of Appeals which provides as follows: [6] . defendant even as she continued to stay in the premises was being reimbursed of her investment by paying only 1/2 of the agreed monthly rental. Thus within ten (10) years. Petitioners filed a motion for reconsideration. Perello. 2. Whether or not private respondents are entitled to damages in the amount of P10.000. The Court of Appeals based its action on Rule 42.00 already of their investment in finishing the house. the applicable rule was Rule 6.C. However.000. The agreed rental was at P5.00. in the succeeding five (5) years. the remaining half of the rental will be deducted as reimbursement to Defendant for the amount they spent to finish the building. They then filed a petition for review in the Court of Appeals. a month. the Regional Trial Court said: Under these provisions this contract is for the lease of both the land and the improvement thereon consisting of a building. while Plaintiffs who by their agreement should become the owner of the half portion of the building after 7 1/2 years. and a co-owner of the other half since they paid Defendant in installment thru rental deduction of P2. their petition was dismissed on the ground that it was not accompanied by certified true copies of the assailed issuances. but this rule provides that petitions for review of decisions and resolutions of Regional Trial Courts must ―be accompanied by clearly legible duplicate originals or true copies of judgments or final orders of both lower courts. The copies of the decision and resolution of the Regional Trial Court attached to the petition for review filed by petitioners in the Court of Appeals are duplicate originals.00 a month. Whether or not the private respondents can lawfully eject petitioners from the subject premises. therefore. Plaintiff would have reimbursed Defendant P25. Petitioners raise the following issues. It was also agreed that after 7 1/2 years of occupancy. but their motion was denied. We find the petition meritorious. for a period of fifteen years with an option to renew for five years more. Actually.000.00 for the fifteen (15) yearterm of the lease. Evidently. pointing out that the copies of the decision and resolution of the Regional Trial Court attached to their petition for review were duplicate originals duly signed by Judge N.500. the Court of Appeals dismissed the petition for review of petitioners on the ground that copies of the decision and resolution of the Regional Trial Court must be certified true copies. to reimburse Defendants investment in finishing the house. Under this arrangement.00 per [7] month and attorney‘s fees. §2 of the 1997 Rules of Civil Procedure.000. even as the monthly rental is for P5. Plaintiffs are now the exclusive owners of 1/2 of the building. considering that the petition for review of petitioners was filed in October of 1996. 1.P15. which was leased to defendant Anita Lee.000. 3. Petitioners filed a motion for reconsideration. However. Plaintiffs should now be the owner of 3/4 of the whole [5] building.

Moreover. successors and assignee. Petitioners contend that they cannot be ejected from the subject premises because after 7 1/2 years they became lessees of the undivided one-half portion that became the property of private respondents. this Court. they said ―lot and/or both lot and building.. However. It was error. however. ¾ The petition shall be accompanied by a certified true copy of the disputed decisions. The agreement provides in pertinent parts: 3) This agreement shall have a term or duration of FIFTEEN (15) years from the completion and delivery of the building as above-contemplated. judgments. The monthly rental of P5. with a five-year extension. she shall pay only one-half of the agreed monthly rentals and the same shall be as they are hereby considered full satisfaction of the rentals. 1994 after 7 1/2 years.000. Court of [8] Appeals. The phrase ―on the lot and/or both lot and building‖ in the fourth paragraph of the agreement indicates that the lease covers both the land and the building.00) from the start of the 11th year paid the 15th year of this agreement. Instead. Hence. considering that the PARTY OF THE SECOND PART has paid and invested the corresponding amount of the construction or its costs. the rentals shall be subject to negotiation. as cited heretofore. therefore. although this rule makes no mention of duplicate originals.‖ but they did not. 4) The monthly rentals on the lot and/or both lot and building shall be FIVE THOUSAND (P5. Hence. private respondents say that the lease covers only the lot and not the building also and.00) PESOS during the first ten (10) years and the same shall be increased to SIX THOUSAND PESOS (P6. or orders of the lower courts. Second. the parties to the agreement could have simply said ―lot and building. attributing to the doubtful ones that sense which may result from all of them taken jointly. This construction of the agreement is in line with Art.e. as they had become co-owners of the building. petitioners‘ lease over the land and the building gave them the right to remain in the premises until the year 2001. and the latter shall automatically become the exclusive owner thereof without the necessity of executing another instrument to effect the transfer of .What Should be Filed. for or against whom this agreement shall be binding. i. the PARTY OF THE FIRST PART shall deliver the said building to the PARTY OF THE SECOND PART.00 is for ―the lot and/or both lot and building.‖ indicating thereby that during the first half (7 1/2 years) of the agreement the lease would cover only the lot since during that period petitioners were the absolute owners of the entire building. However. in Tuazon v. together with true copies of the pleadings and other material portions of the record as would support the allegations of the petition. the lease would cover both the lot and the building since the latter would by then be owned in common by private respondents and petitioners. On the other hand.000. and renewable for such terms.000. considered duplicate originals as sufficient to support petitions for review filed in the Court of Appeals of the decisions or resolutions of Regional Trial Courts. The second paragraph states: 2) Immediately upon the completion of the construction. they had the right over an undetermined half of the property. during the entire term or duration of this agreement. for the Court of Appeals to dismiss the petition for review filed by petitioners on the ground that it was not accompanied by certified true copies of the decision and resolution of the Regional Trial Court. The duration of this agreement is 15 years as stated in the third paragraph. starting [9] from the month of the completion and delivery of the building. After that period. During the period of extension. during the second half. therefore. conditions and duration as may be agreed upon by the parties hereto or their heirs. the monthly rentals shall be due and payable within the last five days of the month. since there was an existing lease over the building they cannot be ejected by private respondents.‖ Indeed. even if private respondents became co-owners of the building on March 1. transfers. 1374 of the Civil Code that the various stipulations of a contract shall be interpreted together.

subject to the lease of this portion of the building to petitioners. In accordance with Art. 1994 they decided to deposit this amount with Metrobank in [10] the name of Marivic F. become a co-owner of one-half undivided portion of the building until the expiration of the term or duration of this agreement. because until the termination of the agreement in the year 2001. But it was not the intention to give private respondents possession of any part of the building. ipso facto. thus qualifying the otherwise absolute right of petitioners under the seventh paragraph of the agreement to sell the building. Recario after the latter had refused to accept the payment from petitioners. The purpose of the second paragraph is to give private respondents interest in the building after 7 1/2 years.ownership of the referred building. considering the small size of the lot (52 square meters). As co-owners. However. Indeed. as both Metropolitan Trial Court and Regional Trial Court found. after the lapse of seven and one-half (7 1/2) years therefrom. Third. the decision of the Court of Appeals is hereby REVERSED and that of the Metropolitan Trial Court is REINSTATED.500. . SO ORDERED. the co-ownership shall automatically terminate and the PARTY OF THE FIRST PART SHALL become the exclusive owner of the referred building without need of executing any other instrument to consolidate and transfer absolute ownership of the building in favor of the PART OF THE FIRST PART. petitioners religiously paid to private respondents the amount of P2. private respondents have the power to exercise rights of ownership over their undivided portion. Private respondents allege that in any event petitioners should be ejected from the lot and the building because of their alleged failure to pay rent. the use and occupancy of the lot would be impossible without the use and occupancy of the building built on it. petitioners were thereby released from responsibility for payment of rents. 1256 of the Civil Code. However. After the term or duration of this agreement expires. the former shall. it is under lease to petitioners. WHEREFORE.00 every month except that from September.

and (b) Resolution No. AND ASUNCION LOPEZ GONZALES.G. vs. Series of 1980. Marcial Mamaril. INC. namely: Rosendo de Leon. except for Asuncion Lopez Gonzales who was then abroad. It appears that petitioner corporation approved two (2) resolutions providing for the gratuity pay of its employees. twice a year. Perfecto Bautista. setting aside the amount of P157. namely. AND THE NATIONAL LABOR RELATIONS COMMISSION. sometime in 1978. Marissa Pascual and Allan Pimentel. 10. J. The case was docketed as NLRC-NCR Case No. petitioners.: The controversy at bench arose from a complaint filed by private respondents. convened a special meeting and passed a resolution which reads: 3 . The proposal had three (3) aspects. Edward Mamaril. against their employer Lopez Realty Incorporated (petitioner) and its majority stockholder. passed by the stockholders in a special meeting held on September 8. 1980. for alleged non-payment of their gratuity pay and other benefits. As found by the Labor arbiter. respondents. Meanwhile. while some other assets shall remain with the company. 76801 August 11. Lopez Realty. the remaining members of the Board of Directors. Lopez. No. and Leo Rivera. viz: (a) Resolution No. The proposal was deliberated upon and approved in a special meeting of the board of directors held on April 17. 1978. viz: (1) the sale of assets of the company to pay for its obligations. is a corporation engaged in real estate business. (2) the transfer of certain assets of the company to its three (3) main shareholders. resolving to set aside. Arturo Lopez submitted a proposal relative to the distribution of certain assets of petitioner corporation among its three (3) main shareholders. Lopez 4 Rosendo de Leon 5 Benjamin Bernardino 6 Leo Rivera Except for Arturo F. On August 17. PUNO. Florentina Fontecha.R. 1981. Benjamin Bernardino. Inc.. on July 28.. and (3) the reduction of employees with provision for their gratuity pay. Mila Refuerzo. 1995 LOPEZ REALTY. a certain sum of money for the gratuity pay of its retiring employees and to create a Gratuity Fund for the said contingency. FLORENTINA FONTECHA. 1981. 2 Asuncion Lopez Gonzales. Series of 1980.. Her interest in the company vis-a-vis the other shareholders is as follows: 1 Asuncion Lopez Gonzales 7831 7830 7830 4 1 1 shares shares shares shares share share 1 2 Teresita Lopez Marquez 3 Arturo F. 6. board member and majority stockholder Teresita Lopez Marquez died.00 as Gratuity Fund covering the period from 1950 up to 1980.750. ET AL. while petitioner Asuncion Lopez Gonzales is one of its majority shareholders. 2-2176-82. the rest of the shareholders also sit as members of the Board of Directors.

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

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

The general rule is that a corporation. granting gratuity pay to their retained employees. It is well settled that questions not raised in the lower courts cannot. may be ratified either expressly. petitioners never raised the issue of lack of notice to Asuncion Lopez Gonzales. Hence. 1981. were ultra vires for lack of notice. through its board of directors. in their appeal before the NLRC. enjoining public respondent from enforcing or executing the Resolution. jurisprudence tells us that an action of the board of directors during a meeting. should act in the manner and 14 within the formalities. if any. 1981. 1981. otherwise. petitioners are barred from raising the same on appeal. hence. we note that petitioners allegation on lack of notice to petitioner Asuncion Lopez Gonzales was raised for the first time in the in their motion for reconsideration filed before public respondent National Labor Relations Commission. it was held: 16 11 9 . To stress. that said board resolutions were not ratified by the stockholders of the corporation pursuant to Section 28 1/2 of the Corporation Law (Section 40 of the Corporation Code). to impugn the validity of the subject resolutions. are ultra vires on the ground that petitioner Asuncion Lopez Gonzales was not duly notified of the said special meetings. Private respondents claim. directors must act as a body in a meeting called pursuant to the law or the corporation's by-laws. by the corporation's subsequent course of 17 conduct. prescribed by its charter or by the general law. including petitioner Asuncion Lopez 12 Gonzales. we issued a Temporary Restraining Order. in a subsequent special board meeting held on September 29. The sole issue is whether or not public respondent acted with grave abuse of discretion in holding that private respondents are entitled to receive their gratuity pay under the assailed board resolutions dated August 17. 1981. by the action of the directors in subsequent legal meeting. be raised for the first 13 time on appeal. the petition. further. In their comment. that such failure on the part of petitioners. We now come to petitioners' argument that the resolutions passed by the board of directors during the special meetings on August 1. Be that as it may. 1986 (sic). 1981. 1951 and September 1. They also insist that the gratuity pay must be given only to the retiring employees. other than those it specified at the labor arbiter level. which was illegal for lack of notice. The appeal dealt with (a) the failure of the stockholders to ratify the assailed resolutions and (b) the alleged "mistake" committed by petitioner corporation in giving the gratuity pay to some of its employees who are yet to retire from employment. private respondents maintain that the new ground of lack of notice was not raised before the labor arbiter. or after said public respondent had affirmed the decision of the labor arbiter. further.Hence. any action taken therein may be questioned by any objecting director or 15 shareholder. in one case. petitioners may not invoke any other ground. was unanimously approved by the board of directors of petitioner corporation. 1981 and September 1. had deprived them the opportunity to present evidence that. and September 1. As prayed for. 1981. the subject resolution dated September 1. Thus. or impliedly. At the outset. to the exclusion of the retained employees or those who voluntarily resigned from their posts. They aver. Petitioners contend that the board resolutions passed on August 17. dated November 20. Indeed. in NLRC10 NCR-2-2176-82. it would be offensive to the basic rules of fair play and justice to allow petitioners to raise questions which have not been passed upon by the labor arbiter and the public respondent NLRC. Thus.

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

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

be dismissed for failure to state a cause of action. Premium Marble Resources. Jr.88 payable to the plaintiff and drawn against Citibank. Ayala Investment and Development Corporation issued three (3) checks [Nos. (Premium for brevity).. 1986. respondents. 097088. CV No. filed an action for damages against International Corporate Bank which was docketed as Civil Case No.R.663. As a result of the illegal and irregular acts perpetrated by the defendant bank. petitioner.R. inter alia. 96551. xxx ―5. J.663. [1] .000. Although the checks were clearly payable to the plaintiff corporation and crossed on their face and for payee‘s account only. Sometime in August to October 1982. former officers of the plaintiff corporation headed by Saturnino G. petitioner. respondents. assisted by Atty. the plaintiff was damaged to the extent of the amount of P31.[G. The plaintiff has demanded upon the defendant to restitute the amount representing the value of the checks but defendant refused and continue to refuse to honor plaintiff‘s demands up to the present. DECISION TORRES.‖ Premium prayed that judgment be rendered ordering defendant bank to pay the amount of P31. Intervest Merchant Finance (Intervest. Belen. 1990 which affirmed the trial court‘s dismissal of petitioners‘ complaint for damages. 16810 dated September 28.. and P30.663. P100. The antecedents: On July 18.00 as exemplary damages.: Assailed in the instant petition for review is the decision of the Court of Appeals in CA-G. that Premium has no capacity/personality/authority to sue in this instance and the complaint should. ―15. vs. without any authority whatsoever from the plaintiff deposited the above-mentioned checks to the current account of his conduit corporation. On or about August to October 1982. In its Answer International Corporate Bank alleged. xxx ―14. JR. vs.00 as attorney‘s fees.. 1996] PREMIUM MARBLE RESOURCES. OF APPEALS and PRINTLINE CORPORATION.000. ―6. November 4. 0200-02027-8. 097414 & 27884] in the aggregate amount of P31. INC. Arnulfo Dumadag as counsel. The complaint states. inter alia: ―3. defendant bank accepted the checks to be deposited to the current account of Intervest and thereafter presented the same for collection from the drawee bank which subsequently cleared the same thus allowing Intervest to make use of the funds to the prejudice of the plaintiff. Inc. 14413. for brevity) which the latter maintained with the defendant bank under account No. THE COURT INTERNATIONAL CORPORATE BANK. therefore.88 representing the value of the checks plus interest.88. THE COURT OF APPEALS and INTERNATIONAL CORPORATE BANK. No.

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

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

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

On the basis of the said agreement. 23. petitioner. 33307 promulgated May 31. Jr. 1990 a ‗Joint Motion for Partial Judgment Based on Compromise Agreement‖. real estate and improvements located at Barangay San Jose. Legaspi Village. p. and under the terms and conditions recited in the enabling resolutions of its Board of Directors and stockholders. and . pp. The parties entered into a compromise agreement which was submitted to the court. The compromise agreement between (herein petitioner) and VECCI provides in part: ‗Plaintiff Julieta V. Inc. Metro Manila. The said complaint was later amended on 31 October 1985 impleading V.R. No.. reversing the judgment of the trial court. ESGUERRA. real estate and improvements located at Barangay San Jose. INC. Esguerra and defendant V. Antipolo. Makati. The Antecedent Facts The facts as found by the respondent Court of Appeals are as follows: ―On 29 June 1984. before (the trial) court. Metro Manila. pertinent provisions of which reads as follows: ‗1. Rizal. Defendant V. Makati. Rollo). vs. Esguerra Construction Co. (now herein Petitioner) Julieta Esguerra filed a complaint for administration of conjugal partnership or separation of property against her husband Vicente Esguerra. Antipolo. Inc.. real estate and improvements located at Kamagong Street.. as assisted by their r espective counsels.. Esguerra Construction Co. DECISION PANGANIBAN. the court on 11 January 1990 rendered two partial judgments: one between Vicente and (herein petitioner) and the other as between the latter and VECCI (Annex ‗F‘ and ‗G‘. submitted to this Court on January 11. SP No. J.: May a co-owner contest as unenforceable a sale of a real property listed in and sold pursuant to the terms of a judicially-approved compromise agreement but without the knowledge of such co-owner? Is the corporate secretary‘s certification of the shareholders‘ and directors‘ resolution authorizing such sa le sufficient. St. or does the buyer need to go behind such certification and investigate further the truth and veracity thereof? These questions are answered by this Court as it resolves the instant petition challenging the [1] [2] Decision in CA-G. Rizal. Legaspi Village.R. COURT OF APPEALS and SURESTE PROPERTIES. 1994 by the respondent Court. Inc. February 3. respondents. Rizal. 26 -27. (VECCI) shall sell/alienate/transfer or dispose of in any lawful and convenient manner. all the following properties: * * * * * real estate and building located at 140 Amorsolo Street. 1997] JULIETA V. (VECCI for brevity) and other family corporations as defendants (Annex ‗C‘. real estate and building located at 104 Amorsolo Street. Cainta. Rollo).[G.. Anthony Subdivision. Esguerra Construction Co. 119310..

*

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

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

rendered its order, the

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

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

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

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

00 less than the price of P160. This is plainly without legal basis since she already consented to the compromise agreement which authorized VECCI to sell the properties without the requirement of prior consultation with her. the respondent Court aptly stated that: ―x x x In affixing her signature on the compromise agreement. public policy. if such act is within the terms of the power of attorney. morals.‖ (b) payment of real estate broker‘s commission of 5% instead of just 2% as in the sale of Esguerra 1 building. Even the 5% real estate broker‘s commission was not disparate with the standard practice in the real estate industry. therefore.‖ It is a truism that ―a compromise agreement entered into by party-litigants.000. when not contrary to law. the sale to it by VECCI was completely valid and legal because it was executed in accordance with the compromise agreement. submits [18] that the petitioner offered to buy her one-half share for only P75. the highest offer the market has produced in two and a half years the building was offered for sale. It follows. as written.000. authorized not only by the parties thereto.000. public order. She can not later on repudiate the effects of her voluntary acts simply . better terms could have been obtained. or good custom is a valid contract which is the law between the parties themselves. Consequently.000. ―It is a long established doctrine that the law does not relieve a party from the effects of an unwise.00.000.‖ Thus.00. foolish. The Court is not persuaded.000. of Esguerra Building II cannot in any manner or guise be deemed unenforceable.00 which amount is P10.―So far as third persons are concerned.000. even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and the agent. who became co-principals in a contract of agency created thereby. Inc. an act is deemed to have been performed within the scope of the agent‘s authority. and (c) the denial of petitioner‘s right of first refusal when her offer to purchase her one-half share for P80.‖ Petitioner insists that had she been consulted in the sale of Esguerra Building II. Courts have no power to relieve parties from obligations voluntarily [16] assumed. or disastrous contract. that a compromise agreement. x x x .00 instead of P200. private respondent Sureste Properties.000.000. not tainted with infirmity.‖ Hence.00.000. entered into with all the required formalities and with full awareness of what he was doing.000. VECCI ―acted unfairly and unjustly‖ as evidenced by (a) the sale of said building for only P160.000. Thus. Consultation in the Sale of Esguerra Building I Not a Binding Precedent The petitioner further argues that VECCI‘s consulting her on the ter ms and conditions of its sale of Esguerra Building I set a binding precedent to be followed by the latter on subsequent sales. the sale to Sureste Properties. which is ―the best price obtainable in the market. Incidentally.000. is concerned.00 as ordered by the trial court was totally [13] ignored. private respondent (Julieta Esguerra) has demonstrated her agreement to all the terms and conditions therein and have (sic) given expressly her consent to all acts that may be performed pursuant thereto.000. ―a decision on a compromise agreement is [15] final and executory.000. Inc. simply because their contracts turned out to be disastrous deals or unwise inve stments. She therefore valued the whole building only at P150. The mere fact that petitioner Julieta Esguerra was consulted by VECCI in the sale of Esguerra Building I did not affect nor vary the terms of the authority to sell granted the former as expressly spelled out in the judicially-approved compromise agreement because ―a compromise once approved by final orders of the court has the force of res judicata between the parties and should not be [14] disturbed except for vices of consent or forgery. irregularity. She adds that in failing to consult her on the sale of Esguerra Building II. not P80. as contended by petitioner. as far as private respondent Sureste Properties.00 paid by private respondent. but by the approving court as well.000. Inc. Petitioner‘s argument is debunked by the very nature of a compromise agreement. fraud or illegality is the law between the parties who are duty bound to abide by it and observe strictly its [17] terms and conditions‖ as in this case.

The same identical resolutions and certification were used in such prior sales. For her failure to do so. and authorized the President Vicente B. Right of First Refusal Waived The argument of petitioner that she was denied her right of first refusal is puerile. Jr. Inc.‖[19] Parenthetically.‖ VECCI‘s sale of all the properties mentioned in the judiciallyapproved compromise agreement was done on the basis of its Corporate Secretary’s Certification of these two resolutions. 1990 approving the compromise agreement clearly showed that the ―enabling resolutions of its (VECCI‘s) board of directors and stockholders‖ referred to were those then already existing. execute and sign such [25] sale for and in behalf of the corporation. resulted in its partition. to negotiate. . Besides. [20] like other rights.even assuming arguendothat it was a binding precedent -. petitioner Julieta Esguerra is estopped from contesting the validity of VECCI‘s corporate action in selling Esguerra Building II on the basis of said resolutions and certification because she never raised this issue in VECCI‘s prior sales of the other properties sold including the Esguerra [26] Building I. Petitioner‘s contention is plainly unmeritorious. such previous consultation -. If petitioner wanted to keep such right of first refusal. the execution of the spouses‘ judicial compromise agreement n ecessitated the sale of the spouses‘ co-owned properties and its proceeds distributed fifty percent to each of them which. [21] therefor. may be waived as petitioner did waive it upon entering into the compromise agreement. she should have expressly reserved it in the compromise agreement. the previous consultation can be deemed as no more than a mere courtesy extended voluntarily by VECCI. Esguerra. It did not have to investigate the truth of the facts contained in such certification. She thus bewails this sale as improper for not having [23] complied with the requirements mandated by Section 40 of the Corporation Code. Ineluctably. Corollarily.‖ She rues that no shareholders‘ or directors‘ meeting. Inc. The trial court‘s partial decision dated January 11. Otherwise. Based on the foregoing. VECCI’S Sale of Esguerra Building II A Valid Exercise of Corporate Power Petitioner contends that VECCI violated the condition in the compromise agreement requiring that the sale be made ―under the terms and conditions recited in the enabling resolutions of its Board of [22] Directors and stockholders. wherein these resolutions were passed. Furthermore. 1989. the sale is also deemed to have satisfied the requirements of Section 40 of the Corporation Code. This alleged right. To declare the sale as infirm or unenforceable is to heap unfairness upon Sureste Properties. was actually held. at the highest available price/s they could be sold or disposed of in cash. contract.‖ (2) the ―resolution dated 9 November 1989. and in such manner as may be held convenient under the circumstances. she must live with its consequences. to rely on. to wit: (1) ―the resolution of the stockholders of VECCI dated November 9. Her contention that she was not consulted as to the terms of the sale has no leg to stand on.cannot bind private respondent Sureste which was not a party thereto.because it does not fit her. (where) the stockholders authorized VECCI to sell and/or disposed all or substantially all its property and assets upon such terms and conditions and for [24] such consideration as the board of directors may deem expedient. the Secretary‘s Certification was sufficient for private respondent Sureste Properties. business transactions of corporations would become tortuously slow and unnecessarily hampered. Being regular on its face. and to undermine public faith in court decisions approving compromise agreements. The partial decision did not require any further board or stockholder resolutions to make VECCI‘s sale of these properties valid. VECCI‘s sale of Esguerra Building II to private respondent was not ultra vires but a valid execution of the trial court‘s partial decision. (where) the board of directors of VECCI authorized VECCI to sell and/or dispose all or substantially all the property and assets of the corporation.

there being no provision in the compromise agreement approved by the court for the rentals earned from the building pending its sale. However. and it must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law. Nable. to sell her share in this property via an agency arrangement. No. or.‖[31] Second Issue: Did the Appellate Court Act Without Jurisdiction or With Grave Abuse of Discretion? In the case of Alafriz vs. abuse of discretion‖ as follows: [32] this Court defined the phrases ―without jurisdiction‖ and ―grave ―‗Without jurisdiction‘ means that the court acted with absolute want of jurisdiction. ―a purchaser who buys registered land with full notice of the fact that it is in litigation between the vendor and a third party x x x stands in the shoes of his vendor and [28] his title is subject to the incidents and result of the pending litigation x x x. Inc. 23780 dated May 17. 1991. Appealed Decision Consistent with Previous Court of Appeals and Supreme Court Decisions Petitioner maintains that the trial court‘s ruling that ―the sale of Esguerra Building II to Sureste is unenforceable to the extent of one-half share of petitioner in the property‖ is based on the Court of Appeals‘ decision in G.R. As correctly stated by the respondent Court of Appeals. Thus. In other words. The former is likewise deemed notified of all the incidents of this case including the terms and conditions for the sale contained in the compromise agreement. Her co-ownership in the building was not inconsistent with her authorizing another. As discussed previously. and the Supreme Court‘s decis ion in G. In fact. the purchase made by private respondent Sureste Properties.‖ In the present case.‖ The Court disagrees. this repetitive contention is negated by her consent to the compromise agreement that authorized VECCI to sell the building without need of further consultation with her. would have to be subject to [27] the outcome‖ of the suit. p. 38. She reasons that ―(a)s co-owner her consent or conformity to the sale was necessary for the [30] validity or effectivity thereof insofar as her 1/2 share/ownership was concerned. 100441 was as follows: ―the only issue involved is whether or not private respondent is entitled to one-half of the rentals of the subject property pending its sale. in other words where the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility.‖ . the decisions affirmed the authority granted to VECCI to sell the said building which invoked the compromise agreement of the parties as a basis of the decision (Manifestation. 1992 which both acknowledged petitioner‘s one -half ownership of said [29] building. the determination of this issue ultimately depends on this Court‘s disposition of this case. In the final analysis. any cancellation or issuance of the title of the land involved as well as any subsequent transaction affecting the same.R. Rollo). the only import of this Court‘s ruling in G. Nowhere in the said rulings did it question nor assail the authority granted to VECCI to sell the said building. the private respondent‘s purchase remains subject to our decision in the instant case.R. x x x ‗Grave abuse of discretion‘ implies such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction. petitioner‘s inference that the private respondent is also deemed to have been notif ied that the manner of the sale of the properties contained in the compromise agreement should be ―made only upon prior consent/conformity of the herein petitioner‖ is non sequitur.Notice of Lis Pendens ―Once a notice of lis pendens has been duly registered. of the property in controversy is subject to the notice of lis pendens annotated on its title. 100441 dated May 4. No. SP No. The rulings of the courts is (sic) therefore limited only to the issue of rental. Nowhere in the compromise agreement was this inference expressly or impliedly stated. specifically VECCI.

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