FIRST DIVISION

[G.R. No. L-63558. May 19, 1987.]

SPOUSES JOSE ABEJO AND AURORA ABEJO, TELECTRONIC SYSTEMS, INC., Petitioners, v. HON.
RAFAEL DE LA CRUZ, JUDGE OF THE REGIONAL TRIAL COURT (NATIONAL CAPITAL JUDICIAL
REGION, BRANCH CLX-PASIG), SPOUSES AGAPITO BRAGA AND VIRGINIA BRAGA, VIRGILIO
BRAGA AND NORBERTO BRAGA, Respondents.

[G.R. Nos. L-68450-51. May 19, 1987.]

POCKET BELL PHILIPPINES, INC., AGAPITO T. BRAGA, VIRGILIO T. BRAGA, NORBERTO BRAGA,
and VIRGINIA BRAGA, Petitioners, v. THE HONORABLE SECURITIES AND EXCHANGE
COMMISSION, TELECTRONIC SYSTEMS, INC., JOSE ABEJO, JOSE LUIS SANTIAGO, SIMEON A.
MIRAVITE, SR., ANDRES T. VELARDE AND L. QUIDATO BANDOLINO, Respondents.

DECISION

TEEHANKEE, C.J.:

These two cases, jointly heard, are jointly herein decided. They involve the question of who,
between the Regional Trial Court and the Securities and Exchange Commission (SEC), has
original and exclusive jurisdiction over the dispute between the principal stockholders of the
corporation Pocket Bell Philippines, Inc. (Pocket Bell), a "tone and voice paging corporation,"
namely, the spouses Jose Abejo and Aurora Abejo (hereinafter referred to as the Abejos) and
the purchaser, Telectronic Systems, Inc. (hereinafter referred to as Telectronics) of their
133,000 minority shareholdings (for P5 million) and of 63,000 shares registered in the name of
Virginia Braga and covered by five stock certificates endorsed in blank by her (for
P1,674,450.00), and the spouses Agapito Braga and Virginia Braga (hereinafter referred to as
the Bragas), erstwhile majority stockholders. With the said purchases, Telectronics would
become the majority stockholder, holding 56% of the outstanding stock and voting power of
the corporation Pocket Bell.

With the said purchases in 1982, Telectronics requested the corporate secretary of the
corporation, Norberto Braga, to register and transfer to its name, and those of its nominees the
total 196,000 Pocket Bell shares in the corporation’s transfer book, cancel the surrendered
certificates of stock and issue the corresponding new certificates of stock in its name and those
of its nominees.

Norberto Braga, the corporate secretary and son of the Bragas, refused to register the aforesaid
transfer of shares in the corporate books, asserting that the Bragas claim pre-emptive rights
over the 133,000 Abejo shares and that Virginia Braga never transferred her 63,000 shares to
Telectronics but had lost the five stock certificates representing those shares.

This triggered off the series of intertwined actions between the protagonists, all centered on
the question of jurisdiction over the dispute, which were to culminate in the filing of the two
cases at bar.

The Bragas assert that the regular civil court has original and exclusive jurisdiction as against
the Securities and Exchange Commission, while the Abejos claim the contrary. A summary of
the actions resorted to by the parties follows:chanrob1es virtual 1aw library

A. ABEJOS’ ACTIONS IN SEC

1. The Abejos and Telectronics and the latter’s nominees, as new majority shareholders, filed
SEC Cases Nos. 02379 and 02395 against the Bragas on December 17, 1982 and February 14,
1983, respectively.

2. In SEC Case No. 02379, they prayed for mandamus from the SEC ordering Norberto Braga, as
corporate secretary of Pocket Bell to register in their names the transfer and sale of the
aforesaid 196,000 Pocket Bell shares (of the Abejos 1 and Virginia Braga 2 , cancel the
surrendered certificates as duly endorsed and to issue new certificates in their names.

3. In SEC Case No. 02395, they prayed for injunction and a temporary restraining order that the
SEC enjoin the Bragas from disbursing or disposing funds and assets of Pocket Bell and from
performing such other acts pertaining to the functions of corporate officers.

4. Pocket Bell’s corporate secretary, Norberto Braga, filed a Motion to Dismiss the mandamus
case (SEC Case No. 02379) contending that the SEC has no jurisdiction over the nature of the
action since it does not involve an intracorporate controversy between stockholders, the
principal petitioners therein, Telectronics, not being a stockholder of record of Pocket Bell.

5. On January 8, 1983, SEC Hearing Officer Joaquin Garaygay denied the motion. On January 14,
1983, the corporate secretary filed a Motion for Reconsideration. On March 21, 1983, SEC
Hearing Officer Joaquin Garaygay issued an order granting Braga’s motion for reconsideration
and dismissed SEC Case No. 02379.

6. On February 11, 1983, the Bragas filed their Motion to Dismiss the injunction case, SEC Case
No. 02395. On April 8, 1985, the SEC Director, Eugenio Reyes, acting upon the Abejos’ ex-parte
motion, created a three-man committee composed of Atty. Emmanuel Sison as Chairman and
Attys. Alfredo Oca and Joaquin Garaygay as members, to hear and decide the two SEC cases
(Nos. 02379 and 02395).

7. On April 13, 1983, the SEC three-man committee issued an order reconsidering the aforesaid
order of March 21, 1983 of the SEC Hearing Officer Garaygay (dismissing the mandamus
petition SEC Case No. 02379) and directing corporate secretary Norberto Braga to file his
answer to the petitioner therein.

B. BRAGAS’ ACTION IN SEC

8. On December 12, 1983, the Bragas filed a petition for certiorari, prohibition and mandamus
with the SEC en banc, SEC Case No. EB #049, seeking the dismissal of SEC Cases Nos. 02379 and
02395 for lack of jurisdiction of the Commission and the setting aside of the various orders
issued by the SEC three-man committee in the course of the proceedings in the two SEC cases.

9. On May 15, 1984, the SEC en banc issued an order dismissing the Bragas’ petition in SEC Case
No. EB #049 for lack of merit and at the same time ordering the SEC Hearing Committee to
continue with the hearings of the Abejos and Telectronics SEC Cases Nos. 02379 and 02395,
ruling that the "issue is not the ownership of shares but rather the non-performance by the
Corporate Secretary of the ministerial duty of recording transfers of shares of stock of the
corporation of which he is secretary."cralaw virtua1aw library

10. On May 15, 1984 the Bragas filed a motion for reconsideration but the SEC en banc denied
the same on August 9, 1984.

C. BRAGAS’ ACTION IN CFI (NOW RTC)

11. On November 25, 1982, following the corporate secretary’s refusal to register the transfer
of the shares in question, the Bragas filed a complaint against the Abejos and Telectronics in the
Court of First Instance of Pasig, Branch 21 (now the Regional Trial Court, Branch 160) docketed
as Civil Case No. 48746 for: (a) rescission and annulment of the sale of the shares of stock in
Pocket Bell made by the Abejos in favor of Telectronics on the ground that it violated the
Bragas’ alleged pre-emptive right over the Abejos’ shareholdings and an alleged perfected
contract with the Abejos to sell the same shares in their (Bragas) favor, (1st cause of action);
plus damages for bad faith; and (b) declaration of nullity of any transfer, assignment or
endorsement of Virginia Bragas’ stock certificates for 63,000 shares in Pocket Bell to
Telectronics for want of consent and consideration, alleging that said stock certificates, which
were intended as security for a loan application and were thus endorsed by her in blank, had
been lost (2nd cause of action).

12. On January 4, 1983, the Abejos filed a Motion to Dismiss the complaint on the ground that it
is the SEC that is vested under PD 902-A with original and exclusive jurisdiction to hear and
decide cases involving, among others, controversies "between and among stockholders" and
that the Bragas’ suit is such a controversy as the issues involved therein are the stockholders"
alleged pre-emptive rights, the validity of the transfer and endorsement of certificates of stock,
the election of corporate officers and the management and control of the corporation’s
operations. The dismissal motion was granted by Presiding Judge G. Pineda on January 14,
1983.
13. On January 24, 1983, the Bragas filed a motion for reconsideration. The Abejos opposed.
Meanwhile, respondent Judge Rafael de la Cruz was appointed presiding judge of the court
(renamed Regional Trial Court) in place of Judge G. Pineda.

14. On February 14, 1983, respondent Judge de la Cruz issued an order rescinding the January
14, 1983 order and reviving the temporary restraining order previously issued on December 23,
1982 restraining Telectronics’ agents or representatives from enforcing their resolution
constituting themselves as the new set of officers of Pocket Bell and from assuming control of
the corporation and discharging their functions.

15. On March 2, 1983, the Abejos filed a motion for reconsideration, which motion was duly
opposed by the Bragas. On March 11, 1983, respondent Judge denied the motion for
reconsideration.

D. ABEJOS’ PETITION AT BAR

16. On March 26, 1983, the Abejos, alleging that the acts of respondent Judge in refusing to
dismiss the complaint despite clear lack of jurisdiction over the action and in refusing to
reconsider his erroneous position were performed without jurisdiction and with grave abuse of
discretion, filed their herein Petition for Certiorari and Prohibition with Preliminary Injunction.
They prayed that the challenged orders of respondent Judge dated February 14, 1983 and
March 11, 1983 be set aside for lack of jurisdiction and that he be ordered to permanently
desist from further proceedings in Civil Case No. 48746. Respondent judge desisted from
further proceedings in the case, dispensing with the need of issuing any restraining order.

E. BRAGAS’ PETITION AT BAR

17. On August 29, 1984, the Bragas, alleging in turn that the SEC has no jurisdiction over SEC
Cases Nos. 02379 and 02395 and that it acted arbitrarily, whimsically and capriciously in
dismissing their petition (in SEC Case No. EB #049) for dismissal of the said cases, filed their
herein Petition for Certiorari and Prohibition with Preliminary Injunction or TRO. The petitioner
seeks the reversal and/or setting aside of the SEC Order dated May 15, 1984 dismissing their
petition in said SEC Case No. EB #049 and sustaining its jurisdiction over SEC Cases Nos. 02379
and 02395, filed by the Abejos. On September 24, 1984, this Court issued a temporary
restraining order to maintain the status quo and restrained the SEC and/or any of its officers or
hearing committees from further proceeding with the hearings in SEC Cases Nos. 02379 and
02395 and from enforcing any and all orders and or resolutions issued in connection with the
said cases.

The cases, having been given due course, were jointly heard by the Court on March 27, 1985
and the parties thereafter filed on April 16, 1985 their respective memoranda in amplification
of oral argument on the points of law that were crystallized during the hearing.

The Court rules that the SEC has original and exclusive jurisdiction over the dispute between
the principal stockholders of the corporation Pocket Bell, namely, the Abejos and Telectronics,
the purchasers of the 56% majority stock (supra, at page 2) on the one hand, and the Bragas,
erstwhile majority stockholders, on the other, and that the SEC, through its en banc Resolution
of May 15, 1984 correctly ruled in dismissing the Bragas’ petition questioning its jurisdiction,
that "the issue is not the ownership of shares but rather the non-performance by the Corporate
Secretary of the ministerial duty of recording transfers of shares of stock of the Corporation of
which he is secretary."cralaw virtua1aw library

1. The SEC ruling upholding its primary and exclusive jurisdiction over the dispute is correctly
premised on, and fully supported by, the applicable provisions of P.D. No. 902-A which
reorganized the SEC with additional powers "in line with the government’s policy of
encouraging investments, both domestic and foreign, and more active public participation in
the affairs of private corporations and enterprises through which desirable activities may be
pursued for the promotion of economic development; and, to promote a wider and more
meaningful equitable distribution of wealth," and accordingly provided
that:jgc:chanrobles.com.ph

"SEC. 3. The Commission shall have absolute jurisdiction, supervision and control over all
corporations, partnerships or associations, who are the grantees of primary franchise and/or a
license or permit issued by the government to operate in the Philippines; . . .

"SEC. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange
Commission over corporations, partnerships and other forms of associations registered with it
as expressly granted under existing laws and decrees, it shall have original and exclusive
jurisdiction to hear and decide cases involving:chanrob1es virtual 1aw library

a) Devices or schemes employed by or any acts, of the board of directors, business associations,
its officers or partners, amounting to fraud and misrepresentation which may be detrimental to
the interest of the public and/or of the stockholder, partners, members of associations or
organizations registered with the Commission.

b) Controversies arising out of intracorporate or partnership relations, between and among

stockholders, members, or associates; between any and/or all of them and the corporation,
partnership or association of which they are stockholders, members or associates, respectively;
and between such corporation, partnership or association and the state insofar as it concerns
their individual franchise or right to exist as such entity;

c) Controversies in the election or appointments of directors, trustees, officers or managers of

such corporations, partnerships or associations." 3

Section 6 further grants the SEC "in order to effectively exercise such jurisdiction," the power,
inter alia, "to issue preliminary or permanent injunctions, whether prohibitory or mandatory, in
all cases in which it has jurisdiction, and in which cases the pertinent provisions of the Rules of
Court shall apply."cralaw virtua1aw library
2. Basically and indubitably, the dispute at bar, as held by the SEC, is an intracorporate dispute
that has arisen between and among the principal stockholders of the corporation Pocket Bell
due to the refusal of the corporate secretary, backed up by his parents as erstwhile majority
shareholders, to perform his "ministerial duty" to record the transfers of the corporation’s
controlling (56%) shares of stock, covered by duly endorsed certificates of stock, in favor of
Telectronics as the purchaser thereof. Mandamus in the SEC to compel the corporate secretary
to register the transfers and issue new certificates in favor of Telectronics and its nominees was
properly resorted to under Rule XXI, Section 1 of the SEC’s New Rules of Procedure, 4 which
provides for the filing of such petitions with the SEC. Section 3 of said Rules further authorizes
the SEC to "issue orders expediting the proceedings . . . and also [to] grant a preliminary
injunction for the preservation of the rights of the parties pending such proceedings."cralaw
virtua1aw library

The claims of the Bragas, which they assert in their complaint in the Regional Trial Court,
praying for rescission and annulment of the sale made by the Abejos in favor of Telectronics on
the ground that they had an alleged perfected pre-emptive right over the Abejos’ shares as well
as for annulment of sale to Telectronics of Virginia Braga’s shares covered by street certificates
duly endorsed by her in blank, may in no way deprive the SEC of its primary and exclusive
jurisdiction to grant or not the writ of mandamus ordering the registration of the shares so
transferred. The Bragas’ contention that the question of ordering the recording of the transfers
ultimately hinges on the question of ownership or right thereto over the shares
notwithstanding, the jurisdiction over the dispute is clearly vested in the SEC.

3. The very complaint of the Bragas for annulment of the sales and transfers as filed by them in
the regular court questions the validity of the transfer and endorsement of the certificates of
stock, claiming alleged pre-emptive rights in the case of the Abejos’ shares and alleged loss of
the certificates and lack of consent and consideration in the case of Virginia Braga’s shares.
Such dispute clearly involves controversies "between and among stockholders," as to the
Abejos’ right to sell and dispose of their shares to Telectronics, the validity of the latter’s
acquisition of Virginia Braga’s shares, who between the Bragas and the Abejos’ transferee
should be recognized as the controlling shareholders of the corporation, with the right to elect
the corporate officers and the management and control of its operations. Such a dispute and
case clearly fall within the original and exclusive jurisdiction of the SEC to decide, under Section
5 of P.D. 902-A, above-quoted. The restraining order issued by the Regional Trial Court
restraining Telectronics agents and representatives from enforcing their resolution constituting
themselves as the new set of officers of Pocket Bell and from assuming control of the
corporation and discharging their functions patently encroached upon the SEC’s exclusive
jurisdiction over such specialized corporate controversies calling for its special competence. As
stressed by the Solicitor General on behalf of the SEC, the Court has held that "Nowhere does
the law [PD 902-A] empower any Court of First Instance [now Regional Trial Court] to interfere
with the orders of the Commission," 5 and consequently "any ruling by the trial court on the
issue of ownership of the shares of stock is not binding on the Commission" 6 for want of
jurisdiction.
4. The dispute therefore clearly falls within the general classification of cases within the SEC’s
original and exclusive jurisdiction to hear and decide, under the aforequoted governing section
5 of the law. Insofar as the Bragas and their corporate secretary’s refusal on behalf of the
corporation Pocket Bell to record the transfer of the 56% majority shares to Telectronics may
be deemed a device or scheme amounting to fraud and misrepresentation employed by them
to keep themselves in control of the corporation to the detriment of Telectronics (as buyer and
substantial investor in the corporate stock) and the Abejos (as substantial stockholders-sellers),
the case falls under paragraph (a). The dispute is likewise an intra-corporate controversy
between and among the majority and minority stockholders as to the transfer and disposition
of the controlling shares of the corporation, falling under paragraph (b). As stressed by the
Court in DMRC Enterprises v. Este del Sol Mountain Reserve, Inc., 7 "Considering the
announced policy of PD 902-A, the expanded jurisdiction of the respondent Securities and
Exchange Commission under said decree extends exclusively to matters arising from contracts
involving investments in private corporations, partnerships and associations." The dispute also
concerns the fundamental issue of whether the Bragas or Telectronics have the right to elect
the corporate directors and officers and manage its business and operations, which falls under
paragraph (c).

5. Most of the cases that have come to this Court involve those under paragraph (b), i e.
whether the controversy is an intra-corporate one, arising "between and among stockholders"
or "between any or all of them and the corporation." The parties have focused their arguments
on this question. The Bragas’ contention in his field must likewise fail. In Philex Mining Corp. v.
Reyes, 8 the Court spelled out that "an intra-corporate controversy is one which arises between
a stockholder and the corporation. There is no distinction, qualification, nor any exemption
whatsoever. The provision is broad and covers all kinds of controversies between stockholders
and corporations. The issue of whether or not a corporation is bound to replace a stockholder’s
lost certificate of stock is a matter purely between a stockholder and the corporation. It is a
typical intra-corporate dispute. The question of damages raised is merely incidental to that
main issue." The Court rejected the stockholders’ theory of excluding his complaint (for
replacement of a lost stock [dividend] certificate which he claimed to have never received) from
the classification of intra-corporate controversies as one that "does not square with the intent
of the law, which is to segregate from the general jurisdiction of regular Courts controversies
involving corporations and their stockholders and to bring them to the SEC for exclusive
resolution, in much the same way that labor disputes are now brought to the Ministry of Labor
and Employment (MOLE) and the National Labor Relations Commission (NLRC), and not to the
Courts."cralaw virtua1aw library

(a) The Bragas contend that Telectronics, as buyer-transferee of the 56% majority shares is not
a registered stockholder, because they, through their son the corporate secretary, appear to
have refused to perform "the ministerial duty of recording transfers of shares of stock of the
corporation of which he is the secretary," and that the dispute is therefore, not an
intracorporate one. This contention begs the question which must properly be resolved by the
SEC, but which they would prevent by their own act, through their son, of blocking the due
recording of the transfer and cannot be sanctioned. It can be seen from their very complaint in
the regular courts that they with their two sons constituting the plaintiffs are all stockholders
while the defendants are the Abejos who are also stockholders whose sale of the shares to
Telectronics they would annul.

(b) There can be no question that the dispute between the Abejos and the Bragas as to the sale
and transfer of the former’s shares to Telectronics for P5 million is an intracorporate one under
section 5 (b), prescinding from the applicability of section 5 (a) and (c), (supra, par. 4) It is the
SEC which must resolve the Bragas’ claim in their own complaint in the court case filed by them
of an alleged pre-emptive right to buy the Abejos’ shares by virtue of "on-going negotiations,"
which they may submit as their defense to the mandamus petition to register the sale of the
shares to Telectronics. But asserting such pre-emptive rights and asking that the same be
enforced is a far cry from the Bragas’ claim that "the case relates to questions of ownership"
over the shares in question. 9 (Not to mention, as pointed out by the Abejos, that the
corporation is not a close corporation, and no restriction over the free transferability of the
shares appears in the Articles of Incorporation, as well as in the by-laws 10 and the certificates
of stock themselves, as required by law for the enforcement of such restriction. See Go Soc &
Sons, etc. v. IAC, G.R. No. 72342, Resolution of February 19, 1987.)

(c) The dispute between the Bragas and Telectronics as to the sale and transfer for
P1,674,450.00 of Virginia Braga’s 63.000 shares covered by Street certificates duly endorsed in
blank by her is within the special competence and jurisdiction of the SEC, dealing as it does with
the free transferability of corporate shares, particularly street certificates, 11 as guaranteed by
the Corporation Code and its proclaimed policy of encouraging foreign and domestic
investments in Philippine private corporations and more active public participation therein for
the promotion of economic development. Here again, Virginia Braga’s claim of loss of her street
certificates or theft thereof (denounced by Telectronics as "perjurious" 12) must be pleaded by
her as a defense against Telectronics’ petition for mandamus and recognition now as the
controlling stockholder of the corporation in the light of the joint affidavit of General Cerefino
S. Carreon of the National Telecommunications Commission and private respondent Jose Luis
Santiago of Telectronics narrating the facts and circumstances of how the former sold and
delivered to Telectronics on behalf of his compadres, the Bragas, Virginia Braga’s street
certificates for 63,000 shares equivalent to 18% of the corporation’s outstanding stock and
received the cash price thereof. 13 But as to the sale and transfer of the Abejos’ shares, the
Bragas cannot oust the SEC of its original and exclusive jurisdiction to hear and decide the case,
by blocking through the corporate secretary, their son, the due recording of the transfer and
sale of the shares in question and claiming that Telectronics is not a stockholder of the
corporation — which is the very issue that the SEC is called upon to resolve. As the SEC
maintains, "There is no requirement that a stockholder of a corporation must be a registered
one in order that the Securities and Exchange Commission may take cognizance of a suit
seeking to enforce his rights as such stockholder." 14 This is because the SEC by express
mandate has "absolute jurisdiction, supervision and control over all corporations" and is called
upon to enforce the provisions of the Corporation Code, among which is the stock purchaser’s
right to secure the corresponding certificate in his name under the provisions of Section 63 of
the Code. Needless to say, any problem encountered in securing the certificates of stock
representing the investment made by the buyer must be expeditiously dealt with through
administrative mandamus proceedings with the SEC, rather than through the usual tedious
regular court procedure. Furthermore, as stated in the SEC order of April 13, 1983, notice given
to the corporation of the sale of the shares and presentation of the certificates for transfer is
equivalent to registration: "Whether the refusal of the (corporation) to effect the same is valid
or not is still subject to the outcome of the hearing on the merits of the case." 15

6. In the fifties, the Court taking cognizance of the move to vest jurisdiction in administrative
commissions and boards the power to resolve specialized disputes in the field of labor (as in
corporations, public transportation and public utilities) ruled that Congress in requiring the
Industrial Court’s intervention in the resolution of labor-management controversies likely to
cause strikes or lockouts meant such jurisdiction to be exclusive, although it did not so
expressly state in the law. The Court held that under the "sense-making and expeditious
doctrine of primary jurisdiction ..the courts cannot or will not determine a controversy involving
a question which is within the jurisdiction of an administrative tribunal, where the question
demands the exercise of sound administrative discretion requiring the special knowledge,
experience, and services of the administrative tribunal to determine technical and intricate
matters of fact, and a uniformity of ruling is essential to comply with the purposes of the
regulatory statute administered." 16

In this era of clogged court dockets, the need for specialized administrative boards or
commissions with the special knowledge, experience and capability to hear and determine
promptly disputes on technical matters or essentially factual matters, subject to judicial review
in case of grave abuse of discretion, has become well nigh indispensable. Thus, in 1984, the
Court noted that "between the power lodged in an administrative body and a court, the
unmistakable trend has been to refer it to the former.’Increasingly, this Court has been
committed to the view that unless the law speaks clearly and unequivocably, the choice should
fall on [an administrative agency.]’" 17 The Court in the earlier case of Ebon v. De Guzman, 18
noted that the lawmaking authority, in restoring to the labor arbiters and the NLRC their
jurisdiction to award all kinds of damages in labor cases, as against the previous P.D.
amendment splitting their jurisdiction with the regular courts, "evidently, . . . had second
thoughts about depriving the Labor Arbiters and the NLRC of the jurisdiction to award damages
in labor cases because that setup would mean duplicity of suits, splitting the cause of action
and possible conflicting findings and conclusions by two tribunals on one and the same
claim."cralaw virtua1aw library

7. Thus, the Corporation Code (B.P. No. 178) enacted on May 1, 1980 specifically vests the SEC
with the Rule making power in the discharge of its task of implementing the provisions of the
Code and particularly charges it with the duty of preventing fraud and abuses on the part of
controlling stockholders, directors and officers, as follows:jgc:chanrobles.com.ph

"SEC. 143. Rule-making power of the Securities and Exchange Commission. — The Securities
and Exchange Commission shall have the power and authority to implement the provisions of
this Code, and to promulgate rules and regulations reasonably necessary to enable it to
perform its duties hereunder, particularly in the prevention of fraud and abuses on the part of
the controlling stockholders, members, directors, trustees or officers." (Emphasis supplied)

The dispute between the contending parties for control of the corporation manifestly falls
within the primary and exclusive jurisdiction of the SEC in whom the law has reserved such
jurisdiction as an administrative agency of special competence to deal promptly and
expeditiously therewith.

As the Court stressed in Union Glass & Container Corp. v. SEC, 19 "This grant of jurisdiction [in
Section 5] must be viewed in the light of the nature and functions of the SEC under the law.
Section 3 of PD No. 902-A confers upon the latter ‘absolute jurisdiction, supervision, and
control over all corporations, partnerships or associations, who are grantees of primary
franchise and/or license or permit issued by the government to operate in the Philippines . . ..’
The principal function of the SEC is the supervision and control over corporations, partnerships
and associations with the end in view that investment in these entities may be encouraged and
protected, and their activities pursued for the promotion of economic development.

"It is in aid of this office that the adjudicative power of the SEC must be exercised. Thus the law
explicitly specified and delimited its jurisdiction to matters intrinsically connected with the
regulation of corporations, partnerships and associations and those dealing with the internal
affairs of such corporations, partnerships or associations.

"Otherwise stated, in order that the SEC can take cognizance of a case, the controversy must
pertain to any of the following relationships: [a] between the corporation, partnership or
association and the public; [b] between the corporation, partnership or association and its
stockholders, partners, members, or officers; [c] between the corporation, partnership or
association and the state in so far as its franchise, permit or license to operate is concerned;
and [d] among the stockholders, partners or associates themselves." 20

Parenthetically, the cited case of Union Glass illustrates by way of contrast what disputes do
not fall within the special jurisdiction of the SEC. In this case, the SEC had properly assumed
jurisdiction over the dissenting stockholders’ complaint against the corporation Pioneer Glass
questioning its dacion en pago of its glass plant and all its assets in favor of the DBP which was
clearly an intra-corporate controversy dealing with its internal affairs. But the Court held that
the SEC had no jurisdiction over petitioner Union Glass Corp., impleaded as third party
purchaser of the plant from DBP in the action to annul the dacion en pago. The Court held that
such action for recovery of the glass plant could be brought by the dissenting stockholder to the
regular courts only if and when the SEC rendered final judgment annulling the dacion en pago
and furthermore subject to Union Glass’ defenses as a third party buyer in good faith. Similarly,
in the DMRC case, therein petitioner’s complaint for collection of the amounts due to it as
payment of rentals for the lease of its heavy equipment in the form mainly of cash and part in
shares of stock of the debtor-defendant corporation was held to be not covered by the SEC’s
exclusive jurisdiction over intracorporate disputes, since "to pass upon a money claim under a
lease contract would be beyond the competence of the Securities and Exchange Commission
and to separate the claim for money from the claim for shares of stock would be splitting a
single cause of action resulting in a multiplicity of suits." 21 Such an action for collection of a
debt does not involve enforcement of rights and obligations under the Corporation Code nor
the internal or intracorporate affairs of the debtor corporation. But in all disputes affecting and
dealing with the interests of the corporation and its stockholders, following the trend and clear
legislative intent of entrusting all disputes of a specialized nature to administrative agencies
possessing the requisite competence, special knowledge, experience and services and facilities
to expeditiously resolve them and determine the essential facts including technical and
intricate matters, as in labor and public utilities rates disputes, the SEC has been given "the
original and exclusive jurisdiction to hear and decide" them (under Section 5 of P.D. 902-A) "in
addition to [its] regulatory and adjudicative functions" (under Section 3, vesting in it "absolute
jurisdiction, supervision and control over all corporations" and the Ruler-making power granted
it in Section 143 of the Corporation Code, supra). As stressed by the Court in the Philex case,
supra," (T)here is no distinction, qualification, nor any exemption whatsoever. The provision is
broad and covers all kinds of controversies between stockholders and corporations."cralaw
virtua1aw library

It only remains now to deal with the Order dated April 15, 1983 (Annex H, Petition) 22 of the
SEC’s three-member Hearing Committee granting Telectronics’ motion for creation of a
receivership or management committee with the ample powers therein enumerated for the
preservation pendente lite of the corporation’s assets and in discharge of its "power and duty
to preserve the rights of the parties, the stockholders, the public availing of the corporation’s
services and the rights of creditors," as well as ‘for reasons of equity and justice .. (and) to
prevent possible paralization of corporate business." The said Order has not been implemented
notwithstanding its having been upheld per the SEC en banc’s Order of May 15, 1984 (Annex
"V", Petition) dismissing for lack of merit the petition for certiorari, prohibition and mandamus
with prayer for restraining order or injunction filed by the Bragas seeking the disbandment of
the Hearing Committee and the setting aside of its Orders, and its Resolution of August 9, 1984,
denying reconsideration (Annex "X", Petition), due to the Bragas’ filing of the petition at bar.

Prescinding from the great concern of damage and prejudice expressed by Telectronics due to
the Bragas having remained in control of the corporation and having allegedly committed acts
of gross mismanagement and misapplication of funds, the Court finds that under the facts and
circumstances of record, it is but fair and just that the SEC’s order creating a receivership
committee be implemented forthwith, in accordance with its terms, as
follows:jgc:chanrobles.com.ph

"The three-man receivership committee shall be composed of a representative from the

commission, in the person of the Director, Examiners and Appraisers Department or his
designated representative, and a representative from the petitioners and a representative of
the Respondent.

"The petitioners and respondent are therefore directed to submit to the Commission the name
of their designated representative within three (3) days from receipt of this order. The
Commission shall appoint the other representatives if either or both parties fail to comply with
the requirement within the stated time."cralaw virtua1aw library

ACCORDINGLY, judgment is hereby rendered:chanrob1es virtual 1aw library

(a) Granting the petition in G.R. No. 63558, annulling the challenged Orders of respondent
Judge dated February 14, 1983 and March 11, 1983 (Annexes "L" and "P" of the Abejos’
petition) and prohibiting respondent Judge from further proceeding in Civil Case No. 48746 filed
in his Court other than to dismiss the same for lack or jurisdiction over the subject-matter;

(b) Dismissing the petition in G.R. Nos. 68450-51 and lifting the temporary restraining order
issued on September 24, 1984, effective immediately upon promulgation hereof;

(c) Directing the SEC through its Hearing Committee to proceed immediately with hearing and
resolving the pending mandamus petition for recording in the corporate books the transfer to
Telectronics and its nominees of the majority (56%) shares of stock of the corporation Pocket
Bell pertaining to the Abejos and Virginia Braga and all related issues, taking into consideration,
without need of resubmittal to it, the pleadings, annexes and exhibits filed by the contending
parties in the cases at bar; and

(d) Likewise directing the SEC through its Hearing Committee to proceed immediately with the
implementation of its receivership or management committee Order of April 15, 1983 in SEC
Case No. 2379 and for the purpose, the contending parties are ordered to submit to said
Hearing Committee the name of their designated representatives in the
receivership/management committee within three (3) days from receipt of this decision, on
pain of forfeiture of such right in case of failure to comply herewith, as provided in the said
Order; and ordering the Bragas to perform only caretaker acts in the corporation pending the
organization of such receivership/management committee and assumption of its functions.

This decision shall be immediately executory upon its promulgation.

SO ORDERED.

Yap, Narvasa, Melencio-Herrera, Cruz, Feliciano, Gancayco and Sarmiento, JJ., concur.

============================================================================

G.R. No. 87135 May 22, 1992

ALMA MAGALAD, petitioner,

vs.
PREMIERE FINANCING CORP., respondent.
 PARAS, J.:

This is an appeal originally filed with the Court of Appeals but certified to this court for disposition
since it involves purely questions of law from the decision of the Regional Trial Court (RTC), Branch
LXXXV, Quezon City, dated May 22, 1984, in Civil Case No. Q-40392, ordering the defendant-
appellant Premiere Financing Corporation (Premiere for short) to pay to the plaintiff-appellee Alma
Magalad (Magalad for short) the sum of:
(a) P50,000.00, the principal obligation, plus interest at the legal rate from September 12, 1983, until
the full amount is paid; (b) P10,000.00, both for moral and exemplary damages; (c) P5,000.00, for
and as attorney's fees and (d) the costs of suit.

The antecedent facts of the case are as follows:

Premiere is a financing company engaged in soliciting and accepting money market placements or
deposits (Original Record, p. 29).

On September 12, 1983 with expired permit to issue commercial papers (Ibid., p. 8) and with
intention not to pay or defraud its creditors, Premiere induced and misled Magalad into making a
money market placement of P50,000.00 at 22% interest per annum for which it issued a receipt
(Ibid., Exh. "B", p. 8). Aside from the receipt, Premier likewise issued two (2) post-dated checks in
the total sum of P51,079.00 (Ibid., Exh. "C", p. 9) and assigned to Magalad its receivable from a
certain David Saman for the same amount (Ibid., Exh. "C", p. 10).

When the said checks were presented for payment on their due dates, the drawee bank dishonored
the checks for lack of sufficient funds to cover the amount (Ibid., Exhs. "D-1", "E-1", pp. 11-12).
Despite demands by Magalad for the replacement of said checks with cash, Premiere, for no valid
reason, failed and refused to honor such demands and due to fraudulent acts of Premiere, Magalad
suffered sleepless nights, mental anguish, fright, serious anxiety, considering the fact that the money
she invested is blood money and is the only source of support for her family (Ibid., p. 4).

Magalad in order to seek redress and retrieve her blood money, availed of the service of counsel for
which she agreed to pay twenty percent (20%) of the amount due as and for attorney's fees (Ibid.)

On January 10, 1984, Magalad filed a complaint for damages with prayer for writ of preliminary
attachment with the RTC, Branch LXXXV, Quezon City, docketed as Civil Case No. Q-40392 against
herein Premiere (Ibid., p. 3-6).

Premiere having failed to file an answer and acting on Magalad's motion, the lower court declared
Premiere in default by virtue of an order dated April 5, 1984 allowing Magalad to present
evidence ex-parte (Ibid., pp. 21; 22)

On May 22, 1984 the lower court rendered a default judgment against Premiere, the dispositive
portion of which reads:

From the foregoing evidence, the court finds that plaintiff has fully established her
claim that defendant had indeed acted fraudulently in incurring the obligation and
considering that no evidence has been adduced by the defendant to contradict the
same, judgment is hereby rendered ordering the defendant to pay plaintiff as follows:
 (a) P50,000.00, the principal obligation, plus interest at the legal rate from September
12, 1983 until the full amount is paid;

(b) P10,000.00 both for moral and exemplary damages;

(c) P5,000.00 for and as attorney's fees; and

(d) the costs of suit.

SO ORDERED. (Ibid., p. 30)

Premiere filed a motion for reconsideration of the foregoing decision, based principally on a question
of law alleging that the Securities and Exchange Commission (SEC) has exclusive and original
jurisdiction over a corporation under a state of suspension of payments (Ibid., pp. 32-41).

Magalad filed an opposition to the motion for reconsideration on January 8, 1985 alleging among
others that the regular court has jurisdiction over the case to the exclusion of the SEC. (Ibid., pp. 51-
53).

On May 28, 1986 the lower court issued an order denying the motion for reconsideration (Ibid., p.
61).

On June 11, 1986 Premiere filed his notice of appeal which led to the issuance of the order of the
lower court dated July 29, 1986 elevating the case to the Court of Appeals (CA) (Ibid., pp. 62-63).

The Court of Appeals in its resolution dated September 8, 1987 dismissed the case for failure of
Premiere to file its brief despite the ninety-day extension granted to it, which expired on June 10,
1987 (Rollo, p. 16).

An omnibus motion for reconsideration and admission of late filing of Premiere's brief was filed on
September 22, 1987 (Rollo, pp. 17-19; 32).

On September 30, 1987 the Court of Appeals issued a resolution which reconsidered its previous
resolution dated September 5, 1987 and admitted the Premiere's brief (Rollo, p. 26).

On January 31, 1989 the Court of Appeals issued a resolution certifying the instant case to this
Court on the ground that the case involves a question of law, the dispositive part of which stating:

ACCORDINGLY, pursuant to Rule 50, Sec. 3, in relation to the Judiciary Act of 1948,
Sec. 17, par. 4(3) (4), the Appeal in this case is hereby certified to the Supreme
Court on the ground that the only issue raised concerns the jurisdiction of the trial
court and only a question of law. (Rollo, p. 33)

Hence, this appeal.

The pivotal issue in this case is whether or not the court a quo had jurisdiction to try the instant case.

At the very core of this appeal assailing the aforesaid pronouncement of the lower court, and around
which revolve the arguments of the parties, is the applicability of Presidential Decree No. 902-A
(Reorganization of the SEC with Additional Powers), as amended by Presidential Decrees Nos.
1653, 1758 and 1799. Magalad submits that the legal suit which she has brought against Premiere is
an ordinary action for damages with the preliminary attachment cognizable solely by the RTC.
Premiere, on the other hand, espouses the original and exclusive jurisdiction of the Securities and
Exchange Commission.

Presidential Decree No. 902-A, Section 3, provides:

Sec. 3. The Commission shall have absolute jurisdiction, supervision and control
over all corporations, partnerships or associations, who are the grantees of primary
franchises and/or a license or permit issued by the government to operate in the
Philippines; and in the exercise of its authority, it shall have the power to enlist the
aid and support of and to deputize any and all enforcement agencies of the
government, civil or military as well as any private institution, corporation, firm,
association or person. (As amended by Presidential Decree No. 1758).

Sec. 3 of Pres. Decree No. 902-A should also be read in conjunction with Sec. 5 of the same law,
providing:

Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of
associations registered with it as expressly granted under the existing laws and
decrees, it shall have original and exclusive jurisdiction to hear and decide cases
involving:

a) Devises or schemes employed by or any acts of the Board of

Directors, business associates, its officers or partners, amounting to
fraud and misrepresentation which may be detrimental to the public
and/or to the stockholders, partners, members of associations or
organizations registered with the Commission. (Emphasis supplied)

Considering that Magalad's complaint sufficiently alleges acts amounting to fraud and
misrepresentation committed by Premiere, the SEC must be held to retain its original and exclusive
jurisdiction over the case, despite the fact that the suit involves collection of sums of money paid to
said corporation, the recovery of which would ordinarily fall within the jurisdiction of regular courts.
The fraud committed is detrimental to the interest of the public and, therefore, encompasses a
category of relationship within the SEC jurisdiction.

Otherwise stated, in order that the SEC can take cognizance of a case, the controversy must pertain
to any of the following relationships: (a) between the corporation, partnership or association and the
public; (b) between the corporation, partnership or association and its stockholders, partners,
members or officers; (c) between the corporation, partnership or association and the state so far as
its franchise, permit or license to operate is concerned; and (d) among the stockholders, partners or
associates themselves (Union Glass & Container Corp. v. SEC, 126 SCRA 31; 38; 1983; Abejo v.
De la Cruz, 149 SCRA 654, 1987).

In this case, the recitals of the complaint sufficiently allege that devices or schemes amounting to
fraud and misrepresentation detrimental to the interest of the public have been resorted to by
Premiere Corporation. It can not but be conceded, therefore, that the SEC may exercise its
adjudicative powers pursuant to Sec. 5(a) of Pres. Decree No. 902-A (Supra).

The fact that Premiere's authority to engage in financing already expired will not have the effect of
divesting the SEC of its original and exclusive jurisdiction. The expanded jurisdiction of the SEC was
conceived primarily to protect the interest of the investing public. That Magalad's money placements
were in the nature of investments in Premiere can not be gainsaid. Magalad had reasonably
expected to receive returns from moneys she had paid to Premiere. Unfortunately, however, she
was the victim of alleged fraud and misrepresentation.

Reliance by Magalad on the cases of DMRC v. Este del Sol, (132 SCRA 293) and Union Glass &
Container Corp. v. SEC (126 SCRA 31), where the jurisdiction of the ordinary Courts was upheld, is
misplaced for, as explicitly stated in those cases, nowhere in the complaints therein is found any
averment of fraud or misrepresentation committed by the respective corporations involved. The
causes of action, therefore, were nothing more than simple money claims.

Further bolstering the jurisdiction of the SEC in this case is the fact that said agency had already
appointed a Rehabilitation Receiver for Premiere and has directed all proceedings or claims against
it be suspended. This, pursuant to Sec. 6(c) of Pres. Decree No. 902-A providing that "upon
appointment of a . . . rehabilitation receiver . . . all actions for claims against corporations . . . under
receivership pending before any court, tribunal, board or body shall be suspended accordingly."

By so doing, SEC has exercised its original and exclusive jurisdiction to hear and decide cases
involving:

a) Petitions of corporations, partnerships or associations to be declared in the state

of suspension of payments in cases where the corporation, partnership or
association possesses sufficient property to cover all its debts but foresees the
impossibility of meeting them when they respectively fall due or in cases where the
corporation, partnership or association has no sufficient assets to cover its liabilities
but is under the management of a Rehabilitation Receiver or Management of a
Rehabilitation Receiver or Management Committee created pursuant to this Decree.
(Section 5(d) of Pres. Decree No. 902-A as added by Pres. Decree 1758).

In fine, the adjudicative powers of the SEC being clearly defined by law, its jurisdiction over this case
has to be upheld.

PREMISES CONSIDERED, the instant appeal is GRANTED, and the order of the Presiding Judge
of the Regional Trial Court, Quezon City, Branch LXXXV dated May 22, 1984, in Civil Case No. Q-
40392 is REVERSED and SET ASIDE, without prejudice to the filing by Alma Magalad of the
appropriate complaint against Premiere Financing Corporation with the Securities and Exchange
Commission.

SO ORDERED.

G.R. No. L-57767 January 31, 1984

ALBERTO S. SUNIO and ILOCOS COMMERCIAL CORPORATION, petitioners,

vs.
NATIONAL LABOR RELATIONS COMMISSION, NEMESIO VALENTON, SANTOS DEL
ROSARIO, VICENTE TAPUCOL, ANDRES SOLIS, CRESCENCIO SOLLER, CECILIO LABUNI,
SOTERO L. TUMANG, in his capacity as Asst. Regional Director for Arbitration, Regional
Office No. 1, Ministry of Labor & Employment, and AMBROSIO B. SISON, in his capacity as
Acting Regional Sheriff, Regional Office No. 1, Ministry of Labor & Employment, respondents.
Yolanda Bustamante for petitioners.

The Solicitor General for respondent NLRC.

Benjamin F. Baterina for private respondents,

MELENCIO-HERRERA, J.:

In this special civil action for certiorari and Prohibition with Preliminary Injunction, petitioners Alberto
Sunio and Ilocos Commercial Corporation seek to set aside the Resolution of March 24, 1981 of the
National Labor Relations Commission (NLRC), which affirmed the Decision of the Assistant Regional
Director, dated November 5, 1979, in NLRC Case No. RB-1-1228-78, directing petitioners and
Cabugao Ice Plant Incorporated to reinstate private respondents to their former position without loss
of seniority and privileges and to pay them backwages from February 1, 1978 to the date of their
actual reinstatement.

The controversy arose from the following antecedents:

On July 30,1973, EM Ramos & Company, Inc. (EMRACO for brevity) and Cabugao Ice Plant, Inc.
(CIPI for short), sister corporations, sold an ice plant to Rizal Development and Finance Corporation
RDFC with a mortgage on the same properties constituted by the latter in favor of the former to
secure the payment of the balance of the purchase price. 1

By virtue of that sale, EMRACO-CIPI terminated the services of all their employees including private
respondents herein, and paid them their separation pay. RDFC hired its own own employees and
operated the plant.

On November 28, 1973, RDFC sold the ice plant to petitioner Ilocos Commercial Corporation ICC
headed by its President and General Manager, petitioner Alberto S. Sunio. Petitioners also hired
their own employees as private respondents were no longer in the plant. The sale was subject to the
mortgage in favor of EMRACO-CIPI. Both RDFC-ICC failed to pay the balance of the purchase
price, as a consequence of which, EMRACO-CIPI instituted extrajudicial foreclosure proceedings.
The properties were sold at public auction on August 30, 1974, the highest bidders being EMRACO
CIPI. On the same date, said companies obtained an ex-parte Writ of Possession from the Court of
First Instance of Ilocos Sur in Civil Case No. 3026-V.

On the same date, August 30, 1974, EMRACO-CIPI sold the ice plant to Nilo Villanueva, suspect to
the right of redemption of RDFC. Nilo Villanueva then re-hired private respondents.

On August 27, 1975, RDFC redeemed the ice plant. Because of the gate to Nilo Villanueva,
EMRACO-CIPI were unable to turn over possession to RDFC and/or petitioners, prompting the latter
to file a complaint for recovery of possession against EMRACO-CIPI with the then Court of First
Instance of Ilocos Sur (Civil Case No. 81-KC). Nilo Villanueva intervened

Said Court ordered the issuance of a Writ of Preliminary Mandatory Injunction placing RDFC in
possession of the ice plant. EMPRACO-CIPI and Villanueva appealed to the Court of Appeals (CA-
GR No. 05880- SP which upheld the questionee, Order. A Petition for certiorari with this Court (L-
46376) assailing that Resolution was denied for lack of merit or January 6, 1978.
On February 1, 1978, RDFC and petitioners finally obtains possession of the ice plant by virtue of
the Mandatory Injunction previously issued, which ordered defendant "particularly Nilo C. Villanueva
and his agents representatives, or any person found in the premises to vacate and surrender the
property in litigation." 2 Petitioners did not re-employ private respondents.

Private respondents filed complaints against petitioners for illegal dismissal with the Regional Office,
Ministry of Labor & Employment, San Fernando, La Union.

On November 5, 1979, the Assistant Regional Director rendered a decision the decretal portion of
which reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, respondents Cabugao Ice

Plant, Inc., Ilocos Commercial Corporation and/or Alberto Sunio, are hereby directed
to reinstate the complainants to their former positions without loss of seniority
privileges and to pay their backwages from February 1, 1978 to the date when they
are actually reinstated

Petitioners appealed to the NLRC, which affirmed the Regional Director's decision and dismissed the
appeal for lack of merit on March 24, 1981 reasoning that when RDFC took possession of the
property and private respondents were terminated in 1973, the latter already had a vested right to
their security of tenure, and when they were rehired those rights continued. 3

Petitioners are now before us assailing the Asst. Regional Director's Decision, dated November 5,
1979, the Resolution of the NLRC, Second Division, dated March 24, 1981, as well as the Writ of
Execution issued pursuant thereto dated July 14, 1981, for P156,720.80 representing backwages.
They raise as lone issue:

That respondent National Labor Relations Commission and/or Asst. Regional

Director Sotero Tumang acted in excess of jurisdiction and/or with grave abuse of
discretion amounting to lack of jurisdiction in rendering the decision and the
resolution in NLRC Case No. RB-1-1228-78, and in ordering the execution of said
decision

We issued a Temporary Restraining Order to maintain the status quo, resolved to give due course to
the Petition, and required the parties to submit their respective Briefs. Only petitioners have
complied.

Did public respondents' act with grave abuse of on amounting to lack of jurisdiction in ordering the
reinstatement of private respondents and the payment of their backwages?

Petitioners deny any employer-employee relationship with private respondents arguing that no privity
of contract exists between them, the latter being the employees of Nilo Villanueva who re-hired them
when he took over the operation of the ice plant from CIPI; that private respondents should go after
Nilo Villanueva for whatever rights they may be entitled to, or the CIPI which is still existing, that no
succession of rights and obligations took place between Villanueva and petitioners as the transfer of
possession was a consequence of the exercise of the right of redemption; that the amount of
backwages was determined without petitioners being given a chance to be heard and that granting
that respondents are entitled to the reliefs adjudged, such award cannot be enforced against
petitioner Sunio, who was impleaded in the complaint as the General Manager of ICC.

Public respondent, in its Comment, countered that the sale of a business of 'a going concern does
not ipso facto terminate employer-employee relations when the successor-employer continues the
business operation of the predecessor-employer in an essentially unchanged manner. Private
respondents argue that the change of management or ownership of a business entity is not one of
the just causes for the termination of services of employees under Article 283 of the Labor Code, as
amended. Both respondents additionally claim that petitioner Sunio, as the General Manager of ICC
and owner of one half (1/2) of its interest, is personally liable for his malicious act of illegally
dismissing private respondents, for no ground exists to justify their termination.

We sustain petitioners.

It is true that the sale of a business of a going concern does not ipso facto terminate the employer-
employee relations insofar as the successor-employer is concerned, and that change of ownership
or management of an establishment or company is not one of the just causes provided by law for
termination of employment. The situation here, however, was not one of simple change of
ownership. Of note is the fact that when, on July 30, 1973, EMRACO-CIPI sold the plant to RDFC,
CIPI had terminated the services of its employees, including herein private respondents, giving them
their separation pay which they had accepted. When RDFC took over ownership and management,
therefore, it hired its own employees, not the private respondents, who were no longer there. RDFC
subsequently sold the property to petitioners on November 28, 1973. But by reason of their failure to
pay the balance of the purchase price, EMRACO-CIPI foreclosed on the mortgage over the ice plant;
the property was sold at public auction to EMRACO-CIPI as the highest bidders, and they eventually
re-possessed the plant on August 30, 1974. During all the period that RDFC and petitioners were
operating the plant from July 30, 1973 to August 30, 1974, they had their own employees. CIPI-
EMRACO then sold the plant, also on August 30, 1974, to Nilo Villanueva, subject to RDFC's right of
redemption. Nilo Villanueva then rehired private respondents as employees of the plant, also in
1974.

In 1975, RDFC redeemed the property and demanded possession but EMRACO-CIPI and Nilo
Villanueva resisted so that petitioners were compelled to sue for recovery of possession, obtaining it,
however, only in 1978.

Under those circumstances, it cannot be justifiably said that the plant together with its staff and
personnel moved from one ownership to another. No succession of employment rights and
obligations can be said to have taken place between EMRACO-CIPI-Nilo Villanueva, on the one
hand, and petitioners on the other. Petitioners eventually acquired possession by virtue of the
exercise of their right of redemption and of a Mandatory Injunction in their favor which ordered Nilo
Villanueva and "any person found in the premises" to vacate. What is more, when EMRACO-CIPI
sold the ice plant to RDFC in 1973, private respondents' employment was terminated by EMRACO-
CIPI and they were given their separation pay, which they accepted. During the thirteen months,
therefore, that RDFC and petitioners were in possession and operating the plant up to August, 1974,
they hired their own employees, not the private respondents. In fact, it may even be said that private
respondents had slept on their rights when they failed to contest such termination at the time of sale,
if they believed they had rights to protect. Further, Nilo Villanueva rehired private respondents in
August, 1974, subject to a resolutory condition. That condition having arisen, the rights of private
respondents who claim under him mast be deemed to have also ceased.

Private respondents can neither successfully invoke security of tenure in their favor. Their tenure
should not be reckoned from 1967 because they were already terminated in 1973. Private
respondents were only rehired in 1974 by Nilo Villanueva. Petitioners took over by judicial process in
1978 so that private respondents had actually only four years of rehired employment with Nilo
Villanueva, during all of which period, petitioners fought hard against Nilo Villanueva to recover
possession of the plant. Insofar as petitioners are concerned therefore, there was no tenurial
security to speak of that would entitle private respondents to reinstatement and backwages. We
come now to the personal liability of petitioner, Sunio, who was made jointly and severally
responsible with petitioner company and CIPI for the payment of the backwages of private
respondents. This is reversible error. The Assistant Regional Director's Decision failed to disclose
the reason why he was made personally liable. Respondents, however, alleged as grounds thereof,
his being the owner of one-half (1/2) interest of said corporation, and his alleged arbitrary dismissal
of private respondents. Petitioner Sunio was impleaded in the Complaint his capacity as General
Manager of petitioner corporation. where appears to be no evidence on record that he acted
maliciously or in bad faith in terminating the services of private respondents. His act, therefore, was
within the scope of his authority and was a corporate act.

It is basic that a corporation is invested by law with a personality separate and distinct from those of
the persons composing it as well as from that of any other legal entity to which it may be
related. 4 Mere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate
personality. 5 Petitioner Sunio, therefore, should not have been made personally answerable for the
payment of private respondents' back salaries.

WHEREFORE, the assailed Decision and Resolution, dated November 5, 1979 and March 24, 1981,
respectively, and the consequent Writ of Execution are hereby SET ASIDE and the Temporary
Restraining Order heretofore issued by this Court hereby made permanent. Public respondents are
hereby ordered to return to petitioners the latter's levied properties in their possession. No costs.

SO ORDERED.

THIRD DIVISION

[G.R. NO. 153886 - January 14, 2004]

MEL V. VELARDE, Petitioner, v. LOPEZ, INC., Respondent.

DECISION

CARPIO-MORALES, J.:

This Petition for Review on Certiorari under Rule 45 of the Rules of

Court, which seeks to review the decision1 and resolution2 of the
Court of Appeals, raises the issue of whether the defendant in a
complaint for collection of sum of money can raise a counterclaim
for retirement benefits, unpaid salaries and incentives, and other
benefits arising from services rendered by him in a subsidiary of the
plaintiff corporation.
On January 6, 1997, Eugenio Lopez Jr., then President of
respondent Lopez, Inc., as LENDER, and petitioner Mel Velarde,
then General Manager of Sky Vision Corporation (Sky Vision), a
subsidiary of respondent, as BORROWER, forged a notarized loan
agreement covering the amount of ten million (P10,000,000.00)
pesos. The agreement expressly provided for, among other things,
the manner of payment and the circumstances constituting default
which would give the lender the right to declare the loan together
with accrued interest immediately due and payable.3

Sec. 6 of the agreement detailed what constituted an "event of

default" as follows:

Section 6

Each of the following events and occurrences shall constitute an

Event of Default ("Event of Default") under this Agreement:

a) the BORROWER fails to make payment when due and payable of

any amount he is obligated to pay under this Agreement; chanroblesv irt uallawl ibra ry

b) the BORROWER fails to mortgage in favor of the LENDER real

property sufficient to cover the amount of the LOAN.4

As petitioner failed to pay the installments as they became due,

respondent, apparently in answer to a proposal of petitioner
respecting the settlement of the loan, advised him by letter dated
July 15, 1998 that he may use his retirement benefits in Sky Vision
in partial settlement of his loan after he settles his accountabilities
to the latter and gives his written instructions to it (Sky Vision). 5

Petitioner protested the computation indicated in the July 15, 1998

letter, he asserting that the imputed unliquidated advances from
Sky Vision had already been properly liquidated.6

On August 18, 1998, respondent filed a complaint for collection of

sum of money with damages at the Regional Trial Court (RTC) of
Pasig City against petitioner, alleging that petitioner violated the
above-quoted Section 6 of the loan agreement as he failed to put up
the needed collateral for the loan and pay the installments as they
became due, and that despite his receipt of letters of demand dated
December 1, 19977 and January 13, 1998,8 he refused to pay.

In his answer, petitioner alleged that the loan agreement did not
reflect his true agreement with respondent, it being merely a "cover
document" to evidence the reward to him of ten million pesos
(P10,000,000.00) for his loyalty and excellent performance as
General Manager of Sky Vision and that the payment, if any was
expected, was in the form of continued service; and that it was
when he was compelled by respondent to retire that the form of
payment agreed upon was rendered impossible, prompting the late
Eugenio Lopez, Jr. to agree that his retirement benefits from Sky
Vision would instead be applied to the loan.9

By way of compulsory counterclaim, petitioner claimed that he was

entitled to retirement benefits from Sky Vision in the amount of
P98,280,000.00, unpaid salaries in the amount of P2,740,000.00,
unpaid incentives in the amount of P500,000, unpaid share from the
"net income of Plaintiff corporation," equity in his service vehicle in
the amount of P1,500,000, reasonable return on the stock
ownership plan for services rendered as General Manager, and
moral damages and attorneys fees.10

Petitioner thus prayed for the dismissal of the complaint and the
award of the following sums of money in the form of compulsory
counterclaims:

1. P103,020,000.00, PLUS the value of Defendants stock options

and unpaid share from the net income with Plaintiff corporation (to
be computed) as actual damages; chanroble svirtualla wlibra ry

2. P15,000,000.00, as moral damages; and cralawlib rary

3. P1,500,000.00, as attorneys fees plus appearance fees and the

costs of suit.11

Respondent filed a manifestation and a motion to dismiss the

counterclaim for want of jurisdiction, which drew petitioner to assert
in his comment and opposition thereto that the veil of corporate
fiction must be pierced to hold respondent liable for his
counterclaims.

By Order of January 3, 2000, Branch 155 of the RTC of Pasig denied

respondents motion to dismiss the counterclaim on the following
premises: A counterclaim being essentially a complaint, the
principle that a motion to dismiss hypothetically admits the
allegations of the complaint is applicable; the counterclaim is
compulsory, hence, within its jurisdiction; and there is identity of
interest between respondent and Sky Vision to merit the piercing of
the veil of corporate fiction.12

Respondents motion for reconsideration of the trial courts Order of

January 3, 2000 having been denied, it filed a Petition
for Certiorari at the Court of Appeals which held that respondent is
not the real party-in-interest on the counterclaim and that there
was failure to show the presence of any of the circumstances to
justify the application of the principle of "piercing the veil of
corporate fiction." The Orders of the trial court were thus set aside
and the counterclaims of petitioner were accordingly dismissed.13

The Court of Appeals having denied petitioners motion for

reconsideration, the instant Petition for Review was filed which
assigns the following errors:

I.

THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE

RTC BRANCH 155 ALLEGEDLY ACTED WITH GRAVE ABUSE OF
DISCRETION IN ISSUING THE ORDERS DATED JANUARY 3, 2000
AND OCTOBER 9, 2000 CONSIDERING THAT THE GROUNDS RAISED
BY RESPONDENT LOPEZ, INC. IN ITS PETITION FOR CERTIORARI
INVOLVED MERE ERRORS OF JUDGMENT AND NOT ERRORS OF
JURISDICTION.

II.

THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT

RESPONDENT LOPEZ, INC. IS NOT THE REAL PARTY-IN-INTEREST
AS PARTY-DEFENDANT ON THE COUNTERCLAIMS OF PETITIONER
VELARDE CONSIDERING THAT THE FILING OF RESPONDENT LOPEZ,
INC.S MANIFESTATION AND MOTION TO DISMISS COUNTERCLAIM
HAD THE EFFECT OF HYPOTHETICALLY ADMITTING THE TRUTH OF
THE MATERIAL AVERMENTS OF THE ANSWER, WHICH MATERIAL
AVERMENTS SUFFICIENTLY ALLEGED THAT RESPONDENT LOPEZ,
INC. COMMITTED ACTS WHICH SHOW THAT ITS SUBSIDIARY, SKY
VISION, WAS A MERE BUSINESS CONDUIT OR ALTER EGO OF THE
FORMER, THUS, JUSTIFYING THE PIERCING OF THE VEIL OF
CORPORATE FICTION.

III.

THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE

COUNTERCLAIMS OF PETITIONER VELARDE ARE NOT
COMPULSORY.14

While petitioner correctly invokes the ruling in Atienza v. Court of

Appeals 15to postulate that not every denial of a motion to dismiss
can be corrected by certiorari under Rule 65 and that, as a general
rule, the remedy from such denial is to appeal in due course after a
decision has been rendered on the merits, there are exceptions
thereto, as when the court in denying the motion to dismiss acted
without or in excess of jurisdiction or with patent grave abuse of
discretion,16 or when the assailed interlocutory order is patently
erroneous and the remedy of appeal would not afford adequate and
expeditious relief,17 or when the ground for the motion to dismiss is
improper venue,18 res judicata,19 or lack of jurisdiction20 as in the
case at bar.

Early on, it bears noting, when the case was still with the trial court,
respondent filed a motion to dismiss the counterclaims to assail
its jurisdiction, respondent asserting that the counterclaims, being
money claims arising from a labor relationship, are within the
exclusive competence of the National Labor Relations
Commission.21 On the other hand, petitioner alleged that due to the
tortuous manner he was coerced into retirement, it is the Regional
Trial Courts (RTCs) and not the National Labor Relations
Commission which has exclusive jurisdiction over his counterclaims.
In determining which has jurisdiction over a case, the averments of
the complaint/counterclaim, taken as a whole, are considered.22 In
his counterclaim, petitioner alleged that:

xxx

29. It was only on July 15, 1998 that Lopez, Inc. submitted a
computation of the retirement benefit due to the Defendant. (Copy
attached as ANNEX 4). Immediately after receiving this
computation, Defendant immediately informed Plaintiff of the
erroneous figure used as salary in the computation of benefits. This
was done in a telephone conversation with a certain Atty. Amina
Amado of Lopez, Inc.

29.1 The Defendant also informed her that the so called

"unliquidated advances amounting to P422,922.87 since 1995" had
all been properly liquidated as reflected in all the reports of the
company. The Defendant reminded Atty. Amado of
unpaid incentives and salaries for 1997.

29.2 Defendant likewise informed Plaintiff that the one

month for every year of service as a basis for the
computation of the Defendants retirement benefit is erroneous. This
computation is even less than what the rank and file employees get.
That CEOs, COOs and senior executives of the level of ABS-CBN,
Sky Vision, Benpres, Meralco and other Lopez companies had and
have received a lot more than the regular rank and file employees.
All these retired executives and records can be summoned for
verification.

29.3 The circumstances of the retirement of the Defendant are not

those for a simple and ordinary rank and file employee. Mr. Lopez,
III admitted that he and the Defendant have had problems which
accumulated through time and that they chose to part ways in a
manner that was dignified for both of them. Treating the Defendant
as a rank and file employee is hardly dignified not just to the
Defendant but also to the Lopezes whose existing executives
serving them will draw lessons from the Defendants experience.
29.4 These circumstances hardly reflect a simple retirement. The
Defendant, who is known in the local and international media
community, is hardly considered a rank and file employee.
Defendant was a stockholder of the Corporation and a duly-elected
member of the Board of Directors. Certain government officials can
attest to the sensitivity of issues and matters the Defendant had
represented for the Lopezes that are hardly issues handled by a
simple rank and file employee. Respectable individuals in
government and industry are willing to testify to this regard.x x
x23 (Underscoring and italics supplied).

At the heart of petitioners counterclaim is his alleged forced

retirement which is also the basis of his claim for, among other
things, unpaid salaries, unpaid incentives, reasonable return on the
stock ownership plan, and other benefits from a subsidiary company
of the respondent.

Section 5(c) of P.D. 902-A (as amended by R.A. 8799, the

Securities Regulation Code) applies to a corporate officers dismissal.
For a corporate officers dismissal is always a corporate act and/or
an intra-corporate controversy and that its nature is not altered by
the reason or wisdom which the Board of Directors may have in
taking such action.24

With regard to petitioners claim for unpaid salaries, unpaid share in

net income, reasonable return on the stock ownership plan and
other benefits for services rendered to Sky Vision, jurisdiction
thereon pertains to the Securities Exchange Commission even if the
complaint by a corporate officer includes money claims since such
claims are actually part of the prerequisite of his position and,
therefore, interlinked with his relations with the corporation.25 The
question of remuneration involving a person who is not a mere
employee but a stockholder and officer of the corporation is not a
simple labor problem but a matter that comes within the area of
corporate affairs and management, and is in fact a corporate
controversy in contemplation of the Corporation Code.26

While petitioners counterclaims were filed on December 1, 1998,

the second challenged order of the trial court denying respondents
motion for reconsideration of the denial of its motion to dismiss was
issued on October 9, 2000 at which time P.D. 902-A had been
amended by R.A. 8799 (approved on July 19, 2000) which
mandated the transfer of jurisdiction over intra-corporate
controversies, subject of the counterclaims, to RTCs.

But even if the subject matter of the counterclaims is now

cognizable by RTCs, the filing thereof against respondent is
improper, it not being the real party-in-interest, for it is petitioners
employer Sky Vision, respondents subsidiary.

It cannot be gainsaid that a subsidiary has an independent and

separate juridical personality, distinct from that of its parent
company, hence, any claim or suit against the latter does not bind
the former and vice versa.

Petitioner argues nevertheless that jurisdiction over the subsidiary is

justified by piercing the veil of corporate fiction. Piercing the veil of
corporate fiction is warranted, however, only in cases when the
separate legal entity is used to defeat public convenience, justify
wrong, protect fraud, or defend crime, such that in the case of two
corporations, the law will regard the corporations as merged into
one.27 The rationale behind piercing a corporations identity is to
remove the barrier between the corporation from the persons
comprising it to thwart the fraudulent and illegal schemes of those
who use the corporate personality as a shield for undertaking
certain proscribed activities.28

In applying the doctrine of piercing the veil of corporate fiction, the

following requisites must be established: (1) control, not merely
majority or complete stock control; (2) such control must have been
used by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty, or dishonest acts
in contravention of plaintiffs legal rights; and (3) the aforesaid
control and breach of duty must proximately cause the injury or
unjust loss complained of.29

Nowhere, however, in the pleadings and other records of the case

can it be gathered that respondent has complete control over Sky
Vision, not only of finances but of policy and business practice in
respect to the transaction attacked, so that Sky Vision had at the
time of the transaction no separate mind, will or existence of its
own. The existence of interlocking directors, corporate officers and
shareholders is not enough justification to pierce the veil of
corporate fiction in the absence of fraud or other public policy
considerations.

This Court is thus not convinced that the real party-in-interest with
regard to the counterclaim for damages arising from the alleged
tortuous manner by which petitioner was forced to retire as General
Manager of Sky Vision is respondent.

Petitioner muddles the issues by arguing that respondent

fraudulently took advantage of the control over the matter of
compensation and benefits of an employee of Sky Vision to deceive
petitioner into signing the loan agreement on the misleading
assurance that it was merely for the purpose of documenting the
reward to him of ten million pesos. This argument does not
persuade. Petitioner, being a lawyer, is presumed to know the legal
and binding effects of loan agreements.

It bears emphasis that Sky Visions involvement in the transaction

subject of the case sprang only after a proposal was apparently
proffered by petitioner that his retirement benefits from Sky Vision
be used in partial payment of his loan from respondent as gathered
from the July 15, 1998 letter30 of Rommel Duran, Vice-President
and General Manager of respondent, to petitioner reading:

Dear Mr. Velarde: ςηαñrοb lεš νι r†υ αl lαω l ιbrαrÿ

As requested, we have made computations on the outstanding

amount of your loan with Lopez, Inc. should your retirement
benefits from Sky Vision Corporation/Central CATV, Inc.
""Sky/Central") be applied to the partial payment of your loan.
Please note that in order to effect the application of your retirement
benefits to the partial payment of your loan, you will need to give
Sky/Central written instructions on the same in the soonest
possible time.

As you will see in the attached computation, the amount of

P4,077,077.13 will be applied to the payment of your loan to
retroact on January 1, 1998. The amount of P422,922.87,
representing unliquidated advances made by Sky/Central to you
(see attached listing), has been deducted from your retirement pay
of P4.5 million. Should you be able to liquidate the advances as
requested by Sky/Central, the said amount will be applied to the
partial payment of your loan and we shall adjust the amount of
principal and interest due from you accordingly. After the
application of the amount of P4,077,077.13 to the partial payment
of your loan, the amount of P7,585,912.86 will be immediately due
and demandable. The amount of P7,585,912.86 represents the
outstanding principal and interest due as of July 15, 1998.

Without the application of your retirement benefits to the partial

payment of your loan, the amount of P11,850,000.00 is due as of
July 15, 1998. We reiterate our demand for full payment of your
outstanding obligation immediately. (Underscoring supplied) ςrαlαωlιb rα rÿ

As for the trial courts ruling that the agreement to set-off is an

amendment of the loan agreement resulting to an identity of
interest between respondent and Sky Vision and, therefore,
sufficient to pierce the veil of corporate fiction, it is untenable. The
abovequoted letter is clear that, to effect a set-off, it is a
condition sine qua non that the approval thereof by "Sky/Central"
must be obtained, and that petitioner liquidate his advances from
Sky Vision. These conditions hardly manifest that respondent
possessed that degree of control over Sky Vision as to make the
latter its mere instrumentality, agency or adjunct.

WHEREFORE, the instant Petition for Review on Certiorari is hereby

DENIED.

SO ORDERED.

G.R. No. 82797 February 27, 1991

GOOD EARTH EMPORIUM INC., and LIM KA PING, petitioners,
vs.
HONORABLE COURT OF APPEALS and ROCES-REYES REALTY INC., respondents.

A.E. Dacanay for petitioners.

Antonio Quintos Law Office for private respondent.

PARAS, J.:

This is a petition for review on certiorari of the December 29, 1987 decision * of the Court of Appeals
in CA-G.R. No. 11960 entitled "ROCES-REYES REALTY, INC. vs. HONORABLE JUDGE
REGIONAL TRIAL COURT OF MANILA, BRANCH 44, GOOD EARTH EMPORIUM, INC. and LIM
KA PING" reversing the decision of respondent Judge ** of the Regional Trial Court of Manila,
Branch 44 in Civil Case No. 85-30484, which reversed the resolution of the Metropolitan Trial Court
Of Manila, Branch 28 in Civil Case No. 09639, *** denying herein petitioners' motion to quash the alias writ of execution
issued against them.

As gathered from the records, the antecedent facts of this case, are as follows:

A Lease Contract, dated October 16, 1981, was entered into by and between ROCES-REYES
REALTY, INC., as lessor, and GOOD EARTH EMPORIUM, INC., as lessee, for a term of three years
beginning November 1, 1981 and ending October 31, 1984 at a monthly rental of P65,000.00 (Rollo,
p. 32; Annex "C" of Petition). The building which was the subject of the contract of lease is a five-
storey building located at the corner of Rizal Avenue and Bustos Street in Sta. Cruz, Manila.

From March 1983, up to the time the complaint was filed, the lessee had defaulted in the payment of
rentals, as a consequence of which, private respondent ROCES-REYES REALTY, INC., (hereinafter
designated as ROCES for brevity) filed on October 14, 1984, an ejectment case (Unlawful Detainer)
against herein petitioners, GOOD EARTH EMPORIUM, INC. and LIM KA PING, hereinafter
designated as GEE, (Rollo, p. 21; Annex "B" of the Petition). After the latter had tendered their
responsive pleading, the lower court (MTC, Manila) on motion of Roces rendered judgment on the
pleadings dated April 17, 1984, the dispositive portion of which states:

Judgment is hereby rendered ordering defendants (herein petitioners) and all persons
claiming title under him to vacate the premises and surrender the same to the plaintiffs
(herein respondents); ordering the defendants to pay the plaintiffs the rental of P65,000.00 a
month beginning March 1983 up to the time defendants actually vacate the premises and
deliver possession to the plaintiff; to pay attorney's fees in the amount of P5,000.00 and to
pay the costs of this suit. (Rollo, p. 111; Memorandum of Respondents)

On May 16, 1984, Roces filed a motion for execution which was opposed by GEE on May 28, 1984
simultaneous with the latter's filing of a Notice of Appeal (Rollo, p. 112, Ibid.). On June 13, 1984, the
trial court resolved such motion ruling:

After considering the motion for the issuance of a writ of execution filed by counsel for the
plaintiff (herein respondents) and the opposition filed in relation thereto and finding that the
defendant failed to file the necessary supersedeas bond, this court resolved to grant the
same for being meritorious. (Rollo, p. 112)
On June 14, 1984, a writ of execution was issued by the lower court. Meanwhile, the appeal was
assigned to the Regional Trial Court (Manila) Branch XLVI. However, on August 15, 1984, GEE thru
counsel filed with the Regional Trial Court of Manila, a motion to withdraw appeal citing as reason
that they are satisfied with the decision of the Metropolitan Trial Court of Manila, Branch XXVIII,
which said court granted in its Order of August 27, 1984 and the records were remanded to the trial
court (Rollo, p. 32; CA Decision). Upon an ex-parte Motion of ROCES, the trial court issued
an Alias Writ of Execution dated February 25, 1985 (Rollo, p. 104; Annex "D" of Petitioner's
Memorandum), which was implemented on February 27, 1985. GEE thru counsel filed a motion to
quash the writ of execution and notice of levy and an urgent Ex-parte Supplemental Motion for the
issuance of a restraining order, on March 7, and 20, 1985, respectively. On March 21, 1985, the
lower court issued a restraining order to the sheriff to hold the execution of the judgment pending
hearing on the motion to quash the writ of execution (Rollo, p. 22; RTC Decision). While said motion
was pending resolution, GEE filed a Petition for Relief from judgment before another court, Regional
Trial Court of Manila, Branch IX, which petition was docketed as Civil Case No. 80-30019, but the
petition was dismissed and the injunctive writ issued in connection therewith set aside. Both parties
appealed to the Court of Appeals; GEE on the order of dismissal and Roces on denial of his motion
for indemnity, both docketed as CA-G.R. No. 15873-CV. Going back to the original case, the
Metropolitan Trial Court after hearing and disposing some other incidents, promulgated the
questioned Resolution, dated April 8, 1985, the dispositive portion of which reads as follows:

Premises considered, the motion to quash the writ is hereby denied for lack of merit.

The restraining orders issued on March 11 and 23, 1985 are hereby recalled, lifted and set
aside. (Rollo, p. 20, MTC Decision)

GEE appealed and by coincidence. was raffled to the same Court, RTC Branch IX. Roces moved to
dismiss the appeal but the Court denied the motion. On certiorari, the Court of Appeals dismissed
Roces' petition and remanded the case to the RTC. Meantime, Branch IX became vacant and the
case was re-raffled to Branch XLIV.

On April 6, 1987, the Regional Trial Court of Manila, finding that the amount of P1 million evidenced
by Exhibit "I" and another P1 million evidenced by the pacto de retro sale instrument (Exhibit "2")
were in full satisfaction of the judgment obligation, reversed the decision of the Municipal Trial Court,
the dispositive portion of which reads:

Premises considered, judgment is hereby rendered reversing the Resolution appealed from
quashing the writ of execution and ordering the cancellation of the notice of levy and
declaring the judgment debt as having been fully paid and/or Liquidated. (Rollo, p. 29).

On further appeal, the Court of Appeals reversed the decision of the Regional Trial Court and
reinstated the Resolution of the Metropolitan Trial Court of Manila, the dispositive portion of which is
as follows:

WHEREFORE, the judgment appealed from is hereby REVERSED and the Resolution dated
April 8, 1985, of the Metropolitan Trial Court of Manila Branch XXXIII is hereby
REINSTATED. No pronouncement as to costs. (Rollo, p. 40).

GEE's Motion for Reconsideration of April 5, 1988 was denied (Rollo, p. 43). Hence, this petition.

The main issue in this case is whether or not there was full satisfaction of the judgment debt in favor
of respondent corporation which would justify the quashing of the Writ of Execution.
A careful study of the common exhibits (Exhibits 1/A and 2/B) shows that nowhere in any of said
exhibits was there any writing alluding to or referring to any settlement between the parties of
petitioners' judgment obligation (Rollo, pp. 45-48).

Moreover, there is no indication in the receipt, Exhibit "1", that it was in payment, full or partial, of the
judgment obligation. Likewise, there is no indication in the pacto de retro sale which was drawn in
favor of Jesus Marcos Roces and Marcos V. Roces and not the respondent corporation, that the
obligation embodied therein had something to do with petitioners' judgment obligation with
respondent corporation.

Finding that the common exhibit, Exhibit 1/A had been signed by persons other than judgment
creditors (Roces-Reyes Realty, Inc.) coupled with the fact that said exhibit was not even alleged by
GEE and Lim Ka Ping in their original motion to quash the alias writ of execution (Rollo, p. 37) but
produced only during the hearing (Ibid.) which production resulted in petitioners having to
claim belatedly that there was an "overpayment" of about half a million pesos (Rollo, pp. 25-27) and
remarking on the utter absence of any writing in Exhibits "1/A" and "2/B" to indicate payment of the
judgment debt, respondent Appellate Court correctly concluded that there was in fact no payment of
the judgment debt. As aptly observed by the said court:

What immediately catches one's attention is the total absence of any writing alluding to or
referring to any settlement between the parties of private respondents' (petitioners') judgment
obligation. In moving for the dismissal of the appeal Lim Ka Ping who was then assisted by
counsel simply stated that defendants (herein petitioners) are satisfied with the decision of
the Metropolitan Trial Court (Records of CA, p. 54).

Notably, in private respondents' (petitioners') Motion to Quash the Writ of Execution and
Notice of Levy dated March 7, 1985, there is absolutely no reference to the alleged payment
of one million pesos as evidenced by Exhibit 1 dated September 20, 1984. As pointed out by
petitioner (respondent corporation) this was brought out by Linda Panutat, Manager of Good
Earth only in the course of the latter's testimony. (Rollo, p. 37)

Article 1240 of the Civil Code of the Philippines provides that:

Payment shall be made to the person in whose favor the obligation has been constituted, or
his successor in interest, or any person authorized to receive it.

In the case at bar, the supposed payments were not made to Roces-Reyes Realty, Inc. or to its
successor in interest nor is there positive evidence that the payment was made to a person
authorized to receive it. No such proof was submitted but merely inferred by the Regional Trial Court
(Rollo, p. 25) from Marcos Roces having signed the Lease Contract as President which was
witnessed by Jesus Marcos Roces. The latter, however, was no longer President or even an officer
of Roces-Reyes Realty, Inc. at the time he received the money (Exhibit "1") and signed the sale
with pacto de retro (Exhibit "2"). He, in fact, denied being in possession of authority to receive
payment for the respondent corporation nor does the receipt show that he signed in the same
capacity as he did in the Lease Contract at a time when he was President for respondent corporation
(Rollo, p. 20, MTC decision).

On the other hand, Jesus Marcos Roces testified that the amount of P1 million evidenced by the
receipt (Exhibit "1") is the payment for a loan extended by him and Marcos Roces in favor of Lim Ka
Ping. The assertion is home by the receipt itself whereby they acknowledged payment of the loan in
their names and in no other capacity.
A corporation has a personality distinct and separate from its individual stockholders or members.
Being an officer or stockholder of a corporation does not make one's property also of the
corporation, and vice-versa, for they are separate entities (Traders Royal Bank v. CA-G.R. No.
78412, September 26, 1989; Cruz v. Dalisay, 152 SCRA 482). Shareowners are in no legal sense
the owners of corporate property (or credits) which is owned by the corporation as a distinct legal
person (Concepcion Magsaysay-Labrador v. CA-G.R. No. 58168, December 19, 1989). As a
consequence of the separate juridical personality of a corporation, the corporate debt or credit is not
the debt or credit of the stockholder, nor is the stockholder's debt or credit that of the corporation
(Prof. Jose Nolledo's "The Corporation Code of the Philippines, p. 5, 1988 Edition, citing Professor
Ballantine).

The absence of a note to evidence the loan is explained by Jesus Marcos Roces who testified that
the IOU was subsequently delivered to private respondents (Rollo, pp. 97-98). Contrary to the
Regional Trial Court's premise that it was incumbent upon respondent corporation to prove that the
amount was delivered to the Roces brothers in the payment of the loan in the latter's favor, the
delivery of the amount to and the receipt thereof by the Roces brothers in their names raises the
presumption that the said amount was due to them. There is a disputable presumption that money
1âwphi 1

paid by one to the other was due to the latter (Sec. 5(f) Rule 131, Rules of Court). It is for GEE and
Lim Ka Ping to prove otherwise. In other words, it is for the latter to prove that the payments made
were for the satisfaction of their judgment debt and not vice versa.

The fact that at the time payment was made to the two Roces brothers, GEE was also indebted to
respondent corporation for a larger amount, is not supportive of the Regional Trial Court's
conclusions that the payment was in favor of the latter, especially in the case at bar where the
amount was not receipted for by respondent corporation and there is absolutely no indication in the
receipt from which it can be reasonably inferred, that said payment was in satisfaction of the
judgment debt. Likewise, no such inference can be made from the execution of the pacto de
retro sale which was not made in favor of respondent corporation but in favor of the two Roces
brothers in their individual capacities without any reference to the judgment obligation in favor of
respondent corporation.

In addition, the totality of the amount covered by the receipt (Exhibit "1/A") and that of the sale
with pacto de retro (Exhibit "2/B") all in the sum of P2 million, far exceeds petitioners' judgment
obligation in favor of respondent corporation in the sum of P1,560,000.00 by P440,000.00, which
militates against the claim of petitioner that the aforesaid amount (P2M) was in full payment of the
judgment obligation.

Petitioners' explanation that the excess is interest and advance rentals for an extension of the lease
contract (Rollo, pp. 25-28) is belied by the absence of any interest awarded in the case and of any
agreement as to the extension of the lease nor was there any such pretense in the Motion to Quash
the Alias Writ of Execution.

Petitioners' averments that the respondent court had gravely abused its discretion in arriving at the
assailed factual findings as contrary to the evidence and applicable decisions of this Honorable
Court are therefore, patently unfounded. Respondent court was correct in stating that it "cannot go
beyond what appears in the documents submitted by petitioners themselves (Exhibits "1" and "2") in
the absence of clear and convincing evidence" that would support its claim that the judgment
obligation has indeed been fully satisfied which would warrant the quashal of the Alias Writ of
Execution.

It has been an established rule that when the existence of a debt is fully established by the evidence
(which has been done in this case), the burden of proving that it has been extinguished by payment
devolves upon the debtor who offers such a defense to the claim of the plaintiff creditor (herein
respondent corporation) (Chua Chienco v. Vargas, 11 Phil. 219; Ramos v. Ledesma, 12 Phil. 656;
Pinon v. De Osorio, 30 Phil. 365). For indeed, it is well-entrenched in Our jurisprudence that each
party in a case must prove his own affirmative allegations by the degree of evidence required by law
(Stronghold Insurance Co. v. CA, G.R. No. 83376, May 29,1989; Tai Tong Chuache & Co. v.
Insurance Commission, 158 SCRA 366).

The appellate court cannot, therefore, be said to have gravely abused its discretion in finding lack of
convincing and reliable evidence to establish payment of the judgment obligation as claimed by
petitioner. The burden of evidence resting on the petitioners to establish the facts upon which their
action is premised has not been satisfactorily discharged and therefore, they have to bear the
consequences.

PREMISES CONSIDERED, the petition is hereby DENIED and the Decision of the Respondent
court is hereby AFFIRMED, reinstating the April 8, 1985 Resolution of the Metropolitan Trial Court of
Manila.

SO ORDERED.

Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ., concur.