Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 117188 August 7, 1997

LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC., petitioner,

vs.
HON. COURT OF APPEALS, HOME INSURANCE AND GUARANTY CORPORATION, EMDEN
ENCARNACION and HORATIO AYCARDO, respondents.

ROMERO, J.:

May the failure of a corporation to file its by-laws within one month from the date of its incorporation,
as mandated by Section 46 of the Corporation Code, result in its automatic dissolution?

This is the issue raised in this petition for review on certiorari of the Decision  of the Court of Appeals
1

affirming the decision of the Home Insurance and Guaranty Corporation (HIGC). This quasi-judicial
body recognized Loyola Grand Villas Homeowners Association (LGVHA) as the sole homeowners'
association in Loyola Grand Villas, a duly registered subdivision in Quezon City and Marikina City
that was owned and developed by Solid Homes, Inc. It revoked the certificates of registration issued
to Loyola Grand Villas homeowners (North) Association Incorporated (the North Association for
brevity) and Loyola Grand Villas Homeowners (South) Association Incorporated (the South
Association).

LGVHAI was organized on February 8, 1983 as the association of homeowners and residents of the
Loyola Grand Villas. It was registered with the Home Financing Corporation, the predecessor of
herein respondent HIGC, as the sole homeowners' organization in the said subdivision under
Certificate of Registration No. 04-197. It was organized by the developer of the subdivision and its
first president was Victorio V. Soliven, himself the owner of the developer. For unknown reasons,
however, LGVHAI did not file its corporate by-laws.

Sometime in 1988, the officers of the LGVHAI tried to register its by-laws. They failed to do so.   To
2

the officers' consternation, they discovered that there were two other organizations within the
subdivision — the North Association and the South Association. According to private respondents, a
non-resident and Soliven himself, respectively headed these associations. They also discovered that
these associations had five (5) registered homeowners each who were also the incorporators,
directors and officers thereof. None of the members of the LGVHAI was listed as member of the
North Association while three (3) members of LGVHAI were listed as members of the South
Association.  The North Association was registered with the HIGC on February 13, 1989 under
3

Certificate of Registration No. 04-1160 covering Phases West II, East III, West III and East IV. It
submitted its by-laws on December 20, 1988.

In July, 1989, when Soliven inquired about the status of LGVHAI, Atty. Joaquin A. Bautista, the head
of the legal department of the HIGC, informed him that LGVHAI had been automatically dissolved for
two reasons. First, it did not submit its by-laws within the period required by the Corporation Code
and, second, there was non-user of corporate charter because HIGC had not received any report on
the association's activities. Apparently, this information resulted in the registration of the South
Association with the HIGC on July 27, 1989 covering Phases West I, East I and East II. It filed its by-
laws on July 26, 1989.

These developments prompted the officers of the LGVHAI to lodge a complaint with the HIGC. They
questioned the revocation of LGVHAI's certificate of registration without due notice and hearing and
concomitantly prayed for the cancellation of the certificates of registration of the North and South
Associations by reason of the earlier issuance of a certificate of registration in favor of LGVHAI.

On January 26, 1993, after due notice and hearing, private respondents obtained a favorable ruling
from HIGC Hearing Officer Danilo C. Javier who disposed of HIGC Case No. RRM-5-89 as follows:

WHEREFORE, judgment is hereby rendered recognizing the Loyola Grand Villas

Homeowners Association, Inc., under Certificate of Registration No. 04-197 as the duly
registered and existing homeowners association for Loyola Grand Villas homeowners, and
declaring the Certificates of Registration of Loyola Grand Villas Homeowners (North)
Association, Inc. and Loyola Grand Villas Homeowners (South) Association, Inc. as hereby
revoked or cancelled; that the receivership be terminated and the Receiver is hereby ordered
to render an accounting and turn-over to Loyola Grand Villas Homeowners Association, Inc.,
all assets and records of the Association now under his custody and possession.

The South Association appealed to the Appeals Board of the HIGC. In its Resolution of September
8, 1993, the Board   dismissed the appeal for lack of merit.
4

Rebuffed, the South Association in turn appealed to the Court of Appeals, raising two issues. First,
whether or not LGVHAI's failure to file its by-laws within the period prescribed by Section 46 of the
Corporation Code resulted in the automatic dissolution of LGVHAI. Second, whether or not two
homeowners' associations may be authorized by the HIGC in one "sprawling subdivision." However,
in the Decision of August 23, 1994 being assailed here, the Court of Appeals affirmed the Resolution
of the HIGC Appeals Board.

In resolving the first issue, the Court of Appeals held that under the Corporation Code, a private
corporation commences to have corporate existence and juridical personality from the date the
Securities and Exchange Commission (SEC) issues a certificate of incorporation under its official
seal. The requirement for the filing of by-laws under Section 46 of the Corporation Code within one
month from official notice of the issuance of the certificate of incorporation presupposes that it is
already incorporated, although it may file its by-laws with its articles of incorporation. Elucidating on
the effect of a delayed filing of by-laws, the Court of Appeals said:

We also find nothing in the provisions cited by the petitioner, i.e., Section 46 and 22,
Corporation Code, or in any other provision of the Code and other laws which provide or at
least imply that failure to file the by-laws results in an automatic dissolution of the
corporation. While Section 46, in prescribing that by-laws must be adopted within the period
prescribed therein, may be interpreted as a mandatory provision, particularly because of the
use of the word "must," its meaning cannot be stretched to support the argument that
automatic dissolution results from non-compliance.

We realize that Section 46 or other provisions of the Corporation Code are silent on the
result of the failure to adopt and file the by-laws within the required period. Thus, Section 46
and other related provisions of the Corporation Code are to be construed with Section 6 (1)
of P.D. 902-A. This section empowers the SEC to suspend or revoke certificates of
 registration on the grounds listed therein. Among the grounds stated is the failure to file by-
laws (see also II Campos: The Corporation Code, 1990 ed., pp. 124-125). Such suspension
or revocation, the same section provides, should be made upon proper notice and hearing.
Although P.D. 902-A refers to the SEC, the same principles and procedures apply to the
public respondent HIGC as it exercises its power to revoke or suspend the certificates of
registration or homeowners association. (Section 2 [a], E.O. 535, series 1979, transferred the
powers and authorities of the SEC over homeowners associations to the HIGC.)

We also do not agree with the petitioner's interpretation that Section 46, Corporation Code
prevails over Section 6, P.D. 902-A and that the latter is invalid because it contravenes the
former. There is no basis for such interpretation considering that these two provisions are not
inconsistent with each other. They are, in fact, complementary to each other so that one
cannot be considered as invalidating the other.

The Court of Appeals added that, as there was no showing that the registration of LGVHAI had been
validly revoked, it continued to be the duly registered homeowners' association in the Loyola Grand
Villas. More importantly, the South Association did not dispute the fact that LGVHAI had been
organized and that, thereafter, it transacted business within the period prescribed by law.

On the second issue, the Court of Appeals reiterated its previous ruling   that the HIGC has the
5

authority to order the holding of a referendum to determine which of two contending associations
should represent the entire community, village or subdivision.

Undaunted, the South Association filed the instant petition for review on certiorari. It elevates as sole
issue for resolution the first issue it had raised before the Court of Appeals, i.e., whether or not the
LGVHAI's failure to file its by-laws within the period prescribed by Section 46 of the Corporation
Code had the effect of automatically dissolving the said corporation.

Petitioner contends that, since Section 46 uses the word "must" with respect to the filing of by-laws,
noncompliance therewith would result in "self-extinction" either due to non-occurrence of a
suspensive condition or the occurrence of a resolutory condition "under the hypothesis that (by) the
issuance of the certificate of registration alone the corporate personality is deemed already formed."
It asserts that the Corporation Code provides for a "gradation of violations of requirements." Hence,
Section 22 mandates that the corporation must be formally organized and should commence
transaction within two years from date of incorporation. Otherwise, the corporation would be deemed
dissolved. On the other hand, if the corporation commences operations but becomes continuously
inoperative for five years, then it may be suspended or its corporate franchise revoked.

Petitioner concedes that Section 46 and the other provisions of the Corporation Code do not provide
for sanctions for non-filing of the by-laws. However, it insists that no sanction need be provided
"because the mandatory nature of the provision is so clear that there can be no doubt about its being
an essential attribute of corporate birth." To petitioner, its submission is buttressed by the facts that
the period for compliance is "spelled out distinctly;" that the certification of the SEC/HIGC must show
that the by-laws are not inconsistent with the Code, and that a copy of the by-laws "has to be
attached to the articles of incorporation." Moreover, no sanction is provided for because "in the first
place, no corporate identity has been completed." Petitioner asserts that "non-provision for remedy
or sanction is itself the tacit proclamation that non-compliance is fatal and no corporate existence
had yet evolved," and therefore, there was "no need to proclaim its demise."   In a bid to convince
6

the Court of its arguments, petitioner stresses that:

. . . the word MUST is used in Sec. 46 in its universal literal meaning and corollary human
implication — its compulsion is integrated in its very essence — MUST is always
 enforceable by the inevitable consequence — that is, "OR ELSE". The use of the
word MUST in Sec. 46 is no exception — it means file the by-laws within one month after
notice of issuance of certificate of registration OR ELSE. The OR ELSE, though not
specified, is inextricably a part of MUST . Do this or if you do not you are "Kaput". The
importance of the by-laws to corporate existence compels such meaning for as decreed the
by-laws is "the government" of the corporation. Indeed, how can the corporation do any
lawful act as such without by-laws. Surely, no law is indeed to create chaos.  7

Petitioner asserts that P.D. No. 902-A cannot exceed the scope and power of the Corporation Code
which itself does not provide sanctions for non-filing of by-laws. For the petitioner, it is "not proper to
assess the true meaning of Sec. 46 . . . on an unauthorized provision on such matter contained in
the said decree."

In their comment on the petition, private respondents counter that the requirement of adoption of by-
laws is not mandatory. They point to P.D. No. 902-A as having resolved the issue of whether said
requirement is mandatory or merely directory. Citing Chung Ka Bio v. Intermediate Appellate
Court,   private respondents contend that Section 6(I) of that decree provides that non-filing of by-
8

laws is only a ground for suspension or revocation of the certificate of registration of corporations
and, therefore, it may not result in automatic dissolution of the corporation. Moreover, the adoption
and filing of by-laws is a condition subsequent which does not affect the corporate personality of a
corporation like the LGVHAI. This is so because Section 9 of the Corporation Code provides that the
corporate existence and juridical personality of a corporation begins from the date the SEC issues a
certificate of incorporation under its official seal. Consequently, even if the by-laws have not yet been
filed, a corporation may be considered a de facto corporation. To emphasize the fact the LGVHAI
was registered as the sole homeowners' association in the Loyola Grand Villas, private respondents
point out that membership in the LGVHAI was an "unconditional restriction in the deeds of sale
signed by lot buyers."

In its reply to private respondents' comment on the petition, petitioner reiterates its argument that the
word " must" in Section 46 of the Corporation Code is mandatory. It adds that, before the ruling
in Chung Ka Bio v. Intermediate Appellate Court could be applied to this case, this Court must first
resolve the issue of whether or not the provisions of P.D. No. 902-A prescribing the rules and
regulations to implement the Corporation Code can "rise above and change" the substantive
provisions of the Code.

The pertinent provision of the Corporation Code that is the focal point of controversy in this case
states:

Sec. 46. Adoption of by-laws. — Every corporation formed under this Code, must within one
(1) month after receipt of official notice of the issuance of its certificate of incorporation by the
Securities and Exchange Commission, adopt a code of by-laws for its government not
inconsistent with this Code. For the adoption of by-laws by the corporation, the affirmative
vote of the stockholders representing at least a majority of the outstanding capital stock, or of
at least a majority of the members, in the case of non-stock corporations, shall be necessary.
The by-laws shall be signed by the stockholders or members voting for them and shall be
kept in the principal office of the corporation, subject to the stockholders or members voting
for them and shall be kept in the principal office of the corporation, subject to inspection of
the stockholders or members during office hours; and a copy thereof, shall be filed with the
Securities and Exchange Commission which shall be attached to the original articles of
incorporation.
 Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted and
filed prior to incorporation; in such case, such by-laws shall be approved and signed by all
the incorporators and submitted to the Securities and Exchange Commission, together with
the articles of incorporation.

In all cases, by-laws shall be effective only upon the issuance by the Securities and
Exchange Commission of a certification that the by-laws are not inconsistent with this Code.

The Securities and Exchange Commission shall not accept for filing the by-laws or any
amendment thereto of any bank, banking institution, building and loan association, trust
company, insurance company, public utility, educational institution or other special
corporations governed by special laws, unless accompanied by a certificate of the
appropriate government agency to the effect that such by-laws or amendments are in
accordance with law.

As correctly postulated by the petitioner, interpretation of this provision of law begins with the
determination of the meaning and import of the word "must" in this section Ordinarily, the word
"must" connotes an imperative act or operates to impose a duty which may be enforced.   It is9

synonymous with "ought" which connotes compulsion or mandatoriness.   However, the word "must"
10

in a statute, like "shall," is not always imperative. It may be consistent with an exercise of discretion.
In this jurisdiction, the tendency has been to interpret "shall" as the context or a reasonable
construction of the statute in which it is used demands or requires.   This is equally true as regards
11

the word "must." Thus, if the languages of a statute considered as a whole and with due regard to its
nature and object reveals that the legislature intended to use the words "shall" and "must" to be
directory, they should be given that meaning. 12

In this respect, the following portions of the deliberations of the Batasang Pambansa No. 68 are
illuminating:

MR. FUENTEBELLA. Thank you, Mr. Speaker.

On page 34, referring to the adoption of by-laws, are we made to understand here, Mr.
Speaker, that by-laws must immediately be filed within one month after the issuance? In
other words, would this be mandatory or directory in character?

MR. MENDOZA. This is mandatory.

MR. FUENTEBELLA. It being mandatory, Mr. Speaker, what would be the effect of the
failure of the corporation to file these by-laws within one month?

MR. MENDOZA. There is a provision in the latter part of the Code which identifies and
describes the consequences of violations of any provision of this Code. One such
consequences is the dissolution of the corporation for its inability, or perhaps, incurring
certain penalties.

MR. FUENTEBELLA. But it will not automatically amount to a dissolution of the corporation
by merely failing to file the by-laws within one month. Supposing the corporation was late,
say, five days, what would be the mandatory penalty?

MR. MENDOZA. I do not think it will necessarily result in the automatic or ipso
facto dissolution of the corporation. Perhaps, as in the case, as you suggested, in the case of
 El Hogar Filipino where a quo warranto action is brought, one takes into account the gravity
of the violation committed. If the by-laws were late — the filing of the by-laws were late by,
perhaps, a day or two, I would suppose that might be a tolerable delay, but if they are
delayed over a period of months — as is happening now — because of the absence of a
clear requirement that by-laws must be completed within a specified period of time, the
corporation must suffer certain consequences.  13

This exchange of views demonstrates clearly that automatic corporate dissolution for failure to file
the by-laws on time was never the intention of the legislature. Moreover, even without resorting to
the records of deliberations of the Batasang Pambansa, the law itself provides the answer to the
issue propounded by petitioner.

Taken as a whole and under the principle that the best interpreter of a statute is the statute itself
(optima statuli interpretatix est ipsum statutum),   Section 46 aforequoted reveals the legislative
14

intent to attach a directory, and not mandatory, meaning for the word "must" in the first sentence
thereof. Note should be taken of the second paragraph of the law which allows the filing of the by-
laws even prior to incorporation. This provision in the same section of the Code rules out mandatory
compliance with the requirement of filing the by-laws "within one (1) month after receipt of official
notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission."
It necessarily follows that failure to file the by-laws within that period does not imply the "demise" of
the corporation. By-laws may be necessary for the "government" of the corporation but these are
subordinate to the articles of incorporation as well as to the Corporation Code and related
statutes.  There are in fact cases where by-laws are unnecessary to corporate existence or to the
15

valid exercise of corporate powers, thus:

In the absence of charter or statutory provisions to the contrary, by-laws are not necessary
either to the existence of a corporation or to the valid exercise of the powers conferred upon
it, certainly in all cases where the charter sufficiently provides for the government of the
body; and even where the governing statute in express terms confers upon the corporation
the power to adopt by-laws, the failure to exercise the power will be ascribed to mere
nonaction which will not render void any acts of the corporation which would otherwise be
valid.   (Emphasis supplied.)
16

As Fletcher aptly puts it:

It has been said that the by-laws of a corporation are the rule of its life, and that until by-laws
have been adopted the corporation may not be able to act for the purposes of its creation,
and that the first and most important duty of the members is to adopt them. This would seem
to follow as a matter of principle from the office and functions of by-laws. Viewed in this light,
the adoption of by-laws is a matter of practical, if not one of legal, necessity. Moreover, the
peculiar circumstances attending the formation of a corporation may impose the obligation to
adopt certain by-laws, as in the case of a close corporation organized for specific purposes.
And the statute or general laws from which the corporation derives its corporate existence
may expressly require it to make and adopt by-laws and specify to some extent what they
shall contain and the manner of their adoption. The mere fact, however, of the existence of
power in the corporation to adopt by-laws does not ordinarily and of necessity make the
exercise of such power essential to its corporate life, or to the validity of any of its acts. 
17

Although the Corporation Code requires the filing of by-laws, it does not expressly provide for the
consequences of the non-filing of the same within the period provided for in Section 46. However,
such omission has been rectified by Presidential Decree No. 902-A, the pertinent provisions on the
jurisdiction of the SEC of which state:
 Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the
following powers:

xxx xxx xxx

(1) To suspend, or revoke, after proper notice and hearing, the franchise or certificate of
registration of corporations, partnerships or associations, upon any of the grounds provided
by law, including the following:

xxx xxx xxx

5. Failure to file by-laws within the required period;

xxx xxx xxx

In the exercise of the foregoing authority and jurisdiction of the Commission or by a

Commissioner or by such other bodies, boards, committees and/or any officer as may be
created or designated by the Commission for the purpose. The decision, ruling or order of
any such Commissioner, bodies, boards, committees and/or officer may be appealed to the
Commission sitting en banc within thirty (30) days after receipt by the appellant of notice of
such decision, ruling or order. The Commission shall promulgate rules of procedures to
govern the proceedings, hearings and appeals of cases falling with its jurisdiction.

The aggrieved party may appeal the order, decision or ruling of the Commission sitting en
banc to the Supreme Court by petition for review in accordance with the pertinent provisions
of the Rules of Court.

Even under the foregoing express grant of power and authority, there can be no automatic corporate
dissolution simply because the incorporators failed to abide by the required filing of by-laws
embodied in Section 46 of the Corporation Code. There is no outright "demise" of corporate
existence. Proper notice and hearing are cardinal components of due process in any democratic
institution, agency or society. In other words, the incorporators must be given the chance to explain
their neglect or omission and remedy the same.

That the failure to file by-laws is not provided for by the Corporation Code but in another law is of no
moment. P.D. No. 902-A, which took effect immediately after its promulgation on March 11, 1976, is
very much apposite to the Code. Accordingly, the provisions abovequoted supply the law governing
the situation in the case at bar, inasmuch as the Corporation Code and P.D. No. 902-A are statutes
in pari materia. Interpretare et concordare legibus est optimus interpretandi. Every statute must be
so construed and harmonized with other statutes as to form a uniform system of jurisprudence.  18

As the "rules and regulations or private laws enacted by the corporation to regulate, govern and
control its own actions, affairs and concerns and its stockholders or members and directors and
officers with relation thereto and among themselves in their relation to it,"   by-laws are
19

indispensable to corporations in this jurisdiction. These may not be essential to corporate birth but
certainly, these are required by law for an orderly governance and management of corporations.
Nonetheless, failure to file them within the period required by law by no means tolls the automatic
dissolution of a corporation.

In this regard, private respondents are correct in relying on the pronouncements of this Court
in Chung Ka Bio v. Intermediate Appellate Court,   as follows:
20
 . . . . Moreover, failure to file the by-laws does not automatically operate to dissolve a
corporation but is now considered only a ground for such dissolution.

Section 19 of the Corporation Law, part of which is now Section 22 of the Corporation Code,
provided that the powers of the corporation would cease if it did not formally organize and
commence the transaction of its business or the continuation of its works within two years
from date of its incorporation. Section 20, which has been reproduced with some
modifications in Section 46 of the Corporation Code, expressly declared that "every
corporation formed under this Act, must within one month after the filing of the articles of
incorporation with the Securities and Exchange Commission, adopt a code of by-laws."
Whether this provision should be given mandatory or only directory effect remained a
controversial question until it became academic with the adoption of PD 902-A. Under this
decree, it is now clear that the failure to file by-laws within the required period is only a
ground for suspension or revocation of the certificate of registration of corporations.

Non-filing of the by-laws will not result in automatic dissolution of the corporation. Under
Section 6(I) of PD 902-A, the SEC is empowered to "suspend or revoke, after proper notice
and hearing, the franchise or certificate of registration of a corporation" on the ground inter
alia of "failure to file by-laws within the required period." It is clear from this provision that
there must first of all be a hearing to determine the existence of the ground, and secondly,
assuming such finding, the penalty is not necessarily revocation but may be only suspension
of the charter. In fact, under the rules and regulations of the SEC, failure to file the by-laws
on time may be penalized merely with the imposition of an administrative fine without
affecting the corporate existence of the erring firm.

It should be stressed in this connection that substantial compliance with conditions

subsequent will suffice to perfect corporate personality. Organization and commencement of
transaction of corporate business are but conditions subsequent and not prerequisites for
acquisition of corporate personality. The adoption and filing of by-laws is also a condition
subsequent. Under Section 19 of the Corporation Code, a Corporation commences its
corporate existence and juridical personality and is deemed incorporated from the date the
Securities and Exchange Commission issues certificate of incorporation under its official
seal. This may be done even before the filing of the by-laws, which under Section 46 of the
Corporation Code, must be adopted "within one month after receipt of official notice of the
issuance of its certificate of incorporation." 
21

That the corporation involved herein is under the supervision of the HIGC does not alter the result of
this case. The HIGC has taken over the specialized functions of the former Home Financing
Corporation by virtue of Executive Order No. 90 dated December 17, 1989.   With respect to
22

homeowners associations, the HIGC shall "exercise all the powers, authorities and responsibilities
that are vested on the Securities and Exchange Commission . . . , the provision of Act 1459, as
amended by P.D. 902-A, to the contrary notwithstanding."  23

WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the questioned
Decision of the Court of Appeals AFFIRMED. This Decision is immediately executory. Costs against
petitioner.

SO ORDERED.

Regalado, Puno and Mendoza, JJ., concur.

Torres, Jr., J., is on leave.

G.R. No. 141735               June 8, 2005

SAPPARI K. SAWADJAAN, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, THE CIVIL SERVICE COMMISSION and AL-AMANAH
INVESTMENT BANK OF THE PHILIPPINES, respondents.

DECISION

CHICO-NAZARIO, J.:

This is a petition for certiorari under Rule 65 of the Rules of Court of the Decision1 of the Court of
Appeals of 30 March 1999 affirming Resolutions No. 94-4483 and No. 95-2754 of the Civil Service
Commission (CSC) dated 11 August 1994 and 11 April 1995, respectively, which in turn affirmed
Resolution No. 2309 of the Board of Directors of the Al-Amanah Islamic Investment Bank of the
Philippines (AIIBP) dated 13 December 1993, finding petitioner guilty of Dishonesty in the
Performance of Official Duties and/or Conduct Prejudicial to the Best Interest of the Service and
dismissing him from the service, and its Resolution2 of 15 December 1999 dismissing petitioner’s
Motion for Reconsideration.

The records show that petitioner Sappari K. Sawadjaan was among the first employees of the
Philippine Amanah Bank (PAB) when it was created by virtue of Presidential Decree No. 264 on 02
August 1973. He rose through the ranks, working his way up from his initial designation as security
guard, to settling clerk, bookkeeper, credit investigator, project analyst, appraiser/ inspector, and
eventually, loans analyst.3

In February 1988, while still designated as appraiser/investigator, Sawadjaan was assigned to

inspect the properties offered as collaterals by Compressed Air Machineries and Equipment
Corporation (CAMEC) for a credit line of Five Million Pesos (P5,000,000.00). The properties
consisted of two parcels of land covered by Transfer Certificates of Title (TCTs) No. N-130671 and
No. C-52576. On the basis of his Inspection and Appraisal Report, 4 the PAB granted the loan
application. When the loan matured on 17 May 1989, CAMEC requested an extension of 180 days,
but was granted only 120 days to repay the loan. 5

In the meantime, Sawadjaan was promoted to Loans Analyst I on 01 July 1989. 6

In January 1990, Congress passed Republic Act 6848 creating the AIIBP and repealing P.D. No.
264 (which created the PAB). All assets, liabilities and capital accounts of the PAB were transferred
to the AIIBP,7 and the existing personnel of the PAB were to continue to discharge their functions
unless discharged.8 In the ensuing reorganization, Sawadjaan was among the personnel retained by
the AIIBP.

When CAMEC failed to pay despite the given extension, the bank, now referred to as the AIIBP,
discovered that TCT No. N-130671 was spurious, the property described therein non-existent, and
that the property covered by TCT No. C-52576 had a prior existing mortgage in favor of one Divina
Pablico.

On 08 June 1993, the Board of Directors of the AIIBP created an Investigating Committee to look
into the CAMEC transaction, which had cost the bank Six Million Pesos (P6,000,000.00) in
losses.9 The subsequent events, as found and decided upon by the Court of Appeals, 10 are as
follows:
On 18 June 1993, petitioner received a memorandum from Islamic Bank [AIIBP] Chairman Roberto
F. De Ocampo charging him with Dishonesty in the Performance of Official Duties and/or Conduct
Prejudicial to the Best Interest of the Service and preventively suspending him.

In his memorandum dated 8 September 1993, petitioner informed the Investigating Committee that
he could not submit himself to the jurisdiction of the Committee because of its alleged partiality. For
his failure to appear before the hearing set on 17 September 1993, after the hearing of 13
September 1993 was postponed due to the Manifestation of even date filed by petitioner, the
Investigating Committee declared petitioner in default and the prosecution was allowed to present its
evidence ex parte.

On 08 December 1993, the Investigating Committee rendered a decision, the pertinent portions of
which reads as follows:

In view of respondent SAWADJAAN’S abject failure to perform his duties and assigned tasks as
appraiser/inspector, which resulted to the prejudice and substantial damage to the Bank, respondent
should be held liable therefore. At this juncture, however, the Investigating Committee is of the
considered opinion that he could not be held liable for the administrative offense of dishonesty
considering the fact that no evidence was adduced to show that he profited or benefited from being
remiss in the performance of his duties. The record is bereft of any evidence which would show that
he received any amount in consideration for his non-performance of his official duties.

This notwithstanding, respondent cannot escape liability. As adverted to earlier, his failure to perform
his official duties resulted to the prejudice and substantial damage to the Islamic Bank for which he
should be held liable for the administrative offense of CONDUCT PREJUDICIAL TO THE BEST
INTEREST OF THE SERVICE.

Premises considered, the Investigating Committee recommends that respondent SAPPARI

SAWADJAAN be meted the penalty of SIX (6) MONTHS and ONE (1) DAY SUSPENSION from
office in accordance with the Civil Service Commission’s Memorandum Circular No. 30, Series of
1989.

On 13 December 1993, the Board of Directors of the Islamic Bank [AIIBP] adopted Resolution No.
2309 finding petitioner guilty of Dishonesty in the Performance of Official Duties and/or Conduct
Prejudicial to the Best Interest of the Service and imposing the penalty of Dismissal from the
Service.

On reconsideration, the Board of Directors of the Islamic Bank [AIIBP] adopted the Resolution No.
2332 on 20 February 1994 reducing the penalty imposed on petitioner from dismissal to suspension
for a period of six (6) months and one (1) day.

On 29 March 1994, petitioner filed a notice of appeal to the Merit System Protection Board (MSPB).

On 11 August 1994, the CSC adopted Resolution No. 94-4483 dismissing the appeal for lack of
merit and affirming Resolution No. 2309 dated 13 December 1993 of the Board of Directors of
Islamic Bank.

On 11 April 1995, the CSC adopted Resolution No. 95-2574 denying petitioner’s Motion for
Reconsideration.
On 16 June 1995, the instant petition was filed with the Honorable Supreme Court on the following
assignment of errors:

I. Public respondent Al-Amanah Islamic Investment Bank of the Philippines has committed a
grave abuse of discretion amounting to excess or lack of jurisdiction when it initiated and
conducted administrative investigation without a validly promulgated rules of procedure in
the adjudication of administrative cases at the Islamic Bank.

II. Public respondent Civil Service Commission has committed a grave abuse of discretion
amounting to lack of jurisdiction when it prematurely and falsely assumed jurisdiction of the
case not appealed to it, but to the Merit System Protection Board.

III. Both the Islamic Bank and the Civil Service Commission erred in finding petitioner
Sawadjaan of having deliberately reporting false information and therefore guilty of
Dishonesty and Conduct Prejudicial to the Best Interest of the Service and penalized with
dismissal from the service.

On 04 July 1995, the Honorable Supreme Court En Banc referred this petition to this Honorable
Court pursuant to Revised Administrative Circular No. 1-95, which took effect on 01 June 1995.

We do not find merit [in] the petition.

Anent the first assignment of error, a reading of the records would reveal that petitioner raises for the
first time the alleged failure of the Islamic Bank [AIIBP] to promulgate rules of procedure governing
the adjudication and disposition of administrative cases involving its personnel. It is a rule that issues
not properly brought and ventilated below may not be raised for the first time on appeal, save in
exceptional circumstances (Casolita, Sr. v. Court of Appeals, 275 SCRA 257) none of which,
however, obtain in this case. Granting arguendo that the issue is of such exceptional character that
the Court may take cognizance of the same, still, it must fail. Section 26 of Republic Act No. 6848
(1990) provides:

Section 26. Powers of the Board. The Board of Directors shall have the broadest powers to manage
the Islamic Bank, x x x The Board shall adopt policy guidelines necessary to carry out effectively the
provisions of this Charter as well as internal rules and regulations necessary for the conduct of its
Islamic banking business and all matters related to personnel organization, office functions and
salary administration. (Italics ours)

On the other hand, Item No. 2 of Executive Order No. 26 (1992) entitled "Prescribing Procedure and
Sanctions to Ensure Speedy Disposition of Administrative Cases" directs, "all administrative
agencies" to "adopt and include in their respective Rules of Procedure" provisions designed to
abbreviate administrative proceedings.

The above two (2) provisions relied upon by petitioner does not require the Islamic Bank [AIIBP] to
promulgate rules of procedure before administrative discipline may be imposed upon its employees.
The internal rules of procedures ordained to be adopted by the Board refers to that necessary for the
conduct of its Islamic banking business and all matters related to "personnel organization, office
functions and salary administration." On the contrary, Section 26 of RA 6848 gives the Board of
Directors of the Islamic Bank the "broadest powers to manage the Islamic Bank." This grant of broad
powers would be an idle ceremony if it would be powerless to discipline its employees.
The second assignment of error must likewise fail. The issue is raised for the first time via this
petition for certiorari. Petitioner submitted himself to the jurisdiction of the CSC. Although he could
have raised the alleged lack of jurisdiction in his Motion for Reconsideration of Resolution No. 94-
4483 of the CSC, he did not do so. By filing the Motion for Reconsideration, he is estopped from
denying the CSC’s jurisdiction over him, as it is settled rule that a party who asks for an affirmative
relief cannot later on impugn the action of the tribunal as without jurisdiction after an adverse result
was meted to him. Although jurisdiction over the subject matter of a case may be objected to at any
stage of the proceedings even on appeal, this particular rule, however, means that jurisdictional
issues in a case can be raised only during the proceedings in said case and during the appeal of
said case (Aragon v. Court of Appeals, 270 SCRA 603). The case at bar is a petition
[for] certiorari and not an appeal.

But even on the merits the argument must falter. Item No. 1 of CSC Resolution No. 93-2387 dated
29 June 1993, provides:

Decisions in administrative cases involving officials and employees of the civil service appealable to
the Commission pursuant to Section 47 of Book V of the Code (i.e., Administrative Code of 1987)
including personnel actions such as contested appointments shall now be appealed directly to the
Commission and not to the MSPB.

In Rubenecia v. Civil Service Commission, 244 SCRA 640, 651, it was categorically held:

. . . The functions of the MSPB relating to the determination of administrative disciplinary cases
were, in other words, re-allocated to the Commission itself.

Be that as it may, "(i)t is hornbook doctrine that in order `(t)o ascertain whether a court (in this case,
administrative agency) has jurisdiction or not, the provisions of the law should be inquired into.’
Furthermore, `the jurisdiction of the court must appear clearly from the statute law or it will not be
held to exist.’"(Azarcon v. Sandiganbayan, 268 SCRA 747, 757) From the provision of law
abovecited, the Civil Service Commission clearly has jurisdiction over the Administrative Case
against petitioner.

Anent the third assignment of error, we likewise do not find merit in petitioner’s proposition that he
should not be liable, as in the first place, he was not qualified to perform the functions of
appraiser/investigator because he lacked the necessary training and expertise, and therefore, should
not have been found dishonest by the Board of Directors of Islamic Bank [AIIBP] and the CSC.
Petitioner himself admits that the position of appraiser/inspector is "one of the most serious [and]
sensitive job in the banking operations." He should have been aware that accepting such a
designation, he is obliged to perform the task at hand by the exercise of more than ordinary
prudence. As appraiser/investigator, he is expected, among others, to check the authenticity of the
documents presented by the borrower by comparing them with the originals on file with the proper
government office. He should have made it sure that the technical descriptions in the location plan
on file with the Bureau of Lands of Marikina, jibe with that indicated in the TCT of the collateral
offered by CAMEC, and that the mortgage in favor of the Islamic Bank was duly annotated at the
back of the copy of the TCT kept by the Register of Deeds of Marikina. This, petitioner failed to do,
for which he must be held liable. That he did not profit from his false report is of no moment. Neither
the fact that it was not deliberate or willful, detracts from the nature of the act as dishonest. What is
apparent is he stated something to be a fact, when he really was not sure that it was so.

Wherefore, above premises considered, the instant Petition is DISMISSED, and the assailed
Resolutions of the Civil Service Commission are hereby AFFIRMED.
On 24 March 1999, Sawadjaan’s counsel notified the court a quo of his change of address,11 but
apparently neglected to notify his client of this fact. Thus, on 23 July 1999, Sawadjaan, by himself,
filed a Motion for New Trial12 in the Court of Appeals based on the following grounds: fraud, accident,
mistake or excusable negligence and newly discovered evidence. He claimed that he had recently
discovered that at the time his employment was terminated, the AIIBP had not yet adopted its
corporate by-laws. He attached a Certification13 by the Securities and Exchange Commission (SEC)
that it was only on 27 May 1992 that the AIIBP submitted its draft by-laws to the SEC, and that its
registration was being held in abeyance pending certain corrections being made thereon. Sawadjaan
argued that since the AIIBP failed to file its by-laws within 60 days from the passage of Rep. Act No.
6848, as required by Sec. 51 of the said law, the bank and its stockholders had "already forfeited its
franchise or charter, including its license to exist and operate as a corporation," 14 and thus no longer
have "the legal standing and personality to initiate an administrative case."

Sawadjaan’s counsel subsequently adopted his motion, but requested that it be treated as a motion
for reconsideration.15 This motion was denied by the court a quo in its Resolution of 15 December
1999.16

Still disheartened, Sawadjaan filed the present petition for certiorari under Rule 65 of the Rules of
Court challenging the above Decision and Resolution of the Court of Appeals on the ground that the
court a quo erred: i) in ignoring the facts and evidences that the alleged Islamic Bank has no valid
by-laws; ii) in ignoring the facts and evidences that the Islamic Bank lost its juridical personality as a
corporation on 16 April 1990; iii) in ignoring the facts and evidences that the alleged Islamic Bank
and its alleged Board of Directors have no jurisdiction to act in the manner they did in the absence of
a valid by-laws; iv) in not correcting the acts of the Civil Service Commission who erroneously
rendered the assailed Resolutions No. 94-4483 and No. 95-2754 as a result of fraud, falsification
and/or misrepresentations committed by Farouk A. Carpizo and his group, including Roberto F. de
Ocampo; v) in affirming an unconscionably harsh and/or excessive penalty; and vi) in failing to
consider newly discovered evidence and reverse its decision accordingly.

Subsequently, petitioner Sawadjaan filed an "Ex-parte Urgent Motion for Additional Extension of

Time to File a Reply (to the Comments of Respondent Al-Amanah Investment Bank of the
Philippines),17 Reply (to Respondent’s Consolidated Comment,) 18 and Reply (to the Alleged
Comments of Respondent Al-Amanah Islamic Bank of the Philippines)." 19 On 13 October 2000, he
informed this Court that he had terminated his lawyer’s services, and, by himself, prepared and filed
the following: 1) Motion for New Trial; 20 2) Motion to Declare Respondents in Default and/or Having
Waived their Rights to Interpose Objection to Petitioner’s Motion for New Trial; 21 3) Ex-Parte Urgent
Motions to Punish Attorneys Amado D. Valdez, Elpidio J. Vega, Alda G. Reyes, Dominador R.
Isidoro, Jr., and Odilon A. Diaz for Being in Contempt of Court & to Inhibit them from Appearing in
this Case Until they Can Present Valid Evidence of Legal Authority; 22 4) Opposition/Reply (to
Respondent AIIBP’s Alleged Comment);23 5) Ex-Parte Urgent Motion to Punish Atty. Reynaldo A.
Pineda for Contempt of Court and the Issuance of a Commitment Order/Warrant for His Arrest; 24 6)
Reply/Opposition (To the Formal Notice of Withdrawal of Undersigned Counsel as Legal Counsel for
the Respondent Islamic Bank with Opposition to Petitioner’s Motion to Punish Undersigned Counsel
for Contempt of Court for the Issuance of a Warrant of Arrest); 25 7) Memorandum for Petitioner;26 8)
Opposition to SolGen’s Motion for Clarification with Motion for Default and/or Waiver of Respondents
to File their Memorandum;27 9) Motion for Contempt of Court and Inhibition/Disqualification with
Opposition to OGCC’s Motion for Extension of Time to File Memorandum; 28 10) Motion for
Enforcement (In Defense of the Rule of Law);29 11) Motion and Opposition (Motion to Punish
OGCC’s Attorneys Amado D. Valdez, Efren B. Gonzales, Alda G. Reyes, Odilon A. Diaz and
Dominador R. Isidoro, Jr., for Contempt of Court and the Issuance of a Warrant for their Arrest; and
Opposition to their Alleged "Manifestation and Motion" Dated February 5, 2002); 30 12) Motion for
Reconsideration of Item (a) of Resolution dated 5 February 2002 with Supplemental Motion for
Contempt of Court;31 13) Motion for Reconsideration of Portion of Resolution Dated 12 March
2002;32 14) Ex-Parte Urgent Motion for Extension of Time to File Reply Memorandum (To: CSC and
AIIBP’s Memorandum);33 15) Reply Memorandum (To: CSC’s Memorandum) With Ex-Parte Urgent
Motion for Additional Extension of time to File Reply Memorandum (To: AIIBP’s Memorandum); 34 and
16) Reply Memorandum (To: OGCC’s Memorandum for Respondent AIIBP).35

Petitioner’s efforts are unavailing, and we deny his petition for its procedural and substantive flaws.

The general rule is that the remedy to obtain reversal or modification of the judgment on the merits is
appeal. This is true even if the error, or one of the errors, ascribed to the court rendering the
judgment is its lack of jurisdiction over the subject matter, or the exercise of power in excess thereof,
or grave abuse of discretion in the findings of fact or of law set out in the decision. 36

The records show that petitioner’s counsel received the Resolution of the Court of Appeals denying
his motion for reconsideration on 27 December 1999. The fifteen day reglamentary period to appeal
under Rule 45 of the Rules of Court therefore lapsed on 11 January 2000. On 23 February 2000,
over a month after receipt of the resolution denying his motion for reconsideration, the petitioner filed
his petition for certiorari under Rule 65.

It is settled that a special civil action for certiorari will not lie as a substitute for the lost remedy of
appeal,37 and though there are instances38 where the extraordinary remedy of certiorari may be
resorted to despite the availability of an appeal, 39 we find no special reasons for making out an
exception in this case.

Even if we were to overlook this fact in the broader interests of justice and treat this as a special civil
action for certiorari under Rule 65,40 the petition would nevertheless be dismissed for failure of the
petitioner to show grave abuse of discretion. Petitioner’s recurrent argument, tenuous at its very
best, is premised on the fact that since respondent AIIBP failed to file its by-laws within the
designated 60 days from the effectivity of Rep. Act No. 6848, all proceedings initiated by AIIBP and
all actions resulting therefrom are a patent nullity. Or, in his words, the AIIBP and its officers and
Board of Directors,

. . . [H]ave no legal authority nor jurisdiction to manage much less operate the Islamic Bank, file
administrative charges and investigate petitioner in the manner they did and allegedly passed Board
Resolution No. 2309 on December 13, 1993 which is null and void for lack of an (sic)  authorized and
valid by-laws. The CIVIL SERVICE COMMISSION was therefore affirming, erroneously, a null and
void "Resolution No. 2309 dated December 13, 1993 of the Board of Directors of Al-Amanah Islamic
Investment Bank of the Philippines" in CSC Resolution No. 94-4483 dated August 11, 1994. A
motion for reconsideration thereof was denied by the CSC in its Resolution No. 95-2754 dated April
11, 1995. Both acts/resolutions of the CSC are erroneous, resulting from fraud, falsifications and
misrepresentations of the alleged Chairman and CEO Roberto F. de Ocampo and the alleged
Director Farouk A. Carpizo and his group at the alleged Islamic Bank. 41

Nowhere in petitioner’s voluminous pleadings is there a showing that the court a quo committed
grave abuse of discretion amounting to lack or excess of jurisdiction reversible by a petition
for certiorari. Petitioner already raised the question of AIIBP’s corporate existence and lack of
jurisdiction in his Motion for New Trial/Motion for Reconsideration of 27 May 1997 and was denied
by the Court of Appeals. Despite the volume of pleadings he has submitted thus far, he has added
nothing substantial to his arguments.

The AIIBP was created by Rep. Act No. 6848. It has a main office where it conducts business, has
shareholders, corporate officers, a board of directors, assets, and personnel. It is, in fact, here
represented by the Office of the Government Corporate Counsel, "the principal law office of
government-owned corporations, one of which is respondent bank." 42 At the very least, by its failure
to submit its by-laws on time, the AIIBP may be considered a de facto corporation43 whose right to
exercise corporate powers may not be inquired into collaterally in any private suit to which such
corporations may be a party.44

Moreover, a corporation which has failed to file its by-laws within the prescribed period does not ipso
facto lose its powers as such. The SEC Rules on Suspension/Revocation of the Certificate of
Registration of Corporations,45 details the procedures and remedies that may be availed of before an
order of revocation can be issued. There is no showing that such a procedure has been initiated in
this case.

In any case, petitioner’s argument is irrelevant because this case is not a corporate controversy, but
a labor dispute; and it is an employer’s basic right to freely select or discharge its employees, if only
as a measure of self-protection against acts inimical to its interest. 46 Regardless of whether AIIBP is
a corporation, a partnership, a sole proprietorship, or a sari-sari store, it is an undisputed fact that
AIIBP is the petitioner’s employer. AIIBP chose to retain his services during its reorganization,
controlled the means and methods by which his work was to be performed, paid his wages, and,
eventually, terminated his services.47

And though he has had ample opportunity to do so, the petitioner has not alleged that he is anything
other than an employee of AIIBP. He has neither claimed, nor shown, that he is a stockholder or an
officer of the corporation. Having accepted employment from AIIBP, and rendered his services to the
said bank, received his salary, and accepted the promotion given him, it is now too late in the day for
petitioner to question its existence and its power to terminate his services. One who assumes an
obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that
there was in fact no corporation. 48
1avvphi1

Even if we were to consider the facts behind petitioner Sawadjaan’s dismissal from service, we
would be hard pressed to find error in the decision of the AIIBP.

As appraiser/investigator, the petitioner was expected to conduct an ocular inspection of the

properties offered by CAMEC as collaterals and check the copies of the certificates of title against
those on file with the Registry of Deeds. Not only did he fail to conduct these routine checks, but he
also deliberately misrepresented in his appraisal report that after reviewing the documents and
conducting a site inspection, he found the CAMEC loan application to be in order. Despite the
number of pleadings he has filed, he has failed to offer an alternative explanation for his actions.

When he was informed of the charges against him and directed to appear and present his side on
the matter, the petitioner sent instead a memorandum questioning the fairness and impartiality of the
members of the investigating committee and refusing to recognize their jurisdiction over him.
Nevertheless, the investigating committee rescheduled the hearing to give the petitioner another
chance, but he still refused to appear before it.

Thereafter, witnesses were presented, and a decision was rendered finding him guilty of dishonesty
and dismissing him from service. He sought a reconsideration of this decision and the same
committee whose impartiality he questioned reduced their recommended penalty to suspension for
six months and one day. The board of directors, however, opted to dismiss him from service.

On appeal to the CSC, the Commission found that Sawadjaan’s failure to perform his official duties
greatly prejudiced the AIIBP, for which he should be held accountable. It held that:
. . . (I)t is crystal clear that respondent SAPPARI SAWADJAAN was remiss in the performance of his
duties as appraiser/inspector. Had respondent performed his duties as appraiser/inspector, he could
have easily noticed that the property located at Balintawak, Caloocan City covered by TCT No. C-
52576 and which is one of the properties offered as collateral by CAMEC is encumbered to Divina
Pablico. Had respondent reflected such fact in his appraisal/inspection report on said property the
ISLAMIC BANK would not have approved CAMEC’s loan of P500,000.00 in 1987 and CAMEC’s P5
Million loan in 1988, respondent knowing fully well the Bank’s policy of not accepting encumbered
properties as collateral.

Respondent SAWADJAAN’s reprehensible act is further aggravated when he failed to check and
verify from the Registry of Deeds of Marikina the authenticity of the property located at Mayamot,
Antipolo, Rizal covered by TCT No. N-130671 and which is one of the properties offered as collateral
by CAMEC for its P5 Million loan in 1988. If he only visited and verified with the Register of Deeds of
Marikina the authenticity of TCT No. N-130671 he could have easily discovered that TCT No. N-
130671 is fake and the property described therein non-existent.

...

This notwithstanding, respondent cannot escape liability. As adverted to earlier, his failure to perform
his official duties resulted to the prejudice and substantial damage to the ISLAMIC BANK for which
he should be held liable for the administrative offense of CONDUCT PREJUDICIAL TO THE BEST
INTEREST OF THE SERVICE.49

From the foregoing, we find that the CSC and the court a quo committed no grave abuse of
discretion when they sustained Sawadjaan’s dismissal from service. Grave abuse of discretion
implies such capricious and whimsical exercise of judgment as equivalent to lack of jurisdiction, or,
in other words, where the power is exercised in an arbitrary or despotic manner by reason of passion
or personal hostility, and it must be so patent and gross as to amount to an evasion of positive duty
or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law. 50 The
records show that the respondents did none of these; they acted in accordance with the law.

WHEREFORE, the petition is DISMISSED. The Decision of the Court of Appeals of 30 March 1999
affirming Resolutions No. 94-4483 and No. 95-2754 of the Civil Service Commission, and its
Resolution of 15 December 1999 are hereby affirmed. Costs against the petitioner.

SO ORDERED.

Davide, Jr., C.J., Panganiban, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Carpio, Austria-

Martinez, Corona, Carpio-Morales, Callejo, Sr., Azcuna, Tinga, and Garcia, JJ., concur.
Puno, J., on official leave.
G.R. No. 150416             July 21, 2006

SEVENTH DAY ADVENTIST CONFERENCE CHURCH OF SOUTHERN PHILIPPINES, INC.,

and/or represented by MANASSEH C. ARRANGUEZ, BRIGIDO P. GULAY, FRANCISCO M.
LUCENARA, DIONICES O. TIPGOS, LORESTO C. MURILLON, ISRAEL C. NINAL, GEORGE G.
SOMOSOT, JESSIE T. ORBISO, LORETO PAEL and JOEL BACUBAS, petitioners,
vs.
NORTHEASTERN MINDANAO MISSION OF SEVENTH DAY ADVENTIST, INC., and/or
represented by JOSUE A. LAYON, WENDELL M. SERRANO, FLORANTE P. TY and JETHRO
CALAHAT and/or SEVENTH DAY ADVENTIST CHURCH [OF] NORTHEASTERN MINDANAO
MISSION,* Respondents.

DECISION

CORONA, J.:

This petition for review on certiorari assails the Court of Appeals (CA) decision 1 and resolution2 in
CA-G.R. CV No. 41966 affirming, with modification, the decision of the Regional Trial Court (RTC) of
Bayugan, Agusan del Sur, Branch 7 in Civil Case No. 63.

This case involves a 1,069 sq. m. lot covered by Transfer Certificate of Title (TCT) No. 4468 in
Bayugan, Agusan del Sur originally owned by Felix Cosio and his wife, Felisa Cuysona.

On April 21, 1959, the spouses Cosio donated the land to the South Philippine Union Mission of
Seventh Day Adventist Church of Bayugan Esperanza, Agusan (SPUM-SDA Bayugan). 3 Part of the
deed of donation read:

KNOW ALL MEN BY THESE PRESENTS:

That we Felix Cosio[,] 49 years of age[,] and Felisa Cuysona[,] 40 years of age, [h]usband and wife,
both are citizen[s] of the Philippines, and resident[s] with post office address in the Barrio of
Bayugan, Municipality of Esperanza, Province of Agusan, Philippines, do hereby grant, convey and
forever quit claim by way of Donation or gift unto the South Philippine [Union] Mission of Seventh
Day Adventist Church of Bayugan, Esperanza, Agusan, all the rights, title, interest, claim and
demand both at law and as well in possession as in expectancy of in and to all the place of land and
portion situated in the Barrio of Bayugan, Municipality of Esperanza, Province of Agusan,
Philippines, more particularly and bounded as follows, to wit:

1. a parcel of land for Church Site purposes only.

2. situated [in Barrio Bayugan, Esperanza].

3. Area: 30 meters wide and 30 meters length or 900 square meters.

4. Lot No. 822-Pls-225. Homestead Application No. V-36704, Title No. P-285.

5. Bounded Areas
North by National High Way; East by Bricio Gerona; South by Serapio Abijaron and West by Feliz
Cosio xxx. 4

The donation was allegedly accepted by one Liberato Rayos, an elder of the Seventh Day Adventist
Church, on behalf of the donee.

Twenty-one years later, however, on February 28, 1980, the same parcel of land was sold by the
spouses Cosio to the Seventh Day Adventist Church of Northeastern Mindanao Mission (SDA-
NEMM).5 TCT No. 4468 was thereafter issued in the name of SDA-NEMM. 6

Claiming to be the alleged donee’s successors-in-interest, petitioners asserted ownership over the
property. This was opposed by respondents who argued that at the time of the donation, SPUM-SDA
Bayugan could not legally be a donee

because, not having been incorporated yet, it had no juridical personality. Neither were petitioners
members of the local church then, hence, the donation could not have been made particularly to
them.

On September 28, 1987, petitioners filed a case, docketed as Civil Case No. 63 (a suit for
cancellation of title, quieting of ownership and possession, declaratory relief and reconveyance with
prayer for preliminary injunction and damages), in the RTC of Bayugan, Agusan del Sur. After trial,
the trial court rendered a decision7 on November 20, 1992 upholding the sale in favor of
respondents.

On appeal, the CA affirmed the RTC decision but deleted the award of moral damages and
attorney’s fees.8 Petitioners’ motion for reconsideration was likewise denied. Thus, this petition.

The issue in this petition is simple: should SDA-NEMM’s ownership of the lot covered by TCT No.
4468 be upheld?9 We answer in the affirmative.

The controversy between petitioners and respondents involves two supposed transfers of the lot
previously owned by the spouses Cosio: (1) a donation to petitioners’ alleged predecessors-in-
interest in 1959 and (2) a sale to respondents in 1980.

Donation is undeniably one of the modes of acquiring ownership of real property. Likewise,
ownership of a property may be transferred by tradition as a consequence of a sale.

Petitioners contend that the appellate court should not have ruled on the validity of the donation
since it was not among the issues raised on appeal. This is not correct because an appeal generally
opens the entire case for review.

We agree with the appellate court that the alleged donation to petitioners was void.

Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor
of another person who accepts it. The donation could not have been made in favor of an entity yet
inexistent at the time it was made. Nor could it have been accepted as there was yet no one to
accept it.

The deed of donation was not in favor of any informal group of SDA members but a supposed
SPUM-SDA Bayugan (the local church) which, at the time, had neither juridical personality nor
capacity to accept such gift.
Declaring themselves a de facto corporation, petitioners allege that they should benefit from the
donation.

But there are stringent requirements before one can qualify as a de facto corporation:

(a) the existence of a valid law under which it may be incorporated;

(b) an attempt in good faith to incorporate; and

(c) assumption of corporate powers.10

While there existed the old Corporation Law (Act 1459), 11 a law under which SPUM-SDA Bayugan
could have been organized, there is no proof that there was an attempt to incorporate at that time.

The filing of articles of incorporation and the issuance of the certificate of incorporation are essential
for the existence of a de facto corporation.12 We have held that an organization not registered with
the Securities and Exchange Commission (SEC) cannot be considered a corporation in any concept,
not even as a corporation de facto.13 Petitioners themselves admitted that at the time of the donation,
they were not registered with the SEC, nor did they even attempt to organize 14 to comply with legal
requirements.

Corporate existence begins only from the moment a certificate of incorporation is issued. No such
certificate was ever issued to petitioners or their supposed predecessor-in-interest at the time of the
donation. Petitioners obviously could not have claimed succession to an entity that never came to
exist. Neither could the principle of separate juridical personality apply since there was never any
corporation15 to speak of. And, as already stated, some of the representatives of petitioner Seventh
Day Adventist Conference Church of Southern Philippines, Inc. were not even members of the local
church then, thus, they could not even claim that the donation was particularly for them. 16

"The de facto doctrine thus effects a compromise between two conflicting public interest[s]—the one
opposed to an unauthorized assumption of corporate privileges; the other in favor of doing justice to
the parties and of establishing a general assurance of security in business dealing with
corporations."17

Generally, the doctrine exists to protect the public dealing with supposed corporate entities, not to
favor the defective or non-existent corporation.18

In view of the foregoing, petitioners’ arguments anchored on their supposed de facto status hold no
water. We are convinced that there was no donation to petitioners or their supposed predecessor-in-
interest.

On the other hand, there is sufficient basis to affirm the title of SDA-NEMM. The factual findings of
the trial court in this regard were not convincingly disputed. This Court is not a trier of facts. Only
questions of law are the proper subject of a petition for review on certiorari. 19

Sustaining the validity of respondents’ title as well as their right of ownership over the property, the
trial court stated:

[W]hen Felix Cosio was shown the Absolute Deed of Sale during the hearing xxx he acknowledged
that the same was his xxx but that it was not his intention to sell the controverted property because
he had previously donated the same lot to the South Philippine Union Mission of SDA Church of
Bayugan-Esperanza. Cosio avouched that had it been his intendment to sell, he would not have
disposed of it for a mere P2,000.00 in two installments but for P50,000.00 or P60,000.00. According
to him, the P2,000.00 was not a consideration of the sale but only a form of help extended.

A thorough analysis and perusal, nonetheless, of the Deed of Absolute Sale disclosed that it
has the essential requisites of contracts pursuant to xxx Article 1318 of the Civil Code, except
that the consideration of P2,000.00 is somewhat insufficient for a [1,069-square meter] land. Would
then this inadequacy of the consideration render the contract invalid?

Article 1355 of the Civil Code provides:

Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract,
unless there has been fraud, mistake or undue influence.

No evidence [of fraud, mistake or undue influence] was adduced by [petitioners].

xxx

Well-entrenched is the rule that a Certificate of Title is generally a conclusive evidence of

[ownership] of the land. There is that strong and solid presumption that titles were legally issued
and that they are valid. It is irrevocable and indefeasible and the duty of the Court is to see to it that
the title is maintained and respected unless challenged in a direct proceeding. xxx The title shall be
received as evidence in all the Courts and shall be conclusive as to all matters contained therein.

[This action was instituted almost seven years after the certificate of title in respondents’ name was
issued in 1980.]20

According to Art. 1477 of the Civil Code, the ownership of the thing sold shall be transferred to the
vendee upon the actual or constructive delivery thereof. On this, the noted author Arturo Tolentino
had this to say:

The execution of [a] public instrument xxx transfers the ownership from the vendor to the vendee
who may thereafter exercise the rights of an owner over the same 21

Here, transfer of ownership from the spouses Cosio to SDA-NEMM was made upon constructive
delivery of the property on February 28, 1980 when the sale was made through a public
instrument.22 TCT No. 4468 was thereafter issued and it remains in the name of SDA-NEMM.

WHEREFORE, the petition is hereby DENIED.

Costs against petitioners.

SO ORDERED.

Puno, Chairperson, Sandoval-Gutierrez, Azcuna, Garcia, J.J., concur.

Footnotes
* The Seventh Day Adventist Church of Northeastern Mindanao Mission (SDA-NEMM) is the
ecclesiastical body and the Northern Mindanao Mission of Seventh Day Adventist, Inc. is the
corporation managing SDA-NEMM’s properties.

1
 Penned by Associate Justice Andres B. Reyes, Jr. and concurred in by Associate Justices
B.A. Adefuin-de la Cruz (retired) and Rebecca de Guia-Salvador of the Sixteenth  Division of
the Court of Appeals; rollo, pp. 19-28.

2
 Id., p. 30.

3
 Id., p. 105.

4
 Id., p. 105.

5
 Id., p. 107.

6
 Id., p. 108.

7
 Penned by Judge Zenaida P. Placer of RTC Bayugan, Agusan del Sur, Branch VII; rollo,
pp. 205-220.

ACCORDINGLY, viewed from the above perceptions, the evidence having

[preponderance] in favor of [SDA-NEMM], judgment is hereby rendered dismissing
the above[-mentioned] petition and ordering [petitioners]:

1) to return to [SDA-NEMM] the litigated property, Lot No. 822 PLS-225 covered by
[TCT] No. 4468;

2) to pay moral damages in the amount of P30,000.00;

3) to pay attorney’s fees in the amount of P30,000.0;

4) to pay expenses of litigation in the sum of P66,860.00; and

5) to pay the costs.

SO ORDERED.

8
 The Court had gone over the arguments propounded by each side and finds itself in
agreement with [SDA-NEMM] that because [SPUM-SDA Bayugan] was not incorporated at
the time of the donation in 1959, the said [SPUM-SDA Bayugan] could not be the recipient of
a donation. [Petitioners] had in fact admitted [that] the donee was not registered with the
Securities and Exchange Commission. But neither can we uphold [SDA-NEMM’s] position
that because [SPUM-SDA Bayugan] could not have been the donee, [South Philippine Union
Mission] was necessarily the donee. We had carefully gone over the Deed of Donation and
[found] that the donee was "South Philippine Union Mission of Seventh Day Adventist
Church of Bayugan Esperanza, Agusan."

To the mind of this Court, the intended donee was the local church of Bayugan-
Esperanza, Agusan and not SPUM. [Had] the donors intended to donate the property
to SPUM, they would not have specified the local church (i.e., the SDA Church of
 Bayugan, Esperanza, Agusan) as the donee. In fine, the Court finds that the Deed of
Donation did not validly transfer the property to either [SPUM-SDA Bayugan] or to
SPUM. (Rollo, pp. 24-25).

9
 Petition, rollo, p.12.

10
 Villanueva, Philippine Corporate Law (1998), Rex Book Store, Manila, pp. 111-112.
Agbayani added a fourth requisite to consider a corporation as de facto in status: good faith
in claiming to be and in doing business as a corporation. This finds basis on Sec. 20,
Corporation Code. "A group of persons may be in good faith in their attempt to incorporate,
but subsequently they may discover that they have not substantially complied with the law.
After such discovery, they could no longer claim in good faith to be a corporation, and
therefore, ought not to be accorded the privilege of de facto existence." (Agbayani,
Commentaries and Jurisprudence on the Commercial Laws of the Philippines [1996], AFA
Publications, Inc., Quezon City, p. 181).

 This was the law applicable at the time of the alleged donation. It became effective on April
11

1, 1906. The Corporation Code (BP 68), which took effect on May 1, 1980, is the general
statute under which private corporations are organized today.

12
 See Hall v. Piccio, 86 Phil. 603 (1950).

 Agbayani, supra note 10, at 181 citing Albert v. University Publishing Co., Inc., 121 Phil. 87
13

(1965).

 "[T]he term ‘organization’ means simply the process of forming and arranging into suitable
14

disposition the parties who are to act together in, and defining the objects of, the compound
body, and that this process, even when complete in all its parts, does not confer a franchise
either valid or defective, but, on the contrary, it is only the act of the individuals, and
something else must be done to secure the corporate franchise." Organization refers to the
"systematization and orderly arrangement of the internal and managerial affairs and organs"
of the corporation. (Benguet Consolidated Mining Co. v. Pineda, 98 Phil. 711, 720 [1956]).
Citations omitted.

 A corporation is an artificial being created by operation of law, having the right of

15

succession and the powers, attributes and properties expressly authorized by law or incident
to its existence (Corporation Code, Sec. 2. See also Civil Code, Art. 46). This is the legal
basis of the main doctrine that a corporation, being a juridical person, has a personality
separate and distinct from its members.

 Considering that we are treating properties of a supposed religious organization, it would

16

not be amiss to be guided by the following:

The confradias and capellanias of the Roman Catholic Church are also recognized

as juridical persons if they were legally organized under the laws of the Spanish
regime and have by-laws approved by the government existing at the time of their
foundation; but if they were not so organized, they cannot be considered as
juridical persons and cannot register properties in their own
names. (Villanueva, supra note 10, at 180 citing Capellania de Tambobong v. Cruz,
9 Phil. 145 [1907]; Government of the Philippines v. Avila, 38 Phil. 383 [1918]).
(emphasis ours)
17
 Agbayani, supra note 10, at 180-181. See also Villanueva, supra note 10, at 110-111.

18
 "It has been stated that ‘so long as it exists, a de facto corporation is a reality and has a
substantial, legal existence, and an independent status, recognized by law, as distinct from
that of its members. It is, as the term implies, a corporation, and enjoys at least for most
purposes, the status of a corporation de jure until the state questions its existence.’ This
statement, however, has been criticized. Each case must be considered according to the
specific point at issue. xxx [T]he recognition of de facto existence, which consists mainly of
the ‘denial of collateral attack,’ is a device used by the courts to recognize certain corporate
attributes in a defective organization where that seems advisable." (Agbayani, supra note 10,
at 179-180, citations omitted).

19
 Rules of Court, Rule 45, Sec. 1.

20
 Rollo, pp. 216-220.

 Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines Vol. V
21

(1992), Central Professional Books, Inc., Quezon City, p. 53. See also Civil Code, Art. 1498.

22
 Rollo, p. 107.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-2598             June 29, 1950

C. ARNOLD HALL and BRADLEY P. HALL, petitioners,

vs.
EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte, FRED BROWN, EMMA
BROWN, HIPOLITA CAPUCIONG, in his capacity as receiver of the Far Eastern Lumber and
Commercial Co., Inc., respondents.

Claro M. Recto for petitioners.

Ramon Diokno and Jose W. Diokno for respondents.

BENGZON, J.:

This is petition to set aside all the proceedings had in civil case No. 381 of the Court of First Instance
of Leyte and to enjoin the respondent judge from further acting upon the same.

Facts: (1) on May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the respondents
Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella, signed and acknowledged
in Leyte, the article of incorporation of the Far Eastern Lumber and Commercial Co., Inc., organized
to engage in a general lumber business to carry on as general contractors, operators and managers,
etc. Attached to the article was an affidavit of the treasurer stating that 23,428 shares of stock had
been subscribed and fully paid with certain properties transferred to the corporation described in a
list appended thereto.

(2) Immediately after the execution of said articles of incorporation, the corporation proceeded to do
business with the adoption of by-laws and the election of its officers.

(3) On December 2, 1947, the said articles of incorporation were filed in the office of the Securities
and Exchange Commissioner, for the issuance of the corresponding certificate of incorporation.

(4) On March 22, 1948, pending action on the articles of incorporation by the aforesaid governmental
office, the respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella filed
before the Court of First Instance of Leyte the civil case numbered 381, entitled "Fred Brown et
al. vs. Arnold C. Hall et al.", alleging among other things that the Far Eastern Lumber and
Commercial Co. was an unregistered partnership; that they wished to have it dissolved because of
bitter dissension among the members, mismanagement and fraud by the managers and heavy
financial losses.

(5) The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion to dismiss,
contesting the court's jurisdiction and the sufficiently of the cause of action.
(6) After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution of the company; and
at the request of plaintiffs, appointed of the properties thereof, upon the filing of a P20,000 bond.

(7) The defendants therein (petitioners herein) offered to file a counter-bond for the discharge of the
receiver, but the respondent judge refused to accept the offer and to discharge the receiver.
Whereupon, the present special civil action was instituted in this court. It is based upon two main
propositions, to wit:

(a) The court had no jurisdiction in civil case No. 381 to decree the dissolution of the company,
because it being a de facto corporation, dissolution thereof may only be ordered in a quo
warranto proceeding instituted in accordance with section 19 of the Corporation Law.

(b) Inasmuch as respondents Fred Brown and Emma Brown had signed the article of incorporation
but only a partnership.

Discussion: The second proposition may at once be dismissed. All the parties are informed that the
Securities and Exchange Commission has not, so far, issued the corresponding certificate of
incorporation. All of them know, or sought to know, that the personality of a corporation begins to
exist only from the moment such certificate is issued — not before (sec. 11, Corporation Law). The
complaining associates have not represented to the others that they were incorporated any more
than the latter had made similar representations to them. And as nobody was led to believe anything
to his prejudice and damage, the principle of estoppel does not apply. Obviously this is not an
instance requiring the enforcement of contracts with the corporation through the rule of estoppel.

The first proposition above stated is premised on the theory that, inasmuch as the Far Eastern
Lumber and Commercial Co., is a de facto corporation, section 19 of the Corporation Law applies,
and therefore the court had not jurisdiction to take cognizance of said civil case number 381. Section
19 reads as follows:

. . . The due incorporation of any corporations claiming in good faith to be a corporation

under this Act and its right to exercise corporate powers shall not be inquired into collaterally
in any private suit to which the corporation may be a party, but such inquiry may be had at
the suit of the Insular Government on information of the Attorney-General.

There are least two reasons why this section does not govern the situation. Not having obtained the
certificate of incorporation, the Far Eastern Lumber and Commercial Co. — even its stockholders —
may not probably claim "in good faith" to be a corporation.

Under our statue it is to be noted (Corporation Law, sec. 11) that it is the issuance of a
certificate of incorporation by the Director of the Bureau of Commerce and Industry which
calls a corporation into being. The immunity if collateral attack is granted to corporations
"claiming in good faith to be a corporation under this act." Such a claim is compatible with the
existence of errors and irregularities; but not with a total or substantial disregard of the law.
Unless there has been an evident attempt to comply with the law the claim to be a
corporation "under this act" could not be made "in good faith." (Fisher on the Philippine Law
of Stock Corporations, p. 75. See also Humphreys vs. Drew, 59 Fla., 295; 52 So., 362.)

Second, this is not a suit in which the corporation is a party. This is a litigation between stockholders
of the alleged corporation, for the purpose of obtaining its dissolution. Even the existence of a de
jure corporation may be terminated in a private suit for its dissolution between stockholders, without
the intervention of the state.
There might be room for argument on the right of minority stockholders to sue for dissolution; 1 but
that question does not affect the court's jurisdiction, and is a matter for decision by the judge, subject
to review on appeal. Whkch brings us to one principal reason why this petition may not prosper,
namely: the petitioners have their remedy by appealing the order of dissolution at the proper time.

There is a secondary issue in connection with the appointment of a receiver. But it must be admitted
that receivership is proper in proceedings for dissolution of a company or corporation, and it was no
error to reject the counter-bond, the court having declared the dissolution. As to the amount of the
bond to be demanded of the receiver, much depends upon the discretion of the trial court, which in
this instance we do not believe has been clearly abused.

Judgment: The petition will, therefore, be dismissed, with costs. The preliminary injunction heretofore
issued will be dissolved.

Ozaeta, Pablo, Tuason, Montemayor, and Reyes, JJ., concur.