[G.R. No. 164301 : August 10, 2010] BANK OF THE PHILIPPINE ISLANDS, PETITIONER, VS.

BPI EMPLOYEES UNION-DAVAO CHAPTER-FEDERATION OF UNIONS IN BPI UNIBANK, RESPONDENT. D ECISION LEONARDO-DE CASTRO, J.: May a corporation invoke its merger with another corporation as a valid ground to exempt its "absorbed employees" from the coverage of a union shop clause contained in its existing Collective Bargaining Agreement (CBA) with its own certified labor union? That is the question we shall endeavor to answer in this petition for review filed by an employer after the Court of Appeals decided in favor of respondent union, which is the employees' recognized collective bargaining representative. At the outset, we should call to mind the spirit and the letter of the Labor Code provisions on union security clauses, specifically Article 248 (e), which states, "x x x Nothing in this Code or in any other law shall stop the parties from requiring membership in a recognized collective bargaining agent as a condition for employment, except those employees who are already members of another union at the time of the signing of the collective bargaining agreement." [1] This case which involves the application of a collective bargaining agreement with a union shop clause should be resolved principally from the standpoint of the clear provisions of our labor laws, and the express terms of the CBA in question, and not by inference from the general consequence of the merger of corporations under the Corporation Code, which obviously does not deal with and, therefore, is silent on the terms and conditions of employment in corporations or juridical entities. This issue must be resolved NOW, instead of postponing it to a future time when the CBA is renegotiated as suggested by the Honorable Justice Arturo D. Brion because the same issue may still be resurrected in the renegotiation if the absorbed employees insist on their privileged status of being exempt from any union shop clause or any variant thereof. We find it significant to note that it is only the employer, Bank of the Philippine Islands (BPI), that brought the case up to this Court via the instant petition for review; while the employees actually involved in the case did not pursue the same relief, but had instead chosen in effect to acquiesce to the decision of the Court of Appeals which effectively required them to comply with the union shop clause under the existing CBA at the time of the merger of BPI with Far East Bank and Trust Company (FEBTC), which decision had already become final and executory as to the aforesaid employees. By not appealing the decision of the Court of Appeals, the aforesaid employees are bound by the said Court of Appeals' decision to join BPI's duly certified labor union. In view of the apparent acquiescence of the affected FEBTC employees in the Court of Appeals' decision, BPI should not have pursued this petition for review. However, even assuming that BPI may do so, the same still cannot prosper. What is before us now is a petition for review under Rule 45 of the Rules of Court of the Decision[2] dated September 30, 2003 of [3] [4] the Court of Appeals, as reiterated in its Resolution of June 9, 2004, reversing and setting aside the Decision dated November 23, 2001 of Voluntary Arbitrator Rosalina Letrondo-Montejo, in CA-G.R. SP No. 70445, entitled BPI Employees Union-Davao Chapter-Federation of Unions in BPI Unibank v. Bank of the Philippine Islands, et al. The antecedent facts are as follows: On March 23, 2000, the Bangko Sentral ng Pilipinas approved the Articles of Merger executed on January 20, 2000 by and [5] between BPI, herein petitioner, and FEBTC. This Article and Plan of Merger was approved by the Securities and Exchange [6] Commission on April 7, 2000. Pursuant to the Article and Plan of Merger, all the assets and liabilities of FEBTC were transferred to and absorbed by BPI as the surviving corporation. FEBTC employees, including those in its different branches across the country, were hired by petitioner as its own employees, with their status and tenure recognized and salaries and benefits maintained. Respondent BPI Employees Union-Davao Chapter - Federation of Unions in BPI Unibank (hereinafter the "Union," for brevity) is the exclusive bargaining agent of BPI's rank and file employees in Davao City. The former FEBTC rank-and-file employees in Davao City did not belong to any labor union at the time of the merger. Prior to the effectivity of the merger, or on March 31, 2000, respondent Union invited said FEBTC employees to a meeting regarding the Union Shop Clause (Article II, Section 2) of the existing CBA between petitioner BPI and respondent Union. [7] The parties both advert to certain provisions of the existing CBA, which are quoted below: ARTICLE I Section 1. Recognition and Bargaining Unit - The BANK recognizes the UNION as the sole and exclusive collective bargaining representative of all the regular rank and file employees of the Bank offices in Davao City.

Section 2. Exclusions Section 3. Additional Exclusions Section 4. Copy of Contract ARTICLE II Section 1. Maintenance of Membership - All employees within the bargaining unit who are members of the Union on the date of the effectivity of this Agreement as well as employees within the bargaining unit who subsequently join or become members of the Union during the lifetime of this Agreement shall as a condition of their continued employment with the Bank, maintain their membership in the Union in good standing. Section 2. Union Shop - New employees falling within the bargaining unit as defined in Article I of this Agreement, who may hereafter be regularly employed by the Bank shall, within thirty (30) days after they become regular employees, join the Union as a condition of their continued employment. It is understood that membership in good standing in the Union is a condition of their continued employment with the Bank. [8] (Emphases supplied.) After the meeting called by the Union, some of the former FEBTC employees joined the Union, while others refused. Later, [9] however, some of those who initially joined retracted their membership. Respondent Union then sent notices to the former FEBTC employees who refused to join, as well as those who retracted their membership, and called them to a hearing regarding the matter. When these former FEBTC employees refused to attend the hearing, the president of the Union requested BPI to implement the Union Shop Clause of the CBA and to terminate their [10] employment pursuant thereto. After two months of management inaction on the request, respondent Union informed petitioner BPI of its decision to refer the issue of the implementation of the Union Shop Clause of the CBA to the Grievance Committee. However, the issue remained [11] unresolved at this level and so it was subsequently submitted for voluntary arbitration by the parties. Voluntary Arbitrator Rosalina Letrondo-Montejo, in a Decision dated November 23, 2001, ruled in favor of petitioner BPI's interpretation that the former FEBTC employees were not covered by the Union Security Clause of the CBA between the Union and the Bank on the ground that the said employees were not new employees who were hired and subsequently regularized, but were absorbed employees "by operation of law" because the "former employees of FEBTC can be considered assets and liabilities of the absorbed corporation." The Voluntary Arbitrator concluded that the former FEBTC employees could not be compelled to join the Union, as it was their constitutional right to join or not to join any organization. Respondent Union filed a Motion for Reconsideration, but the Voluntary Arbitrator denied the same in an Order dated March [13] 25, 2002. Dissatisfied, respondent then appealed the Voluntary Arbitrator's decision to the Court of Appeals. In the herein assailed [14] Decision dated September 30, 2003, the Court of Appeals reversed and set aside the Decision of the Voluntary Arbitrator. Likewise, the Court of Appeals denied herein petitioner's Motion for Reconsideration in a Resolution dated June 9, 2004. The Court of Appeals pertinently ruled in its Decision: A union-shop clause has been defined as a form of union security provision wherein non-members may be hired, but to retain employment must become union members after a certain period. There is no question as to the existence of the union-shop clause in the CBA between the petitioner-union and the company. The controversy lies in its application to the "absorbed" employees. This Court agrees with the voluntary arbitrator that the ABSORBED employees are distinct and different from NEW employees BUT only in so far as their employment service is concerned. The distinction ends there. In the case at bar, the absorbed employees' length of service from its former employer is tacked with their employment with BPI. Otherwise stated, the absorbed employees service is continuous and there is no gap in their service record. This Court is persuaded that the similarities of "new" and "absorbed" employees far outweighs the distinction between them. The similarities lies on the following, to wit: (a) they have a new employer; (b) new working conditions; (c) new terms of employment and; (d) new company policy to follow. As such, they should be considered as "new" employees for purposes of applying the provisions of the CBA regarding the "union-shop" clause.
[12]

To rule otherwise would definitely result to a very awkward and unfair situation wherein the "absorbed" employees shall be in a different if not, better situation than the existing BPI employees. The existing BPI employees by virtue of the "union-shop" clause are required to pay the monthly union dues, remain as members in good standing of the union otherwise, they shall be terminated from the company, and other union-related obligations. On the other hand, the "absorbed" employees shall enjoy the "fruits of labor" of the petitioner-union and its members for nothing in exchange. Certainly, this would disturb industrial peace in the company which is the paramount reason for the existence of the CBA and the union. The voluntary arbitrator's interpretation of the provisions of the CBA concerning the coverage of the "union-shop" clause is at war with the spirit and the rationale why the Labor Code itself allows the existence of such provision. The Supreme Court in the case of Manila Mandarin Employees Union vs. NLRC (G.R. No. 76989, September 29, 1987) rule, to quote: "This Court has held that a valid form of union security, and such a provision in a collective bargaining agreement is not a restriction of the right of freedom of association guaranteed by the Constitution. A closed-shop agreement is an agreement whereby an employer binds himself to hire only members of the contracting union who must continue to remain members in good standing to keep their jobs. It is "THE MOST PRIZED ACHIEVEMENT OF UNIONISM." IT ADDS MEMBERSHIP AND COMPULSORY DUES. By holding out to loyal members a promise of employment in the closed-shop, it wields group solidarity." (Emphasis supplied) Hence, the voluntary arbitrator erred in construing the CBA literally at the expense of industrial peace in the company. With the foregoing ruling from this Court, necessarily, the alternative prayer of the petitioner to require the individual [15] respondents to become members or if they refuse, for this Court to direct respondent BPI to dismiss them, follows. Hence, petitioner's present recourse, raising the following issues: I WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE FORMER FEBTC EMPLOYEES SHOULD BE CONSIDERED `NEW' EMPLOYEES OF BPI FOR PURPOSES OF APPLYING THE UNION SHOP CLAUSE OF THE CBA II WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE VOLUNTARY ARBITRATOR'S INTERPRETATION OF THE COVERAGE OF THE UNION SHOP CLAUSE IS "AT WAR WITH THE SPIRIT AND THE RATIONALE WHY THE LABOR CODE ITSELF ALLOWS THE EXISTENCE OF SUCH PROVISION"[16] In essence, the sole issue in this case is whether or not the former FEBTC employees that were absorbed by petitioner upon the merger between FEBTC and BPI should be covered by the Union Shop Clause found in the existing CBA between petitioner and respondent Union. Petitioner is of the position that the former FEBTC employees are not new employees of BPI for purposes of applying the Union Shop Clause of the CBA, on this note, petitioner points to Section 2, Article II of the CBA, which provides: New employees falling within the bargaining unit as defined in Article I of this Agreement, who may hereafter be regularly employed by the Bank shall, within thirty (30) days after they become regular employees, join the Union as a condition of their continued employment. It is understood that membership in good standing in the Union is a condition of their continued [17] employment with the Bank. (Emphases supplied.) Petitioner argues that the term "new employees" in the Union Shop Clause of the CBA is qualified by the phrases "who may hereafter be regularly employed" and "after they become regular employees" which led petitioner to conclude that the "new employees" referred to in, and contemplated by, the Union Shop Clause of the CBA were only those employees who were "new" to BPI, on account of having been hired initially on a temporary or probationary status for possible regular employment at some future date. BPI argues that the FEBTC employees absorbed by BPI cannot be considered as "new employees" of BPI for purposes of applying the Union Shop Clause of the CBA.[18] According to petitioner, the contrary interpretation made by the Court of Appeals of this particular CBA provision ignores, or even defies, what petitioner assumes as its clear meaning and scope which allegedly contradicts the Court's strict and restrictive enforcement of union security agreements. We do not agree.

Section 2. and. there is nothing in the Corporation Law and the merger agreement mandating the automatic employment as regular employees by the surviving corporation in the merger. who are union members as of the effective date of the agreement. To this end. are allegedly automatically deemed regular employees of BPI. By holding out to loyal members a promise of [25] employment in the closed shop. the purpose of a union shop or other union security arrangement is to guarantee the continued existence of the union through enforced membership for the benefit of the workers. A closed-shop. refers only to employees hired by BPI as non-regular employees who later qualify for regular employment and become regular employees. it wields group solidarity. on occasion. the CBA does not make a distinction as to how a regular employee attains such a status.) In other words. petitioner insists that the term "new employees.[19] In the case of Liberty Flour Mills Employees v. no person may be employed in any or certain agreed departments of the enterprise unless he or she is. and not those who. There is union shop when all new regular employees are required to join the union within a certain period for their continued employment. To reiterate. the situation of the former FEBTC employees in this case clearly does not fall within the first three exceptions to the application of the Union Shop Clause discussed earlier. There is maintenance of membership shop when employees.. the following kinds of employees are exempted from its coverage. Moreover. under law and jurisprudence. Moreover. Article II of the CBA is silent as to how one becomes a "regular employee" of the BPI for the first time. the Constitution guarantees to them the rights "to self-organization. No allegation or evidence of religious exemption or prior membership in another union or engagement as a confidential employee was presented by both parties. remains a member in good standing of a union entirely comprised of or of which the employees in interest are a part. as a legal consequence of a merger. There is nothing in the said provision which requires that a "new" regular employee first undergo a temporary or probationary status before being deemed as such under the union shop clause of the CBA. as in the case of Union Security Clauses. It is apparent that petitioner hinges its argument that the former FEBTC employees were absorbed by BPI merely as a legal consequence of a merger based on the characterization by the Voluntary Arbiter of these absorbed employees as included in the . or who thereafter become members. When certain employees are obliged to join a particular union as a requisite for continued employment. this condition is a valid restriction of the freedom or right not to join any labor organization because it is in favor of unionism. (Emphasis ours. [20] we ruled that: It is the policy of the State to promote unionism to enable the workers to negotiate with management on the same level and with more persuasiveness than if they were to individually and independently bargain for the improvement of their respective conditions. collective bargaining and negotiations and peaceful concerted actions including the right to strike in accordance with law. becomes. It is for this reason that the law has sanctioned stipulations for the union shop and the closed shop as a means of encouraging the workers to join and support the labor union of their own choice as their representative in the negotiation of their demands and the protection of their interest vis-Ã -vis the employer. This Court. namely. on the other hand.[23] and employees excluded from the union shop by express terms of the agreement. All employees in the bargaining unit covered by a Union Shop Clause in their CBA with management are subject to its terms." There is no question that these purposes could be thwarted if every worker were to choose to go his own separate way instead of joining his coemployees in planning collective action and presenting a united front when they sit down to bargain with their employers. has even held that a union security clause in a CBA is not a restriction of the right of [24] freedom of association guaranteed by the Constitution. Inc. employees who at the time the union shop agreement takes effect are bona fide members of a religious organization which prohibits its members from joining labor unions on religious grounds. by agreement between the employer and his employees or their representatives.[21] employees already in the service and already members of a union other than the majority at the time the union shop agreement took effect. However. must maintain union membership as a condition for continued employment until they are promoted or transferred out of the bargaining unit or the agreement is terminated. It is "the most prized achievement of unionism. may be defined as an enterprise in which." "union shop. for the duration of the agreement. Indeed. "Union security" is a generic term which is applied to and comprehends "closed shop. a closed shop agreement is an agreement whereby an employer binds himself to hire only members of the contracting union who must continue to remain members in good standing to keep their jobs." It adds membership and compulsory dues." as the same is used in the Union Shop Clause of the CBA at issue. However. The sole category therefore in which petitioner may prove its claim is the fourth recognized exception or whether the former FEBTC employees are excluded by the express terms of the existing CBA between petitioner and respondent. Liberty Flour Mills.[22] confidential employees who are excluded from the rank and file bargaining unit." "maintenance of membership" or any other form of agreement which imposes upon employees the obligation to acquire or retain union membership as a condition affecting employment.

Significantly. and all and every other interest of. thus binding only between the parties. she ruled that the same are not new employees of BPI as contemplated by the CBA at issue. immunities and franchises of each of the constituent corporations. the merger was voluntarily entered into by both banks presumably for some mutually acceptable consideration. A labor contract merely creates an action in personam and does not create any real right which should be respected by third parties. however. 80." In sum. and the same can only be restricted by law through the exercise of the police power. There was no government regulation or law that compelled the merger of the two banks or the absorption of the employees of the dissolved corporation by the surviving corporation. Assets and liabilities. The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights. immunities and powers and shall be subject to all the duties and liabilities of a corporation organized under this Code. Based on this ratiocination. privileges." Moreover. thus reducing the Bank's financial status. Section 80 of the Corporation Code provides: SEC. Had there been such law or regulation. this Court cannot uphold the reasoning that the general stipulation regarding transfer of FEBTC assets and liabilities to BPI as set forth in the Articles of Merger necessarily includes the transfer of all FEBTC employees into the employ of BPI and neither BPI nor the FEBTC employees allegedly could do anything about it. the Voluntary Arbiter upheld the reasoning of petitioner that the FEBTC employees became BPI employees by "operation of law" because they are included in the term "assets and liabilities. as provided in the preceding sections shall have the following effects: 1. the absorption of employees of the non-surviving entities of the merger would have been mandatory on the surviving corporation. and. 2000 did not contain any specific stipulation with respect to the employment contracts of existing personnel of the non-surviving entity which is FEBTC. Neither the rights of creditors nor any lien upon the property of any of such constituent corporations shall be impaired by such merger or consolidated. BPI's absorption of former FEBTC employees was neither by operation of law nor by legal consequence of contract. shall be the surviving corporation designated in the plan of merger. The separate existence of the constituent corporations shall cease. 4. This conclusion draws its force from the right of an employer to select his employees and to decide when to engage them as protected under our Constitution. The rule is that unless expressly assumed. in this instance. or belonging to. In fact." Absorbed FEBTC Employees are Neither Assets nor Liabilities In legal parlance. and 5.The merger or consolidation. in case of consolidation. in case of merger. real or personal. shall be the consolidated corporation designated in the plan of consolidation. Unlike the Voluntary Arbitrator. and any claim. Certainly. labor contracts being in personam. The surviving or the consolidated corporation shall be responsible and liable for all the liabilities and obligations of each of the constituent corporations in the same manner as if such surviving or consolidated corporation had itself incurred such liabilities or obligations. . human beings are never embraced in the term "assets and liabilities. and all receivables due on whatever account. 3. shall be taken and deemed to be transferred to and vested in such surviving or consolidated corporation without further act or deed. this Court believes that it is contrary to public policy to declare the former FEBTC employees as forming part of the assets or liabilities of FEBTC that were transferred and absorbed by BPI in the Articles of Merger. FEBTC employees had the concomitant .[28] Furthermore. labor contracts such as employment contracts and collective bargaining agreements are not enforceable against a transferee of an enterprise. except that of the surviving or the consolidated corporation. and all property. as the case may be. if BPI as an employer had the right to choose who to retain among FEBTC's employees. it does not follow that the absorbed employees should not be subject to the terms and conditions of employment obtaining in the surviving corporation. the Articles of Merger and Plan of Merger dated April 7. the Corporation Code does not also mandate the absorption of the employees of the non-surviving corporation by the surviving corporation in the case of a merger. A corporation cannot unilaterally transfer its employees to another employer like chattel. Effects of merger or consolidation.assets because they help the Bank in its operation and liabilities because redundant employees may be terminated and company benefits will be paid to them. 2. noting that the Certificate of Filing of the Articles of Merger and Plan of Merger between FEBTC and BPI stated that "x x x the entire assets and liabilities of FAR EASTERN BANK & TRUST COMPANY will be transferred to and absorbed by the BANK OF THE [26] PHILIPPINE ISLANDS x x x (underlining supplied). The surviving or the consolidated corporation shall possess all the rights. should be deemed to refer only to property rights and obligations of FEBTC and do not include the employment contracts of its personnel. action or proceeding pending by or against any of such constituent corporations may be prosecuted by or against the surviving or consolidated corporation. privileges. or due to each constituent corporation. Even if it is so. too. The constituent corporations shall become a single corporation which. [27] In the present case. including subscriptions to shares and other choses in action."assets and liabilities" of the dissolved corporation .

should be "dovetailed" or whether the transferring employees should go to the bottom of the roster of their new employer. BPI was being required to assume all the employment contracts of all existing FEBTC employees with the conformity of the employees. since the railroad. absent some specific contract provision otherwise. finds that their jobs have been discontinued except to the extent that they are offered employment at the place or by the employer where the work is to be carried on in the future. There appears to be no dispute that with respect to FEBTC employees that BPI chose not to employ or FEBTC employees who chose to retire or be separated from employment instead of "being absorbed. who had accumulated seniority at one plant or for one employer. In Carver v Brien (1942) 315 Ill App 643. In this regard. Where the provisions of a labor contract provided that in the event that a trucker absorbed the business of another private contractor or common carrier. It has been recognized in some cases that the accumulated seniority does not survive and cannot be transferred to the "new" job. they had a choice whether or not they would allow themselves to be absorbed by BPI. Unless and until the absorbing company agreed to take the employees of the company whose business was being absorbed. Brion tries to make a distinction as to the terms and conditions of employment of the absorbed employees in the case of a corporate merger or consolidation which will. which had previously operated separate facilities. no seniority problem was created. that the trucker was not required to absorb the affected employees as well as the business. seniority rights were ordinarily limited to the employment in which they were earned. and not with initial employment. We quote the following pertinent discussion from the American Law Reports: Several cases have involved the situation where as a result of mergers. . Employment is a personal consensual contract and absorption by BPI of a former FEBTC employee without the consent of the employee is in violation of an individual's freedom to contract. and the action was for specific performance of this agreement against a demurring group of the original employees of the railroad which was operating the consolidated shops. from the tenor of local and foreign authorities. Even though FEBTC employees had no choice or control over the merger of their employer with BPI. Such cases have involved the question whether such transferring employees should be entitled to carry with them their accumulated seniority or whether they are to be compelled to start over at the bottom of the seniority list in the "new" job. in effect. but only that if it did take them the question of seniority between the old and new employees would be worked out by agreement or else be submitted to the grievance procedure. was consolidated in the shops of one of the roads. said the court. take away from corporate management the prerogative to make purely business decisions on the hiring of employees or will give it an excuse not to apply the CBA in force to the prejudice of its own employees and their recognized collective bargaining agent. was not a party to the agreement. the court saying that they could find no such meaning in the above clause. one group of employees.right to choose not to be absorbed by BPI. Legal Consequences of Mergers Although not binding on this Court. consolidations. American jurisprudence on the consequences of voluntary mergers on the right to employment and seniority rights is persuasive and illuminating. stating that it dealt only with seniority. we disagree with Justice Brion. it was held in Moore v International Brotherhood of Teamsters. that would be tantamount to involuntary servitude. absorption of the dissolved corporation's employees or the recognition of the absorbed employees' service with their previous employer may be demanded from the surviving corporation if required by provision of law or contract. Ky) 356 SW2d 241. Displaced employees of the other two roads were given preference for the new jobs created in the shops of the railroad which took over the work. in voluntary mergers. the seniority of the employees absorbed or affected thereby should be determined by mutual agreement between the trucker and the unions involved. or shutdowns. whose concurrence in the arrangements made was essential to their effectuation. Furthermore. preserved the seniority status obtained in the prior employment on other roads. or was a party to a merger of lines. Labor representatives of the various systems involved attempted to work out an agreement which.) Indeed. for seniority purposes.[31] (Emphasis ours. FEBTC employees likewise retained the prerogative to allow themselves to be absorbed or not. The dissent of Justice Arturo D." BPI's assumed liability to these employees pursuant to the merger is FEBTC's liability to them in terms of separation pay. 43 NE2d 597. in effect. In the absence of such a provision in the articles of merger. Certainly nothing prevented the FEBTC's employees from resigning or retiring and seeking employment elsewhere instead of going along with the proposed absorption. then BPI clearly had the business management decision as to whether or not employ FEBTC's employees. A controversy arose between the employees as to whether the displaced employees were entitled to carry with them to the new jobs the seniority rights they had accumulated with their prior employers. The relief sought was denied. and concluding that the contract for which specific performance was sought was not such a completed and binding agreement as would support such equitable relief. etc. [29] retirement pay[30] or other benefits that may be due them depending on the circumstances. It would have been a different matter if there was an express provision in the articles of merger that as a condition for the merger. it did not require that the absorbing company take these employees. that is. the court saying that. otherwise. whether the rosters of the three corporations. said the court. (1962. hence the provision of the contract could have no application. the shop work of three formerly separate railroad corporations.

Justice Brion takes the position that because the surviving corporation continues the personality of the dissolved corporation and acquires all the latter's rights and obligations. in a merger situation. in accordance with the surviving corporation's business needs. for example.is perfectly and automatically transferable to the surviving corporation. That BPI is the same entity as FEBTC after the merger is but a legal fiction intended as a tool to adjudicate rights and obligations between and among the merged corporations and the persons that deal with them. we are not convinced that in the absence of a stipulation in the merger plan the surviving corporation was compelled. consensual nature thereof that we cannot agree that. there were benefits under the CBA that the former FEBTC employees did not enjoy with their previous employer. BPI was bound to respect the years of service of these FEBTC employees and to pay the same. even in the absence of a stipulation in the plan of merger. Among others. This further strengthens the view that BPI and the former FEBTC employees voluntarily contracted with each other for their employment in the surviving corporation. it requires the employees' implied or express consent. there are instances where an employer can validly discontinue or terminate the employment of an employee without violating his right to security of tenure. Likewise. As BPI employees. in case of redundancy. It is reasonable to assume that BPI would have different rules and regulations and company practices than FEBTC and it is incumbent upon the former FEBTC employees to obey these new rules and adapt to their new environment. Moreover. in order to grant the surviving corporation the freedom to choose who among the dissolved corporation's employees to retain. Once an FEBTC employee is absorbed. then due to BPI's blanket assumption of liabilities and obligations under the articles of merger." However. The surviving corporation too is duty-bound to protect the rights of its own employees who may be affected by the merger in terms of seniority and other conditions of their employment due to the merger. are done in good faith. or may be judicially compelled. it bears to emphasize his dissent also recognizes that the employee may choose to end his employment at any time by voluntarily resigning. Even assuming we accept Justice Brion's theory that in a merger situation the surviving corporation should be compelled to absorb the dissolved corporation's employees as a legal consequence of the merger and as a social justice consideration. it is duty-bound to absorb the dissolved corporation's employees. employment contracts are automatically transferable from one entity to another in the same manner that a contract pertaining to purely proprietary rights . or commensurate salaries and other benefits that these employees previously enjoyed with FEBTC. If terminations. in the appropriate certification election. superfluous employees may be [32] terminated and such termination would be authorized under Article 283 of the Labor Code. Not the least of the changes in employment condition that the absorbed FEBTC employees must face is the fact that prior to the merger they were employees of an unorganized establishment and after the merger they became employees of a unionized company that had an existing collective bargaining agreement with the certified union. The Corporation Code and the Subject Merger Agreement are Silent on Efficacy. For the employee to be "absorbed" by BPI." Thus. for instance due to redundancy or labor-saving devices or to prevent losses. and to their certified collective bargaining agent or labor union. although in a sense BPI is continuing FEBTC's employment of these absorbed employees. been shown to represent a majority of the members of the bargaining unit. they will enjoy all these CBA benefits upon their "absorption. Thus. He proposes that this interpretation would provide the necessary protection to labor as it spares workers from being "left in legal limbo. It is because of this human element in employment contracts and the personal. BPI's employment of these absorbed employees was not under exactly the same terms and conditions as stated in the latter's employment contracts with FEBTC. there is still no basis to conclude that the terms and conditions of employment under a valid collective bargaining agreement in force in the surviving corporation should not be made to apply to the absorbed employees. they would be valid. This presupposes that the union who is party to the collective bargaining agreement is the certified union that has. As the Union likewise pointed out in its pleadings. with respect to FEBTC employees that BPI chose to employ and who also chose to be absorbed. assuming for the sake of argument that there is an obligation to hire or absorb all employees of the non-surviving corporation. there are presumably changes in his condition of employment even if his previous tenure and salary rate is recognized by BPI. there is in reality a change in the situation of the employee. to absorb all employees under the same terms and conditions obtaining in the dissolved corporation as the surviving corporation should also take into consideration the state of its business and its obligations to its own employees. . Terms and Conditions of Employment Contracts The lack of a provision in the plan of merger regarding the transfer of employment contracts to the surviving corporation could have very well been deliberate on the part of the parties to the merger. Although in a merger it is as if there is no change in the personality of the employer.such as a promissory note or a deed of sale of property .

In other words. BPI would not be in the position to absorb the employees of FEBTC at all. What is indubitable from the Union Shop Clause is that upon the effectivity of the CBA.. 1996 until March 31.e. in turn. The same provision further states that the merger shall be effective only upon the issuance by the SEC of a certificate of merger. and when its rights. properties as well as liabilities pass on to the surviving corporation. petitioner's new regular employees (regardless of the manner by which they became employees of BPI) are required to join the Union as a condition of their continued employment. the provision of the Article 248(e) of the Labor Code in point mandates that nothing in the said Code or any other law should stop the parties from requiring membership in a recognized collective bargaining agent as a condition of employment. The effectivity date of the merger is crucial for determining when the merged or absorbed corporation ceases to exist. categorical definition of "new employee" in the CBA. However. The Union Shop Clause in the CBA simply states that "new employees" who during the effectivity of the CBA "may be regularly employed" by the Bank must join the union within thirty (30) days from their regularization. 1996 and if their date of hiring by FEBTC is considered as their date of hiring by BPI. If the SEC did not approve the merger. must have been duly approved by a majority of the respective stockholders of the constituent corporations. Significantly. Court of Appeals. the articles of merger themselves provided that both BPI and FEBTC will continue their respective business operations until the SEC issues the certificate of merger and in the event SEC does not issue such a certificate. Considering the foregoing principle. at the start of their employment. To our dissenting colleagues. Indeed. Petitioner likewise failed to point to any provision in the CBA expressly excluding from the Union Shop Clause new employees who are "absorbed" as regular employees from the beginning of their employment. There is nothing in the said clause that limits its application to only new employees who possess non-regular status. petitioner BPI never stretches its arguments so far as to state that the absorbed employees should be deemed "old employees" who are not covered by the Union Shop Clause. there is evidence on record that BPI made the assignments of its absorbed employees in BPI [34] effective April 10. This fact would not remove them from the scope of the phrase "new employees" as contemplated in the Union Shop Clause of the CBA. BPI became the employer of the absorbed employees only at some point after the effectivity of the merger. it is their date of hiring by FEBTC and not the date of their absorption that is considered). contrary to petitioner's insistence that the term "new employees" only refers to those who are initially hired as non-regular employees for possible regular employment. notwithstanding the fact that the absorbed employees' years of service with FEBTC were voluntarily recognized by BPI.) In other words. the phrase "new employees" (who are covered by the union shop clause) should only include new employees who were hired as probationary during the life of the CBA and were later granted regular status. Otherwise. the term "new employee" as used in the union shop clause is used broadly without any qualification or distinction. the purpose of the union shop clause. meaning probationary status. Based on the allegations of the former FEBTC employees themselves. 2001. it is of no moment that the former FEBTC employees retained the regular status that they possessed while working for their former employer upon their absorption by petitioner. (Emphasis ours. BPI does so at a particular point in time. they would undeniably be considered "new employees" of BPI within the contemplation of the Union Shop Clause of the said CBA. rather than fulfill. The CBA subject of this case was effective from April 1. they agree to hold each other blameless for the nonconsummation of the merger. it would lead to the absurd situation that we would discriminate not only between new BPI employees . In fact. or after the SEC's approval of the merger. To reiterate. Justice Brion himself points out that there is no clear. BPI could have only become the employer of the FEBTC employees it absorbed after the approval by the SEC of the merger. privileges. i.Proper Appreciation of the Term "New Employees" Under the CBA In any event. 2000. This is not surprising. the Court should not uphold an interpretation of the term "new employee" based on the general and extraneous provisions of the Corporation Code on merger that would defeat. In other words.. The dissenting opinion of Justice Brion dovetails with Justice Carpio's view only in their restrictive interpretation of who are "new employees" under the CBA. They propose that the former FEBTC employees who were deemed regular employees from the beginning of their employment with BPI should be treated as a special class of employees and be excluded from the union shop clause.e. Section 79 of said Code requires the approval by the Securities and Exchange Commission (SEC) of the articles of merger which. In Associated Bank v. a merger only becomes effective upon approval by the Securities and Exchange Commission (SEC) of the articles of merger. this does not necessarily exclude them from the union security clause in the CBA.[33] we held: The procedure to be followed is prescribed under the Corporation Code. there were former FEBTC employees who were hired by FEBTC after April 1. even though BPI steps into the shoes of FEBTC as the surviving corporation. Even assuming for the sake of argument that we consider the absorbed FEBTC employees as "old employees" of BPI who are not members of any union (i. By law and jurisprudence. the effectivity of the merger upon the SEC's issuance of a certificate of merger.

in law or even under the express terms of the CBA. When they both entered the employ of BPI. Petitioner's restrictive reading of the Union Shop Clause could also inadvertently open an avenue. ultimately. i. Petitioner limited itself to the argument that its absorbed employees do not fall within the term "new employees" contemplated under the Union Shop Clause with the apparent objective of excluding all. We see no cogent reason why the Union Shop Clause should not be applied equally to these two types of new employees. The fact remains that other new regular employees. there is no reason why the same clause would be a violation of the "absorbed" employees' freedom of association. The effect or consequence of BPI's so-called "absorption" of former FEBTC employees should be limited to what they actually agreed to. They both enjoy benefits that the Union was able to secure for them under the CBA. An employer may confer upon a new employee the status of regular employment even at the onset of his engagement. they are necessarily "new" employees. of the former FEBTC employees from the application of the Union Shop Clause.. . In other words. in order to dilute the membership base of the certified union in the collective bargaining unit (CBU). the Union Shop Clause did not distinguish between new employees who are non-regular at their hiring but who subsequently become regular and new employees who are "absorbed" as regular and permanent from the beginning of their employment. Both employees were hired/employed only after the CBA was signed. which an employer could readily use. This unfavorable situation will not be sufficiently addressed by asking the former FEBTC employees to simply pay agency fees to the Union in lieu of union membership. as the dissent of Justice Carpio suggests. There is nothing in the Labor Code and other applicable laws or the CBA provision at issue that requires that a new employee has to be of probationary or non-regular status at the beginning of the employment relationship. This hardly satisfies the demands of equality and justice. to whom the "absorbed employees" should be compared. an employer could get rid of its existing union by the simple expedient of arguing that the "absorbed employees" are not new employees. for purposes of applying the Union Shop Clause. the CBA and the Union Shop Clause therein were already in effect and neither of them had the opportunity to express their preference for unionism or not. If the Union Shop Clause is valid as to other new regular BPI employees.e. However. No Substantial Distinction Under the CBA Between Regular Employees Hired After Probationary Status and Regular Employees Hired After the Merger Verily. spell its demise as the CBU's bargaining representative. The Union Shop Clause did not so distinguish. there is no special class of employees called "absorbed employees. do not have the option to simply pay the agency fees and they must join the Union or face termination. Non-Application of Union Shop Clause Contrary to the Policy of the Labor Code and Inimical to Industrial Peace It is but fair that similarly situated employees who enjoy the same privileges of a CBA should be likewise subject to the same obligations the CBA imposes upon them. and not just some. The effect should not be stretched so far as to exempt former FEBTC employees from the existing CBA terms.e. By entering into a voluntary merger with a non-unionized company that employs more workers. A contrary interpretation of the Union Shop Clause will be inimical to industrial peace and workers' solidarity. we agree with the Court of Appeals that there are no substantial differences between a newly hired non-regular employee who was regularized weeks or months after his hiring and a new employee who was absorbed from another bank as a regular employee pursuant to a merger. as are commonly understood to be covered by a CBA's union security clause. and so neither must we. no law prohibits an employer from voluntarily recognizing the length of service of a new employee with a previous employer in relation to computation of benefits or seniority but it should not unduly be interpreted to exclude them from the coverage of the CBA which is a binding contractual obligation of the employer and employees. Moreover. They belong to the same bargaining unit being represented by the Union. This could then lead to a new majority within the CBU that could potentially threaten the majority status of the existing union and." If they are not "old" employees. Such a dreaded but not entirely far-fetched scenario is no different from the ingenious and creative "union-busting" schemes that corporations have fomented throughout the years. we would be treating employees who are exactly similarly situated (i. the group of absorbed FEBTC employees) differently. company policies and rules which apply to employees similarly situated. which this Court has foiled time and again in order to preserve and protect the valued place of labor in this jurisdiction consistent with the Constitution's mandate of insuring social justice. they are both already regular rank and file employees of BPI. recognition of the FEBTC employees' years of service." In order for the Court to apply or not apply the Union Shop Clause.(hired during the life of the CBA) and former FEBTC employees (absorbed during the life of the CBA) but also among the former FEBTC employees themselves. we can only classify the former FEBTC employees as either "old" or "new. If they are new employees. At the time they are being required to join the Union. for they are undeniably similarly situated. salary rate and other benefits with their previous employer.

more so." . they nonetheless were employed as regular and permanent employees without a gap in their service. the company can jeopardize the majority status of the certified union by excluding from union membership all new regular employees whom the Company will "absorb" in future mergers and all new regular employees whom the Company hires as regular from the beginning of their employment without undergoing a probationary period. For the foregoing reasons. those whose were hired as probationary and later regularized during the life of the CBA) would not have the option of substituting union membership with payment of agency fees. However. on the other hand. a union security clause in a CBA should be interpreted to give meaning and effect to its purpose. Right of an Employee not to Join a Union is not Absolute and Must Give Way to the Collective Good of All Members of the Bargaining Unit The dissenting opinions place a premium on the fact that even if the former FEBTC employees are not old employees. This is apart from the fact that treating these "absorbed employees" as a special class of new employees does not encourage worker solidarity in the company since another class of new employees (i.[38] the Court held that an old employee who had no union may be compelled to join the union even if the collective bargaining agreement (CBA) imposing the closed shop provision was only entered into seven years after of the hiring of the said employee. In such a case.e. the restrictive interpretation of the union shop clause would place the certified union's very existence at the mercy and control of the employer. it is said that "the closed-shop contract is the most prized achievement of unionism. In the past this Court has upheld even the more stringent type of union security clause. i. He proposes that this matter be left to negotiation by the parties in the next CBA. Court of Industrial Relations. Justice Carpio's proposal to simply require the former FEBTC to pay agency fees is wholly inadequate to compensate the certified union for the loss of additional membership supposedly guaranteed by compliance with the union shop clause. the employer appears to be interested in pursuing this case. Relevantly. In fact. (b) are deemed part of the collective bargaining unit. Such compulsion has legal effect.Indeed. which is to afford protection to the certified bargaining agent and ensure that the employer is dealing with a union that represents the interests of the legally mandated percentage of the members of the bargaining unit. To quote from that decision: A closed-shop agreement has been considered as one form of union security whereby only union members can be hired and workers must remain union members as a condition of continued employment.e. Without the union shop clause or with the restrictive interpretation thereof as proposed in the dissenting opinions. the chances of the said bank ever agreeing to the inclusion of such employees in a future CBA is next to nil . To our mind. In this manner. precisely because the employer by voluntarily entering in to a union shop clause in a CBA with the certified bargaining agent takes on the responsibility of dismissing the new regular employee who does not join the union. The union shop clause offers protection to the certified bargaining agent by ensuring that future regular employees who (a) enter the employ of the company during the life of the CBA. and held that it can be made applicable to old employees who are already regular and permanent but have chosen not to join a union. this proposal does not sufficiently address the issue.. Plainly. however. the certified union may lose its majority status and render it vulnerable to attack by another union who wishes to represent the same bargaining unit. and (c) whose number will affect the number of members of the collective bargaining unit will be compelled to join the union. the closed shop provision. an interested party may file for the cancellation of the union's certificate of registration with the Bureau [37] of Labor Relations. In the early case of Juat v. The requirement for employees or workers to become members of a union as a condition for employment redounds to the benefit and advantage of said employees because by holding out to loyal members a promise of employment in the closed-shop the union wields group solidarity. The former FEBTC employees have not joined BPI in this appeal. only BPI. [35] Or worse. the Company can increase the number of members of the collective bargaining unit and if this increase is not accompanied by a corresponding increase in union membership. a certified union whose membership falls below twenty percent (20%) of the total members of the collective bargaining unit may lose its status as a legitimate labor organization altogether. even in a situation where there is no competing [36] union. Justice Brion. an employee's permanent and regular employment status in itself does not necessarily exempt him from the coverage of a union shop clause. appears to recognize the inherent unfairness of perpetually excluding the "absorbed" employees from the ambit of the union shop clause. With BPI already taking the position that employees "absorbed" pursuant to its voluntary mergers with other banks are exempt from the union shop clause. if BPI's narrow interpretation of the union shop clause is sustained by this Court.

before its amendment by Republic Act No. Elizalde Rope Workers' [40] [41] Union nor by Reyes v. regardless of his religious beliefs. there is nothing in law or jurisprudence to prevent an employer and a union from stipulating that existing employees (who already attained regular and permanent status but who are not members of any union) are to be included in the coverage of a union security clause. and Gonzales v. National Labor Union. the equal protection clause. the non-establishment clause. despite the fact that their religious beliefs prohibited them from joining a union.R. Juat has not been overturned by Victoriano v. 3350. No. and the employees must continue to be members of the union for the duration of the contract in order to keep their jobs. Federacion Obrera de la Industria [44] [45] Tabaquera y Otros Trabajadores de Filipinas. Inc. the issue that confronted the Court was whether or not employees who were members of the Iglesia ni Kristo (INK) sect could be compelled to join the union under a closed shop provision. the right of said [43] employee not to join the labor union is curtailed and withdrawn." By virtue. Basa v. Even Article 248(e) of the Labor Code only expressly exempts old employees who already have a union from inclusion in a union security clause.. the Court highlighted the idea that the freedom of association included the right not to associate or join a union in resolving the issue whether or not the votes of members of the INK sect who were part of the bargaining unit could be excluded in the results of a certification election. and has a preferred position in the [42] hierarchy of values. In other words. by virtue of which the employer may employ only member of the collective bargaining union. however. if an employee or laborer is already a member of a labor union different from the union that entered into a collective bargaining agreement with the employer providing for a closed-shop. where a labor union and an employer have agreed on a closed shop. although not unlimited. The factual milieus of these three cases are vastly different. of a closed shop agreement. The relevant portion of Victoriano is quoted below: The right to refrain from joining labor organizations recognized by Section 3 of the Industrial Peace Act is. 1961. Reyes is not authority for Justice Carpio's proposition that an employee who is not a member of any union may claim an exemption from an existing union security clause because he already has regular and permanent status but simply prefers not to join a union. In the end. provides that although it would be an unfair labor practice for an employer "to discriminate in regard to hire or tenure of employment or any term or condition of employment to encourage or discourage membership in any labor organization" the employer is.xxxx This Court had categorically held in the case of Freeman Shirt Manufacturing Co. wishes to be employed or to keep his employment. if such labor organization is the representative of the employees. is a fundamental personal right and liberty. the Juat example is but one of the cases that laid down the doctrine that the right not to join a union is not absolute. The other cases cited in Justice Carpio's dissent on this point are likewise inapplicable. not precluded "from making an agreement with a labor organization to require as a condition of employment membership therein. the Court held that "religious freedom. said employee or worker cannot be obliged to become a member of that union which had entered into a collective bargaining agreement with the employer as a condition for his continued employment. did not involve the interpretation of any union security clause. that the closed-shop proviso of a collective bargaining agreement entered into between an employer and a duly authorized labor union is applicable not only to the employees or laborers that are employed after the collective bargaining agreement had been entered into but also to old employees who are not members of any labor union at the time the said collective bargaining agreement was entered into. Central Azucarera de . on the other hand. he must become a member of the collective bargaining union. In that case. et al. Court of Industrial Relations. However. G. In Victoriano. therefore. vs. Thus Section 4 (a) (4) of the Industrial Peace Act. In that case. the nonimpairment of contracts clause. 28." However.) Although the present case does not involve a closed shop provision that included even old employees. however. et al. the Court was asked to balance the constitutional right to religious freedom against a host of other constitutional provisions including the freedom of association. there was no certified bargaining agent yet since the controversy arose during a certification election. Victoriano merely created an exception to the exception on the ground of religious freedom.. The legal protection granted to such right to refrain from joining is withdrawn by operation of law. (Emphasis and underscoring supplied. Theoretically. Jan. In Reyes. limited. Victoriano is consistent with Juat since they both affirm that the right to refrain from joining a union is not absolute. 3350. Reyes. simply because they were not members of the two contesting unions and were expected to have voted for "NO UNION" in view of their religious affiliation. and the social justice provision. [39] Contrary to the assertion in the dissent of Justice Carpio.) If Juat exemplified an exception to the rule that a person has the right not to join a union. Hence. Trajano. Anucension v. L-16561. if any person. The Court upheld the inclusion of the votes of the INK members since in the previous case of Victoriano we held that INK members may not be compelled to join a union on the ground of religious freedom and even without Victoriano every employee has the right to vote "no union" in a certification election as part of his freedom of association. (Emphases supplied.. before the enactment of Republic Act No.

being the weaker in economic power and resources than capital. In line with Victoriano. the applicable retirement plan. no longer contested the adverse Court of Appeals' decision. This is the rationale behind the State policy to promote unionism declared in the [54] Constitution. 2003 of the Court of Appeals is AFFIRMED. this Court finds it reasonable and just to conclude that the Union Shop Clause of the CBA covers the former FEBTC employees who were hired/employed by BPI during the effectivity of the CBA in a manner which petitioner describes as "absorption. based on their combined length of service with FEBTC and BPI. which supposedly has gathered the support of the majority of workers within the bargaining unit in the appropriate certification proceeding. it is undisputed that the former FEBTC employees were part of the bargaining unit that the Union represented. the employees who were exempted from joining the respondent union or who were excluded from participating in the certification election were found to be not members of the bargaining unit represented by respondent union and were free to form/join their own union. settled jurisprudence has already swung the balance in favor of unionism. Certainly. It is unsurprising that significant provisions on labor protection of the 1987 Constitution are found in Article XIII on Social Justice. Inc. undoubtedly.Tarlac Labor Union all involved members of the INK. In the hierarchy of constitutional values. Should some refuse to become members of the union. the existing retirement plan. v. National [47] [48] Labor Relations Corporation and Knitjoy Manufacturing. such as the Union Shop Clause involved herein. be in the best interests of the former FEBTC employees for it unites their interests with the majority of employees in the bargaining unit. A final point in relation to procedural due process. and the Decision dated September 30. Nonetheless. deserve protection that is actually substantial and material. in fact. who were parties in the court below. the applicable retirement plan. there is even greater reason for the union to request their dismissal from the employer since the CBA also contained a Maintenance of Membership Clause." A contrary appreciation of the facts of this case would. the rulings in Philips and Knitjoy have no relevance to the issues at hand. Ferrer-Calleja. in recognition that ultimately the individual employee will be benefited by that policy. People's Industrial and Commercial Corporation. The constitutional guarantee given the right to form unions[51] and the State policy to promote unionism[52] have social justice considerations. In the case of former FEBTC employees who initially joined the union but later withdrew their membership. subject to the thirty (30) day notice requirement imposed herein. this Court has ruled that the individual employee's right not to join a union may be validly restricted by a union [49] security clause in a CBA and such union security clause is not a violation of the employee's constitutional right to freedom of [50] association. Former FEBTC employees who opt not to become union members but who qualify for retirement shall receive their retirement benefits in accordance with law. It encourages employee solidarity and affords sufficient protection to the majority status of the union during the life of the CBA which are the precisely the objectives of union security clauses. v. since the former FEBTC employees are deemed covered by the Union Shop Clause. [46] . this Court has repeatedly held that the right to abstain from joining a labor organization is subordinate to the policy of encouraging unionism as an instrument of social justice. they are required to join the certified bargaining agent. as the case may be. This is clearly not the case precisely because BPI expressly recognized under the merger the length of service of the absorbed employees with FEBTC. or the CBA as the case may be. WHEREFORE. is not to protect the union for the union's sake. Inc. In the present case. Their joining the certified union would. In the interest of fairness. they may still opt to retire if they are qualified under the law. the Court is not unmindful that the former FEBTC employees' refusal to join the union and BPI's refusal to enforce the Union Shop Clause in this instance may have been based on the honest belief that the former FEBTC employees were not covered by said clause. or the CBA. assuming said clause has been carried over in the present CBA and there has been no material change in the situation of the parties. Thus. there is nothing in the union shop clause that should be read as to curtail an employee's eligibility to apply for retirement if qualified under the law. Time and again. even if they impinge upon the individual employee's right or freedom of association. the former FEBTC employees never claimed any religious grounds for their exemption from the Union Shop Clause. these cases upheld the INK members' claimed exemption from the union security clause on religious grounds. As for Philips Industrial Development. the petition is hereby DENIED. In the case at bar. In sum. Also in the dissenting opinion of Justice Carpio. Inc. since the employees.[53] we recognized that "[l]abor. In the case at bar. In People's Industrial and Commercial Employees and Workers Organization v. We are indeed not being called to balance the interests of individual employees as against the State policy of promoting unionism. Liberty Flour Mills. Laws and jurisprudence promote unionism and afford certain protections to the certified bargaining agent in a unionized company because a strong and effective union presumably benefits all employees in the bargaining unit since such a union would be in a better position to demand improved benefits and conditions of work from the employer. lead to an inequitable and very volatile labor situation which this Court has consistently ruled against. we believe the former FEBTC employees should be given a fresh thirty (30) days from notice of finality of this decision to join the union before the union demands BPI to terminate their employment under the Union Shop Clause. or the CBA." The rationale for upholding the validity of union shop clauses in a CBA. he maintains that one of the dire consequences to the former FEBTC employees who refuse to join the union is the forfeiture of their retirement benefits. which was elucidated in the above-cited case of Liberty Flour Mills Employees v.

a General Evangelist. the SEC replied on April 3. Respondent Bishop Nathanael Lazaro. Title XIII) has no provision governing the amendment of the articles of incorporation of a corporation sole. Unimpressed. Petitioners moved for reconsideration. For all intents and purposes. but the CA denied it by its resolution of August 1. et al. DANIEL MADUCDOC. REV. Petitioners claim that a complete shift from IEMELIF's status as a corporation sole to a corporation aggregate required. and a Treasurer General who would manage the affairs of the organization.[G. RICHARD PONTI. DANILO SAUR. its Section 109 provides that religious corporations shall be governed additionally "by the provisions on nonstock corporations insofar as they may be applicable. although the IEMELIF remained a corporation sole on paper (with all corporate powers theoretically lodged in the hands of one member. did the issue reemerge. BENJAMIN BORLONGAN. INC." The RTC thus held that Section 16 of the Code[5] that governed amendments of the articles of incorporation of non-stock corporations applied to corporations sole as well. who were to serve for four years. Subsequently. about 28 years later. the IEMELIF enacted and registered a by-laws that established a Supreme Consistory of Elders (the Consistory). Apparently." Thirty-nine years later in 1948. et al. For some reasons. Bishop Nicolas Zamora established the petitioner Iglesia Evangelica Metodista En Las Islas Filipinas. during its 1973 General Conference. 2001 that. The by-laws empowered the Consistory to elect a General Superintendent.. The Facts and the Case In 1909. DANIEL VICTORIA AND DAKILA CRUZ. What IEMELIF needed to authorize the amendment was merely the vote or written assent of at least two-thirds of the IEMELIF membership. 1973 the Securities and Exchange Commission (SEC) approved the vote. ADORABLE MANGALINDAN. while the Corporation Code on Religious Corporations (Chapter II. [8] 2008. however. JR. The SEC said that the IEMELIF needed to amend its articles of incorporation for that purpose. FERDINAND MERCADO. the General Superintendent).R. D ECISION ABAD. ALFREDO MATABANG AND ALL THE OTHER MEMBERS OF THE IEMELIF TONDO CONGREGATION OF THE IEMELIF CORPORATION SOLE. 2007 the CA rendered a [7] decision. the Consistory served as the IEMELIF's board of directors. J. On May 7. On October 31. NESTOR PINEDA. BISHOP NATHANAEL LAZARO. filed a civil case for "Enforcement of Property Rights of Corporation Sole. that conversion was not properly carried out and documented. 2005 decision. but a complete dissolution of the existing corporation sole followed by a re-incorporation. it had always acted like a corporation aggregate. ARTURO LAPUZ. It held that. 184088 : July 06. RESPONDENTS. a General Secretary. the corporate papers of the IEMELIF remained unaltered as a corporation sole. the present petition for review before this Court. the general membership approved the conversion. Petitioners Reverend Nestor Pineda. VS. Petitioners Pineda. Bishop Lazaro filed an affidavit-certification in support of the conversion. The Consistory exercised IEMELIF's decision-making powers without ever being challenged. 2010] IGLESIA EVANGELICA METODISTA EN LAS ISLAS FILIPINAS (IEMELIF) (CORPORATION SOLE). ARCADIO CABILDO.: The present dispute resolves the issue of whether or not a corporation may change its character as a corporation sole into a corporation aggregate by mere amendment of its articles of incorporation without first going through the process of dissolution. REV. appealed the RTC decision to the Court of Appeals (CA). although the SEC Commissioner did not in 1948 object to the conversion of the IEMELIF into a corporation aggregate. Only in 2001. ROBERTO BACANI. No. AND LAY LEADER LINGKOD MADUCDOC AND CESAR DOMINGO. ACTING INDIVIDUALLY AND AS MEMBERS OF THE SUPREME CONSISTORY OF ELDERS AND THOSE CLAIMING UNDER THE CORPORATION AGGREGATE. instructed all their congregations to take up the matter with their respective members for resolution.. its General Superintendent. The Issue Presented [6] [4] . Declaration of Nullity of Amended Articles of Incorporation from Corporation Sole to Corporation Aggregate with Application for Preliminary Injunction and/or Temporary Restraining Order" in [3] IEMELIF's name against respondent members of its Consistory before the Regional Trial Court (RTC) of Manila. DOMINGO GONZALES. In answer to a query from the IEMELIF.. (IEMELIF) as a corporation sole with Bishop Zamora acting as its "General Superintendent. made up of church ministers. the Consistory resolved to convert the IEMELIF to a corporation aggregate. Subsequently. Inc. which belonged to a faction that did not support the conversion. PETITIONERS. hence. the RTC dismissed the action in its October 19. REVERENDS HONORIO RIVERA. the general membership voted to put things right by changing IEMELIF's organizational structure from a corporation sole to a corporation aggregate. not just an amendment of the IEMELIF's articles of incorporation. prompting the IEMELIF to file amended articles of [2] incorporation with the SEC. affirming that of the RTC. [1] Acting on this advice.

In a 2009 case involving IEMELIF. its one member in whom all the powers of the corporation technically belongs. immoral.R. the prescribed form of the articles of incorporation or amendment to it is not observed. the power to amend its articles of incorporation lies in its members. If such approval mechanism is made to operate in a corporation sole. the corporate being remains distinct from its members. here the General Superintendent. The Court's Ruling Petitioners Pineda. SO ORDERED. The amendment needs the concurrence of at least two-thirds of its membership. who embodied the corporation sole. of its membership. and that b) it is for a legitimate purpose. Whether it is a non-stock corporation or a corporation sole. the conversion can take place only by first dissolving IEMELIF. Citing Section 110 of the Corporation Code. the affairs. True. minister. So how will this requirement apply to a corporation sole that has technically but one member (the head of the religious organization) who holds in his hands its broad corporate powers over the properties. illegal. sect. For non-stock corporations. is but a trustee. consists of two or more persons. SP 92640. requires merely that a) the amendment is not contrary to any provision or requirement under the Corporation Code. with membership concurrence. can self-will the amendment. increase the technical number of the members of the corporation from "sole" or one to the greater number authorized by its amended articles. needs to get the concurrence of two-thirds of its membership. The one member. rights. on the other hand. or contrary to government rules and regulations. Section 17 of the [10] Corporation Code provides that amendment shall be disapproved if. et al. The increase in the number of its corporate membership does not change the complexion of its corporate responsibility to third parties. the [9] Court distinguished a corporation sole from a corporation aggregate. rabbi or other presiding elder of a religious denomination. as correctly put by the CA. the corporation sole. had obtained. the IEMELIF worked out the amendment of its articles of incorporation upon the initiative and advice of the SEC. Besides. respondent Bishop Lazaro. Religious corporations are governed by Sections 109 through 116 of the Corporation Code. as trustee. as the CA noted. sect or church. Here. not only the approval of the Consistory that drew up corporate policies. the Court DENIES the petition and AFFIRMS the October 31. the evidence shows that the IEMELIF's General Superintendent. among others. He can. or if the required percentage of ownership is not complied with. bishop.The only issue presented in this case is whether or not the CA erred in affirming the RTC ruling that a corporation sole may be converted into a corporation aggregate by mere amendment of its articles of incorporation. The latter's interpretation and application of the Corporation Code is entitled to respect and recognition. the Court said that a corporation sole is "one formed by the chief archbishop. The code requires two-thirds of their votes for the approval of such an amendment. barring any divergence from applicable laws. The amendment of the articles of incorporation. 2008 resolution of the Court of Appeals in CA-G. WHEREFORE. These impediments do not appear in the case of IEMELIF. as the RTC correctly held. since the Corporation Code does not have any provision that allows a corporation sole to convert into a corporation aggregate by mere amendment of its articles of incorporation. or church. according to Section 110 of the Corporation Code. The one member. for the purpose of administering or managing. and interests of his religious organization? Although a non-stock corporation has a personality that is distinct from those of its members who established it. the Corporation Code provides no specific mechanism for amending the articles of incorporation of a corporation sole. with the concurrence of two-thirds of the membership of the organization for whom he acts as trustee. but also that of the required twothirds vote of its membership. its articles of incorporation cannot be amended solely through the action of its board of trustees. the SEC's prior action on the IEMELIF issue should be accorded great weight. properties and temporalities of such religious denomination. or if the purpose or purposes of the corporation are patently unconstitutional." A corporation aggregate formed for the same purpose. Considering its experience and specialized capabilities in the area of corporation law. . priest. Section 109 of the Corporation Code allows the application to religious corporations of the general provisions governing non-stock corporations. There is no point to dissolving the corporation sole of one member to enable the corporation aggregate to emerge from it. 2007 decision and August 1. But. whatever be their number. insist that. and afterwards by creating a new corporation in its place.

and for legitimate purposes. Inc. Bersamin (now an Associate Justice of this Court) and Estela M. No articles of incorporation or amendment to articles of incorporation of banks. However. J. 3. The following are grounds for such rejection or disapproval: 1. pp. 2. [2] [3] [4] [5] Sec. That the Treasurer's Affidavit concerning the amount of capital stock subscribed and/or paid if false. . Perlas-Bernabe. p. 36.R. 16. educational institutions. No. or the vote or written assent of at least two-thirds (2/3) of the members if it be a non-stock corporation. 32-43. 17. Juane. at 575-576. That the percentage of ownership of the capital stock to be owned by citizens of the Philippines has not been complied with as required by existing laws or the Constitution.The Securities and Exchange Commission may reject the articles of incorporation or disapprove any amendment thereto if the same is not in compliance with the requirements of this Code: Provided. and other corporations governed by special laws shall be accepted or approved by the Commission unless accompanied by a favorable recommendation of the appropriate government agency to the effect that such articles or amendment is in accordance with law.R. without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code. may be converted into a corporation aggregate by a mere amendment of its articles of incorporation. trust companies and other financial intermediaries. building and loan associations. sect or church that the corporation sole represents. Perlas-Bernabe. Bersamin (now an Associate Justice of this Court) and Estela M. That the Commission shall give the incorporators a reasonable time within which to correct or modify the objectionable portions of the articles or amendment. penned by Associate Justice Portia Aliño-Hormachuelos.Unless otherwise prescribed by this Code or by special law. SP 92640. or contrary to government rules and regulations. 76-89. immoral. [10] Sec. Rollo. penned by Associate Justice Portia Aliño-Hormachuelos. Id. [6] Docketed as CA-G. [8] [7] Id. 4. with the concurrence of Associate Justices Lucas P. 2009. 172447. illegal. Amendment of Articles of Incorporation. [9] Iglesia Evangelica Metodista en las Islas Filipinas. G. 600 SCRA 555. Grounds when articles of incorporation or amendment may be rejected or disapproved.[1] Rollo. I maintain that the amendment can be effected by the corporation sole without the concurrence of two-thirds of the members of the religious denomination. banking and quasi-banking institutions. That the purpose or purposes of the corporation are patently unconstitutional. pp. Docketed as Civil Case 03-018777. v. September 18. at 45-46. . public utilities. with the concurrence of Associate Justices Lucas P. a corporation sole. SEPARATE CONCURRING OPINION CARPIO. insurance companies. That the articles of incorporation or any amendment thereto is not substantially in accordance with the form prescribed herein. . any provision or matter stated in the articles of incorporation may be amended by a majority vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock. Rollo.: I concur in the result of the majority opinion that IEMELIF.

albeit with the concurrence of at least two thirds of the members of the religious entity. so that the successor becomes the corporation on the person's death or [4] resignation. can amend its articles of incorporation. Section 110 of the Corporation Code provides that a corporation sole administers and manages. As its designation implies. Again. I do not agree. It is a special form of corporation designed to facilitate the exercise of the functions of ownership carried on by the clerics for and on behalf of the church which is [2] regarded as the property owner. without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code. Second. to wit: Sec. in the case of a corporation sole. as the lone trustee and member of the corporation. corporation aggregate or religious society is sanctioned by Section 116 of the Corporation Code. the provisions of the . sect or church for the purpose of administering and managing. carried out in accordance with law. property and temporalities of such religious denomination. incorporated by law to be given some legal capacities and advantages. and for legitimate purposes. minister. as pointed out in the majority opinion." It consists of one person only. sect or church represented by the corporation sole has members who are distinct and different from the member of the corporation sole. the affairs. A corporation aggregate. First. The resulting changes from such a conversion. The religious denomination. priest. insofar as they may be applicable. Section 16 of the Code applies. Section 16 requires the majority vote of the board of trustees and the vote or written assent of at least twothirds of the members of a non-stock corporation. I agree with the majority opinion that the conversion can be done through a mere amendment of the articles of incorporation of the corporation sole. a corporation sole. [5] [3] [1] The creation of a To convert a corporation sole to a corporation aggregate is to increase corporate membership from one to two or more. and to transfer the duties of administering and managing the affairs. a corporation sole "consists of a single member. on the other hand. The majority opinion. x x x (Italics supplied) The majority opinion holds that applying the above provision. Section 109 of the Code allows the application to religious corporations of the general provisions governing non-stock corporations. Amendment of Articles of Incorporation. 16. Thus. any provision or matter stated in the articles of incorporation may be amended by a majority vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock. properties and temporalities of the religious entity. however. the votes of those members are not necessary in amending the articles of incorporation of the corporation sole. Section 16 refers to the members of the corporation. bishop. or the vote or written assent of at least two-thirds (2/3) of the members if it be a non-stock corporation. provided that such powers are not inconsistent with the law and the Constitution. The members of the religious organization should not be considered for purposes of Section 16. a corporation sole can exercise such corporate powers as maybe necessary to carry out its duties of administering and managing the affairs. is a religious corporation composed of two or more persons. properties and temporalities of the religious denomination. from one to several trustees. will not affect the corporation's responsibilities to third parties. I do not subscribe to this view. [6] One of the powers authorized under Section 36 of the Corporation Code is the power to amend the articles of incorporation. The lack of specific provision on amendments of articles of incorporation of a corporation sole calls for the suppletory application of relevant provisions on nonstock corporations. No dissolution of the corporation is necessary. sect or church. rabbi or other presiding elder of a religious denomination. priest. Thus. As a trustee. Applying this. sect or church. properties and temporalities of the religious organization. and his successors (who will always be one at a time) in some particular station. particularly that of perpetuity. Unless otherwise prescribed by this Code or by special law. there is only one member--the chief archbishop. amendment can be made by the corporation sole with the concurrence of at least two-thirds of the members of the religious organization it represents. rabbi or presiding elder--who is also the trustee of the corporation. the vote of the latter being sufficient in effecting the amendment. bishop. holds that the amendment of the articles of incorporation can be executed by the corporation sole. as trustee. It bears emphasizing that once the conversion from corporation sole to corporation aggregate is perfected. the affairs. minister.Section 110 of the Corporation Code defines a corporation sole as one formed by the chief archbishop. as trustee.

sect or church concerned. Hence. For instance. regulations and discipline of the religious denomination.Corporation Code specifically designed for a corporation sole cease to apply to the corporation aggregate. On the other hand. The corporation sole may sell or mortgage real properties held by it in accordance with the rules. Accordingly. and the vote of at least two-thirds of its members in a members' meeting duly called for that purpose. I vote to DENY the petition. unlike in the case of a corporation sole. as this process shall be governed by secular principles and rules of law. exchange. mortgage. [8] . It is only in the absence of such rules that court intervention becomes necessary. the sale. regulations and discipline in selling all or substantially all of its properties. Under this section. the sale or other disposition of all or substantially all of the properties and assets of a corporation aggregate shall be governed by Section 40 of the Code which applies to stock and non-stock corporations. the rules on the sale of properties of a corporation sole are governed by Section 113 of the Code. a corporation aggregate may not apply its own rules. and real properties are sold or mortgaged by obtaining an order from the Regional Trial Court of the province where the property is situated. lease. and the latter shall be [7] governed by the relevant provisions on non-stock or even stock corporations. pledge or disposition of all or substantially all of the properties and assets of the corporation may generally be done through a majority vote of its board of trustees.

the syndicate again wrote the Collector requesting the refund of P1. 1948. this Court ruled against the dismissal and held: "The resolution appealed from is set aside and the respondent court is ordered to permit the substitution of the officers and directors of the defunct Central Syndicate as appellants. the Collector decided that the Central Syndicate was the importer and original seller of the surplus goods in question and. Sycip. And taking cue from this suggestion. but action thereon was deferred by the Court of Tax Appeals until after the trial of the case on the merits. Based on the above findings of the agent in charge of the investigation. 1954. On September 8. Salazar and Associates for petitioners." In permitting the substitution. 1951. as stated above. the Central Syndicate elevated the case to the Court of Tax Appeals questioning the ruling of the Collector which denies its claim for refund as well as the assessment made against it of the sum of P33. respectively. the agent reported (1) that Dee Hong Lue purchased the surplus goods as trustee for the Central Syndicate which was in the process of organization at the time of the bidding. he denied the request of the syndicate for the refund of the sum of P1.750. the Collector filed a motion requiring the syndicate to file a bond to guarantee the payment of the tax assessed against it which motion was denied by the Court of Tax Appeals on the ground that cannot be legally done it appearing that the syndicate is already a non-existing entity due to the expiration of its corporate existence. on January 4. 1954. petitioners. On January 31.G.797. On September 18.00 as compromise penalty. 1962 (4 scra 986) TAN TIONG BIO. plus the sum of P300. vs. From this order the syndicate appealed to the Supreme Court wherein it intimated that the appeal should not be dismissed because it could be substituted by its successors-in-interest.103. after a thorough investigation of the facts and circumstances surrounding the transaction. this Court labored under the premise that said officers and directors "may be held personally liable for the unpaid deficiency assessments made by the Collector of Internal Revenue against the defunct syndicate. No. 1952. but on January 25. David Sycip.797.28 representing alleged excess payment of sales tax due to the adjustment and reduction of the purchase price in the amount of P31.00 which the corporation had deposited in the name of Dee Hong Lue as estimated sales tax due from the latter. 1946. 1955. in view of the foregoing considerations. it was remitting the sum of P43.18. BAUTISTA ANGELO. L-15778 April 23. Sy Seng Tong. Accordingly. the Court of Tax Appeals issued a resolution dismissing the appeal primarily on the ground that the Central Syndicate has no personality to maintain the action then pending before it. 1947.88.522.00 as deficiency sales tax.R. to wit: Tan Tiong Bio. the syndicate filed a motion requesting that the issue of prescription it has raised against the collection of the tax be first determined as a preliminary question. On October 28. (2) that it was the representatives of the Central Syndicate that removed the surplus goods from their base at Leyte on February 21. a corporation organized under the laws of the Philippines.: On October 19. the one liable to pay the sales tax. On November 5. Co Giap and David Sycip. which met an opposition on the part of the latter. Said letter was referred to an agent for verification and report. Lim Shui Ty. respondent.103. and (4) that if the sales tax were to be assessed on its gross sales it would still be liable for the amount of P33. 1954. thru its General Manager. and to proceed with the hearing of the appeal upon its merits. Office of the Solicitor General for respondent. Sy En. the Collector assessed against the syndicate the amount of P33. In view of this development. (3) that the syndicate must have realized a gross profit of 18. inclusive of the 25% surcharge and compromise penalty.00 in his behalf as deposit to answer for the payment of said sales tax with the understanding that it would later be adjusted after the determination of the exact consideration of the sale." After trial.8% from its sales thereof. J. and on the same date.28. the Central Syndicate. Alfonso Sycip. in a separate letter. Yu Khe Thai.. except with regard to the imposition of the compromise penalty of P300. the decision of the Collector of Internal Revenue appealed from is hereby affirmed. therefore. ET AL.00 the collection of which is unauthorized and illegal in the absence of a compromise agreement between the .88 and P300.750. 1952 and August 5. Dee Hong Lue. the Collector filed a motion to dismiss the appeal on the ground of lack of personality on the part of the syndicate.797. sent a letter to the Collector of Internal Revenue advising the latter that it purchased from Dee Hong Lue the entire stock of surplus properties which the said Dee Hong Lue had bought from the Foreign Liquidation Commission and that as it assumed Dee Hong Lue's obligation to pay the 3-1/2% sales tax on said surplus goods. 1954. the Court of Tax Appeals rendered decision the dispositive part of which reads as follows: WHEREFORE. COMMISSIONER OF INTERNAL REVENUE.88 as deficiency sales tax and surcharge in addition to the amount of P43. The Collector filed his answer thereto wherein he reiterated his ruling and prayed that the Central Syndicate be ordered to pay the deficiency sales tax and surcharge as demanded in his letters dated January 4.

BIR rec. Yu Khe Thai. App. Sy En.) We give full weight and credence to the adverse admissions made by David Sycip against the petitioners as appearing in his certificate Exhibit 38-A (p. that the so-called Leyte 'Mystery Pile' surplus properties were owned by Central Syndicate by virtue of a purchase from the FLC. 1946 'our General Manager.. 60-65.W. are hereby ordered to pay jointly and severally. No. he was a person jointly interested with the petitioners in the transaction over which there was yet no controversy over any sales tax liability. Mr. Masterson.. As correctly observed by the Court of Tax Appeals. Cir App. that Dee Hong Lue held the said surplus properties in trust until the mere formal turnover to the corporation on August 20. when the corporation had already been organized and incorporated under the laws of the Philippines. 1. inasmuch as Central Syndicate was then still in the process of organization. CTA rec. Director and biggest stockholder of Central Syndicate (Exhibit A.797." (Emphasis ours. or before the organization and incorporation of Central Syndicate.88 as deficiency sales tax and surcharge on the surplus goods purchased by them from the Foreign Liquidation Commission on July 5. Mr. Sy En alias Sy Seng Sui. 1946 and addressed to the Commanding General AFWESPAC. 11 and 33. 277 S.) dated September 17. 178. Collector of Internal Revenue vs. Yu Khe Thai President. Clem vs. and that on July 23. David Sycip accompanied by one of our directors. Petitioners interposed the present appeal. contains the following categorical admissions which corroborate the admissions made by David Sycip.. went to Leyte to take over the surplus properties sold by the FLC to Dee Hong Lue. Mr. The important issues to be determined in this appeal are: (1) whether the importer of the surplus goods in question the sale of which is subject to the present tax liability is Dee Hong Lue or the Central Syndicate who has been substituted by the present petitioners.65.) as incorporators and directors of the corporation. who was subsequently appointed General Manager of the corporation. Manila. Cir. L-11274. Exhibit '39' for the respondent (pp. Lim Shui Ty. pp. the overwhelming evidence presented by the Collector points to the conclusion that Dee Hong Lue purchased the surplus goods in question not for himself but for the Central Syndicate which was then in the process of incorporation such that the deed of sale Exhibit 13 which purports to show that Dee Hong Lue sold said goods to the syndicate for a consideration of P1. to the Collector of Internal Revenue.) considering that at the time he made them. for and in the name of Central Syndicate then in the process of organization.) .R. Petitioners contend that the Central Syndicate cannot be held liable for the deficiency sales tax in question because it is not the importer of the surplus goods purchased from the Foreign Liquidation Commission for the reason that said surplus goods were purchased by Dee Hong Lue as shown by the contract executed between him and the Foreign Liquidation Commission and the fact that the Central Syndicate only purchased the same from Dee Hong Lue and not from the Foreign Liquidation Commission as shown by Exhibit 13. 178. BIR rec. 1946. Forbeso. (2) whether the deficiency sales tax which is now sought to be collected has already prescribed. (Secs.) shows that as early as July 23. Tex. 1946 viz. which the latter held in trust for the corporation.) which is a letter of Mr. 10 S. which is a certificate issued by no less than David Sycip himself who was subsequently appointed General Manager of the corporation admits in express terms the following ".. L-12250.551. (Collector of Internal Revenue vs. whether the sales tax in question can be enforced against its successors-in-interest who are the present petitioners. with costs. CTA rec. Alfonso Sycip. who appear in the Articles of Incorporation of the Central Syndicate Annex A (pp. 1959. 1946. G. 60-66. Serge Gordeof and Chin Siu Bun (an employee of the same corporation).) . 184-187. David Sycip.. University of Sto. 1946.parties. and (3) the Central Syndicate having already been dissolved because of the expiration of its corporate existence. Rule 123. from which they realized an estimated gross sales of P1. pertinent portion of which we quote hereunder with approval: Exhibit "38-A" for the respondent (p. Tomas... effected in the name of Dee Hong Lue on July 5. November 28. Sy En alias Sy Seng Sui (one of the incorporators of Central Syndicate). No. together with Messrs. the surplus property sold by the Foreign Liquidation Commission to Dee Hong Lue (and held in trust by the latter for the Syndicate . The petitioners Tan Tiong Bio. This contention cannot be sustained. Rules of Court. 1946. Tex.W. 2d 223. BIR rec. the sum of P33. . May 27. Dee Hong Lue. G. Street vs.447. Exhibit 38-A. Bautista & Tan.' .250.00 (the same amount paid by Dee Hong Lue to the Foreign Liquidation Commission) "is but a ruse to evade payment of a greater amount of percentage tax. and Sy Seng Tong. R. the second named being in addition its President and the seventh its Treasurer. twenty-two (22) days before the incorporation of Central Syndicate on August 15.000. 1958. arrived in Leyte to take over the properties." The aforesaid conclusion of the lower court was arrived at after a thorough analysis of the evidence on record. 407.

by virtue of a valid contract of sale.00 is but a ruse to evade payment of a greater amount of percentage tax. as oil is to water. 144. Jr. I talked to my friends who said I could get money. 21.' We ask: Why was there such a hurry on the part of the promoters of Central Syndicate in taking over the surplus properties when the formal agreement. 133-139. Exhibit 13 (p. Moreover. 1946. I bought it with their checks and mine" (Exhibit 16-B.000.000.125.000 or P700. 66. but later on when the price went up to P1. all the above-named persons with the exception of Robert Dee Se Wee and Jose S. 1äwphï1.00 paid to the FLC. that soon after the "Mystery Pile" was purchased from the FLC. that Dee Hong Lue acted merely as agent of these persons when he purchased the pile from the FLC? As a general rule.000. Robert Dee Se Wee P25. Sycip and Tan Tiong Bio who advanced the purchased price of P1. Dee Hong Lue being the purchaser in his own right only with respect to the amount of P69.000. Exhibit 13 (p.). BIR rec. Mr. 1946? Is this not another clear and unmistakable indication that from the very start. 24. was effected twenty-eight (28) days later viz. BIR rec.P125. that after buying the "Mystery Pile". Lim. 66. Alfonso Z. BIR rec.) of Mr.) before said officer.250. for the amount of P1. 66.250.00. Mr. But.250." "Watkins came to me and he bid for me for P600.00. on August 20.250. Sy En. we would like to call attention to this significant detail.00. it appears that on October 3. Added to these. one does not exercise all the acts of ownership over a property especially if it involves a big amount until after the documents evidencing such ownership are fully accomplished. as is the theory of the respondent. 121-128. Yu Khe Thai that 'on July 23.) purporting to show that Dee Hong Lue sold the "Mystery Pile" to the Central Syndicate for consideration of P1. formed the Central Syndicate and a re-allocation of shares was made corresponding to the amounts advanced by them. 1946. Lim P31. (p.00 that his understanding with these persons was that should they eventually join him in Central Syndicate. 138. 27. This is indeed most unusual for a businessman like . 1946. Sy Seng Tong.) as well as the circumstances surrounding the incorporation of the Central Syndicate.00 "with the checks of Yu Khe Thai. BIR rec. 119-120. In his sworn statement. Sy Seng Tong P375.00 (should be P1. such advances would be adjusted to constitute their investments.00 from the FLC and then. Alfonso Z. Exhibit 13 (p. because of the discovery of some gun parts found in his shipment of surplus material from Palo. are shrouded with as much mystery as the so-called "Mystery Pile" subject of the transaction. David Sycip.Before passing on to the rest of the evidence supporting the finding of respondent.000. BIR rec. to the FLC. p. Dee Hong Lue was investigated by Major Primitivo San Agustin. BIR rec. Exhibit 15 (p. that the deed.00 which he paid in two installments sometime in July.000.that the Central Syndicate and/or the group of big financiers composing it and not Dee Hong Lue was the real purchaser (importer) of the "Mystery Pile" from the FLC.000. that in the contract of sale between Dee Hong Lue and the FLC the former acted principally as agent (Article 1930..000..250. BIR rec.00 out of the P1. were the Central Syndicate and/or the group of big financiers composing it before said corporation was incorporated on August 15.250. and. 26. arrived in Leyte to take over the properties. BIR rec. and. 141.ñët To our mind. P1. the deed of sale. 23. 20. If this be so. 1946.000. our General Manager. Petitioners would want us to believe that Dee Hong Lue bought in his own right and for himself the surplus goods in question for P1.250. purporting to be a contract of sale of the 'Mystery Pile' between Dee Hong Lue as vendor.181. and.000.000. Exhibit 39 (pp. Sycip . G-2 of the Philippine Army. Dee Hong Lue admitted the following: That he paid the FLC the amount of P1. Tan Tiong Bio .P375.000.000." "So. what need was there for Dee Hong Lue to agree in the immediate organization and incorporation of the Central Syndicate with six other capitalists when he could very well have disposed of the surplus goods to the public in his individual capacity and keep all the profits to himself without sharing 9/10th of it to the other six incorporators and stockholders of the newly incorporated Syndicate. Exhibit 13 (p. and.181.250.00) of the amount came from the following: Yu Khe Thai who advanced to him P250.) transferred and conveyed the same to the Central Syndicate at cost.000. Exhibit 16 (pp. BIR rec. the truth and underlying motives behind these transactions have to surface in the end. 77. New Civil Code) of the petitioners Yu Khe Thai.00. accompanied by one of our directors.) all tending to prove the same thing . 19. the real purchasers of the 'Mystery Pile' from the FLC and as such the 'importers' of the goods.) In his affidavit. 117-128. 99-103. It is stated in the letter. Leyte. that "at the beginning I was trying to buy the pile for myself without telling other people and other friends of mine. 92-96. 28 and 29 (pp. It appears that Dee Hong Lue "sold" the pile to the Central Syndicate for exactly the same price barely forty-six (46) days after acquiring it from FLC and exactly five (5) days after the Syndicate was registered with the Securities and Exchange Commission on August 19. as vendee. we have before us other documentary evidence for the respondent consisting of Exhibits 18. 88.) and. and the Central Syndicate. maybe also Alfonso Sycip and my checks with many others".000. 184-187. 25.000. Jose S.00.) Dee Hong Lue admitted that of the amount of P1.000. he (Dee Hong Lue) never inspected the same personally.00.00. BIR rec. 85. 1946.

000. Exhibit A (pp.Dee Hong Lue who. 144.00 and P125.000. which were based on the amount of the authorized capital stock. the above parties.000. Exhibit 15: "That soon after the above-mentioned property was purchased.073. and with cash on hand of only P50.000.000. As we see it. Moreover.00 to Dee Hong Lue were made to appear in the Articles of incorporation of the Central Syndicate as having subscribed to shares worth only P40.000.116. So here is an experienced businessman like Dee Hong Lue who. and P5. P30. as the Deed of Sale.00 in cash. such as attorney's fee and the filing fee paid to the Securities and Exchange Commission. BIR rec. 66. as the present tax liability has now arisen. Yu Khe Thai. Dee Hong Lue subscribes to only P20. Alfonso Z.000. Uy Khe Thai. either through destruction or systematic commandering by the enemy and our forces.00 in cash.00 of which P200.000.00 from the newly incorporated Syndicate by virtue of the Deed of Sale.00. CTA rec. the only logical answer is that the incorporator wanted to limit whatever civil liability that might arise in favor of third persons. This is indeed quite phenomenal and fantastic not to say the utmost degree of finance considering that the corporation had a subscribed capital stock of only P200. was incorporated on August 15.000. He could perhaps reason out to himself.00.250. why was it that Messrs. was very much over and above their authorized capital. P7.) claims to have received from Messrs. it is to be presumed. This is the explanation that Dee Hong Lue gave in this regard as appearing in his affidavit." If this were true. respectively? Would it not be more in keeping with corporate . as its articles of incorporation. P375. was out to make a killing when he acquired the surplus goods from the FLC for the staggering amount of P1. Exhibit 15 (p.00. Sy Seng Tong.' But then.000.00 (should be P1.500.00 was paid by him at the time of incorporation.00 or 1/25th of the capital stock authorized and of this amount only P5.000.00.240.00 on their subscriptions.250. P30.00 and P20.00 in cash. There is no evidence on record to show that Dee Hong Lue ever returned this amount to those six (6) persons after he supposedly received P1. "the profits which I am sacrificing now in this sale to the Syndicate.000. Tan Tiong Bio (all incorporators of the Syndicate) and two others as 'advances' with which to pay the FLC. Five (5) days after its incorporation. Sycip.00 paid-up in cash at the time of incorporation. and after a few days sold the same at cost to a corporation wherein he owned only 1/25th of the authorized capital stock and wherein he was not even an officer.181.250.000.000.181. why did Dee Hong Lue waste all his time and effort not to say his good connections with the FLC by acquiring the goods from that agency only to sell it for the same amount to the Central Syndicate? This would have been understandable if Dee Hong Lue were the biggest and controlling stockholder of the Syndicate. the said corporation bought from Dee Hong Lue the "Mystery Pile" for P1. Again.00 knowing fully well that there was a transaction awaiting the newly registered corporation involving an outlay of P1.) will show. Exhibit 13. I will get it anyway in the form of dividends from it after it shall have disposed of all the "Mystery Pile" to the public.000. with the exception of Robert Dee Se Wee and Jose S.00. the corporation was also able to save on incidental expenses.750.250. although the surplus deal they transacted and which we believe was the only purpose in the incorporation of the Central Syndicate. Another mystery worth unravelling is what happened to the P1.000. Now.000.000.00 was paid-up at the time of incorporation and with not the least proof showing that it never borrowed money in its own name from outside source to raise the enormous amount allegedly paid to Dee Hong Lue nor evidence to show that it had by then in so short a time is five (5) days accumulated a substantial reserve to meet Dee Hong Lue's selling price. how could this be possible when Dee Hong Lue was the smallest subscriber to the capital stock of the Syndicate? It appears from the Articles of Incorporation that of the authorized capital stock of the corporation in the amount of P500.00 worth was subscribed by seven (7) persons and P50. at first blush it would seem quite difficult to understand why the seven (7) incorporators and stockholders of the Central Syndicate formed a corporation with a subscribed capital stock of only P200.000. by limiting its capital. We believe the respondent was quite charitable if not more than fair to the Central Syndicate in computing the profits realized by it in the resale of the "Mystery Pile" to the public at only 18. Alfonso Z. from the side of the Central Syndicate. surplus properties commanded a very good price in the open market after the liberation and that quite a number of surplus dealers made immense fortunes out of it. 6066.00 in cash.83 which normally could all go to him. Exhibit 13 (p. BIR rec.) purports to show. This corporation. Lim decided to join the proposed Central Syndicate and a re-allocation of shares was made for the reason that some of the above parties in turn had to get advances from third parties.00. We believe this was done after mature deliberation and for some ulterior motive.000. bought the "'Mystery Pile" for himself for P1.00) which Dee Hong Lue in his affidavit.000. following the theory of petitioners' counsel.000.45 out of a total of P229. 1946 with an authorized capital stock of P500. up to the amount of their subscriptions.8% of the acquisition price.00 of which only P50. We take judicial notice of the fact that as a result of our immense losses in property throughout the archipelago the during the Japanese occupation. P7. Sycip and Tan Tiong Bio who advanced P250.00 and of having paid only P10. Sy Seng Tong.00. thus doling out to the other six incorporators and stockholders net profits in the sum conservatively estimated by the respondent to be P206.00.000.000. Furthermore.000.500.

00 to the FLC for the corporation. 1948. are not ordinary businessmen who could easily be taken for a ride. that from the very start. (Go Cheng Tee v. 1946 and the letter of the Central Syndicate to the said Commission bearing the same date. it was its duty under Section 183 of the Internal Revenue Code to file a return of its gross sales within 20 days after the end of each quarter in order that the office of the internal revenue may assess the sales tax that may be due thereon. Coll. nevertheless. Meer. Soriano y Cia v. Immediately after the incorporation of the Syndicate. So we have. No. 47 O. the recoupment of their advances from the newly acquired assets of the corporation was sufficiently secured. was the importer of the surplus goods in question. 269. Jan. and it was said corporation that took delivery thereof from the place where they were stored in Leyte as may be seen from the letter of Dee Hong Lue to the Foreign Liquidation Commission dated September 2. In any event. 2. 1951. particularly those four who advanced enormous sums to Dee Hong Lue. military bases in the Philippines is considered an importer of such goods and is subject to the sales tax or compensating tax.R.P.G. military base. to just credit those four (4) persons in the corporation with shares worth the amount advanced by them to Dee Hong Lue? On the basis of the above figures. Navigation v. After going over the Articles of Incorporation of the Central Syndicate and the other circumstances of this case. 1946. they have reduced (at least attempted to) their sales tax liability with the argument that Dee Hong Lue was the original "purchaser" or "importer" of the goods and therefore the taxable sale was that one made by him to the Syndicate and not the sales made by the latter to the public. This is in fact what the syndicate intended to impress upon the .) In this case it appearing that the Central Syndicate was the owner of the 'Mystery Pile' before its removal from Base K and that it was the one which actually took delivery thereof and removed the same from the U.00 still unsubscribed. And this is further evidenced by the fact that this purchase made by Dee Hong Lue was later approved and adopted as the act of the Central Syndicate itself as can be gleaned from the certificate executed by David Sycip. as we have already pointed out. the seven (7) incorporators composing it got much more than their investments including those who advanced P1. Dee Hong Lue was made to execute a deed of transfer under the guise of a contract of sale. L-4621.practice. but. conveying full and complete ownership of the "Mystery Pile" to the newly organized corporation.S. Meer. No. 4548. the seven (7) incorporators had intended it to be a closed corporation without the least intention of ever selling to other persons the remaining authorized capital stock of P300. Saura Import and Export v. it is clear that the Central Syndicate is the importer of the surplus goods as correctly observed by Judge Umali in his concurring opinion. 1953. P. L-2927. transferring and conveying ownership over the entire pile to the latter.G. It is now well settled that a person who bought surplus goods from the Foreign Liquidation Commission and who removed the goods bought from the U. of Int. With the precipitated execution of the "Deed of Sale" by Dee Hong Lue in favor of the Syndicate. Technically this may be true. the Central Syndicate failed to file any return of its quarterly sales on the pretext that it was Dee Hong Lue who imported the surplus goods and it merely purchased them from said importer.. as it stood before the enactment of Republic Act No. 1946 considering that on that date the syndicate has not yet been incorporated on the theory that no legal relation may exist between parties one of whom has yet no legal existence. wherein he emphasized that the persons named therein (from whom Dee Hong Lue obtained the money) merely acted on behalf of the syndicate and in fact were the ones who went to Leyte to take over the aforesaid surplus goods. on the face of the Articles of Incorporation and Exhibit 13.S. Under these facts. and. from which we quote: .00 cash owning properties worth over a million pesos. Rev.000. the incorporators of the Syndicate. it is the importer within the meaning of Section 186 of the Revenue Code. G. in the final analysis it is not so as we will now show. Since the Central Syndicate. 26. However. as the evidence shows. as the case may be. as the record shows. that upon its liquidation.000. G. by making the document appear to be a deed of sale instead of a deed of transfer as it should be under Article 1891 of the New Civil Code.R. 51 O. March 24. we draw the conclusion that it was organized just for this particular transaction that its life span was expressly limited to two (2) years from and after the date of incorporation just to give it time to dispose of the "Mystery Pile" to the public and then liquidate all its assets among the seven incorporators-stockholders as in fact it was done on August 15.M. Meer. and at the same time. and its sales of the surplus goods are the original sales taxable under said section and not the sale to it by Dee Hong Lue. following the explanation of Dee Hong Lue. Obviously. a corporation with assets worth only P50. 594. the re-allocation of shares in favor of the four (4) incorporators who advanced enormous sums for the Syndicate seems at first glance to be totally disproportionate and unfair to them.000. general manager of said syndicate. but the fact remains that it cannot be denied that Dee Hong Lue purchased the goods on behalf of those who advanced the money for the purchase thereof who later became the incorporators and only stockholders of the syndicate with the understanding that the amounts they had respectively advanced would be their investment and would represent their interest in the corporation. even if Dee Hong Lue may be deemed as the purchaser of the surplus goods in his own right.181. on September 16. the corporation still may be regarded as the importer of the same goods for the reason that Dee Hong Lue transferred to it all his rights and interests in the contract with the Foreign Liquidation Commission. Petitioners would dispute the finding that Dee Hong Lue merely acted as a trustee of the Central Syndicate when he purchased the surplus goods in question from the Foreign Liquidation Commission on July 5.

" In fact. said action was already barred by prescription pursuant to Sections 77 and 78 of the Corporation Law which allows corporations to continue as a body corporate only for three years from its dissolution.W. 6 F. hold property against which the tax can be enforced and that the legal death of the corporation no more prevents such action than would the physical death of an individual prevent the government from assessing taxes against him and collecting them from his administrator. And it has been stated. because of this directive their substitution was effected. A creditor of a dissolve corporation may follow its assets. (4) that considering that the Collector instituted the present action on September 23. (2) that petitioners cannot be held liable for said tax liability there being no statutory provision in this jurisdiction authorizing the government to proceed against the stockholders of a defunct corporation as transferees of the corporate assets upon liquidation. (3) that assuming that the stockholders can be held so liable. fraud or omission of the payment of the proper tax. Petitioners are therefore the beneficiaries of the defunct corporation and as such should be held liable to pay the taxes in question. Besides. petitioners should be held to be liable for the tax in question only in proportion to their shares in the distribution of the assets of the defunct corporation. and to collect them from persons. for. No. This must have been taken into account when in G. 304. of course. it loses thereby none of its rights to assess taxes which had been due from the corporation. An indebtedness of a corporation to the federal government for income and excess profit taxes is not extinguished by the dissolution of the corporation (Quinn v. v.073. Considering that the Central Syndicate realized from the sale of the surplus goods a net profit of P229. State.S. 384). U. and (5) that assuming that petitioners are liable to pay the tax. be now heard to complain if they are made responsible for the tax liability of the defunct syndicate whose representation they assumed and whose assets were distributed among them. there being no express provision requiring the stockholders of the corporation to be solidarily liable for its debts which liability must be express and cannot be presumed. 1947 when it removed the surplus goods in question from their base at Leyte? How can such return inure to the benefit of the syndicate when the same surplus goods which were removed on said date could not have been sold by the corporation earlier than the aforesaid date? It is obvious that the letter of October 19. It should be stated at the outset that it was petitioners themselves who caused their substitution as parties in the present case. 152 Ark. recognized are the following rules in American jurisprudence: The dissolution of a corporation does not extinguish the debts due or owing to it (Bacon v.00 to answer for his sales tax liability. there being no evidence to the contrary.. immediately after the sale of the said surplus goods. [1924] 298 Fed. with the above modification. WHEREFORE. evidently. 1951 he has therefore up to September 18. In the second place. and that the sale of said goods was the only transaction undertaken by said syndicate. . 271. 16 How. Ed. 1946 informing him that it purchased from Dee Hong Lue the entire stock of the surplus goods which the latter had bought from the Foreign Liquidation Commission and was therefore depositing in his name the sum of P43. but only limited to the benefits derived by them from the corporation.R. Supp. 705). but this letter certainly cannot be considered as a return that may set in operation the application of the prescriptive period provided for in Section 331 of the Tax Code. They cannot. 288). McLeudon. who by reason of transactions with the corporation. their liability is not solidary. Cl. Since it appears that the Collector discovered the failure of the syndicate to file the return only on September 12. when they appealed this case to the Supreme Court for which reason the latter Court declared that "the respondent Court of Tax Appeals should have allowed the substitution of its former officers and directors is parties-appellants. 406. 1954 when he filed his answer to the appeal of petitioners. therefore. 14 L. L-8800 this Court said that petitioners could be held personally liable for the taxes in question as successors-in-interest of the defunct corporation. However. since they are proper parties in interest insofar as they may be (and in fact are) held personally liable for the unpaid deficiency assessments made by the Collector of Internal Revenue against the defunct Syndicate.83. the foregoing authorities have persuasive effect in considering similar cases in this jurisdiction. the conclusion is that said net profit remained intact and was distributed among the stockholders when the corporation liquidated and distributed its assets on August 15. as in the nature of a trust fund. 1961 within which to assess or collect the deficiency tax in question. Nor can the fact that the Collector did not include in the assessment a surcharge of 50% serve as an argument that a return had already been filed. The syndicate having failed to file its quarterly returns as required by Section 183 of the Tax Code.750. Excelsier Coal Co. the period that has to be reckoned with is that embodied in Section 332 of the same Code which provides that in case of failure to file the return the tax may be assessed within 10 years after discovery of the falsity. 1946 cannot possibly be considered as a return filed by the syndicate and so cannot serve as basis for the computation of the prescriptive period of five years prescribed by law. The decision of the trial court should be modified accordingly. for such failure can only mean that an oversight had been committed in the non-inclusion of said surcharge. Thus. 32). Ed. with reference to the effect of dissolution upon taxes due from a corporation. 1952 was made within the prescribed period. "that the hands of the government cannot. collect taxes from a defunct corporation. said letter if at all could only be considered as such in behalf of Dee Hong Lue and not in behalf of the Central Syndicate because such is the only nature and import of the letter. Consequently the assessment made on January 4. Robertson. Curron v.Collector when it wrote to him its letter of October 19.. 18 How. we hereby affirm the decision appealed from. how can such letter be considered as a return of the sales of the Central Syndicate when it was only on February 21. they are only liable to the extent of the benefits derived by them from the corporation and there is no evidence showing that petitioners had been the beneficiaries of the defunct syndicate. there is good authority to the effect that the creditor of a dissolved corporation may follow its assets once they passed into the hands of the stockholders. who holds the property which the decedent had formerly possessed" (Wonder Bakeries Co. 480. 238 S. Bearing in mind that our corporation law is of American origin. being the successors-in-interest of the defunct syndicate. into the hands of its stockholders (MacWilliams v. [1934] Ct.. 1948. Petitioners argue (1) that the Court of Tax Appeals acted in excess of its jurisdiction in holding them liable as officers or directors of the defunct Central Syndicate for the tax liability of the latter. with costs against petitioners. 15 L. 3.

private respondents moved to dismiss the Complaint. J. with the Securities and Exchange Commission (SEC) for the establishment of a regional or area headquarters in the Philippines. 1992. private respondent Romana failed to settle her obligation with petitioner. She held. 2 Private respondent Romana R. PUNO. vs. petitioner. 1992. 59. the plaintiff (petitioner herein) seeks to recover alleged cash advances made by defendant (private respondent herein) Romana Lanchinebre while the latter was in the employ of the former. twelve thousand one hundred seventy pesos and thirty-seven centavos (P12. 218. & Associates for petitioner. the following cases involving all workers. Sison..G. 1994 (235 scra 216) GEORG GROTJAHN GMBH & CO.00) also with the NLRC Arbitration Branch (Manila). Obviously the said cash advances were made pursuant to the employer-employee . Under Article 217 of the Labor Code of the Philippines.000. pursuant to Presidential Decree No. 1983. including those of persons in domestic or household service. the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide. 109272 August 10. LANCHINEBRE. 1992. Consequently. granting the motion to dismiss. she made additional cash advances in the sum of ten thousand pesos (P10. respondents. On December 21. 1983.00) regardless of whether or not accompanied with a claim for reinstatement. In its complaint. On July 22. ROMANA R. A. social security. LANCHINEBRE. 92-2486 and raffled to the sala of respondent judge. The records show that petitioner is a multinational company organized and existing under the laws of the Federal Republic of 1 Germany. HON.000. viz: Jurisdiction over the subject matter or nature of the action is conferred by law and not subject to the whims and caprices of the parties. dismissal and non-payment of commissions against petitioner. exemplary and other forms of damages arising from an employeremployee relations. The application was approved by the Board of Investments (BOI) on September 6. involving an amount exceeding five thousand pesos (P5.R. Regional Trial Court. 1992.000. On August 18.00). Presiding Judge. petitioner in turn filed against private respondent a Complaint for damages amounting to one hundred 3 twenty thousand pesos (P120. and TEOFILO A. LUCIA VIOLAGO ISNANI. on September 20. medicare and maternity benefits.000. petitioner filed another Complaint for collection of sum of money against private respondents spouses Romana and Teofilo Lanchinebre which was docketed as Civil Case No. Instead of filing their Answer. whether agricultural or nonagricultural: (4) claims for actual. On September 2. 1983. Of the total amount. On July 6. moral. No. Makati. The two cases were consolidated. Br.37) remained unpaid. 1992. Lanchinebre was a sales representative of petitioner from 1983 to mid-1992. 1983.M. petitioner filed an application. she secured a loan of twenty-five thousand pesos (P25. On March 26 and June 10. Jr. dated July 2. all other claims arising from employer-employee relations.: Petitioner impugns the dismissal of its Complaint for a sum of money by the respondent judge for lack of jurisdiction and lack of capacity to sue. within thirty (30) calendar days after the submission of the case by the parties for decision. private respondent Romana Lanchinebre filed with the Arbitration Branch of the National Labor Relations Commission (NLRC) in Manila. a Complaint for illegal suspension. This was opposed by petitioner. On March 12. respondent judge issued the first impugned Order. 1992. Laso for private respondents. xxx xxx xxx (6) Except claims for employees compensation. the SEC issued a Certificate of Registration and License to petitioner. Pedro L.170.00) from petitioner. Despite demand.

Labor Arbiters." It does not include a license to do business in the Philippines. 1993. In this regard. although a controversy is between an employer and an employee. the trial court should not have held itself without jurisdiction over Civil Case No. Finally. facts showing the capacity of a party to sue or be sued or the authority of a party to sue or be sued in a representative capacity or the legal existence of an organized association of persons that is made a party must be averred. Inc. Not every dispute between an employer and employee involves matters that only labor arbiters and the NLRC can resolve in the exercise of their adjudicatory or quasi-judicial powers. III THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT THE ERRONEOUS INCLUSION OF THE HUSBAND IN A COMPLAINT IS A FATAL DEFECT THAT SHALL RESULT IN THE OUTRIGHT DISMISSAL OF THE COMPLAINT. it is not disputed that the Certificate of Registration and License issued to the (petitioner) by the Securities and Exchange Commission was merely "for the establishment of a regional or area headquarters in the Philippines. viz: Before the enactment of BP Blg. the Labor Arbiters have no . Laron. The jurisdiction of labor arbiters and the NLRC under Article 217 of the Labor Code is limited to disputes arising from an employer-employee relationship which can only be resolved by reference to the Labor Code. Petitioner now raises the following assignments of errors: I THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT THE REGULAR COURTS HAVE NO JURISDICTION OVER DISPUTES BETWEEN AN EMPLOYER AND AN EMPLOYEE INVOLVING THE APPLICATION PURELY OF THE GENERAL CIVIL LAW. There is no allegation in the complaint moreover that (petitioner) is suing under an isolated transaction. it does not follow that Article 217 of the Labor Code covers their relationship. under paragraph 5 of Article 217 of the Labor Code had jurisdiction over "all other cases arising from employer-employee relation. unless expressly excluded by this Code. within the original and exclusive jurisdiction of the National Labor Relations Commission. Rule 8 of the Revised Rules of Court. Firstly. 129 SCRA 485 (1984). pursuant to Presidential Decree No. we held in the earlier case of Molave Motor Sales. It must be considered that under Section 4. other labor statutes. 1982. II THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT PETITIONER HAS NO CAPACITY TO SUE AND BE SUED IN THE PHILIPPINES DESPITE THE FACT THAT PETITIONER IS DULY LICENSED BY THE SECURITIES AND EXCHANGE COMMISSION TO SET UP AND OPERATE A REGIONAL OR AREA HEADQUARTERS IN THE COUNTRY AND THAT IT HAS CONTINUOUSLY OPERATED AS SUCH FOR THE LAST NINE (9) YEARS. vs. There is no averment in the complaint regarding (petitioner's) capacity to sue or be sued. or their collective bargaining agreement. IV THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT THE HUSBAND IS NOT REQUIRED BY THE RULES TO BE JOINED AS A DEFENDANT IN A COMPLAINT AGAINST THE WIFE. 92-2486. There is merit to the petition. 4 On March 8. It is true that the loan and cash advances sought to be recovered by petitioner were contracted by private respondent Romana Lanchinebre while she was still in the employ of petitioner.relationship between the (petitioner) and the said (private respondent) and as such. 227 on June 1. 218 and its implementing rules and regulations. the principal followed by this Court was that. (respondent) husband should not be joined as party defendant. (petitioner's) claim being clearly incidental to the occupation or exercise of (respondent) Romana Lanchinebre's profession. Again." Even then. the respondent judge issued a minute Order denying petitioner's Motion for Reconsideration. Nonetheless.

jurisdiction if the Labor Code is not involved. In Medina vs. Castro-Bartolome, 116 SCRA 597, 604 in negating jurisdiction of the Labor Arbiter, although the parties were an employer and two employees, Mr. Justice Abad Santos stated: The pivotal question to Our mind is whether or not the Labor Code has any relevance to the reliefs sought by plaintiffs. For if the Labor Code has no relevance, any discussion concerning the statutes amending it and whether or not they have retroactive effect is unnecessary. xxx xxx xxx And in Singapore Airlines Limited vs. Paño, 122 SCRA 671, 677, the following was said: Stated differently, petitioner seeks protection under the civil laws and claims no benefits under the Labor Code. The primary relief sought is for liquidated damages for breach of a contractual obligation. The other items demanded are not labor benefits demanded by workers generally taken cognizance of in labor disputes, such as payment of wages, overtime compensation or separation pay. The items claimed are the natural consequences flowing from breach of an obligation, intrinsically a civil dispute. xxx xxx xxx In San Miguel Corporation vs. NLRC, 161 SCRA 719 (1988), we crystallized the doctrines set forth in the Medina, Singapore Airlines, and Molave Motors cases, thus: . . . The important principle that runs through these three (3) cases is that where the claim to the principal relief sought is to be resolved not by reference to the Labor Code or other labor relations statute or a collective bargaining agreement but by the general civil law, the jurisdiction over the dispute belongs to the regular courts of justice and not to the Labor Arbiter and the NLRC. In such situations, resolutions of the dispute requires expertise, not in labor management relations nor in wage structures and other terms and conditions of employment, but rather in the application of the general civil law. Clearly, such claims fall outside the area of competence or expertise ordinarily ascribed to Labor Arbiters and the NLRC and the rationale for granting jurisdiction over such claims to these agencies disappears. Civil Case No. 92-2486 is a simple collection of a sum of money brought by petitioner, as creditor, against private respondent Romana Lanchinebre, as debtor. The fact that they were employer and employee at the time of the transaction does not negate the civil jurisdiction of the trial court. The case does not involve adjudication of a labor dispute but recovery of a sum of money based on our civil laws on obligation and contract. Secondly, the trial court erred in holding that petitioner does not have capacity to sue in the Philippines. It is clear that petitioner is a foreign corporation doing business in the Philippines. Petitioner is covered by the Omnibus Investment Code of 1987. Said law defines "doing business," as follows: . . . shall include soliciting orders, purchases, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totalling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines, and any other act or acts that imply a continuity of commercial dealings or arrangements and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive 5 prosecution of, commercial gain or of the purpose and object of the business organization. There is no general rule or governing principle as to what constitutes "doing" or "engaging in" or "transacting" business in the Philippines. Each case must be judged in the light of its peculiar circumstances. 6 In the case at bench, petitioner does not engage in commercial dealings or activities in the country because it is precluded from doing so by P.D. No. 218, under which it was established. 7 Nonetheless, it has been continuously, since 1983, acting as a supervision, communications and coordination center for its home office's affiliates in Singapore, and in the process has named its local agent and has employed Philippine nationals like private respondent Romana Lanchinebre. From this uninterrupted performance by petitioner of acts pursuant to its primary purposes and functions as a regional/area headquarters for its home office, it is clear that petitioner is doing business

in the country. Moreover, private respondents are estopped from assailing the personality of petitioner. So we held in Merrill Lynch Futures, Inc. vs. Court of Appeals, 211 SCRA 824, 837 (1992): The rule is that a party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it. And the "doctrine of estoppel to deny corporate existence applies to foreign as well as to domestic corporations;" "one who has dealth with a corporation of foreign origin as a corporate entity is estopped to deny its corporate existence and capacity." The principle "will be applied to prevent a person contracting with a foreign corporation from later taking advantage of its noncompliance with the statutes chiefly in cases where such person has received the benefits of the contract, . . . (Citations omitted.) Finally, the trial court erred when it dismissed Civil Case No. 92-2486 on what it found to be the misjoinder of private respondent Teofilo Lanchinebre as party defendant. It is a basic rule that "(m)isjoinder or parties is not ground for dismissal of 8 an action." Moreover, the Order of the trial court is based on Section 4(h), Rule 3 of the Revised Rules of Court, which provides: A married woman may not . . . be sued alone without joining her husband, except . . . if the litigation is incidental to the profession, occupation or business in which she is engaged, Whether or not the subject loan was incurred by private respondent as an incident to her profession, occupation or business is a question of fact. In the absence of relevant evidence, the issue cannot be resolved in a motion to dismiss. IN VIEW WHEREOF, the instant Petition is GRANTED. The Orders, dated December 21, 1992 and March 8, 1993, in Civil Case No. 92-2486 are REVERSED AND SET ASIDE. The RTC of Makati, Br. 59, is hereby ordered to hear the reinstated case on its merits. No costs. SO ORDERED.

G.R. No. 111837 October 24, 1995 (249 scra 417) NEW YORK MARINE MANAGERS, INC., petitioner, vs. COURT OF APPEALS and VLASONS SHIPPPING INC., respondents. BELLOSILLO, J.: NEW YORK MARINE MANAGERS, INC., a foreign corporation organized under the laws of the United States, seeks in this special civil action for certiorari under Rule 65 of the Rules of Court 1 the annulment of the decision of the Court of Appeals which reversed the ruling of the trial court denying the motion to dismiss of private respondent Vlasons Shipping Company, Inc. On 25 July 1990 American Natural Soda Ash Corporation (ANSAC) loaded in Portland, U.S.A., a shipment of soda ash on board the vessel "MS Abu Hanna" for delivery to Manila. The supplier/shipper insured the shipment with petitioner. Upon arrival in Manila the shipment was unloaded and transferred to the vessel "MV Biyayang Ginto" owned by private respondent. Since the shipment allegedly sustained wettage, hardening and contamination, it was rejected as total loss by the consignees. When the supplier sought to recover the value of the cargo loss from petitioner the latter paid the claim in the amount of US$58,323.96. On 20 November 1991 petitioner as subrogee filed with the Regional Trial Court of Manila a complaint for damages against private respondent alleging among others that . . . 1.01. Plaintiff is a non-life foreign insurance corporation organized under the laws of the State of New York with offices at 123 William Street, New York, N.Y. 10038 and engaged in an isolated transaction in this case; defendant is a local domestic corporation organized under Philippine law with offices at Zobel Street, Isla de Provisor, Paco, Metro Manila where it may be served with summons 2 and other court processes . . . . On 24 January 1992 private respondent filed a motion to dismiss the complaint alleging that: (a) The complaint was filed by counsel who had no authority to sue for plaintiff; (b) The complaint stated no cause of action or without a cause of action as (a) there was no privity of contract between plaintiff and defendant; (b) the risks which allegedly caused damages on the goods were not covered by the insurance issued by plaintiff, and (c) the charter agreement between the consignee, ALCHEMCO PHILIPPINES, INC., and private respondent absolved the latter from all kinds of claim whatsoever; (3) The claim of plaintiff was already extinguished, waived, abandoned and/or had prescribed; and, (4) Plaintiff had no legal capacity to sue. On 5 February 1992 petitioner opposed the motion to dismiss. On 10 April 1992 the trial court denied the motion. On 18 August 1992 the motion to reconsider the denial was also denied. The trial court ruled that since petitioner alleged in its complaint that it was suing on an isolated transaction the qualifying circumstance of plaintiff's capacity to sue as an essential element has been properly pleaded. The trial court also held that the grounds relied upon by private respondent in its motion to dismiss were matters of defense. On 28 September 1992 private respondent filed a petition for certiorari and prohibition with the Court of Appeals alleging that the trial court gravely abused its discretion in issuing the orders of 10 April 1992 and 18 August 1992 which amounted to lack or excess of jurisdiction. On 29 July 1993 the appellate court granted the petition after finding the assailed orders to be patently erroneous. 3 While it found the allegation in the complaint that plaintiff was a non-life foreign insurance corporation engaged in an isolated transaction to be a sufficient averment, it nevertheless held the complaint to be fatally defective for failure to allege the duly authorized representative or resident agent of petitioner in the Philippines. Thus it enjoined the trial court from further proceeding except to dismiss the case with prejudice. This petition alleges that the Court of Appeals acted whimsically, capriciously and arbitrarily amounting to lack or excess of jurisdiction in deciding that petitioner's complaint was fatally defective for failing to allege its duly authorized representative or resident agent in the Philippines. Petitioner argues that there is no law, substantive or procedural, that requires a foreign corporation engaged only in an isolated transaction to appoint a duly authorized representative or a resident agent in the Philippines before it can sue locally. The proper remedy available to petitioner from a decision of the Court of Appeals is a petition for review on certiorari under Rule 45 of the Rules of Court, not a petition for certiorari under Rule 65 of the Rules of Court. Mere errors of judgment cannot be the proper subject of a special civil action for certiorari. Where the issue or question involved affects the wisdom or legal soundness of the decision not the jurisdiction of the court to render said decision the same is beyond the province of a special civil action for certiorari. Erroneous findings and conclusions do not render the appellate court vulnerable to the

True. When the allegations in the complaint have a bearing on the plaintiff's capacity to sue and merely state that the plaintiff is a foreign corporation existing under the laws of the United States. the extent of authority of counsel for petitioner has been expressly and continuously assailed but he has failed to show competent proof that he was indeed duly authorized to represent petitioner. or the fact that the suing corporation is exempt therefrom. as the case may be. WHEREFORE.corrective writ of certiorari. Failing in this requirement. But even if we treat the instant petition as one for review on certiorari the same must still fail. a lawyer is generally presumed to be properly authorized to represent any cause in which he appears. Moreover. fails to show its legal capacity to sue. in Commissioner of Customs v.M.. K. . Gani et a1. constitute errors of law and not abuse of discretion correctible by certiorari. it must be said. Hence. The qualifying circumstance being an essential part of the plaintiff's capacity to sue must be affirmatively pleaded. Where said authority has been challenged or attacked by the adverse party the lawyer is required to show proof of such authority or representation in order to bind his client. at 4 most. such averment conjures two alternative possibilities: either the corporation is engaged in business in the Philippines..K. Cebu Stevedoring. petitioner's complaint is fatally defective for failing to allege its duly authorized representative or resident agent in this jurisdiction. The pleadings filed by counsel for petitioner do not suffice. the ultimate fact that a foreign corporation is not doing business in the Philippines must 8 first be disclosed for it to be allowed to sue in Philippine courts under the isolated transaction rule. 5 However. 6 citing Atlantic Mutual Insurance Company v. the complaint filed by petitioner with the trial court. or it is not so engaged. SO ORDERED. Inc. For where the court has jurisdiction over the case. The assailed decision of the Court of Appeals dated 29 July 1993 is AFFIRMED. The issue on whether a foreign corporation can seek the aid of Philippine courts for relief recoils to the basic question of whether it is doing business in the Philippines or has merely entered into an isolated transaction. and the transaction sued upon is singular and isolated. in the second. and no written power of attorney is required to authorize him to appear in court for his client. they would. the corporation must have been duly licensed in order to maintain the suit. the petition is DENIED. Costs against petitioner. This Court has held in a long line of cases that a foreign corporation not engaged in business in the Philippines may exercise the right to file an action in Philippine courts for an isolated transaction. In the first. no such license is required. But this presumption is disputable. even if its findings are not correct. In the instant case. compliance with the requirement of license. 7 we ruled that to say merely that a foreign corporation not doing business in the Philippines does not need a license in order to sue in our courts does not completely resolve the issue. In either case. The requirement of the production of authority is essential because the client will be bound by his acquiescence resulting from his knowledge that he 9 was being represented by said attorney. cannot be inferred from the mere fact that the party suing is a foreign corporation.

On December 16. Danilo A. 49. vs. Reyes. INC. Atty. Domingo's deposition was also taken. PELINDARIO. the NBI Agents found and seized various video tapes of duly copyrighted motion pictures/films owned or exclusively distributed by private complainants. Search Warrant No.. A "Motion To Lift the Order of Search Warrant" was filed but was later denied for lack of merit (p." The material facts found by respondent appellate court are as follows: Complainants thru counsel lodged a formal complaint with the National Bureau of Investigation for violation of PD No. The orders of the Court granting the search warrants and denying the urgent motion to lift order of search warrants were. Mr. A Motion for reconsideration of the Order of denial was filed. 13. dated November 22. Makati. Reyes. materials. 1988 for violation of Section 56 of Presidential Decree No. UNITED ARTISTS CORPORATION. Makati.R. Rene C. (p. and machines. J. Metro Manila. SUNSHINE HOME VIDEO. Pelindario with address at No. Baltazar. 87-053 earlier issued per its own order on September 5. Copy of the receipt was furnished and/or tendered to Mr. were never presented in the proceedings for the issuance of the search warrants in question. Pelindario. PARAMOUNT PICTURES CORPORATION. INC.G. Agents of the NBI and private researchers made discreet surveillance on various video establishments in Metro Manila including Sunshine Home Video Inc. 49. 1987 to Sunshine and/or their representatives. on December 14. 49. Domingo. otherwise known as the "Decree on the Protection of Intellectual Property. of pirated video tapes of copyrighted films all of which were enumerated in a list attached to the application. On November 14. THE WALT DISNEY COMPANY. Metro Manila. NBI Senior Agent Lauro C. No. Consequently.m. reproduction. owned and operated by Danilo A. as amended. and sought its assistance in their anti-film piracy drive. INC. His testimony was corroborated by another witness. as amended. video cassettes and/or laser disc recordings equipment and other machines and paraphernalia used or intended to be used in the unlawful exhibition. Branch 133. The search warrant was served at about 1:45 p. television sets. sale. Records). 110318 August 28.:p Before us is a petition for review on certiorari of the decision of the Court of Appeals 1 promulgated on July 22. On the basis of the affidavits and depositions of NBI Senior Agent Lauro C. 1987. TWENTIETH CENTURY FOX FILM CORPORATION. a "Return of Search Warrant" was filed with the Court. they must be set aside. REGALADO. Rene C. upon questions by the court a quo. UNIVERSAL CITY STUDIOS. lease or disposition of videograms tapes in the premises above described. equipment. and WARNER BROTHERS. as amended. both of which 3 sustained the order of the Regional Trial Court. Rico V. Baltazar and Atty. 1993 denying petitioners' motion for reconsideration. registered owner-proprietor of Sunshine Home Video. 2 1992 and its resolution of May 10. showing. issued in error. 6 Mayfair Center. reiterated in substance his averments in his affidavit. 1996 (261 scra 144) COLUMBIA PICTURES.. petitioners. 280. television sets. NBI Senior Agent Lauro C. In the hearing of the application. 5 Appellant's Brief) . Reyes applied for a search warrant with the court a quo against Sunshine seeking the seizure. paraphernalia. and. respondents. COURT OF APPEALS. The court a quo granted the said motion for reconsideration and justified it in this manner: It is undisputed that the master tapes of the copyrighted films from which the pirated films were allegedly copies (sic). ORION PICTURES CORPORATION. and DANILO A. In the course of the search of the premises indicated in the search warrant. among others. accessories all of which were included in the receipt for properties accomplished by the raiding team. Magallanes. therefore. was issued by the court a quo. 1988 4 for the quashal of Search Warrant No. INC. 87-053 for violation of Section 56 of PD No. 1987. Rico V. (Sunshine for brevity)..

shall be permitted to maintain or intervene in any action. in which case said provisions are controlling there. any foreign corporation not doing business in the Philippines may maintain an action in our courts upon any cause of action. no foreign corporation shall be permitted to transact business in the Philippines. they have no right 7 to ask for the issuance of a search warrant. Domingo's affidavit of December 14. Court of Appeals. or its successors or assigns. but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws. I Inceptively. Domingo as their attorney-in-fact. and every circumstance is material which indicates a purpose on the part of the 12 corporation to engage in some part of its regular business in the State. Rico V. As foreign corporations doing business in the Philippines. we shall settle the procedural considerations on the matter of and the challenge to petitioners' legal standing in our courts. said appeal was dismissed and the motion for reconsideration thereof was denied. Rule 1 of the Rules of the Board of Investments. unless it shall have the license required by law.. it does not follow that it has no capacity to bring an action. Consequently. Moreover. and contend that private respondents have not adduced evidence to prove that petitioners are doing such business here. seem to be whether the foreign corporation is continuing the body or substance of 8 . 10 As thus interpreted. Rico V. 1987. to the Court of Appeals. denies them the right to maintain a suit in Philippine courts in the absence of a license to do business. petitioners should have such license to be able to maintain an action in Philippine courts. 133. However. In refutation. 1988 and Atty. No foreign corporation transacting business in the Philippines without a license. in dismissing petitioners' appeal and upholding the quashal of the search warrant by the trial court. however. It is not the absence of the prescribed license but "doing business" in the Philippines without such license which debars the foreign corporation from access to our courts. In others where no such definition or qualification is laid down regarding acts or transactions failing within its purview. private respondents point to the fact that petitioners are the copyright owners or owners of exclusive rights of distribution in the Philippines of copyrighted motion pictures or films. The Corporation Code provides: Sec.Petitioners thereafter appealed the order of the trial court granting private respondents' motion for reconsideration. they being foreign corporations not licensed to do business in the Philippines. the question rests primarily on facts and intent. as being constitutive of "doing business in the Philippines" under Section 1 (f)(1) and (2). as this phrase is understood under the Corporation Code. Doing business without a license. et al. as would require them to be licensed by the Securities and Exchange Commission. The obtainment of a license prescribed by Section 125 of the Corporation Code is not a condition precedent to the maintenance of any kind of action in Philippine courts by a foreign corporation. Such license is not necessary if it is not engaged in business in the Philippines. and until it complies with the law intransacting business here. and also to the appointment of Atty. although a foreign corporation is without license to transact business in the Philippines. suit or proceeding in any court or administrative agency of the Philippines. an exclusive right to distribute a product or the ownership of such exclusive right does not conclusively prove the act of doing business nor 9 establish the presumption of doing business. this petition was brought to this Court particularly challenging the validity of respondent court's retroactive 6 application of the ruling in 20th Century Fox Film Corporation vs. 13 The true tests. As stated at the outset. thus lifting the search warrant which it had theretofore issued. In other words. In so challenging petitioners' personality to sue. No general rule or governing principles can be laid down as to what constitutes "doing" or "engaging in" or "transacting" business. other than averments in the quoted portions of petitioners' "Opposition to Urgent Motion to Lift Order of Search Warrant" dated April 28. provided that the subject matter and the defendant are within the jurisdiction of the court. 11 Statutory provisions in many jurisdictions are determinative of what constitutes "doing business" or "transacting business" within that forum. or the Corporation Code of the Philippines. Private respondents aver that being foreign corporations. It is thus held that all the combined acts of a foreign corporation in the State must be considered. Section 133 of Batas Pambansa Blg. Hence. it shall not be permitted to maintain any suit in local courts. under the aforequoted provision. petitioners flatly deny that they are doing business in the Philippines. Each case must be judged in the light of its own peculiar environmental circumstances. 68.

Republic Act No. 7042 19 embodies such concept in this wise: Sec. commercial gain or of the purpose and object of the business organization. Presidential Decree No. Definitions and scope of this Act. usually continuous in the sense that it may be distinguished from merely casual. For instance. to that extent. purchases. Jurisprudence has. opening offices. 1(g). 1789. commercial gain or of the purpose and object of the business organization. The implementing rules and regulations of said presidential decree conclude the enumeration of acts constituting "doing business" with a catch-all definition. or the exercise of some of the functions normally incident to. service contracts. it has entered the State by its agents and is there engaged in carrying on and transacting through them some substantial part of its ordinary or customary business. whether called "liaison" offices or branches. and contemplates. commercial gain or of the purpose and object of the business organization. "Doing Business" shall be any act or combination of acts enumerated in Article 65 of the Code. appointing representatives or distributors domiciled in 18 ." or "carrying on" business in the State when. defines "doing business" to include soliciting orders. (1) . 15 The Corporation Code does not itself define or categorize what acts constitute doing or transacting business in the Philippines. 16 This traditional case law definition has evolved into a statutory definition. 3. appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totalling one hundred eighty days or more. participating in the management. having been adopted with some qualifications in various pieces of legislation in our jurisdiction. purchases. or the exercise of some of the functions normally incident to. service contracts. supervision or control of any domestic business firm. and contemplate to that extent the performance of acts or works. . whether called "liaison" offices or branches. participating in the management. subject to such modifications as may be necessary in view of the particular issue or of the terms of the statute involved. Definitions. it is recognized that a foreign corporation is "doing. sporadic. held that the term implies a continuity of commercial dealings and arrangements. In particular "doing business" includes: xxx xxx xxx (10) Any other act or acts which imply a continuity of commercial dealings or arrangements. Republic Act No. opening offices. and any other act or acts that imply a continuity of commercial dealings or arrangements. appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totalling one hundred eighty days or more. and contemplate to that extent the performance of acts or works. thus: Sec. or in the progressive prosecution of. As used in this Act: xxx xxx xxx (d) the phrase "doing business shall include soliciting orders. and any other act or acts that imply a continuity of commercial dealings or arrangements and contemplate to that extent the performance of acts or works. or occasional transactions and isolated acts. opening offices. and ordinarily only when. Finally. and in progressive prosecution of. the performance of acts or works or the exercise of some of the functions normally incident to or in progressive prosecution of the purpose and subject of its organization. however. or the exercise of some of the functions normally incident to." "transacting. . and the phrase "doing business" shall include soliciting orders.the business or enterprise for which it was organized or whether it has substantially retired from it and turned 14 it over to another. and in progressive prosecution of. 5455 17 provides: Sec. entity or corporation in the Philippines. service contracts. . 1. supervision or control of any domestic business firm. whether called "liaison" offices or branches. in Article 65 thereof. As a general proposition upon which many authorities agree in principle." "engaging in. entity or corporation in the Philippines.

engaging in or carrying on business in the Philippines as would require obtention of a license before they can seek redress from our courts. supervision or control of any domestic business. is the owner of copyright or the owner of exclusive rights of distribution in the Philippines pursuant to any agreement(s) between . The arrangements agreed upon as to manner. . Domingo as attorney-in-fact of petitioners. Concrete and specific solicitations by a foreign firm. under our statutory or case law. said foreign film corporations do not transact or do business in the Philippines and. petitioners are not barred from maintaining the present action. nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account. do not need to be licensed in order to take recourse to our courts. shall constitute doing business even if the enterprise has no office or fixed place of business in the Philippines. is of no consequence to petitioners' right to bring action in the Philippines. petitioners are doing. commercial brokers or commission merchants. . Thus. and not in the name or for the account of a principal. participating in the management. . No evidence has been offered to show that petitioners have performed any of the enumerated acts or any other specific act indicative of an intention to conduct or transact business in the Philippines. and the respective owners of copyright in such cinematographic work(s). . with express authority pursuant to a special power of attorney. time and terms of delivery of the goods or the transfer of title thereto is immaterial. regardless of where the contracts are actually reduced to writing. criminal or civil actions in the Philippines against any person or persons unlawfully . not acting independently of the foreign firm amounting to negotiations or fixing of the terms and conditions of sales or service contracts. the latter is doing business in the Philippines.. firm." the fact that petitioners are admittedly copyright owners or owners of exclusive distribution rights in the Philippines of motion pictures or films does not convert such ownership into an indicium of doing business which would require them to obtain a license before they can sue upon a cause of action in local courts. A foreign firm which does business through the middlemen acting in their own names.the Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred eight(y) (180) days or more. (2) Appointing a representative or distributor who is domiciled in the Philippines. however. transacting. such as indentors. no record of such registration by petitioners can be expected to be found for. i. and/or the exercise of rights as such investor. and any other act or acts that imply a continuity of commercial dealings or arrangements. among others (1) Soliciting orders. exhibition or distribution of any cinematographic work(s) films or video cassettes of which . as acts constitutive of "doing business. it transacts business in its name and for its own account. Based on Article 133 of the Corporation Code and gauged by such statutory standards. There is no showing that. while undeniably true.e. nor having a nominee director or officer to represent its interests in such corporation. and in progressive prosecution of. as aforestated. and contemplate to that extent the performance of acts or works. commercial gain or of the purpose and object of the business organization: Provided. unless said representative or distributor has an independent status. . That the phrase "doing business" shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business. Neither is the appointment of Atty. entity or corporation in the Philippines. inter alia To lay criminal complaints with the appropriate authorities and to provide evidence in support of both civil and criminal proceedings against any person or persons involved in the criminal infringement of copyright or concerning the unauthorized importation. to initiate and prosecute on behalf of . . therefore. or by an agent of such foreign firm. where a foreign firm is represented in the Philippines by a person or local company which does not act in its name but in the name of the foreign firm. Rico V. shall not be deemed doing business in the Philippines. commercial brokers or commission merchants shall be the ones deemed to be doing business in the Philippines. Verily. But such indentors. purchases (sales) or service contracts. the certification issued by the Securities and Exchange Commission 20 stating that its records do not show the registration of petitioner film companies either as corporations or partnerships or that they have been licensed to transact business in the Philippines. Although Section 1(g) of the Implementing Rules and Regulations of the Omnibus Investments Code lists. or the exercise of some of the functions normally incident to. Accordingly. duplication.

On the other hand.distributing." While the former refers to a plaintiff's general disability to sue. private respondents repeatedly maintain in all their pleadings that petitioners have thereby no legal personality to bring an action before Philippine Courts." not "lack of personality to sue. it is held that the mere institution and prosecution or defense of a suit. a foreign corporation will not be regarded as doing business in the State simply because it 22 enters into contracts with residents of the State. a corporation whose legal rights have been violated is undeniably such. The term "lack of capacity to sue" should not be confused with the term "lack of personality to sue. a view is taken that a foreign corporation is not doing business in the State merely because sales of its product are made there or other business furthering its interests is transacted there by an alleged agent. lack of juridical personality or any other general disqualifications of a party. tantamount to doing business in the Philippines. . or does not have the character or representation he claims. In fact. evidently states no cause of action." Certainly. It is generally held that sales made to customers in the State by an independent dealer who has purchased and 24 obtained title from the corporation to the products sold are not a doing of business by the corporation. . do not amount to the doing of business in the State. limitations and liabilities with respect to such acts as domestic corporations. For allegedly being foreign corporations doing business in the Philippines without a license. Likewise. selling or offering for sale any films or video cassettes of which . where such activities are not under the direction and control of the 23 foreign corporation but are engaged in by the alleged agent as an independent business. can be deemed by and of themselves to be doing business here. Lack of legal capacity to sue means that the plaintiff is not in the exercise of his civil rights. Domingo for legal protection against contingent acts of intellectual piracy. It has moreover been held that the act of a foreign corporation in engaging an attorney to represent it in a 26 Federal court sitting in a particular State is not doing business within the scope of the minimum contact test. insanity. is the owner of copyright or the owner of exclusive rights of distribution in the Philippines pursuant to any 21 agreement(s) between . real party in interest to bring suit thereon although. we have perforce to comment on private respondents' basis for arguing that petitioners are barred from maintaining suit in the Philippines. for distribution by them. if not the only. . such as on account of minority. 7 As a consideration aside. where the contract with these purchasers is that they shall buy exclusively from the foreign corporation such 25 goods as it manufactures and shall sell them at trade prices established by it. a foreign corporation which sells its products to persons styled "distributing agents" in the State. As a general rule. With much more reason should this doctrine apply to the mere retainer of Atty. the latter refers to the fact that the plaintiff is not the real party in interest. exhibiting. 33 whereas the second can be used as a ground for a motion to dismiss based on the fact that the complaint. The institution of a suit or the removal thereof is neither the making of a contract nor the doing of business within a constitutional provision placing foreign corporations licensed to do business in the State under the same regulations. for failure to comply with the licensing requirement. 28 Among the grounds for a motion to dismiss under the Rules of Court 29 30 are lack of legal capacity to sue and that the complaint states no cause of action. . particularly if the transaction which is the basis of the suit took place out of the State. is not doing business in the State so as to render it subject to service of process therein. Merely engaging in litigation has been considered as not a sufficient minimum contact 2 to warrant the exercise of jurisdiction over a foreign corporation. whether a corporation or a natural person. where such contracts are consummated outside the State. incompetence. 34 Applying the above discussion to the instant petition. the ground available for barring recourse to our courts by an unlicensed foreign corporation doing or transacting business in the Philippines should properly be "lack of capacity to sue. Correspondingly. . or does not have the necessary qualification 31 to appear in the case. In accordance with the rule that "doing business" imports only acts in furtherance of the purposes for which a foreign corporation was organized. on the face thereof. We fail to see how exercising one's legal and property rights and taking steps for the vigilant protection of said rights. particularly the appointment of an attorney-in-fact. hence 32 grounded on failure to state a cause of action. and the respective owners of copyright in such works. the first can be a ground for a motion to dismiss based on the ground of lack of legal capacity to sue. it is not capacitated to maintain any suit before our courts. a case is dismissible for lack of personality to sue upon proof that the plaintiff is not the real party in interest.

Lastly. If the lower court in the Century Fox case did not quash the warrant. after complying with what the law then required. as the basis for a finding of probable cause for the issuance of a search warrant in copyright infringement cases involving videograms. Respondent court upheld the retroactive application of the 20th Century Fox ruling by the trial court in resolving petitioners' motion for reconsideration in favor of the quashal of the search warrant. II We now proceed to the main issue of the retroactive application to the present controversy of the ruling in 36 20th Century Fox Film Corporation vs. the lower court determined that there was probable cause for the issuance of a search warrant. the master tapes and the pirated tapes must be presented for comparison to satisfy the . which had supervened as a doctrine promulgated at the time of the resolution of private respondents' motion for reconsideration seeking the quashal of the search warrant for failure of the trial court to require presentation of the master tapes prior to the issuance of the search 38 warrant. According to petitioners. it is Our view that the Supreme Court would have invalidated the warrant just the same considering the very strict requirement set by the Supreme Court for the determination of "probable cause" in copyright infringement cases as enunciated in this 20th Century Fox case. Rule 126 of the 1985 Rules on Criminal Procedure embodied the prevailing and governing law on the matter. The doctrine of lack of capacity to sue based on failure to first acquire a local license is based on considerations of public policy. for the lower court could not possibly have been expected to apply. Article III of the Constitution and Section 3. 87-053. the controlling criterion 3 for the finding of probable cause was that enunciated in Burgos vs. it must be noted that in the 20th Century Fox case.. would have constituted grave abuse of discretion. the production of the master tape for comparison with the allegedly pirate copies is necessary. a pronouncement which was not existent at the time of such determination. since the law had been there all along. As of the time of the application for the search warrant in question. promulgated on August 19. on this renovated thesis: And whether this doctrine should apply retroactively. It is further argued that any search warrant so issued in accordance with all applicable legal requirements is valid. and which determination in fact led to the issuance and service on December 14. To refrain from applying the 20th Century Fox ruling. invoke the latter's supposed lack of capacity to sue. Hence. On certiorari. that for the determination of probable cause to support the issuance of a search warrant in copyright infringement cases involving videograms. they claim. they posit that there was no law that was retrospectively applied. the lower court quashed the earlier search warrant it issued. Petitioners assert that the issuance of a search warrant is addressed to the discretion of the court subject to the determination of probable cause in accordance with the procedure prescribed therefore under Sections 3 and 4 of Rule 126. Chief of Staff 7 stating that: Probable cause for a search warrant is defined as such facts and circumstances which would lead a reasonably discreet and prudent man to believe that an offense has been committed and that the objects sought in connection with the offense are in the place sought to be searched. Section 2. on this point. or over eight months later. 1988. It was never intended to favor nor insulate from suit unscrupulous establishments or nationals in case of breach of valid obligations or violation of legal rights of unsuspecting foreign firms or entities simply because they are not licensed to do business in 35 the country. 1987. At the time of the issuance of the search warrant involved here. that is. Private respondents predictably argue in support of the ruling of the Court of Appeals sustaining the quashal of the search warrant by the lower court on the strength of that 20th Century Fox ruling which. as was stated by the Supreme Court in the said case. Court of Appeals. we reiterate this Court's rejection of the common procedural tactics of erring local companies which. The ruling in 20th Century Fox was merely an application of the law on probable cause. goes into the very essence of probable cause. 1988. the Supreme Court affirmed the quashal on the ground among others that the master tapes or copyrighted films were not presented for comparison with the purchased evidence of the video tapes to determine whether the latter is an unauthorized reproduction of the former. when sued by unlicensed foreign corporations not engaged in business in the Philippines. et al. the doctrine in the 20th Century Fox case that was promulgated only on August 19. on December 14. 1987 of Search Warrant No. This is so because. although the 20th Century Fox case had not yet been decided.

though not laws. The settled rule supported by numerous authorities is a restatement of the legal maxim "legis interpretatio legis vim obtinet" the interpretation placed upon the written law by a competent court has the force of law. Herein petitioners' consistent position that the order of the lower court of September 5. 87-053. a part of the law as of the date that the law was originally passed. subject only to the qualification that when a doctrine of this Court is overruled and a different view is adopted. . . . it is our considered view that the 20th Century Fox ruling cannot be retroactively applied to the instant case to justify the quashal of Search Warrant No. since this Court's construction merely establishes the contemporaneous legislative intent that the law thus construed intends to effectuate. . is unconstitutional (Francisco v. and should not apply to parties who had relied on the old doctrine and acted on the faith thereof . .requirement of "probable cause. . are nevertheless evidence of what the laws mean. The same consideration underlies our rulings giving only prospective effect to decisions enunciating new doctrines. Court of Appeals. . This was forcefully reiterated in Spouses Benzonan vs. and that is precisely the situation obtaining in this case. they are also subject to Article 4 of the Civil Code which provides that "laws shall have no retroactive effect unless the contrary is provided. . . Our holding in the earlier case of People vs. and it is for this reason that they are part of the legal system of 41 the Philippines. and more so when there is a reversal thereof. .. then existing and judicially accepted. Certeza. (Emphasis supplied). the new doctrine should be applied prospectively. But while our decisions form part of the law of the land. although in themselves not laws. . unless the contrary is provided. it cannot 40 create law. While it is true that judicial decisions which apply or interpret the Constitution or the laws are part of the legal system of the Philippines. Such judicial doctrine does not amount to the passage of a new law but consists merely of a construction or interpretation of a pre-existing one. 1988 denying therein defendants' motion to lift the order of search warrant was properly issued. this 43 Court emphatically declared in Co vs. Article 8 of the same Code declares that "(j)udicial decisions applying the laws or the Constitution shall form part of the legal system of the Philippines. . since the Court's construction merely establishes the contemporaneous legislative intent that the interpreted law carried into effect. ." Jurisprudence. 7 To hold 46 . Jabinal echoes the rationale for this judicial declaration. "Judicial decisions applying or interpreting the laws or the Constitution shall form part of the legal system. Mindful as we are of the ramifications of the doctrine of stare decisis and the rudiments of fair play. there having been satisfactory compliance with the then prevailing standards under the law for determination of probable cause. 3 SCRA 565 [1961]). cannot be considered as an independent source of law. that the principle of prospectivity applies not only to original or amendatory statutes and administrative rulings and circulars. The reasoning behind Senarillos vs. Article 4 of the Civil Code provides that "(l)aws shall have no retroactive effect. It is consequently clear that a judicial interpretation becomes a part of the law as of the date that law was originally passed. The lower court could not possibly have expected more evidence from petitioners in their application for a search warrant other than what the law and jurisprudence. in our system of government. in a way. The retroactive application of a law usually divests rights that have already become vested or impairs the obligations of contract and hence. Judicial decisions. . but also. required with respect to the finding of probable cause. Court of Appeals. Correlatively. are nonetheless evidence of what the laws mean. still they are not laws. and properly so. the new doctrine should be applied 4 prospectively and should not apply to parties who relied on the old doctrine and acted in good faith. viz. Judicial decisions of the Supreme Court assume the same authority as the statute 42 itself. and this is the reason why under Article 8 of the New Civil Code." So it goes back to the very existence of probable 39 cause.: Decisions of this Court. non respicit. et al. is indeed well taken. but when a doctrine of this Court is overruled and a different view is adopted. is all too familiar. Interpreting the aforequoted correlated provisions of the Civil Code and in light of the above disquisition. ." The interpretation upon a law by this Court constitutes. . The rationale against retroactivity is easy to perceive. ." This is expressed in the familiar legal maxim lex prospicit. 45 where the Court expounded: . to 44 judicial decisions. et al. the law looks forward not backward. Hermosisima that judicial interpretation of a statute constitutes part of the law as of the date it was originally passed.

as applied to copyright infringement cases involving videotapes. There is merit in petitioners' impassioned and well-founded argumentation: The case of 20th Century Fox Film Corporation vs. The search warrant is therefore valid and binding. it is unjust and unfair to require compliance with legal and/or doctrinal requirements which are inexistent at the time they were supposed to have been complied with. we find it absurd that it is (sic) should be seen otherwise. 164 SCRA 655 (August 19. . The petitioner's argument to the effect that the presentation of the master tapes at the time of application may not be necessary as these would be merely evidentiary in nature and not determinative of whether or not a probable cause exists to justify the issuance of the search warrants . 1987. it is felt that the reasonableness of the added requirement in 20th Century Fox calling for the production of the master tapes of the copyrighted films for determination of probable cause in copyright infringement cases needs revisiting and clarification. therefore. Court of Appeals. For Petitioners who took special effort to redress their grievances and to protect their property rights by resorting to the remedies provided by the law. their conduct can still be open to question? This certainly breeds instability in our system of dispensing justice. if there is no recognition of 48 what had transpired prior to such adjudication. what encouragement can be given to courts and litigants to respect the law and rules if they can expect with reasonable certainty that upon the passage of a new rule. .. the lower court did not commit any error nor did it fail to comply with any legal requirement for the valid issuance of search warrant. Furthermore. even the proposition that the prospectivity of judicial decisions imports application thereof not only to future cases but also to cases still ongoing or not yet final when the decision was promulgated. 133 SCRA 800). was necessary for the validity of search warrants against those who have in their possession the pirated films. xxx xxx xxx In short. et al. It is indisputable. . . or on December 14.otherwise would be to deprive the law of its quality of fairness and justice then. More to the point. . because it is simply impossible to have required the lower court to apply a formulation which will only be defined six months later. If the lower court's reversal will be sustained. Hence. should not be countenanced in the jural sphere on account of its inevitably unsettling repercussions. 87-053. 1988) (hereinafter 20th Century Fox) was inexistent in December of 1987 when Search Warrant 87053 was issued by the lower court. It must be noted that nowhere is it found in the allegations of the Respondents that the lower court failed to apply the law as then interpreted in 1987. (W)e believe that the lower court should be considered as having followed the requirements of the law in issuing Search Warrant No. et al. it is most unfair that fealty to the rules and procedures then obtaining would bear but fruits of 49 injustice. 49. the lower court was convinced at that time after conducting searching examination questions of the applicant and his witnesses that "an offense had been committed and that the objects sought in connection with the offense (were) in the place sought to be searched" (Burgos v. It revolved around the meaning of probable cause within the context of the constitutional provision against illegal searches and seizures. xxx xxx xxx . Therein it was ruled that The presentation of master tapes of the copyrighted films from which the pirated films were allegedly copied.. Hence. that at the time of the application. It will be recalled that the 20th Century Fox case arose from search warrant proceedings in anticipation of the filing of a case for the unauthorized sale or renting out of copyrighted films in videotape format in violation of Presidential Decree No. Withal. it boggles the imagination how the lower court could be expected to apply the formulation of 20th Century Fox in finding probable cause when the formulation was yet non-existent. Chief of Staff.

Thus the lower court stated in its questioned order dated January 2. 49. so that he did not have personal knowledge of the alleged piracy. Again as the application and search proceedings is a prelude to the filing of criminal cases under PD 49. For a closer and more perspicuous appreciation of the factual antecedents of 20th Century Fox. he said that the re-taping of the allegedly pirated tapes was from master tapes allegedly belonging to the Twentieth Century Fox. because. and as a matter of fact it had been enshrined in the Bill of Rights in our 1973 Constitution. the allegation that master tapes were viewed by the NBI and were compared to the purchased and seized video tapes from the respondents' establishments. it should be dismissed as not supported by competent . Domingo that has knowledge of that fact. The essence of a copyright infringement is the similarity or at least substantial similarity of the purported pirated works to the copyrighted work. all three witnesses during the proceedings in the application for the three search warrants testified of their own personal knowledge. Domingo. the lower court lifted the three questioned search warrants against the private respondents on the ground that it acted on the application for the issuance of the said search warrants and granted it on the misrepresentations of applicant NBI and its witnesses that infringement of copyright or a piracy of a particular film have been committed. On the part of Atty. and although what is required for the issuance thereof is merely the presence of probable cause. The witness Bacani also said that the video cassettes were pirated without stating the manner it was pirated and that it was Atty. So that lacking in persuasive effect. Albino Reyes testified that when the complaint for infringement was brought to the NBI. that probable cause must be satisfactory to the Court. The application for search warrants was directed against video tape outlets which allegedly were engaged in the unauthorized sale and renting out of copyrighted films belonging to the petitioner pursuant to P. Albino Reyes of the NBI stated that the counsel or representative of the Twentieth Century Fox Corporation will testify on the video cassettes that were pirated. the copyright infringement law. the pertinent portions of the decision therein are quoted hereunder. xxx xxx xxx This doctrine has never been overturned. for it is a time-honored precept that proceedings to put a man to task as an offender under our laws should be interpreted in strictissimi juris against the government and liberally in favor of the alleged offender. This linkage of the copyrighted films to the pirated films must be established to satisfy the requirements of probable cause. the applicant must present to the court the copyrighted films to compare them with the purchased evidence of the video tapes allegedly pirated to determine whether the latter is an unauthorized reproduction of the former. Senior NBI Agent Atty. Atty.D. Yet. the master tapes of the allegedly pirated tapes were shown to him and he made comparisons of the tapes with those purchased by their man Bacani.is not meritorious. At the hearing of the Motion for Reconsideration. Why the master tapes or at least the film reels of the allegedly pirated tapes were not shown to the Court during the application gives some misgivings as to the truth of that bare statement of the NBI agent on the witness stand. 1986: According to the movant. Mere allegations as to the existence of the copyrighted films cannot serve as basis for the issuance of a search warrant. according to him it is of his personal knowledge. to wit: In the instant case. The court cannot presume that duplicate or copied tapes were necessarily reproduced from master tapes that it owns. Hence.

Likewise. Only the petitioner's counsel who was also a witness during the application for the issuance of the search warrants stated that he had personal knowledge that the confiscated tapes owned by the private respondents were pirated tapes taken from master tapes belonging to the petitioner. that lacking in the requisite presentation to the Court of an alleged master tape for purposes of comparison with the purchased evidence of the video tapes allegedly pirated and those seized from respondents. there is no reason not the present them (Emphasis supplied ). obviously borrowed from 20th Century Fox. lifted the three (3) questioned search warrants in the absence of probable cause that the private respondents violated P." the first video tape mentioned in the search warrant. respondent appellate court itself observed: We feel that the rationale behind the aforequoted doctrine is that the pirated copies as well as the master tapes. In the case at bar. There is no originality in the argument of private respondents against the validity of the search warrant.evidence and for that matter the probable cause hovers in that grey debatable twilight zone between black and white resolvable in favor of respondents herein. the lower court did not give much credence to his testimony in view of the fact that the master tapes of the allegedly pirated tapes were not shown to the court during the application (Emphasis ours). In the case at bar. Baltazar. unlike the other types of personal properties which may be seized. among others. Reyes. NBI Senior Agent Lauro C.) So. there was no way to determine whether there really was piracy. 152 record. lease and possess for the purpose of selling any of the copyrighted films.D. But the glaring fact is that "Cocoon. Reyes who filed the application for search warrant with the lower 51 52 court following a formal complaint lodged by petitioners. the supposed pronunciamento in said case regarding the necessity for the presentation of the master tapes of the copyrighted films for the validity of search warrants should at most be understood to merely serve as a guidepost in determining the existence of probable cause in copyright infringement cases where there is doubt as to the true nexus between the master tape and the pirated copies. (MPAA. Both testimonies of Agent Reyes and Atty. was what initially and correctly convinced the trial court to make a finding of the existence of probable cause. This categorical forthrightness in their statements. xxx xxx xxx The lower court. did testify on matters within his personal knowledge based on said complaint of petitioners as well as his own investigation and surveillance of the private respondents' video rental shop. They displayed none of the ambivalence and uncertainty that the witnesses in the 20th Century Fox case exhibited. in 53 54 his capacity as attorney-in-fact. was not even duly registered or copyrighted in the Philippines. (Annex C of Opposition p. Atty. judging from his affidavit and his deposition.). However. Domingo. were available for presentation to the court at the time of the application for a search warrant to determine the existence of the linkage of the copyrighted films with the pirated ones. Rico V. Judicial dicta should always be construed within the factual matrix of their parturition. An objective and careful reading of the decision in said case could lead to no other conclusion than that said directive was hardly intended to be a sweeping and inflexible requirement in all or similar copyright infringement cases. The records clearly reflect that the testimonies of the abovenamed witnesses were straightforward and stemmed from matters within their personal knowledge. that petitioners' witnesses NBI Agent Lauro C. therefore. 49. Rico V. Domingo and Rene C. otherwise a careless interpretation thereof could unfairly fault the writer with the vice of overstatement and the reader with the fallacy of undue generalization. or copying of the film of the complainant Twentieth Century Fox. Atty. Baltazar did not have personal knowledge of the subject matter of their respective . stated in his affidavit and further expounded in his deposition that he personally knew of the fact that private respondents had never been authorized by his clients to reproduce. the NBI agents who acted as witnesses did not have personal knowledge of the subject matter of their testimony which was the alleged commission of the offense by the private respondents. As found out by the court. The italicized passages readily expose the reason why the trial court therein required the presentation of the master tapes of the allegedly pirated films in order to convince itself of the existence of probable cause under the factual milieu peculiar to that case. a private researcher retained by Motion Pictures Association of America. Inc. Domingo were corroborated by Rene C. Inc. 50 In fine. Thus. who was likewise presented 55 as a witness during the search warrant proceedings.

and particularly describing the place to be searched and the things to be seized. Indeed. If the judge is thereupon satisfied of the existence of facts upon which the application is based. or at least. The judge must. 61 It behooves us. Of course. the term is exceedingly difficult to define. that in copyright infringement cases. however. supported by oath or affirmation. constitutional and statutory provisions relating to search warrants prohibit their issuance except on a showing of probable cause. or hard and fast rule. There is. with the merit that in this class of evidence the ascertainment of the controverted fact is made through demonstrations involving 5 the direct use of the senses of the presiding magistrate. It is evidently incorrect to suggest. arbitrary. of 64 necessity. The constitutional and statutory provisions of various jurisdictions requiring a showing of probable cause before a search warrant can be issued are mandatory and must be complied with. and Sec. he must issue the warrant. These provisions prevent the issuance of warrants on loose. no definition of it which would justify the issuance of a search warrant can be formulated which would cover every state of facts which might arise. it must be pointed out. As to what acts constitute probable cause seem incapable of definition. 3 thereof provides that any evidence obtained in violation of the preceding section shall be inadmissible for any purpose in any proceeding. A search warrant not based on probable cause is a nullity. and no formula or standard. and (3) a discreet but extensive surveillance of the suspected area was undertaken by petitioners' witnesses sufficient to enable them to execute trustworthy affidavits and depositions regarding matters discovered in the course thereof and of which they have personal knowledge. Sec. no exact test. there can be no finding of probable cause for the issuance of a search warrant. especially where the production in court of object evidence would 59 result in delay. may be laid down which may be applied to the 62 63 facts of every situation. in legal contemplation. vague. before issuing the warrant. . 7 Such auxiliary procedure. and the issuance thereof is. A search warrant shall not issue but upon probable cause in connection with one specific offense to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce. 3. Sec.testimonies and that said witnesses' claim that the video tapes were pirated. as the ruling in 20th Century Fox may appear to do. then. lease. sell. (2) there is no denial on the part of private respondents that the tapes seized were illegitimate copies of the copyrighted ones not have they shown that they were given any authority by petitioners to copy. from representative holdings in the American jurisdiction from which we patterned our doctrines on the matter. depositions. or is void. The difference. does not rule out the use of testimonial or documentary evidence. 4. or that there is probable cause to believe that they exist. which must be substantially in the form prescribed by these Rules. and particularly describing the place to be searched and the things to be seized. Requisites for issuing search warrant. record. personally examine in the form of searching questions and answers. and emphasize the purpose to protect 60 against all general searches. in the absence thereof. much less a finding thereof by the lower court. in this case. on the part of petitioners' witnesses. Issuance and form of search warrant. in writing and under oath the complainant and any witnesses he may produce on facts personally known to them and attach to the record their sworn statements together with any affidavits submitted. is a conclusion of fact without basis. to offer for sale. These constitutional strictures are implemented by the following provisions of Rule 126 of the Rules of Court: Sec. without stating the manner by 56 which these were pirated. firstly. or doubtful bases of fact. distribution or circulation the said video tapes. Article III of our Constitution mandates in Sec. Examination of complainant. as a general rule. and such a showing has been held to be an unqualified condition precedent to the issuance of a warrant. 5. the presentation of master tapes of the copyrighted films is always necessary to meet the requirement of probable cause and that. inconvenience or expenses out of proportion to its evidentiary value. lease. with any degree of precision. indeed. Although the term "probable cause" has been said to have a well-defined meaning in the law. is that the records in the present case reveal that (1) there is no allegation of misrepresentation. 2 thereof that no search warrant shall issue except upon probable cause to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce. It is true that such master tapes are object evidence. to review the concept of probable cause. distribute or circulate. admissions or other classes of evidence 58 tending to prove the factum probandum.

the warrant as soon as practicable after the application therefor is filed. nor categorize what facts and circumstances make up the same. nor does it import absolute certainty. were the prevailing and controlling legal standards. 67 The requirement is less than certainty or proof . and. and not those that have yet to be crafted thereafter. the issuing judge. to repeat. Surely. by which a finding of probable cause is tested. it can be gleaned from the records that the lower court followed the prescribed procedure for the issuance of a search warrant: (1) the examination under oath or affirmation of the complainant and his witnesses. the term "probable cause" has been understood to mean a reasonable ground of suspicion. much less limit the determination thereof to and within the circumscription of a particular class of evidence. Probable cause does not mean actual and positive cause. as intimated by 20th Century Fox) not provided nor implied in the law for a finding of probable cause is beyond the realm of judicial competence or statesmanship. Sr. probable cause has been uniformly defined as such facts and circumstances which would lead a reasonable. or refuse to issue. It serves no purpose but to stultify and constrict the judicious exercise of a court's prerogatives and to denigrate the judicial duty of determining the existence of probable cause to a mere ministerial or mechanical function.At best. does not venture to make such a definition or standard formulation of probable cause. or whether the accused is guilty or innocent. As already stated. vs. Since the propriety of the issuance of a search warrant is to be determined at the time of the application therefor. despite its broad authority to fashion 72 standards of reasonableness for searches and seizures. 73 Accordingly. et al. supported by circumstances sufficiently strong in themselves to warrant a cautious man in the belief that the person 65 accused is guilty of the offense with which he is charged. discreet and prudent man to believe that an offense has been committed. supra. in writing and under oath of the complainant and witnesses on facts personally known to them. (2) an examination personally conducted by the judge in the form of searching questions and answers. In Philippine jurisprudence. and not to those which had not yet even been conceived or formulated. obviously for the purpose of leaving such matter to the court's discretion within the particular facts of each case.. the definition of probable cause enunciated in Burgos. Thus. all in deference to judicial discretion and probity. Although the Constitution prohibits the issuance of a search warrant in the absence of probable cause. The determination of the existence of probable cause is not concerned with the question of whether the offense charged has been or is being committed in fact. can and should logically look to the touchstones in the laws theretofore enacted and the decisions already promulgated at the time. which were duly attached to the records. the court a quo made the following factual findings leading to the issuance of the search warrant now subject of this controversy: . Turning now to the case at bar. no law or rule which requires that the existence of probable cause is or should be determined solely by a specific kind of evidence. to restrict the exercise of discretion by a judge by adding a particular requirement (the presentation of master tapes. which in turn must not be too remote in time from the occurrence of the offense alleged to have been committed. It is worth noting that neither the Constitution nor the Rules of Court attempt to define probable cause. visa-vis the provisions of Sections 3 and 4 of Rule 126. It being the duty of the issuing officer to issue. together with the affidavits submitted. this could not have been contemplated by the framers of the Constitution. but more 68 than suspicion or possibility. as they continue to be. 70 the facts warranting the conclusion of probable cause must be assessed at the time of such judicial determination by necessarily using legal standards then set forth in law and jurisprudence. (3) the taking of sworn statements. or the existence of such facts and circumstances as would excite an honest belief in a reasonable mind acting on all the facts and circumstances within the 66 knowledge of the magistrate that the charge made by the applicant for the warrant is true. such constitutional inhibition does not command the legislature to establish a definition or formula for 71 determining what shall constitute probable cause. and we do not believe that the Court intended the statement in 20th Century Fox regarding master tapes as the dictum for all seasons and reasons in infringement cases. and that 69 the objects sought in connection with the offense are in the place sought to be searched. in determining the existence of probable cause. Chief of Staff. There is. Congress. Thereafter. but only whether the affiant has reasonable grounds for his belief. with them particularly describing the place to be searched and the things to be seized.

he found the video outlet renting. (MPAA) thru their counsel. the returned to Sunshine Home Video and rented Robocop with rental slip No. 1987 for P10. and possess for the purpose of selling any of its copyrighted motion pictures. Atty. a probable cause exists. or offered for sale. will definitely draw attention. Given these facts. 1988. . for violation of PD No.A. lease. circulation or public exhibition of copyrighted films of MPAA without its written authority or its members. . . as the prime determinant of probable cause. distribution. Rico V. Makati. Lauro C. 6 Mayfair Center. distributed or circulated. As correctly pointed out by petitioners. the following facts have been established: (1) copyrighted video tapes bearing titles enumerated in Search Warrant No. instructed his researcher. a blind espousal of the requisite of presentation of the master tapes in copyright infringement cases. is only an ancillary proceeding. because of their bulk. is too exacting and impracticable a requirement to be complied with in a search warrant application which. Magallanes Commercial Center. Atty. Hence. on December 11. . His last visit was on December 7. filed a complaint with the National Bureau of Investigation against certain video establishments one of which is defendant. 1987. 26362 dated October 21. The basis of these facts are the affidavits and depositions of NBI Senior Agent Lauro C. There. They are matters of defense which should be ventilated during the trial on the merits of the case. by stating in its order of November 22. 87-053 were being sold. a strict application of said requirement militates against the elements of secrecy and speed which underlie covert investigative and surveillance operations in police enforcement campaigns against all forms of criminality.. leasing. Rico V. Mr. considering that the master tapes of a motion picture required to be presented before the court consists of several reels contained in circular steel casings which. Baltazar proceeded to Sunshine Home Video and rented tapes containing Little Shop of Horror. this onerous and tedious imposition would be multiplied a hundredfold by judicial fiat. to establish the existence of probable cause. lease. without the written consent of the private complainants or their assignee. 1988 denying petitioners' motion for reconsideration and quashing the search warrant that . Domingo. (2) recovered or confiscated from defendants' possession were video tapes containing copyrighted motion picture films without the authority of the complainant. Inc. or transferred or caused to be transferred by defendants at their video outlets. Reyes. . Mr. Fernandez. and Rene C. 25271 also for P10. and without anything more. Rene C. and (4) said video tapes were exact reproductions of the films listed in the search warrant whose copyrights or distribution rights were owned by complainants. Domingo. . . In fact. With hundreds of titles being pirated. Atty. 49 as amended by PD No. Atty.00. in his motion to quash the search warrants reveals the fact that they are not appropriate for quashing a warrant. 74 The lower court subsequently executed a volte-face. Danilo Pelindario. Rene Baltazar to rent two video cassettes from said defendants on October 21. despite its prior detailed and substantiated findings. Again. both involve alleged pirated copyrighted films of private complainants which were found in the possession or control of the defendants. distribution. . Baltazar. discouraging and preventing legal recourses in foreign jurisdictions. Reyes personally went to Sunshine Home Video at No. Further. this later order clearly defies elemental fair play and is a gross reversible error. Domingo. defendants were engaged in the illegal sale. He was issued rental slip No. 1987. 1987. S.In the instant case. (3) the video tapes originated from spurious or unauthorized persons. leased. distributing video cassette tapes whose titles were copyrighted and without the authority of MPAA. Reyes led a team to conduct discreet surveillance operations on said video establishments. The two (2) cases have a common factual milieu. et al.00 with a deposit of P100. Knowing that defendant Sunshine Home Video and its proprietor.00: On the basis of the complaint of MPAA thru counsel. vs. . on realistic considerations. may just as easily apply to the present case: A review of the grounds invoked . it must not be overlooked. Lauro C. the necessity of the presentation of the master tapes from which the pirated films were allegedly copied is necessary in the instant case. were not authorized by MPAA to reproduce. . this observation of the Court in La Chemise Lacoste. . Per information earlier gathered by Atty. Motion Pictures Association of America. 75 Being based solely on an unjustifiable and improper retroactive application of the master tape requirement generated by 20th Century Fox upon a factual situation completely different from that in the case at bar. unlike diminutive objects like video tapes which 76 can be easily concealed. supra. rental.

or to use or cause to be used for profit such articles on which sounds. distribution. . . and which provide distinct bases for criminal prosecution. it should properly be determined during the trial. supra. in such cases.Given the present international awareness and furor over violations in large scale of intellectual property rights. (2) selling. or possessing for the purpose of sale. and he copied at his peril. namely. To constitute infringement. instead of the apathy of submitting to technicalities in the face of ample evidence of guilt. lease. that is sufficient in point of law to constitute a 79 piracy. The executive concern and resolve expressed in the foregoing amendments to the decree for the protection of intellectual property rights should be matched by corresponding judicial vigilance and activism. and not the summary proceeding for the issuance of a search warrant wherein both lower courts erroneously require the master tapes. and it is no defense that the pirate. and. . 7 which should here be publicized judicially. without the written consent of the owner or his assignee. brought about the revision of its penalty structure and enumerated additional acts considered violative of said decree on intellectual property. or artistic 80 work in motion pictures. leased or publicly exhibited. that . . or any other form of compensation any equipment. tape. did not know what works he was indirectly copying. machinery. motion pictures. or the labors of the original author are substantially and to an injurious extent appropriated by another. The question of whether there has been an actionable infringement of a literary. (1) directly or indirectly transferring or causing to be transferred any sound recording or motion picture or other audio-visual works so recorded with intent to sell. disc. It authorized only the seizur(e) of articles used or intended to be used in the unlawful sale. lease and other unconcerted acts in violation of PD 49 as amended. calling for transnational sanctions. 49 by Presidential Decree No. publicly exhibiting. and infringement of copyright. rental. 49 all the more bolsters its findings of probable cause. or piracy. tie the hands of the law as it seeks to protect the Filipino consuming public and frustrate executive and administrative implementation of solemn commitments pursuant to international conventions and treaties. without the consent of the owner. distribution. consists in the doing by any person. 56 of PD 49 as amended. or offering for sale. In disregarding private respondent's argument that Search Warrant No. musical. Judges all over the country are well advised to remember that court processes should not be used as instruments to. machinery. as amended. and. 87-053 is a general warrant. motion pictures or other audio-visual recordings may be transferred. distributing. or other audio-visual works are so transferred without the written consent of the owner or his assignee. The essence of intellectual piracy should be essayed in conceptual terms in order to underscore its gravity by an appropriate understanding thereof. circulating. (3) directly or indirectly offering or making available for a fee. aid counterfeiters and intellectual pirates. paraphernalia or any material with the knowledge that such equipment. publicly exhibit or cause to be sold. which determination can be reached even in the absence of master tapes by the judge in the exercise of sound discretion. circulation or public exhibition any of the abovementioned articles. III The amendment to Section 56 of Presidential Decree No. unwittingly or otherwise. 81 . lease. the lower court observed that "it was worded in a manner that the enumerated seizable items bear direct relation to the offense of violation of Sec. it bears calling to mind the Court's admonition also in La Chemise Lacoste. without the consent of the owner of the copyright. paraphernalia or material will be used by another to reproduce. If so much is taken that the value of the original is sensibly diminished. 7 . which is a synonymous term in this connection. The trial court's finding that private respondents committed acts in blatant transgression of Presidential Decree No. 49. he at least knew that what he was copying was not his. leasing. That is the stage calling for conclusive or preponderating evidence. being crimes independently punishable under Presidential Decree No. 1987. A copy of a piracy is an infringement of the original. the amount of matter copied from the copyrighted work is an important consideration. film or other article on which sounds. any phonograph record. protected by law. or did not know whether or not he was infringing any copyright. lease. Infringement of a copyright is a trespass on a private domain owned and occupied by the owner of the copyright. wire. of anything the sole right to do which is conferred by statute on the 78 owner of the copyright. radio or television being one of fact. therefore. . it is not necessary that the whole or even a large portion of the work shall have been copied. aside from the act of infringing or aiding or abetting such infringement under Section 29. In determining the question of infringement.

As explained by the court below: Defendants-movants contend that PD 49 as amended covers only producers who have complied with the requirements of deposit and notice (in other words registration) under Sections 49 and 50 thereof. Furthermore. That there were several counts of the offense of copyright infringement and the search warrant uncovered several contraband items in the form of pirated video tapes is not to be confused with the number of offenses charged. Inc.. Absent such registration. 49 "had done away with the registration and deposit of cinematographic works" and that "even without prior registration and deposit of a work which may be entitled to protection under the Decree. 49 reveals that even with respect to works which are required under Section 26 thereof to be registered and with copies to deposited with the National Library. . does not require registration and deposit for a creator to be able to file an action for infringement of his rights. 84 Accordingly. J. vs. The search warrant herein issued does not violate the one-specific-offense rule. The statutory interpretation of the Executive Branch being correct. payment of damages arising from infringement. to prove the said offense. Bache and Co. as in this case.). the Department of Justice has resolved this legal question as far back as December 12. As the face of the search warrant itself indicates. So. 56. PD 49 83 as amended. Rule 126. 57 Phil. 384). The same opinion stressed that "the requirements of registration and deposit are thus retained under the Decree. as long as the proscribed acts are shown to exist. He cannot demand. PD 49 as amended. an action for infringement may be initiated. presented as evidence by private respondents to show non-registration of some of the films of petitioners. the certifications from the Copyright Section of the National Library. et al. These conditions are merely pre-requisites to an action for damages. distribution or public exhibition in contravention of Sec. hence. lease.. but as prerequisites to a suit for damages". however. . no infringement under PD 49 as amended.. there was no right created. 85 .). therefore. . . . . to issue one search warrant for all the movie titles allegedly pirated violates the rule that a search warrant must be issued only in connection with one specific offense. or when the description expresses a conclusion of fact not of law by which the warrant officer may be guided in making the search and seizure (idem. et al. dissent of Abad Santos. not as conditions for the acquisition of copyright and other rights. . 82 instructs and enlightens: A search warrant may be said to particularly describe the things to be seized when the description therein is as specific as the circumstances will ordinarily allow (People vs. Revised Rules of Court). assume no evidentiary weight or significance whatsoever. Rubio. or when the things described are limited to those which bear direct relation to the offense for which the warrant is being issued (Sec 2. 191 of the then Secretary of Justice Vicente Abad Santos which stated that Sections 26 and 50 do not apply to cinematographic works and PD No. . a closer review of Presidential Decree No.On this point. other than those articles. It is pointless for private respondents to insist on compliance with the registration and deposit requirements under Presidential Decree No.. This is not well-taken. Ruiz. PD 49 as amended only. 49 as prerequisites for invoking the court's protective mantle in copyright infringement cases. On private respondents' averment that the search warrant was made applicable to more than one specific offense on the ground that there are as many offenses of infringement as there are rights protected and. (Phil. and the articles subject of search and seizure should come in handy merely to strengthen such evidence. the lower court said: . the creator can file action for infringement of its rights". As earlier discussed. As correctly pointed out by private complainants-oppositors. the applicant must necessarily have some evidence.. If the articles desired to be seized have any direct relation to an offense committed. This is wrong. The specifications therein (in Annex A) merely refer to the titles of the copyrighted motion pictures/films belonging to private complainants which defendants were in control/possession for sale. is entitled (to) weight and respect. 1978 in its Opinion No. xxx xxx xxx Defendants-movants maintain that complainant and his witnesses led the Court to believe that a crime existed when in fact there was none. . it was issued for violation of Section 56.

such as books, including composite and cyclopedic works, manuscripts, directories and gazetteers; and periodicals, including pamphlets and newspapers; lectures, sermons, addresses, dissertations prepared for oral delivery; and letters, the failure to comply with said requirements does not deprive the copyright owner of the right to sue for infringement. Such non-compliance merely limits the remedies available to him and subjects him to the corresponding sanction. The reason for this is expressed in Section 2 of the decree which prefaces its enumeration of copyrightable works with the explicit statement that "the rights granted under this Decree shall, from the moment of creation, subsist with respect to any of the following classes of works." This means that under the present state of the law, the copyright for a work is acquired by an intellectual creator from the moment of creation even in the absence of registration and deposit. As has been authoritatively clarified: The registration and deposit of two complete copies or reproductions of the work with the National Library within three weeks after the first public dissemination or performance of the work, as provided for in Section 26 (P.D. No. 49, as amended), is not for the purpose of securing a copyright of the work, but rather to avoid the penalty for non-compliance of the deposit of said two copies and in order to recover damages in an infringement suit. 86 One distressing observation. This case has been fought on the basis of, and its resolution long delayed by resort to, technicalities to a virtually abusive extent by private respondents, without so much as an attempt to adduce any credible evidence showing that they conduct their business legitimately and fairly. The fact that private respondents could not show proof of their authority or that there was consent from the copyright owners for them to sell, lease, distribute or circulate petitioners' copyrighted films immeasurably bolsters the lower court's initial finding of probable cause. That private respondents are licensed by the Videogram Regulatory Board does not insulate them from criminal and civil liability for their unlawful business practices. What is more deplorable is that the reprehensible acts of some unscrupulous characters have stigmatized the Philippines with an unsavory reputation as a hub for intellectual piracy in this part of the globe, formerly in the records of the General Agreement on Tariffs and Trade and, now, of the World Trade Organization. Such acts must not be glossed over but should be denounced and repressed lest the Philippines become an international pariah in the global intellectual community. WHEREFORE, the assailed judgment and resolution of respondent Court of Appeals, and necessarily inclusive of the order of the lower court dated November 22, 1988, are hereby REVERSED and SET ASIDE. The order of the court a quo of September 5, 1988 upholding the validity of Search Warrant No. 87-053 is hereby REINSTATED, and said court is DIRECTED to take and expeditiously proceed with such appropriate proceedings as may be called for in this case. Treble costs are further assessed against private respondents. SO ORDERED.

G.R. No. L-13525 November 30, 1962

(6 scra 725)

FAR EAST INTERNATIONAL IMPORT and EXPORT CORPORATION, plaintiff-appellee, vs. NANKAI KOGYO CO. LTD., ET AL., defendants, NANKAI KOGYO CO., LTD., defendant-appellant. Protasio Canalita, Jesus Ocampo and Gonzalo D. David for plaintiff-appellee. Marcial Ranola and Fernandez and Benedicto for defendant-appellant. PAREDES, J.: On December 26, 1956, the Far East International Import & Export Corporation, Far East for short, organized under Philippine Laws, entered into a Contract of Sale of Steel Scrap with the Nankai Kogyo Co., Ltd., Nankai for short, a foreign corporation organized under Japanese Laws with address at Osaka, Japan. The buyer sign in Japan and the seller in Manila, Philippines. The pertinent provisions of the agreement are represented below 1. Quantity: Approximately 5,000 (five thousand) metric tons 10% more or less. xxx xxx xxx 10. Payments: BUYER shall establish an irrevocable without recourse Letter of Credit in the amount of U.S. $312,500.00 with China Banking Corp. in Manila, not later than 30 days upon receipt of SELLERS' confirmation about the availability of export permit, and shall be subject to the following terms and conditions: a. This Letter of Credit shall be drawable 90% of quantity been shipped uponpresentation of: xxx xxx xxx b. the remaining balance of 10% of the shipment shall be adjusted between BUYER and SELLER immediately after the discharge is completed at the port of destination, and shall be drawable by the SELLER upon presentation of: xxx xxx xxx 13. Force Majeure: the execution of this agrrement is subject to any and allGovernment restrictions prohibiting or penalizing in whole or in part theexport of Iron & Steel Scrap from the Philippines, and the Seller shall not be responsible for delay in or failure of shipment or delivery or delays in transportation due to force majeure, strikes, dfferences with workmen, accidents, fires, flood, mobilizations, wars, foreign wars, riots, revolutions, regulations and restrictions or to any conditions beyond thecontrol of the SELLER whether the nature herein stated or not. 14. Dispute: In case of disputes, Board of Arbitration may be formed in Japan. Decision by the board of Arbitration shall be final and binding on both BUYER AND SELLER. Upon perfection of the contract and after having been informed of the readiness to ship and that the Export License was to expire on March 18, 1957,Nankai opened a letter for credit (No. 38/80049) with the China BankingCorporation, issued by the Nippon Kangyo, Ltd., Tokyo, Japan, in the amountof $312,500.00 on January 30, 1957. On March 15, 1957, only four (4) daysbefore the expiration of the Far East licence, three (3) boats sent by Nankai arrived in the Philippines, one to load in Manila, the other two at Poro Point, San Fernando, La Union, and Tacloban, Leyte, respectively. On March 19, 1957, the expiration of the export license, only 1,058.6 metric tonsof scrap steel was loaded on the SS Mina (loading in Manila). The loading wasaccordingly stopped. The boat at Poro Point was also unloaded of the 200 metric tons, for the same reason. An agreement was reached wherby the Far East would seek an extension of the license. However, the untimely death of President Magsaysay and the taking over by President Garcia changed the picture, for the latter and/or his agents refused to extend the license. The two boats sailed to Japan without any cargo, the third (SS Mina) only 1,058.6 metric tons. On April 27, 1957, Nankai confirmed and acknowleged delivery of the 1,058.6 metric tons of steel scrap, but asked for damages amounting to $148,135.00 consisting of dead freight charges, damages, bank charges, phone and cable expenses (Exh. F).

On May 4, 1957, Far East wrote the Everett Steamship Corporation, requesting the issuance of a complete set of the Bill of Lading for the shipment, in order that payment thereof be effected against the Letter of Credit. Under date of May 7, 1957, the Everett informed Far East that they were not in a position to comply because the Bill of Lading was issued and signed in Tokyo by the Master of the boat, upon request of the Charterer, defendant herein. As repeated requests, both against the shipping agent and the buyers (Nankai), for the issuance of the of Bill Lading were ignored, Far East filed on May 16, 1957, the present complaint for Specific Performance, damages, a writ of preliminiry mandatory injunction directed against Nankai and the shipping company, to issue and deliver to the plaintiff, a complete set of negotiable of Lading for the 1,058.6 metric tons of scrap and a writ of preliminary injunction against the China Banking Corporation and the Nankai to maintain the Letter Credit. The lower court issued on May 17, 1957 an ex parte writ of preliminary injunction, after Far East had posted a bond in the amount of P50,000.00. By Special Apperance, defendant Nankai filed a Motion to Dismiss the complaint and dissolve the preliminary mandatory injunction on the followinggrounds: lack of jurisdiction over the person of the defendant and the subject matter: and failure to state a cause of action against the said defendant. On June 8, 1957 plaintiff Far East opposed the Special Appearance and Motion to Dismiss. Before the Special Appearance, Motions to Dismiss and Dissolve Preliminary Mandatory Injunction could be ruled upon by the court a quo, plaintiff filed a Motion to file amended complaint, it appearing that Nankai had already taken the Bill of Lading for the shipment from the Master of the SS Mina and used the same to secure the delivery of the 1,058.6 metric tons of scrap. The most important amendments introduced are the allegation that defendant is doing business in the Philippines with office address at R-517 Luneta Hotel, Manila, represented by Mr. Issei Ishida and Mr. Tominaga, and the additional prayer to order the defendant Nankai to pay plaintiff the price of the scrapamounting to $68,809.00 or its equivalent in Philippine currency. The motions to dismiss the complaint and to dissolve the Writ of Preliminary Mandatory Injunction were denied, the Court holding that the grounds therefor "do not appear to be indubitable". On June 26, 1957, the defendant Nankai presented an opposition to the motion to admit amended complaint, stating that the same is belated and an unfair and unjust attempt to establish by allegation, a semblance of jurisdiction of the Court over the person of the defendant Nankai and the subject matter. Under date of June 29, 1957, the motion to file an amended complaint was denied. A motion for reconsideration of the order was presented on July 31, 1957, plaintiff alleging that the amended complaint contained facts which are necessary and indispensable for the complete resolution of the issues between the parties and that the amendment is a matter of right, since defendants have not yet filed a responsive pleading (Sec. 1, Rule 17, Rules of Court). An opposition was registered by defendant. Before resolution on the reconsideration could be issued, defendant filed its Answer to the original complaint containing the customary admissions and denials. As Special Defenses, it reiterated the grounds contained in the Motion to Dismiss Complaint and Dissolve the Writ of Preliminary Mandatory Injunction and the arguments invoked in the oppositions, replies, etc. On August 20, 1957, the Amended Complaint was ordered admitted and on September 30, 1957, Nankai presented its Answer, which is identical to the Answer to the original complaint. At the trial, plaintiff Far East, thru the testimony of its Secretary Pablo Ocampo, showed that the transaction in question was intended to be the beginning of business to be undertaken by Nankai, as in fact, the representatives of the company had made inquiries as to the operation of mines and mining rights in this jurisdiction; (Nankai) thru its representatives, Messrs. Ishida and Tominaga, established a temporary office at Room 517 Luneta Hotel and manifested their intention to put up one at the Madrigal building, which did not materialize, to the belated confirmation of the head office; that in spite of the repeated demands and actual receipt of the delivery of the 1,056.8 metric tons of scrap steel, Nankai and the steamship company failed and consistently refused to issue the Bill of Lading, which acts prevented plaintiff from collecting the price of the scrap from theChina Banking Corporation against the Letter of Credit. Defendant Everett Steamship Company and the China Banking Corporation also presented evidence, both oral and documentary. Defendant Nankai presented Francisco Santos, accountant of the Luneta Hotel, to prove that it has not established an office at Room 517 of said Hotel; Nabuo Yoshida, chief of the Import Section of defendant Nankai show that it has not established a branch office in the Philippines and that the buying of the scrap was the only transiction of the defendant had in the Philippines; Tan Tiong Tick, the financier of the exportation in behalf of appellee, and Tan Tia Cuan, the contact man, to prove that the real party in interest is not the plaintiff Far East but the Delta Enterprises, and that the plaintiffwas merely the holder of the Export License but had no scrap. The lower court rendered judgment absolving, defendants Everett Steamship Company and China Banking Corporation from liability and denied the claim for damages, both actual and moral, of the parties; found that the question of jurisdiction over the person of defendant and the subject matter has become moot and

) (I Conflict of Laws. or a nonresident joint stock company or association. Defendant contends that Philippine Courts have no jurisdiction to take cognizance of the case because the Nankai is not doing business in the islands. and a decision of that issue binds the defendant. hereby renders judgment in favor of the plaintiff and against defendant Nankai Kogyo Co. Yoshida was the man-in-charge of the Import Section of the company's Tokyo Branch. It bolstered this claim by a provision in the contract which provides that "In case of disputes.710. if there be no such agent. were officers of the defendant company. Therefore if the decision of the motion is based upon a finding of facts necessary to jurisdiction. All these three. including the first two who were served with Summons. there could not be a better situation of acquired jurisdiction based on consent. sentencing said defendant to pay plaintiff the amount of U. Thus though a Special appearance to object to the jurisdiction is not a submission. his appearance for some other purpose than to object to the jurisdiction subjects him to jurisdiction of the court.. Defendant assigned six (6) errors allegedly committed by the lower court. Even though the defendant objects to the jurisdiction of the court. Verily. and (3) by serving on any officer or agent of said corporation with Philippines. he cannot ask the court to act upon any question except the question of jurisdiction. however. and that while it has entered into the transaction in question. he cannot thereafter claim that the court had no jurisdiction over him. or on any officer or agent within the Philipines. .) Not only did appellant allege non-jurisdictional grounds in its pleadings to have the complaint dismissed. Ishida.00 as attorney's fees. (2) if there is no resident agent.. Even though he does not intend to confer jurisdiction upon the court. The above rule indicates three modes of effecting service of summons upon a private. for it has been shown that Mr. and (2) the propriety of the award. (Rule 7).. who personally signed the contract for the purchase of the scrap in question in behalf of the Nankai Kogyo. does not constitute "doing business". if at thesame time he alleges any nonjurisdictional ground for dismissing the action. Tominaga the Chief of the Petroleum Section of the same company and Mr. . Beale and authorities cited therein. Subsequently. The rule pertinent to the questions in issue provides SEC. wherein it contested the jurisdiction of the Philippines Courts to take cognizance of the case on grounds contained in the various pleadings presented by it. by service on the government cial designated by law to that effect. plus the sum of P1. . 12 & 13 of Answer to Amended Complaint). the Trade Manager of said Company. Mr. The plaintiff complied with the third stated above. or its equivalent in pesos. which may be consolidated into two propositions: to wit (1) Whether or not the trial court acquired jurisdiction over the subject matter and over the person of the defendant-appellant. the Court acquires jurisdiction over him. without conferring jurisdiction upon the court.Even though he does not wish to submit to the jurisdiction of the court. and to pay the costs. the provision of the contract wherein it was agreed that disputes should . or. The motion to dismiss on the ground of lack of jurisdiction had been overruled because it did not appear indubitable. Undoubtedly if after his objection to the jurisdiction is wrongly overruled. a defendant files a cross complaint demanding affirmative relief.000. on the government official designated by law to that effect. the defendant filed its Answer and invoked defenses and grounds for dismissal of complaint other than lack of jurisdiction (See pars. 352.S. . Service upon private foreign corporations. service may be made on its resident agent designated in accordance with law for that purpose. but it also went into trial on the merits and presented evidence destined to resist appellee's claim. 14. doing business in the Philippines. It is true that the defendant entered a Special Appearance. Decision of the Board of Arbitration shall be final and binding on both BUYER and SELLER". . Consequently. if it is followed by a motion to dismiss or to quash the motion invokes the jurisdiction of Court to decide the issue raised by the motion. viz: (1) by serving upon the agent designated in accordance with law to accept service of summons. which circumstance vested upon the Court jurisdiction to take cognizance of the case. (p. with interest thereon at the legal rate from the date of filing of plaintiff's complaint until fully paid. Ltd. this finding binds the defendant and the court acquires jurisdiction to determine the merits of the case. If the defendant is a foreign corporation. so as to make it amenable to summons and subject it to the Court's jurisdiction. same. $67. Board of Arbitration may be formed in Japan. however. foreign corporation.50. .

The case of Pacific Micronesian Line. and LUDO & LUYM OLEOCHEMICAL CO. which was beyond the control of the plaintiff. October 23. There is no appeal on the lower court's findings that the failure of the appellee herein to make full shipment of the scrap was due. We made the following pronouncements: . the single act of transaction is not merly incidental or casual. it immediately brought the matter to this Court on Prohibition seeking to restrain the Workmen's Compensation mission from exercising jurisdiction over the controversy.payment of the scrap). and the contract of employment was entered into on July 18. No.. Each case must turn upon its own peculiar facts and upon the language of the statute applicable. thereby revealing the defendant's desire to continue engaging in business here. That act apparently is an isolated one. heretofore reproduced. 8470. Therein. J.. REGIONAL TRIAL COURT [RTC]. The complaint states in part that: . making the Philippines a base thereof. and authorities cited therein. or casual. (17 Fletchers Cyc. Apart from the fact that the clause employs the word "may".. seems to have been waived with appellant's voluntary submission. RESOLUTION MARTINEZ. one of appellant's officers.. The appellant alleges that the lower court did not acquire jurisdiction. of Corporations. after receiving the shipment of the iron under consideration..: Private respondent filed a complaint for breach of contract with damages against petitioner foreign corporation and the latter's alleged Philippine agent Trans-World Trading Company. . incidental. Pablo Ocampo that appellant was doing business in the Philippines corroborated by no less than Nabuo Yoshida.R. COURT OF APPEALS [CA]. L-7154. that he was sent to the Philippines by his company to look into the operation of mines. (Emphasis ours. In the present case. the judgment appealed from is hereby affirmed. Baens del Rosario. (295 scra 462) vs. the appellant's defense of lack of jurisdiction appears unavailing.be submitted to a Board of Arbitration which may be formed in Japan (in the supposition that it can apply to the matter in dispute . 1954. It is difficult to lay down any rule of universal application to determine when a foreign corporation is doing business.) It is finally noted that when defendant's motion to dismiss in the Micronesian case was denied. In such a case. . . 1951.. CEBU CITY. No. G. sec. BR. Inc. but to the action and intervention of the Philippine Government. and to make the state a basis of operations for the conduct of a part of corporation's ordinary business. petitioner engaged the services of Pelingon not as part of the operation of its business but merely to employ him as member of the crew in one of its ships. a domestic corporation. pp. G. In words.) (Emphasis ours. but is of such character as distinctly to indicate a purpose on the part of the foreign corporation to do other business in the state. This aspect of the case is particularly covered by paragraph 13 of the contract.. It further appears that petitioner has never sent its ships to the Philippines nor has it transported nor even solicited the transportation passengers and cargoes to and from the Philippines. the testimony of Atty. 1998 FRENCH OIL MILL MACHINERY CO. But from the proven facts obtaining in this particular case. that a single act may bring the corporation. pursued its defense further by filing its Answer and going into trial. v. WHEREFORE. 11. while entering a Special Appearance to contest the jurisdiction of the Court. 126477 September 11. respondents. et al. petitioner . because it was not doing business in the Philippines and the requirement of summons had not been fulfilled. stand on a different footing. with costs against defendant-appellant Nankai Kogyo. 572-573. The rule stated in the preceding section that the doing of a single act doesnot constitute business within the meaning of statutes prescribing the conditions to be complied with the foreign corporations must be qualified to this extent.R. and "not of a character to indicate a purpose to engage in business" within the meaning of the rule. the defendant. not to the fault of said appellee. relied upon in the Motion to Dismiss and other pleadings presented by defendant-appellant. Inc. INC. And the only act it did here was to secure the services of Luceno Pelingon to act as cook and chief steward in one of its vessels authorizing to that effect the Luzon Stevedoring Co.) In the instant case.

Nowhere in the case of Signetics Corporation v. Such factual assessment is binding on this Court and will not be 18 19 disturbed as no exceptional circumstances nor cogent reasons were shown to justify its reversal. 12 Private respondent alleged in its complaint that Trans-World is petitioner's agent. 22 Finally.3 Defendant Trans-World Trading Company ("Trans-World") is the agent of FOMMCO in the Philippines. Petitioner elevated the case to the Court of Appeals (CA) via petition for certiorari and prohibition but to no avail. and thus. the government official designated by law to that effect. however. Makati. ACCORDINGLY. the allegations that petitioner entered into a contract with private respondent to supply and install various machineries and equipments for the use of the latter's oil 9 10 mill factory and that the first shipment of machineries from petitioner was received by private respondent are sufficient allegations that petitioner is doing business for purposes of Section 14. did the court state that if the "complaint alleges that defendant has an agent in the Philippines. petitioner filed this petition under Rule 45 which was initially dismissed for being filed late 5 but on petitioner's motion for reconsideration was reinstated by the Court. In any case. absent any proof that significant facts or circumstances were overlooked or disregarded which would have varied the outcome of the case. nor does it state its decision. Nothing bars the court from later making a different finding after the parties had substantiated their respective allegations with respect to agency should the same be disputed. so that the service was made on the latter. Ohio.2 Defendant French Oil Mill Machinery ("FOMMCO") is a corporation with principal office at. Such general allegation is insufficient to show the agency relationship between petitioner and Trans-World. CA. For purposes of the 7 rule on summons. Rule 14 should have been observed. However. petitioner fears that it could no longer contest the jurisdiction of the court once it files an answer instead of a motion to dismiss. as the filing of the former amounts to voluntary appearance. the petition is DENIED for lack of merit. 15 A headnote is not a part of the court's decision. Metro Manila. Having determined the issue of doing business. It does not foreclose a subsequent finding to the contrary depending on the 11 evidence. It argued that (a) it is not doing business in the Philippines and (b) Trans-World is not its agent. Rule 14.. For it is well-settled that factual findings of the trial court are respected on appeal when supported by substantial evidence on record 20 and carry more weight when affirmed by the 21 appellate court. 144 Amorsolo St. 1. Not satisfied. Certainly a portion of the decision was paraphrased to convey that statement which is never meant nor mentioned in the ponencia and thus. It should be noted that when the appearance of a defendant is precisely 24 to object to the jurisdiction of the court over his person. FOMMCO may be served with summons and other court processes through its agent. with office at Don Pablo Building. petitioner 16 17 treated Trans-World as its Philippine agent in the assailed transaction. The headnote or syllabi is not the work of the court. 23 Suffice it to say that the filing of an answer per se should not be automatically treated as voluntary appearance by the defendant for purposes of summons. The court a quo initially dismissed the 4 complaint for lack of jurisdiction over petitioner but on private respondent's motion for reconsideration. summons may be served on (a) its resident agent designated in accordance with law. the determination that a foreign corporation is doing business is merely tentative and only to enable the local court to acquire jurisdiction over the person of the foreign corporation through service of summons. (b) if there is no resident agent. United States of America. the determination of principal-agent relationship from the allegations in the complaint is only preliminary and is not even conclusive as to liability. if the defendant is a foreign corporation doing business in the Philippines. 1 Summons was served on Trans-World which moved to dismiss the complaint arguing that it is not petitioner's agent. although there is no requirement to first substantiate the allegation of agency yet it is necessary that there must be specific allegations in the complaint that establishes the connection between the principal foreign corporation and its alleged agent with respect to the transaction in 13 question.1. the Court will now inquire on whether petitioner was validly served with summons. Under the Rules of Court. SO ORDERED. and is prepared for the convenience of the profession in the examination of the reports. who gives his understanding of the decision. need not be further discussed in this case as petitioner did not file any answer. For purposes of the rules on summons. summons can validly be served thereto even without prior evidence of the truth of such factual allegation. where it may be served with summons and other court processes. Petitioner itself filed a special appearance with motion to dismiss contending that the court had no jurisdiction over its person due to improper service of summons. it cannot be considered as appearance in court. Piqua. 6 Petitioner contends that it is not doing business in the Philippines and that Trans-World is not its agent. It is simply the work of the reporter. It is not enough to merely allege in the complaint that a defendant foreign corporation is doing business. or (c) any of its officer or agent within the Philippines. 2 3 therefore the procedure in Sections 14 and 17 . the fact of doing business must first be "established by appropriate allegations in the complaint" and the 8 court in determining such fact need not go beyond the allegations therein. was a misinterpretation of the scope of the decision. In this case. Trans-World Trading Company. The contention is not meritorious. the summons served on the latter has no effect on the former." It is only in the headnote of the reporter 14 where the quoted statement appears. The foregoing. cited by both parties. . engaged in business in the Philippines through its agent Trans-World Trading Company. said court reversed the order of dismissal and ruled that summons was properly served on petitioner whom it found doing business in the Philippines and Trans-World as its agent. As found by both courts below.

1982.G. 1983 and (b) dated May 13.". petitioners. . Executive Vice-President and General Manager of petitioner Corporation from 1974 to August 26. No. THE SECURITIES AND EXCHANGE COMMISSION. 4. 1988 decision* of the Court of Appeals in CAG. Sometime in August.: This is a petition for review on certiorari contesting the validity of the January 21. THE COURT OF APPEALS. and/or representing himself to be. Chato & Tan for private respondent. through respondent Hearing Officer Alberto Atas. ANGLIONGTO. that private respondent Nasser was a Director. respondents. 2490. petitioner Corporation by petitioner Angliongto. the Executive Vice-President and/or General Manager and/or officer in any capacity of petitioner Corporation. and/or VICENTE L. Said petition also prayed for the issuance of a restraining order and thereafter. ATAS. issued a Writ of Preliminary Injunction. Jose T. filed a verified petition in the public respondent SEC against private respondent Nasser. and for him.R. private respondent Nasser was asked to turn over all corporate books and records in his possession to the duly elected officers. a conflict arose between petitioner Vicente Angliongto and private respondent Rufino T. In view thereof. Thereafter. In view of the result of the annual stockholders' meeting. 1986 denying petitioner's motion for reconsideration. vs. On July 7. et al. On September 19. which in effect affirmed the challenged orders of the Securities and Exchange Commission** (a) dated March 18.R. J. Puruganan. 1983. after due hearing in the aforesaid Case No. private respondent Nasser was not re-elected as member of the Board of Directors or to his previous management positions. Chato. NASSER. prohibition and mandamus with prayer for preliminary injunction and restraining order with then Intermediate Appellate Court (now Court of Appeals). 10756 entitled "Vicmar Development Corporation and/or Vicente L. Sumcad for petitioners. 1982. 2. 01518 praying for the nullification of the Writ of Preliminary Injunction earlier issued by public respondent SEC as well as an earlier order temporarily restraining private respondent Nasser from acting or representing himself to be the Executive Vice-President and/or General Manager and/or as officer in any capacity of petitioner Corporation. Nasser on the matter of exclusive control and management of petitioner corporation. 1982 but during the annual meeting of stockholders of petitioner corporation held on August 26. private respondent Nasser filed a petition for certiorari. 81547 May 21.. enjoining private respondent Nasser from acting as. among others. docketed as SEC Case No. The Securities and Exchange Commission. and RUFINO T. 2490 respondent SEC.1986 directing the Provincial Commander of Cagayan de Oro City to effect/implement the service of the writ of injunction issued on September 19. to surrender all corporate books and records to the duly elected officers of said Corporation. 1986 which recalled its order of March 5. SP No. performing acts and entering into transactions inimical to the interests of the petitioner Corporation and its stockholders. SP No. among other things. 1983. a permanent injunction to enjoin private respondent Nasser from representing himself as an officer of petitioner Corporation. PARAS. The antecedent facts as summarized by the Solicitor General are as follows: 1. herein petitioner Angliongto that the latter would actively manage the corporate affairs of petitioner corporation. which demand remained (un)heeded by private respondent Nasser as the latter continued to hold office as Executive Vice-President and General Manager of petitioner Corporation. 1990 (185 scra 634) VICMAR DEVELOPMENT CORP. private respondent Nasser was then advised by the incoming president. 3. alleging. Angliongto v.R. ALBERTO P. docketed as AC-G.

acting on th(e)aforesaid Manifestation and Motion of private respondent Nasser. 1986. and all stock certificates of Vicmar duly indorsed in blank. stock certificate books. 1986.000. The petition was directed against and questioned the orders of respondents SEC and Atas dated March 18. the dispositive portion of which reads: . SP. On December 3. 15. 1986. 1986. and on September 16. 1986 which was denied by respondent Hearing Officer Atas in an Order dated May 13.1986. denying/dismissing the petition of private respondent Nasser.5. executed between petitioners and private respondent Nasser. 7. transferred all their shares of stock in petitioner Corporation and turned over all their shares of stock to private respondent Nasser pursuant to and in accordance with the Agreement dated November 10. 1983. On March l8.200. The formal offer of exhibits of petitioner Corporation was admitted by respondent Hearing Officer Atas in an Order dated October 9. of private respondent Nasser. 1986. 1986. with Prayer for Preliminary Injunction and Temporary Restraining Order against respondent SEC and Hearing Officer Atas and private respondent Nasser. 10. 1986.R. 1983.R. SP No. and his associates and relatives. and after the decision in AC-G. 11. Thereafter. Prohibition and Mandamus. respondent Hearing Officer Atas granted the Ex-Parte Motion for Implementation of the Writ of Preliminary Injunction. 10756. 1983. petitioner Angliongto and private respondent Nasser entered into an Agreement dated November 10.. petitioner Corporation presented its evidence in support of its Opposition to the Manifestation and Motion dated March 17. 12. 01518. No. Meanwhile. and during the pendency of AC-G. 9. the Court of Appeals promulgated its decision in CA-G. On March 5. 13. Vicmar Development (petitioners) Corporation and Angliongto filed with the then intermediate Appellate Court (now Court of Appeals) a Petition for Certiorari. Pertinent portion of said Agreement reads: Simultaneously with the delivery by ANGLIONGTO to NASSER of all corporate books in his possession including the stock and transfer book. No. 1986. private respondent Nasser filed with public respondent SEC a Manifestation and Motion to the effect that petitioner Angliongto.00) PESOS as part of the consideration for this settlement. 1985.1983. 1986. SP No. which directed the Provincial Commander of Cagayan de Oro City to effect/implement the service of the Writ of Injunction issued by the SEC on September 19. Petitioner Corporation filed a Motion for Reconsideration dated March 26. in the Intermediate Appellate Court. 10756 case. the then Intermediate Appellate Court rendered its decision in AC-G. 01518 became final and executory. 1983. 6.. 1988. sometime in November. with the directive to the Provincial Commander of Cagayan de Oro City to effect/implement the service of the order/writ of injunction dated September 19. formally offered its exhibits.R. docketed as CA-G. 1983 .R. 8. On February 10. petitioner Corporation filed with the SEC an Ex-Parte Motion for Implementation of the Writ of Preliminary Injunction issued on September 19. respondent SEC thru Hearing Officer Atas issued an Order. 14. 1986 and May 13.R. recalling the Order of March 5. On April 30. Implementation of this stipulation shall be immediately made and completed not later than the close of office hours on November 10. SP No. 01518. NASSER shall likewise deliver to ANGLIONGTO the sum of FOUR MILLION TWO HUNDRED THOUSAND (P4. On March 17. On January 2l. 1983. 1986.

The grant or denial of an injunction rests upon the sound . 902-A. Thus.. G. the contract having shown prima facie that the latter is entitled to remain as Vice-President and General Manager of petitioner Corporation. Costs against petitioner. 2490. Inc. 386). 78618-1 Roxas. 1986. p. is sought for the protection of the rights of a party before the final determination of his rights vis-a-vis others' in a pending case before the court.1989). Bautista. v. (Emphasis supplied. no grave abuse of discretion can be attributed to the SEC in recalling the order to enforce a writ of preliminary injunction in this wise. to herein respondent so as to constitute the latter as the virtual owner of all the shares in petitioner corporation' all in pursuance to and in accordance with the Agreement executed by the parties on November 10. Memorandum for the public respondent. 1989 (lbid. The petition was given due course and the parties were required to submit simultaneous memoranda in the resolution of August 21. (Rollo. 1983 showing a transfer of ownership.R. an intracorporate controversy over which the Securities and Exchange Commission has original and exclusive jurisdiction under Presidential Decree No. At times referred to as the "Strong Arm of Equity". v. is hereby set for hearing on April 19. the petition is hereby DISMISSED.1989 (Ibid. In order to effectively exercise such jurisdiction. the respondent's Manifestation and Motion.. Gonzales. 1983. May 20. transferred all of their shares of stock in petitioner corporation by indorsing in blank and delivering the covering certificates therefor. 78619-20. 67195. Inc. this petition. dated March 17. Memorandum for petitioners was filed on October 9. In the meantime. 118 SCRA 728 [1982]). The facts reveal that the writ of preliminary injunction issued on September 19. Inc. 1986 at 9:00 o'clock in the morning. After all. Mr. 902-A). p. the Executive Vice-President and/or General Manager and/or officer in any capacity of petitioner Corporation. Rollo) Hence.D. p. who then controlled the petitioner corporation. and turned over all corporate books.R. The main issue in this case is whether or not the Securities and Exchange Commission has abused its discretion in recalling its Order to enforce a writ of preliminary injunction.1989 (Ibid. control and management over said corporation to respondent Nasser would be baseless. the power to issue preliminary or permanent injunction. Intermediate Appellate Court. 1986. No.. 1983. et al. G. pp. 344-349. 1986 directing the implementation of the aforesaid writ. 1986. Public respondents submitted their memorandum on September 22. the SEC possesses. No. whether prohibitory or mandatory in accordance with the pertinent provisions of the Rules of Court (Section 6-a P. 344) while private respondent's memorandum was filed on October 6. together with his associates and relatives. The dispute between petitioner Vicmar Development Corporation and Vicente Angliongto on the one hand and private respondent Rufino Nasser on the other. 986 is hereby dissolved. SO ORDERED. 129-130). 1986. to the effect that as early as November 10. inter alia.1989 (Ibid. Sr.1986. pending hearing on the motion dated March 17. It will issue only upon a showing that there exists a clear and present right to be protected and that the facts upon which the writ is to be directed are violative of said right (Roxas. Roxas. 342). p. triggered off the filing of SEC Case No.WHEREFORE. Vicente Angliongto. Upon presentment of the Agreement dated November 10. the issuance or recall of preliminary writ of injunction is an interlocutory matter that remains at all times within the control of the court (Alvaro v. v. and/or representing himself to be. 362).. pp.R.1983. 1983 enjoined private respondent Nasser from acting as. which directed the Provincial Commander of Cagayan de Oro City to effect/implement the service of the Writ of Injunction issued on September 19. To allow execution of the writ of preliminary injunction in favor of the petitioners despite having transferred their rights of ownership. the SEC discoursed: Considering the allegation of the respondent as contained in the Manifestation and Motion dated March 17. G. the writ of preliminary injunction whether prohibitory or mandatory.. the SEC correctly recalled the order of March 5. control and management of Vicmar Corporation by Vicente Angliongto unto Nasser. The temporary restraining order issued on December 9. Zapata. In justifying the recall of the order of March 5. for the exclusive control and management of petitioner Corporation. this Commission finds cogent reason to recall and rescind its order of March 5. No.

78591. Securities and Exchange Commission. or to act at all. 1986 on December 3.R. "one which arises between the stockholder and the corporation. 1989). January 13. that is. 154 SCRA 238 [1987]). supra).R. as the issue involves an intracorporate controversy which calls for the jurisdiction of the Securities and Exchange Commission. control and management of petitioner corporation under the Agreement of November 10. Abuse of discretion warrants the issuance of the extraordinary remedy of certiorari only when the same is so grave. PREMISES CONSIDERED. or to a virtual refusal to perform a duty enjoined. either the want or excess thereof. . Securities and Exchange Commission. qualification. G. No. in contemplation of law. the determination as to who between the parties has the exclusive right of ownership. Intermediate Appellate Court. Indeed.discretion of the lower tribunal. 1986. 54330. The only question involved in certiorari is jurisdiction. as to be equivalent to having acted without jurisdiction (Pure Foods Corporation v. March 21. in the exercise of which the Supreme Court will not interfere except in a clear case of abuse (Sales v. 147 SCRA 611 [1987]) and after having submitted to the jurisdiction of the tribunal Meram v. and it must be so patent and so gross as to amount to an evasion of positive duty. Moreover. No. Estoppel by laches arises from negligence or omission to assert a right within a reasonable time (Cimfranca v. G. 1989). which finds no application in the case at bar. as when the power is exercised in an arbitrary or despotic manner by reason of passion. Noteworthy is the fact that the petitioners only filed their petition for certiorari to annul the order of March 18. petitioners are estopped from contesting said orders. the petition is hereby DENIED and the judgment of the Court of Appeals is hereby AFFIRMED in toto. Edralin. after the lapse of almost nine (9) months and after having formally offered their evidence before the SEC. or any exemption whatsoever" (Sales v. that is. National Labor Relations Commission. 1983 vests with the SEC. SO ORDERED. prejudice or personal hostility." "There is no distinction.

1980.000. It is now the contention of the petitioner Republic Planters Bank that having unconditionally signed the nine (9) promissory notes with Shozo Yamaguchi. ordering defendant Pinch Manufacturing Corporation (formerly Worldwide Garment Manufacturing. 1981. the sum of P40. these facts are established: Defendant Shozo Yamaguchi and private respondent Fermin Canlas were President/Chief Operating Officer and Treasurer respectively.91 with interest from January 29.G. 1981. until fully paid. respondents.000.00 with interest from January 29. JR. Inc. plus one percent (1%) of the principal sums as service charge.870. With costs against the defendants. 1985. and Shozo Yamaguchi are ordered to pay jointly and severally. From the records.00 with interest at 16% per annum from November 27.81 with interest at 12% per annum from July 1. under the promissory note (Exhibit "H"). Defendant-Appellant". the sum of P86.00 with interest from January 29.. We find merit in this appeal.000. J.00 as and for reasonable attorney's fee and the further sum equivalent to 3% per annum of the respective principal sums from the dates above stated as penalty charge until fully paid. until fully paid and the sum of P331. the sum of P200. the sum of P300. jointly and severally. 1 From the above decision only defendant Fermin Canlas appealed to the then Intermediate Court (now the Court Appeals). Under the promissory note (Exhibit "D") defendants Pinch Manufacturing Corporation (formerly named Worldwide Garment Manufacturing. premises considered.R. SO ORDERED.00 which interest from January 29. CV No. CAMPOS. 1980 until fully paid.120. judgment is hereby rendered in favor of the plaintiff Republic Planters Bank. jointly and severally. His contention was that inasmuch as he signed the promissory notes in his capacity as officer of the defunct Worldwide Garment Manufacturing. By virtue of Board . under the promissory note (Exhibit "C"). 1981.31 with interest from January 29. vs. jointly and severally. is quoted hereunder: WHEREFORE. the sum of P12. the sum of P281. The RTC decision. Inc. the plaintiff the sum of P100. 1980.R. under promissory note (Exhibit "B").97 with interest from March 28. Inc. to wit: Under the promissory note (Exhibit "A"). Pinch Manufacturing Corporation. Defendants. All the defendants are also ordered to pay.) and defendants Shozo Yamaguchi and Fermin Canlas to pay. under the promissory note (Exhibit "G").000.. the sum of P166. and under the promissory note (Exhibit "I"). the plaintiff bank the sum of P367. entitled "Republic Planters Bank.Plaintiff-Appellee vs.703. No. 1981. and Fermin Canlas. 82-5448 except that it completely absolved Fermin Canlas from liability under the promissory notes and reduced the award for damages and attorney's fees. COURT OF APPEALS and FERMIN CANLAS. petitioner.875. the plaintiff bank the following sums with interest thereon at 16% per annum from the dates indicated. 1980 until fully paid Under the promissory note (Exhibit "F") defendant corporation Pinch (formerly Worldwide) is ordered to pay the plaintiff bank the sum of P140. 93073 December 21. 1992 REPUBLIC PLANTERS BANK.000. defendant Fermin Canlas is solidarity liable with Shozo Yamaguchi on each of the nine notes. 07302..). Defendant Pinch (formely Worldwide) is hereby ordered to pay the plaintiff the sum of P231.00 with interest of 16% per annum from January 29.70 with interest from November 27.00 with interest from November 27. 1981 until fully paid. Inc.: This is an appeal by way of a Petition for Review on Certiorari from the decision * of the Court of Appeals in CA G.130. of Worldwide Garment Manufacturing. he should not be held personally liable for such authorized corporate acts that he performed. which affirmed the decision ** in Civil Case No. under the promissory note (Exhibit "E"). 1981.466. rendered on June 20. et al.000. 1981.

he was not an officer of Pinch Manufacturing Corporation. without reason for ambiguity. In the case at bar. Worldwide Garment Manufacturing. the maker promises to pay to the order of the payee or any holder according to the tenor 5 thereof. on the nine promissory notes. In the promissory notes marked as Exhibits C. Inc. Inc. but instead of Worldwide Garment Manufacturing. when signed by two 7 or more persons. CORP.. D and F... they are deemed to be jointly 6 and severally liable thereon. but it was later amended to drop Worldwide Manufacturing. for value received. Petitioner bank issued nine promissory notes.) Philippine Currency. persons who write their names on the face of promissory notes are makers and are 3 4 liable as such. The complainant was originally brought against Worldwide Garment Manufacturing. On February 5. The fact that the singular pronoun is used indicates that the promise is individual as to each other. the typewritten entries not appearing therein prior to the time he affixed his signature. In the mind of this Court. We hold that private respondent Fermin Canlas is solidarily liable on each of the promissory notes bearing his signature for the following reasons: The promissory motes are negotiable instruments and must be governed by the Negotiable Instruments Law. 1372-00257-6 of WORLDWIDE GARMENT MFG. At the bottom of the promissory notes appeared: "Please credit proceeds of this note to: ________ Savings Account ______XX Current Account No. denied having issued the promissory notes in question since according to him. each of which were uniformly worded in the following manner: ___________. By signing the notes. A joint and several note is one in which the makers bind themselves both jointly and individually to the . he cannot escape liability arising therefrom. meaning that each of the co-signers is deemed to have made an independent singular promise to pay the notes in full. jointly and severaIly promise to pay to the ORDER of the REPUBLIC PLANTERS BANK. makes them solidarily liable. as defendant and substitute Pinch Manufacturing Corporation it its place. defendant Shozo Yamaguchi and private respondent Fermin Canlas were authorized to apply for credit facilities with the petitioner Republic Planters Bank in the forms of export advances and letters of credit/trust receipts accommodations. 1979. Inc. noted to change its corporate name to Pinch Manufacturing Corporation. Philippines.. the only issue material to the resolution of this appeal is whether private respondent Fermin Canlas is solidarily liable with the other defendants. marked as Exhibits A to I inclusive. Only private respondent Fermin Canlas filed an Amended Answer wherein he. On December 20. 2 Under the Negotiable lnstruments Law. the name Worldwide Garment Manufacturing.. at its office in Manila. petitioner bank filed a complaint for the recovery of sums of money covered among others. On the right bottom margin of the promissory notes appeared the signatures of Shozo Yamaguchi and Fermin Canlas above their printed names with the phrase "and (in) his personal capacity" typewritten below. there is no denying that private respondent Fermin Canlas is one of the comakers of the promissory notes.. Defendants Pinch Manufacturing Corporation and Shozo Yamaguchi did not file an Amended Answer and failed to appear at the scheduled pre-trial conference despite due notice. or "Either of us" promise to. I/we. and that when he issued said promissory notes in behalf of Worldwide Garment Manufacturing. the solidary liability of private respondent Fermin Canlas is made clearer and certain. the same were in blank. inter alia. These entries were separated from the text of the notes with a bold line which ran horizontally across the pages. An instrument which begins" with "I" . 1982. by the presence of the phrase "joint and several" as describing the unconditional promise to pay to the order of Republic Planters Bank. Inc. namely Pinch Manufacturing Corporation and Shozo Yamaguchi.1 dated August 1. the sum of ___________ PESOS(. Based on the above provisions of law. pay. As such..Resolution No. Where an instrument containing the words "I promise to pay" is signed by two or more persons. was apparently rubber stamped above the signatures of defendant and private respondent. after date. by the nine promissory notes with interest thereon. plus attorney's fees and penalty charges. Inc. Inc. 1982.We" .

In order. Proof that the notes were signed in blank was only the self-serving testimony of private respondent Fermin Canlas.. without disclosing his principal. thus: Sec.. Where the instrument is wanting in any material particular. 13 On the private respondent's contention that the promissory notes were delivered to him in blank for his signature. is in no sense a new corporation. It 10 is the same corporation with a different name. . that is. 14. or as filling a representative character. the respondent Court made a grave error in holding that an amendment in a corporation's Articles of Incorporation effecting a change of corporate name. or liabilities. in this case from Worldwide Garment manufacturing Inc to Pinch Manufacturing Corporation extinguished the personality of the original corporation. does not exempt him from personal liability. Liability of a person signing as agent and so forth. Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is acting in a representative capacity or the name of the third party for whom he might have acted as agent. the person in possesion thereof has a prima facie authority to complete it by filling up the blanks therein. A careful examination of the notes in question shows that they are the stereotype printed form of promissory notes generally used by commercial banking institutions to be signed by their clients in obtaining loans. or the creditor may select one or more as the object of the suit. The terms and conditions of the loan are printed on the note for the borrowerdebtor 's perusal. he is not liable on the instrument if he was duly authorized. in so far as relevant to this case. amount of the loan. upon such change in its name. rate of interest. if duly authorized. but the mere addition of words describing him as an agent. the liability of a person signing as an agent is specifically provided for as follows: Sec. so that the trial court ''doubts the defendant (Canlas) signed in blank the promissory notes". As to whether the interpolation of the phrase "and (in) his personal capacity" below the signatures of the makers in the notes will affect the liability of the makers. rights. 8 A joint and several obligation in common law corresponds to a civil law solidary obligation. that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion. we rule otherwise. The corporation continues. however. An incomplete instrument which has been delivered to the borrower for his signature is governed by Section 14 of the Negotiable Instruments Law which provides. and whether effected by special act or under a general law. Under the Negotiable Instruments Law. and not merely for his proportionate share. 11 has no affect on the identity of the corporation. or in a representative capacity. A change in the corporate name does not make a new corporation. officers or directors under the old corporate name bear no personal liability for acts done or contracts entered into by officers of the corporation. The corporation.. and its character is in no respect changed. as determined by the trial court. For signing the notes above their .. With or without the presence of said phrase. the corporation bearing the same name is still bound by the acts of its agents if authorized by the Board. As a general rule. Finally. We chose to believe the bank's testimony that the notes were filled up before they were given to private respondent Fermin Canlas and defendant Shozo Yamaguchi for their signatures as joint and several promissors. responsible in its new name for all debts or other liabilities which it had previously 12 contracted or incurred. one of several debtors bound in 9 such wise that each is liable for the entire amount. Such printed notes are incomplete because there are blank spaces to be filled up on material particulars such as payee's name. By making a joint and several promise to pay to the order of Republic Planters Bank. Blanks: when may be filled. private respondent Fermin Canlas assumed the solidary liability of a debtor and the payee may choose to enforce the notes against him alone or jointly with Yamaguchi and Pinch Manufacturing Corporation as solidary debtors. nor the successor of the original corporation. date of issue and the maturity date. 20. We do not find it necessary to resolve and decide. or on its property.payee so that all may be sued together for its enforcement. as before. it must be filled up strictly in accordance with the authority given and within a reasonable time. private respondent Fermin Canlas is primarily liable as a co-maker of each of the notes and his liability is that of a solidary debtor. the agent is personally liable to take holder of the instrument and cannot be permitted to prove that he was merely acting as agent of another and parol or extrinsic evidence is not admissible to avoid the agent's personal liability. Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal . because it is immaterial and will not affect to the liability of private respondent Fermin Canlas as a joint and several debtor of the notes. Inasmuch as such officers acted in their capacity as agent of the old corporation and the change of name meant only the continuation of the old juridical entity.

under promissory note marked as Exhibit B. and the promissory note marked as Exhibit I. the rate of 12% was applied to forebearances of money.000.00 with interest from January 29. the appellate court erred in limiting the interest rates at 12% per annum. 1981. under the promissory note marked as Exhibit F. 905. for not having appealed from the decision of the trial court. Tomol relied upon by the appellate court in reducing the interest rate on the promissory notes from 16% to 12% per annum does not squarely apply to the instant petition. under the promissory note denominated as Exhibit D. 15 governs interests by way of damages. Section 14 of the NegotiabIe Instruments Law is not applicable. Series of 1982 removed 16 the Usury Law ceiling on interest rates. under the promissory note marked as Exhibit E. 1981 until fully paid. This Court has held that the rates under the Usury Law. The liabilities of defendants Pinch Manufacturing Corporation (formerly Worldwide Garment Manufacturing.000. which interest rate the plaintiff may at any time without notice. Inc. In the 1ight of the foregoing analysis and under the plain language of the statute and jurisprudence on the matter. raise within the limits allowed law. the amount of P367. . the notes were complete in the sense that the spaces for the material particular had been filled up by the bank as per agreement. the amount of P86. as amended by Presidential Decree No. The notes were not incomplete instruments. the sum of P40. Thus. the private respondent Fermin Canlas is hereby held jointly and solidarity liable with defendants for the amounts found.000. the decision of the respondent: Court of Appeals absolving private respondent Fermin Canlas is REVERSED and SET ASIDE. and penalty and service charges. This fine distinction was not taken into consideration by the appellate court. under the promissory note marked as Exhibit G. are applicable only to interests by way of compensation for the use or forebearance of money. shall be adjudged in accordance with the judgment rendered by the Court a quo. And so. they bound themselves as unconditional makers. In the abovecited case. the plaintiff had fixed the interest at 16% per annum. The ruling in case of Reformina vs.) and Shozo Yamaguchi. the sum of P300. 116. 1980 until fully paid. 1980.000.875. it was found by the trial court that the rate of interest is 9% per annum.000. 1980: under the promissory note denominated as Exhibit C. the sum of P200. goods or credit and court judgemets thereon. the sum of P281. to wit: Under the promissory note marked as exhibit A.130. 1981.466.typewritten names. Judgement is hereby rendered declaring private respondent Fermin Canlas jointly and severally liable on all the nine promissory notes with the following sums and at 16% interest per annum from the dates indicated. 1984 .00 with interest from November 27. We take judicial notice of the customary procedure of commercial banks of requiring their clientele to sign promissory notes prepared by the banks in printed form with blank spaces already filled up as per agreed terms of the loan. on the other hand. Article 2209 of the Civil Code. Inasmuch as this Court had declared that increases in interest rates are not subject to any ceiling prescribed by the Usury Law. 1981 until fully paid.91 with interest from January 29. When the notes were given to private respondent Fermin Canlas for his signature. which instead made a general statement that the interest rate be at 12% per annum.00 with interest from January 29. as of February 16. In the case at bar however . the promissory note marked as Exhibit H. only in the absence of any stipulation between the parties.00 with interest on January 29. With costs against private respondent. the amount of P166. leaving the borrowers-debtors to do nothing but read the terms and conditions therein printed and to sign as makers or co-makers. the sum of P140. by the Court a quo. 1981. 1981.703.70 with interest from November 27. Central Bank Circular No. neither were they given to private respondent Fermin Canlas in blank as he claims. the amount of P12.31 with interest from January 29. With respect to attorney's fees.00 with interest from January 29.00 with interest from November 27. SO ORDERED.

they demanded payment of their share in a letter dated February 4. The case was docketed as Civil Case No. Consequently. It authorized petitioner to release the proceeds of Trust Account No. Jr.. or diverted to purposes other than for the exclusive benefit of the members of the Plan and their . THE BOARD OF TRUSTEES OF RIVERSIDE MILLS CORPORATION PROVIDENT AND RETIREMENT FUND. Makati City in Civil Case No. as well as petitioner bank. manage. 1998. RMC ceased business operations. as amended. 97-997 which declared invalid the reversion or application of the Riverside Mills Corporation Provident and Retirement Fund (RMCPRF) to the outstanding obligation of Riverside Mills Corporation (RMC) with Philippine Banking Corporation (Philbank). as the court may direct. On June 2. 2006 and Resolution[2] dated March 5. 1995.. Ocampo and Cesar Saligumba.: This petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure. with RMC's contribution to increase by 1% every five (5) years up to a maximum of 5%. Branch 137. 176959 : September 08. petitioner continued to render investment services to respondent [7] Board. along with the individual members of RMCPRF. 76642. (Association). No. REPRESENTED BY ERNESTO TANCHI. judgment is hereby rendered: 1. The CA had affirmed the Decision[3] dated June 27. 1797. petitioner shall act as an agent of the Board and shall hold. the Board of Trustees of RMCPRF (the Board) entered into an Investment Management Agreement (Agreement) with Philbank (now. INC. The fallo of the decision reads: WHEREFORE. 1979. 2010] METROPOLITAN BANK & TRUST COMPANY. Paragraph 13 of the Plan likewise provided that the Plan "may be amended or terminated by the Company at any time on account of business conditions. CV No. Amelita G. representing the terminated employees of [8] RMC. In no event shall any part of the assets of the Fund revert to [RMC] [5] before all liabilities of the Plan have been satisfied. Through counsel. beneficiaries. Inc. EVELINA OCAMPO AND CARLITOS Y. 2002 of the Regional Trial Court (RTC).R. Branch 137. VS.. 97-997 in the RTC of Makati City. AMELITA SIMON. Lim. JR. but no such action shall operate to permit any part of the assets of the Fund to be used for. the RTC rendered a decision in favor of respondents. The facts are as follows: On November 1. Under the Plan. invested and distributed by the Commercial Bank and Trust Company. 1997. J. (AS SUCCESSOR-IN-INTEREST OF THE BANKING OPERATIONS OF GLOBAL BUSINESS BANK. When such demand went unheeded. RMC and its employees shall each contribute 2% of the employee's current basic monthly salary. 2007 of the Court of Appeals (CA) in CA-G. RESPONDENTS. INC. 1973.R. PETITIONER. Subsequently. Defendant Philippine Banking Corporation (now [Global Bank]) is hereby ordered to: [9] [6] [4] . the Board passed a Resolution in court declaring that the Fund belongs exclusively to the employees of RMC. Ernesto Tanchi.. The trial court declared invalid the reversion and application of the proceeds of the Fund to the outstanding obligation of RMC to petitioner bank. petitioner Metropolitan Bank and Trust Company). plaintiffs amended their complaint to include the Board as co-plaintiffs. D ECISION VILLARAMA. Nonetheless. FORMERLY KNOWN AS PHILIPPINE BANKING CORPORATION). during the trial. 1797 through the Board.[G. In a letter dated September 27. Carlitos Y. The contributions shall form part of the provident fund (the Fund) which shall be held. learned of Trust Account No." On October 15. Simon. namely. Pursuant to the Agreement. petitioner informed respondent Board that Philbank's Board of Directors had decided to apply the remaining trust assets held by it in the name of RMCPRF against part of the outstanding obligations of RMC. On June 27. RMC UNPAID EMPLOYEES ASSOCIATION. Evelina S. 2002. RMC established a Provident and Retirement Plan (Plan) for its regular employees. LIM. CESAR SALIGUMBA. In 1984. AND THE INDIVIDUAL BENEFICIARIES OF THE PROVIDENT AND RETIREMENT FUND OF RMC. The Agreement shall be in force for one (1) year and shall be deemed automatically renewed unless sooner terminated either by petitioner bank or by the Board. prays for the reversal of the Decision[1] dated November 7. JR. 1797 in its behalf.. respondent RMC Unpaid Employees Association. filed a complaint for accounting against the Board and its officers.. the Association. 2. Declaring INVALID the reversion or application of the Riverside Mills Corporation Provident and Retirement Fund as payment for the outstanding obligation of Riverside Mills Corporation with defendant Philippine Banking Corporation. invest and reinvest the Fund in Trust Account No. INC.

and costs of suit. it could be applied to satisfy RMC's debts to Philbank. belie the claim that petitioner exerted earnest efforts to ascertain claims. Further. Citing Paragraph 13 of the Plan. SO ORDERED. 1998." The fundamental issue for our determination is whether the proceeds of the RMCPRF may be applied to satisfy RMC's debt to Philbank. The Riverside Mills Corporation Provident and Retirement Fund is ordered to determine the beneficiaries of the FUND entitled to benefits. The petition has no merit. For being compelled to litigate to protect their rights. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE REVERSION AND APPLICATION BY PHILBANK OF THE FUND IN PAYMENT OF THE LOAN OBLIGATIONS OF RIVERSIDE MILLS CORPORATION WERE INVALID. the Agreement was specific that upon the termination of the Agreement. it was justifiable for petitioner to consider the Fund to have "technically reverted" to. It held that the Fund is distinct from RMC's account in petitioner bank and may not be used except for the benefit of the members of RMCPRF. the appellate court stressed that the assets of the Fund shall not revert to the Company until after the liabilities of the Plan had been satisfied.[12] II. and formed part of RMC's assets. Petitioner contends that RMC's closure in 1984 rendered the RMCPRF Board of Trustees functus officio and devoid of authority to act on behalf of RMCPRF. the Fund will then be subject to disposition by plaintiff Board of Trustees in accordance with law and the Provident Retirement Plan. and not to RMC as trustor. petitioner's act of addressing the letter dated September 27. Respondents for their part.a. this petition. Pay attorney's fees equivalent to 10% of the total amounts due to plaintiffs Riverside Mills Unpaid Employees Association and the individual beneficiaries of the Riverside Mills Corporation Provident and Retirement Fund. respondents also defend the award of attorney's fees to be proper. Hence. petitioner shall deliver the Fund to the Board or its [11] successor. petitioner makes the following assignment of errors: I. THE PLAINTIFFS-APPELLEES WERE COMPELLED TO [14] LITIGATE TO PROTECT THEIR RIGHT. respondents believe that the reversion of the Fund to RMC is not only unwarranted but unconscionable. Reverse the application of the Riverside Mills Corporation Provident and Retirement Fund as payment for the outstanding obligation of Riverside Mills Corporation with defendant Philippine Banking Corporation. It thus belittles the RMCPRF Board Resolution dated June 2. 1995 to the Board is a recognition of its authority to act for the beneficiaries. [10] On appeal. Hence. 3. authorizing the release of the Fund to several of its supposed beneficiaries. and pay such benefits to the individual beneficiaries. The CA likewise sustained the award of attorney's fees to respondents. c. THE HONORABLE COURT COMMITTED REVERSIBLE ERROR IN AWARDING ATTORNEY'S FEES TO PLAINTIFFS-APPELLEES ON THE BASIS THAT "[PHILBANK] WAS REMISS IN ITS DUTY TO TREAT RMCPRF'S ACCOUNT WITH THE HIGHEST DEGREE OF CARE CONSIDERING THE FIDUCIARY NATURE OF THEIR RELATIONSHIP. the CA affirmed the trial court. b. PERFORCE. THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN DECLARING THAT "BY HAVING ENTERED INTO AN AGREEMENT WITH THE BOARD. (PHILBANK) IS NOW ESTOPPED TO QUESTION THE LATTER'S AUTHORITY AS WELL AS THE TERMS [13] AND CONDITIONS THEREOF. Before us. Petitioner also disputes the award of attorney's fees in light of the efforts taken by Philbank to ascertain claims before effecting the reversion. For these reasons. the amount of benefits per beneficiary." III. Respondents cite petitioner's omission to publish a notice in newspapers of general circulation to locate claims against the Fund. . Render a complete accounting of the Riverside Mills Corporation Provident and Retirement Fund. Without known claimants of the Fund for eleven (11) years since RMC closed shop. To them.

1981. or will. TO APPLY TO THE PAYMENT OF THIS NOTE. 2. We are not convinced. old age retirement. while the Plan provides for a reversion of the Fund to RMC. Here. it applied the proceeds of the Fund to RMC's debt with [17] the bank pursuant to Paragraph 9 of Promissory Note No. Thereafter. Allocation: a.semestral valuation of the fund shall be made and any earnings or losses shall be credited or debited." Relying on this clause. SECURITIES AND THINGS OF VALUE WHICH IT MAY HOLD. the lower courts. allegedly after no further claims were made thereon since November 1984.) Petitioner contends that it was justified in supposing that reversion had occurred because its efforts to locate claims against the Fund from the National Labor Relations Commission (NLRC). petitioner. I/WE HEREBY AUTHORIZE THE BANK AT ITS OPTION AND WITHOUT NOTICE. the RMC Provident and Retirement Plan created an express trust to provide retirement benefits to the regular employees of RMC. the Fund became liable for the payment not only of the benefits of qualified retirees at the time of RMC's closure but also of those who were separated from work as a consequence of the closure. AND APPLY THE PROCEEDS THEREOF TO THE PAYMENT OF THIS NOTE. b. Forfeitures . particularly.shall be retained in the fund. Thus. (Emphasis supplied.) The trust was likewise a revocable trust as RMC reserved the power to terminate the Plan after all the liabilities of the Fund to the employees under the trust had been paid. or disability. RMC retained legal title to the Fund but held the same in trust for the employees-beneficiaries. by some writing or deed. or by words evincing an [15] intention to create a trust. Here.to be credited to his account. death. TO NEGOTIATE. Investment Earnings . this cannot be done until all the liabilities of the Plan have been paid. Express trusts are those which the direct and positive acts of the parties create. [16] c. And when RMC ceased operations in 1984. FOR THIS PURPOSE. I/WE HEREBY. ANY AND ALL MONEYS.A trust is a "fiduciary relationship with respect to property which involves the existence of equitable duties imposed upon the holder of the title to the property to deal with it for the benefit of another. SECURITIES AND THINGS OF VALUE WHICH MAY BE IN ITS HAND OR ON DEPOSIT OR OTHERWISE BELONGING TO ME/US AND. They are independent and additional sources of protection for the working group and [18] established for their exclusive benefit and for no other purpose. BY PUBLIC OR PRIVATE SALE. 1618-80 which RMC executed on May 12. sickness. The pertinent provision of the promissory note reads: IN THE EVENT THAT THIS NOTE IS NOT PAID AT MATURITY OR WHEN THE SAME BECOMES DUE UNDER ANY OF THE PROVISIONS HEREOF. Monthly Contributions: 1. IRREVOCABLY CONSTITUTE AND APPOINT THE SAID BANK TO BE MY/OUR TRUE ATTORNEY-IN-FACT WITH FULL POWER AND AUTHORITY FOR ME/US AND IN MY/OUR NAME AND BEHALF. the allocation under the Plan is directly credited to each member's account: 6. Employees' trusts or benefit plans are intended to provide economic assistance to employees upon the occurrence of certain contingencies." A trust is either express or implied. Employer . as the Fund trustee. Paragraph 13 of the Plan provided that "[i]n no event shall any part of the assets of the Fund revert to the Company before all liabilities of the Plan have been satisfied. the CA and the Supreme Court proved futile. to each member's account in proportion to his account balances based on the last proceeding (sic) [preceding] accounting period. JOINTLY AND SEVERALLY. AND WITHOUT PRIOR NOTICE. Employee . considered the Fund to have "technically reverted" to RMC. Paragraph 7 of the Retirement Plan states: Separation from Service: A member who is separated from the service of the Company before satisfying the conditions for retirement due to resignation or any reason other than dismissal for cause shall be paid the balance of his account as of the last day of the month prior to . (Emphasis supplied. SELL AND TRANSFER ANY MONEYS.to be credited to the respective member's account as stated under the contribution provision. as the case may be. They give security against certain hazards to which members of the Plan may be exposed.

as amended. like theft or illicit sexual relations with a fellow worker. Until these liabilities shall have been settled. does not entail any wrongdoing on the part of the employee.10 11 . Under Paragraph 6 of the Agreement. The restriction imposed under Paragraph 13 of the Plan stating that "in no event shall any part of [25] [21] [22] . as amended. and the employer's contribution shall be retained in the fund.] it may mitigate the penalty but it certainly will not condone the offense. indicates that the "separation for cause" being referred to therein is any of the just causes under Article 282 of the Labor Code. whereby a member separated for cause shall not be entitled to withdraw the contributions made by him and his employer. the employer may not be required to give the dismissed employee separation pay.15 16 . Lao. for example. The reversion petitioner effected also could hardly be said to have been done in good faith and with due regard to the rights of the employee-beneficiaries. A dismissal for just cause under Article 282[20] of the Labor Code.20 21 . or has grossly and habitually neglected his duties. Under the Labor Code. The distinction between just and authorized causes for dismissal lies in the fact that payment of separation pay is required in dismissals for an authorized cause but not so in dismissals for just cause. implies that the employee is guilty of some misfeasance towards his employer. v. Applied to this case. we reversed the CA ruling which granted retirement benefits to an employee who was found by the Labor Arbiter and the NLRC to have been properly dismissed for willful breach of trust and confidence. Where the reason for the valid dismissal is. the termination of employment is occasioned by the employer's exercise of management prerogative or by the illness of the employee . is guilty of fraud. a dismissal for an authorized cause under Article 283 and 284 of the Labor Code. there can be no reversion of the Fund to RMC. the employee has committed serious misconduct in relation to his work. Long Distance Telephone Co. xxxxxxxxx The policy of social justice is not intended to countenance wrongdoing simply because it is committed by the underprivileged. or whatever other name it is called. NLRC and reiterated in San Miguel Corporation v. Rather. petitioner had no power to effect reversion of the Fund to RMC. the penal nature of the provision in Paragraph 7 of the Plan. as amended. petitioner's function shall be limited to the liquidation and return of the Fund to the Board upon the termination of the Agreement.separation. The rationale behind this rule was explained in the case [23] [24] of Phil." [26] Clearly. Essentially. and other properties held by it constituting the fund less any amounts constituting the charges and expenses which are authorized [under the Agreement] to be payable from the Fund. habitual intoxication or an offense involving moral turpitude. it is an act of the employee that sets off the dismissal process in motion. has perpetrated an offense against the employer or any immediate member of his family. securities. and pay over to its successor or successors all cash. At best[. or financial assistance. i. To be sure. Lao.e. Paragraph 14 of said Agreement further states that "it shall be the duty of the Investment Manager to assign.matters beyond the worker's control. (Emphasis supplied. The amount representing the Company's contribution and income thereon standing to the credit of the separating member shall be paid to him as follows: Completed Years of Membership 0-5 6 . as amended. but those laid off should also be entitled to collect the balance of their account as of the last day of the month prior to RMC's closure. not only those qualified for retirement should receive their total benefits under the Fund.over % of Company's Contribution and Earnings Thereon Payable NIL 20% 40% 60% 80% 100% A member who is separated for cause shall not be entitled to withdraw the total amount representing his contribution and that [19] of the Company including the earned interest thereon. transfer. On the other hand.) The provision makes reference to a member-employee who is dismissed for cause. on the ground of social justice. the cessation of business by RMC is an authorized cause for the termination of its employees. thus: We hold that henceforth separation pay shall be allowed as a measure of social justice only in those instances where the employee is validly dismissed for causes other than serious misconduct or those reflecting on his moral character. In addition. In San Miguel Corporation v. an employee may be dismissed for just or authorized causes. the Plan provides that the separating member shall be paid a maximum of 40% of the amount representing the Company's contribution and its income standing to his credit.25 25 . Hence.

in a limited capacity. that is. satisfaction of the liabilities of the Plan. petitioner applied the Fund in satisfaction of the obligation of RMC without authority and without bothering to inquire regarding unpaid claims from the Board of Trustees of RMCPRF. As such. [27] . it was properly within the Board's power to promulgate.. thereby leaving respondents with no choice but to seek judicial relief. As to the contention that the functions of the Board of Trustees ceased upon with RMC's closure. In the same manner. the Board is bound by Paragraph 13 prohibiting the reversion of the Fund to RMC before all the liabilities of the Plan have been satisfied. It may commence suits on behalf of its members but not continue managing the Fund for purposes of maximizing profits. despite the clause in the Plan that prohibits such reversion before all liabilities shall have been satisfied. 76642 are AFFIRMED. we find the same to be in order. 2006 and the Resolution dated March 5. SO ORDERED. Within those three (3) years. and does not amount to doing business. the same is likewise untenable. but also their tenure as members of the RMCPRF Board of Trustees. the petition for review on certiorari is hereby DENIED." demands more than a passive stance as that adopted by petitioner in locating claims against the Fund. Here. we are not convinced. the Board's act of issuing the Resolution authorizing petitioner to release the Fund to its beneficiaries is still part of the liquidation process. Again. concur. Upon being met with objections. during and beyond the three (3)-year winding-up period of RMC. CV No. Thus. the Board may not unilaterally terminate the Plan without due regard to any accrued benefits and rightful claims of members-employees. Yet. However. petitioner notified respondent Board of Trustees only after Philbank's Board of Directors had decided to apply the remaining trust assets of RMCPRF to the liabilities of the company. 2007 of the Court of Appeals in CA-G. Anent the award of attorney's fees to respondents. The Decision dated November 7. the corporation may appoint a trustee or receiver who shall carry out the said purposes beyond the three (3)-year winding-up period. The Board retains its authority to act on behalf of its members." There is no dispute as to the management prerogative on this matter. the beneficiaries of the Fund are readily identifiable . Hence. Endnotes: */sup> and Sereno. Paragraph 13 of the Plan states that "[a]lthough it is expected that the Plan will continue indefinitely. WHEREFORE. it must be stressed that the RMC Provident and Retirement Plan was primarily established for the benefit of regular and permanent employees of RMC. but not for the purpose of continuing the business for which it was established. 1998 recognizing the exclusive ownership of the Fund by the employees of RMC and authorizing its release to the beneficiaries as may be ordered by the trial court. the Board of Trustees of RMCPRF may do no more than settle and close the affairs of the Fund. (Chairperson). to dispose and convey its property and to distribute its assets. Besides. Del Castillo. petitioner insisted on the reversion of the Fund to RMC. JJ. it may be amended or terminated by the Company at any time on account of business conditions. Here. a dissolved corporation shall nevertheless continue as a body corporate for three (3) years for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs. considering that the Fund consists primarily of contributions from the salaries of members-employees and the Company. Petitioner nonetheless assails the authority of the Board of Trustees to issue the Resolution of June 2. Petitioner contends that the cessation of RMC's operations ended not only the Board members' employment in RMC. Bersamin. Attorney's fees may be awarded by a court to one (1) who was compelled to litigate with third persons or to incur expenses to protect his or her interest by reason of an unjustified act or omission of the party from [29] whom it is sought. Besides. Article 2208(2) of the Civil Code allows the award of attorney's fees in cases where the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest.the regular or permanent employees of RMC who were qualified retirees and those who were terminated as a result of its closure. It wrote the members of the Board only after it had decided to revert the Fund to RMC. Under Section 122 of the Corporation Code. Petitioner needed only to secure a list of the employees concerned from the Board of Trustees which was its principal under the Agreement and the trustee of the Plan or from RMC which was the trustor of the Fund under the Retirement Plan. With costs against the petitioner. Carpio Morales. a trustee of a dissolved corporation may commence a suit which [28] can proceed to final judgment even beyond the three (3)-year period of liquidation.the assets of the Fund revert to the Company before all liabilities of the Plan have been satisfied.R. albeit.

at 316. [9] Records. [13] Id. [3] Id. at 89-98.R. February 11. (c) Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative. at 427-428. and (e) Other causes analogous to the foregoing. 38-45. In case of termination due to the installation of labor saving devices or redundancy. 422 SCRA 459. March 23. 2. retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title. by serving a written notice on the worker and the Ministry of Labor and Employment at least one (1) month before the intended date thereof. [7] Id. at 26. [10] Rollo.* Designated additional member per Special Order No. Penned by Associate Justice Estela M. 472. pp. at 295-301. [11] Id. redundancy. 2. 495. (b) Gross and habitual neglect by the employee of his duties. [19] Records. [16] Records. [12] Id. 241. Vol. pp. at 43-44. pp. Carandang. [15] Development Bank of the Philippines v. No. [14] Id. 283. 2004. at 512. p. 2010. 2. [6] Id. Vol. No. CLOSURE OF ESTABLISHMENT AND REDUCTION OF PERSONNEL. [2] Id. G. [4] Records. Vol. (d) Commission of a crime or offense by the employee against the person of his employer or any immediate member of his family or his duly authorized representative. at 63. at 28. Commission on Audit. TERMINATION BY EMPLOYER. 1992.R.-An employer may terminate an employment for any of the following causes: (a) Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in connection with his work. 144516. 879 dated August 13. [8] Id. 409-410. p. [1] Rollo. G. 409. pp. .The employer may also terminate the employment of any employee due to the installation of labor-saving devices. [5] Id. Vol. the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or at least (1) month . Court of Appeals. [18] Commissioner of Internal Revenue v. 282. Dacudao and Rosmari D. Perlas-Bernabe and concurred in by Associate Justices Renato C. 409-411. at 22. [21] ART. 207 SCRA 487. [20] ART. I. 97-98. [17] Id. 95022.

but not for the purpose of continuing the business for which it was established. 1988. [22] ART. a fraction of at least six (6) months being considered as one (1) whole year. 2. [23] No. creditors and others in interest.An employer may terminate the services of an employee who has been found to be suffering from any disease and whose continued employment is prohibited by law or is prejudicial to his health as well as to the health of his co-employees: Provided. G. 139370.R. 297. August 14. July 11. 301 SCRA 342.Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses. citing Reburiano v. for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs. 682. all interests which the corporation had in the property terminates. 57. and other persons in interest. members.R. no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities. L-80609. Court of Appeals. 160379. 2009. shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved. G. 596 SCRA 57. 164 SCRA 671. whichever is higher. [28] Knecht v. [26] Records. [29] Republic v. p. Upon winding up of the corporate affairs. Vol.. 76. 284. members. United Cigarette Corp. [25] The power. That he is paid separation pay equivalent to at least one (1) month salary or to one-half (1/2) month salary for every year of service. Nos. the legal interest vests in the trustees. 102965. [24] G.R. From and after any such conveyance by the corporation of its property in trust for the benefit of its stockholders. p. creditors.R. Vol. Court of Appeals. (Emphasis supplied. or whose corporate existence for other purposes is terminated in any other manner. whichever is greater. members.) Records. any asset distributable to any creditor or stockholder or member who is unknown or cannot be found shall be escheated to the city or municipality where such assets are located. 143136-37. G. 384 SCRA 504. No. after the notice of termination of this Agreement has been served in writing until final delivery of the Fund to the Board of Trustees or its successors-in-interest or assigns. 384 SCRA 45. 2002. 511. 353. 1999. 122. August 23. and the beneficial interest in the stockholders. . creditors or other persons in interest. [27] SEC. Corporate liquidation. Except by decrease of capital stock and as otherwise allowed by this Code. 2002. duties and discretion conferred upon the Investment Manager by virtue of this Agreement shall continue for purposes of liquidation and return of the Fund only. whichever is higher. DISEASE AS GROUND FOR TERMINATION. . . 2. At any time during said three (3) years. No. A fraction of at least six (6) months shall be considered as one (1) whole year.pay for every year of service. 299. said corporation is authorized and empowered to convey all of its property to trustees for the benefit of stockholders. January 21. to dispose of and convey its property and to distribute its assets. the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service. July 4. No.

docketed as AC GR SP No. all stockholders of the old PBM. 1985. Respondents. Alfredo Ching.R. AC GR SP 00843. chanrobles virtual law library In a related development. v. HON. in which he questioned the same order and the decision of the SEC in AC Case No.chanroblesvirtualawlibrarychanrobles virtual law library 2. On May 14. The allegation was that the former had become legally non-existent for failure to extend its corporate life and that the latter had likewise been ipso facto dissolved for non-use 4 of the charter and continuous failure to operate within 2 years from incorporation. VICTORIANO CHUNG. 00843. ALFREDO CHING. 018. on February 28. v. the case was remanded to the hearing officers for further 7 proceedings. et al. v. On May 10.. including the proper accounting of the assets and liabilities of the old PBM. 1977. ROBERTO G. which was opposed by Chung Ka Bio. The new corporation is accountable for the said assets to the stockholders of the dissolved corporation who had not consented to the conveyance of the same to the new corporation. and MANUEL CHUNG TONG OH... ANTERO F. the case. 71837 July 26. issued the decision now challenged on certiorari by the petitioners in the case at bar. Inc. et al.L. docketed as AC GR No. MANABAT. The three cases. JR. The new corporation has not substantially complied with the two-year requirement of Section 22 of the new Corporation Code on non-user because its stockholders never adopted a set of by-laws. CHIONG TIONG TAY. and Alfredo Ching. 1952. the new PBM and Alfredo Ching had filed with the SEC a petition for suspension of payment. CHUNG KIAT HUA. ABUGAN. docketed as AC No..1977. the members of its board of directors executed a deed of assignment of all of the accounts receivables. SEC. 01099. VILLAFLOR. chanrobles virtual law library On May 5. 1983. 1977. The decision affirmed the orders issued by the SEC in the said cases except the requirement for the accounting of the assets of the old PBM. 8 chanrobles virtual law library The petitioners now contend as follows: chanrobles virtual law library 1. The board of directors of an already dissolved corporation does not have the inherent power. on April 1. PBM Co. AC GR SP No. 1988 CHUNG KA BIO. 01007. CHUNG SIONG PEK. WELLINGTON CHUNG. was reinstated on appeal to the SEC en banc and remanded to a new panel of hearing officers for further proceedings. chanrobles virtual law library Dismissed for lack of a cause of action. filed with the SEC a petition for liquidation (but not for dissolution) of both the old PBM and the new PBM. INC. docketed as SEC EB No. vs. CENON and PHILIPPINE BLOOMING MILLS COMPANY. HON. EMILIO TAÑEDO. Chung Ka Bio elevated the matter to the SEC en banc on certiorari with preliminary injunction and receivership. on the ground that the SEC had no jurisdiction over a petition for suspension of payments initiated by a mere individual. On June 14. ANTONIO R. viz. 6 chanrobles virtual law library Earlier. CRUZ. 1981. 01007. obligations and liabilities of the old PBM in favor of Chung Siong Pek in his capacity as treasurer of the 2 new PBM. Petitioners. for a term of 25 years which expired on 1 January 19. The opposition was rejected and the case was set for hearing. 055. the new PMB was issued a certificate of incorporation by 3 the Securities and Exchange Commission. SIXTO T. then in the process of reincorporation. SEC. was incorporated on January 19. 1982. This order was appealed to the Intermediate Appellate Court in a petition for partial review. Chung Ka Bio. SEC. JR. DE GUZMAN. 055. 055 to adjudicate a matter not properly raised on appeal or 5 resolved in the order appealed from. Chung Ka Bio and the other petitioners herein... to convey all its assets to a new corporation. which was set aside. without the express consent of the stockholders.J. JAMES K. et al.G. praying for the annulment and setting aside of the proceedings. HON. J. properties. one of the members of the board of directors of the old PBM who executed the deed of assignment. CHING TAN. SECURITIES and EXCHANGE COMMISSION EN BANC. 01099 were then consolidated in the respondent court which. AC GR SP No. HON. INTERMEDIATE APPELLATE COURT (2nd Special Cases Division). filed with the Intermediate Appellate Court a separate petition for certiorari. CHENG LU KUN. No. He alleged that the SEC had gravely erred in not dismissing the petition for liquidation since the action amounted to a quo warranto proceeding which only the state could institute through the Solicitor General. chanrobles virtual law library Chung Ka Bio came to this Court but we referred his case to the Intermediate Appellate Court where it was docketed as GR SP No.chanroblesvirtualawlibrarychanrobles virtual law library . Inc.chanroblesvirtualawlibrarychanrobles virtual law library 3.: The Philippine Blooming Mills Company. questioning the authority of the SEC in Case No.

respectively. there is no need for affirmative proof. lease. (That authorization was embodied in a unanimous resolution dated March 19. "any stockholder who did not vote to authorize the action of the board of directors may. lease.) Otherwise. to dispose of and convey its property and to divide its capital stock. no stockholders' meeting had been convened to discuss the deed of assignment and the 2/3 vote required by the 10 Corporation Law to authorize such conveyance had not been obtained. which was the law then in force. are the following: SEC.chanroblesvirtualawlibrarychanrobles virtual law library As the first contention is based on the negative averment that no stockholders' meeting was held and the 2/3 consent vote was not obtained. or if the proceeds of such property be appropriated to the conduct or development of its remaining business. Moreover. there is the presumption of regularity which must operate in favor of the private respondents. exchange. one of whom shall be named by the stockholder. exchange. chanrobles virtual law library The pertinent provisions of the Corporation Law. within forty days after the date upon which such action was authorized. the petitioners insist that they have never given their consent to the creation of the new corporation nor have they indicated their agreement to transfer their respective stocks in the old PBM to the new PBM. to sell.4. That any stockholder who did not vote to authorize the action of the board of directors. including its goodwill. within forty days after the date upon . another by the corporation. the corporation and the stockholder can not agree upon the value of his share or shares at the time such corporate action was authorized. which should also be presumed to have been done regularly. as its board of directors deem expedient. sell. shall nevertheless be continued as a body corporate for three years after the time when it would have been dissolved. The finding of the appraisers shall be final and if their award is not paid by the corporation within thirty days after it is made. by action taken at any meeting of its board of directors. The Securities and Exchange Commission has no jurisdiction over a petition for suspension of payments filed by an individual only. If. and the third by the two thus chosen. stocks bonds. after such a demand by a stockholder. or otherwise dispose of all or substantially all of its property and assets. which may be money. These are now Sections 122 and 40. or otherwise dispose of. or other instruments for the payment of money or other property or other considerations. but not for the purpose of continuing the business for which it was established. however. such value shall be ascertained by three disinterested persons. lease. 77. object thereto in writing and demand payment for his shares.chanroblesvirtualawlibrarychanrobles virtual law library 5. or whose corporate existence for other purposes is terminated in any other manner. without the authorization thereof by the shareholders. A corporation may. it may be recovered in an action by the stockholder against the corporation. the new PBM would not have been issued a certificate of incorporation. any of its property if thereby the corporate business be not substantially limited. of the Corporation Code. the stockholder shall forthwith transfer and assign the share or shares held by him as directed by the corporation. 28-1/2. the stockholder making such demand in writing ceases to be a stockholder and shall have no rights with respect to such shares except the right to receive payment therefor as aforesaid. or exchange shall be abandoned. A quo warranto proceeding is no longer necessary to dissolve a corporation which is already "deemed dissolved" under Section 22 of the new Corporation Code. which was 11 reproduced verbatim in the deed of assignment. Notice of such meeting shall be given to all of the shareholders of record of the corporation whether or not they shall be entitled to vote thereat: Provided.chanroblesvirtualawlibrarychanrobles virtual law library Unless and until such sale. upon such terms and conditions and for such considerations. with modifications. who insist that the proper authorization as required by the Corporation Law was duly obtained at a meeting called for the purpose. Every corporation whose charter expired by its own limitation or is annulled by forfeiture or otherwise.chanroblesvirtualawlibrarychanrobles virtual law library A stockholder shall not be entitled to payment for his shares under the provisions of this section unless the value of the corporate assets which would remain after such payment would be at least equal to the aggregate amount of its debts and liabilities exclusive of capital stock." chanrobles virtual law library SEC. 9 chanrobles virtual law library On the first contention. when and as authorized by the affirmative vote of shareholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power on such a proposal at a shareholders' meeting called for that purpose. Even so. The creation of the new corporation with the transfer thereto of the assets of the old corporation was not within the powers of the board of directors of the latter as it was authorized only to wind up the affairs of such company and not in any case to continue its business. may. It must also be noted that under Section 28-1/2. 1977. Upon payment by the corporation to the stockholder of the agreed or awarded price of his shares. for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and close its affairs.chanroblesvirtualawlibrarychanrobles virtual law library Nothing in this section is intended to restrict the power of any corporation.

It is also evident that the new PBM could not have had the slightest suspicion that the petitioners would assert the right on which they now base their suit. employs as many as 2. The petitioners' argument that Alfredo Ching was merely continuing the business of the old PBM is self-defeating for they themselves argue that the old PBM had already been dissolved. it is not unlawful for the old board of directors to negotiate and transfer the assets of the dissolved corporation to the new corporation intended to be created as long as the stockholders have given their consent. as already shown. by exercising due diligence. The petitioners and the private respondents are not strangers but relatives and close business associates. in a general sense. this is clearly self-serving and completely without proof. 20chanrobles virtual law library All the requisites are present in the case at bar. Finally. that they filed a written objection and demanded payment of their shares during the reglementary forty-day period. before they made their move to assail the transfer despite complete knowledge of the transaction. or of one under whom he claims.e.chanroblesvirtualawlibrarychanrobles virtual law library Section 19 of the Corporation Law. (4) injury or prejudice to the defendant in the event relief is accorded to the complainant. especially Chung Siong Pek. like the old. the discouragement of claims grown stale for non-assertion.chanroblesvirtualawlibrarychanrobles virtual law library The third contention is likewise rejected for.chanroblesvirtualawlibrarychanrobles virtual law library While we agree that the board of directors is not normally permitted to undertake any activity outside of the usual liquidation of the business of the dissolved corporation. it was expressly allowed by Section 28-1/2. failure to file the by-laws does not automatically operate to dissolve a corporation but is now considered only a ground for such dissolution. part of which is now Section 22 of the Corporation Code. 13 The new corporation. for an unreasonable and unexplained length of time. Chung Siong Pek was one of the directors who executed the deed of assignment 15 in favor of the old PBM and it was he also who received the deeded assets on behalf and as treasurer of the new PBM. it is undeniable that the new PBM has in fact been operating all these years. As for the contention that the election of Wellington Chung and J. Winding up is the sole activity of a dissolved corporation that does not intend to incorporate anew.000 persons. This was not prohibited by the Corporation Act.which such action was authorized. (2) delay in asserting complainant's right after he had knowledge of the defendant's conduct and after he has an opportunity to sue. If it does. Laches has operated against them. giving rise to the sitution complained of. In fact. All of four years had elapsed before the petitioners filed their action for liquidation of both the old and the new corporations. Moreover. means the failure or neglect. and for the same reasons. chanrobles virtual law library The essential elements of laches are: (1) conduct on the part of the defendant. i. 16 It is negligence or omission to assert a right within a reasonable time. object thereto in writing and demand payment for his shares. what gave rise to the situation now complained of by the petitioners was the adoption of the deed of assignment by the directors of the old PBM allegedly without the consent of its stockholders and the acceptance of the deeded assets by the new PBM. 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 . Secondly.chanroblesvirtualawlibrarychanrobles virtual law library What the Court finds especially intriguing in this case is the fact that although the deed of assignment was executed in 1977.R. there was delay on the petitioners' part since it took them nearly four years. Surely. who in fact acted not only as director of the old PBM but also as treasurer of the new PBM in the transaction.chanroblesvirtualawlibrarychanrobles virtual law library The second contention must also fall with the first. To begin with. from May 14. warranting a presumption that the party entitled to assert it either has abandoned or declined to assert it. these circumstances must operate to bar the petitioners now from questioning the deed of assignment after this long period of inaction in the protection of the rights they are now belatedly asserting. the new PBM was in full operation. to do that which. the same personnel who worked for the old PBM. including credits extended and commitments made to third parties in good faith." The record does not show.. could or should have been done earlier. laches does not involve mere lapse or passage of time but is principally an impediment to the assertion or enforcement of a right which has become under the circumstances inequitable or 19 unfair to permit. the injury or prejudice in the event relief is granted is obvious as all the transactions of the new PBM will have to be undone.1981. 12 The PBM office is in the heart of Metro Manila. however.chanroblesvirtualawlibrarychanrobles virtual law library We have said in a number of cases that laches. and during this period. openly and quite visibly conducting the same business undertaken earlier by the old dissolved PBM. 18 Unlike the statute of limitations. (3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit. one of the petitioners. 14 Additionally. nor have the petitioners alleged or proven. 17 Public policy requires. This circumstance should bolster the private respondents' claim that the authorization was unanimous. for the peace of society. Blanco as directors was subject to the outcome of the petition for liquidation. there is nothing to prevent the stockholders from conveying their respective shareholdings toward the creation of a new corporation to continue the business of the old. 1977 to May 5. it was only in 1981 that it occurred to the petitioners to question its validity.

chanroblesvirtualawlibrarychanrobles virtual law library It is needless as well to dwell on the fourth contention. This may be done even before the filing of the by-laws. or some of the persons chosen as directors are not qualified. partnerships or associations. in view of the findings that the new PBM has not been ipso facto dissolved. partnerships or associations to be declared in the state of suspension of payments in cases where the corporation. or that no certificate of organization was executed or filed. assuming such finding. thus rendering the third issue also moot and academic. so that compliance therewith is not necessary to create even a dejure corporation." Administrative agencies like the SEC are tribunals of limited jurisdiction and. want of. where no authority is granted to hear petitions of individuals for suspension of payments. or a failure to issue stock.chanroblesvirtualawlibrarychanrobles virtual law library On the fifth and final issue.works within two years from date of its incorporation. The adoption and filing of by-laws is also a condition subsequent. 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. 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. It has been held that there may be a de facto corporation notwithstanding a failure to give the notice required by the statute of the meeting for the of or organization.. Consequently. it is clearly provided that such jurisdiction may be exercised only in: d) Petitions of corporations. and secondly. . partnership or association has no sufficient assets to cover its liabilities but is under the management of a Rehabilitation Receiver or Management Committee created pursuant to this Decree. or that there were informalities in the proceedings of such meeting. or to conditions subsequent rather than conditions precedent. Under Section 6(i) of PD 902-A. Section 20. Organization and commencement of transaction of corporate business are but conditions subsequent and not prerequisites for acquisition of corporate personality. partnership or association possess 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. the deficiency claimed by the petitioners was corrected when the new PBM adopted and filed its by-laws on 22 September 6. as such. the franchise or certificate of registration of a corporation" on the ground inter alia of "failure to file by-laws within the required period. can exercise only those 23 powers which are specifically granted to them by their enabling statutes. which under Section 46 of the Corporation Code. or defects in. And the same has been held to be true though no board of directors has been elected. PD 902-A. The analogy offered .chanroblesvirtualawlibrarychanrobles virtual law library Non-filing of the by-laws will not result in automatic dissolution of the corporation. such petitions are beyond the competence of the SEC. or though there would failure to fix and limit the amount of the capital stock of the company at the first meeting. Under this decree. place of residence and of meeting of the board of directors. the organization of a corporation. term." 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. failure to file the bylaws on time may be penalized merely with the imposition of an administrative fine without affecting the corporate existence of 21 the erring firm. and requirements in special charters or general incorporation laws relating to organization are often construed to be merely directory. adopt a code of by-laws. the SEC is empowered to "suspend or revoked. 1981. however. which has been reproduced with some modifications in Section 46 of the Corporation Code. as distinguished from its creation. under the rules and regulations of the SEC. the respondent court justifies assumption by the SEC of jurisdiction over the petition for suspension of payment filed by the individual on the general principle against multiplicity of suits. and though there were irregularities with respect to the number.chanroblesvirtualawlibrarychanrobles virtual law library Under Section 5(d). Fletcher has the following to say: Ordinarily. expressly declared that "every corporation formed under this Act. do not preclude the existence of a de facto corporation. must within one month after the filing of the articles of incorporation with the Securities and Exchange Commission. In any case. In fact.. This section clearly does not allow a mere individual to file the petition which is limited to "corporations. the penalty is not necessarily revocation but may be only suspension of the charter. even though the taking of these various steps is necessary to the proper use of the franchise. must be adopted "within one month after receipt of official notice of the issuance of its certificate of incorporation. Under Section 19 of the Corporation Code." It is clear from this provision that there must first of all be a hearing to determine the existence of the ground.. as amended by PD 1758." chanrobles virtual law library Distinguishing creation from defects in organization. after proper notice and hearing. chanrobles virtual law library It should be stressed in this connection that substantial compliance with conditions subsequent will suffice to perfect corporate personality.

41. 11. does not make him a proper party.chanrobles virtual law library . pp.chanrobles virtual law library 16 Tijam v. 138 SCRA 78. No similar permission is found in PD 902A. pp. took no part. 98-57.. 41-42.. 95. Burgos. 98. 4 Id.chanroblesvirtualawlibrarychanrobles virtual law library WHEREFORE. De Castro v. with costs against the petitioners. Sotto v. Alfredo Ching. collateral or guarantee or security agreements.chanroblesvirtualawlibrarychanrobles virtual law library The circumstance that Ching is a co-signer in the corporation's promissory notes.chanroblesvirtualawlibrarychanrobles virtual law library SO ORDERED. pp.chanrobles virtual law library 13 Id. acquired through. pp. 113..chanrobles virtual law library 5 Id. Sibonghanoy.. Jurisdiction over the subject matter must exist as a matter of law and cannot be fixed by agreement of the parties. AFP. Gancayco and Medialdea. 86 SCRA 154. 49. 23 SCRA 29. 45. p. neither can it be conferred by acquiescence of the tribunal.chanrobles virtual law library 17 Supra. any act or omission. pp. 2250. pp. 41. 58. 3 Id... 12-13.. 129 SCRA 85.by the respondent court is clearly inappropriate for while it is true that the Sandiganbayan may assume jurisdiction over private individuals. 86.chanrobles virtual law library 2 Ibid.chanroblesvirtualawlibrarychanrobles virtual law library Griño-Aquino. Tan. pp. concur. pp.chanrobles virtual law library 7 Id. 42. Teves. p...chanrobles virtual law library 10 Id. Corro v. 92. enlarged or diminished by.chanrobles virtual law library 6 Id. 13. or waived..chanrobles virtual law library 8 Id. Sr. Zamacoma. cannot be allowed as a co-petitioner in SEC Case No. pp. pp. Narvasa. Hence. the appealed decision is AFFIRMED as above modified. 28-30.chanrobles virtual law library 9 Id.chanrobles virtual law library 14 Id. Tejido v. it is because its charter expressly allows this in specified cases. 48-49.. JJ... 133 SCRA 800. Lising.chanrobles virtual law library 11 Id.. 8-9. as a mere individual. Chief of Staff. J.chanrobles virtual law library 12 Id. Endnotes: 1 Rollo.chanrobles virtual law library 15 Id. 41. v. p. 137 SCRA 541.

supra. 126 SCRA 31.chanrobles virtual law library 19 Ibid. Abraham v.. 3 SCRA 744. 96 Phil.00. 68. 22 Rollo. 18 SCRA 1040. Non-compliance thereto shall subject the corporation to a penalty in accordance with the scale of fines for late filing of the General Information Sheet. Sibonghanoy. 39. Ong Chua. Inc. 26 SCRA 234. 20 Z. 116 SCRA 732. Lepanto Consolidated Msz*(ining Co. Miguel v. Custodio v.chanrobles virtual law library 23 Union Glass & Container Corp. 4 SCRA 298. Inc. Lotho. et al. Co Cho. it is provided: Pursuant to the powers vested in the Commission by Batas Pambansa Blg. Catalino. Ysmael. 622. Intestate Estate of Juan C.. 1143 and in order to effectively implement Section 46 of the new Corporation Code of the Philippines. v. respectively. Ice & Cold Storage Industries.chanrobles virtual law library 21 Under Memorandum Circular No. v. 132 SCRA 293 .18 Tijam v. Nielsen & Co.E. Inc.00 and P250. citing Go Chi Gun. and Republic Act No. Este del Sol Mountain Reserve. Inc. et al. see also DMRC Enterprises v. 96.chanrobles virtual law library Corporations which have no by-laws but are active or operating are required to submit their General Information Sheet to the Commission within thirty (30) days to be counted after the end of one (1) year from the date of incorporation and every year thereafter until their by-laws are filed and approved by the Commission.. 11. v. . Casiano.. p. v. SEC. SMD Series of 1987. 9 SCRA 841. the following guidelines shall be observed: All corporations which failed to file their by-laws within one month from receipt of the certificate of incorporation shall be fined in the amount of P25. Perez v..00 for stock corporations for every month of delay but in no case shall the aggregate fines exceed P1000.00 in case of non-stock corporations and P50.

Inc. No. reply 7 8 9 position papers and rejoinders. Virgilio R. but the same was denied. Garcia was given copies of affidavits of the witnesses against him and a chance to defend himself and 3 to submit affidavits of his witnesses. docketed as NLRC NCR CA No. on the ground that he was a fraternity brother of Atty. Garcia was placed under preventive suspension based on three complaints for sexual harassment filed by Atty. and Dr. Garcia. and ATTY.R. 02890101. On 15 April 2001. 173115 : April 16. 2009 ATTY. DECISION CHICO-NAZARIO. VIRGILIO R. Salvador C. Garcia that his employment with ETPI was. ETPI and Atty. Assistant Vice President of ETPI and former secretary of Atty. in its decision dated 20 December 2001. SALVADOR C. arguing that the reason on which it was grounded was not one of those provided by law. In response to the complaints. set aside the order of Labor Arbiter Libo-on and ordered the re-raffling of the 16 17 18 case. former manager of ETPI's Office of the Legal Counsel. finding the preventive suspension and dismissal of Atty. 88887 and No. Atty. In a letter dated 14 April 2000.: Assailed before Us via consolidated petitions for certiorari under Rule 45 of the Rules of Court is the Decision of the Court of Appeals in CA-G. 2009 EASTERN TELECOMMUNICATIONS PHILIPPINES. was assigned to Labor Arbiter Patricio P. docketed as NLRC NCR-30-076 02787-00. v.EASTERN TELECOMMUNICATIONS PHILIPPINES. ETPI is a corporation duly organized and existing under the laws of the Republic of the Philippines. Garcia manifested that he was no longer submitting a sur-rejoinder and was submitting the case for resolution. Petitioners. Hizon is the President/Chief Executive Officer of ETPI. praying that Labor Arbiter Libo-on inhibit himself from further proceeding with the case. Per agreement of the parties. Garcia appealed said order before the NLRC via a Memorandum on Appeal dated 4 July 2001. Nos. Atty. cra The NLRC. Atty. Libo-on. 89066 dated 24 March 2006. terminated effective 16 April 2000. Respondents. and dismissed the case for lack of jurisdiction. Atty. SP No. The committee conducted an investigation where Atty. ETPI and Atty. G. and ATTY.G. Virgilio R. Hizon filed a sur-rejoinder on 6 March 2001. (ETPI). Respondent. Maria Larrie Alinsunurin.ATTY. HIZON. Atty. 14 to which ETPI and Atty. Petitioner.R. Garcia illegal. By reason of said complaints. ETPI and Atty. Hizon moved for the reconsideration of the decision. v. GARCIA. which dismissed the petitions for certiorari questioning 2 the Decision of the National Labor Relations Commission (NLRC) dated 21 March 2003. the Human Resources Department constituted a Committee on Decorum to investigate the complaints. Macalintal. The parties submitted their respective position papers. The NLRC reversed the decision of the Labor Arbiter dated 30 September 2002. INC. Hizon filed an 15 Answer. J. Consequently. Garcia filed a Motion to Inhibit. SALVADOR C. Garcia was the Vice President and Head of Business Support Services and Human Resource Departments of the Eastern Telecommunications Philippines. 173163-64 : April 16. Hizon. 12 In an Order dated 13 June 2001. Garcia against ETPI and Atty. Reyes. Atty. INC. The case. Salvador C. On 16 January 2000. Hizon advised Atty. Atty. GARCIA. The Committee submitted a report which recommended his dismissal. Ms. Garcia thereafter filed a second Motion to Inhibit11 on 10 May 2001. medical retainer/company physician of ETPI. Hizon. HIZON. said motions were denied. Mercedita M.R. Hizon opposed said motion. the case 19 was re-raffled to Labor Arbiter Ramon Valentin C. The facts are not disputed. Virgilio R. Garcia was placed in preventive suspension. per recommendation of the Committee. A complaint-affidavit for illegal dismissal with prayer for full backwages and recovery of moral and exemplary damages was 5 filed on 11 July 2000 by Atty. Emma Valeros-Cruz. 10 Atty. cra 4 1 . VIRGILIO R.13 Atty.

ETPI and Atty. Atty. notwithstanding the appeal taken. filed on 18 February 2003 a Motion to Inhibit. cra On 3 February 2003. On 16 August 2002.000. The dispositive portion of the decision reads:cra:nad WHEREFORE. Labor Arbiter Reyes issued a 2nd Writ of Execution.200. In his decision dated 30 September 2002.00 (P150. Atty. Atty. Garcia and/or garnish the amounts prayed for. filing a Notice of Appeal and Memorandum of Appeal. the 1st Alias Writ of Execution was satisfied with the amount of P450. Hizon filed a Very Urgent Motion to Lift/Quash Writ of Execution on 28 November 2002. Hizon filed a Supplemental Appeal Memorandum dated 23 January 2003 (With Very Urgent Motion for Issuance of Temporary Restraining 35 Order).000. Dela Costa Branch. 31 Per Sheriff's Return dated 17 January 2003.00. cra ETPI and Atty. 41 cra In a Manifestation ad Cautelam dated 10 February 2003. raising for the first time the issue of lack of jurisdiction. The appeal was docketed as NLRC NCR CA Case No. premises all considered. 2. Atty. Labor Arbiter Reyes lifted the notice of garnishment on ETPI's bank account with Metrobank. Hizon appealed the decision to the NLRC. Dela Costa Branch. explaining that it still had jurisdiction over the reinstatement aspect of the decision. Garcia filed his memorandum on 9 July 2002 while 22 ETPI and Atty.000. ETPI and Atty. 24 23 20 21 On 14 November 2002. 30 Labor Arbiter Reyes subsequently issued a 1st Alias Writ of Execution dated 11 December 2002 ordering the sheriff to proceed to the premises of ETPI to reinstate Atty. 3. In an Order dated 10 December 2002. Hizon refused to reinstate Atty. Reinstate complainant to his former position without loss of seniority rights and other benefits appurtenant to the position that complainant received prior to the illegal dismissal. Hizon said that they filed with the NLRC on 7 February 43 2003 an Urgent Petition (for Preliminary Injunction With Issuance of Temporary Restraining Order) which prayed. Garcia illegal. they informed the Labor Arbiter that they had filed a Supplemental Appeal Memorandum before the NLRC and asked that all processes relating to the implementation of the reinstatement order be held in abeyance so as not to render moot the reliefs prayed for in said Supplemental Appeal Memorandum. praying that the notice of garnishment on ETPI's bank account with Metrobank. Per Sheriff's Return on the Writ of Execution. Pay complainant Moral damages in the amount of P1. ETPI and Atty. judgment is hereby rendered. with leave of court.00 representing his monthly salaries 28 for two months and 13th month pay from any of ETPI's bank accounts. seeking the inhibition of Labor Arbiter Reyes for allegedly evident partiality in favor of the complainant in issuing writs of execution in connection with the order of reinstatement contained in his decision dated 30 42 39 33 . ETPI and Atty.000. Garcia. Garcia filed an Ex-Parte Motion for the Issuance of an Alias Writ of Execution praying that said writ be issued ordering the sheriff to enforce the decision by garnishing the amount of P450.000 x 28). Hizon filed a Reply Memorandum. Pay complainant his backwages which for purpose of appeal is computed to the amount of P4. said writ remained unsatisfied because ETPI and Atty.000. finding the preventive suspension and the dismissal illegal and ordering the respondents to: 1. which appeal 34 was opposed by Atty. for the issuance of a temporary restraining order to restrain the execution pending appeal of the order of reinstatement and to enjoin the Labor Arbiter from issuing writs of execution or other processes implementing the decision dated 30 September 44 2002. 27 cra On 29 November 2002.00 being released for proper 32 disposition to Atty. Atty. 25 Labor Arbiter Reyes issued a Writ of Execution insofar as the reinstatement aspect of the decision was concerned. without waiving their right to continue to question the jurisdiction of the Labor Arbiter. 36 They likewise filed on 31 January 2003 a Very Urgent Motion to Lift/Quash Order of Garnishment ad Cautelam. Garcia filed an Ex-Parte Motion for the Issuance of a Writ of Execution.000. In an Order dated 5 February 2003. Atty. Labor Arbiter Reyes found the preventive suspension and subsequent dismissal of Atty. and that the grounds relied upon for the lifting or quashing of the writ were not valid grounds. or with other banks with which ETPI maintained an account and which received said notice of garnishment be immediately lifted/quashed. Garcia manifested that he was no longer filing any responsive pleading to the Very Urgent Motion to Lift/Quash Writ of Execution because the Labor Arbiter lost jurisdiction over 29 the case when an appeal had been perfected. Garcia. 37 On 12 February 2003. Garcia to his former position. 028901-01. Hizon submitted their memorandum on 22 July 2002. without waiving their right to continue to question the jurisdiction of the Labor Arbiter over the case. They added that they also filed on 7 February 2003 a Notice to Withdraw their Supplemental Appeal Memorandum dated 23 January 2003. inter alia. Labor Arbiter Reyes denied the Very Urgent Motion to Lift/Quash Writ of Execution.00 and Exemplary damages in the amount of P500. On 20 November 2002. Garcia filed his Opposition to said 38 Supplemental Appeal Memorandum. 40 On 10 February 2003. In a Manifestation ad Cautelam dated 28 January 2003. Garcia filed an Ex-Parte Motion for the Issuance of a 2nd Alias Writ of Execution. ETPI and 26 Atty.The parties were directed to submit their respective memoranda. Hizon.

the NLRC. the NLRC. 75069 dated 18 November 65 2002 posted by them. claiming that he did not receive the resolution dated 16 December 2003 of the NLRC. Atty. Hizon were not barred by estoppel from challenging the jurisdiction of the Labor Arbiter over the instant case.R.. Salinas. that 56 since the Labor Arbiter had no jurisdiction over the case. issued a temporary restraining order (TRO) enjoining Labor Arbiter Reyes from executing pending appeal the order of reinstatement contained in his decision dated 30 September 2002. It directed ETPI and Atty. The appeal was docketed as CA-G. Batasan Hills. which sought the restraining of the execution pending appeal of the order of 45 46 reinstatement. requesting Associate Commissioner Angelita A. 89066.September 2002. It prayed that the Decision dated 21 March 2003 and resolution dated 16 December 2003 of the NLRC be annulled and set aside. Atty. admitting that it missent the resolution dated 16 December 2003 denying Atty. Diliman. the same having been sent to his former address at 9 Isidora St.00 that they had posted. 52 53 51 . cra The Commission ruled that the dismissal of Atty. cra On 6 March 2004. The case 49 was re-raffled to Labor Arbiter Elias H. The decretal portion of the decision reads:cra:nad WHEREFORE. Garcia moved for the reconsideration of the decision. Atty. being ETPI's Vice President. ETPI and Atty. that its resolution dated 16 December 2003 be declared final and executory. Atty. and that the decision of the 64 Labor Arbiter dated 30 September 2002 be reinstated. and that Atty. Quezon City. ETPI and Atty. the motion for reconsideration was denied for lack of merit. the decision of the Labor Arbiter dated 30 September 2002 was void. despite the pendency of an Urgent Petition (for Preliminary Injunction With Prayer for the Issuance of Temporary Restraining Order) with the NLRC. JCL (15) 00823 SICI Bond No. Atty. Garcia filed a Motion to Inhibit. The petition for injunction was docketed as NLRC NCR IC No. 028901-01 reversing the decision of Labor Arbiter Reyes and dismissing the case for lack of jurisdiction. an entry 57 of judgment was made recording said resolution in the Book of Entries of Judgments.00 to answer for any damage which Atty. Garcia appealed to the Court of Appeals via a Petition for Certiorari . Quezon City. On 19 July 2004.. cra On 3 April 2003. Consequently. where he had been receiving all pleadings.700. Garcia. Resolutions.R. Hizon to post a bond in the amount of P30. and from issuing similar writs of execution pending resolution of the petition for preliminary injunction. and not to his new address at 4 Pele St. the NLRC made permanent the TRO it issued pursuant to its ruling in NLRC NCR CA Case No. Hizon filed a reply. there being no formal notice filed with the NLRC informing it of a change of address. cra On 18 June 2004. 0001193-02. SP No. On 10 January 2005. 028901-01. 61 cra In its Motion for Reconsideration dated 17 September 2004. ETPI and Atty. considering that same was counsel's address of record. 88887.000. Orders and Decisions pertaining to the instant case since April 2001. Hizon filed their opposition thereto. on 14 June 2004. Garcia may 50 suffer by reason of the issuance of the TRO. the resolution dated 16 December 2003 became final and executory. The motion was later withdrawn. On 28 March 2005. cra On 14 March 2005. the NLRC denied the motion for reconsideration.000. It added that ETPI and Atty. Don Antonio Heights. and that the NLRC be directed to discharge and/or release Supersedeas Bond No. Said motion to inhibit was subsequently granted by Labor Arbiter Reyes. and the instant case DISMISSED for lack of jurisdiction. 0001193-02. issued an order granting the motion. SP No. They contended that the aforesaid resolution had become final and executory. Hizon likewise filed a Petition for Certiorari asking that the Orders dated 23 August 2004 and 10 January 2005 of the NLRC be set aside. the decision appealed from is REVERSED. Filinvest 2. Hizon. in NLRC NCR IC No. Garcia's motion for reconsideration. ETPI and Atty. Garcia filed a Motion to Set Aside Finality of Judgment With Opposition to Motion to Discharge Appeal 60 Bond. the NLRC rendered its decision in NLRC NCR CA Case No. In a resolution dated 16 54 December 2003. It recalled and set aside the Entry of Judgment dated 14 June 2004 and denied the Motion to Discharge and/or Release the Appeal Bond. cra On 21 March 2003. cra On 9 July 2004. Hizon argued that the NLRC correctly sent the resolution of 16 December 2003 to counsel's allegedly old address. Garcia filed an opposition. The appeal was docketed as CA-G. Gacutan to inhibit herself from further participating in the deliberation and resolution of the case for manifest bias and partiality in favor of ETPI 55 and Atty. Garcia should bear the consequences of his inequitable conduct and/or gross 62 63 negligence. Hizon opposed. to 47 48 which ETPI and Atty. partook of the nature of an intra-corporate dispute cognizable by Regional Trial Courts and not by Labor Arbiters. which ETPI and Atty. cra On 26 March 2003. Hizon filed a Motion to Discharge and/or Release the Appeal Bond58 in the amount of 59 P5. On 23 August 2004. cra In an Order dated 26 February 2003.

75 Atty. Atty. the Court of Appeals denied the motions for reconsideration. and the decision of the Court of Appeals dated 24 March 2006 and its resolution dated 14 June 2006. 69 The parties filed their respective comments thereon. the dispositive portion reading:cra:nad UPON THE VIEW WE TAKE OF THIS CASE.R. On 18 April 2006. Garcia filed his Motion for Reconsideration. Hizon's argument that Atty. Hizon are also before us by way of a Petition for Certiorari . Hizon in their reply memorandum before the Labor Arbiter. Hizon filed theirs on 13 July 83 84 2007. 76 while ETPI and Atty. G. Atty. 73 173115. his removal was a corporate act and/or an intra-corporate controversy. Nos. being the Vice President for Business Support Services and Human Resource Departments of ETPI. Without costs 67 in both instances. necessitating the Honorable Court's exercise of its power of supervision. we gave due course to the petitions and required the parties to submit the respective memoranda within 30 81 82 days from notice. the consolidated petitions are hereby DISMISSED for lack of merit. inasmuch as said issue was seasonably raised by ETPI and Atty. the two petitions for certiorari were consolidated.Upon motion of Atty. and not the Labor Arbiter and the NLRC. It likewise ruled that Atty.R. ETPI and Atty. 79 80 ETPI and Atty. The petition was docketed as G. With leave of court. he filed an Amended Petition for Review. cra 78 74 72 68 66 On 26 March 2007.77 cra On 15 January 2007. 173163-64. the assailed decision of the Court of Appeals was rendered. Hizon were not estopped from questioning the jurisdiction of the Labor Arbiter before the NLRC on appeal. He prays that the decision of the NLRC dated 21 March 2003 and its resolution dated 16 December 2003. Hizon filed theirs on 29 November 2006.R. Garcia raises the lone issue:cra:nad WHETHER THE QUESTION OF LEGALITY OR ILLEGALITY OF THE REMOVAL OR TERMINATION OF EMPLOYMENT OF AN OFFICER OF A CORPORATION IS AN INTRA-CORPORATE CONTROVERSY THAT FALLS UNDER THE ORIGINAL EXCLUSIVE JURISDICTION OF THE 85 REGIONAL TRIAL COURTS? cra ETPI and Atty. ET AL. ruled that the NLRC did not commit grave abuse of discretion in liberally applying the rules regarding changes in the address of counsel.R. In our resolution dated 30 August 2006. be reconsidered and set aside and that the decision of the Labor Arbiter dated 30 September 2002 be affirmed and reinstated. Hizon filed a reply memorandum. committed grave reversible error and decided questions of substance in a way not in accordance with law and applicable decisions of the Honorable Court. 173163-64 were consolidated with G. with Atty. on ETPI and Atty.71 cra Atty. Garcia submitted his Memorandum on 12 June 2007 and ETPI and Atty. RESPONDENT'S COPY OF SAID RESOLUTION WAS PROPERLY SENT TO HIS ADDRESS OF RECORD. THUS. cra Atty. and the parties were required to comment on the petitions within ten days from notice. The petition which was filed on 6 July 2006 was docketed as G. AT THE LATEST ON 15 JANUARY 2004. Being a corporate officer. Garcia. Hizon filed a Motion for Partial Reconsideration. and departed from the accepted and usual course of judicial proceedings. Garcia is now before us via a Petition for Review. Garcia. 173115. I THE RESOLUTION DATED 16 DECEMBER 2003 ISSUED BY THE NATIONAL LABOR RELATIONS COMMISSION (SECOND DIVISION) HAS ALREADY BECOME FINAL AND EXECUTORY AND HAS VESTED UPON PETITIONERS ETPI. On 8 August 2006. ETPI and Atty. HENCE. in ruling that the NLRC did not commit grave abuse of discretion amounting to lack or excess of jurisdiction in issuing its order dated 23 August 2004 and its resolution dated 10 January 2005. On 20 April 2006. Garcia filing his on 2 March 2007. Garcia's petition for certiorari was filed out of time. Nos. which he filed on 3 August 2006. Hizon argue that the Court of Appeals. A RIGHT RECOGNIZED AND PROTECTED UNDER THE LAW CONSIDERING THAT: A. ETPI and Atty. the jurisdiction of which rested with the Securities and Exchange Commission (now with the Regional Trial Court). No. cra On 24 March 2006. was a corporate officer at the time he was removed. 70 On 14 June 2006. IN ACCORDANCE WITH WELL ESTABLISHED JURISPRUDENCE. we noted the comments filed by the parties and required them to file their Replies to said comments. Garcia filed his comment on 13 November 2006. Hizon filed their Reply on 26 February 2007. RESPONDENT GARCIA HAD ONLY UNTIL 15 . It added that ETPI and Atty. cra The appellate court. No.

but not limited to. and (4) among the stockholders. The number of officers is not limited to these three. 902-A are those 93 officers of the corporation who are given that character by the Corporation Code or by the corporation's by-laws. partnership or association and the State insofar as the former's franchise. it has to be first established that the person 91 92 removed or dismissed was a corporate officer. partnership or association and the public. officers and stockholders and partners. B. including their elections or appointments x x x. The number of corporate officers is thus limited by law and by the corporation's by-laws. cashier.is not novel. partners. National Labor Relations Commission.whether the termination or removal of an officer of a corporation is an intra-corporate controversy that falls under the original exclusive jurisdiction of the regional trial courts . The Supreme Court. RESPONDENT GARCIA HAD ONLY UNTIL 15 NOVEMBER 2005 TO FILE HIS PETITION FOR CERTIORARI DATED 11 MARCH 2005. C. partners or associates 89 90 themselves. In Lozon v. NOTWITHSTANDING THE FOREGOING. In the case before us. the vice-president. II THE COURT OF APPEALS ERRED IN AFFIRMING THE NLRC'S LIBERAL APPLICATION OF RULES CONSIDERING THAT A LIBERAL APPLICATION OF RULES CANNOT BE USED TO DEPRIVE A RIGHT THAT HAS ALREADY IPSO FACTO VESTED ON PETITIONERS ETPI. over which the Securities and Exchange Commission [SEC] (now the Regional Trial Court)87 has original and exclusive jurisdiction.MARCH 2004 WITHIN WHICH TO FILE HIS PETITION FOR CERTIORARI WITH THE COURT OF APPEALS. ET AL. (2) between the corporation. A corporation may have such other officers as may be provided for by its by-laws like. The issue raised by Atty. partnership or association and its stockholders. III THE COURT OF APPEALS ERRED IN RULING THAT THE NLRC DID NOT COMMIT GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ISSUING ITS ORDER DATED 23 AUGUST 2004 AND RESOLUTION DATED 10 JANUARY 2005 CONSIDERING THAT RESPONDENT GARCIA MAY NOT ASSAIL THE FINALITY OF RESOLUTION DATED 16 DECEMBER 2003 THROUGH A MERE MOTION. 902-A confers on the SEC original and exclusive jurisdiction to hear and decide controversies and cases involving intra-corporate and partnership relations between or among the corporation. These are the president. (3) between the corporation. There are 94 three specific officers whom a corporation must have under Section 25 of the Corporation Code. we declared that Presidential Decree No. Before a dismissal or removal could properly fall within the jurisdiction of the SEC. RESPONDENT GARCIA FAILED TO FILE HIS PETITION FOR CERTIORARI BY SAID DATE. EVEN IF THE DATE OF RECEIPT IS RECKONED FROM 15 SEPTEMBER 2005. members or officers. secretary and the treasurer. HENCE RESPONDENT GARCIA HAD ONLY UNTIL 23 AUGUST 2004 WITHIN WHICH TO FILE HIS PETITION FOR CERTIORARI WITH THE COURT OF APPEALS. RESPONDENT GARCIA FAILED TO FILE HIS PETITION FOR CERTIORARI BY SAID DATE. RESPONDENT GARCIA FAILED TO FILE HIS PETITION FOR CERTIORARI BY SAID DATE. IV THE COURT OF APPEALS ERRED IN FAILING TO RULE ON PETITIONERS' COUNTER-MOTION TO CITE RESPONDENT GARCIA IN CONTEMPT OF COURT DESPITE ITS PREVIOUS RESOLUTION DATED 30 MAY 2005 STATING THAT IT SHALL ADDRESS THE SAME IN 86 THE DECISION ON THE MERITS OF THE CASE. 88 cra We have ruled that an intra-corporate controversy is one which pertains to any of the following relationships: (1) between the corporation. "Corporate officers" in the context of Presidential Decree No. Garcia . in a long line of cases. RESPONDENT GARCIA HAD ACTUAL NOTICE OF THE ISSUANCE OF THE SAME AS OF 24 JUNE 2004. THE DATE RESPONDENT GARCIA ADMITTED IN HIS PETITION FOR CERTIORARI TO BE THE DATE OF HIS RECEIPT OF THE COPY OF THE RESOLUTION DATED 16 DECEMBER 2003 AT HIS ALLEGED NEW ADDRESS. permit or license to operate is concerned. has decreed that a corporate officer's dismissal or removal is always a corporate act and/or an intra-corporate controversy. auditor or general manager. the by-laws of ETPI provide: ARTICLE V Officers .

to further discuss and rule on the issues raised by ETPI and Atty. Garcia's taking recourse to and seeking relief through the appropriate remedy in the proper forum. 173115 is hereby DENIED. due to mootness. We agree with both the NLRC and the Court of Appeals that Atty. the petition for certiorari of Atty. Nos. Number. a Treasurer. jurisdiction over which is vested in the SEC (now the RTC).R. Hizon in G. 173163-64 is PARTIALLY GRANTED insofar as the discharge of Supersedeas Bond No. cra Atty. and its resolution dated 10 January 2005 denying their motion for reconsideration thereon. who is a corporate officer of ETPI. This ruling is without prejudice to Atty. he argues that the Labor Arbiter has jurisdiction over the case. Garcia's Motion to Set Aside Finality of Judgment with Opposition to Motion to Discharge Appeal Bond. . Garcia tries to deny he is an officer of ETPI. an Assistant Secretary. Not being a corporate officer. WHEREFORE. Garcia. is ordered discharged. who had jurisdiction over the case. posted by ETPI as a requirement for the filing of an appeal before the NLRC. was properly dismissed by the NLRC. The petition for review on certiorari of ETPI and Atty. The decision of the Labor Arbiter. One of the corporate officers provided for in the by-laws of ETPI is the Vice-President. One person may hold any two compatible offices. partakes of the nature of an intra-corporate controversy. JCL (15) 00823 SICI Bond No. . Having ruled which body has jurisdiction over the instant case. The Labor Arbiter thus erred in assuming jurisdiction over the case filed by Atty. his removal is deemed to be an intra-corporate dispute cognizable by the SEC and not by the Labor Arbiter. SO ORDERED. Garcia's complaint-affidavit that he was Vice President for Business Support Services and Human Resource Departments of ETPI when his employment was terminated effective 16 April 2000. Garcia in G. No. because he had no jurisdiction over the subject matter of the controversy. and such other officers as may be from time to time be elected or appointed by 95 the Board of Directors.R. premises considered. Consequently. we find it unnecessary. Supersedeas Bond No. 75069 dated 18 November 2002. 75069 dated 18 November 2002 is concerned. one or more Vice-Presidents.The officers of the Company shall be a Chairman of the Board. It is therefore clear from the by-laws and from Atty. 96 Being a corporate officer. Garcia himself that he is a corporate officer. Garcia's ouster as Vice-President. a Secretary. Hizon regarding the NLRC order dated 23 August 2004 granting Atty. a President. It can be gathered from Atty. One who is included in the by-laws of a corporation in its roster of corporate officers is an officer of said corporation and not a mere employee.Section 1. JCL (15) 00823 SICI Bond No.

INC. 2003 declared petitioner and his co-complainants as having been illegally dismissed and ordered respondents to reinstate complainants to their former positions without loss of seniority rights and other privileges and to pay their full backwages from the time of their dismissal until actually reinstated and furthermore. refused to receive. Ogino Philippines Corporation. while apparently drunk. Respondents claimed that petitioner is both a stockholder and a 5 . janitresses. he later incited those assigned in Epson Precision (Phils. and. No. 168757: January 19. all 2 employed by respondent corporation. No. petitioner. the Board of Directors of respondent corporation met on March 24. Factual Antecedents Petitioner Renato Real was the Manager of respondent corporation Sangu Philippines. petitioner would almost always absent himself from work without informing the corporation of his whereabouts and that he would come to the office only to collect his salaries.. v. Respondents. 2001 and adopted Board Resolution No. a corporation engaged in the business of providing manpower for general services. He just received from respondents a letter 4cralaw dated March 26. petitioner together with other employees also barricaded the premises of respondent corporation. Not satisfied. According to them. to stage a strike on April 10 to 16. refuted petitioner's claim of illegal dismissal by alleging that after petitioner was appointed Manager. petitioner allegedly encouraged the employees who had been placed in the manpower pool to file a complaint for illegal dismissal against respondents. The Labor Arbiter found no convincing proof of the causes for which petitioner was terminated and noted that there was complete absence of due process in the manner of his termination. petitioner together with a few others. petitioner neglected to supervise the employees resulting in complaints from various clients about employees' performance. Because of this. leadmen and maintenance men. These complaints were later on consolidated.G. With regard to petitioner. however. Respondents. like janitors. 2001 which he. SP. went to the premises of one of respondents' clients. he committed gross acts of misconduct detrimental to the company since 2000. Hitachi Cable Philippines Inc. J.) Inc. together with 29 others who were either janitors. Further. (3) to cut down operational expenses to reduce further losses being experienced by respondent corporation. respondent Abe allegedly received a complaint from Epson's Personnel Manager concerning petitioner's conduct. Petitioner was thereafter informed of his removal through a letter dated March 26. in what respondents believed to be an act of retaliation. 2001-03 removing petitioner as Manager.) Inc.R. Petitioner complained that he was neither notified of the Board Meeting during which said board resolution was passed nor formally charged with any infraction.. to pay them attorney's fees. Petitioner. he was removed from his position as Manager through Board Resolution 2001-033cralaw adopted by respondent corporation's Board of Directors. Rulings of the Labor Arbiter and the National Labor Relations Commission The Labor Arbiter in a Decision cralaw dated June 5. SANGU PHILIPPINES. 86017 which dismissed the petition for certiorari filed before it. As he was almost always absent. Respondents likewise averred that petitioner established a company engaged in the same business as respondent corporation's and even submitted proposals for janitorial services to two of the latter's clients. filed their respective Complaints cralaw for illegal dismissal against the latter and respondent Kiichi Abe. to various clients. 2001 stating that he has been terminated from service effective March 25. This Petition for Review on Certiorari assails the Decision1cralaw dated June 28. D ECISION DEL CASTILLO. and/ or KIICHI ABE. the corporation's Vice-President and General Manager. janitresses and other maintenance personnel. Inc. (2) loss of trust and confidence. for several months which was detrimental to the corporation's operation. and Philippine TRC Inc. 2001. and engaged in a heated argument with the employees therein.: The perennial question of whether a complaint for illegal dismissal is intra-corporate and thus beyond the jurisdiction of the Labor Arbiter is the core issue up for consideration in this case. Epson Precision (Phils. Such acts respondents posited constitute just cause for petitioner's dismissal and that same was validly effected. on the other hand. 2011 RENATO REAL. Because of all these. 2001 for the following reasons: (1) continuous absences at his post at Ogino Philippines Inc. Worse. In 2001. In one instance.. 2005 of the Court of Appeals (CA) in CA-G.R. Respondents thus appealed to the National Labor Relations Commission (NLRC) and raised therein as one of the issues the lack of jurisdiction of the Labor Arbiter over petitioner's complaint.

As to the rest of the complainants. He posited that his being a stockholder and his being a managerial employee do not ipso facto confer upon him the status of a corporate officer. petitioner nevertheless disputed the declaration of the NLRC that he is a corporate officer thereof. the NLRC also gave weight to the corporation's General Information Sheet6 cralaw (GIS) dated October 27. petitioner called the CA's attention to the same GIS relied upon by the NLRC when it declared him to be a corporate officer. the CA sided with respondents and affirmed the NLRC's finding that aside from being a stockholder of respondent corporation.corporate officer of respondent corporation. 2004. To support its finding." and that it is "broad and covers all kinds of controversies between stockholders and corporations. the NLRC ruled that there was no dismissal. These. 1999 listing petitioner as one of its stockholders. modified the appealed decision of the Labor Arbiter in a Decision7cralaw dated February 13. respondents contended that the action instituted by petitioner against them is an intra-corporate controversy cognizable only by the appropriate regional trial court. SO ORDERED. all that an employer has to do in order to avoid compliance with the requisites of a valid dismissal under the Labor Code is to dismiss a managerial employee through a board resolution. Aside from petitioner's own admission in the pleadings that he is a stockholder and at the same time occupying a managerial position. Still joined by his co-complainants. cralaw (Emphasis supplied) In contrast. Moreover. Ruling of the Court of Appeals Before the CA. Hence. To support this contention. National Labor Relations Commission9 cralaw wherein this Court declared that "an intra-corporate controversy is one which arises between a stockholder and the corporation. the entry "N/A"." that "[t]here is no distinction. He pointed out that although said information sheet clearly indicates that he is a stockholder of respondent corporation. 2005. qualification. the NLRC correctly dismissed petitioner's complaint for lack of jurisdiction. the respondent corporation would not have called a board meeting to pass a resolution for petitioner's dismissal considering that it was very tedious for the Board of Directors to convene and to adopt a resolution every time they decide to dismiss their managerial employees. Accordingly. the CA likewise affirmed the NLRC'S finding that they were never dismissed from the service. respondents stood firm that the action against them is an intra-corporate controversy. his action against respondents is an intra-corporate controversy over which the Labor Arbiter has no jurisdiction. his action against respondent corporation is an intra-corporate controversy over which the Labor Arbiter has no jurisdiction. Petitioner further argued that the fact that his dismissal was effected through a board resolution does not likewise mean that he is a corporate officer. While admitting that he is indeed a stockholder of respondent corporation. judgment is hereby rendered DISMISSING the complaint of Renato Real for lack of jurisdiction. the NLRC opined. the dispositive portion of which reads: chanrob1esvirtwallawlibrary WHEREFORE. all foregoing premises considered. he insisted that his action for illegal dismissal is not an intra-corporate controversy as same stemmed from employee-employer relationship which is well within the jurisdiction of the Labor Arbiter. Said court opined that if it was true that petitioner is a mere employee. nor any exemption whatsoever. his complaint is an intra-corporate controversy over which the labor arbiter has no jurisdiction. hence. to wit: chanrob1esvirtwallawlibrary In this connection (his dismissal) you are entitled to separation pay and other benefits provided for under the Labor Code of the 8 Philippines. petitioner imputed upon the NLRC grave abuse of discretion amounting to lack or excess of jurisdiction in declaring him a corporate officer and in holding that his action against respondents is an intra-corporate controversy and thus beyond the jurisdiction of the Labor Arbiter." In view of this ruling and since petitioner is undisputedly a stockholder of the corporation. As to the other complainants. petitioner brought the case to the CA by way of petition for certiorari. It cited Tabang v. The NLRC however. clearly established petitioner's status as a stockholder and as a corporate officer and hence. consequently his termination had to be effected through a board resolution. As to petitioner's co-complainants. 2003 is hereby MODIFIED. the CA likewise cited Tabang. Otherwise. In the assailed Decision10cralaw dated June 28. petitioner is also a corporate officer thereof and consequently. The NLRC found such contention of respondents to be meritorious. Said column requires that the particular position be indicated if the person is an officer and if not. the appealed Decision dated June 5. All other claims against respondents including attorney's fees are DISMISSED for lack of merit. they are hereby ordered to immediately report back to work but without the payment of backwages. The dispositive portion of the CA Decision reads: chanrob1esvirtwallawlibrary . he is not an officer thereof as shown by the entry "N/A" or "not applicable" opposite his name in the officer column. This can be deduced and is bolstered by the last paragraph of the termination letter sent to him by respondents stating that he is entitled to benefits under the Labor Code.

Petitioner likewise contends that his complaint for illegal dismissal against respondents is not an intra-corporate controversy. i. Tabang v. cralaw Philippine School of Business Administration v. (2) As an incorporator.WHEREFORE. Article IV of respondent corporation's By-Laws. (8) Because of these acts of incompetence and disloyalty.000) of the Ten Thousand Eight Hundred (10. unable to properly supervise the employees and even causing friction with the corporation's clients by engaging in unruly behavior while in client's premises. He argues that a corporate officer is one who holds an elective position as provided in the Articles of Incorporation or one who is appointed to such other positions by the Board of Directors as specifically authorized by its By-Laws. Accordingly. To support this. The Parties' Arguments Petitioner continues to insist that he is not a corporate officer. (9) After his removal. petitioner elevated the case to us through this Petition for Review on Certiorari. For their part. he was one of only seven incorporators of respondent corporation and one of only four Filipino members of the Board of Directors. his utter failure to advance its interest and the prejudice caused by his acts of disloyalty. with a par-value of One Hundred Thousand Pesos ( P 100. the question of whether petitioner is a corporate officer is a question of fact which. Leano. same must arise from intra-corporate relations. He avers that for an action or suit between a stockholder and a corporation to be considered an intra-corporate controversy. but one by an officer and at same time a major stockholder seeking to be reinstated to his former office against the corporation that declared his position vacant. as held in a long line of jurisprudence. (7) As if his incompetence was not enough. (4) His appointment as manager was by virtue of Section 1. respondents state that the fact that petitioner is being given benefits under the Labor Code as stated in his termination letter does not mean that they are recognizing the employer-employee relations between them. Inc.. cralaw Apparently. stockholder and manager of respondent company.00).E. respondents see the action against them not as a case between an employer and an employee as what petitioner alleges. (3) As stockholder. Asia). They explain that the benefits provided under the Labor Code were merely made by respondent corporation as the basis in determining petitioner's compensation package and that same are merely part of the perquisites of petitioner's office as a director and manager. National 11 12 Labor Relations Commission.800) common shares held by Filipino stockholders. respondents pray that this petition be dismissed for lack of merit. was even impliedly recognized by respondents as shown by the earlier quoted portion of the termination letter they sent to him.e. (5) As manager. SO ORDERED. the instant petition is hereby DISMISSED. It does not and it cannot change the intra-corporate nature of the controversy. Now alone but still undeterred. according to him. For this reason. they cited several jurisprudence such as Pearson & George (S. since he was neither elected nor is there any showing that he was appointed by the Board of Directors to his position as Manager. he established another company engaged in the same line of business as respondent corporation. respondents posit that what petitioner is essentially assailing before this Court is the finding of the NLRC and the CA that he is a corporate officer of respondent corporation. respondent corporation through a Resolution adopted by its Board of Directors was finally constrained to remove petitioner as Manager and declare his office vacant. He believes that his action against the respondents does not arise from intra-corporate relations but rather from employer-employee relations. This. cralaw Fortune Cement Corporation 14 13 v. (6) Petitioner has shown himself to be an incompetent manager. To the respondents. National Labor Relations Commission.000. At any rate. respondents enumerated the following facts and circumstances: (1) Petitioner was an incorporator. petitioner urged the employees under him to stage an unlawful strike by leading them to believe that they have been 15 illegally dismissed from employment. he has One Thousand (1. 036128-03 NLRC SRAB-IV-05-6618-01-B/05-6619-02-B/056620-02-B/10-6637-01-B/10-6833-01-B. cralawredlaw Moreover. STANDS. respondents intended to show from this enumeration that petitioner's removal pertains to his relationship with respondent corporation. petitioner maintains that he is not a corporate officer contrary to the findings of the NLRC and the CA. National Labor Relations Commission cralaw and again. in an attempt to demolish petitioner's claim that the present controversy concerns employer-employee relations. Finally. respondents insist that petitioner who is undisputedly a stockholder of respondent corporation is likewise a corporate officer and that his action against them is an intra-corporate dispute beyond the jurisdiction of the labor tribunals. the assailed decision and resolution of the public respondent National Labor Relations Commission in NLRC NCR CA No. that is. Issues . Hence. he had direct management and authority over all of respondent corporation's skilled employees. cannot be the subject of review under this Petition for Review on Certiorari. And. an action involving the status of a stockholder as such. v. in a blatant and palpable act of disloyalty.

. the present case still constitutes an intra-corporate controversy as petitioner is undisputedly a stockholder and a director of respondent corporation. We declared in this case that it is not the mere existence of an intra-corporate relationship that gives rise to an intra-corporate controversy. whether they are intra-corporate or not.. Our Ruling Two-tier test in determining the existence of intra-corporate controversy Respondents strongly rely on this Court's pronouncement in the 1997 case of Tabang v. The better policy to be followed in determining jurisdiction over a case should be to consider concurrent factors such as the status or relationship of the parties or the nature of the question that is subject of their controversy . however. while Tabang was promulgated later than Mainland Construction Co. partnership or association and the public. viz: chanrob1esvirtwallawlibrary The fact that the parties involved in the controversy are all stockholders or that the parties involved are the stockholders and the corporation does not necessarily place the dispute within the ambit of the jurisdiction of the SEC (now the Regional Trial 19 Court cralaw ). in the 1984 case of DMRC Enterprises v.. Inc. partnership or association and its stockholders. to rely on the relationship test alone will divest the regular courts of their jurisdiction for the sole reason that the dispute involves a corporation. This came to be known as the relationship test. qualification nor any exemption whatsoever. Br. it does not necessarily follow that every conflict between the corporation and its stockholders would involve such corporate matters as only SEC (now the Regional Trial 20 Court cralaw ) can resolve in the exercise of its adjudicatory or quasi-judicial powers. permit or license to operate is concerned. Inc. cralawredlaw In view of this. the core issue to be resolved in this case is whether petitioner's complaint for illegal dismissal constitutes an intra-corporate controversy and thus. Furthermore. Initially. officers. members or officers. The provision is broad and covers all kinds of controversies between stockholders 16 and corporations. 18cralaw or similarly. the Court provided in Mainland Construction 17 Co. that before the promulgation of the Tabang case. chanroblesvirtualawlibrary b) between the corporation. (Emphasis ours) And. In the absence of any one of these factors. Regional Trial Court of Makati. partners. the SEC will not have jurisdiction. to wit: chanrob1esvirtwallawlibrary [A]n intra-corporate controversy is one which arises between a stockholder and the corporation. and d) among the stockholders.. partners or associates themselves. Esta del Sol Mountain Reserve. partnership or association and the State as far as its franchise. regardless of the subject matter of the dispute. The types of relationships embraced under Section 5(b) x x x were as follows: chanrob1esvirtwallawlibrary a) between the corporation.From the foregoing and as earlier mentioned. respondents contend that even if petitioner challenges his being a corporate officer. v. chanroblesvirtualawlibrary c) between the corporation. the Court introduced the nature of the controversy test. the "better policy" enunciated in the latter appears to have developed into a standard approach in classifying what constitutes an intra-corporate controversy. We saw that there is no legal sense in disregarding or minimizing the value of the nature of the transactions which gives rise to the dispute. beyond the jurisdiction of the Labor Arbiter. 142. Movilla cralaw a "better policy" in determining which between the Securities and Exchange Commission (SEC) and the Labor Arbiter has jurisdiction over termination disputes. National Labor Relations Commission. Inc. cralaw to wit: chanrob1esvirtwallawlibrary Intra-Corporate Controversy A review of relevant jurisprudence shows a development in the Court's approach in classifying what constitutes an intracorporate controversy. or stockholders. The existence of any of the above intra-corporate relations was sufficient to confer jurisdiction to the SEC (now the RTC). its directors. This is 21 explained lengthily in Reyes v. However. It is worthy to note. There is no distinction. . the main consideration in determining whether a dispute constitutes an intra-corporate controversy was limited to a consideration of the intra-corporate relationship existing between or among the parties.

between any or all of them and the corporation. What then is the nature of petitioner's Complaint for Illegal Dismissal? Is it intra-corporate and thus beyond the jurisdiction of the Labor Arbiter? We shall answer this question by using the standards set forth in the Reyes case. but as an alleged corporate officer. and (2) the nature of the question that is the subject of their controversy. but not limited to. cashier. While the By-Laws of respondent corporation provides that the Board may from time to time appoint such officers as it may deem necessary or proper. the vice-president. The first element requires that the controversy must arise out of intra-corporate or partnership relations between any or all of the parties and the corporation. the case does not involve an intra-corporate controversy. it is necessary to determine if petitioner is a corporate officer of respondent corporation so as to establish the intra-corporate relationship between the parties. however. This two-tier test was adopted in the recent case of Speed Distribution Inc.] Guided by this recent jurisprudence. or association and the State insofar as it concerns the individual franchises. partnership. and is to be heard and decided by the branches of the RTC specifically designated by the Court to try and decide such cases. petitioner claims to be a mere employee of respondent corporation rather than as a corporate officer. we thus find no merit in respondents' contention that the fact alone that petitioner is a stockholder and director of respondent corporation automatically classifies this case as an intra-corporate controversy. members or associates. Hence. These are the president. and between such corporation. The second element requires that the dispute among the parties be intrinsically connected with the regulation of the corporation. Court of Appeals: 'To determine whether a case involves an intra-corporate controversy. If the nature of the controversy involves matters that are purely civil in character. secretary and the treasurer. And albeit respondents claim that the determination of whether petitioner is a corporate officer is a question of fact which this Court cannot pass upon in this petition for review on certiorari. partnership. There are three specific officers whom a corporation must have under Section 25 of the Corporation Code. members or associates. A corporation may have such other officers as may be provided for by its by-laws like." cralawredlaw . but must as well pertain to the enforcement of the parties' correlative rights and obligations under the Corporation Code and the internal and intra-corporate regulatory rules of the corporation. The number of corporate officers is thus limited by law and by the 22 corporation's by-laws. respectively. necessarily. therefore. but also the nature of the question under controversy. No intra-corporate relationship between the parties As earlier stated. partnership or association of which they are stockholders. For these reasons. The Court then combined the two tests and declared that jurisdiction should be determined by considering not only the status or relationship of the parties. 902-A are those officers of the corporation who are given that character by the Corporation Code or by the corporation's by-laws. The controversy must not only be rooted in the existence of an intra-corporate relationship. "'Corporate officers' in the context of Presidential Decree No. If the relationship and its incidents are merely incidental to the controversy or if there will still be conflict even if the relationship does not exist. we shall nonetheless proceed to consider the same because such question is not the main issue to be resolved in this case but is merely collateral to the core issue earlier mentioned. petitioner is involved in this case not in his capacity as a stockholder or director. auditor or general manager. he was never elected to said position nor was he appointed thereto by the Board of Directors. the incidents of that relationship must also be considered for the purpose of ascertaining whether the controversy itself is intra-corporate. In applying the relationship test.Under the nature of the controversy test. There are other factors to consider in determining whether the dispute involves corporate matters as to consider them as intra-corporate controversies. two elements must concur: (a) the status or relationship of the parties. he avers that respondents failed to present any board resolution that he was appointed pursuant to said By-Laws. not all conflicts between the stockholders and the corporation are classified as intra-corporate. The number of officers is not limited to these three.' [Citations omitted. petitioner's status as a stockholder and director of respondent corporation is not disputed. Petitioner negates his status as a corporate officer by pointing out that although he was removed as Manager through a board resolution. then no intra-corporate controversy exists. We find merit in petitioner's contention. To reiterate. What the parties disagree on is the finding of the NLRC and the CA that petitioner is a corporate officer. a position which respondents claim to be a corporate office. reveals that the root of the controversy is petitioner's dismissal as Manager of respondent corporation. v. An examination of the complaint for illegal dismissal. He instead alleges that he was hired as Manager of respondent corporation solely by respondent Abe. or association of which they are not stockholders.

000. Any two (2) or more positions may be held concurrently by the same person. the above-quoted inconsistencies in their allegations as to how petitioner was placed in said position. Inc. receiving a salary of P 25. moral damages and attorney's fees. x x x cralaw (Emphasis ours) We have however examined the records of this case and we find nothing to prove that petitioner's appointment was made pursuant to the above-quoted provision of respondent corporation's By-Laws. he was tasked to oversee the operations of the company. As such. For one. No copy of board resolution appointing petitioner as Manager or any other document showing that he was appointed to said position by action of the board was submitted by respondents. (2) respondents' loss of trust and confidence on petitioner. 1998.Respondents claim that petitioner was appointed Manager by virtue of Section 1. x x x (Emphasis ours) xxx As earlier stated. The Board. respondents terminated the services of petitioner for the following reasons: (1) his continuous absences at his post at Ogino Philippines. Co. Having said this. Vice-President. Complainant-appellee Renato Real was appointed as the manager of respondent-appellant Sangu on November 6. Priorly [sic]. at Mito-shi. appoint such other officers as it may determine to be necessary or proper. only leads this Court to believe otherwise. Present controversy does not relate to intra-corporate dispute We now go to the nature of controversy test. it is not difficult to see that the reasons given by respondents for dismissing petitioner have something to do with his being a Manager of respondent corporation and nothing with his being a director or stockholder. petitioner's continuous absences in his post in Ogino relates to his performance as Manager.00 . except that no one shall act as President and Treasurer or Secretary at the same time. petitioner filed a complaint for illegal dismissal and sought reinstatement. and. one of respondent-appellant Sangu's Board of Directors. Hence. we cannot subscribe to their claim that petitioner is a corporate officer. What we found instead were mere allegations of respondents in their various pleadings24cralaw that petitioner was appointed as Manager of respondent corporation and nothing more. if complainant-appellee Renato Real could work as one of its employees here in the Philippines because he had been blacklisted at Japan's Immigration Office and could no longer go back to Japan. He was staying in Japan as an illegal alien for the past eleven (11) years. respondents failed to prove that petitioner was appointed by the board of directors. (3) to cut down operational expenses to reduce further losses being experienced by the corporation. "The Court has stressed time and again that allegations must be proven by sufficient evidence because mere allegation is definitely not evidence."25 cralawredlaw It also does not escape our attention that respondents made the following conflicting allegations in their Memorandum on 26 Appeal cralaw filed before the NLRC which cast doubt on petitioner's status as a corporate officer. x x x While respondents repeatedly claim that petitioner was appointed as Manager pursuant to the corporation's By-Laws."27cralaw Clearly here. coupled by the fact that they failed to produce any documentary evidence to prove that petitioner was appointed thereto by action or with approval of the board. Second. to wit: chanrob1esvirtwallawlibrary xxx 24. may from time to time. Election/Appointment . From these. Thus. Article IV of respondent corporation's By-Laws which provides: chanrob1esvirtwallawlibrary ARTICLE IV OFFICER Section 1. he was working at Atlas Ltd. respondents' loss of trust and 23 . the Board of Directors shall formally organize by electing the President. Masahiko Shibata. backwages. As earlier stated. Tsutomo Nogami requested Mr. As such. the Secretary at said meeting.Immediately after their election. He had a problem with his family here in the Philippines which prompted him to surrender himself to Japan's Bureau of Immigration and was deported back to the Philippines. And so it was arranged that he would serve as respondent-appellant Sangu's manager. complainant-appellee Renato Real was hired as the manager of respondent-appellant Sangu. his position was reposed with full trust and confidence. Mr. Ibaraki-ken Japan. It has been consistently held that "[a]n 'office' is created by the charter of the corporation and the officer is elected (or appointed) by the directors or stockholders. His former employer. we find that there is no intra-corporate relationship between the parties insofar as petitioner's complaint for illegal dismissal is concerned and that same does not satisfy the relationship test.

as correctly observed by the Labor Arbiter. Said cases are by no means similar to the present case because as discussed earlier. said charges are not sufficient bases for petitioner's termination. petitioner's dismissal was effected without due process of law. petitioner's dismissal was effected through a board resolution and all that petitioner received was a letter . as constituting willful breach of the trust reposed upon petitioner as Manager. "The twin requirements of notice and hearing constitute the essential elements of due process. if he desires. what we have here is a case of termination of employment which is a labor controversy and not an intracorporate dispute. The Court declared all these cases as involving intra-corporate 34 controversies and thus affirmed the jurisdiction of the SEC (now the RTC) cralaw over them precisely because they all relate to corporate officers and their removal or non-reelection to their respective corporate positions. leaving no root or branch to bear the seeds of litigation. it is clear that the CA erred in affirming the decision of the NLRC which dismissed petitioner's complaint for lack of jurisdiction. Rather. The law requires the employer to furnish the employee sought to be dismissed with two written notices before termination of employment can be legally effected: (1) a written notice apprising the employee of the particular acts or omissions for which his dismissal is sought in order to afford him an opportunity to be heard and to defend himself with the assistance of counsel. think that same is a mere afterthought on their part to make it appear that the present case involves an element of intracorporate controversy." cralaw "It is already an accepted rule of procedure for us to strive to settle the entire controversy in a single proceeding. We take note of the cases cited by respondents and find them inapplicable to the case at bar. With the foregoing. At any rate. cralaw It was only after respondents invoked the Labor Arbiter's lack of jurisdiction over petitioner's complaint in the Supplemental 29 Memorandum of Appeal cralaw filed before the NLRC that respondents started considering said acts as such. To reiterate. when petitioner sought for reinstatement. If." cralaw Here. the pleadings. respondents actually want to save on the salaries and other remunerations being given to petitioner as its Manager. This is because before the Labor Arbiter. respondents failed to produce any convincing proof to support the grounds for which they terminated petitioner." 39cralaw Since in this case. cralawredlaw Moreover. one of respondents' clients. Third. we thus hold that petitioner's complaint for illegal dismissal against respondents is not intra-corporate. Thus. we hold that petitioner's complaint likewise does not satisfy the nature of controversy test. the Court normally remands the case to the NLRC and directs it to properly dispose of the case on the merits. however. Fortune Cement Corporation v. As to the charge of breach of trust allegedly committed by petitioner when he established a new company engaged in the same line of business as respondent corporation's and submitted proposals to two of the latter's clients while he was still a Manager. With the elements of intra-corporate controversy being absent in this case. This procedure is mandatory and its absence taints the dismissal with illegality. petitioner here is not a corporate officer. respondents did not see such acts to be disloyal acts of a 28 director and stockholder but rather. Respondents contend that petitioner has been absent for several months. the fact that petitioner was still able to collect his salaries after his alleged absences casts doubts on the truthfulness of such charge. we have reviewed the records of this case and we agree with the Labor Arbiter that under the circumstances. National Labor Relations Commission cralaw both concern a complaint for illegal dismissal by corporate officers who were not re-elected to their respective corporate positions. But just like in the charge of absenteeism. we shall proceed to do so. we. there is no showing that an investigation on the matter was done and that disciplinary action was imposed upon petitioner. Leano cralaw and Pearson & 33 George v." cralaw We have gone over the records before us and we are convinced that we can now altogether resolve the issue of the validity of petitioner's dismissal and hence. In sum. falls under the 30 jurisdiction of the Labor Arbiter pursuant to Section 217 cralaw of the Labor Code. the Court may dispense with the time-consuming procedure of remand in order to prevent further delays in the 35 disposition of the case. we will do so to serve the ends of justice instead of remanding the case to the lower 36 court for further proceedings. the onus probandi rests on the employer to prove that [the] dismissal of an employee is for a valid 37 cause. he wanted to recover his position as Manager. in saying that they were dismissing petitioner to cut operational expenses. allegations must be proven by sufficient evidence because mere allegation is 38 definitely not evidence. Petitioner's dismissal not in accordance with law "In an illegal dismissal case. based on the records. yet they failed to present any proof that petitioner was indeed absent for such a long time. the dispute can be resolved by us.Philippine School of Business Administration v. earlier declared to be not a corporate position. Also. we again observe that these are mere allegations without sufficient proof. He is not trying to recover a seat in the board of directors or to any appointive or elective corporate position which has been declared vacant by the board. however. a position which we have. In cases such as this. "However. Respondents likewise allege that petitioner engaged in a heated argument with the employees of Epson. and other evidence. 31 National Labor Relations Commission cralaw involves a member of the board of directors and at the same time a corporate officer who claims he was illegally dismissed after he was stripped of his corporate position of Executive Vice-President because 32 of loss of trust and confidence. and (2) a subsequent notice informing the employee of the employer's decision to dismiss him. when there is enough basis on which a proper evaluation of the merits of petitioner's case may be had.confidence in petitioner stemmed from his alleged acts of establishing a company engaged in the same line of business as respondent corporation's and submitting proposals to the latter's clients while he was still serving as its Manager. While we note that respondents also claim these acts as constituting acts of disloyalty of petitioner as director and stockholder. it is a termination dispute and. Certainly. On the other hand. consequently.

And. 2003 Decision of the Labor Arbiter with respect to petitioner Renato Real is AFFIRMED and this case is ordered REMANDED to the National Labor Relations Commission for the computation of petitioner's backwages and attorney's fees in accordance with this Decision. the abovementioned procedure was clearly not complied with. 2005 Decision of the Court of Appeals insofar as it affirmed the National Labor Relations Commission's dismissal of petitioner's complaint for lack of jurisdiction. we agree with the findings of the Labor Arbiter that petitioner has been illegally dismissed. The assailed June 28. Considering that petitioner has to secure the services of counsel to protect his interest and necessarily has to incur expenses. the petition is hereby GRANTED. WHEREFORE. All told. SO ORDERED. is hereby REVERSED and SET ASIDE. The June 5.informing him of the board's decision to terminate him. cralaw we affirm the Labor Arbiter's judgment ordering petitioner's reinstatement to his former position without loss of seniority rights and other privileges and awarding backwages from the time of his dismissal until actually reinstated. . we likewise affirm the award of attorney's fees which is equivalent to 10% of the total backwages that respondents must pay petitioner in accordance with this Decision. as an illegally dismissed 40 employee is entitled to the two reliefs of backwages and reinstatement.

00) in cash or surety bond provided by a surety company of reputable solvency. D ECISION PANGANIBAN. and certiorari DENIED. officers [and] employees to refrain [from] obstructing or meddling in the operation and management thereof or x x x otherwise committing acts inimical to the interest of plaintiffs in the management or operation of the same. the defendants. a Lease and Development Agreement was executed by respondent UIG and petitioner SBMA under which respondent UIG shall lease from petitioner SBMA the Binictican Golf Course and appurtenant facilities thereto to be transformed into a world class 18-hole golf course. UNIVERSAL INTERNATIONAL GROUP OF TAIWAN. 45501. DISMISSEDfor lack of merit. a judicial determination of the issue is still necessary before a takeover may be allowed. respondents do not deny that there was such a breach of the Agreement. MANUEL W. He shall. VENTURA. Petitioners. remain as defendant in his official capacity. officers and employees. Defendants Amended and Consolidated Motion To Dismiss is hereby DENIED for lack of merit.5 which was affirmed by the appellate court. QUIJANO and RAYMOND P. The second RTC Order.. as it is hereby. and all persons acting in their behalf are directed to restore peacefully to the plaintiffs all possession of the golf course. The Injunction bond is fixed at One Million Pesos (P1. GORDON. premises considered. The Facts The undisputed facts are summarized by the Court of Appeals as follows: 8 1 2 On 25 May 1995. disposed of petitioners Motion to Dismiss as follows:7 WHEREFORE. 2000] SUBIC BAY METROPOLITAN AUTHORITY. The Motion to Dismiss filed by Richard J. offices and other appurtenances subject of the Lease and Development Agreement between UIG Taiwan and the SBMA. clubhouse.000. also dated October 3. and the foregoing p[re]mises considered. Respondents. v. the other party may validly enforce such stipulation. golf club/resort. 6 granted herein respondents application for a writ of preliminary mandatory and prohibitory injunction in this wise: WHEREFORE. September 14. and the said defendants. their agents. The decretal portion of the CA Decision reads as follows: WHEREFORE. But when a valid objection is raised.R.[G. The Orders 3 of the respondent court both dated 03 October 1997 hereby STAND. premises considered. Default (a) The following acts and omissions shall constitute default by Tenant (each an Event of Default): xxx . Inc. the Petition is. until the parties may be heard on the merits of the case. J. The contract in pertinent part contains pre-termination clauses. which provide: Section 22. 131680. UIG INTERNATIONAL DEVELOPMENT CORPORATION and SUBIC BAY GOLF AND COUNTRY CLUB. The first Order4 of the Regional Trial Court (RTC) of Olongapo City (Branch 73).000. No. RICHARD J. FERDINAND M. 1997 Decision of the Court of Appeals (CA) in CA-GR SP No. In the present case. they merely argue that the stipulation allowing a rescission and a recovery of possession is void. Hence. The Case Before us is a Petition under Rule 45 of the Rules of Court assailing the December 3. ARISTORENAS. 1997.: A stipulation authorizing a party to extrajudicially rescind a contract and to recover possession of the property in case of contractual breach is lawful. and their agents. however. commercial tourism and residential center. however. Gordon is [g]ranted insofar as the suit against him is concerned in his private or personal capacity.

The Issues 13 11 9 . Inc. in which the Supreme Court allowed a contractual stipulation giving the lessor the right to take possession of the leased property without need of court order. private respondent filed a complaint against petitioner SBMA for Injunction and Damages with prayer for a writ of temporary restraining order and writ of preliminary injunction. (i) Terminate this Lease thirty (30) days after the expiration of any period granted hereunder to cure any Event of Default and retain all rent and other amounts previously paid by tenant and its Subsidiaries. fees and damages owned by Tenant and its Subsidiaries. Likewise. Furthermore. On 12 September 1997. On even date. failed to comply with its undertakings. having entered into a Lease Development Agreement (LDA) with it. Ruling of the Court of Appeals The Court of Appeals upheld the capacity to sue of Respondent Universal International Group of Taiwan (UIG) because petitioners. and to post the required performance bond. Concluding.. On 3 October 1997. and cancel all rights and privileges granted to Tenant and its Subsidiaries without any restriction on recovery by Landlord for rents. were estopped from questioning its standing. petitioner served the formal notice of closure of Subic Bay Golf Course and took over possession of the subject premises. Private respondents paid the rental arrearages but the other obligations remained unsatisfied.10 While it conceded that the law allowed extrajudicial rescission of a contract. Respondent UIG. renovate or relet all or part of the Property to others. or. at Landlords sole discretion. Landlord may. interposed as an excuse the alleged default of its main contractor FF Cruz. petitioner SBMA sent a letter to private respondent UIG declaring the latter in default of its contractual obligations to SBMA under Section 22. To hold otherwise would be productive of nothing but mischief and chaos. Disagreeing with the above judgment. respondent court issued the two assailed orders subject of the petition. covenants or agreements herein made by Tenant or such Subsidiary (other than those described in Sections 22. not common but not unknown in the body of our jurisprudence. petitioners elevated the matter to this Court. it held that the issuance of the Writ of Preliminary Injunction did not dispose of the main issue.1 of the Lease and Development Agreement and required it to show cause why petitioner SBMA should not pre-terminate the agreement. (SBGCCI) were real parties in interest because they had made substantial investments in the venture and had been in possession of the property when Subic Bay Metropolitan Authority (SBMA) rescinded the LDA. a letter of pre-termination was served by petitioner SBMA requiring private respondent UIG to vacate the premises. It reasoned that no one may take the law into his own hands. however. Landlord may immediately reenter.(ii) Tenant or any of its Subsidiaries shall commit a material breach or violation of any of the conditions. in its letter of 7 February 1997. resulting in their filing of suit against the latter. It also rejected petitioners reliance on Consing v. On 8 September 1997. It also held that Respondents UIG International Development Corporation (UIGDC) and Subic Bay Golf and Country Club. it debunked petitioners submission that Section 21 of RA 7227 was a blanket proscription against the issuance of any and all injunctive relief[s] against SBMA. On 7 March 1997. Jamandre.2 [a] [l] and such violation or failure shall continue for thirty (30) days after notice from the Landlord. It said that those actions which are removed from the stated objectives of the corporate entity x x x cannot be placed beyond the pale of prohibitory writs. and committed itself to comply with its obligations within a few days. xxx (b) If an event of default shall have occurred and be continuing. which lays down a ruling contrary to the 12 teaching of the greater mass of cases. Thereafter. It explained that Consing was a judicial aberration. and to pay accumulated lease rentals and utilities. it ruled that no rationalization was possible for the extrajudicial taking of possession. Petitioner SBMA sent a letter to private respondent UIG calling its attention to its alleged several contractual violations in view of private respondent UIGs failure to deliver its various contractual obligations. it observed that we cannot and should not send the message to foreigners who do business here that we are a group of jingoists who cannot look beyond our narrow interests and must look at every stranger with a wary eye and treat them with uneven hands. in its sole discretion. Private respondent UIG. On 4 February 1997. sixty (60) days if such violations or failure is reasonably susceptible of cure during such 60 day period and Tenant or such Subsidiary begins and diligently pursues to completion such cure within thirty (30) days of the initial notice from Landlord. primarily its failure to complete the rehabilitation of the Golf Course in time for the APEC Leaders Summit.

Whether or not respondent court committed a reversible error in ruling that private respondents ha[d] the capacity to sue and possess material interest to institute an action against petitioners. IX. in violation of Section 4. IV. Whether or not in the event of a no reversible error judgment. Whether or not respondent court committed a reversible error by departing from the accepted and usual course of judicial proceedings by sustaining the grant of injunctive relief in favor of the private respondents although the latter [we]re clearly not entitled thereto as they came before the courts with unclean hands. VII. 14 Whether or not the respondent court committed a reversible error in ruling that petitioners action of extra-judicially recovering the possession of the subject premises is supposedly illegal [as it] runs counter to the established law and [the] applicable decisions of the Supreme Court on the matter. VI.In its Memorandum. Whether or not respondent court committed a reversible error by departing from the accepted and usual course of judicial proceedings by sustaining the grant of injunctive relief which effectively prejudged the merits of the main case. Whether or not respondent court committed a reversible error in departing from the accepted and usual course of judicial proceedings by sanctioning the illegal procedure of taking possession of the subject premises from petitioner SBMA and transferring it into the hands of the private respondents. this Honorable Division of the Supreme Court might modify or even reverse the doctrines and principles of law laid down by the Supreme Court in several leading cases. Whether or not the respondent court committed a reversible error in ruling that: (a) The trial court ha[d] jurisdiction over the nature and subject matter of the case despite the fact that the suit filed by private respondents is essentially an ejectment case. Whether or not in the event of a no reversible error judgment on the questioned decision of the respondent court. Whether or not the respondent court committed a reversible error by sanctioning departure by the trial court from the accepted and usual course of judicial proceedings by failing to make any ruling on the essential elements of injunctive relief consisting of: (1) a clear and unmistakable right and (2) irreparable damage on the part of the private respondents. this Honorable Division of the Supreme Court might unwittingly cause great loss or irreparable damage to the government because such a ruling tend[ed] to send a wrong signal that Philippine Courts [would] reward rather than punish foreign investors who miserably failed to comply with their contractual commitments to develop vital government assets. and (b) The trial court ha[d] authority to issue the questioned injunctive relief despite the express prohibition under Section 21 of R.A. 7227 III. . VIII. V. Petitioner SBMA submits the following issues for our consideration: I. Article VIII of the 1987 Philippine Constitution. although the rights of the latter ha[d] not yet been clearly established. II.

the Court ruled: The rule is that a party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it. Reiterating the arguments before us. a domestic firm is estopped from denying 17 the formers capacity to sue. petitioners contended that UIG had no capacity to sue. The principle will be applied to prevent a person contracting with a foreign corporation from later taking advantage of its noncompliance with the statutes. and (b) whether the issuance of the Writ of Preliminary Mandatory and Prohibitory Injunction was proper. Isnani and Communication Materials and Design v. 18 . but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws. Section 133 of the Corporation Code specifically provides: Sec. After contracting with a foreign corporation. suit or proceeding in any court or administrative agency of the Philippines. The CA correctly affirmed the denial of the Motion to Dismiss. It should be stressed. In Antam Consolidated v. The Courts Ruling The Petition is partly meritorious. A corporation has legal status only within the state or territory in which it was organized. Without such license. shall be permitted to maintain or intervene in any action. one who has dealt with a corporation of foreign origin as a corporate entity is estopped to deny its existence and capacity. petitioners add that the RTC had no jurisdiction over the nature of the case. and (3) whether SBMAs rescission of the LDA and takeover of the property are allowed by law. As a general rule. it must acquire a license from the SEC and appoint an agent for service 15 of process. however. This doctrine was initiated as early as 1924 in Asia Banking Corporation v. Both the appellate and the trial courts rejected these contentions. but erred in sustaining the Writ of Preliminary Mandatory and Prohibitory Injunction. First Issue: Denial of the Motion to Dismiss In its amended Motion to Dismiss filed before the RTC. In order to subject a foreign corporation doing business in the country to the jurisdiction of our courts. we find two main issues before us: (a) whether the denial of petitioners Motion to Dismiss was correct. unlicensed foreign non-resident corporations cannot file suits in the Philippines. CA. They contend that the capacity to sue is conferred by law and not by the parties. the Court also rejected a similar argument and noted that it is a common ploy of defaulting local companies which are sued by unlicensed foreign companies not engaged in business in the Philippines to invoke lack of capacity to sue. the Court shall determine these questions: (1) whether the Writ of Injunction against SBMA issued by the trial court contravenes Section 21 of RA 7227. and (3) whether the RTC has jurisdiction over the suit. or its successors or assigns. CA. Standard Products and reiterated in Georg Grotjahn 19 20 21 GMBH v. CA. No foreign corporation transacting business in the Philippines without a license.Distilling the above-quoted assignment of errors. 133. (a) Respondents Capacity to Sue Petitioners contend that UIG does not have the capacity to sue because it is a foreign non-resident corporation not licensed by the Securities and Exchange Commission to do business in the Philippines. Under the second issue. it cannot institute a suit in the Philippines. For this reason. And the doctrine of estoppel to deny corporate existence applies to foreign as well as to domestic corporations. (2) whether respondents have established their entitlement to the Writ. a corporation organized in another country has no personality to file suits in the Philippines. Hence. in Merril Lynch Futures v. (2) whether Respondents UIGDC and SBGCCI are real parties in interest. the Court shall resolve (1) whether Respondent UIG has the capacity to sue. and that UIGDC and SBGCCI had no material interest in the present case. Under the first issue. that the licensing requirement was never intended to favor domestic corporations who enter into solitary transactions with unwary foreign firms and then repudiate their obligations simply because the latter are not 16 licensed to do business in this country. chiefly in cases where such person has received the benefits of the contract x x x.

Section 21 of RA 7227 prohibits only such court orders which restrain the implementation of the projects for the conversion into alternative productive uses of the military reservations. The Writ issued in this case did not restrain or enjoin the implementation of any of SBMAs conversion projects. every action must be 22 prosecuted or defended in the name of the real party in interest. it also found that they had already made substantial investments in the project. In like manner. Injunction and Restraining Order. In entering into the LDA with UIG. 2. the assailed RTC Order did not seek to delay or hamper the conversion of the former naval base into civilian uses. A close scrutiny of the amended Complaint reveals that it sought to enjoin petitioners from rescinding the contract and taking over the property. the assailed Writ of Preliminary Injunction was issued in connection with a dispute pertaining to the correct interpretation of the LDA. We are not persuaded. The main issue was whether SBMA could rescind the Agreement. pursuant to Section 21 of RA 7227 which provides as follows: Sec. not now but in appropriate proceedings before the trial court.In this case. however. Because it was a dispute that was incapable of pecuniary estimation. Moreover. In fact. -. SBMA effectively recognized its personality and capacity to institute the suit before the trial court. (b) Material Interest of SBGCCI and UIGDC Section 2. To divest the trial court of that authority is to give SBMA unhampered discretion to disregard its . We find no reason at this time to justify a different conclusion. Parties in Interest. it allowed UIG to proceed with the development of the golf course pursuant to the LDA. SBGCCI had no interest in the LDA because it only derived its rights from the Development Agreement it had entered into with UIGDC. It further alleges that it did not approve the assignment to UIGDC of UIGs rights thereunder. which was allegedly an ejectment suit cognizable by municipal trial courts. We disagree.is not necessarily bereft of merit. it was within the jurisdiction of the RTC. They add that the Complaint demanded that respondents be restored to the possession of the subject leased premises. Moreover. 25 We are not persuaded.The implementation of the projects for the conversion into alternative productive uses of the military reservations is urgent and necessary and shall not be restrained or enjoined except by an order issued by the Supreme Court of the Philippines.that it had not approved UIGs assignment of rights to UIGDC -. . In view of these circumstances. SBMA is estopped from questioning the capacity to sue of UIG. It merely restrained SBMA from taking over the golf course. 21. Unless otherwise authorized by law or these Rules. While possession was a necessary consequence of the suit. (c) Jurisdiction Over the Subject Matter Petitioners also argue that the RTC had no jurisdiction over the case. defines a real party in interest in this manner: Sec. The CA made a factual finding that UIGDC and SBGCCI were in possession of the property when SBMA took over. Rule 3 of the 1997 Rules of Court. We agree with the CA that the present provision is not a blanket prohibition of the issuance of an injunctive relief against any SBMA action. 24 Second Issue: Issuance of the Writ of Injunction (a) Present Writ of Injunction Not Barred by RA 7227 Petitioners contend that the RTC was barred from issuing a writ of injunction in this case. SBMA contends that UIGDC is not a real party in interest because it was not privy to the LDA between UIG and SBMA. SBMAs contention -. or the party entitled to the avails of the suit.A real party in interest is the party who stands to be benefited or injured by the judgment of the suit. we agree with the CA that UIGDC and SBGCCI stand to be 23 benefitted or injured by the present suit and should be deemed real parties in interest. Clearly. SBMA should raise this issue. it was merely incidental.

On this point. That case was purportedly applicable because it involved a similar contractual stipulation. 1997 was effectively a preliminary mandatory injunction because it directed [herein petitioners] to restore peacefully to the [herein respondents] possession of the golf course. a mandatory injunction does not preserve the status quo and is thus more cautiously regarded than a mere prohibitive injunction. Indeed. 28 27 Because it commands the performance of an act. the applicant has the burden of showing that it is entitled to the writ. Vacante. the Court is of the considered view that the forcible take over [by] the [petitioners] of the golf course and its appurtenances is not legally justifiable. the [respondents] have established a clear right to continue the operation and management of the golf course. it relied on the provisions of the LDA. it emphasized that there was no rationalization for SBMAs extrajudicial takeover of the disputed property. it ruled in 30 this wise: From all the foregoing. In doing so. there is legal basis for petitioners rescission of the contract and takeover of the property without any court order. but that the extrajudicial takeover of the property was not. Like the RTC. which we quoted earlier. we find no proof of a clear and unmistakable right on their part to continue the operation and the development of the golf course. The right of a complainant is clear and unmistakable. which reads as follows: 12. The Court of Appeals held that the extrajudicial rescission of the LDA was lawful. Mariano. There is an urgent and permanent necessity for the writ to prevent serious damage. In addition. offices and other appurtenances subject of the Lease and Development Agreement between UIG Taiwan and the SBMA. 2. (b) Right of Respondents to Injunctive Relief A writ of mandatory injunction requires the performance of a particular act and is granted only upon a showing of the following requisites: 1. Necessarily. Section 21 of RA 7227 should not bar judicial 26 scrutiny of irregularities allegedly committed by SBMA. however. building and other improvements which are 32 29 . clubhouse. In this case. Under the LDA. SBMA rescinded the LDA and took over the possession. In other words. (c) Legality of SBMAs Rescission of the LDA and Takeover of the Property Because of UIGs failure to comply with several of its contractual undertakings. the issuance of the former is justified only in a clear case. 3. A stipulation entitling one party to take possession of the land and building if the other party violates the contract does not ex proprio vigore confer upon the former the right to take possession thereof if objected to without judicial intervention and determination. the operation and the management of the property without any judicial imprimatur. the RTC based its assailed Order mainly on the ground that SBMAs takeover was not legally justifiable. Accordingly. the first assailed RTC Order dated October 3. BUYER automatically and irrevocably authorizes OWNER to recover extra-judicially. Thus. and x x x continued withholding of the premises by the [petitioners] will result to irreparable damages to [respondents]. the CA did not make any categoriuling that respondents established a clear and unmistakable right to the Writ. That upon failure of the BUYER to fulfill any of the conditions herein stipulated. As we will now show. which reiterated the above-quoted ruling. The records. free from doubt and dispute. Based on the evidence adduced during the hearing.contractual obligations under the guise of implementing its projects. Furthermore.31 in which the Supreme Court held: x x x. we disagree with the trial and the appellate courts. it was also a prohibitive injunction because it restrained petitioners from obstructing or meddling in the operation and management of the disputed property. do not show that herein respondents were indubitably entitled to a mandatory writ. physical possession of the land. Indeed. It relied on Nera v. both the CA and the trial court effectively ruled that respondents are entitled to the Writ of Mandatory Injunction because SBMAs action was not in accordance with law. It also cited Zulueta v. The invasion of the right is material and substantial.

the stipulation is lawful. however. Jamandre. which were duly reported by SBMA to UIG. they coexist. Ruling in favor of UP.Consing was reiterated in 1991 in Viray v. First. Indeed. and may disregard the same before any judicial pronouncement to that effect.35 Affirming this ruling.subject of this contract. without previous court action.) The Court also noted that the rescission was provisional and subject to scrutiny and review by the proper court. IAC36 reiterated that the stipulation was in the nature of a resolutory condition. the party injured by the others breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages. In the present case. the Court held that this kind of contractual stipulation is not illegal.38 Force or bloodshed cannot be justified in the enforcement of the stipulation. Like Nera. however. In fact. the Amended Complaint merely argued that the takeover was grounded upon a void provision of the agreement. (Emphasis supplied. x x x. the lessors may apply for a writ of preliminary mandatory injunction. It further noted that if the other party denies that rescission is justified. overturned Consing. instead of the rescinder. Hence. there being nothing in the law proscribing such kind of agreement. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. Because Zuluetawas a subsequent Decision. Significantly. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. Where it is objected to. the issue was whether [P]etitioner UP can treat its contract with ALUMCO rescinded. they did not categorically rule that such stipulation was void. Respondents. and bring the matter to court. glaring was respondents failure to deny the alleged violations of the LDA. because after the promulgation of Zulueta. a party is free to enforce it by rescinding the contract and recovering possession of the property even without court intervention. there is a rationalization and a legal justification for the stipulation authorizing SBMA to rescind the contract and to take over the property. It should be noted also that the CA erred in holding that Zulueta. contrary to the ruling of the CA and the RTC. it is free to resort to judicial action in its own behalf. Otherwise. In fact. Pursuant to a stipulation similar to that in the present case. there were several violations of the LDA. the Court in Viray v. Where it is objected to. therefore. to which they have a clear and unmistakable right. Effectively. Indeed. It observed that the practical effect of the stipulation [was] to transfer to the defaulter the initiative of instituting suit. Moreover. We disagree. the University of the Philippines (UP) rescinded its Logging Agreement with ALUMCO and subsequently appointed another concessionaire to take over the logging operation. but it proceeds at its own risk. they offered no valid or sufficient objection to SBMAs exercise of its stipulated right to extrajudicially rescind the LDA and take over the property in case of material breach. the Court held that a party could enforce such stipulation: [T]he party who deems the contract violated may consider it resolved or rescinded. IAC. De los Angeles is instructive on this point. It did not controvert the grounds for SBMAs exercise of its rights under the subject stipulation. it supposedly overturned the diametrically opposed earlier ruling in Consing v. for upon the exercise by the sub-lessor of his right to take possession of the leased property. Where the lessees offer physiesistance. did not deny or controvert them. The CA logic is 34 flawed. In Consing. courts are the final arbiters. Thus. it should be underscored that these cases are not diametrically opposed to each other. a judicial determination of the issue is still necessary. being a later case. and this contract shall be considered as without force and effect also from said date. Moreover. 33 in which the Supreme Court upheld a contractual stipulation authorizing the sub-lessor to take possession of the leased premises in case of contractual breach. a judicial determination of the issues is still necessary. No Valid Objection on the Part of Respondents As earlier observed. Zulueta merely added the qualification that the stipulation has legal effect x x x where the other party does not oppose it. it is clear that the subject stipulation is allowed by law. and act accordingly. As earlier noted. and to take possession also extra-judicially whatever personal properties may be found within the aforesaid premises from the date of said failure to answer for whatever unfulfilled monetary obligations BUYER may have with OWNER. the contract is deemed terminated. Zuluetaand Nera recognized the validity and the effectivity of a contractual provision authorizing the extrajudicial rescission of a contract and the concomitant recovery of possession. 40 39 37 . At the outset. the CA also ruled that Consing was a judicial aberration. UP v.

respondents shall. SBMA served UIG a Notice of Closure. Jingoism is not an issue here. neither the CA nor the RTC made any finding that there was no breach on the part of UIG. Indeed.Second. It should be underscored that during all these exchanges. Likewise. The said Writ is hereby LIFTED and the case REMANDED to the RTC for trial on the merits. sustaining their claim would unduly diminish the force of such lawful stipulation and allow parties to disregard it at will without any valid reason. 1997. they did not even make any observation that respondents had controverted SBMAs claim. In this case. It is merely affirming the message that in this country. which were explained by Atty. UIG did not controvert its alleged noncompliance with the LDA. SBMA directed UIG to vacate the premises and to settle its outstanding accounts. 1997. the Court holds that they failed to do so in their application for a writ of preliminary injunction. we find no adequate showing of resistance to SBMAs implementation of the subject stipulation. in its February 4. Instead of controverting 41 them. 1997 letter. Ventura. SBMA. 45 on September 12. In the meantime. Instead. Finally. the operation and the management of the subject property to SBMA. Third. however. while Alabado testified that respondents had invested $12 million in the rehabilitation of the golf course. We do not share that view. in a letter dated March 7. SO ORDERED. Under the circumstances. must be complied with. did not deny the violations of their undertaking. Clearly. comptroller of UIGDC.44 In its letter dated September 8. Indeed. declared UIG in default and required it to explain why the LDA should not be terminated. and contracts freely entered into. 46 Respondents. On the other hand. In partially reversing the CA. Raymond P. yield the possession. respondents have not shown any clear and unmistakable right to restrain SBMA from enforcing the contractual stipulation. Moreover. De la Masa testified on the alleged forcible takeover by SBMA. Respondent UIG was given several opportunities by SBMA to explain the alleged violations. No costs. Indeed.and the assailed Decision of the Court of Appeals REVERSEDand SET ASIDE insofar as it affirmed the Writ of Preliminary Injunction issued by the trial court. SBMA showed that it had a right not only to rescind the contract. WHEREFORE. respondents stand was not a valid or sufficient objection to SBMAs exercise of its right. the rule of law prevails. Epilogue The Court of Appeals expressed its apprehension that a ruling against UIG would send a message to foreign investors that we are a group of jingoists. 1997. and Danilo Alabado. this Court is merely performing its mandate to do justice and to apply the law to the facts of the case. SBMA called its attention to several instances showing contractual breach. they have offered no objection to SBMAs allegations of contractual breach. operations manager of SBGCCI. UIG instead indicated its willingness to comply with all its undertakings. respondents miserably failed to give any semblance of objection to the merits of SBMAs allegations. In response. . respondents presented two witnesses: Orlando de la Masa. but also to take over the property. in the hearing for the application for a writ of mandatory injunction. UIGs counsel did not deny the violations and 42 instead apologized for the delay. whether by foreign or by local investors. Most significant. the Petition is partially GRANTED. upon finality of this Decision. Far from it. Without prejudging their right to offer controverting evidence during the trial on the merits. rule of law and faithfulness in the performance of contracts are cherished values everywhere. Finding the response and the explanation unsatisfactory. Hence. its counsel called the SBMA chief operating officer 43 to inform him of its commitment to undertake anew the remedial measures regarding the matter. UIG did not submit any written explanation.