A. G.R. No. L-40620 May 5, 1979 RICARDO L. GAMBOA, LYDIA R. GAMBOA, HONORIO DE 1A RAMA, EDUARDO DE LA RAMA, an !

"# HEIR$ O% MERCEDE$ DE LA RAMA-BORROMEO, petitioners, vs. HON. O$CAR R. &IC'ORIANO a( )*#(+ +n, -. ,# o/ !"# Co.*! o/ %+*(! In(!an0# o/ N#,*o( O00+ #n!a1, B*an0" II, BEN-AMIN LO)UE, $R., BEN-AMIN LO)UE, -R., LEONI'O LO)UE, an LUI$A U. DACLE$respondents. Exequiel T. A Alejandro for petitioners. Acua, Lirazan & Associates for private respondents.

CONCE)CION -R., J,: Petition for certiorari to review the order of the respondent judge, dated January 2, 1975, denying the petitioners' motion to dismiss the comp aint fi ed in !ivi !ase "o. 1#257 of the !ourt of $irst %nstance of "egros &ccidenta , entit ed, "Benjamin Lopue r., et al., plaintiffs, versus !icardo "am#oa, et al., defendants,' as we as the order dated (pri ), 1975, denying the motion for the reconsideration of *aid order. %n the aforementioned !ivi !ase "o. 1#257 of the !ourt of $irst %nstance of "egros &ccidenta , the herein petitioners, +icardo ,. -am.oa, ,ydia +. -am.oa, /onorio de a +ama, 0duardo de a +ama, and the ate 1ercedes de a +ama23orromeo, now represented .y her heirs, as we as +amon de a +ama, Pa4 de a +ama23attistu44i, and 0n4o 3attistu44i, were sued .y the herein private respondents, 3enjamin ,opue, *r., 3enjamin ,opue, Jr., ,eonito ,opue, and ,uisa 5. 6ac es to nu ify the issuance of 728 shares of stoc9 of the %nocentes de a +ama, %nc. in favor of the said defendants. :he gist of the comp aint, fi ed on (pri ), 1972, is that the p aintiffs, with the e;ception of (nastacio 6ac es who was joined as a forma party, are the owners of 1,827 shares of stoc9 of the %nocentes de a +ama, %nc., a domestic corporation, with an authori4ed capita stoc9 of 8,### shares, with a par va ue of P1##.## per share, 2,177 of which were su.scri.ed and issued, thus eaving 728 shares unissued< that upon the p aintiffs' ac=uisition of the shares of stoc9 he d

.y +afae ,edesma and Jose *icangco, Jr., then President and >ice2 President of the corporation, respective y, the defendants 1ercedes +. 3orromeo, /onorio de a +ama, and +icardo -am.oa, remaining mem.ers of the .oard of directors of the corporation, in order to foresta the ta9eover .y the p aintiffs of the afore2named corporation, surreptitious y met and e ected +icardo ,. -am.oa and /onorio de a +ama as president and vice2president of the corporation, respective y, and thereafter passed a reso ution authori4ing the sa e of the 728 unissued shares of the corporation to the defendants, +icardo ,. -am.oa, ,ydia +. -am.oa, /onorio de a +ama, +amon de a +ama, Pa4 +. 3attistu44i 0duardo de a +ama, and 1ercedes +. 3orromeo, at par va ue, after which the defendants /onorio de a +ama, ,ydia de a +ama2-am.oa, and 0n4o 3attistu44i were e ected to the .oard of directors of the corporation< that the sa e of the unissued 728 shares of stoc9 of the corporation was in vio ation of the p aintiffs' and pre2emptive rights and made without the approva of the .oard of directors representing 2?8 of the outstanding capita stoc9, and is in disregard of the strictest re ation of trust e;isting .etween the defendants, as stoc9ho ders thereof< and that the defendants ,ydia de a +ama2 -am.oa, /onorio de a +ama, and 0n4o 3attistu44i were not ega y e ected to the .oard of directors of the said corporation and has un awfu y usurped or intruded into said office to the prejudice of the p aintiffs. @herefore, they prayed that a writ of pre iminary injunction .e issued restraining the defendants from committing, or continuing the performance of an act tending to prejudice, diminish or otherwise injure the p aintiffs' rights in the corporate properties and funds of the corporation, and from disposing, transferring, se ing, or otherwise impairing the va ue of the 728 shares of stoc9 i ega y issued .y the defendants< that a receiver .e appointed to preserve and administer the property and funds of the corporation< that defendants ,ydia de a +ama2 -am.oa, /onorio de a +ama, and 0n4o 3attistu44i .e dec ared as usurpers or intruders into the office of director in the corporation and, conse=uent y, ousting them therefrom and dec are ,uisa 5. 6ac es as a ega y e ected director of the corporation< that the sa e of 728 shares of stoc9 of the corporation .e dec ared nu and void< and that the defendants .e ordered to pay damages and attorney's fees, as we as the costs of suit . 1 (cting upon the comp aint, the respondent judge, after proper hearing, directed the c er9 of court 'to issue the corresponding writ of pre iminary injunction restraining the defendants and?or their representatives, agents, or persons acting in their .eha f from the commission or continuance of any act tending in any way to prejudice, diminish or otherwise injure p aintiffs' rights in the corporate properties and funds of the corporation

%nocentes de a +ama, %nc.' and from disposing, transferring, se ing or otherwise impairing the va ue of the certificates of stoc9 a eged y issued i ega y in their names on $e.ruary 11, 1972, or at any date thereafter, and ordering them to deposit with the ! er9 of !ourt the corresponding certificates of stoc9 for the 728 shares issued to said defendants on $e.ruary 11, 1972, upon p aintiffs' posting a .ond in the sum of P5#,###.##, to answer for any damages and costs that may .e sustained .y the defendants .y reason of the issuance of the writ, copy of the .ond to .e furnished to the defendants. ' 2 Pursuant thereto, the defendants deposited with the c er9 of court the corporation's certificates of stoc9 "os. 7# to 7A, inc usive, representing the disputed 728 shares of stoc9 of the corporation. 2 &n &cto.er 81, 1972, the p aintiffs therein, now private respondents, entered into a compromise agreement with the defendants +amon de a +ama, Pa4 de a +ama 3attistu44i and 0n4o 3attistu44i , 4 where.y the contracting parties withdrew their respective c aims against each other and the aforenamed defendants waived and transferred their rights and interests over the =uestioned 728 shares of stoc9 in favor of the p aintiffs, as fo owsB 8. :hat the defendants +amon ,. de a +ama, Pa4 de a +ama 3attistu44i and 0n4o 3attistu44i wi waive, cede, transfer or other wise convey, as they here.y waive, cede, transfer and convey, free from a iens and encum.rances unto the p aintiffs, in such proportion as the p aintiffs may among themse ves determine, a of the rights, interests, participations or tit e that the defendants +amon ,. de a +ama, Pa4 de a +ama 3attistu44i 0n4o 3attistu44i now have or may have in the eight hundred twenty2three C728D shares in the capita stoc9 of the corporation %"&!0":0* 60,( +(1(, %"!.' which were issued in the names of the defendants in the a.ove2 entit ed case on or a.out $e.ruary 11, 1972, or at any date thereafter and which shares are the su.ject2matter of the present suit. :he compromise agreement was approved .y the tria court on 6ecem.er ), 1972, 5 (s a resu t, the defendants fi ed a motion to dismiss the comp aint, on "ovem.er 19, 197), upon the groundsB C1D that the p aintiffs' cause of action had .een waived or a.andoned< and C2D that they were estopped from further prosecuting the case since they have, in effect, ac9now edged the va idity of the issuance of the disputed 728 shares of stoc9. :he motion was denied on January 2, 1975. 6

:he defendants a so fi ed a motion to dec are the defendants +amon ,. de a +ama, Pa4 de a +ama 3attistu44i and 0n4o 3attistu44i in contempt of court, for having vio ated the writ of pre iminary injunction when they entered into the aforesaid compromise agreement with the p aintiffs, .ut the respondent judge denied the said motion for ac9 of merit. 7 &n $e.ruary 1#, 1975, the defendants fi ed a motion for the reconsideration of the order denying their motion to dismiss the comp aint' and su.se=uent y, an (ddendum thereto, c aiming that the respondent court has no jurisdiction to interfere with the management of the corporation .y the .oard of directors, and the enactment of a reso ution .y the defendants, as mem.ers of the .oard of directors of the corporation, a owing the sa e of the 728 shares of stoc9 to the defendants was pure y a management concern which the courts cou d not interfere with. @hen the tria court denied said motion and its addendum, the defendants fi ed the instant petition for certiorari for the review of said orders. :he petition is without merit. :he =uestioned order denying the petitioners' motion to dismiss the comp aint is mere y inter ocutory and cannot .e the su.ject of a petition for certiorari. :he proper procedure to .e fo owed in such a case is to continue with the tria of the case on the merits and, if the decision is adverse, to reiterate the issue on appea . %t wou d .e a .reach of order y procedure to a ow a party to come .efore this !ourt every time an order is issued with which he does not agree. 3esides, the order denying the petitioners' motion to dismiss the comp aint was not capricious y, ar.itrari y, or whimsica y issued, or that the respondent court ac9ed jurisdiction over the cause as to warrant the issuance of the writ prayed for. (s found .y the respondent judge, the petitioners have not waived their cause of action against the petitioners .y entering into a compromise agreement with the other defendants in view of the e;press provision of the compromise agreement that the same 'sha not in any way constitute or .e considered a waiver or a.andonment of any c aim or cause of action against the other defendants.' :here is a so no estoppe .ecause there is nothing in the agreement which cou d .e construed as an affirmative admission .y the p aintiff of the va idity of the reso ution of the defendants which is now sought to .e judicia y dec ared nu and void. :he foregoing circumstances and the fact that no consideration was mentioned in the agreement for the transfer of rights to the said shares of stoc9 to the p aintiffs are sufficient to show that the agreement was mere y an admission .y the defendants +amon de a +ama, Pa4 de a +ama 3attistu44i and 0n4o 3attistu44i of the va idity of the c aim of the p aintiffs.

:he c aim of the petitioners, in their (ddendum to the motion for reconsideration of the order denying the motion to dismiss the comp aint, =uestioning the tria court's jurisdiction on matters affecting the management of the corporation, is without merit. :he we 29nown ru e is that courts cannot underta9e to contro the discretion of the .oard of directors a.out administrative matters as to which they have egitimate power of, 10 action and contractsintra vires entered into .y the .oard of directors are .inding upon the corporation and courts wi not interfere un ess such contracts are so unconsciona. e and oppressive as to amount to a wanton destruction of the rights of the minority. 11 %n the instant case, the p aintiffs aver that the defendants have conc uded a transaction among themse ves as wi resu t to serious injury to the interests of the p aintiffs, so that the tria court has jurisdiction over the case. :he petitioners further contend that the proper remedy of the p aintiffs wou d .e to institute a derivative suit against the petitioners in the name of the corporation in order to secure a .inding re ief after e;hausting a the possi. e remedies avai a. e within the corporation. (n individua stoc9ho der is permitted to institute a derivative suit on .eha f of the corporation wherein he ho ds stoc9 in order to protect or vindicate corporate rights, whenever the officia s of the corporation refuse to sue, or are the ones to .e sued or ho d the contro of the corporation. %n such actions, the suing stoc9ho der is regarded as a nomina party, with the corporation as the rea party in interest. 12 %n the case at .ar, however, the p aintiffs are a eging and vindicating their own individua interests or prejudice, and not that of the corporation. (t any rate, it is yet too ear y in the proceedings since the issues have not .een joined. 3esides, misjoinder of parties is not a ground to dismiss an action. 12 @/0+0$&+0, the petition shou d .e, as it is here.y 6%*1%**06 for ac9 of merit. @ith costs against the petitioners. *& &+60+06. G.R. No. 125469 O0!o3#* 27, 1997 )HILI))INE $'OC4 E5CHANGE, INC., petitioner, vs. 'HE HONORABLE COUR' O% A))EAL$, $ECURI'IE$ AND E5CHANGE COMMI$$ION an )UER'O A6UL LAND, INC., respondents.

'ORRE$, -R., J.: :he *ecurities and 0;change !ommission is the government agency, under the direct genera supervision of the &ffice of the President, 1 with the immense tas9 of enforcing the +evised *ecurities (ct, and a other duties assigned to it .y pertinent aws. (mong its inumera. e functions, and one of the most important, is the supervision of a corporations, partnerships or associations, who are grantees of primary franchise and?or a icense or permit issued .y the government to operate in the Phi ippines. 2 Just how far this regu atory authority e;tends, particu ar y, with regard to the Petitioner Phi ippine *toc9 0;change, %nc. is the issue in the case at .ar. %n this Petition for +eview on $ertiorari, petitioner assai s the reso ution of the respondent !ourt of (ppea s, dated June 27, 199A, which affirmed the decision of the *ecurities and 0;change !ommission ordering the petitioner Phi ippine *toc9 0;change, %nc. to a ow the private respondent Puerto (4u ,and, %nc. to .e isted in its stoc9 mar9et, thus paving the way for the pu. ic offering of P(,%'s shares. :he facts of the case are undisputed, and are here.y restated in sum. :he Puerto (4u ,and, %nc. CP(,%D, a domestic rea estate corporation, had sought to offer its shares to the pu. ic in order to raise funds a eged y to deve op its properties and pay its oans with severa .an9ing institutions. %n January, 1995, P(,% was issued a Permit to *e its shares to the pu. ic .y the *ecurities and 0;change !ommission C*0!D. :o faci itate the trading of its shares among investors, P(,% sought to course the trading of its shares through the Phi ippine *toc9 0;change, %nc. CP*0D, for which purpose it fi ed with the said stoc9 e;change an app ication to ist its shares, with supporting documents attached. &n $e.ruary 7, 199A, the ,isting !ommittee of the P*0, upon a perusa of P(,%'s app ication, recommended to the P*0's 3oard of -overnors the approva of P(,%'s isting app ication. &n $e.ruary 1), 199A, .efore it cou d act upon P(,%'s app ication, the 3oard of -overnors of the P*0 received a etter from the heirs of $erdinand 0. 1arcos, c aiming that the ate President 1arcos was the ega and .eneficia owner of certain properties forming part of the Puerto (4u 3each /ote and +esort !omp e; which P(,% c aims to .e among

its assets and that the :ernate 6eve opment !orporation, which is among the stoc9ho ders of P(,%, i9ewise appears to have .een he d and continue to .e he d in trust .y one +e.ecco Pan i io for then President 1arcos and now, effective y for his estate, and re=uested P(,%'s app ication to .e deferred. P(,% was re=uested to comment upon the said etter. P(,%'s answer stated that the properties forming part of the Puerto (4u 3each /ote and +esort !omp e; were not c aimed .y P(,% as its assets. &n the contrary, the resort is actua y owned .y $antasia $i ipina +esort, %nc. and the Puerto (4u !ountry ! u., entities distinct from P(,%. $urthermore, the :ernate 6eve opment !orporation owns on y 1.2#E of P(,%. :he 1arcoses responded that their c aim is not confined to the faci ities forming part of the Puerto (4u /ote and +esort !omp e;, there.y imp ying that they are a so asserting ega and .eneficia ownership of other properties tit ed under the name of P(,%. &n $e.ruary 2#, 199A, the P*0 wrote !hairman 1agtanggo -unigundo of the Presidentia !ommission on -ood -overnment CP!--D re=uesting for comments on the etters of the P(,% and the 1arcoses. &n 1arch ), 199A, the P*0 was informed that the 1arcoses received a :emporary +estraining &rder on the same date, enjoining the 1arcoses from, among others, 'further impeding, o.structing, de aying or interfering in any manner .y or any means with the consideration, processing and approva .y the P*0 of the initia pu. ic offering of P(,%.' :he :+& was issued .y Judge 1artin *. >i arama, 0;ecutive Judge of the +:! of Pasig !ity in !ivi !ase "o. A55A1, pending in 3ranch A9 thereof. %n its regu ar meeting he d on 1arch 27, 199A, the 3oard of -overnors of the P*0 reached its decision to reject P(,%'s app ication, citing the e;istence of serious c aims, issues and circumstances surrounding P(,%'s ownership over its assets that adverse y affect the suita.i ity of isting P(,%'s shares in the stoc9 e;change. &n (pri 11, 199A, P(,% wrote a etter to the *0! addressed to the then (cting !hairman, Perfecto +. Fasay, Jr., .ringing to the *0!'s attention the action ta9en .y the P*0 in the app ication of P(,% for the isting of its shares with the P*0, and re=uesting that the *0!, in the e;ercise of its supervisory and regu atory powers over stoc9 e;changes under *ection ACjD of P.6. "o. 9#22(, review the P*0's action on P(,%'s isting app ication and institute such measures as are just and proper under the circumstances.

&n the same date, or on (pri 11, 199A, the *0! wrote to the P*0, attaching thereto the etter of P(,% and directing the P*0 to fi e its comments thereto within five days from its receipt and for its authori4ed representative to appear for an 'in=uiry' on the matter. &n (pri 22, 199A, the P*0 su.mitted a etter to the *0! containing its comments to the (pri 11, 199A etter of P(,%. &n (pri 2), 199A, the *0! rendered its &rder, reversing the P*0's decision. :he dispositive portion of the said order readsB @/0+0$&+0, premises considered, and invo9ing the !ommissioner's authority and jurisdiction under *ection 8 of the +evised *ecurities (ct, in conjunction with *ection 8, ACjD and ACmD of Presidentia 6ecree "o. 9#22(, the decision of the 3oard of -overnors of the Phi ippine *toc9 0;change denying the isting of shares of Puerto (4u ,and, %nc., is here.y set aside, and the P*0 is here.y ordered to immediate y cause the isting of the P(,% shares in the 0;change, without prejudice to its authority to re=uire P(,% to disc ose such other materia information it deems necessary for the protection of the investigating pu. ic. :his &rder sha ta9e effect immediate y. *& &+60+06. P*0 fi ed a motion for reconsideration of the said order on (pri 29, 199A, which was, however denied .y the !ommission in its 1ay 9, 199A &rder which statesB @/0+0$&+0, premises considered, the !ommission finds no compe ing reason to reconsider its order dated (pri 2), 199A, and in the ight of recent deve opments on the adverse c aim against the P(,% properties, P*0 shou d re=uire P(,% to su.mit fu disc osure of materia facts and information to protect the investing pu. ic. %n this regard, P(,% is here.y ordered to amend its registration statements fi ed with the !ommission to incorporate the fu disc osure of these materia facts and information.

6issatisfied with this ru ing, the P*0 fi ed with the !ourt of (ppea s on 1ay 17, 199A a Petition for +eview Cwith (pp ication for @rit of Pre iminary %njunction and :emporary +estraining &rderD, assai ing the a.ove mentioned orders of the *0!, su.mitting the fo owing as errors of the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n June ), 199A, P(,% fi ed its !omment to the Petition for +eview and su.se=uent y, a !omment and 1otion to 6ismiss. &n June 1#, 199A, P*0 f ed its +ep y to !omment and &pposition to 1otion to 6ismiss.

&n June 27, 199A, the !ourt of (ppea s promu gated its +eso ution dismissing the P*0's Petition for +eview. /ence, this Petition .y the P*0. :he appe ate court had ru ed that the *0! had .oth jurisdiction and authority to oo9 into the decision of the petitioner P*0, pursuant to *ection 8 2 of the +evised *ecurities (ct in re ation to *ection ACjD and ACmD 4 of P.6. "o. 9#22(, and *ection 87C.D 5 of the +evised *ecurities (ct, and for the purpose of ensuring fair administration of the e;change. 3oth as a corporation and as a stoc9 e;change, the petitioner is su.ject to pu. ic respondent's jurisdiction, regu ation and contro . (ccepting the argument that the pu. ic respondent has the authority mere y to supervise or regu ate, wou d amount to serious conse=uences, considering that the petitioner is a stoc9 e;change whose .usiness is impressed with pu. ic interest. (.use is not remote if the pu. ic respondent is eft without any system of contro . %f the securities act vested the pu. ic respondent with jurisdiction and contro over a corporations< the power to authori4e the esta. ishment of stoc9 e;changes< the right to supervise and regu ate the same< and the power to a ter and supp ement ru es of the e;change in the isting or de isting of securities, then the aw certain y granted to the pu. ic respondent the p enary authority over the petitioner< and the power of review necessari y comes within its authority. ( in a , the court he d that P(,% comp ied with a the re=uirements for pu. ic isting, affirming the *0!'s ru ing to the effect thatB . . . the Phi ippine *toc9 0;change has acted in an ar.itrary and a.usive manner in disapproving the app ication of P(,% for isting of its shares in the face of the fo owing considerationsB 1. P(,% has c ear y and admitted y comp ied with the ,isting +u es and fu disc osure re=uirements of the 0;change< 2. %n app ying its c ear and reasona. e standards on the suita.i ity for isting of shares, P*0 has fai ed to justify why it acted different y on the app ication of P(,%, as compared to the %P&s of other companies simi ar y situated that were a owed isting in the 0;change<

8. %t appears that the c aims and issues on the tit e to P(,%'s properties were even ess serious than the c aims against the assets of the other companies in that, the assertions of the 1arcoses that they are owners of the disputed properties were not su.stantiated enough to overcome the strength of a tit e to properties issued under the :orrens *ystem as evidence of ownership thereof< ). "o action has .een fi ed in any court of competent jurisdiction see9ing to nu ify P(,%'s ownership over the disputed properties, neither has the government instituted recovery proceedings against these properties. Fet the import of P*0's decision in denying P(,%'s app ication is that it wou d .e P(,%, not the 1arcoses, that must go to court to prove the ega ity of its ownership on these properties .efore its shares can .e isted. %n addition, the argument that the P(,% properties .e ong to the 1i itary?"ava +eservation does not inspire .e ief. :he point is, the P(,% properties are now tit ed. ( property osses its pu. ic character the moment it is covered .y a tit e. (s a matter of fact, the tit es have ong .een sett ed .y a fina judgment< and the fina decree having .een registered, they can no onger .e re2opened considering that the one year period has a ready passed. ,ast y, the determination of what standard to app y in a owing P(,%'s app ication for isting, whether the discretion method or the system of pu. ic disc osure adhered to .y the *0!, shou d .e addressed to the *ecurities !ommission, it .eing the government agency that e;ercises .oth supervisory and regu atory authority over a corporations. &n (ugust 15, 199A1 the P*0, after it was granted an e;tension, fi ed the instant Petition for +eview on $ertiorari, ta9ing e;ception to the ru ings of the *0! and the !ourt of (ppea s. +espondent P(,% fi ed its !omment to the petition on &cto.er 17, 199A. &n the same date, the P!-- fi ed a 1otion for ,eave to fi e a Petition for %ntervention. :his was fo owed up .y the P!--'s Petition for %ntervention on &cto.er 21, 199A. ( supp ementa !omment was fi ed .y P(,% on &cto.er 25, 1997. :he &ffice of the *o icitor -enera , representing the *0! and the !ourt of (ppea s, i9ewise fi ed its !omment on 6ecem.er 2A, 199A. %n answer to the P!--'s motion for eave to fi e petition for intervention, P(,% fi ed its !omment thereto on January 17, 1997, whereas the P*0 fi ed its own !omment on January 2#, 1997.

&n $e.ruary 25, 199A, the P*0 fi ed its !onso idated +ep y to the comments of respondent P(,% C&cto.er 17, 199AD and the *o icitor -enera C6ecem.er 2A, 199AD. &n 1ay 1A, 1997, P(,% fi ed its +ejoinder to the said conso idated rep y of P*0. P*0 su.mits that the !ourt of (ppea s erred in ru ing that the *0! had authority to order the P*0 to ist the shares of P(,% in the stoc9 e;change. 5nder presidentia decree "o. 9#22(, the powers of the *0! over stoc9 e;changes are more imited as compared to its authority over ordinary corporations. %n connection with this, the powers of the *0! over stoc9 e;changes under the +evised *ecurities (ct are specifica y enumerated, and these do not inc ude the power to reverse the decisions of the stoc9 e;change. (uthorities are in a.undance even in the 5nited *tates, from which the country's security po icies are patterned, to the effect of giving the *ecurities !ommission ess contro over stoc9 e;changes, which in turn are given more ee2way in ma9ing the decision whether or not to a ow corporations to offer their stoc9 to the pu. ic through the stoc9 e;change. :his is in accord with the '.usiness judgment ru e' where.y the *0! and the courts are .arred from intruding into .usiness judgments of corporations, when the same are made in good faith. the said ru e prec udes the reversa of the decision of the P*0 to deny P(,%'s isting app ication, a.sent a showing of .ad faith on the part of the P*0. 5nder the isting ru es of the P*0, to which P(,% had previous y agreed to comp y, the P*0 retains the discretion to accept or reject app ications for isting. :hus, even if an issuer has comp ied with the P*0 isting ru es and re=uirements, P*0 retains the discretion to accept or reject the issuer's isting app ication if the P*0 determines that the isting sha not serve the interests of the investing pu. ic. 1oreover, P*0 argues that the *0! has no jurisdiction over se=uestered corporations, nor with corporations whose properties are under se=uestration. ( reading of +epu. ic of the %&ilippines vs. adi'an#a(an, -.+. "o. 1#52#5, 2)# *!+( 87A, wou d revea that the properties of P(,%, which were derived from the :ernate 6eve opment !orporation C:6!D and the 1onte de *o 6eve opment !orporation C1*6!D. are under se=uestration .y the P!--, and su.ject of forfeiture proceedings in the *andigan.ayan. :his ru ing of the !ourt is the ' aw of the case' .etween the +epu. ic and :6! and 1*6!. %t categorica y dec ares that the assets of these corporations were se=uestered .y the P!-- on 1arch 1#, 197A and (pri ), 1977. %t is, i9ewise, intimated that the !ourt of (ppea s' sanction that P(,%'s ownership over its properties can no onger .e =uestioned, since certificates of tit e have .een issued to P(,% and more than one year has

since apsed, is erroneous and ignores we sett ed jurisprudence on and tit es. :hat a certificate of tit e issued under the :orrens *ystem is a conc usive evidence of ownership is not an a.so ute ru e and admits certain e;ceptions. %t is fundamenta that forest ands or mi itary reservations are non2a iena. e. :hus, when a tit e covers a forest reserve or a government reservation, such tit e is void. P*0, i9ewise, assai s the *0!'s and the !ourt of (ppea s re iance on the a eged po icy of 'fu disc osure' to upho d the isting of P(,%'s shares with the P*0, in the a.sence of a c ear mandate for the effectivity of such po icy. (s it is, the case records revea the truth that P(,% did not comp y with the isting ru es and disc osure re=uirements. %n fact, P(,%'s documents supporting its app ication contained misrepresentations and mis eading statements, and concea ed materia information. :he matter of se=uestration of P(,%'s properties and the fact that the same form part of mi itary?nava ?forest reservations were not ref ected in P(,%'s app ication. %t is undenia. e that the petitioner P*0 is not an ordinary corporation, in that a though it is c othed with the mar9ings of a corporate entity, it functions as the primary channe through which the vesse s of capita trade p y. :he P*0's re evance to the continued operation and fi tration of the securities transactions in the country gives it a distinct co or of importance such that government intervention in its affairs .ecomes justified, if not necessari y. %ndeed, as the on y operationa stoc9 e;change in the country today, the P*0 enjoys a monopo y of securities transactions, and as such, it yie ds an immense inf uence upon the country's economy. 6ue to this specia nature of stoc9 e;changes, the country's awma9ers has seen it wise to give specia treatment to the administration and regu ation of stoc9 e;changes. 6 :hese provisions, read together with the genera grant of jurisdiction, and right of supervision and contro over a corporations under *ec. 8 of P.6. 9#22(, give the *0! the specia mandate to .e vigi ant in the supervision of the affairs of stoc9 e;changes so that the interests of the investing pu. ic may .e fu y safeguard. *ection 8 of Presidentia 6ecree 9#22(, standing a one, is enough authority to upho d the *0!'s cha enged contro authority over the petitioner P*0 even as it provides that 'the !ommission sha have a.so ute jurisdiction, supervision, and contro over a corporations,

partnerships or associations, who are the grantees of primary franchises and?or a icense or permit issued .y the government to operate in the Phi ippines. . .' :he *0!'s regu atory authority over private corporations encompasses a wide margin of areas, touching near y a of a corporation's concerns. :his authority springs from the fact that a corporation owes its e;istence to the concession of its corporate franchise from the state. :he *0!'s power to oo9 into the su.ject ru ing of the P*0, therefore, may .e imp ied from or .e considered as necessary or incidenta to the carrying out of the *0!'s e;press power to insure fair dea ing in securities traded upon a stoc9 e;change or to ensure the fair administration of such e;change. 7 %t is, i9ewise, o.served that the principa function of the *0! is the supervision and contro over corporations, partnerships and associations with the end in view that investment in these entities may .e encouraged and protected, and their activities for the promotion of economic deve opment. 7 :hus, it was in the a eged e;ercise of this authority that the *0! reversed the decision of the P*0 to deny the app ication for isting in the stoc9 e;change of the private respondent P(,%. :he *0!'s action was affirmed .y the !ourt of (ppea s. @e affirm that the *0! is the entity with the primary say as to whether or not securities, inc uding shares of stoc9 of a corporation, may .e traded or not in the stoc9 e;change. :his is in ine with the *0!'s mission to ensure proper comp iance with the aws, such as the +evised *ecurities (ct and to regu ate the sa e and disposition of securities in the country. 9 (s the appe ate court e;p ainsB Paramount po icy a so supports the authority of the pu. ic respondent to review petitioner's denia of the isting. 3eing a stoc9 e;change, the petitioner performs a function that is vita to the nationa economy, as the .usiness is affected with pu. ic interest. (s a matter of fact, it has often .een said that the economy moves on the .asis of the rise and fa of stoc9s .eing traded. 3y its economic power, the petitioner certain y can dictate which and how many users are a owed to se securities thru the faci ities of a stoc9 e;change, if a owed to interpret its own ru es i.era y as it may p ease. Petitioner can either a ow or deny the entry to the mar9et of securities. :o repeat, the monopo y, un ess accompanied .y contro , .ecomes su.ject to a.use< hence, considering pu. ic

interest, then it shou d .e su.ject to government regu ation. :he ro e of the *0! in our nationa economy cannot .e minimi4ed. :he egis ature, through the +evised *ecurities (ct, Presidentia 6ecree "o. 9#22(, and other pertinent aws, has entrusted to it the serious responsi.i ity of enforcing a aws affecting corporations and other forms of associations not otherwise vested in some other government office. 10 :his is not to say, however, that the P*0's management prerogatives are under the a.so ute contro of the *0!. :he P*0 is, a ter a , a corporation authori4ed .y its corporate franchise to engage in its proposed and du y approved .usiness. &ne of the P*0's main concerns, as such, is sti the generation of profit for its stoc9ho ders. 1oreover, the P*0 has a the rights pertaining to corporations, inc uding the right to sue and .e sued, to ho d property in its own name, to enter Cor not to enterD into contracts with third persons, and to perform a other ega acts within its a ocated e;press or imp ied powers. ( corporation is .ut an association of individua s, a owed to transact under an assumed corporate name, and with a distinct ega persona ity. %n organi4ing itse f as a co ective .ody, it waives no constitutiona immunities and per=uisites appropriate to such a .ody. 11 (s to its corporate and management decisions, therefore, the state wi genera y not interfere with the same. Guestions of po icy and of management are eft to the honest decision of the officers and directors of a corporation, and the courts are without authority to su.stitute their judgment for the judgment of the .oard of directors. :he .oard is the .usiness manager of the corporation, and so ong as it acts in good faith, its orders are not reviewa. e .y the courts. 12 :hus, notwithstanding the regu atory power of the *0! over the P*0, and the resu tant authority to reverse the P*0's decision in matters of app ication for isting in the mar9et, the *0! may e;ercise such power on y if the P*0's judgment is attended .y .ad faith. %n Board of Liquidators vs. )ala*, 12 it was he d that .ad faith does not simp y connote .ad judgment or neg igence. %t imports a dishonest purpose or some mora o. i=uity and conscious doing of wrong. %t means a .reach of a 9nown duty through some motive or interest of i wi , parta9ing of the nature of fraud. %n reaching its decision to deny the app ication for isting of P(,%, the P*0 considered important facts, which, in the genera scheme, .rings to

serious =uestion the =ua ification of P(,% to se its shares to the pu. ic through the stoc9 e;change. 6uring the time for receiving o.jections to the app ication, the P*0 heard from the representative of the ate President $erdinand 0. 1arcos and his fami y who c aim the properties of the private respondent to .e part of the 1arcos estate. %n time, the P!-confirmed this c aim. %n fact, an order of se=uestration has .een issued covering the properties of P(,%, and suit for reconveyance to the state has .een fi ed in the *andigan.ayan !ourt. /ow the properties were effective y transferred, despite the se=uestration order, from the :6! and 1*6! to +e.ecco Pan i io, and to the private respondent P(,%, in on y a short span of time, are not yet e;p ained to the !ourt, .ut it is c ear that such circumstances give rise to serious dou.t as to the integrity of P(,% as a stoc9 issuer. :he petitioner was in the right when it refused app ication of P(,%, for a contrary ru ing was not to the .est interest of the genera pu. ic. :he purpose of the +evised *ecurities (ct, after a , is to give ade=uate and effective protection to the investing pu. ic against fraudu ent representations, or fa se promises, and the imposition of worth ess ventures. 14 %t is to .e o.served that the 5.*. *ecurities (ct emphasi4ed its avowed protection to acts detrimenta to egitimate .usiness, thusB :he *ecurities (ct, often referred to as the 'truth in securities' (ct, was designed not on y to provide investors with ade=uate information upon which to .ase their decisions to .uy and se securities, .ut a so to protect egitimate .usiness see9ing to o.tain capita through honest presentation against competition from croo9ed promoters and to prevent fraud in the sa e of securities. C:enth (nnua +eport, 5.*. *ecurities H 0;change !ommission, p. 1)D. (s has .een pointed out, the effects of such an act are chief y C1D prevention of e;cesses and fraudu ent transactions, mere y .y re=uirement of that their detai s .e revea ed< C2D p acing the mar9et during the ear y stages of the offering of a security a .ody of information, which operating indirect y through investment services and e;pert investors, wi tend to produce a more accurate appraisa of a security, . . . :hus, the !ommission may refuse to permit a registration statement to .ecome effective if it appears on its face to .e incomp ete or inaccurate in any materia respect, and empower the !ommission to issue a stop order suspending the

effectiveness of any registration statement which is found to inc ude any untrue statement of a materia fact or to omit to state any materia fact re=uired to .e stated therein or necessary to ma9e the statements therein not mis eading. C%demD. ( so, as the primary mar9et for securities, the P*0 has esta. ished its name and goodwi , and it has the right to protect such goodwi .y maintaining a reasona. e standard of propriety in the entities who choose to transact through its faci ities. %t was reasona. e for the P*0, therefore, to e;ercise its judgment in the manner it deems appropriate for its .usiness identity, as ong as no rights are tramp ed upon, and pu. ic we fare is safeguarded. %n this connection, it is proper to o.serve that the concept of government a.so utism is a thing of the past, and shou d remain so. :he o.servation that the tit e of P(,% over its properties is a.so ute and can no onger .e assai ed is of no moment. (t this juncture, there is the c aim that the properties were owned .y :6! and 1*6! and were transferred in vio ation of se=uestration orders, to +e.ecco Pan i io and ater on to P(,%, .esides the c aim of the 1arcoses that such properties .e ong to the 1arcos estate, and were he d on y in trust .y +e.ecco Pan i io. %t is a so a eged .y the petitioner that these properties .e ong to nava and forest reserves, and therefore .eyond private dominion. %f any of these c aims is esta. ished to .e true, the certificates of tit e over the su.ject properties now he d .y P(,% map .e disregarded, as it is an esta. ished ru e that a registration of a certificate of tit e does not confer ownership over the properties descri.ed therein to the person named as owner. :he inscription in the registry, to .e effective, must .e made in good faith. :he defense of indefeasi.i ity of a :orrens :it e does not e;tend to a transferee who ta9es the certificate of tit e with notice of a f aw. %n any case, for the purpose of determining whether P*0 acted correct y in refusing the app ication of P(,%, the true ownership of the properties of P(,% need not .e determined as an a.so ute fact. @hat is materia is that the uncertainty of the properties' ownership and a iena.i ity e;ists, and this puts to =uestion the =ua ification of P(,%'s pu. ic offering. %n sum, the !ourt finds that the *0! had acted ar.itrari y in arrogating unto itse f the discretion of approving the app ication for isting in the P*0 of the private respondent P(,%, since this is a matter addressed to the sound discretion of the P*0, a corporation entity, whose .usiness judgments are respected in the a.sence of .ad faith.

:he =uestion as to what po icy is, or shou d .e re ied upon in approving the registration and sa e of securities in the *0! is not for the !ourt to determine, .ut is eft to the sound discretion of the *ecurities and 0;change !ommission. %n mandating the *0! to administer the +evised *ecurities (ct, and in performing its other functions under pertinent aws, the +evised *ecurities (ct, under *ection 8 thereof, gives the *0! the power to promu gate such ru es and regu ations as it may consider appropriate in the pu. ic interest for the enforcement of the said aws. :he second paragraph of *ection ) of the said aw, on the other hand, provides that no security, un ess e;empt .y aw, sha .e issued, endorsed, so d, transferred or in any other manner conveyed to the pu. ic, un ess registered in accordance with the ru es and regu ations that sha .e promu gated in the pu. ic interest and for the protection of investors .y the !ommission. Presidentia 6ecree "o. 9#22(, on the other hand, provides that the *0!, as regu atory agency, has supervision and contro over a corporations and over the securities mar9et as a who e, and as such, is given amp e authority in determining appropriate po icies. Pursuant to this regu atory authority, the *0! has manifested that it has adopted the po icy of 'fu materia disc osure' where a companies, isted or app ying for isting, are re=uired to divu ge truthfu y and accurate y, a materia information a.out themse ves and the securities they se , for the protection of the investing pu. ic, and under pain of administrative, crimina and civi sanctions. %n connection with this, a fact is deemed materia if it tends to induce or otherwise effect the sa e or purchase of its securities. 15 @hi e the emp oyment of this po icy is recogni4ed and sanctioned .y the aws, nonethe ess, the +evised *ecurities (ct sets su.stantia and procedura standards which a proposed issuer of securities must satisfy. 16 Pertinent y, *ection 9 of the +evised *ecurities (ct sets forth the possi. e "rounds for t&e !ejection of the registration of a securityB I :he !ommission may reject a registration statement and refuse to issue a permit to se the securities inc uded in such registration statement if it finds that I C1D T&e re'istration statement is on its face incomplete or inaccurate in an( material respect or includes an( untrue statement of a material fact or omits to state a material fact required to #e stated t&erein or necessar( to ma+e t&e statements t&erein not misleadin' < or C2D :he issuer or registrant I

CiD is not so vent or not in sound financia condition< CiiD has vio ated or has not comp ied with the provisions of this (ct, or the ru es promu gated pursuant thereto, or any order of the !ommission< CiiiD has fai ed to comp y with any of the app ica. e re=uirements and conditions that the !ommission may, in the pu. ic interest and for the protection of investors, impose .efore the security can .e registered< CivD has .een engaged or is engaged or is a.out to engage in fraudu ent transaction< CvD is in any way dishonest or is not of good repute< or CviD does not conduct its .usiness in accordance with aw or is engaged in a .usiness that is i ega or contrary to government ru es and regu ations. C8D :he enterprise or the .usiness of the issuer is not shown to .e sound or to .e .ased on sound .usiness princip es< C)D (n officer, mem.er of the .oard of directors, or principa stoc9ho der of the issuer is dis=ua ified to .e such officer, director or principa stoc9ho der< or C5D T&e issuer or re'istrant &as not s&o*n to t&e satisfaction of t&e $ommission t&at t&e sale of its securit( *ould not *or+ to t&e prejudice of t&e pu#lic interest or as a fraud upon t&e purc&asers or investors. C0mphasis &ursD ( reading of the foregoing grounds revea s the intention of the awma9ers to ma9e the registration and issuance of securities dependent, to a certain e;tent, on the merits of the securities themse ves, and of the

issuer, to .e determined .y the *ecurities and 0;change !ommission. :his measure was meant to protect the interests of the investing pu. ic against fraudu ent and worth ess securities, and the *0! is mandated .y aw to safeguard these interests, fo owing the po icies and ru es therefore provided. :he a.so ute re iance on the fu disc osure method in the registration of securities is, therefore, untena. e. (s it is, the !ourt finds that the private respondent P(,%, on at east two points Cnos. 1 and 5D has fai ed to support the propriety of the issue of its shares with unfai ing c arity, there.y ending support to the conc usion that the P*0 acted correct y in refusing the isting of P(,% in its stoc9 e;change. :his does not discount the effectivity of whatever method the *0!, in the e;ercise of its vested authority, chooses in setting the standard for pu. ic offerings of corporations wishing to do so. /owever, the *0! must recogni4e and imp ement the mandate of the aw, particu ar y the +evised *ecurities (ct, the provisions of which cannot .e amended or supp anted .y mere administrative issuance. %n resume, the !ourt finds that the P*0 has acted with justified circumspection, discounting, therefore, any imputation of ar.itrariness and whimsica animation on its part. %ts action in refusing to a ow the isting of P(,% in the stoc9 e;change is justified .y the aw and .y the circumstances attendant to this case. (!!&+6%"-,F, in view of the foregoing considerations, the !ourt here.y -+(":* the Petition for +eview on$ertiorari. :he 6ecisions of the !ourt of (ppea s and the *ecurities and 0;change !ommission dated Ju y 27, 199A and (pri 2), 199A respective y, are here.y +0>0+*06 and *0: (*%60, and a new Judgment is here.y 0":0+06, affirming the decision of the Phi ippine *toc9 0;change to deny the app ication for isting of the private respondent Puerto (4u ,and, %nc. *& &+60+06. G.R. No. 127690 -an.a*y 21, 1999 AB$-CBN BROADCA$'ING COR)ORA'ION, petitioner, vs. HONORABLE COUR' O% A))EAL$, RE)UBLIC BROADCA$'ING COR), &I&A )RODUC'ION, INC., an &ICEN'E DEL RO$ARIO, respondents.

DA&IDE, -R., CJ.: %n this petition for review on certiorari, petitioner (3*2!3" 3roadcasting !orp. Chereafter (3*2!3"D see9s to reverse and set aside the decision 1 of 81 &cto.er 199A and the reso ution 2 of 1# 1arch 1997 of the !ourt of (ppea s in !(2-.+. !> "o. ))125. :he former affirmed with modification the decision 2 of 27 (pri 1998 of the +egiona :ria !ourt C+:!D of Gue4on !ity, 3ranch 7#, in !ivi !ase "o. G2922128#9. :he atter denied the motion to reconsider the decision of 81 &cto.er 199A. :he antecedents, as found .y the +:! and adopted .y the !ourt of (ppea s, are as fo owsB %n 199#, (3*2!3" and >iva e;ecuted a $i m 0;hi.ition (greement C0;h. '('D where.y >iva gave (3*2!3" an e;c usive right to e;hi.it some >iva fi ms. *ometime in 6ecem.er 1991, in accordance with paragraph 2.) JsicK of said agreement stating that I. 1.) (3*2!3" sha have the right of first refusa to the ne;t twenty2four C2)D >iva fi ms for :> te ecast under such terms as may .e agreed upon .y the parties hereto, provided, however, that such right sha .e e;ercised .y (3*2!3" from the actua offer in writing. >iva, through defendant 6e +osario, offered (3*2!3", through its vice2president !haro *antos2!oncio, a ist of threeC8D fi m pac9ages C8A tit eD from which (3*2!3" may e;ercise its right of first refusa under the afore2said agreement C0;hs. '1' par, 2, '2,' '22('' and '223'2>ivaD. (3*2!3", however through 1rs. !oncio, 'can tic9 off on y ten C1#D tit es' Cfrom the istD 'we can purchase' C0;h. '8' 2 >ivaD and therefore did not accept said ist C:*", June 7, 1992, pp. 921#D. :he tit es tic9ed off .y 1rs. !oncio are not the su.ject of the case at .ar e;cept the fi m ''1aging *ino La 1an.' $or further en ightenment, this rejection etter dated January #A, 1992 C0;h '8' 2 >ivaD is here.y =uotedB A January 1992 6ear >ic,

:his is not a very forma .usiness etter % am writing to you as % wou d i9e to e;press my difficu ty in recommending the purchase of the three fi m pac9ages you are offering (3*2!3". $rom among the three pac9ages % can on y tic9 off 1# tit es we can purchase. P ease see attached. % hope you wi understand my position. 1ost of the action pictures in the ist do not have .ig action stars in the cast. :hey are not for primetime. %n ine with this % wish to mention that % have not schedu ed for te ecast severa action pictures in out very first contract .ecause of the cheap production va ue of these movies as we as the ac9 of .ig action stars. (s a fi m producer, % am sure you understand what % am trying to say as >iva produces on y .ig action pictures. %n fact, % wou d i9e to re=uest two C2D additiona runs for these movies as % can on y schedu e them in our non2 primetime s ots. @e have to cover the amount that was paid for these movies .ecause as you very we 9now that non2primetime advertising rates are very ow. :hese are the unaired tit es in the first contract. 1. Lontra Persa JsicK. 2. +aider P atoon. 8. 5nderground gueri as ). :iger !ommand 5. 3oy de *a.og A. ,ady !ommando 7. 3atang 1atadero 7. +e.e yon % hope you wi consider this re=uest of mine.

:he other dramatic fi ms have .een offered to us .efore and have .een rejected .ecause of the ru ing of 1:+!3 to have them aired at 9B## p.m. due to their very adu t themes. (s for the 1# tit es % have choosen JsicK from the 8 pac9ages p ease consider inc uding a the other >iva movies produced ast year. % have =uite an attractive offer to ma9e. :han9ing you and with my warmest regards.

something< and insisted that what he and ,ope4 discussed at the unch meeting was >iva's fi m pac9age offer of 1#) fi ms C52 origina s and 52 re2runsD for a tota price of PA# mi ion. 1r. ,ope4 promising JsicKto ma9e a counter proposa which came in the form of a proposa contract (nne; '!' of the comp aint C0;h. '1'M2 >iva< 0;h. '!' 2 (3*2!3"D. &n (pri #A, 1992, 6e +osario and 1r. -raciano -o4on of +3* *enior vice2president for $inance discussed the terms and conditions of >iva's offer to se the 1#) fi ms, after the rejection of the same pac9age .y (3*2!3". &n (pri #7, 1992, defendant 6e +osario received through his secretary, a handwritten note from 1s. !oncio, C0;h. '5' 2 >ivaD, which readsB '/ere's the draft of the contract. % hope you find everything in order,' to which was attached a draft e;hi.ition agreement C0;h. '!''2 (3*2!3"< 0;h. '9' 2 >iva, p. 8D a counter2proposa covering 58 fi ms, 52 of which came from the ist sent .y defendant 6e +osario and one fi m was added .y 1s. !oncio, for a consideration of P85 mi ion. 0;hi.it '!' provides that (3*2!3" is granted fi ms right to 58 fi ms and contains a right of first refusa to '1992 >iva $i ms.' :he said counter proposa was however rejected .y >iva's 3oard of 6irectors Jin theK evening of the same day, (pri 7, 1992, as >iva wou d not se anything ess than the pac9age of 1#) fi ms for PA# mi ion pesos C0;h. '9' 2 >ivaD, and such rejection was re ayed to 1s. !oncio.
&n (pri 29, 1992, after the rejection of (3*2!3" and fo owing severa negotiations and meetings defendant 6e +osario and >iva's President :eresita !ru4, in consideration of PA# mi ion, signed a etter of agreement dated (pri 2), 1992. granting +3* the e;c usive right to air 1#) >iva2 produced and?or ac=uired fi ms C0;h. '72(' 2 +3*< 0;h. ')' 2 +3*D inc uding the fourteen C1)D fi ms su.ject of the present case. 4

!haro *antos2

&n $e.ruary 27, 1992, defendant 6e +osario approached (3*2!3"'s 1s. !oncio, with a ist consisting of 52 origina movie tit es Ci.e. not yet aired on te evisionD inc uding the 1) tit es su.ject of the present case, as we as 1#) re2runs Cprevious y aired on te evisionD from which (3*2!3" may choose another 52 tit es, as a tota of 15A tit es, proposing to se to (3*2!3" airing rights over this pac9age of 52 origina s and 52 re2runs for PA#,###,###.## of which P8#,###,###.## wi .e in cash and P8#,###,###.## worth of te evision spots C0;h. ')' to ')2!' >iva< '9' 2>ivaD. &n (pri 2, 1992, defendant 6e +osario and (3*2!3" genera manager, 0ugenio ,ope4 %%%, met at the :amarind -ri +estaurant in Gue4on !ity to discuss the pac9age proposa of >iva. @hat transpired in that unch meeting is the su.ject of conf icting versions. 1r. ,ope4 testified that he and 1r. 6e +osario a eged y agreed that (3*2!+" was granted e;c usive fi m rights to fourteen C1)D fi ms for a tota consideration of P8A mi ion< that he a eged y put this agreement as to the price and num.er of fi ms in a 'nap9in'' and signed it and gave it to 1r. 6e +osario C0;h. 6< :*", pp. 2)22A, 77277, June 7, 1992D. &n the other hand, 6e +osario denied having made any agreement with ,ope4 regarding the 1) >iva fi ms< denied the e;istence of a nap9in in which ,ope4 wrote

&n 27 1ay 1992, (3*2!3" fi ed .efore the +:! a comp aint for specific performance with a prayer for a writ of pre iminary injunction and?or temporary restraining order against private respondents +epu. ic 3roadcasting !orporation 5 Chereafter +3* D, >iva Production Chereafter

>%>(D, and >icente 6e +osario. :he comp aint was doc9eted as !ivi !ase "o. G2922128#9. &n 27 1ay 1992, +:! issued a temporary restraining order 6 enjoining private respondents from proceeding with the airing, .roadcasting, and te evising of the fourteen >%>( fi ms su.ject of the controversy, starting with the fi m,a'in' ino )a ,an, which was schedu ed to .e shown on private respondents +3*' channe 7 at seven o'c oc9 in the evening of said date. &n 17 June 1992, after appropriate proceedings, the +:! issued an order 7 directing the issuance of a writ of pre iminary injunction upon (3*2 !3"'s posting of P85 mi ion .ond. (3*2!3" moved for the reduction of the .ond, 7 whi e private respondents moved for reconsideration of the order and offered to put up a counter.ound. 9 %n the meantime, private respondents fi ed separate answers with counterc aim. 10 +3* a so set up a cross2c aim against >%>(.. &n 8 (ugust 1992, the +:! issued an order 11 disso ving the writ of pre iminary injunction upon the posting .y +3* of a P8# mi ion counter.ond to answer for whatever damages (3*2!3" might suffer .y virtue of such disso ution. /owever, it reduced petitioner's injunction .ond to P15 mi ion as a condition precedent for the reinstatement of the writ of pre iminary injunction shou d private respondents .e una. e to post a counter.ond. (t the pre2tria 12 on A (ugust 1992, the parties, upon suggestion of the court, agreed to e;p ore the possi.i ity of an amica. e sett ement. %n the meantime, +3* prayed for and was granted reasona. e time within which to put up a P8# mi ion counter.ond in the event that no sett ement wou d .e reached. (s the parties fai ed to enter into an amica. e sett ement +3* posted on 1 &cto.er 1992 a counter.ond, which the +:! approved in its &rder of 15 &cto.er 1992. 12 &n 19 &cto.er 1992, (3*2!3" fi ed a motion for reconsideration 8 (ugust and 15 &cto.er 1992 &rders, which +3* opposed. 15 &n 29 &cto.er 1992, the +:! conducted a pre2tria .
16 14

Pending reso ution of its motion for reconsideration, (3*2!3" fi ed with the !ourt of (ppea s a petition 17cha enging the +:!'s &rders of 8 (ugust and 15 &cto.er 1992 and praying for the issuance of a writ of pre iminary injunction to enjoin the +:! from enforcing said orders. :he case was doc9eted as !(2-.+. *P "o. 298##. &n 8 "ovem.er 1992, the !ourt of (ppea s issued a temporary restraining order 17 to enjoin the airing, .roadcasting, and te evising of any or a of the fi ms invo ved in the controversy. &n 17 6ecem.er 1992, the !ourt of (ppea s promu gated a decision 19 dismissing the petition in !( 2-.+. "o. 298## for .eing premature. (3*2!3" cha enged the dismissa in a petition for review fi ed with this !ourt on 19 January 1998, which was doc9eted as -.+. "o. 1#78A8. %n the meantime the +:! received the evidence for the parties in !ivi !ase "o. G2192212#9. :hereafter, on 27 (pri 1998, it rendered a decision 20 in favor of +3* and >%>( and against (3*2!3" disposing as fo owsB @/0+0$&+0, under coo ref ection and prescinding from the foregoing, judgments is rendered in favor of defendants and against the p aintiff. C1D :he comp aint is here.y dismissed< C2D P aintiff (3*2!3" is ordered to pay defendant +3* the fo owingB aD P1#7,727.##, the amount of premium paid .y +3* to the surety which issued defendant +3*'s .ond to ift the injunction< .D P191,7)8.## for the amount of print advertisement for '1aging *ino La 1an' in various newspapers<

of the

cD (ttorney's fees in the amount of P1 mi ion< dD P5 mi ion as and .y way of mora damages< eD P5 mi ion as and .y way of e;emp ary damages< C8D $or defendant >%>(, p aintiff (3*2!3" is ordered to pay P212,###.## .y way of reasona. e attorney's fees. C)D :he cross2c aim of defendant +3* against defendant >%>( is dismissed. C5D P aintiff to pay the costs. (ccording to the +:!, there was no meeting of minds on the price and terms of the offer. :he a eged agreement .etween ,ope4 %%% and 6e +osario was su.ject to the approva of the >%>( 3oard of 6irectors, and said agreement was disapproved during the meeting of the 3oard on 7 (pri 1992. /ence, there was no .asis for (3*2!3"'s demand that >%>( signed the 1992 $i m 0;hi.ition (greement. $urthermore, the right of first refusa under the 199# $i m 0;hi.ition (greement had previous y .een e;ercised per 1s. !oncio's etter to 6e +osario tic9ing off ten tit es accepta. e to them, which wou d have made the 1992 agreement an entire y new contract. &n 21 June 1998, this !ourt denied (3*2!3"'s petition for review in -.+. "o. 1#78A8, as no reversi. e error was committed .y the !ourt of (ppea s in its cha enged decision and the case had '.ecome moot and academic in view of the dismissa of the main action .y the court a quo in its decision' of 27 (pri 1998.
21

%n its decision of 81 &cto.er 199A, the !ourt of (ppea s agreed with the +:! that the contract .etween (3*2!3" and >%>( had not .een perfected, a.sent the approva .y the >%>( 3oard of 6irectors of whatever 6e +osario, it's agent, might have agreed with ,ope4 %%%. :he appe ate court did not even .e ieve (3*2!3"'s evidence that ,ope4 %%% actua y wrote down such an agreement on a 'nap9in,' as the same was never produced in court. %t i9ewise rejected (3*2!3"'s insistence on its right of first refusa and ratiocinated as fo owsB (s regards the matter of right of first refusa , it may .e true that a $i m 0;hi.ition (greement was entered into .etween (ppe ant (3*2!3" and appe ant >%>( under 0;hi.it '(' in 199#, and that parag. 1.) thereof providesB 1.) (3*2!3" sha have the right of first refusa to the ne;t twenty2four C2)D >%>( fi ms for :> te ecast under such terms as may .e agreed upon .y the parties hereto, provided, however, that such right sha .e e;ercised .y (3*2!3" within a period of fifteen C15D days from the actua offer in writing C+ecords, p. 1)D. J/Kowever, it is very c ear that said right of first refusa in favor of (3*2!3" sha sti .e su.ject to such terms as may .e agreed upon .y the parties thereto, and that the said right sha .e e;ercised .y (3*2!3" within fifteen C15D days from the actua offer in writing. *aid parag. 1.) of the agreement 0;hi.it '(' on the right of first refusa did not fi; the price of the fi m right to the twenty2four C2)D fi ms, nor did it specify the terms thereof. :he same are sti eft to .e agreed upon .y the parties. %n the instant case, (3*2!3"'s etter of rejection 0;hi.it 8 C+ecords, p. 79D stated that it can on y tic9 off ten C1#D fi ms, and the draft contract 0;hi.it '!' accepted on y fourteen C1)D fi ms, whi e parag. 1.) of 0;hi.it '('' spea9s of the ne;t twenty2four C2)D fi ms.
:he offer of >1>( was sometime in 6ecem.er 1991 C0;hi.its 2, 22(. 223< +ecords, pp. 7A277< 6ecision, p. 11, +ecords, p. 115#D, when the first ist of >%>( fi ms was sent

(ggrieved .y the +:!'s decision, (3*2!3" appea ed to the !ourt of (ppea s c aiming that there was a perfected contract .etween (3*2!3" and >%>( granting (3*2!3" the e;c usive right to e;hi.it the su.ject fi ms. Private respondents >%>( and 6e +osario a so appea ed see9ing mora and e;emp ary damages and additiona attorney's fees.

.y 1r. 6e +osario to (3*2!3". :he >ice President of (3*2 !3", 1s. !haro *antos2!oncio, sent a etter dated January A, 1992 C0;hi.it 8, +ecords, p. 79D where (3*2!3" e;ercised its right of refusa .y rejecting the offer of >%>(.. (s apt y o.served .y the tria court, with the said etter of 1rs. !oncio of January A, 1992, (3*2!3" had ost its right of first refusa . (nd even if @e rec9on the fifteen C15D day period from $e.ruary 27, 1992 C0;hi.it ) to )2!D when another ist was sent to (3*2!3" after the etter of 1rs. !oncio, sti the fifteen C15D day period within which (3*2 !3" sha e;ercise its right of first refusa has a ready e;pired. 22

%% . . . %" (@(+6%"- (!:5(, ("6 !&1P0"*(:&+F 6(1(-0* %" $(>&+ &$ P+%>(:0 +0*P&"60": +3*. %%% . . . %" (@(+6%"- 1&+(, ("6 0N01P,(+F 6(1(-0* %" $(>&+ &$ P+%>(:0 +0*P&"60": +3*. %> . . . %" (@(+6%"- (::&+"0F'* $00* %" $(>&+ &$ +3*. (3*2!3" c aims that it had yet to fu y e;ercise its right of first refusa over twenty2four tit es under the 199# $i m 0;hi.ition (greement, as it had chosen on y ten tit es from the first ist. %t insists that we give credence to ,ope4's testimony that he and 6e +osario met at the :amarind -ri +estaurant, discussed the terms and conditions of the second ist Cthe 1992 $i m 0;hi.ition (greementD and upon agreement thereon, wrote the same on a paper nap9in. %t a so asserts that the contract has a ready .een effective, as the e ements thereof, name y, consent, o.ject, and consideration were esta. ished. %t then conc udes that the !ourt of (ppea s' pronouncements were not supported .y aw and jurisprudence, as per our decision of 1 6ecem.er 1995 in Lim+et+ai ons ,illin', -nc. v. $ourt of Appeals, 22 which cited To(ota &a*, -nc. v. $ourt of Appeals, 24 An' .u Asuncion v. $ourt of Appeals , 25 and/illonco !ealt( $ompan( v. Borma&eco. -nc. 26 (nent the actua damages awarded to +3*, (3*2!3" disavows ia.i ity therefor. +3* spent for the premium on the counter.ond of its own vo ition in order to negate the injunction issued .y the tria court after the parties had venti ated their respective positions during the hearings for the purpose. :he fi ing of the counter.ond was an option avai a. e to +3*, .ut it can hard y .e argued that (3*2!3" compe ed +3* to incur such e;pense. 3esides, +3* had another avai a. e option, i.e., move for the disso ution or the injunction< or if it was determined to put up a counter.ond, it cou d have presented a cash .ond. $urthermore under (rtic e 22#8 of the !ivi !ode, the party suffering oss or injury is a so re=uired to e;ercise the di igence of a good father of a fami y to minimi4e

(ccording y, respondent court sustained the award of actua damages consisting in the cost of print advertisements and the premium payments for the counter.ond, there .eing ade=uate proof of the pecuniary oss which +3* had suffered as a resu t of the fi ing of the comp aint .y (3*2 !3". (s to the award of mora damages, the !ourt of (ppea s found reasona. e .asis therefor, ho ding that +3*'s reputation was de.ased .y the fi ing of the comp aint in !ivi !ase "o. G2922128#9 and .y the non2 showing of the fi m '1aging *ino La 1an.' +espondent court a so he d that e;emp ary damages were correct y imposed .y way of e;amp e or correction for the pu. ic good in view of the fi ing of the comp aint despite petitioner's 9now edge that the contract with >%>( had not .een perfected, %t a so uphe d the award of attorney's fees, reasoning that with (3*2!3"'s act of instituting !ivi !ase "o, G292212#9, +3* was 'unnecessari y forced to itigate.' :he appe ate court, however, reduced the awards of mora damages to P2 mi ion, e;emp ary damages to P2 mi ion, and attorney's fees to P5##, ###.##. &n the other hand, respondent !ourt of (ppea s denied >%>( and 6e +osario's appea .ecause it was '+3* and not >%>( which was actua y prejudiced when the comp aint was fi ed .y (3*2!3".' %ts motion for reconsideration having .een denied, (3*2!3" fi ed the petition in this case, contending that the !ourt of (ppea s grave y erred in % . . . +5,%"- :/(: :/0+0 @(* "& P0+$0!:06 !&":+(!: 30:@00" P0:%:%&"0+ ("6 P+%>(:0 +0*P&"60": >%>( "&:@%:/*:("6%"P+0P&"60+("!0 &$ 0>%60"!0 (665!06 3F P0:%:%&"0+ :& :/0 !&":+(+F.

the damages resu ting from the act or omission. (s regards the cost of print advertisements, +3* had not convincing y esta. ished that this was a oss attri.uta. e to the non showing '1aging *ino La 1an'< on the contrary, it was .rought out during tria that with or without the case or the injunction, +3* wou d have spent such an amount to generate interest in the fi m. (3*2!3" further contends that there was no c ear .asis for the awards of mora and e;emp ary damages. :he controversy invo ving (3*2!3" and +3* did not in any way originate from .usiness transaction .etween them. :he c aims for such damages did not arise from any contractua dea ings or from specific acts committed .y (3*2!3" against +3* that may .e characteri4ed as wanton, fraudu ent, or rec9 ess< they arose .y virtue on y of the fi ing of the comp aint, (n award of mora and e;emp ary damages is not warranted where the record is .ereft of any proof that a party acted ma icious y or in .ad faith in fi ing an action. 27 %n any case, free resort to courts for redress of wrongs is a matter of pu. ic po icy. :he aw recogni4es the right of every one to sue for that which he honest y .e ieves to .e his right without fear of standing tria for damages where .y ac9 of sufficient evidence, ega technica ities, or a different interpretation of the aws on the matter, the case wou d ose ground. 27 &ne who ma9es use of his own ega right does no injury. 29 %f damage resu ts front the fi ing of the comp aint, it is damnum a#sque injuria. 20 3esides, mora damages are genera y not awarded in favor of a juridica person, un ess it enjoys a good reputation that was de.ased .y the offending party resu ting in socia humi iation. 21 (s regards the award of attorney's fees, (3*2!3" maintains that the same had no factua , ega , or e=uita. e justification. %n sustaining the tria court's award, the !ourt of (ppea s acted in c ear disregard of the doctrines aid down in Buan v. $ama'anacan 22 that the te;t of the decision shou d state the reason why attorney's fees are .eing awarded< otherwise, the award shou d .e disa owed. 3esides, no .ad faith has .een imputed on, much ess proved as having .een committed .y, (3*2 !3". %t has .een he d that 'where no sufficient showing of .ad faith wou d .e ref ected in a party' s persistence in a case other than an erroneous conviction of the righteousness of his cause, attorney's fees sha not .e recovered as cost.' 22 &n the other hand, +3* asserts that there was no perfected contract .etween (3*2!3" and >%>( a.sent any meeting of minds .etween them regarding the o.ject and consideration of the a eged contract. %t affirms that the (3*2!3"'s c aim of a right of first refusa was correct y rejected .y the tria court. +3* insist the premium it had paid for the

counter.ond constituted a pecuniary oss upon which it may recover. %t was o. iged to put up the counter.ound due to the injunction procured .y (3*2!3". *ince the tria court found that (3*2!3" had no cause of action or va id c aim against +3* and, therefore not entit ed to the writ of injunction, +3* cou d recover from (3*2!3" the premium paid on the counter.ond. !ontrary to the c aim of (3*2!3", the cash .ond wou d prove to .e more e;pensive, as the oss wou d .e e=uiva ent to the cost of money +3* wou d forego in case the P8# mi ion came from its funds or was .orrowed from .an9s. +3* i9ewise asserts that it was entit ed to the cost of advertisements for the cance ed showing of the fi m '1aging *ino La 1an' .ecause the print advertisements were put out to announce the showing on a particu ar day and hour on !hanne 7, i.e., in its entirety at one time, not a series to .e shown on a periodic .asis. /ence, the print advertisement were good and re evant for the particu ar date showing, and since the fi m cou d not .e shown on that particu ar date and hour .ecause of the injunction, the e;penses for the advertisements had gone to waste. (s regards mora and e;emp ary damages, +3* asserts that (3*2!3" fi ed the case and secured injunctions pure y for the purpose of harassing and prejudicing +3*. Pursuant then to (rtic e 19 and 21 of the !ivi !ode, (3*2!3" must .e he d ia. e for such damages. $itin' :o entino, 24 damages may .e awarded in cases of a.use of rights even if the act done is not i icit and there is a.use of rights were p aintiff institutes and action pure y for the purpose of harassing or prejudicing the defendant. %n support of its stand that a juridica entity can recover mora and e;emp ary damages, private respondents +3*cited %eople v. ,anero, 25 where it was stated that such entity may recover mora and e;emp ary damages if it has a good reputation that is de.ased resu ting in socia humi iation. it then ratiocinates< thusB :here can .e no dou.t that +3*' reputation has .een de.ased .y (3*2!3"'s acts in this case. @hen +3* was not a. e to fu fi its commitment to the viewing pu. ic to show the fi m '1aging *ino La 1an' on the schedu ed dates and times Cand on two occasions that +3* advertisedD, it suffered serious em.arrassment and socia humi iation. @hen the showing was cance ed, ate viewers ca ed up +3*' offices and su.jected +3* to ver.a a.use C'(nnounce 9ayo nang announce, hindi ninyo naman i a a.as,' 'nan o o9o yata 9ayo'D C0;h. 82

+3*, par. 8D. :his a one was not something +3* .rought upon itse f. it was e;act y what (3*2!3" had p anned to happen. :he amount of mora and e;emp ary damages cannot .e said to .e e;cessive. :wo reasons justify the amount of the award. :he first is that the humi iation suffered .y +3* is nationa e;tent. +3* operations as a .roadcasting company is JsicK nationwide. %ts c iente e, i9e that of (3*2!3", consists of those who own and watch te evision. %t is not an e;aggeration to state, and it is a matter of judicia notice that a most every other person in the country watches te evision. :he humi iation suffered .y +3* is mu tip ied .y the num.er of te eviewers who had anticipated the showing of the fi m '1aging *ino La 1an' on 1ay 27 and "ovem.er 8, 1992 .ut did not see it owing to the cance ation. (dded to this are the advertisers who had p aced commercia spots for the te ecast and to whom +3* had a commitment in consideration of the p acement to show the fi m in the dates and times specified.
:he second is that it is a competitor that caused +3* to suffer the humi iation. :he humi iation and injury are far greater in degree when caused .y an entity whose u timate .usiness o.jective is to ure customers Cviewers in this caseD away from the competition. 26

%. :he first issue shou d .e reso ved against (3*2!3". ( contract is a meeting of minds .etween two persons where.y one .inds himse f to give something or to render some service to another 27 for a consideration. there is no contract un ess the fo owing re=uisites concurB C1D consent of the contracting parties< C2D o.ject certain which is the su.ject of the contract< and C8D cause of the o. igation, which is esta. ished. 27 ( contract undergoes three stagesB CaD preparation, conception, or generation, which is the period of negotiation and .argaining, ending at the moment of agreement of the parties< C.D perfection or .irth of the contract, which is the moment when the parties come to agree on the terms of the contract< and
CcD consummation or death, which is the fu fi ment or performance of the terms agreed upon in the contract.

29

$or their part, >%>( and >icente de +osario contend that the findings of fact of the tria court and the !ourt of (ppea s do not support (3*2!3"'s c aim that there was a perfected contract. *uch factua findings can no onger .e distur.ed in this petition for review under +u e )5, as on y =uestions of aw can .e raised, not =uestions of fact. &n the issue of damages and attorneys fees, they adopted the arguments of +3*. :he 9ey issues for our consideration are C1D whether there was a perfected contract .etween >%>( and (3*2!3", and C2D whether +3* is entit ed to damages and attorney's fees. %t may .e noted that the award of attorney's fees of P212,### in favor of >%>( is not assigned as another error.

!ontracts that are consensua in nature are perfected upon mere meeting of the minds, &nce there is concurrence .etween the offer and the acceptance upon the su.ject matter, consideration, and terms of payment a contract is produced. :he offer must .e certain. :o convert the offer into a contract, the acceptance must .e a.so ute and must not =ua ify the terms of the offer< it must .e p ain, une=uivoca , unconditiona , and without variance of any sort from the proposa . ( =ua ified acceptance, or one that invo ves a new proposa , constitutes a counter2 offer and is a rejection of the origina offer. !onse=uent y, when something is desired which is not e;act y what is proposed in the offer, such acceptance is not sufficient to generate consent .ecause any modification or variation from the terms of the offer annu s the offer. 40 @hen 1r. 6e +osario of >%>( met with 1r. ,ope4 of (3*2!3" at the :amarind -ri on 2 (pri 1992 to discuss the pac9age of fi ms, said pac9age of 1#) >%>( fi ms was >%>('s offer to (3*2!3" to enter into a new $i m 0;hi.ition (greement. 3ut (3*2!3", sent, through 1s. !oncio, a counter2proposa in the form of a draft contract proposing e;hi.ition of 58 fi ms for a consideration of P85 mi ion. :his counter2proposa cou d .e nothing ess than the counter2offer of 1r. ,ope4 during his conference with 6e +osario at :amarind -ri +estaurant. ! ear y, there was no

acceptance of >%>('s offer, for it was met .y a counter2offer which su.stantia y varied the terms of the offer. (3*2!3"'s re iance in Lim+et+ai ons ,illin', -nc. v. $ourt of Appeals 41 and /illonco !ealt( $ompan( v. Borma&eco, -nc., 42 is misp aced. %n these cases, it was he d that an acceptance may contain a re=uest for certain changes in the terms of the offer and yet .e a .inding acceptance as ong as 'it is c ear that the meaning of the acceptance is positive y and une=uivoca y to accept the offer, whether such re=uest is granted or not.' :his ru ing was, however, reversed in the reso ution of 29 1arch 199A, 42which ru ed that the acceptance of a offer must .e un=ua ified and a.so ute, i.e., it 'must .e identica in a respects with that of the offer so as to produce consent or meeting of the minds.' &n the other hand, in >i onco, cited in ,im9et9ai, the a eged changes in the revised counter2offer were not materia .ut mere y c arificatory of what had previous y .een agreed upon. %t cited the statement in tuart v.0ran+lin Life -nsurance $o. 44 that 'a vendor's change in a phrase of the offer to purchase, which change does not essentia y change the terms of the offer, does not amount to a rejection of the offer and the tender of a counter2offer.' 45 /owever, when any of the e ements of the contract is modified upon acceptance, such a teration amounts to a counter2offer. %n the case at .ar, (3*2!3" made no un=ua ified acceptance of >%>('s offer. /ence, they underwent a period of .argaining. (3*2!3" then forma i4ed its counter2proposa s or counter2offer in a draft contract, >%>( through its 3oard of 6irectors, rejected such counter2offer, 0ven if it .e conceded ar'uendo that 6e +osario had accepted the counter2offer, the acceptance did not .ind >%>(, as there was no proof whatsoever that 6e +osario had the specific authority to do so. 5nder !orporation !ode, 46 un ess otherwise provided .y said !ode, corporate powers, such as the power< to enter into contracts< are e;ercised .y the 3oard of 6irectors. /owever, the 3oard may de egate such powers to either an e;ecutive committee or officia s or contracted managers. :he de egation, e;cept for the e;ecutive committee, must .e for specific purposes, 47 6e egation to officers ma9es the atter agents of the corporation< according y, the genera ru es of agency as to the .indings effects of their acts wou d app y. 47 $or such officers to .e deemed fu y c othed .y the corporation to e;ercise a power of the 3oard, the atter must specia y authori4e them to do so. :hat 6e +osario did not have the authority to accept (3*2!3"'s counter2offer was .est evidenced .y his su.mission of the draft contract to >%>('s 3oard of 6irectors for the atter's approva . %n any event, there

was .etween 6e +osario and ,ope4 %%% no meeting of minds. :he fo owing findings of the tria court are instructiveB ( num.er of considerations mi itate against (3*2!3"'s c aim that a contract was perfected at that unch meeting on (pri #2, 1992 at the :amarind -ri . $%+*:, 1r. ,ope4 c aimed that what was agreed upon at the :amarind -ri referred to the price and the num.er of fi ms, which he wrote on a nap9in. /owever, 0;hi.it '!' contains numerous provisions *&ic&, *ere not discussed at t&e Tamarind "rill, if ,ope4 testimony was to .e .e ieved nor cou d they have .een physica y written on a nap9in. :here was even dou.t as to whether it was a paper nap9in or a c oth nap9in. %n short what were written in 0;hi.it '!'' were not discussed, and therefore cou d not have .een agreed upon, .y the parties. /ow then cou d this court compe the parties to sign 0;hi.it '!' when the provisions thereof were not previous y agreed uponO *0!&"6, 1r. ,ope4 c aimed that what was agreed upon as the su.ject matter of the contract was 1) fi ms. :he comp aint in fact prays for de ivery of 1) fi ms. 3ut 0;hi.it '!' mentions 58 fi ms as its su.ject matter. @hich is which %f 0;hi.its '!' ref ected the true intent of the parties, then (3*2!3"'s c aim for 1) fi ms in its comp aint is fa se or if what it a eged in the comp aint is true, then 0;hi.it '!' did not ref ect what was agreed upon .y the parties. :his underscores the fact that there was no meeting of the minds as to the su.ject matter of the contracts, so as to prec ude perfection thereof. $or sett ed is the ru e that there can .e no contract where there is no o.ject which is its su.ject matter C(rt. 1817, "!!D. :/%+6, 1r. ,ope4 JsicK answer to =uestion 29 of his affidavit testimony C0;h. '6'D statesB @e were a. e to reach an agreement. >%>( gave us the e;c usive icense to show these fourteen C1)D fi ms, and we agreed to pay >iva the amount of P1A,#5#,###.## as we as grant >iva commercia s ots worth P19,95#,###.##.

@e had a ready earmar9ed this P1A, #5#,###.##. which gives a tota consideration of P8A mi ion CP19,95#,###.## p us P1A,#5#,###.##. e=ua s P8A,###,###.##D. &n cross2e;amination 1r. ,ope4 testifiedB G. @hat was written in this nap9inO (. :he tota price, the .rea9down the 9nown >iva movies, the 7 . oc9.uster movies and the other 7 >iva movies .ecause the price was .ro9en down according y. :he none JsicK >iva and the seven other >iva movies and the sharing .etween the cash portion and the concerned spot portion in the tota amount of P85 mi ion pesos. "ow, which is whichO P8A mi ion or P85 mi ionO :his wea9ens (3*2!3"'s c aim. $&5+:/. 1rs. !oncio, testifying for (3*2!3" stated that she transmitted 0;hi.it '!' to 1r. 6e +osario with a handwritten note, descri.ing said 0;hi.it '!' as a 'draft.' C0;h. '5' 2 >iva< tsn pp. 2822) June #7, 1992D. :he said draft has a we defined meaning. *ince 0;hi.it '!' is on y a draft, or a tentative, provisiona or preparatory writing prepared for discussion, the terms and conditions thereof cou d not have .een previous y agreed upon .y (3*2!3" and >iva 0;hi.it '!'' cou d not therefore ega y .ind >iva, not having agreed thereto. %n fact, 1s. !oncio admitted that the terms and conditions em.odied in 0;hi.it '!' were prepared .y (3*2!3"'s awyers and there was no discussion on said terms and conditions. . . . (s the parties had not yet discussed the proposed terms and conditions in 0;hi.it '!,' and there was no evidence whatsoever that >iva agreed to the terms and conditions

thereof, said document cannot .e a .inding contract. :he fact that >iva refused to sign 0;hi.it '!' revea s on y two JsicK we that it did not agree on its terms and conditions, and this court has no authority to compe >iva to agree thereto. $%$:/. 1r. ,ope4 understand JsicK that what he and 1r. 6e +osario agreed upon at the :amarind -ri was on y provisiona , in the sense that it was su.ject to approva .y the 3oard of 6irectors of >iva. /e testifiedB G. "ow, 1r. @itness, and after that :amarind meeting ... the second meeting wherein you c aimed that you have the meeting of the minds .etween you and 1r. >ic de +osario, what happenedO (. >ic 6e +osario was supposed to ca us up and te us specifica y the resu t of the discussion with the 3oard of 6irectors. G. (nd you are referring to the so2ca ed agreement which you wrote in JsicK a piece of paperO (. Fes, sir. G. *o, he was going to forward that to the .oard of 6irectors for approva O (. Fes, sir. C:sn, pp. )22)8, June 7, 1992D G. 6id 1r. 6e +osario te you that he wi su.mit it to his 3oard for approva O (. Fes, sir. C:sn, p. A9, June 7, 1992D. :he a.ove testimony of 1r. ,ope4 shows .eyond dou.t that he 9new 1r. 6e +osario had no authority to .ind >iva to a contract with (3*2!3" unti and un ess its 3oard of 6irectors approved it. :he comp aint, in fact, a eges that 1r. 6e +osario 'is the 0;ecutive Producer of defendant >iva' which 'is a corporation.' Cpar. 2,

comp aintD. (s a mere agent of >iva, 6e +osario cou d not .ind >iva un ess what he did is ratified .y its 3oard of 6irectors. C/icente vs. "eraldez, 52 *!+( 21#< Arnold vs. 1illets and Paterson, )) Phi . A8)D. (s a mere agent, recogni4ed as such .y p aintiff, 6e +osario cou d not .e he d ia. e joint y and severa y with >iva and his inc usion as party defendant has no ega .asis. C alon'a vs. 1arner Barner JsicK , !&,:( , 77 Phi . 125< *a mon vs. :an, 8A Phi . 55AD.
:he testimony of 1r. ,ope4 and the a egations in the comp aint are c ear admissions that what was supposed to have .een agreed upon at the :amarind -ri .etween 1r. ,ope4 and 6e +osario was not a .inding agreement. %t is as it shou d .e .ecause corporate power to enter into a contract is odged in the 3oard of 6irectors. C*ec. 28, !orporation !odeD. @ithout such .oard approva .y the >iva .oard, whatever agreement ,ope4 and 6e +osario arrived at cou d not ripen into a va id contract .inding upon >iva C.ao )a in Tradin' vs.$ourt of Appeals, 2#9 *!+( 7A8D. :he evidence adduced shows that the 3oard of 6irectors of >iva rejected 0;hi.it '!' and insisted that the fi m pac9age for 1)# fi ms .e maintained C0;h. '721' 2 >iva D. 49

/owever, we find for (3*2!3" on the issue of damages. @e sha first ta9e up actua damages. !hapter 2, :it e N>%%%, 3oo9 %> of the !ivi !ode is the specific aw on actua or compensatory damages. 0;cept as provided .y aw or .y stipu ation, one is entit ed to compensation for actua damages on y for such pecuniary oss suffered .y him as he has du y proved. 51 :he indemnification sha comprehend not on y the va ue of the oss suffered, .ut a so that of the profits that the o. igee fai ed to o.tain. 52 %n contracts and =uasi2contracts the damages which may .e awarded are dependent on whether the o. igor acted with good faith or otherwise, %t case of good faith, the damages recovera. e are those which are the natura and pro.a. e conse=uences of the .reach of the o. igation and which the parties have foreseen or cou d have reasona. y foreseen at the time of the constitution of the o. igation. %f the o. igor acted with fraud, .ad faith, ma ice, or wanton attitude, he sha .e responsi. e for a damages which may .e reasona. y attri.uted to the non2performance of the o. igation. 52 %n crimes and =uasi2de icts, the defendant sha .e ia. e for a damages which are the natura and pro.a. e conse=uences of the act or omission comp ained of, whether or not such damages has .een foreseen or cou d have reasona. y .een foreseen .y the defendant. 54 (ctua damages may i9ewise .e recovered for oss or impairment of earning capacity in cases of temporary or permanent persona injury, or for injury to the p aintiff's .usiness standing or commercia credit. 55 :he c aim of +3* for actua damages did not arise from contract, =uasi2 contract, de ict, or =uasi2de ict. %t arose from the fact of fi ing of the comp aint despite (3*2!3"'s a eged 9now edge of ac9 of cause of action. :hus paragraph 12 of +3*'s (nswer with !ounterc aim and !ross2c aim under the heading !&5":0+!,(%1 specifica y a egesB
12. (3*2!3" fi ed the comp aint 9nowing fu y we that it has no cause of action +3*. (s a resu t thereof, +3* suffered actua damages in the amount of PA,A21,195.82.

:he contention that (3*2!3" had yet to fu y e;ercise its right of first refusa over twenty2four fi ms under the 199# $i m 0;hi.ition (greement and that the meeting .etween ,ope4 and 6e +osario was a continuation of said previous contract is untena. e. (s o.served .y the tria court, (3*2!3" right of first refusa had a ready .een e;ercised when 1s. !oncio wrote to >%>( tic9ing off ten fi ms, :husB
J:Khe su.se=uent negotiation with (3*2!3" two C2D months after this etter was sent, was for an entire y different pac9age. 1s. !oncio herse f admitted on cross2e;amination to having used or e;ercised the right of first refusa . *he stated that the ist was not accepta. e and was indeed not accepted .y (3*2!3", C:*", June 7, 1992, pp. 721#D. 0ven 1r. ,ope4 himse f admitted that the right of the first refusa may have .een a ready e;ercised .y 1s. !oncio Cas she hadD. C:*", June 7, 1992, pp. 71275D. 6e +osario himse f 9new and understand JsicK that (3*2!3" has ost its rights of the first refusa when his ist of 8A tit es were rejected C:sn, June 9, 1992, pp. 1#211D 50

56

"eed ess to state the award of actua damages cannot .e comprehended under the a.ove aw on actua damages. +3* cou d on y pro.a. y ta9e refuge under (rtic es 19, 2#, and 21 of the !ivi !ode, which read as fo owsB (rt. 19. 0very person must, in the e;ercise of his rights and in the performance of his duties, act with justice, give everyone his due, and o.serve honesty and good faith.

%%

(rt. 2#. 0very person who, contrary to aw, wi fu y or neg igent y causes damage to another, sha indemnify the atter for ti e same. (rt. 21. (ny person who wi fu y causes oss or injury to another in a manner that is contrary to mora s, good customs or pu. ic po icy sha compensate the atter for the damage. %t may further .e o.served that in cases where a writ of pre iminary injunction is issued, the damages which the defendant may suffer .y reason of the writ are recovera. e from the injunctive .ond. 57 %n this case, (3*2!3" had not yet fi ed the re=uired .ond< as a matter of fact, it as9ed for reduction of the .ond and even went to the !ourt of (ppea s to cha enge the order on the matter, ! ear y then, it was not necessary for +3* to fi e a counter.ond. /ence, (3*2!3" cannot .e he d responsi. e for the premium +3* paid for the counter.ond. "either cou d (3*2!3" .e ia. e for the print advertisements for '1aging *ino La 1an' for ac9 of sufficient ega .asis. :he +:! issued a temporary restraining order and ater, a writ of pre iminary injunction on the .asis of its determination that there e;isted sufficient ground for the issuance thereof. "ota. y, the +:! did not disso ve the injunction on the ground of ac9 of ega and factua .asis, .ut .ecause of the p ea of +3* that it .e a owed to put up a counter.ond. (s regards attorney's fees, the aw is c ear that in the a.sence of stipu ation, attorney's fees may .e recovered as actua or compensatory damages under any of the circumstances provided for in (rtic e 22#7 of the !ivi !ode. 57 :he genera ru e is that attorney's fees cannot .e recovered as part of damages .ecause of the po icy that no premium shou d .e p aced on the right to itigate. 59 :hey are not to .e awarded every time a party wins a suit. :he power of the court to award attorney's fees under (rtic e 22#7 demands factua , ega , and e=uita. e justification. 60 0ven when c aimant is compe ed to itigate with third persons or to incur e;penses to protect his rights, sti attorney's fees may not .e awarded where no sufficient showing of .ad faith cou d .e ref ected in a party's persistence in a case other than erroneous conviction of the righteousness of his cause. 61 (s to mora damages the aw is *ection 1, !hapter 8, :it e N>%%%, 3oo9 %> of the !ivi !ode. (rtic e 2217 thereof defines what are inc uded in mora

damages, whi e (rtic e 2219 enumerates the cases where they may .e recovered, (rtic e 222# provides that mora damages may .e recovered in .reaches of contract where the defendant acted fraudu ent y or in .ad faith. +3*'s c aim for mora damages cou d possi. y fa on y under item C1#D of (rtic e 2219, thereof which readsB C1#D (cts and actions referred to in (rtic es 21, 2A, 27, 27, 29, 8#, 82, 8), and 85. 1ora damages are in the category of an award designed to compensate the c aimant for actua injury suffered. and not to impose a pena ty on the wrongdoer. 62 :he award is not meant to enrich the comp ainant at the e;pense of the defendant, .ut to ena. e the injured party to o.tain means, diversion, or amusements that wi serve to o.viate then mora suffering he has undergone. %t is aimed at the restoration, within the imits of the possi. e, of the spiritua status quo ante, and shou d .e proportionate to the suffering inf icted. 62 :ria courts must then guard against the award of e;or.itant damages< they shou d e;ercise .a anced restrained and measured o.jectivity to avoid suspicion that it was due to passion, prejudice, or corruption on the part of the tria court. 64 :he award of mora damages cannot .e granted in favor of a corporation .ecause, .eing an artificia person and having e;istence on y in ega contemp ation, it has no fee ings, no emotions, no senses, %t cannot, therefore, e;perience physica suffering and menta anguish, which ca .e e;perienced on y .y one having a nervous system. 65 :he statement in %eople v. ,anero 66 and ,am#ulao Lum#er $o. v. %2B 67 that a corporation may recover mora damages if it 'has a good reputation that is de.ased, resu ting in socia humi iation' is an o#iter dictum. &n this score a one the award for damages must .e set aside, since +3* is a corporation. :he .asic aw on e;emp ary damages is *ection 5, !hapter 8, :it e N>%%%, 3oo9 %> of the !ivi !ode. :hese are imposed .y way of e;amp e or correction for the pu. ic good, in addition to mora , temperate, i=uidated or compensatory damages. 67 :hey are recovera. e in crimina cases as part of the civi ia.i ity when the crime was committed with one or more aggravating circumstances< 69 in =uasi2contracts, if the defendant acted with gross neg igence< 70 and in contracts and =uasi2contracts, if the defendant acted in a wanton, fraudu ent, rec9 ess, oppressive, or ma evo ent manner. 71

%t may .e reiterated that the c aim of +3* against (3*2!3" is not .ased on contract, =uasi2contract, de ict, or =uasi2de ict, /ence, the c aims for mora and e;emp ary damages can on y .e .ased on (rtic es 19, 2#, and 21 of the !ivi !ode. :he e ements of a.use of right under (rtic e 19 are the fo owingB C1D the e;istence of a ega right or duty, C2D which is e;ercised in .ad faith, and C8D for the so e intent of prejudicing or injuring another. (rtic e 2# spea9s of the genera sanction for a other provisions of aw which do not especia y provide for their own sanction< whi e (rtic e 21 dea s with acts contra #onus mores, and has the fo owing e ements< C1D there is an act which is ega , C2D .ut which is contrary to mora s, good custom, pu. ic order, or pu. ic po icy, and C8D and it is done with intent to injure. 72 >eri y then, ma ice or .ad faith is at the core of (rtic es 19, 2#, and 21. 1a ice or .ad faith imp ies a conscious and intentiona design to do a wrongfu act for a dishonest purpose or mora o. i=uity. 72 *uch must .e su.stantiated .y evidence. 74 :here is no ade=uate proof that (3*2!3" was inspired .y ma ice or .ad faith. %t was honest y convinced of the merits of its cause after it had undergone serious negotiations cu minating in its forma su.mission of a draft contract. *ett ed is the ru e that the adverse resu t of an action does not per se ma9e the action wrongfu and su.ject the actor to damages, for the aw cou d not have meant to impose a pena ty on the right to itigate. %f damages resu t from a person's e;ercise of a right, it is damnum a#sque injuria. 75 @/0+0$&+0, the instant petition is -+(":06. :he cha enged decision of the !ourt of (ppea s in !(2-.+. !> "o, ))125 is here.y +0>0+*06 e;cept as to unappea ed award of attorney's fees in favor of >%>( Productions, %nc.
34*p&i3.n5t

YNARE$-$AN'IAGO, J.8 &n "ovem.er 21, 1997, 3enedicto /orni a and $ederico 6. +icafort fi ed an administrative comp aint1 with the %ntegrated 3ar of the Phi ippines C%3PD !ommission on 3ar 6iscip ine, against respondent (tty. 0rnesto *. *a unat for i ega and unethica practice and conf ict of interest. :hey a eged that respondent is a mem.er of the (**( ,aw and (ssociates, which was the retained counse of the Phi ippine Pu. ic *choo :eachers (ssociation CPP*:(D. +espondentPs .rother, (ure io *. *a unat, was a mem.er of the PP*:( 3oard which approved respondentPs engagement as retained counse of PP*:(. !omp ainants, who are mem.ers of the PP*:(, fi ed an intra2corporate case against its mem.ers of the 3oard of 6irectors for the terms 19922 1995 and 199521997 .efore the *ecurities and 0;change !ommission, which was doc9eted as *0! !ase "o. #529725A57, and a comp aint .efore the &ffice of the &m.udsman, doc9eted as &13 !ase "o. #2972 #A95, for un awfu spending and the underva ued sa e of rea property of the PP*:(. +espondent entered his appearance as counse for the PP*:( 3oard mem.ers in the said cases. !omp ainants contend that respondent was gui ty of conf ict of interest .ecause he was engaged .y the PP*:(, of which comp ainants were mem.ers, and was .eing paid out of its corporate funds where comp ainants have contri.uted. 6espite .eing to d .y PP*:( mem.ers of the said conf ict of interest, respondent refused to withdraw his appearance in the said cases. 1oreover, comp ainants aver that respondent vio ated +u e 15.#A 2 of the !ode of Professiona +esponsi.i ity when he appeared at the meeting of the PP*:( 3oard and assured its mem.ers that he wi win the PP*:( cases. %n his (nswer,8 respondent stressed that he entered his appearance as counse for the PP*:( 3oard 1em.ers for and in .eha f of the (**( ,aw and (ssociates. (s a partner in the said aw firm, he on y fi ed a '1anifestation of 0;treme 5rgency' in &13 !ase "o. #2972#A95. ) &n the other hand, *0! !ase "o. #529725A57 was hand ed .y another partner of the firm, (tty. (gustin >. (gustin. +espondent c aims that it was comp ainant (tty. +icafort who instigated, orchestrated and indiscriminate y fi ed the said cases against mem.ers of the PP*:( and its 3oard. +espondent pointed out that his re ationship to (ure io *. *a unat was immateria < and that when he entered into the retainer contract with the

"o pronouncement as to costs. A.C. No. 5704 -.1y 1, 2002

BENEDIC'O HORNILLA an A''Y. %EDERICO D. RICA%OR', comp ainants, vs. A''Y. ERNE$'O $. $ALUNA', respondent. RE$OLU'ION

PP*:( 3oard, he did so, not in his individua capacity, .ut in representation of the (**( ,aw $irm. /e denied that he ensured the victory of the PP*:( 3oard in the case he was hand ing. /e mere y assured the 3oard that the truth wi come out and that the case .efore the &m.udsman wi .e dismissed for ac9 of jurisdiction, considering that respondents therein are not pu. ic officia s, .ut private emp oyees. (nent the *0! case, respondent a eged that the same was .eing hand ed .y the aw firm of (tty. 0duardo de 1esa, and not (**(. 3y way of *pecia and (ffirmative 6efenses, respondent averred that comp ainant (tty. +icafort was himse f gui ty of gross vio ation of his oath of office amounting to gross misconduct, ma practice and unethica conduct for fi ing trumped2up charges against him and (tty. 6e 1esa. :hus, he prayed that the comp aint against him .e dismissed and, instead, comp ainant +icafort .e discip ined or dis.arred. :he comp ainant was doc9eted as !36 !ase "o. 972581 and referred to the %3P !ommission on 3ar 6iscip ine. (fter investigation, !ommissioner ,ydia (. "avarro recommended that respondent .e suspended from the practice of aw for si; CAD months. :he 3oard of -overnors thereafter adopted +eso ution "o. N>28##8228# dated June 29, 2##2, approving the report and recommendation of the %nvestigating !ommissioner. +espondent fi ed with this !ourt a 1otion for +econsideration of the a.ove +eso ution of the %3P 3oard of -overnors. :he pertinent ru e of the !ode of Professiona +esponsi.i ity providesB +5,0 15.#8. Q ( awyer sha not represent conf icting interests e;cept .y written consent of a concerned given after a fu disc osure of the facts. :here is conf ict of interest when a awyer represents inconsistent interests of two or more opposing parties. :he test is 'whether or not in .eha f of one c ient, it is the awyerPs duty to fight for an issue or c aim, .ut it is his duty to oppose it for the other c ient. %n .rief, if he argues for one c ient, this argument wi .e opposed .y him when he argues for the other c ient.'5 :his ru e covers not on y cases in which confidentia communications have .een confided, .ut a so those in which no confidence has .een .estowed or wi .e used.A ( so, there is conf ict of interests if the acceptance of the new retainer wi re=uire the attorney to perform an act which wi injurious y affect his first c ient in any matter in which he represents him and a so whether he wi .e ca ed upon in his

new re ation to use against his first c ient any 9now edge ac=uired through their connection.7 (nother test of the inconsistency of interests is whether the acceptance of a new re ation wi prevent an attorney from the fu discharge of his duty of undivided fide ity and oya ty to his c ient or invite suspicion of unfaithfu ness or dou. e dea ing in the performance thereof.7 %n this jurisdiction, a corporationPs .oard of directors is understood to .e that .ody which C1D e;ercises a powers provided for under the !orporation !ode< C2D conducts a .usiness of the corporation< and C8D contro s and ho ds a property of the corporation. 9 %ts mem.ers have .een characteri4ed as trustees or directors c othed with a fiduciary character.1# %t is c ear y separate and distinct from the corporate entity itse f. @here corporate directors have committed a .reach of trust either .y their frauds, u tra vires acts, or neg igence, and the corporation is una. e or unwi ing to institute suit to remedy the wrong, a stoc9ho der may sue on .eha f of himse f and other stoc9ho ders and for the .enefit of the corporation, to .ring a.out a redress of the wrong done direct y to the corporation and indirect y to the stoc9ho ders. 11 :his is what is 9nown as a derivative suit, and sett ed is the doctrine that in a derivative suit, the corporation is the rea party in interest whi e the stoc9ho der fi ing suit for the corporationPs .eha f is on y nomina party. :he corporation shou d .e inc uded as a party in the suit.12 /aving thus aid a suita. e foundation of the .asic ega princip es pertaining to derivative suits, we come now to the thresho d =uestionB can a awyer engaged .y a corporation defend mem.ers of the .oard of the same corporation in a derivative suitO &n this issue, the fo owing dis=uisition is en ighteningB :he possi.i ity for conf ict of interest here is universa y recogni4ed. ( though ear y cases found joint representation permissi. e where no conf ict of interest was o.vious, the emerging ru e is against dua representation in a derivative actions. &utside counse must thus .e retained to represent one of the defendants. :he cases and ethics opinions differ on whether there must .e separate representation from the outset or mere y from the time the corporation see9s to ta9e an active ro e. $urthermore, this restriction on dua representationshou d not .e waiva. e .y consent in the usua way< the corporation shou d .e presumptive y incapa. e of giving va id consent.18 Cunderscoring oursD

%n other jurisdictions, the prevai ing ru e is that a situation wherein a awyer represents .oth the corporation and its assai ed directors unavoida. y gives rise to a conf ict of interest. :he interest of the corporate c ient is paramount and shou d not .e inf uenced .y any interest of the individua corporate officia s.1) :he ru ings in these cases have persuasive effect upon us. (fter due de i.eration on the wisdom of this doctrine, we are sufficient y convinced that a awyer engaged as counse for a corporation cannot represent mem.ers of the same corporationPs .oard of directors in a derivative suit .rought against them. :o do so wou d .e tantamount to representing conf icting interests, which is prohi.ited .y the !ode of Professiona +esponsi.i ity. %n the case at .ar, the records show that *0! !ase "o. #529725A57, entit ed 'Phi ippine Pu. ic *choo :eacherPs (ssn., %nc., et a . v. 19922 1995 3oard of 6irectors of the Phi ippine Pu. ic *choo :eacherPs (ssn. CPP*:(D, et a .,' was fi ed .y the PP*:( against its own 3oard of 6irectors. +espondent admits that the (**( ,aw $irm, of which he is the 1anaging Partner, was the retained counse of PP*:(. Fet, he appeared as counse of record for the respondent 3oard of 6irectors in the said case. ! ear y, respondent was gui ty of conf ict of interest when he represented the parties against whom his other c ient, the PP*:(, fi ed suit. %n his (nswer, respondent argues that he on y represented the 3oard of 6irectors in &13 !ase "o. #2972#A95. %n the said case, he fi ed a 1anifestation of 0;treme 5rgency wherein he prayed for the dismissa of the comp aint against his c ients, the individua 3oard 1em.ers. 3y fi ing the said p eading, he necessari y entered his appearance therein.15 (gain, this constituted conf ict of interests, considering that the comp aint in the &m.udsman, a .eit in the name of the individua mem.ers of the PP*:(, was .rought in .eha f of and to protect the interest of the corporation. :herefore, respondent is gui ty of representing conf icting interests. !onsidering however, that this is his first offense, we find the pena ty of suspension, recommended in %3P +eso ution "o. N>22##2228# dated June 29, 2##2, to .e too harsh. %nstead, we reso ve to admonish respondent to o.serve a higher degree of fide ity in the practice of his profession. ACCORDINGLY, respondent (tty. 0rnesto *a unat is found -5%,:F of representing conf icting interests and is (61&"%*/06 to o.serve a higher degree of fide ity in the practice of his profession. /e is further

@(+"06 that a repetition of the same or simi ar acts wi .e dea t with more severe y. *& &+60+06. G.R. No. 96551 No9#:3#* 4, 1996 )REMIUM MARBLE RE$OURCE$, INC., petitioner, vs. 'HE COUR' O% A))EAL$ an IN'ERNA'IONAL COR)ORA'E BAN4, respondents. )RIN'LINE COR)ORA'ION, petitioner, vs. 'HE COUR' O% A))EAL$ an IN'ERNA'IONAL COR)ORA'E BAN4, respondents.

'ORRE$, -R., J.: (ssai ed in the instant petition for review is the decision 1 of the !ourt of (ppea s in !(2-.+. !> "o. 1A71# dated *eptem.er 27, 199# which affirmed the tria court's dismissa of petitioners' comp aint for damages. :he antecedentsB &n Ju y 17, 197A, Premium 1ar. e +esources, %nc. CPremium for .revityD, assisted .y (tty. (rnu fo 6umadag as counse , fi ed an action for damages against %nternationa !orporate 3an9 which was doc9eted as !ivi !ase "o. 1))18. :he comp aint states, inter aliaB 8. *ometime in (ugust to &cto.er 1972, (ya a %nvestment and 6eve opment !orporation issued three C8D chec9s J"os. #97#77, #97)1) H 2777)K in the aggregate amount of P81,AA8.77 paya. e to the p aintiff and drawn against !iti.an9< ;;; ;;; ;;; 5. &n or a.out (ugust to &cto.er 1972, former officers of the p aintiff corporation headed .y *aturnino -. 3e en,

Jr., without any authority whatsoever from the p aintiff deposited the a.ove2mentioned chec9s to the current account of his conduit corporation, %ntervest 1erchant $inance C%ntervest, for .revityD which the atter maintained with the defendant .an9 under account "o. #2##2#2#272 7< A. ( though the chec9s were c ear y paya. e to the p aintiff corporation and crossed on their face and for payee's account on y, defendant .an9 accepted the chec9s to .e deposited to the current account of %ntervest and thereafter presented the same for co ection from the drawee .an9 which su.se=uent y c eared the same thus a owing %ntervest to ma9e use of the funds to the prejudice of the p aintiff< ;;; ;;; ;;; 1). :he p aintiff has demanded upon the defendant to restitute the amount representing the va ue of the chec9s .ut defendant refused and continue to refuse to honor p aintiff's demands up to the present< 15. (s a resu t of the i ega and irregu ar acts perpetrated .y the defendant .an9, the p aintiff was damaged to the e;tent of the amount of P81,AA8.77< Premium prayed that judgment .e rendered ordering defendant .an9 to pay the amount of P81,AA8.77 representing the va ue of the chec9s p us interest, P1##,###.## as e;emp ary damages< and P8#,###.## as attorney's fees. %n its (nswer %nternationa !orporate 3an9 a eged, inter alia, that Premium has no capacity?persona ity?authority to sue in this instance and the comp aint shou d, therefore, .e dismissed for fai ure to state a cause of action. ( few days after Premium fi ed the said case, Print ine !orporation, a sister company of Premium a so fi ed an action for damages against %nternationa !orporate 3an9 doc9eted as !ivi !ase "o. 1)))). :hereafter, .oth civi cases were conso idated.

1eantime, the same corporation, i.e., Premium, .ut this time represented .y *iguion +eyna, 1onteci io and &ngsia9o ,aw &ffice as counse , fi ed a motion to dismiss on the ground that the fi ing of the case was without authority from its du y constituted .oard of directors as shown .y the e;cerpt of the minutes of the Premium's .oard of directors' meeting. 2 %n its opposition to the motion to dismiss, Premium thru (tty. 6umadag contended that the persons who signed the .oard reso ution name y 3e en, Jr., "ogra es H +eyes, are not directors of the corporation and were a eged y former officers and stoc9ho ders of Premium who were dismissed for various irregu arities and fraudu ent acts< that *iguion +eyna ,aw office is the awyer of 3e en and "ogra es and not of Premium and that the (rtic es of %ncorporation of Premium shows that 3e en, "ogra es and +eyes are not majority stoc9ho ders. &n the other hand, *iguion +eyna ,aw firm as counse of Premium in a rejoinder, asserted that it is the genera information sheet fi ed with the *ecurities and 0;change !ommission, among others, that is the .est evidence that wou d show who are the stoc9ho ders of a corporation and not the (rtic es of %ncorporation since the atter does not 9eep trac9 of the many changes that ta9e p ace after new stoc9ho ders su.scri.e to corporate shares of stoc9s. %n the interim, defendant .an9 fi ed a manifestation that it is adopting in toto Premium's motion to dismiss and, therefore, joins it in the praying for the dismissa of the present case on the ground that Premium ac9s authority from its du y constituted .oard of directors to institute the action. %n its &rder, the ower court conc uded thatB !onsidering that the officers CdirectorsD of p aintiff corporation enumerated in the (rtic es of %ncorporation, fi ed on "ovem.er 9, 1979, were 'to serve unti their successors are e ected and =ua ified' and considering further that as of 1arch ), 1971, the officers of the p aintiff corporation were ( .erto "ogra es, $ernando /i ario, (ugusto -a ace, Jose ,.+. +eyes, Pido (gui ar and *aturnino 3e en, Jr., who presuma. y are the officers represented .y the *iguion +eyna ,aw $irm, and that together with the defendants, they are moving for the dismissa of the a.ove2entit ed case, the !ourt finds that the officers represented .y (tty. 6umadag do not as yet have the ega capacity to sue for and in .eha f of the

p aintiff corporation and?or the fi ing of the present action C!ivi !ase 1))18D .y them .efore !ase "o. 2A77 of the *0! cou d .e decided is a premature e;ercise of authority or assumption of ega capacity for and in .eha f of p aintiff corporation. :he issues raised in !ivi !ase "o. 1)))) are simi ar to those raised in !ivi !ase "o. 1))18. :his !ourt is of the opinion that .efore *0! !ase "o. 2A77 cou d .e decided, neither the set of officers represented .y (tty. 6umadag nor that set represented .y the *iguion +eyna, 1onteci o and &ngsia9o ,aw &ffice, may prosecute cases in the name of the p aintiff corporation.
%t is c ear from the p eadings fi ed .y the parties in these two cases that the e;istence of a cause of action against the defendants is dependent upon the reso ution of the case invo ving intra2corporate controversy sti pending .efore the *0!. 2

:he !ourt of (ppea s erred when it ru ed that undersigned counse was not authori4ed .y the 3oard of 6irectors to fi e !ivi !ase "os. 1))18 and 1)))). %> :he !ourt of (ppea s erred in conc uding that under *0! !ase "o. 2A77 the incum.ent directors cou d not act for and in .eha f of the corporation. > :he !ourt of (ppea s is without jurisdiction to prohi.it the incum.ent 3oard of 6irectors from acting and fi ing this case when the *0! where *0! !ase "o. 2A77 is pending has not even made the prohi.ition. @e find the petition without merit. :he on y issue in this case is whether or not the fi ing of the case for damages against private respondent was authori4ed .y a du y constituted 3oard of 6irectors of the petitioner corporation. Petitioner, through the first set of officers, viz., 1ario Rava a, &scar -an, ,ione Pengson, Jose 1a. *i va, (derito Fujuico and +odo fo 1i are, presented the 1inutes 5 of the meeting of its 3oard of 6irectors he d on (pri 1, 1972, as proof that the fi ing of the case against private respondent was authori4ed .y the 3oard. &n the other hand, the second set of officers, viz., *aturnino -. 3e en, Jr., ( .erto !. "ogra es and Jose ,.+. +eyes, presented a +eso ution 6 dated Ju y 8#, 197A, to show that Premium did not authori4e the fi ing in its .eha f of any suit against the private respondent %nternationa !orporate 3an9. ,ater on, petitioner su.mitted its (rtic es of %ncorporation 7 dated "ovem.er A, 1979 with the fo owing as 6irectorsB 1ario !. Rava a, Pedro !. !e so, &scar 3. -an, ,ione Pengson, and Jose 1a. *i va. /owever, it appears from the genera information sheet and the !ertification issued .y the *0! on (ugust 19, 197A 7 that as of 1arch ), 1971, the officers and mem.ers of the .oard of directors of the Premium 1ar. e +esources, %nc. wereB

&n appea , the !ourt of (ppea s affirmed the tria court's &rder 4 which dismissed the conso idated cases. /ence, this petition. Petitioner su.mits the fo owing assignment of errorsB % :he !ourt of (ppea s erred in giving due course to the motion to dismiss fi ed .y the *iguion +eyna ,aw &ffice when the said motion is c ear y fi ed not in .eha f of the petitioner .ut in .eha f of the group of 3e en who are the c ients of the said aw office. %% :he !ourt of (ppea s erred in giving due course to the motion to dismiss fi ed .y the *iguion +eyna ,aw &ffice in .eha f of petitioner when the said aw office had a ready appeared in other cases wherein the petitioner is the adverse party. %%%

( .erto !. "ogra es I President?6irector $ernando 6. /i ario I >ice President?6irector (ugusto %. -a ace I :reasurer Jose ,.+. +eyes I *ecretary?6irector Pido 0. (=ui ar I 6irector *aturnino -. 3e en, Jr. I !hairman of the 3oard. @hi e the 1inutes of the 1eeting of the 3oard on (pri 1, 1972 states that the new y e ected officers for the year 1972 were &scar -an, 1ario Rava a, (derito Fujuico and +odo fo 1i are, petitioner fai ed to show proof that this e ection was reported to the *0!. %n fact, the ast entry in their -enera %nformation *heet with the *0!, as of 197A appears to .e the set of officers e ected in 1arch 1971. @e agree with the finding of pu. ic respondent !ourt of (ppea s, that 'in the a.sence of ?any .oard reso ution from its .oard of directors the J sicK authority to act for and in .eha f of the corporation, the present action must necessari y fai . :he power of the corporation to sue and .e sued in any court is odged with the .oard of directors that e;ercises its corporate powers. :hus, the issue of authority and the inva idity of p aintiff2appe ant 's su.scription which is sti pending, is a matter that is a so addressed, considering the premises, to the sound judgment of the *ecurities H 0;change !ommission.' 9 3y the e;press mandate of the !orporation !ode C*ection 2AD, a corporations du y organi4ed pursuant thereto are re=uired to su.mit within the period therein stated C8# daysD to the *ecurities and 0;change !ommission the names, nationa ities and residences of the directors, trustees and officers e ected. *ec. 2A of the !orporation !ode provides, thusB *ec. 2A. !eport of election of directors, trustees and officers. I @ithin thirty C8#D days after the e ection of the directors, trustees and officers of the corporation, the secretary, or any other officer of the corporation, sha su.mit to the *ecurities and 0;change !ommission, the names, nationa ities and residences of the directors, trustees and officers e ected. . . . 0vident y, the o.jective sought to .e achieved .y *ection 2A is to give the pu. ic information, under sanction of oath of responsi. e officers, of the nature of .usiness, financia condition and operationa status of the

company together with information on its 9ey officers or managers so that those dea ing with it and those who intend to do .usiness with it may 9now or have the means of 9nowing facts concerning the corporation's financia resources and .usiness responsi.i ity. 10 :he c aim, therefore, of petitioners as represented .y (tty. 6umadag, that Ra.a a, et a ., are the incum.ent officers of Premium has not .een fu y su.stantiated. %n the a.sence of an authority from the .oard of directors, no person, not even the officers of the corporation, can va id y .ind the corporation. 11 @e find no reversi. e error in the decision sought to .e reviewed. (!!&+6%"-,F, for ac9 of merit, the petition is here.y 60"%06. *& &+60+06. G.R. No. 76701 A.,.(! 11, 1995 LO)E6 REAL'Y, INC., AND A$UNCION LO)E6 GON6ALE$, petitioners, vs. %LOREN'INA %ON'ECHA, E' AL., AND 'HE NA'IONAL LABOR RELA'ION$ COMMI$$ION, respondents.

)UNO, J.: :he controversy at .ench arose from a comp aint fi ed .y private respondents, 1 name y, $ orentina $ontecha, 1i a +efuer4o, 1arcia 1amari , Perfecto 3autista, 0dward 1amari , 1arissa Pascua and ( an Pimente , against their emp oyer ,ope4 +ea ty %ncorporated CpetitionerD and its majority stoc9ho der, (suncion ,ope4 -on4a es, for a eged non2 payment of their gratuity pay and other .enefits. 2 :he case was doc9eted as ",+!2"!+ !ase "o. 22217A272. ,ope4 +ea ty, %nc., is a corporation engaged in rea estate .usiness, whi e petitioner (suncion ,ope4 -on4a es is one of its majority shareho ders. /er interest in the company vis6a6vis the other shareho ders is as fo owsB

1 (suncion ,ope4 -on4a es 2 :eresita ,ope4 1ar=ue4 8 (rturo $. ,ope4 ) +osendo de ,eon 5 3enjamin 3ernardino A ,eo +ivera

7781 778# 778# ) 1 1

shares shares shares shares share share

CaD :hose who wi .e laid off .e given the fu amount of gratuity< C.D :hose who wi .e retained wi receive ;<= of t&eir 'ratuit( >pa(? due on eptem#er 3, 3893, and anot&er ;<= on @anuar( 3, 389;, and <:= to #e retained #( t&e office in t&e meantime. Cemphasis supp iedD Private respondents were the retained emp oyees of petitioner corporation. %n a etter, dated (ugust 81, 1971, private respondents re=uested for the fu payment of their gratuity pay. :heir re=uest was granted in a specia meeting he d on *eptem.er 1, 1971. :he re evant, portion of the minutes of the said .oard meeting readsB %n view of the re=uest of the emp oyees contained in the etter dated (ugust 81, 1971, it was a so decided that, a those remaining emp oyees wi receive another 25E Cof their gratuityD on or .efore &cto.er 15, 1971 and another 25E on or .efore the end of "ovem.er, 1971 of their respective gratuity. (t that, time, however, petitioner (suncion ,ope4 -on4a es was sti a.road. ( eged y, whi e she was sti out of the country, she sent a ca. egram to the corporation, o.jecting to certain matters ta9en up .y the .oard in her a.sence, such as the sa e of some of the assets of the corporation. 5pon her return, she f ied a derivative suit with the *ecurities and 0;change !ommission C*0!D against majority shareho der (rturo $. ,ope4. "otwithstanding the 'corporate s=ua.. e' .etween petitioner (suncion ,ope4 -on4a es and (rturo ,ope4, the first two C2D insta ments of the gratuity pay of private respondents $ orentina $ontecha, 1i a +efuer4o, 1arcia 1amari and Perfecto 3autista were paid .y petitioner corporation. ( so, petitioner corporation had prepared the cash vouchers and chec9s for the third insta ments of gratuity pay of said private respondents C$ orentina $ontecha, 1i a +efuer4o, 1arcia 1amari and Perfecto 3autistaD. $or some reason, said vouchers were cance ed .y petitioner (suncion ,ope4 -on4a es.

0;cept for (rturo $. ,ope4, the rest of the shareho ders a so sit as mem.ers of the 3oard of 6irectors. (s found .y the ,a.or ar.iter. 2 sometime in 1977, (rturo ,ope4 su.mitted a proposa re ative to the distri.ution of certain assets of petitioner corporation among its three C8D main shareho ders. :he proposa had three C8D aspects, vizB C1D the sa e of assets of the company to pay for its o. igations< C2D the transfer of certain assets of the company to its three C8D main shareho ders, whi e some other assets sha remain with the company< and C8D t&e reduction of emplo(ees *it& provision for t&eir 'ratuit( pa(. :he proposa was de i.erated upon and approved in a specia meeting of the .oard of directors he d on (pri 17, 1977. %t appears that petitioner corporation approved two C2D reso utions providing for the gratuity pay of its emp oyees, vizB CaD !esolution 2o. 7, eries of 389:, passed .y the stoc9ho ders in a specia meeting he d on *eptem.er 7, 197#, reso ving to set aside, twice a year, a certain sum of money for the 'ratuit( pa( of itsretirin' emp oyees and to create a -ratuity $und for the said contingency< and C.D !esolution 2o. 3:, eries of 389:, setting aside the amount of P157,75#.## as -ratuity $und covering the period from 195# up to 197#. 1eanwhi e, on Ju y 27, 1971, .oard mem.er and majority stoc9ho der :eresita ,ope4 1ar=ue4 died. &n (ugust 17, 1971, e;cept for (suncion ,ope4 -on4a es who was then a.road, the remaining mem.ers of the 3oard of 6irectors, name yB +osendo de ,eon, 3enjamin 3ernardino, and ,eo +ivera, convened a specia meeting and passed a reso ution which readsB +eso ved, as it is here.y reso ved that the gratuity CpayD of the emp oyees .e given as fo owsB

,i9ewise, the first, second and third insta ments of gratuity pay of the rest of private respondents, particu ar y, 0dward 1amari , 1arissa Pascua and ( an Pimente , were prepared .ut cance ed .y petitioner (suncion ,ope4 -on4a es. 6espite private respondents' repeated demands for their gratuity pay, corporation refused to pay the same. 4 &n Ju y 28, 197), ,a.or (r.iter +aymundo +. >a en4ue a rendered judgment in favor of private respondents. 5 Petitioners appea ed the adverse ru ing of the ,a.or ar.iter to pu. ic respondent "ationa ,a.or +e ations !ommission. :he appea focused on the a eged non2ratification and non2approva of the assai ed (ugust 17, 1971 and *eptem.er 1, 1971 3oard +eso utions during the (nnua *toc9ho ders' 1eeting he d on 1arch 1, 1972. Petitioners further insisted that the payment of the gratuity to some of the private respondents was a mere 'mista9e' on the part of petitioner corporation since, pursuant to +eso ution "o. A, dated *eptem.er 7, 197#, and +eso ution "o. 1#, dated &cto.er A, 197#, said gratuity pay shou d .e given on y upon the emp oyees' retirement. &n "ovem.er 2#, 1975, pu. ic respondent, through its *econd 6ivision, dismissed the appea for ac9 of merit, the pertinent portion of which statesB 6 @e cannot agree with the contention of respondents Cpetitioners'D that the ,a.or (r.iter a quocommitted a.use of discretion in his decision. +espondents' Cpetitioners'D contention that, the two C2D reso utions dated 17 (ugust 1971 and 1 *eptem.er 1971 . . . which were not approved in the annua stoc9ho ders meeting had no force and effect, deserves scant consideration. :he records show that the stoc9ho ders did not revo9e nor nu ify these reso utions granting gratuities to comp ainants. &n record, it appears that the said reso utions arose from the egitimate creation of the 3oard of 6irectors who steered the corporate affairs of the corporation. . . .

+espondents' Cpetitioners'D a egation that the three C8D comp ainants, 1i a 0. +efuer4o, 1arissa *. Pascua and 0dward 1amari , who had resigned after fi ing the comp aint on $e.ruary 7, 1972, were prec uded to CsicD receive gratuity .ecause the said reso utions referred to on y retirin' emp oyee cou d not .e given credence. ( reading of +eso utions dated 17 (ugust 1971 and 1 *eptem.er 1971 disc osed that there were periods mentioned for the payment of comp ainants' gratuities. :his disproves respondents' argument a owing gratuities upon retirement of emp oyees. (dditiona y, the proposed distri.ution of assets C0;h. !21D fi ed .y 1r. (rturo $. ,ope4 a so made mention of gratuity pay, ' . . . CwhereinD an emplo(ee *&o desires to resi'n from t&e L!- *ill #e 'iven t&e 'ratuit( pa( &e or s&e earned .' C0mphasis supp iedD ,et us .e reminded, too, that the comp ainants' resignation was not vo untary .ut it was pressuri4ed CsicD due to 'power strugg e' which was evident .etween (rturo ,ope4 and (suncion -on4a es. :he respondents' Cpetitioners'D contention of a mista9e to have .een committed in granting the first two C2D insta ments of gratuities to comp ainants Perfecto 3autista, $ orentina $ontecha, 1arcia 1amari and 1i a +efuer4o, ChasD no ega eg to stand on. :he record is .ereft of any evidence that the 3oard of 6irectors had passed a reso ution nor is there any minutes of whatever nature proving mista9es in the award of damages CsicD. @ith regard to the award of service incentive eave and others, the !ommission finds no cogent reason to distur. the appea ed decision. @e affirm. @/0+0$&+0, et the appea ed decision .e, as it is here.y, ($$%+106 and et the instant appea C.eD dismissed for ac9 of merit. *& &+60+06. Petitioners reconsidered. 7 %n their motion for reconsideration, petitioners assai ed the va idity of the .oard reso utions passed

on (ugust 17, 1971 and *eptem.er 1, 1971, respective y, and c aimed, for the first time, that petitioner (suncion ,ope4 -on4a es was not notified of the specia .oard meetings he d on said dates. :he motion for reconsideration was denied .y the *econd 6ivision on Ju y 2), 197A. &n *eptem.er ), 197A, petitioners fi ed another motion for reconsideration. (gain, the motion was denied .y pu. ic respondent in a 1inute +eso ution dated "ovem.er 19, 197A. 7 /ence, the petition. (s prayed for, we issued a :emporary +estraining &rder, 9 enjoining pu. ic respondent from enforcing or e;ecuting the +eso ution, dated "ovem.er 2#, 197A CsicD, in ",+!2"!+222217A272. 10 :he so e issue is whether or not pu. ic respondent acted with grave a.use of discretion in ho ding that private respondents are entit ed to receive their gratuity pay under the assai ed .oard reso utions dated (ugust 17, 1951 and *eptem.er 1, 1971. Petitioners contend that the .oard reso utions passed on (ugust 17, 1971 and *eptem.er 1, 1971, granting gratuity pay to their retained emp oyees, are ultra vires on the ground that petitioner (suncion ,ope4 -on4a es was not du y notified of the said specia meetings. :hey aver, further, that said .oard reso utions were not ratified .y the stoc9ho ders of the corporation pursuant to *ection 27 1?2 of the !orporation ,aw C*ection )# of the !orporation !odeD. :hey a so insist that the gratuity pay must .e given on y to the retiring emp oyees, to the e;c usion of the retained emp oyees or those who vo untari y resigned from their posts. (t the outset, we note that petitioners a egation on ac9 of notice to petitioner (suncion ,ope4 -on4a es was raised for the first time in the in their motion for reconsideration fi ed .efore pu. ic respondent "ationa ,a.or +e ations !ommission, or after said pu. ic respondent had affirmed the decision of the a.or ar.iter. :o stress, in their appea .efore the ",+!, petitioners never raised the issue of ac9 of notice to (suncion ,ope4 -on4a es. :he appea dea t with CaD the fai ure of the stoc9ho ders to ratify the assai ed reso utions and C.D the a eged 'mista9e' committed .y petitioner corporation in giving the gratuity pay to some of its emp oyees who are yet to retire from emp oyment.

%n their comment, 11 private respondents maintain that the new ground of ac9 of notice was not raised .efore the a.or ar.iter, hence, petitioners are .arred from raising the same on appea . Private respondents c aim, further, that such fai ure on the part of petitioners, had deprived them the opportunity to present evidence that, in a su.se=uent specia .oard meeting he d on *eptem.er 29, 1971, the su.ject reso ution dated *eptem.er 1, 1971, was unanimous y approved .y the .oard of directors of petitioner corporation, inc uding petitioner (suncion ,ope4 -on4a es. 12 %ndeed, it wou d .e offensive to the .asic ru es of fair p ay and justice to a ow petitioners to raise =uestions which have not .een passed upon .y the a.or ar.iter and the pu. ic respondent ",+!. %t is we sett ed that =uestions not raised in the ower courts cannot, .e raised for the first time on appea . 12 /ence, petitioners may not invo9e any other ground, other than those it specified at the a.or ar.iter eve , to impugn the va idity of the su.ject reso utions. @e now come to petitioners' argument that the reso utions passed .y the .oard of directors during the specia meetings on (ugust 1, 1971, and *eptem.er 1, 1971, were ultra vires for ac9 of notice. :he genera ru e is that a corporation, through its .oard of directors, shou d act in the manner and within the forma ities, if any, prescri.ed .y its charter or .y the genera aw. 14 :hus, directors must act as a .ody in a meeting ca ed pursuant to the aw or the corporation's .y2 aws, otherwise, any action ta9en therein may .e =uestioned .y any o.jecting director or shareho der. 15 3e that as it may, jurisprudence 16 te s us that an action of the .oard of directors during a meeting, which was i ega for ac9 of notice, may .e ratified either e;press y, .y the action of the directors in su.se=uent ega meeting, or imp ied y, .y the corporation's su.se=uent course of conduct. :hus, in one case, 17 it was he dB . . . %n 2 $ etcher, !yc opedia of the ,aw of Private !orporations CPerm. 0d.D sec. )29, at page 29#, it is statedB

:hus, acts of directors at a meeting which was i ega .ecause of want of notice may .e ratified .y the directors at a su.se=uent ega meeting, or .y the corporations course of conduct ... $ etcher, supra, further states in sec. 7A2, at page 1#782 1#7)B +atification .y directors may .e .y an e;press reso ution or vote to that effect, or it may .e imp ied from adoption of the act, acceptance or ac=uiescence. +atification may .e effected .y a reso ution or vote of the .oard of directors e;press y ratifying previous acts either of corporate officers or agents< .ut it is not necessary, ordinari y, to show a meeting and forma action .y the .oard of directors in order to esta. ish a ratification. %n American $asualt( $o., v. Aa+ota Tractor and Equipment $o., 28) $. *upp. A#A, A11 C6.".6. 19A)D, the court statedB 1oreover, the unauthori4ed acts of an officer of a corporation may .e ratified .y the corporation .y conduct imp ying approva and adoption of the act in =uestion. *uch ratification may .e e;press or may .e inferred from si ence and inaction. %n the case at .ench, it was esta. ished that petitioner corporation did not issue any reso ution revo9ing nor nu ifying the .oard reso utions granting gratuity pay to private respondents. %nstead, they paid the gratuity pay, particu ar y, the first two C2D insta ments thereof, of private respondents $ orentina $ontecha, 1i a +efuer4o, 1arcia 1amari and Perfecto 3autista. 6espite the a eged ac9 of notice to petitioner (suncion ,ope4 -on4a es at that time the assai ed reso utions were passed, we

can g ean from the records that she was aware of the corporation's o. igation under the said reso utions. 1ore important y, she ac=uiesced thereto. (s pointed out .y private respondents, petitioner (suncion ,ope4 -on4a es affi;ed her signature on !ash >oucher "os. 7121#251# and 7121#25#A, .oth dated &cto.er 15, 1971, evidencing the 2nd insta ment of the gratuity pay of private respondents 1i a +efuer4o and $ orentina $ontecha. 17 @e ho d, therefore, that the conduct of petitioners after the passage of reso utions dated (ugust, 17, 1951 and *eptem.er 1, 1971, had estopped them from assai ing the va idity of said .oard reso utions. (ssuming, ar'uendo, that there was no notice given to (suncion ,ope4 -on4a e4 during the specia meetings he d on (ugust 17, 1971 and *eptem.er 1, 1971, it is erroneous to state that the reso utions passed .y the .oard during the said meetings were ultra vires. %n ega par ance, 'ultra vires' act refers to one which is not within the corporate powers conferred .y the !orporation !ode or artic es of incorporation or not necessary or incidenta in the e;ercise of the powers so conferred. 19 :he assai ed reso utions .efore us cover a su.ject which concerns the .enefit and we fare of the company's emp oyees. :o stress, providing gratuity pay for its emp oyees is one of the e;press powers of the corporation under the !orporation !ode, hence, petitioners cannot invo9e the doctrine of ultra vires to avoid any ia.i ity arising from the issuance the su.ject reso utions. 20 @e reject petitioners' a egation that private respondents, name y, 1i a +efuer4o, 1arissa Pascua and 0dward 1amari who resigned from petitioner corporation after the fi ing of the case, are prec uded from receiving their gratuity pay. Pursuant to .oard reso utions dated (ugust 17, 1971 and *eptem.er 1, 1971, respective y, petitioner corporation o. iged itse f to give the gratuity pay of its retained emp oyees in four C)D insta mentsB on *eptem.er 1, 1971< &cto.er 15, 1971< "ovem.er, 1971< and January 1, 1972. /ence, at the time the aforenamed private respondents tendered their resignation, the aforementioned private respondents were a ready entit ed to receive their gratuity pay.

Petitioners try to convince us that the su.ject reso utions had no force and effect in view of the non2approva thereof during the (nnua *toc9ho ders' 1eeting he d on 1arch 1, 1972. :o strengthen their position, petitioners cite section 27 1?2 of the !orporation ,aw C*ection )# of the !orporation !odeD. @e are not persuaded. :he cited provision is not app ica. e to the case at .ench as it refers to the sa e, ease, e;change or disposition of a or su.stantia y a of the corporation's assets, inc uding its goodwi . %n such a case, the action ta9en .y the .oard of directors re=uires the authori4ation of the stoc9ho ders on record. %t wi .e o.served that, e;cept far (rturo ,ope4, the stoc9ho ders of petitioner corporation a so sit as mem.ers of the .oard of directors. 5nder the circumstances in fie d, it wi .e i ogica and superf uous to re=uire the stoc9ho ders' approva of the su.ject reso utions. :hus, even without the stoc9ho ders' approva of the su.ject reso utions, petitioners are sti ia. e to pay private respondents' gratuity pay. %" >%0@ @/0+0&$, the instant petition is 6%*1%**06 for ac9 of merit and the temporary restraining order we issued on $e.ruary 9, 1977 is ,%$:06. (ccording y, the assai ed reso ution of the "ationa ,a.or +e ations !ommission in ",+!2"!+2217A2 72 is ($$%+106. :his decision is immediate y e;ecutory. !osts against petitioners. *& &+60+06. G.R. No. L-15092 May 17, 1962

comp aint that sought to compe the defendant 1i ing !ompany to increase p aintiff's share in the sugar produced from their cane, from A#E to A2.88E, starting from the 195121952 crop year.
3C*p&D3.Et

%t is undisputed that p aintiffs2appe ants, ( fredo 1onte i.ano, ( ejandro 1onte i.ano, and the ,imited co2partnership -on4aga and !ompany, had .een and are sugar p anters adhered to the defendant2appe ee's sugar centra mi under identica mi ing contracts. &rigina y e;ecuted in 1919, said contracts were stipu ated to .e in force for 8# years starting with the 192#221 crop, and provided that the resu ting product shou d .e divided in the ratio of )5E for the mi and 55E for the p anters. *ometime in 198A, it was proposed to e;ecute amended mi ing contracts, increasing the p anters' share to A#E of the manufactured sugar and resu ting mo asses, .esides other concessions, .ut e;tending the operation of the mi ing contract from the origina 8# years to )5 years. :o this effect, a printed (mended 1i ing !ontract form was drawn up. &n (ugust 2#, 198A, the 3oard of 6irectors of the appe ee 3aco od2 1urcia 1i ing !o., %nc., adopted a reso ution C(cts "o. 11, (cuerdo "o. 1D granting further concessions to the p anters over and a.ove those contained in the printed (mended 1i ing !ontract. :he .one of contention is paragraph 9 of this reso ution, that reads as fo owsB (!:( "o. 11 *0**%&" 60 ,( J5":( 6%+0!:%>( (-&*:& 2#, 198A ;;; ;;; ;;;

AL%REDO MON'ELIBANO, E' AL., p aintiffs2appe ants, vs. BACOLOD-MURCIA MILLING CO., INC., defendant2appe ee. Taada, Tee&an+ee and $arreon for plaintiffs6appellants. Bilado and Bilado for defendant6appellee. REYE$, -.B.L., J.: (ppea on points of aw from a judgment of the !ourt of $irst %nstance of &ccidenta "egros, in its !ivi !ase "o. 2A#8, dismissing p aintiff's

(cuerdo "o. 1. I Previa mocion de.idamente secundada, a Junta en consideracion a una peticion de os p antadores hecha por un comite nom.rado por os mismos, acuerda enmendar e contrato de mo ienda enmendado mediente as siguentesB ;;; ;;; ;;;

9.a Gue si durante a vigencia de este contrato de 1o ienda 0nmendado, ascentra es a4ucareras, de "egros &ccidenta , cuya produccion anua de a4ucar centrifugado sea mas de una tercera parte de a produccion tota de todas ascentra es a4ucareras de "egros &ccidenta , concedieren a sus p antadores mejores condiciones =ue a estipu adas en e presente

contrato, entonces esas mejores condiciones se concederan y por e presente se entenderan concedidas a os p atadores =ue hayan otorgado este !ontrato de 1o ienda 0nmendado. (ppe ants signed and e;ecuted the printed (mended 1i ing !ontract on *eptem.er 1#, 198A, .ut a copy of the reso ution of (ugust 1#, 198A, signed .y the !entra 's -enera 1anager, was not attached to the printed contract unti (pri 17, 1987< with the notation I ,as enmiendas arri.a transcritas forman parte de contrato de mo ienda enmendado, otorgado por I y a 3aco od21urcia 1i ing !o., %nc. %n 1958, the appe ants initiated the present action, contending that three "egros sugar centra s C,a !ar ota, 3ina .agan2%sa.e a and *an !ar osD, with a tota annua production e;ceeding one2third of the production of a the sugar centra mi s in the province, had a ready granted increased participation Cof A2.5ED to their p anters, and that under paragraph 9 of the reso ution of (ugust 2#, 198A, heretofore =uoted, the appe ee had .ecome o. igated to grant simi ar concessions to the p aintiffs Cappe ants hereinD. :he appe ee 3aco od21urcia 1i ing !o., inc., resisted the c aim, and defended .y urging that the stipu ations contained in the reso ution were made without consideration< that the reso ution in =uestion was, therefore, nu and void a# initio, .eing in effect a donation that was ultra vires and .eyond the powers of the corporate directors to adopt. (fter tria , the court .e ow rendered judgment upho ding the stand of the defendant 1i ing company, and dismissed the comp aint. :hereupon, p aintiffs du y appea ed to this !ourt. @e agree with appe ants that the appea ed decisions can not stand. %t must .e remem.ered that the controverted reso ution was adopted .y appe ee corporation as a supp ement to, or further amendment of, the proposed mi ing contract, and that it was approved on (ugust 2#, 198A, twenty2one days prior to the signing .y appe ants on *eptem.er 1#, of the (mended 1i ing !ontract itse f< so that when the 1i ing !ontract was e;ecuted, the concessions granted .y the disputed reso ution had .een a ready incorporated into its terms. "o reason appears of record why, in the face of such concessions, the appe ants shou d reject them or consider them as separate and apart from the main amended mi ing contract, specia y ta9ing into account that appe ant ( fredo 1onte i.ano was, at the time, the President of the P anters (ssociation C0;hi.it ), p.

11D that had agitated for the concessions em.odied in the reso ution of (ugust 2#, 198A. :hat the reso ution formed an integra part of the amended mi ing contract, signed on *eptem.er 1#, and not a separate .argain, is further shown .y the fact that a copy of the reso ution was simp y attached to the printed contract without specia negotiations or agreement .etween the parties. %t fo ows from the foregoing that the terms em.odied in the reso ution of (ugust 2#, 198A were supported .y the same causa or consideration under ying the main amended mi ing contract< i.e., the promises and o. igations underta9en thereunder .y the p anters, and, particu ar y, the e;tension of its operative period for an additiona 15 years over and .eyond the 8# years stipu ated in the origina contract. /ence, the conc usion of the court .e ow that the reso ution constituted gratuitous concessions not supported .y any consideration is ega y untena. e. ( dis=uisition concerning donations and the ac9 of power of the directors of the respondent sugar mi ing company to ma9e a gift to the p anters wou d .e re evant if the reso ution in =uestion had em.odied a separate agreement after the appe ants had a ready .ound themse ves to the terms of the printed mi ing contract. 3ut this was not the case. @hen the reso ution was adopted and the additiona concessions were made .y the company, the appe ants were not yet o. igated .y the terms of the printed contract, since they admitted y did not sign it unti twenty2 one days ater, on *eptem.er 1#, 198A. 3efore that date, the printed form was no more than a proposa that either party cou d modify at its p easure, and the appe ee actua y modified it .y adopting the reso ution in =uestion. *o that .y *eptem.er 1#, 198A defendant corporation a ready understood that the printed terms were not contro ing, save as modified .y its reso ution of (ugust 2#, 198A< and we are satisfied that such was a so the understanding of appe ants herein, and that the minds of the parties met upon that .asis. &therwise there wou d have .een no consent or 'meeting of the minds', and no .inding contract at a . 3ut the conduct of the parties indicates that they assumed, and they do not now deny, that the signing of the contract on *eptem.er 1#, 198A, did give rise to a .inding agreement. :hat agreement had to e;ist on the .asis of the printed terms as modified .y the reso ution of (ugust 2#, 198A, or not at a . *ince there is no rationa e;p anation for the company's assenting to the further concessions as9ed .y the p anters .efore the contracts were signed, e;cept as further inducement for the p anters to agree to the e;tension of the contract period, to a ow the company now to retract such concessions wou d .e to sanction a fraud upon the p anters who re ied on such additiona stipu ations.

:he same considerations app y to the 'void innovation' theory of appe ees. :here can .e no novation un ess two distinct and successive .inding contracts ta9e p ace, with the ater designed to rep ace the preceding convention. 1odifications introduced .efore a .argain .ecomes o. igatory can in no sense constitute novation in aw. *tress is p aced on the fact that the te;t of the +eso ution of (ugust 2#, 198A was not attached to the printed contract unti (pri 17, 1987. 3ut, e;cept in the case of statutory forms or so emn agreements Cand it is not c aimed that this is oneD, it is the assent and concurrence Cthe 'meeting of the minds'D of the parties, and not the setting down of its terms, that constitutes a .inding contract. (nd the fact that the addendum is on y signed .y the -enera 1anager of the mi ing company emphasi4es that the addition was made so e y in order that the memoria of the terms of the agreement shou d .e fu and comp ete. 1uch is made of the circumstance that the report su.mitted .y the 3oard of 6irectors of the appe ee company in "ovem.er 19, 198A C0;hi.it )D on y made mention of 9#E, the p anters having agreed to the A#2)# sharing of the sugar set forth in the printed 'amended mi ing contracts', and did not ma9e any reference at a to the terms of the reso ution of (ugust 2#, 198A. 3ut a reading of this report shows that it was not intended to inventory a the detai s of the amended contract< numerous provisions of the printed terms are a ao g ossed over. :he 6irectors of the appe ee 1i ing !ompany had no reason at the time to ca attention to the provisions of the reso ution in =uestion, since it contained most y modifications in detai of the printed terms, and the on y major change was paragraph 9 heretofore =uoted< .ut when the report was made, that paragraph was not yet in effect, since it was conditioned on other centra s granting .etter concessions to their p anters, and that did not happen unti after 195#. :here was no reason in 198A to emphasi4e a concession that was not yet, and might never .e, in effective operation. :here can .e no dou.t that the directors of the appe ee company had authority to modify the proposed terms of the (mended 1i ing !ontract for the purpose of ma9ing its terms more accepta. e to the other contracting parties. :he ru e is that I %t is a =uestion, therefore, in each case of the ogica re ation of the act to the corporate purpose e;pressed in the charter. %f that act is one which is awfu in itse f, and not otherwise prohi.ited, is done for the purpose of serving corporate ends, and is reasona. y tri.utary to the promotion of those ends, in a su.stantia , and not in a remote and fancifu sense, it may fair y

.e considered within charter powers. :he test to .e app ied is whether the act in =uestion is in direct and immediate furtherance of the corporation's .usiness, fair y incident to the e;press powers and reasona. y necessary to their e;ercise. %f so, the corporation has the power to do it< otherwise, not. C$ etcher !yc. !orp., >o . A, +ev. 0d. 195#, pp. 2AA22A7D (s the reso ution in =uestion was passed in good faith .y the .oard of directors, it is va id and .inding, and whether or not it wi cause osses or decrease the profits of the centra , the court has no authority to review them. :hey ho d such office charged with the duty to act for the corporation according to their .est judgment, and in so doing they cannot .e contro ed in the reasona. e e;ercise and performance of such duty. @hether the .usiness of a corporation shou d .e operated at a oss during depression, or c ose down at a sma er oss, is a pure y .usiness and economic pro. em to .e determined .y the directors of the corporation and not .y the court. %t is a we 29nown ru e of aw that =uestions of po icy or of management are eft so e y to the honest decision of officers and directors of a corporation, and the court is without authority to su.stitute its judgment of the .oard of directors< the .oard is the .usiness manager of the corporation, and so ong as it acts in good faith its orders are not reviewa. e .y the courts. C$ etcher on !orporations, >o . 2, p. 89#D. (nd it appearing undisputed in this appea that sugar centra s of ,a !ar ota, /awaiian Phi ippines, *an !ar os and 3ina .agan Cwhich produce over one2third of the entire annua sugar production in &ccidenta "egrosD have granted progressive y increasing participations to their adhered p anter at an average rate of A2.888E for the 1951252 crop year< A).2E A).8E A).5E A8.5E for 1952258< for 195825)< for 195)255< and for 195525A,

the appe ee 3aco od21urcia 1i ing !ompany is, under the terms of its +eso ution of (ugust 2#, 198A, duty .ound to grant simi ar increases to p aintiffs2appe ants herein. @/0+0$&+0, the decision under appea is reversed and set aside< and judgment is decreed sentencing the defendant2appe ee to pay p aintiffs2 appe ants the differentia or increase of participation in the mi ed sugar in accordance with paragraph 9 of the appe ee +eso ution of (ugust 2#, 198A, over and in addition to the A#E e;pressed in the printed (mended 1i ing !ontract, or the va ue thereof when due, as fo owsB #,888E to appe ants 1onte i.ano for the 195121952 crop year, said appe ants having received an additiona 2E corresponding to said year in &cto.er, 1958< 2.888E to appe ant -on4aga H !o., for the 195121952 crop year< and to a appe ants thereafter I ).2E for the 195221958 crop year< ).8E for the 19582195) crop year< ).5E for the 195)21955 crop year< 8.5E for the 19552195A crop year< with interest at the ega rate on the va ue of such differentia during the time they were withhe d< and the right is reserved to p aintiffs2appe ants to sue for such additiona increases as they may .e entit ed to for the crop years su.se=uent to those herein adjudged. !osts against appe ee, 3aco od21urcia 1i ing !o. %adilla, Bautista An'elo, La#rador, $oncepcion, Barrera, %aredes and Aizon, @@., concur. G.R. No. 144476 A;*+1 7, 2002

;22222222222222222222222222222; G.R. No. 144629 A;*+1 7, 2002

DA&ID $. 'IU, CELY Y. 'IU, MOLY YU GA<, BELEN $EE YU, D. 'ERENCE Y. 'IU, -OHN YU, LOURDE$ C. 'IU, an IN'RALAND RE$OURCE$ DE&ELO)MEN' COR)., petitioners, vs. ONG YONG, -UANI'A 'AN ONG, <IL$ON '. ONG, ANNA L. ONG, <ILLIAM '. ONG, <ILLIE '. ONG, an -ULIA ONG ALON6O, respondents. RE$OLU'ION CORONA, J.8 3efore us are the C1D motion for reconsideration, dated 1arch 15, 2##2, of petitioner movants &ng Fong, Juanita :an &ng, @i son &ng, (nna &ng, @i iam &ng, @i ie &ng and Ju ia &ng ( on4o Cthe &ngsD< C2D motion for partia reconsideration, dated 1arch 15, 2##2, of petitioner movant @i ie &ng see9ing a reversa of this !ourt's 6ecision, 1 dated $e.ruary 1, 2##2, in -.+. "os. 1)))7A and 1))A29 affirming with modification the decision2 of the !ourt of (ppea s, dated &cto.er 5, 1999, which in turn uphe d, i9ewise with modification, the decision of the *0! en #anc, dated *eptem.er 11, 1997< and C8D motion for issuance of writ of e;ecution of petitioners 6avid *. :iu, !e y F. :iu, 1o y Fu -ow, 3e en *ee Fu, 6. :erence F. :iu, John Fu and ,ourdes !. :iu Cthe :iusD of our $e.ruary 1, 2##2 6ecision. ( .rief recapitu ation of the facts shows thatB %n 199), the construction of the 1asagana !itima in Pasay !ity was threatened with stoppage and incomp etion when its owner, the $irst ,and in9 (sia 6eve opment !orporation C$,(6!D, which was owned .y the :ius, encountered dire financia difficu ties. %t was heavi y inde.ted to the Phi ippine "ationa 3an9 CP"3D for P19# mi ion. :o stave off forec osure of the mortgage on the two ots where the ma was .eing .ui t, the :ius invited &ng Fong, Juanita :an &ng, @i son :. &ng, (nna ,. &ng, @i iam :. &ng and Ju ia &ng ( on4o Cthe &ngsD, to invest in $,(6!. 5nder the Pre2*u.scription (greement they entered into, the &ngs and the :ius agreed to maintain e=ua shareho dings in $,(6!B the &ngs were to su.scri.e to 1,###,### shares at a par va ue of P1##.##

ONG YONG, -UANI'A 'AN ONG, <IL$ON '. ONG, ANNA L. ONG, <ILLIAM '. ONG, <ILLIE '. ONG, an -ULIE ONG ALON6O, petitioners, vs. DA&ID $. 'IU, CELY Y. 'IU, MOLY YU GA<, BELEN $EE YU, D. 'ERENCE Y. 'IU, -OHN YU, LOURDE$ C. 'IU, IN'RALAND RE$OURCE$ DE&ELO)MEN' COR)., MA$AGANA 'ELAMAR', INC., REGI$'ER O% DEED$ O% )A$AY CI'Y, an !"# $ECURI'IE$ AND E5CHANGE COMMI$$ION, respondents.

each whi e the :ius were to su.scri.e to an additiona 5)9,7## shares at P1##.## each in addition to their a ready e;isting su.scription of )5#,2## shares. $urthermore, they agreed that the :ius were entit ed to nominate the >ice2President and the :reasurer p us five directors whi e the &ngs were entit ed to nominate the President, the *ecretary and si; directors Cinc uding the chairmanD to the .oard of directors of $,(6!. 1oreover, the &ngs were given the right to manage and operate the ma . (ccording y, the &ngs paid P1## mi ion in cash for their su.scription to 1,###,### shares of stoc9 whi e the :ius committed to contri.ute to $,(6! a four2storey .ui ding and two parce s of and respective y va ued at P2# mi ion Cfor 2##,### sharesD, P8# mi ion Cfor 8##,### sharesD and P)9.7 mi ion Cfor )9,7## sharesD to cover their additiona 5)9,7## stoc9 su.scription therein. :he &ngs paid in another P7# mi ion8 to $,(6! and P2# mi ion to the :ius over and a.ove their P1## mi ion investment, the tota sum of which CP19# mi ionD was used to sett e the P19# mi ion mortgage inde.tedness of $,(6! to P"3. :he .usiness harmony .etween the &ngs and the :ius in $,(6!, however, was short ived .ecause the :ius, on $e.ruary 28, 199A, rescinded the Pre2*u.scription (greement. :he :ius accused the &ngs of C1D refusing to credit to them the $,(6! shares covering their rea property contri.utions< C2D preventing 6avid *. :iu and !e y F. :iu from assuming the positions of and performing their duties as >ice2President and :reasurer, respective y, and C8D refusing to give them the office spaces agreed upon. (ccording to the :ius, the agreement was for 6avid *. :iu and !e y *. :iu to assume the positions and perform the duties of >ice2President and :reasurer, respective y, .ut the &ngs prevented them from doing so. $urthermore, the &ngs refused to provide them the space for their e;ecutive offices as >ice2President and :reasurer. $ina y, and most serious of a , the &ngs refused to give them the shares corresponding to their property contri.utions of a four2story .ui ding, a 1,9#2.8# s=uare2 meter ot and a 151 s=uare2meter ot. /ence, they fe t they were justified in setting aside their Pre2*u.scription (greement with the &ngs who a eged y refused to comp y with their underta9ings. %n their defense, the &ngs said that 6avid *. :iu and !e y F. :iu had in fact assumed the positions of >ice2President and :reasurer of $,(6! .ut that it was they who refused to comp y with the corporate duties assigned to them. %t was the contention of the &ngs that they wanted the :ius to sign the chec9s of the corporation and underta9e their

management duties .ut that the :ius shied away from he ping them manage the corporation. &n the issue of office space, the &ngs pointed out that the :ius did in fact a ready have e;isting e;ecutive offices in the ma since they owned it 1##E .efore the &ngs came in. @hat the :ius rea y wanted were new offices which were anyway su.se=uent y provided to them. &n the most important issue of their a eged fai ure to credit the :ius with the $,(6! shares commensurate to the :ius' property contri.utions, the &ngs asserted that, a though the :ius e;ecuted a deed of assignment for the 1,9#2.8# s=uare2meter ot in favor of $,(6!, they Cthe :iusD refused to pay P 57#,A9# for capita gains ta; and documentary stamp ta;. @ithout the payment thereof, the *0! wou d not approve the va uation of the :ius' property contri.ution Cas opposed to cash contri.utionD. :his, in turn, wou d ma9e it impossi. e to secure a new :ransfer !ertificate of :it e C:!:D over the property in $,(6!'s name. %n any event, it was easy for the :ius to simp y pay the said transfer ta;es and, after the new :!: was issued in $,(6!'s name, they cou d then .e given the corresponding shares of stoc9s. &n the 151 s=uare2meter property, the :ius never e;ecuted a deed of assignment in favor of $,(6!. :he :ius initia y c aimed that they cou d not as yet surrender the :!: .ecause it was 'sti .eing reconstituted' .y the ,ichaucos from whom the :ius .ought it. :he &ngs ater on discovered that $,(6! had in rea ity owned the property a a ong, even .efore their Pre2*u.scription (greement was e;ecuted in 199). :his meant that the 151 s=uare2meter property was at that time a ready the corporate property of $,(6! for which the :ius were not entit ed to the issuance of new shares of stoc9. :he controversy fina y came to a head when this case was commenced) .y the :ius on $e.ruary 27, 199A at the *ecurities and 0;change !ommission C*0!D, see9ing confirmation of their rescission of the Pre2*u.scription (greement. (fter hearing, the *0!, through then /earing &fficer +o ando -. (ndaya, Jr., issued a decision on 1ay 19, 1997 confirming the rescission sought .y the :ius, as fo owsB @/0+0$&+0, judgment is here.y rendered confirming the rescission of the Pre2*u.scription (greement, and conse=uent y orderingB CaD :he cance ation of the 1,###,### shares su.scription of the individua defendants in $,(6!< C.D $,(6! to pay the amount of P17#,###,###.## to the individua defendants representing the return of their contri.ution for 1,###,### shares of $,(6!<

CcD :he p aintiffs to su.mit with CsicD the *ecurities and 0;change !ommission amended artic es of incorporation of $,(6! to conform with this decision< CdD :he defendants to surrender to the p aintiffs :!: "os. 182)98, 182)9), 18)#AA Cformer y 15577D, 185825 and 18)2#) and any other tit e or deed in the name of $,(6!, fai ing in which said tit es are dec ared void< CeD :he +egister of 6eeds to issue new certificates of tit es in favor of the p aintiffs and to cance the annotation of the Pre2 *u.scription (greement dated 15 (ugust 199) on :!: "o. 18)#AA Cformer y 15577D< CfD :he individua defendants, individua y and co ective y, their agents and representatives, to desist from e;ercising or performing any and a acts pertaining to stoc9ho der, director or officer of $,(6! or in any manner intervene in the management and affairs of $,(6!< CgD :he individua defendants, joint y and severa y, to return to $,(6! interest payment in the amount of P7,7AA,AA9.## and a interest payments as we as any payments on principa received from the P7#,###,###.## ine;istent oan, p us the ega rate of interest thereon from the date of their receipt of such payment unti fu y paid< ChD :he p aintiff 6avid :iu to pay individua defendants the sum of P2#,###,###.## representing his oan from said defendants p us ega interest from the date of receipt of such amount. *& &+60+06.5 &n motion of .oth parties, the a.ove decision was partia y reconsidered .ut on y insofar as the &ngs' P7# mi ion was dec ared not as a premium on capita stoc9 .ut an advance C oanD .y the &ngs to $,(6! and that the imposition of interest on it was correct.A 3oth parties appea ed7 to the *0! en #anc which rendered a decision on *eptem.er 11, 1997, affirming the 1ay 19, 1997 decision of the /earing &fficer. :he *0! en #anc confirmed the rescission of the Pre2 *u.scription (greement .ut reverted to c assifying the P7# mi ion paid

.y the &ngs as premium on capita and not as a oan or advance to $,(6!, hence, not entit ed to earn interest.7 &n appea , the !ourt of (ppea s C!(D rendered a decision on &cto.er 5, 1999, thusB @/0+0$&+0, the &rder dated *eptem.er 11, 1997 issued .y the *ecurities and 0;change !ommission 0n 3anc in *0! (! !(*0 "&*. 597 and A#1 confirming the rescission of the Pre2 *u.scription (greement dated (ugust 15, 199) is here.y ($$%+106, su.ject to the fo owing 1&6%$%!(:%&"*B 1. :he &ng and :iu -roups are ordered to i=uidate $irst ,and in9 (sia 6eve opment !orporation in accordance with the fo owing cash and property contri.utions of the parties therein. CaD &ng -roup Q P1##,###,###.## cash contri.ution for one C1D mi ion shares in $irst ,and in9 (sia 6eve opment !orporation at a par va ue of P1##.## per share< C.D :iu -roupB 1D P)5,#2#,###.## origina cash contri.ution for )5#,2## shares in $irst ,and in9 (sia 6eve opment !orporation at a par va ue of P1##.## per share< 2D ( four2storey .ui ding descri.ed in :ransfer !ertificate of :it e "o. 15577 in the name of %ntra and +esources and 6eve opment !orporation va ued at P2#,###,###.## for 2##,### shares in $irst ,and in9 (sia 6eve opment !orporation at a par va ue of P1##.## per share< 8D ( 1,9#2.8# s=uare2meter parce of and covered .y :ransfer !ertificate of :it e "o. 15577 in the name of 1asagana :e amart, %nc. va ued at P8#,###,###.## for 8##,### shares in $irst ,and in9 (sia 6eve opment !orporation at a par va ue of P1##.## per share.

2D @hatever remains of the assets of the $irst ,and in9 (sia 6eve opment !orporation and the management thereof is CsicD here.y ordered transferred to the :iu -roup. 8D $irst ,and in9 (sia 6eve opment !orporation is here.y ordered to pay the amount of P7#,###,###.## that was advanced to it .y the &ng -roup upon the fina ity of this decision. *hou d the former incur in de ay in the payment thereof, it sha pay the ega interest thereon pursuant to (rtic e 22#9 of the "ew !ivi !ode. )D :he :ius are here.y ordered to pay the amount of P2#,###,###.## oaned them .y the &ngs upon the fina ity of this decision. *hou d the former incur in de ay in the payment thereof, it sha pay the ega interest thereon pursuant to (rtic e 22#9 of the "ew !ivi !ode. *& &+60+06.
9

su.stantia and fundamenta .reach of their agreement since they did not prevent the :ius from assuming the positions of >ice2President and :reasurer of $,(6!, and that the fai ure to credit the 8##,### shares corresponding to the 1,9#2.8# s=uare2meter property covered .y :!: "o. 18)#AA Cformer y 15577D was due to the refusa of the :ius to pay the re=uired transfer ta;es to secure the approva of the *0! for the property contri.ution and, thereafter, the issuance of tit e in $,(6!'s name. :hey a so argued that the i=uidation of $,(6! may not ega y .e ordered .y the appe ate court even for so ca ed 'practica considerations' or even to prevent 'further s=ua.. es and numerous itigations,' since the same are not va id grounds under the !orporation !ode. 1oreover, the &ngs .ewai ed the fai ure of the !( to grant interest on their P7# mi ion and P2# mi ion advances to $,(6! and 6avid *. :iu, respective y, and to award costs and damages. %n their petition doc9eted as -.+. "o. 1))A29, Tiu et al. vs. Fn' et al., the :ius, on the other hand, contended that the rescission shou d have .een imited to the restitution of the parties' respective investments and not the i=uidation of $,(6! .ased on the erroneous perception .y the court thatB the 1asagana !itima was threatened with incomp etion since $,(6! was in financia distress< that the :ius invited the &ngs to invest in $,(6! to sett e its P19# mi ion oan from P"3< that they vio ated the Pre2*u.scription (greement when it was the ,ichaucos and not the :ius who e;ecuted the deed of assignment over the 151 s=uare2meter property commensurate to )9,7## shares in $,(6! there.y fai ing to pay the price for the said shares< that they did not turn over to the &ngs the entire amount of $,(6! funds< that they were diverting renta s from ease contracts due to $,(6! to their own 1(::0+!& account< that the P7# mi ion paid .y the &ngs was an advance and not a premium on capita < and that, .y rescinding the Pre2*u.scription (greement, they wanted to wrest e away the management of the ma and prevent the &ngs from enjoying the profits of their P19# mi ion investment in $,(6!. &n $e.ruary 1, 2##2, this !ourt promu gated its 6ecision Cthe su.ject of the instant motionsD, affirming the assai ed decision of the !ourt of (ppea s .ut with the fo owing modificationsB 1. the P2# mi ion oan e;tended .y the &ngs to the :ius sha earn interest at twe ve percent C12ED per annum to .e computed from the time of judicia demand which is from (pri 28, 199A< 2. the P7# mi ion advanced .y the &ngs to the $,(6! sha earn interest at ten percent C1#ED per annum to .e computed from the date of the $,(6! 3oard +eso ution which is June 19, 199A< and

(n interesting side ight of the !( decision was its description of the rescission made .y the :ius as the 'height of ingratitude' and as 'pu ing a fast one' on the &ngs. :he !( moreover found the :ius gui ty of withho ding $,(6! funds from the &ngs and diverting corporate income to their own 1(::0+!& account.1# :hese were findings ater on affirmed in our own $e.ruary 1, 2##2 6ecision which is the su.ject of the instant motion for reconsideration.11 3ut there was a so a strange aspect of the !( decision. :he !( conc uded that .oth the &ngs and the :ius were in pari delicto Cwhich wou d not have ega y entit ed them to rescissionD .ut, 'for practica considerations,' that is, their ina.i ity to wor9 together, it was .est to separate the two groups .y rescinding the Pre2*u.scription (greement, returning the origina investment of the &ngs and awarding practica y everything e se to the :ius. :heir motions for reconsideration having .een denied, .oth parties fi ed separate petitions for review .efore this !ourt. %n their petition doc9eted as -.+. "o. 1)))7A, Fn' et al. vs. Tiu et al., the &ngs argued that the :ius may not proper y avai of rescission under (rtic e 1191 of the !ivi !ode considering that the Pre2*u.scription (greement did not provide for reciprocity of o. igations< that the rights over the su.ject matter of the rescission Ccapita assets and propertiesD had .een ac=uired .y a third party C$,(6!D< that they did not commit a

8. the :ius sha .e credited with )9,7## shares in $,(6! for their property contri.ution, specifica y, the 151 s=. m. parce of and. :his !ourt affirmed the fact that .oth the &ngs and the :ius vio ated their respective o. igations under the Pre2*u.scription (greement. :he &ngs prevented the :ius from assuming the positions of >ice2President and :reasurer of the corporation. &n the other hand, the 6ecision esta. ished that the :ius fai ed to turn over $,(6! funds to the &ngs and that the :ius diverted renta s due to $,(6! to their 1(::0+!& account. !onse=uent y, it he d that rescission was not possi. e since .oth parties were in pari delicto. /owever, this !ourt agreed with the !ourt of (ppea s that the remedy of specific performance, as espoused .y the &ngs, was not practica and sound either and wou d on y ead to further 's=ua.. es and numerous itigations' .etween the parties. &n 1arch 15, 2##2, the :ius fi ed .efore this !ourt a 1otion for %ssuance of a @rit of 0;ecution on the grounds thatB CaD the *0! order had .ecome e;ecutory as ear y as *eptem.er 11, 1997 pursuant to *ections 1 and 12, +u e )8 of the +u es of !ourt< C.D any further de ay wou d .e injurious to the rights of the :ius since the case had .een pending for more than si; years< and CcD the *0! no onger had =uasi2judicia jurisdiction under +( 7799 C*ecurities +egu ation !odeD. :he &ngs fi ed their opposition, contending that the 6ecision dated $e.ruary 1, 2##2 was not yet fina and e;ecutory< that no good reason e;isted to issue a warrant of e;ecution< and that, pursuant to *ection 5.2 of +( 7799, the *0! retained jurisdiction over pending cases invo ving intra2corporate disputes a ready su.mitted for fina reso ution upon the effectivity of the said aw. (side from their opposition to the :ius' 1otion for %ssuance of @rit of 0;ecution, the &ngs fi ed their own '1otion for +econsideration< ( ternative y, 1otion for 1odification Cof the $e.ruary 1, 2##2 6ecisionD' on 1arch 15, 2##2, raising two main pointsB CaD that specific performance and not rescission was the proper remedy under the premises< and C.D that, assuming rescission to .e proper, the su.ject decision of this !ourt shou d .e modified to entit e movants to their proportionate share in the ma . &n their first point Cspecific performance and not rescission was the proper remedyD, movants &ng argue that their a eged .reach of the Pre2 *u.scription (greement was, at most, casua which did not justify the rescission of the contract. :hey stress that providing appropriate offices for 6avid *. :iu and !e y F. :iu as >ice2President and :reasurer,

respective y, had no .earing on their o. igations under the Pre2 *u.scription (greement since the said o. igation Cto provide e;ecutive officesD pertained to $,(6! itse f. *uch o. igation arose from the re ations .etween the said officers and the corporation and not any of the individua parties such as the &ngs. ,i9ewise, the a eged fai ure of the &ngs to credit shares of stoc9 in favor of the :ius for their property contri.utions a so pertained to the corporation and not to the &ngs. Just the same, it cou d not .e done in view of the :ius' refusa to pay the necessary transfer ta;es which in turn resu ted in the ina.i ity to secure *0! approva for the property contri.utions and the issuance of a new :!: in the name of $,(6!. Besides, accordin' to t&e Fn's, t&e principal o#jective of #ot& parties in enterin' into t&e %re6 u#scription A'reement in 388G *as to raise t&e %38: million desperatel( needed for t&e pa(ment of 0LAA$Hs loan to %2B. /ence, in this ight, the a eged fai ure to provide office space for the two corporate officers was no more than an inconse=uentia infringement. $or rescission to .e justified, the aw re=uires that the .reach of contract shou d .e so 'su.stantia or fundamenta ' as to defeat the primary o.jective of the parties in ma9ing the agreement. (t any rate, the &ngs c aim that it was the :ius who were gui ty of fundamenta vio ations in fai ing to remit funds due to $,(6! and diverting the same to their 1(::0+!& account. :he &ngs a so a ege that, in view of the findings of the !ourt that .oth parties were gui ty of vio ating the Pre2*u.scription (greement, neither of them cou d resort to rescission under the princip e of pari delicto. %n addition, since the cash and other contri.utions now sought to .e returned a ready .e ong to $,(6!, an innocent third party, said remedy may no onger .e avai ed of under the aw. &n their second point Cassuming rescission to .e proper, the &ngs shou d .e given their proportionate share of the ma D, movants &ng vehement y ta9e e;ception to the second item in the dispositive portion of the =uestioned 6ecision insofar as it decreed that whatever remains of the assets of $,(6! and the management thereof Cafter i=uidationD sha .e transferred to the :ius. :hey point out that the ma itse f, which wou d have .een forec osed .y P"3 if not for their time y investment of P19# mi ion in 199) and which is now worth a.out P1 .i ion main y .ecause of their efforts, shou d .e inc uded in any partition and distri.ution. :hey Cthe &ngsD shou d not mere y .e given interest on their capita investments. :he said portion of our 6ecision, according to them, amounted to the unjust enrichment of the :ius and ran contrary to our own pronouncement that the act of the :ius in uni atera y rescinding the

agreement was 'the height of ingratitude' and an attempt 'to pu a fast one' as it wou d prevent the &ngs from enjoying the fruits of their P19# mi ion investment in $,(6!. %t a so contravenes this !ourt's assurance in the =uestioned 6ecision that the &ngs and :ius 'wi have a .ountifu return of their respective investments derived from the profits of the corporation.' @i ie &ng fi ed a separate '1otion for Partia +econsideration' dated 1arch 7, 2##2, pointing out that there was no vio ation of the Pre2 *u.scription (greement on the part of the &ngs< that, after more than seven years since the ma .egan its operations, rescission had .ecome not on y impractica .ut wou d a so adverse y affect the rights of innocent parties< and that it wou d .e &i'&l( inequita#le and unfair to simpl( return t&e %3:: million investment of t&e Fn's and 'ive t&e remainin' assets no* amountin' to a#out %3 #illion to t&e Tius. :he :ius, in their opposition to the &ngs' motion for reconsideration, counter that the arguments therein are a mere re2hash of the contentions in the &ngs' petition for review and previous motion for reconsideration of the !ourt of (ppea s' decision. :he :ius compare the arguments in said p eadings to prove that the &ngs do not raise new issues, and, .ased on we 2sett ed jurisprudence,12 the &ngs' present motion is therefore pro6 forma and did not prevent the 6ecision of this !ourt from attaining fina ity. &n January 29, 2##8, the *pecia *econd 6ivision of this !ourt he d ora arguments on the respective positions of the parties. &n $e.ruary 27, 2##8, 6r. @i ie &ng and the rest of the movants &ng fi ed their respective memoranda. &n $e.ruary 27, 2##8, the :ius su.mitted their memorandum. @e grant the &ngs' motions for reconsideration. :his is not the first time that this !ourt has reversed itse f on a motion for reconsideration. %n %&ilippine $onsumers 0oundation, -nc. vs. 2ational Telecommunications $ommission,18 this !ourt, through then !hief Justice $e i; >. 1a9asiar, said that its mem.ers may and do change their minds, after a re2study of the facts and the aw, i uminated .y a mutua e;change of views.1) (fter a thorough re2e;amination of the case, we find that our 6ecision of $e.ruary 1, 2##2 over oo9ed certain aspects which, if not corrected, wi cause e;treme and irrepara. e damage and prejudice to the &ngs, $,(6! and its creditors.

:he procedura ru e on pro6forma motions pointed out .y the :ius shou d not .e . ind y app ied to meritorious motions for reconsideration. (s ong as the same ade=uate y raises a va id ground 15 Ci.e., the decision or fina order is contrary to awD, this !ourt has to eva uate the merits of the arguments to prevent an unjust decision from attaining fina ity. %n ecurit( Ban+ and Trust $ompan( vs. $uenca,1A we ru ed that a motion for reconsideration is not pro6forma for the reason a one that it reiterates the arguments ear ier passed upon and rejected .y the appe ate court. @e e;p ained there that a movant may raise the same arguments, if on y to convince this !ourt that its ru ing was erroneous. 1oreover, the ru e Cthat a motion is pro6forma if it on y repeats the arguments in the previous p eadingsD wi not app y if said arguments were not s=uare y passed upon and answered in the decision sought to .e reconsidered. -n t&e case at #ar, no rulin' *as made on some of t&e petitioner Fn'sH ar'uments. $or instance, no c ear ru ing was made on why an order distri.uting corporate assets and property to the stoc9ho ders wou d not vio ate the statutory preconditions for corporate disso ution or decrease of authori4ed capita stoc9. :hus, it wou d serve the ends of justice to entertain the su.ject motion for reconsideration since some important issues therein, a though mere repetitions, were not considered or c ear y reso ved .y this !ourt. -oing now to the merits, we reso ve whether the :ius cou d ega y rescind the Pre2*u.scription (greement. @e ru e that they cou d not. $,(6! was origina y incorporated with an authori4ed capita stoc9 of 5##,### shares with the :ius owning )5#,2## shares representing the paid2up capita . @hen the :ius invited the &ngs to invest in $,(6! as stoc9ho ders, an increase of the authori4ed capita stoc9 .ecame necessary to give each group e=ua C5#25#D shareho dings as agreed upon in the Pre2*u.scription (greement. :he authori4ed capita stoc9 was thus increased from 5##,### shares to 2,###,### shares with a par va ue of P1## each, with the &ngs su.scri.ing to 1,###,### shares and the :ius to 5)9,7## more shares in addition to their )5#,2## shares to comp ete 1,###,### shares. :hus, the su.ject matter of the contract was the 1,###,### unissued shares of $,(6! stoc9 a ocated to the &ngs. *ince these were unissued shares, the parties' Pre2*u.scription (greement was in fact a su.scription contract as defined under *ection A#, :it e >%% of the !orporation !odeB (ny contract for the ac=uisition of unissued stoc+ in an existin' corporation or a corporation sti to .e formed sha .e deemed a su.scription within the meaning of this :it e, notwithstanding the

fact that theparties refer to it as a purc&ase or some ot&er contract C%ta ics supp iedD. ( su.scription contract necessari y invo ves the corporation as one of the contracting parties since the su.ject matter of the transaction is property owned .y the corporation Q its shares of stoc9. :hus, the su.scription contract Cdenominated .y the parties as a Pre2*u.scription (greementD where.y the &ngs invested P1## mi ion for 1,###,### shares of stoc9 was, from the viewpoint of the aw, one .etween the &ngs and $,(6!, not .etween the &ngs and the :ius. &therwise stated, the :ius did not contract in their persona capacities with the &ngs since they were not se ing any of their own shares to them. %t was $,(6! that did. !onsidering therefore that the rea contracting parties to the su.scription agreement were $,(6! and the &ngs a one, a civi case for rescission on the ground of .reach of contract fi ed .y the :ius in their persona capacities wi not prosper. (ssuming it had va id reasons to do so, on y $,(6! Cand certain y not the :iusD had the ega persona ity to fi e suit rescinding the su.scription agreement with the &ngs inasmuch as it was the rea party in interest therein. (rtic e 1811 of the !ivi !ode provides that 'contracts ta9e effect on y .etween the parties, their assigns and heirsS' :herefore, a party who has not ta9en part in the transaction cannot sue or .e sued for performance or for cance ation thereof, un ess he shows that he has a rea interest affected there.y. 17 %n their $e.ruary 27, 2##8 1emorandum, the :ius c aim that there are two contracts em.odied in the Pre2*u.scription (greementB a shareho der's agreement .etween the :ius and the &ngs defining and governing their re ationship and a su.scription contract .etween the :ius, the &ngs and $,(6! regarding the su.scription of the parties to the corporation. :hey point out that these two component parts form one who e agreement and that their terms and conditions are intrinsica y re ated and dependent on each other. :hus, the .reach of the shareho ders' agreement, which was a eged y the consideration for the su.scription contract, was a so a .reach of the atter. (side from the fact that this is an entire y new ang e never raised in any of their previous p eadings unti after the ora arguments on January 29, 2##8, we find this argument too strained for comfort. %t is o.vious y intended to remedy and cover up the :ius' ac9 of ega persona ity to rescind an agreement in which they were persona y not parties2in2 interest. (ssuming arguendo that there were two 'su.2agreements' em.odied in the Pre2*u.scription (greement, this !ourt fai s to see how the shareho ders agreement .etween the &ngs and :ius can, within the

.ounds of reason, .e interpreted as the consideration of the su.scription contract .etween $,(6! and the &ngs. :here was nothing in the Pre2 *u.scription (greement even remote y suggesting such a eged interdependence. 3e that as it may, however, the :ius are neverthe ess not the proper parties to raise this point .ecause they were not parties to the su.scription contract .etween $,(6! and the &ngs. :hus, they are not in a position to c aim that the shareho ders agreement .etween them and the &ngs was what induced $,(6! and the &ngs to enter into the su.scription contract. %t is the &ngs a one who can say that. :hough $,(6! was represented .y the :ius in the su.scription contract, $,(6! had a separate juridica persona ity from the :ius. :he case .efore us does not warrant piercing the vei of corporate fiction since there is no proof that the corporation is .eing used 'as a c oa9 or cover for fraud or i ega ity, or to wor9 injustice.'17 :he :ius a so argue that, since the &ngs represent $,(6! as its management, .reach .y the &ngs is .reach .y $,(6!. :his must a so fai .ecause such an argument disregards the separate juridica persona ity of $,(6!. :he :ius a ege that they were prevented from participating in the management of the corporation. :here is evidence that the &ngs did prevent the rightfu y e ected :reasurer, !e y :iu, from e;ercising her function as such. :he records show that the President, @i son &ng, supervised the co ection and receipt of renta s in the 1asagana !itima <19 that he ordered the same to .e deposited in the .an9< 2# and that he he d on to the cash and properties of the corporation. 21 *ection 25 of the !orporation !ode prohi.its the President from acting concurrent y as :reasurer of the corporation. :he rationa e .ehind the provision is to ensure the effective monitoring of each officer's separate functions. /owever, a though the :ius were adverse y affected .y the &ngs' unwi ingness to et them assume their positions, rescission due to .reach of contract is definite y the wrong remedy for their persona grievances. The Corporation Code, SEC rules and even the Rules of Court provide for appropriate and adequate intra-corporate remedies, other than rescission, in situations like this. +escission is certain y not one of them, specia y if the party as9ing for it has no ega persona ity to do so and the re=uirements of the aw therefor have not .een met. ( contrary doctrine wi tread on e;treme y dangerous ground .ecause it wi a ow just any stoc9ho der, for just a.out any rea or imagined offense, to demand rescission of his su.scription and ca for the distri.ution of some part of the corporate assets to him without comp ying with the re=uirements of the !orporation !ode.

/ence, the :ius, in their persona capacities, cannot see9 the u timate and e;traordinary remedy of rescission of the su.ject agreement .ased on a ess than su.stantia .reach of su.scription contract. "ot on y are they not parties to the su.scription contract .etween the &ngs and $,(6!< they a so have other avai a. e and effective remedies under the aw. ( this notwithstanding, granting .ut not conceding that the :ius possess the ega standing to sue for rescission .ased on .reach of contract, said action wi neverthe ess sti not prosper since rescission wi vio ate the :rust $und 6octrine and the procedures for the va id distri.ution of assets and property under the !orporation !ode. :he :rust $und 6octrine, first enunciated .y this !ourt in the 1928 case of %&ilippine Trust $o. vs. !ivera,22provides that su.scriptions to the capita stoc9 of a corporation constitute a fund to which the creditors have a right to oo9 for the satisfaction of their c aims.28 :his doctrine is the under ying princip e in the procedure for the distri.ution of capita assets, em.odied in the !orporation !ode, which a ows the distri.ution of corporate capita on y in three instancesB C1D amendment of the (rtic es of %ncorporation to reduce the authori4ed capita stoc9,2) C2D purchase of redeema. e shares .y the corporation, regard ess of the e;istence of unrestricted retained earnings,25 and C8D disso ution and eventua i=uidation of the corporation. $urthermore, the doctrine is articu ated in *ection )1 on the power of a corporation to ac=uire its own shares 2A and in *ection 122 on the prohi.ition against the distri.ution of corporate assets and property un ess the stringent re=uirements therefor are comp ied with.27 :he distri.ution of corporate assets and property cannot .e made to depend on the whims and caprices of the stoc9ho ders, officers or directors of the corporation, or even, for that matter, on the earnest desire of the court a quo 'to prevent further s=ua.. es and future itigations' un ess the indispensa. e conditions and procedures for the protection of corporate creditors are fo owed. &therwise, the 'corporate peace' auda. y hoped for .y the court wi remain nothing .ut a dream .ecause this time, it wi .e the creditors' turn to engage in 's=ua.. es and itigations' shou d the court order an un awfu distri.ution in . atant disregard of the :rust $und 6octrine. %n the instant case, the rescission of the Pre2*u.scription (greement wi effective y resu t in the unauthori4ed distri.ution of the capita assets and property of the corporation, there.y vio ating the :rust $und 6octrine and the !orporation !ode, since rescission of a su.scription agreement is not

one of the instances when distri.ution of capita assets and property of the corporation is a owed. !ontrary to the :ius' a egation, rescission wi , in the fina ana ysis, resu t in the premature i=uidation of the corporation without the .enefit of prior disso ution in accordance with *ections 117, 117, 119 and 12# of the !orporation !ode.27 :he :ius maintain that rescinding the su.scription contract is not synonymous to corporate i=uidation .ecause a rescission wi entai wou d .e the simp e restoration of the status quo ante and a return to the two groups of their cash and property contri.utions. @e wish it were that simp e. >ery noticea. e is the fact that the :ius do not e;p ain why rescission in the instant case wi not effective y resu t in i=uidation. :he :ius mere y refer in cava ier fashion to the end2resu t of rescission Cwhich incidenta y is 1##E favora. e to themD .ut turn a . ind eye to its unfair, ine=uita. e and disastrous effect on the corporation, its creditors and the &ngs. %n their 1emorandum dated $e.ruary 27, 2##8, the :ius c aim that rescission of the agreement wi not resu t in an unauthori4ed i=uidation of the corporation .ecause their case is actua y a petition to decrease capita stoc9 pursuant to *ection 87 of the !orporation !ode. *ection 122 of the aw provides that 'CeD;cept .y decrease of capita stoc9S, no corporation sha distri.ute any of its assets or property e;cept upon awfu disso ution and after payment of a its de.ts and ia.i ities.' :he :ius c aim that their case for rescission, .eing a petition to decrease capita stoc9, does not vio ate the i=uidation procedures under our aws. ( that needs to .e done, according to them, is for this !ourt to order C1D $,(6! to fi e with the *0! a petition to issue a certificate of decrease of capita stoc9 and C2D the *0! to approve said decrease. :his new argument has no merit. :he :ius' case for rescission cannot va id y .e deemed a petition to decrease capita stoc9 .ecause such action never comp ied with the forma re=uirements for decrease of capita stoc9 under *ection 88 of the !orporation !ode. "o majority vote of the .oard of directors was ever ta9en. "either was there any stoc9ho ders meeting at which the approva of stoc9ho ders owning at east two2thirds of the outstanding capita stoc9 was secured. :here was no revised treasurer's affidavit and no proof that said decrease wi not prejudice the creditors' rights. &n the contrary, a their p eadings contained were a eged acts of vio ations .y the &ngs to justify an order of rescission. $urthermore, it is an improper judicia intrusion into the interna affairs of the corporation to compe $,(6! to fi e at the *0! a petition for the

issuance of a certificate of decrease of stoc9. 6ecreasing a corporation's authori4ed capita stoc9 is an amendment of the (rtic es of %ncorporation. %t is a decision that on y the stoc9ho ders and the directors can ma9e, considering that they are the contracting parties thereto. -n t&is case, t&e Tius are actuall( not just as+in' for a revie* of t&e le'alit( and fairness of a corporate decision. T&e( *ant t&is $ourt to ma+e a corporate decision for 0LAA$. @e dec ine to intervene and order corporate structura changes not vo untari y agreed upon .y its stoc9ho ders and directors. :ruth to te , a judicia order to decrease capita stoc9 without the assent of $,(6!'s directors and stoc9ho ders is a vio ation of the '.usiness judgment ru e' which states thatB ;;; ;;; ;;; C!Dontracts intra vires entered into .y the .oard of directors are .inding upon the corporation and courts wi not interfere un ess such contracts are so unconsciona. e and oppressive as to amount to wanton destruction to the rights of the minority, as when p aintiffs aver that the defendants Cmem.ers of the .oardD, have conc uded a transaction among themse ves as wi resu t in serious injury to the p aintiffs stoc9ho ders. 29 :he reason .ehind the ru e is apt y e;p ained .y 6ean !esar ,. >i anueva, an esteemed author in corporate aw, thusB !ourts and other tri.una s are wont to override the .usiness judgment of the .oard main y .ecause, courts are not in the .usiness of .usiness, and the laissez faire ru e or the free enterprise system prevai ing in our socia and economic set2up dictates that it is .etter for the *tate and its organs to eave .usiness to the .usinessmen< especia y so, when courts are i 2 e=uipped to ma9e .usiness decisions. 1ore important y, the socia contract in the corporate fami y to decide the course of the corporate .usiness has .een vested in the .oard and not with courts.8# (pparent y, the :ius do not rea i4e the i ega conse=uences of see9ing rescission and contro of the corporation to the e;c usion of the &ngs. *uch an act infringes on the aw on reduction of capita stoc9. &rdering the return and distri.ution of the &ngs' capita contri.ution without disso ving the corporation or decreasing its authori4ed capita stoc9 is not on y against the aw .ut is a so prejudicia to corporate creditors who enjoy a.so ute priority of payment over and a.ove any individua stoc9ho der thereof.

*tripped to its .arest essentia s, the issue of rescission in this case is not difficu t to understand. %f rescission is denied, wi injustice .e inf icted on any of the partiesO :he answer is no .ecause the financia interests of .oth the :ius and the &ngs wi remain intact and safe within $,(6!. &n the other hand, if rescission is granted, wi any of the parties suffer an injusticeO 6efinite y yes .ecause the &ngs wi find themse ves out in the streets with nothing .ut the money they had in 199) whi e the :ius wi not on y enjoy a windfa estimated to .e anywhere from P)5# mi ion to P9## mi ion81 .ut wi a so ta9e over an e;treme y profita. e .usiness without much effort at a . (nother very important point fo ows. :he !ourt of (ppea s and, ater on, our 6ecision dated $e.ruary 1, 2##2, stated that .oth groups were in pari delicto, meaning, that .oth the :ius and the &ngs committed .reaches of the Pre2*u.scription (greement. :his may .e true to a certain e;tent .ut, judging from the comparative gravity of the acts separate y committed .y each group, we find that the &ngs' acts were re ative y tame vis2T2vis those committed .y the :ius in not surrendering $,(6! funds to the corporation and diverting corporate income to their own 1(::0+!& account. :he &ngs were right in not issuing to the :ius the shares corresponding to the four2story .ui ding and the 1,9#2.8# s=uare2meter ot .ecause no tit e for it cou d .e issued in $,(6!'s name, owing to the :ius' refusa to pay the transfer ta;es. (nd as far as the 151 s=uare2 meter ot was concerned, why shou d $,(6! issue additiona shares to the :ius for property a ready owned .y the corporation and which, in the fina ana ysis, was a ready factored into the shareho dings of the :ius .efore the &ngs came inO @e are appa ed .y the attempt .y the :ius, in the words of the !ourt of (ppea s, to 'pu a fast one' on the &ngs .ecause that was where the pro. em precise y started. %t is c ear that, when the finances of $,(6! improved considera. y after the e=uity infusion of the &ngs, the :ius started p anning to ta9e over the corporation again and e;c ude the &ngs from it. %t appears that the :ius' refusa to pay transfer ta;es might not have rea y .een at a unintentiona .ecause, .y fai ing to pay that re ative y sma amount which they cou d easi y afford, the :ius shou d have e;pected that they were not going to .e given the corresponding shares. %t was, from every ang e, the perfect e;cuse for . ac9.a ing the &ngs. %n other words, the :ius created a pro. em then used that same pro. em as their prete;t for showing their partners the door. %n the process, they stood to .e rewarded with a .onan4a of anywhere .etween P)5# mi ion to P9## mi ion in assets Cfrom an investment of on y P)5 mi ion which was near y forec osed .y P"3D, to the e;treme and irrepara. e damage of the &ngs, $,(6! and its creditors.

(fter a is said and done, no one can c ose his eyes to the fact that the 1asagana !itima wou d not .e what it has .ecome today were it not for the time y infusion of P19# mi ion .y the &ngs in 199). :here are no ifs or .uts a.out it. @ithout the &ngs, the :ius wou d have ost everything they origina y invested in said ma . %f on y for this and the fact that this +eso ution can tru y pave the way for .oth groups to enjoy the fruits of their investments I assuming good faith and honest intentions I we cannot a ow the rescission of the su.ject su.scription agreement. :he &ngs' shortcomings were far from serious and certain y ess than su.stantia < they were in fact remedia. e and correcta. e under the aw. %t wou d .e tota y against a ru es of justice, fairness and e=uity to deprive the &ngs of their interests on petty and tenuous grounds. @/0+0$&+0, the motion for reconsideration, dated 1arch 15, 2##2, of petitioners &ng Fong, Juanita :an &ng, @i son &ng, (nna &ng, @i iam &ng, @i ie &ng and Ju ie &ng ( on4o and the motion for partia reconsideration, dated 1arch 15, 2##2, of petitioner @i ie &ng are here.y -+(":06. :he Petition for !onfirmation of the +escission of the Pre2*u.scription (greement doc9eted as *0! !ase "o. #229A252A9 is here.y 6%*1%**06 for ac9 of merit. :he uni atera rescission .y the :ius of the su.ject Pre2*u.scription (greement, dated (ugust 15, 199), is here.y dec ared as nu and void. :he motion for the issuance of a writ of e;ecution, dated 1arch 15, 2##2, of petitioners 6avid *. :iu, !e y F. :iu, 1o y Fu -ow, 3e en *ee Fu, 6. :erence F. :iu, John Fu and ,ourdes !. :iu is here.y 60"%06 for .eing moot. (ccording y, the 6ecision of this !ourt, dated $e.ruary 1, 2##2, affirming with modification the decision of the !ourt of (ppea s, dated &cto.er 5, 1999, and the *0! en #anc, dated *eptem.er 11, 1997, is here.y +0>0+*06. !osts against the petitioner :ius. *& &+60+06.

RAMON C. LEE an AN'ONIO DM. LACDAO, petitioners, vs. 'HE HON. COUR' O% A))EAL$, $ACOBA MANU%AC'URING COR)., )ABLO GON6ALE$, -R. an 'HOMA$ GON6ALE$, respondents. $a(an'a, Iuni'a & An'el La* Fffices for petitioners. Tim#ol & Associates for private respondents.

GU'IERRE6, -R., J.: @hat is the nature of the voting trust agreement e;ecuted .etween two parties in this caseO @ho owns the stoc9s of the corporation under the terms of the voting trust agreementO /ow ong can a voting trust agreement remain va id and effectiveO 6id a director of the corporation cease to .e such upon the creation of the voting trust agreementO :hese are the =uestions the answers to which are necessary in reso ving the principa issue in this petition for certiorari I whether or not there was proper service of summons on ( fa %ntegrated :e;ti e 1i s C(,$(, for shortD through the petitioners as president and vice2president, a eged y, of the su.ject corporation after the e;ecution of a voting trust agreement .etween (,$( and the 6eve opment 3an9 of the Phi ippines C63P, for shortD. $rom the records of the instant case, the fo owing antecedent facts appearB &n "ovem.er 15, 1975, a comp aint for a sum of money was fi ed .y the %nternationa !orporate 3an9, %nc. against the private respondents who, in turn, fi ed a third party comp aint against (,$( and the petitioners on 1arch 17, 197A. &n *eptem.er 17, 1977, the petitioners fi ed a motion to dismiss the third party comp aint which the +egiona :ria !ourt of 1a9ati, 3ranch 57 denied in an &rder dated June 27, 1977. &n Ju y 17, 1977, the petitioners fi ed their answer to the third party comp aint.

B.
G.R. No. 92695 %#3*.a*y 4, 1992

1eanwhi e, on Ju y 12, 1977, the tria court issued an order re=uiring the issuance of an alias summons upon (,$( through the 63P as a conse=uence of the petitioner's etter informing the court that the summons for (,$( was erroneous y served upon them considering that the management of (,$( had .een transferred to the 63P. %n a manifestation dated Ju y 22, 1977, the 63P c aimed that it was not authori4ed to receive summons on .eha f of (,$( since the 63P had not ta9en over the company which has a separate and distinct corporate persona ity and e;istence. &n (ugust ), 1977, the tria court issued an order advising the private respondents to ta9e the appropriate steps to serve the summons to (,$(. &n (ugust 1A, 1977, the private respondents fi ed a 1anifestation and 1otion for the 6ec aration of Proper *ervice of *ummons which the tria court granted on (ugust 17, 1977. &n *eptem.er 12, 1977, the petitioners fi ed a motion for reconsideration su.mitting that +u e 1), section 18 of the +evised +u es of !ourt is not app ica. e since they were no onger officers of (,$( and that the private respondents shou d have avai ed of another mode of service under +u e 1), *ection 1A of the said +u es, i.e.,through pu. ication to effect proper service upon (,$(. %n their !omment to the 1otion for +econsideration dated *eptem.er 27, 1977, the private respondents argued that the voting trust agreement dated 1arch 11, 1971 did not divest the petitioners of their positions as president and e;ecutive vice2president of (,$( so that service of summons upon (,$( through the petitioners as corporate officers was proper. &n January 2, 1979, the tria court uphe d the va idity of the service of summons on (,$( through the petitioners, thus, denying the atter's motion for reconsideration and re=uiring (,$( to fi ed its answer through the petitioners as its corporate officers. &n January 19, 1979, a second motion for reconsideration was fi ed .y the petitioners reiterating their stand that .y virtue of the voting trust agreement they ceased to .e officers and directors of (,$(, hence, they cou d no onger receive summons or any court processes for or on .eha f of (,$(. %n support of their second motion for reconsideration, the

petitioners attached thereto a copy of the voting trust agreement .etween a the stoc9ho ders of (,$( Cthe petitioners inc udedD, on the one hand, and the 63P, on the other hand, where.y the management and contro of (,$( .ecame vested upon the 63P. &n (pri 25, 1979, the tria court reversed itse f .y setting aside its previous &rder dated January 2, 1979 and dec ared that service upon the petitioners who were no onger corporate officers of (,$( cannot .e considered as proper service of summons on (,$(. &n 1ay 15, 1979, the private respondents moved for a reconsideration of the a.ove &rder which was affirmed .y the court in its &rder dated (ugust 1), 1979 denying the private respondent's motion for reconsideration. &n *eptem.er 17, 1979, a petition for certiorari was .e ated y su.mitted .y the private respondent .efore the pu. ic respondent which, nonethe ess, reso ved to give due course thereto on *eptem.er 21, 1979. &n &cto.er 17, 1979, the tria court, not having .een notified of the pending petition for certiorari with pu. ic respondent issued an &rder dec aring as fina the &rder dated (pri 25, 1979. :he private respondents in the said &rder were re=uired to ta9e positive steps in prosecuting the third party comp aint in order that the court wou d not .e constrained to dismiss the same for fai ure to prosecute. *u.se=uent y, on &cto.er 25, 1979 the private respondents fi ed a motion for reconsideration on which the tria court too9 no further action. &n 1arch 19, 199#, after the petitioners fi ed their answer to the private respondents' petition for certiorari, the pu. ic respondent rendered its decision, the dispositive portion of which readsB @/0+0$&+0, in view of the foregoing, the orders of respondent judge dated (pri 25, 1979 and (ugust 1), 1979 are here.y *0: (*%60 and respondent corporation is ordered to fi e its answer within the reg ementary period. C!( 6ecision, p. 7< !ollo, p. 2)D &n (pri 11, 199#, the petitioners moved for a reconsideration of the decision of the pu. ic respondent which reso ved to deny the same on 1ay 1#, 199#. /ence, the petitioners fi ed this certiorari petition imputing grave a.use of discretion amounting to ac9 of jurisdiction on the part of

the pu. ic respondent in reversing the =uestioned &rders dated (pri 25, 1979 and (ugust 1), 1979 of the court a quo, thus, ho ding that there was proper service of summons on (,$( through the petitioners. %n the meantime, the pu. ic respondent inadvertent y made an entry of judgment on Ju y 1A, 199# erroneous y app ying the ru e that the period during which a motion for reconsideration has .een pending must .e deducted from the 152day period to appea . /owever, in its +eso ution dated January 8, 1991, the pu. ic respondent set aside the aforestated entry of judgment after further considering that the ru e it re ied on app ies to appea s from decisions of the +egiona :ria !ourts to the !ourt of (ppea s, not to appea s from its decision to us pursuant to our ru ing in the case of !efractories $orporation of t&e %&ilippines v. -ntermediate Appellate $ourt, 17A *!+( 589 J1979K. C!( !ollo, pp. 2)9225#D %n their memorandum, the petitioners present the fo owing arguments, to witB C1D that the e;ecution of the voting trust agreement .y a stoc9ho ders where.y a his shares to the corporation have .een transferred to the trustee deprives the stoc9ho ders of his position as director of the corporation< to ru e otherwise, as the respondent !ourt of (ppea s did, wou d .e vio ative of section 28 of the !orporation !ode C !ollo, pp. 27#28278D< and C2D that the petitioners were no onger acting or ho ding any of the positions provided under +u e 1), *ection 18 of the +u es of !ourt authori4ed to receive service of summons for and in .eha f of the private domestic corporation so that the service of summons on (,$( effected through the petitioners is not va id and ineffective< to maintain the respondent !ourt of (ppea s' position that (,$( was proper y served its summons through the petitioners wou d .e contrary to the genera princip e that a corporation can on y .e .ound .y such acts which are within the scope of its officers' or agents' authority C!ollo, pp. 2782275D %n reso ving the issue of the propriety of the service of summons in the instant case, we dwe first on the nature of a voting trust agreement and the conse=uent effects upon its creation in the ight of the provisions of the !orporation !ode.

( voting trust is defined in 3a entine's ,aw 6ictionary as fo owsB CaD trust created .y an agreement .etween a group of the stoc9ho ders of a corporation and the trustee or .y a group of identica agreements .etween individua stoc9ho ders and a common trustee, where.y it is provided that for a term of years, or for a period contingent upon a certain event, or unti the agreement is terminated, contro over the stoc9 owned .y such stoc9ho ders, either for certain purposes or for a purposes, is to .e odged in the trustee, either with or without a reservation to the owners, or persons designated .y them, of the power to direct how such contro sha .e used. C97 (,+ 2d. 879 sec. 1 JdK< 19 (m J 2d !orp. sec. A75D. 5nder *ection 59 of the new !orporation !ode which e;press y recogni4es voting trust agreements, a more definitive meaning may .e gathered. :he said provision part y readsB *ec. 59. /otin' Trusts I &ne or more stoc9ho ders of a stoc9 corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the share for a period rights pertaining to the shares for a period not e;ceeding five C5D years at any one timeB Provided, that in the case of a voting trust specifica y re=uired as a condition in a oan agreement, said voting trust may .e for a period e;ceeding C5D years .ut sha automatica y e;pire upon fu payment of the oan. ( voting trust agreement must .e in writing and notari4ed, and sha specify the terms and conditions thereof. ( certified copy of such agreement sha .e fi ed with the corporation and with the *ecurities and 0;change !ommission< otherwise, said agreement is ineffective and unenforcea. e. :he certificate or certificates of stoc9 covered .y the voting trust agreement sha .e cance ed and new ones sha .e issued in the name of the trustee or trustees stating that they are issued pursuant to said agreement. %n the .oo9s of the corporation, it sha .e noted that the transfer in the name of the trustee or trustees is made pursuant to said voting trust agreement.

3y its very nature, a voting trust agreement resu ts in the separation of the voting rights of a stoc9ho der from his other rights such as the right to receive dividends, the right to inspect the .oo9s of the corporation, the right to se certain interests in the assets of the corporation and other rights to which a stoc9ho der may .e entit ed unti the i=uidation of the corporation. /owever, in order to distinguish a voting trust agreement from pro;ies and other voting poo s and agreements, it must pass three criteria or tests, name yB C1D that the voting rights of the stoc9 are separated from the other attri.utes of ownership< C2D that the voting rights granted are intended to .e irrevoca. e for a definite period of time< and C8D that the principa purpose of the grant of voting rights is to ac=uire voting contro of the corporation. C5 $ etcher, $(clopedia of t&e La* on %rivate $orporations, section 2#75 J197AK p. 881citin' :an9ers y v. ( .right, 87) $. *upp. 587D 5nder section 59 of the !orporation !ode, supra, a voting trust agreement may confer upon a trustee not on y the stoc9ho der's voting rights .ut a so other rights pertaining to his shares as ong as the voting trust agreement is not entered 'for the purpose of circumventing the aw against monopo ies and i ega com.inations in restraint of trade or used for purposes of fraud.' Csection 59, 5th paragraph of the !orporation !odeD :hus, the traditiona concept of a voting trust agreement primari y intended to sing e out a stoc9ho der's right to vote from his other rights as such and made irrevoca. e for a imited duration may in practice .ecome a ega device where.y a transfer of the stoc9ho der's shares is effected su.ject to the specific provision of the voting trust agreement. :he e;ecution of a voting trust agreement, therefore, may create a dichotomy .etween the e=uita. e or .eneficia ownership of the corporate shares of a stoc9ho ders, on the one hand, and the ega tit e thereto on the other hand. :he aw simp y provides that a voting trust agreement is an agreement in writing where.y one or more stoc9ho ders of a corporation consent to transfer his or their shares to a trustee in order to vest in the atter voting or other rights pertaining to said shares for a period not e;ceeding five years upon the fu fi ment of statutory conditions and such other terms and conditions specified in the agreement. :he five year2period may .e e;tended in cases where the voting trust is e;ecuted pursuant to a oan agreement where.y the period is made contingent upon fu payment of the oan. %n the instant case, the point of controversy arises from the effects of the creation of the voting trust agreement. :he petitioners maintain that with

the e;ecution of the voting trust agreement .etween them and the other stoc9ho ders of (,$(, as one party, and the 63P, as the other party, the former assigned and transferred a their shares in (,$( to 63P, as trustee. :hey argue that .y virtue to of the voting trust agreement the petitioners can no onger .e considered directors of (,$(. %n support of their contention, the petitioners invo9e section 28 of the !orporation !ode which provides, in part, thatB 0very director must own at east one C1D share of the capita stoc9 of the corporation of which he is a director which share sha stand in his name on the .oo9s of the corporation. (ny director who ceases to .e the owner of at east one C1D share of the capita stoc9 of the corporation of which he is a director sha there.y cease to .e director . . . C!ollo, p. 27#D :he private respondents, on the contrary, insist that the voting trust agreement .etween (,$( and the 63P had a the more safeguarded the petitioners' continuance as officers and directors of (,$( inasmuch as the genera o.ject of voting trust is to insure permanency of the tenure of the directors of a corporation. :hey cited the commentaries .y Prof. (guedo (g.ayani on the right and status of the transferring stoc9ho ders, to *itB :he 'transferring stoc9ho der', a so ca ed the 'depositing stoc9ho der', is e=uita. e owner for the stoc9s represented .y the voting trust certificates and the stoc9 reversi. e on termination of the trust .y surrender. %t is said that the voting trust agreement does not destroy the status of the transferring stoc9ho ders as such, and thus render them ine igi. e as directors. 3ut a more accurate statement seems to .e that for some purposes the depositing stoc9ho der ho ding voting trust certificates in ieu of his stoc9 and .eing the .eneficia owner thereof, remains and is treated as a stoc9ho der. %t seems to .e deduci. e from the case that he may sue as a stoc9ho der if the suit is in e=uity or is of an e=uita. e nature, such as, a technica stoc9ho ders' suit in right of the corporation. J!ommercia ,aws of the Phi ippines .y (g.ayani, >o . 8 pp. )922)98, citin' 5 $ etcher 82A, 827K C!ollo, p. 291D @e find the petitioners' position meritorious.

3oth under the o d and the new !orporation !odes there is no dispute as to the most immediate effect of a voting trust agreement on the status of a stoc9ho der who is a party to its e;ecution I from ega tit eho der or owner of the shares su.ject of the voting trust agreement, he .ecomes the e=uita. e or .eneficia owner. C*a onga,%&ilippine La* on %rivate $orporations, 1957 ed., p. 2A7< Pineda and !ar os, T&e La* on %rivate $orporations and $orporate %ractice, 19A9 ed., p. 175< !ampos and ,ope42!ampos, T&e $orporation $odeJ $omments, 2otes & elected $ases, 1971, ed., p. 87A< (g.ayani, $ommentaries and @urisprudence on t&e $ommercial La*s of t&e %&ilippines, >o . 8, 1977 ed., p. 58AD. :he penu timate =uestion, therefore, is whether the change in his status deprives the stoc9ho der of the right to =ua ify as a director under section 28 of the present !orporation !ode which de etes the phrase 'in his own right.' *ection 8# of the o d !ode states thatB 0very director must own in &is o*n ri'&t at east one share of the capita stoc9 of the stoc9 corporation of which he is a director, which stoc9 sha stand in his name on the .oo9s of the corporation. ( director who ceases to .e the owner of at east one share of the capita stoc9 of a stoc9 corporation of which is a director sha there.y cease to .e a director . . . C0mphasis supp iedD 5nder the o d !orporation !ode, the e igi.i ity of a director, strict y spea9ing, cannot .e adverse y affected .y the simp e act of such director .eing a party to a voting trust agreement inasmuch as he remains owner Ca though .eneficia or e=uita. e on yD of the shares su.ject of the voting trust agreement pursuant to which a transfer of the stoc9ho der's shares in favor of the trustee is re=uired Csection 8A of the o d !orporation !odeD. "o dis=ua ification arises .y virtue of the phrase 'in his own right' provided under the o d !orporation !ode. @ith the omission of the phrase 'in his own right' the e ection of trustees and other persons who in fact are not .eneficia owners of the shares registered in their names on the .oo9s of the corporation .ecomes forma y ega i4ed Csee !ampos and ,ope42!ampos, supra, p. 29AD /ence, this is a c ear indication that in order to .e e igi. e as a director, what is materia is the ega tit e to, not .eneficia ownership of, the stoc9 as appearing on the .oo9s of the corporation C2 $ etcher, $(clopedia of t&e La* of %rivate $orporations, section 8##, p. 92 J19A9Kcitin' Peop e v. ,ihme, 2A9 % . 851, 1#9 ".0. 1#51D. :he facts of this case show that the petitioners, .y virtue of the voting trust agreement e;ecuted in 1971 disposed of all t&eir s&ares t&rou'&

assi'nment and deliver( in favor of t&e AB%, as trustee. !onse=uent y, the petitioners ceased to own at east one share standing in their names on the .oo9s of (,$( as re=uired under *ection 28 of the new !orporation !ode. :hey a so ceased to have anything to do with the management of the enterprise. :he petitioners ceased to .e directors. /ence, the transfer of the petitioners' shares to the 63P created vacancies in their respective positions as directors of (,$(. :he transfer of shares from the stoc9ho der of (,$( to the 63P is the essence of the su.ject voting trust agreement as evident from the fo owing stipu ationsB 1. :he :+5*:&+* here.y assign and de iver to the :+5*:00 the certificate of the shares of the stoc9s owned .y them respective y and sha do a things necessary for the transfer of their respective shares to the :+5*:00 on the .oo9s of (,$(. 2. :he :+5*:00 sha issue to each of the :+5*:&+* a trust certificate for the num.er of shares transferred, which sha .e transferra. e in the same manner and with the same effect as certificates of stoc9 su.ject to the provisions of this agreement< 8. :he :+5*:00 sha vote upon the shares of stoc9 at a meetings of (,$(, annua or specia , upon any reso ution, matter or .usiness that may .e su.mitted to any such meeting, and s&all possess in t&at respect t&e same po*ers as o*ners of t&e equita#le as *ell as t&e le'al title to t&e stoc+< ). :he :+5*:00 may cause to .e transferred to any person one share of stoc9 for the purpose of =ua ifying such person as director of (,$(, and cause a certificate of stoc9 evidencing the share so transferred to .e issued in the name of such person< ;;; ;;; ;;; 9. (ny stoc9ho der not entering into this agreement may transfer his shares to the same trustees without the need of revising this agreement, and this agreement sha have the same force and effect upon that said stoc9ho der. C!( !ollo, pp. 1872187< 0mphasis supp iedD

!onsidering that the voting trust agreement .etween (,$( and the 63P transferred ega ownership of the stoc9 covered .y the agreement to the 63P as trustee, the atter .ecame the stoc9ho der of record with respect to the said shares of stoc9s. %n the a.sence of a showing that the 63P had caused to .e transferred in their names one share of stoc9 for the purpose of =ua ifying as directors of (,$(, the petitioners can no onger .e deemed to have retained their status as officers of (,$( which was the case .efore the e;ecution of the su.ject voting trust agreement. :here appears to .e no dispute from the records that 63P has ta9en over fu contro and management of the firm. 1oreover, in the !ertification dated January 2), 1979 issued .y the 63P through one 0 sa (. -uevarra, >ice2President of its *pecia (ccounts 6epartment %%, +emedia 1anagement -roup, the petitioners were no onger inc uded in the ist of officers of (,$( 'as of (pri 1972.' C!( !ollo, pp. 1)#21)2D %nasmuch as the private respondents in this case fai ed to su.stantiate their c aim that the su.ject voting trust agreement did not deprive the petitioners of their position as directors of (,$(, the pu. ic respondent committed a reversi. e error when it ru ed thatB . . . whi e the individua respondents Cpetitioners ,ee and ,acdaoD may have ceased to .e president and vice2 president, respective y, of the corporation at the time of service of summons on them on (ugust 21, 1977, they were at east up to that time, sti directors . . . :he afore=uoted statement is =uite inaccurate in the ight of the e;press terms of *tipu ation "o. ) of the su.ject voting trust agreement. 3oth parties, (,$( and the 63P, were aware at the time of the e;ecution of the agreement that .y virtue of the transfer of shares of (,$( to the 63P, a the directors of (,$( were stripped of their positions as such. :here can .e no re iance on the inference that the five2year period of the voting trust agreement in =uestion had apsed in 197A so that the ega tit e to the stoc9s covered .y the said voting trust agreement ipso facto reverted to the petitioners as .eneficia owners pursuant to the Ath paragraph of section 59 of the new !orporation !ode which readsB 5n ess e;press y renewed, a rights granted in a voting trust agreement sha automatica y e;pire at the end of the agreed period, and the voting trust certificate as we

as the certificates of stoc9 in the name of the trustee or trustees sha there.y .e deemed cance ed and new certificates of stoc9 sha .e reissued in the name of the transferors. &n the contrary, it is manifest y c ear from the terms of the voting trust agreement .etween (,$( and the 63P that the duration of the agreement is contingent upon the fu fi ment of certain o. igations of (,$( with the 63P. :his is shown .y the fo owing portions of the agreement. @/0+0(*, the :+5*:00 is one of the creditors of (,$(, and its credit is secured .y a first mortgage on the manufacturing p ant of said company< @/0+0(*, (,$( is a so inde.ted to other creditors for various financia accomodations and .ecause of the .urden of these o. igations is encountering very serious difficu ties in continuing with its operations. @/0+0(*, in consideration of additiona accommodations from the :+5*:00, (,$( had offered and the :+5*:00 has accepted participation in the management and contro of the company and to assure the aforesaid participation .y the :+5*:00, the :+5*:&+* have agreed to e;ecute a voting trust covering their shareho ding in (,$( in favor of the :+5*:00< ("6 @/0+0(*, 63P is wi ing to accept the trust for the purpose aforementioned. "&@, :/0+0$&+0, it is here.y agreed as fo owsB ;;; ;;; ;;; A. :his (greement sha ast for a period of $ive C5D years, and is renewa. e for as ong as the o. igations of (,$( with 63P, or any portion thereof, remains outstanding< C!( !ollo, pp. 1872187D /ad the five2year period of the voting trust agreement e;pired in 197A, the 63P wou d not have transferred a its rights, tit es and interests in

(,$( 'effective June 8#, 197A' to the nationa government through the (sset Privati4ation :rust C(P:D as attested to in a !ertification dated January 2), 1979 of the >ice President of the 63P's *pecia (ccounts 6epartment %%. %n the same certification, it is stated that the 63P, from 1977 unti 1979, had hand ed (P:'s account which inc uded (,$('s assets pursuant to a management agreement .y and .etween the 63P and (P: C!( !ollo, p. 1)2D /ence, there is evidence on record that at the time of the service of summons on (,$( through the petitioners on (ugust 21, 1977, the voting trust agreement in =uestion was not yet terminated so that the ega tit e to the stoc9s of (,$(, then, sti .e onged to the 63P. %n view of the foregoing, the u timate issue of whether or not there was proper service of summons on (,$( through the petitioners is readi y answered in the negative. 5nder section 18, +u e 1) of the +evised +u es of !ourt, it is provided thatB *ec. 18. ervice upon private domestic corporation or partners&ip. I %f the defendant is a corporation organi4ed under the aws of the Phi ippines or a partnership du y registered, service may .e made on the president, manager, secretary, cashier, agent or any of its directors. %t is a .asic princip e in !orporation ,aw that a corporation has a persona ity separate and distinct from the officers or mem.ers who compose it. C ee *u o ng 3ayan %nc. v. (raneta, %nc., 72 *!+( 8)7 J197AK< &sias (cademy v. 6epartment of ,a.or and 0mp oyment, et a ., -.+. "os. 78257257, 6ecem.er 21, 199#D. :hus, the a.ove ru e on service of processes of a corporation enumerates the representatives of a corporation who can va id y receive court processes on its .eha f. "ot every stoc9ho der or officer can .ind the corporation considering the e;istence of a corporate entity separate from those who compose it. :he rationa e of the aforecited ru e is that service must .e made on a representative so integrated with the corporation sued as to ma9e it a priori supposa. e that he wi rea i4e his responsi.i ities and 9now what he shou d do with any ega papers served on him. C$ar !orporation v. $rancisco, 1)A *!+( 197 J197AK citin' >i a +ey :ransit, %nc. v. $ar 0ast 1otor !orp. 71 *!+( 8#8 J1977KD.

:he petitioners in this case do not fa under any of the enumerated officers. :he service of summons upon (,$(, through the petitioners, therefore, is not va id. :o ru e otherwise, as correct y argued .y the petitioners, wi contravene the genera princip e that a corporation can on y .e .ound .y such acts which are within the scope of the officer's or agent's authority. Csee >icente v. -era de4, 52 *!+( 21# J1978KD. @/0+0$&+0, premises considered, the petition is here.y -+(":06. :he appea ed decision dated 1arch 19, 199# and the !ourt of (ppea s' reso ution of 1ay 1#, 199# are *0: (*%60 and the &rders dated (pri 25, 1979 and &cto.er 17, 1979 issued .y the +egiona :ria !ourt of 1a9ati, 3ranch 57 are +0%"*:(:06. *& &+60+06. G.R. No. L-45911 A;*+1 11, 1979 -OHN GO4ONG<EI, -R., petitioner, vs. $ECURI'IE$ AND E5CHANGE COMMI$$ION, ANDRE$ M. $ORIANO, -O$E M. $ORIANO, ENRI=UE 6OBEL, AN'ONIO RO5A$, EME'ERIO BUNAO, <AL'HRODE B. CONDE, MIGUEL OR'IGA$, AN'ONIO )RIE'O, $AN MIGUEL COR)ORA'ION, EMIGDIO 'AN-UA'CO, $R., an EDUARDO R. &I$AYA, respondents. Ae antos, Bal'os & %erez for petitioner. An'ara, A#ello, $oncepcion, !e'ala, $ruz La* Fffices for respondents orianos i'uion !e(na, ,ontecillo & Fn'sia+o for respondent an ,i'uel $orporation. !. T $apulon' for respondent Eduardo !. /isa(a.

AN'ONIO, J.: :he instant petition for certiorari, mandamus and injunction, with prayer for issuance of writ of pre iminary injunction, arose out of two cases fi ed .y petitioner with the *ecurities and 0;change !ommission, as fo owsB

E$ $A E 2F 3KL< &n &cto.er 22, 197A, petitioner, as stoc9ho der of respondent *an 1igue !orporation, fi ed with the *ecurities and 0;change !ommission C*0!D a petition for 'dec aration of nu ity of amended .y2 aws, cance ation of certificate of fi ing of amended .y2 aws, injunction and damages with prayer for a pre iminary injunction' against the majority of the mem.ers of the 3oard of 6irectors and *an 1igue !orporation as an unwi ing petitioner. :he petition, entit ed 'John -o9ongwei Jr. vs. (ndres *oriano, Jr., Jose 1. *oriano, 0nri=ue Ro.e , (ntonio +o;as, 0meterio 3unao, @a throde 3. !onde, 1igue &rtigas, (ntonio Prieto and *an 1igue !orporation', was doc9eted as *0! !ase "o. 1875. (s a first cause of action, petitioner a eged that on *eptem.er 17, 197A, individua respondents amended .y .y aws of the corporation, .asing their authority to do so on a reso ution of the stoc9ho ders adopted on 1arch 18, 19A1, when the outstanding capita stoc9 of respondent corporation was on y P7#,189.7)#.##, divided into 5,518,97) common shares at P1#.## per share and 15#,### preferred shares at P1##.## per share. (t the time of the amendment, the outstanding and paid up shares tota ed 8#,127,#)7 with a tota par va ue of P8#1,27#,)8#.##. %t was contended that according to section 22 of the !orporation ,aw and (rtic e >%%% of the .y2 aws of the corporation, the power to amend, modify, repea or adopt new .y2 aws may .e de egated to the 3oard of 6irectors on y .y the affirmative vote of stoc9ho ders representing not ess than 2?8 of the su.scri.ed and paid up capita stoc9 of the corporation, which 2?8 shou d have .een computed on the .asis of the capita i4ation at the time of the amendment. *ince the amendment was .ased on the 19A1 authori4ation, petitioner contended that the 3oard acted without authority and in usurpation of the power of the stoc9ho ders. (s a second cause of action, it was a eged that the authority granted in 19A1 had a ready .een e;ercised in 19A2 and 19A8, after which the authority of the 3oard ceased to e;ist. (s a third cause of action, petitioner averred that the mem.ership of the 3oard of 6irectors had changed since the authority was given in 19A1, there .eing si; CAD new directors. (s a fourth cause of action, it was c aimed that prior to the =uestioned amendment, petitioner had a the =ua ifications to .e a director of respondent corporation, .eing a *u.stantia stoc9ho der thereof< that as a stoc9ho der, petitioner had ac=uired rights inherent in stoc9 ownership,

such as the rights to vote and to .e voted upon in the e ection of directors< and that in amending the .y2 aws, respondents purpose y provided for petitioner's dis=ua ification and deprived him of his vested right as afore2mentioned hence the amended .y2 aws are nu and void.

(s additiona causes of action, it was a eged that corporations have no inherent power to dis=ua ify a stoc9ho der from .eing e ected as a director and, therefore, the =uestioned act is ultra vires and void< that (ndres 1. *oriano, Jr. and?or Jose 1. *oriano, whi e representing other corporations, entered into contracts Cspecifica y a management contractD with respondent corporation, which was a owed .ecause the =uestioned amendment gave the 3oard itse f the prerogative of determining whether they or other persons are engaged in competitive or antagonistic .usiness< that the portion of the amended .y aws which states that in determining whether or not a person is engaged in competitive .usiness, the 3oard may consider such factors as .usiness and fami y re ationship, is unreasona. e and oppressive and, therefore, void< and that the portion of the amended .y2 aws which re=uires that 'a nominations for e ection of directors ... sha .e su.mitted in writing to the 3oard of 6irectors at east five C5D wor9ing days .efore the date of the (nnua 1eeting' is i9ewise unreasona. e and oppressive. %t was, therefore, prayed that the amended .y2 aws .e dec ared nu and void and the certificate of fi ing thereof .e cance ed, and that individua respondents .e made to pay damages, in specified amounts, to petitioner. &n &cto.er 27, 197A, in connection with the same case, petitioner fi ed with the *ecurities and 0;change !ommission an '5rgent 1otion for Production and %nspection of 6ocuments', a eging that the *ecretary of respondent corporation refused to a ow him to inspect its records despite re=uest made .y petitioner for production of certain documents enumerated in the re=uest, and that respondent corporation had .een attempting to suppress information from its stoc9ho ders despite a negative rep y .y the *0! to its =uery regarding their authority to do so. (mong the documents re=uested to .e copied were CaD minutes of the stoc9ho der's meeting fie d on 1arch 18, 19A1, C.D copy of the management contract .etween *an 1igue !orporation and (. *oriano !orporation C("*!&+D< CcD atest .a ance sheet of *an 1igue %nternationa , %nc.< CdD authority of the stoc9ho ders to invest the funds of respondent corporation in *an 1igue %nternationa , %nc.< and CeD ists of sa aries, a owances, .onuses, and other compensation, if any, received .y (ndres 1. *oriano, Jr. and?or its successor2in2interest.

:he '5rgent 1otion for Production and %nspection of 6ocuments' was opposed .y respondents, a eging, among others that the motion has no ega .asis< that the demand is not .ased on good faith< that the motion is premature since the materia ity or re evance of the evidence sought cannot .e determined unti the issues are joined, that it fai s to show good cause and constitutes continued harrasment, and that some of the information sought are not part of the records of the corporation and, therefore, privi eged. 6uring the pendency of the motion for production, respondents *an 1igue !orporation, 0nri=ue !onde, 1igue &rtigas and (ntonio Prieto fi ed their answer to the petition, denying the su.stantia a egations therein and stating, .y way of affirmative defenses that 'the action ta9en .y the 3oard of 6irectors on *eptem.er 17, 197A resu ting in the ... amendments is va id and ega .ecause the power to 'amend, modify, repea or adopt new 3y2 aws' de egated to said 3oard on 1arch 18, 19A1 and ong prior thereto has never .een revo9ed of *1!'< that contrary to petitioner's c aim, 'the vote re=uirement for a va id de egation of the power to amend, repea or adopt new .y2 aws is determined in re ation to the tota su.scri.ed capita stoc9 at the time the de egation of said power is made, not when the 3oard opts to e;ercise said de egated power'< that petitioner has not avai ed of his intra2corporate remedy for the nu ification of the amendment, which is to secure its repea .y vote of the stoc9ho ders representing a majority of the su.scri.ed capita stoc9 at any regu ar or specia meeting, as provided in (rtic e >%%%, section % of the .y2 aws and section 22 of the !orporation aw, hence the, petition is premature< that petitioner is estopped from =uestioning the amendments on the ground of ac9 of authority of the 3oard. since he fai ed, to o.ject to other amendments made on the .asis of the same 19A1 authori4ationB that the power of the corporation to amend its .y2 aws is .road, su.ject on y to the condition that the .y2 aws adopted shou d not .e respondent corporation inconsistent with any e;isting aw< that respondent corporation shou d not .e prec uded from adopting protective measures to minimi4e or e iminate situations where its directors might .e tempted to put their persona interests over t % hat of the corporation< that the =uestioned amended .y2 aws is a matter of interna po icy and the judgment of the .oard shou d not .e interfered withB :hat the .y2 aws, as amended, are va id and .inding and are intended to prevent the possi.i ity of vio ation of crimina and civi aws prohi.iting com.inations in restraint of trade< and that the petition states no cause of action. %t was, therefore, prayed that the petition .e dismissed and that petitioner .e ordered to pay damages and attorney's fees to respondents. :he app ication for writ of pre iminary injunction was i9ewise on various grounds.

+espondents (ndres 1. *oriano, Jr. and Jose 1. *oriano fi ed their opposition to the petition, denying the materia averments thereof and stating, as part of their affirmative defenses, that in (ugust 1972, the 5niversa +o.ina !orporation C+o.inaD, a corporation engaged in .usiness competitive to that of respondent corporation, .egan ac=uiring shares therein. unti *eptem.er 197A when its tota ho ding amounted to A22,977 sharesB that in &cto.er 1972, the !onso idated $oods !orporation C!$!D i9ewise .egan ac=uiring shares in respondent Ccorporation. unti its tota ho dings amounted to P5)8,959.## in *eptem.er 197A< that on January 12, 197A, petitioner, who is president and contro ing shareho der of +o.ina and !$! C.oth c osed corporationsD purchased 5,### shares of stoc9 of respondent corporation, and thereafter, in .eha f of himse f, !$! and +o.ina, 'conducted ma evo ent and ma icious pu. icity campaign against *1!' to generate support from the stoc9ho der 'in his effort to secure for himse f and in representation of +o.ina and !$! interests, a seat in the 3oard of 6irectors of *1!', that in the stoc9ho ders' meeting of 1arch 17, 197A, petitioner was rejected .y the stoc9ho ders in his .id to secure a seat in the 3oard of 6irectors on the .asic issue that petitioner was engaged in a competitive .usiness and his securing a seat wou d have su.jected respondent corporation to grave disadvantages< that 'petitioner neverthe ess vowed to secure a seat in the 3oard of 6irectors at the ne;t annua meeting< that thereafter the 3oard of 6irectors amended the .y2 aws as afore2stated. (s counterc aims, actua damages, mora damages, e;emp ary damages, e;penses of itigation and attorney's fees were presented against petitioner. *u.se=uent y, a Joint &mni.us 1otion for the stri9ing out of the motion for production and inspection of documents was fi ed .y a the respondents. :his was du y opposed .y petitioner. (t this juncture, respondents 0migdio :anjuatco, *r. and 0duardo +. >isaya were a owed to intervene as oppositors and they according y fi ed their oppositions2intervention to the petition. &n 6ecem.er 29, 197A, the *ecurities and 0;change !ommission reso ved the motion for production and inspection of documents .y issuing &rder "o. 2A, *eries of 1977, stating, in part as fo owsB !onsidering the evidence su.mitted .efore the !ommission .y the petitioner and respondents in the a.ove2entit ed case, it is here.y orderedB

1. :hat respondents produce and permit the inspection, copying and photographing, .y or on .eha f of the petitioner2movant, John -o9ongwei, Jr., of the minutes of the stoc9ho ders' meeting of the respondent *an 1igue !orporation he d on 1arch 18, 19A1, which are in the possession, custody and contro of the said corporation, it appearing that the same is materia and re evant to the issues invo ved in the main case. (ccording y, the respondents shou d a ow petitioner2movant entry in the principa office of the respondent !orporation, *an 1igue !orporation on January 1), 1977, at 9B8# o'c oc9 in the morning for purposes of enforcing the rights herein granted< it .eing understood that the inspection, copying and photographing of the said documents sha .e underta9en under the direct and strict supervision of this !ommission. Provided, however, that other documents and?or papers not heretofore inc uded are not covered .y this &rder and any inspection thereof sha re=uire the prior permission of this !ommission< 2. (s to the 3a ance *heet of *an 1igue %nternationa , %nc. as we as the ist of sa aries, a owances, .onuses, compensation and?or remuneration received .y respondent Jose 1. *oriano, Jr. and (ndres *oriano from *an 1igue %nternationa , %nc. and?or its successors2in2 interest, the Petition to produce and inspect the same is here.y 60"%06, as petitioner2movant is not a stoc9ho der of *an 1igue %nternationa , %nc. and has, therefore, no inherent right to inspect said documents< 8. %n view of the 1anifestation of petitioner2movant dated "ovem.er 29, 197A, withdrawing his re=uest to copy and inspect the management contract .etween *an 1igue !orporation and (. *oriano !orporation and the renewa and amendments thereof for the reason that he had a ready o.tained the same, the !ommission ta9es note thereof< and ). $ina y, the !ommission ho ds in a.eyance the reso ution on the matter of production and inspection of the authority of the stoc9ho ders of *an 1igue !orporation to invest the funds of respondent corporation in *an 1igue %nternationa , %nc., unti after the hearing on

the merits of the principa issues in the a.ove2entit ed case.

:his &rder is immediate y e;ecutory upon its approva .
2

6issatisfied with the foregoing &rder, petitioner moved for its reconsideration. 1eanwhi e, on 6ecem.er 1#, 197A, whi e the petition was yet to .e heard, respondent corporation issued a notice of specia stoc9ho ders' meeting for the purpose of 'ratification and confirmation of the amendment to the 3y2 aws', setting such meeting for $e.ruary 1#, 1977. :his prompted petitioner to as9 respondent !ommission for a summary judgment insofar as the first cause of action is concerned, for the a eged reason that .y ca ing a specia stoc9ho ders' meeting for the aforesaid purpose, private respondents admitted the inva idity of the amendments of *eptem.er 17, 197A. :he motion for summary judgment was opposed .y private respondents. Pending action on the motion, petitioner fi ed an '5rgent 1otion for the %ssuance of a :emporary +estraining &rder', praying that pending the determination of petitioner's app ication for the issuance of a pre iminary injunction and?or petitioner's motion for summary judgment, a temporary restraining order .e issued, restraining respondents from ho ding the specia stoc9ho der's meeting as schedu ed. :his motion was du y opposed .y respondents. &n $e.ruary 1#, 1977, respondent !ommission issued an order denying the motion for issuance of temporary restraining order. (fter receipt of the order of denia , respondents conducted the specia stoc9ho ders' meeting wherein the amendments to the .y2 aws were ratified. &n $e.ruary 1), 1977, petitioner fi ed a conso idated motion for contempt and for nu ification of the specia stoc9ho ders' meeting. ( motion for reconsideration of the order denying petitioner's motion for summary judgment was fi ed .y petitioner .efore respondent !ommission on 1arch 1#, 1977. Petitioner a eges that up to the time of the fi ing of the instant petition, the said motion had not yet .een schedu ed for hearing. ,i9ewise, the motion for reconsideration of the order granting in part and denying in part petitioner's motion for production of record had not yet .een reso ved. %n view of the fact that the annu stoc9ho ders' meeting of respondent corporation had .een schedu ed for 1ay 1#, 1977, petitioner fi ed with respondent !ommission a 1anifestation stating that he intended to run

for the position of director of respondent corporation. :hereafter, respondents fi ed a 1anifestation with respondent !ommission, su.mitting a +eso ution of the 3oard of 6irectors of respondent corporation dis=ua ifying and prec uding petitioner from .eing a candidate for director un ess he cou d su.mit evidence on 1ay 8, 1977 that he does not come within the dis=ua ifications specified in the amendment to the .y2 aws, su.ject matter of *0! !ase "o. 1875. 3y reason thereof, petitioner fi ed a manifestation and motion to reso ve pending incidents in the case and to issue a writ of injunction, a eging that private respondents were see9ing to nu ify and render ineffectua the e;ercise of jurisdiction .y the respondent !ommission, to petitioner's irrepara. e damage and prejudice, ( eged y despite a su.se=uent 1anifestation to prod respondent !ommission to act, petitioner was not heard prior to the date of the stoc9ho ders' meeting. Petitioner a eges that there appears a de i.erate and concerted ina.i ity on the part of the *0! to act hence petitioner came to this !ourt. E$. $A E 2F. 3G;K Petitioner i9ewise a eges that, having discovered that respondent corporation has .een investing corporate funds in other corporations and .usinesses outside of the primary purpose c ause of the corporation, in vio ation of section 17 1?2 of the !orporation ,aw, he fi ed with respondent !ommission, on January 2#, 1977, a petition see9ing to have private respondents (ndres 1. *oriano, Jr. and Jose 1. *oriano, as we as the respondent corporation dec ared gui ty of such vio ation, and ordered to account for such investments and to answer for damages. &n $e.ruary ), 1977, motions to dismiss were fi ed .y private respondents, to which a conso idated motion to stri9e and to dec are individua respondents in defau t and an opposition ad a#undantiorem cautelam were fi ed .y petitioner. 6espite the fact that said motions were fi ed as ear y as $e.ruary ), 1977, the commission acted thereon on y on (pri 25, 1977, when it denied respondents' motion to dismiss and gave them two C2D days within which to fi e their answer, and set the case for hearing on (pri 29 and 1ay 8, 1977. +espondents issued notices of the annua stoc9ho ders' meeting, inc uding in the (genda thereof, the fo owingB A. +e2affirmation of the authori4ation to the 3oard of 6irectors .y the stoc9ho ders at the meeting on 1arch 2#,

1972 to invest corporate funds in other companies or .usinesses or for purposes other than the main purpose for which the !orporation has .een organi4ed, and ratification of the investments thereafter made pursuant thereto. 3y reason of the foregoing, on (pri 27, 1977, petitioner fi ed with the *0! an urgent motion for the issuance of a writ of pre iminary injunction to restrain private respondents from ta9ing up %tem A of the (genda at the annua stoc9ho ders' meeting, re=uesting that the same .e set for hearing on 1ay 8, 1977, the date set for the second hearing of the case on the merits. +espondent !ommission, however, cance ed the dates of hearing origina y schedu ed and reset the same to 1ay 1A and 17, 1977, or after the schedu ed annua stoc9ho ders' meeting. $or the purpose of urging the !ommission to act, petitioner fi ed an urgent manifestation on 1ay 8, 1977, .ut this notwithstanding, no action has .een ta9en up to the date of the fi ing of the instant petition. @ith respect to the afore2mentioned *0! cases, it is petitioner's contention .efore this !ourt that respondent !ommission grave y a.used its discretion when it fai ed to act with de i.erate dispatch on the motions of petitioner see9ing to prevent i ega and?or ar.itrary impositions or imitations upon his rights as stoc9ho der of respondent corporation, and that respondent are acting oppressive y against petitioner, in gross derogation of petitioner's rights to property and due process. /e prayed that this !ourt direct respondent *0! to act on co atera incidents pending .efore it. &n 1ay A, 1977, this !ourt issued a temporary restraining order restraining private respondents from dis=ua ifying or preventing petitioner from running or from .eing voted as director of respondent corporation and from su.mitting for ratification or confirmation or from causing the ratification or confirmation of %tem A of the (genda of the annua stoc9ho ders' meeting on 1ay 1#, 1977, or from 1a9ing effective the amended .y2 aws of respondent corporation, unti further orders from this !ourt or unti the *ecurities and 0;2change !ommission acts on the matters comp ained of in the instant petition. &n 1ay 1), 1977, petitioner fi ed a *upp ementa Petition, a eging that after a restraining order had .een issued .y this !ourt, or on 1ay 9, 1977, the respondent !ommission served upon petitioner copies of the fo owing ordersB

C1D &rder "o. ))9, *eries of 1977 C*0! !ase "o. 1875D< denying petitioner's motion for reconsideration, with its supp ement, of the order of the !ommission denying in part petitioner's motion for production of documents, petitioner's motion for reconsideration of the order denying the issuance of a temporary restraining order denying the issuance of a temporary restraining order, and petitioner's conso idated motion to dec are respondents in contempt and to nu ify the stoc9ho ders' meeting< C2D &rder "o. )5#, *eries of 1977 C*0! !ase "o. 1875D, a owing petitioner to run as a director of respondent corporation .ut stating that he shou d not sit as such if e ected, unti such time that the !ommission has decided the va idity of the .y aws in dispute, and denying deferment of %tem A of the (genda for the annua stoc9ho ders' meeting< and C8D &rder "o. )51, *eries of 1977 C*0! !ase "o. 1875D, denying petitioner's motion for reconsideration of the order of respondent !ommission denying petitioner's motion for summary judgment< %t is petitioner's assertions, anent the foregoing orders, C1D that respondent !ommission acted with indecent haste and without circumspection in issuing the aforesaid orders to petitioner's irrepara. e damage and injury< C2D that it acted without jurisdiction and in vio ation of petitioner's right to due process when it decided en #anc an issue not raised .efore it and sti pending .efore one of its !ommissioners, and without hearing petitioner thereon despite petitioner's re=uest to have the same ca endared for hearing , and C8D that the respondents acted oppressive y against the petitioner in vio ation of his rights as a stoc9ho der, warranting immediate judicia intervention. %t is prayed in the supp ementa petition that the *0! orders comp ained of .e dec ared nu and void and that respondent !ommission .e ordered to a ow petitioner to underta9e discovery proceedings re ative to *an 1igue %nternationa . %nc. and thereafter to decide *0! !ases "o. 1875 and 1)28 on the merits. &n 1ay 17, 1977, respondent *0!, (ndres 1. *oriano, Jr. and Jose 1. *oriano fi ed their comment, a eging that the petition is without merit for the fo owing reasonsB C1D that the petitioner the interest he represents are engaged in .usiness competitive and antagonistic to that of respondent *an 1igue !orporation, it appearing that the owns and contro s a greater portion of his *1! stoc9 thru the 5niversa +o.ina !orporation and the

!onso idated $oods !orporation, which corporations are engaged in .usiness direct y and su.stantia y competing with the a ied .usinesses of respondent *1! and of corporations in which *1! has su.stantia investments. $urther, when !$! and +o.ina had accumu ated investments. $urther, when !$! and +o.ina had accumu ated shares in *1!, the 3oard of 6irectors of *1! rea i4ed the c ear and present danger that competitors or antagonistic parties may .e e ected directors and there.y have easy and direct access to *1!'s .usiness and trade secrets and p ans< C2D that the amended .y aw were adopted to preserve and protect respondent *1! from the c ear and present danger that .usiness competitors, if a owed to .ecome directors, wi i ega y and unfair y uti i4e their direct access to its .usiness secrets and p ans for their own private gain to the irrepara. e prejudice of respondent *1!, and, u timate y, its stoc9ho ders. $urther, it is asserted that mem.ership of a competitor in the 3oard of 6irectors is a . atant disregard of no ess that the !onstitution and pertinent aws against com.inations in restraint of trade< C8D that .y aws are va id and .inding since a corporation has the inherent right and duty to preserve and protect itse f .y e;c uding competitors and antogonistic parties, under the aw of se f2preservation, and it shou d .e a owed a wide atitude in the se ection of means to preserve itse f< C)D that the de ay in the reso ution and disposition of *0! !ases "os. 1875 and 1)28 was due to petitioner's own acts or omissions, since he fai ed to have the petition to suspend, pendente lite the amended .y2 aws ca endared for hearing. %t was emphasi4ed that it was on y on (pri 29, 1977 that petitioner ca endared the aforesaid petition for suspension Cpre iminary injunctionD for hearing on 1ay 8, 1977. :he instant petition .eing dated 1ay ), 1977, it is apparent that respondent !ommission was not given a chance to act 'with de i.erate dispatch', and C5D that, even assuming that the petition was meritorious was, it has .ecome moot and academic .ecause respondent !ommission has acted on the pending incidents, comp ained of. %t was, therefore, prayed that the petition .e dismissed. &n 1ay 21, 1977, respondent 0migdio -, :anjuatco, *r. fi ed his comment, a eging that the petition has .ecome moot and academic for the reason, among others that the acts of private respondent sought to .e enjoined have reference to the annua meeting of the stoc9ho ders of

respondent *an 1igue !orporation, which was he d on may 1#, 1977< that in said meeting, in comp iance with the order of respondent !ommission, petitioner was a owed to run and .e voted for as director< and that in the same meeting, %tem A of the (genda was discussed, voted upon, ratified and confirmed. $urther it was averred that the =uestions and issues raised .y petitioner are pending in the *ecurities and 0;change !ommission which has ac=uired jurisdiction over the case, and no hearing on the merits has .een had< hence the e evation of these issues .efore the *upreme !ourt is premature. Petitioner fi ed a rep y to the aforesaid comments, stating that the petition presents justicia. e =uestions for the determination of this !ourt .ecause C1D the respondent !ommission acted without circumspection, unfair y and oppresive y against petitioner, warranting the intervention of this !ourt< C2D a derivative suit, such as the instant case, is not rendered academic .y the act of a majority of stoc9ho ders, such that the discussion, ratification and confirmation of %tem A of the (genda of the annua stoc9ho ders' meeting of 1ay 1#, 1977 did not render the case moot< that the amendment to the .y aws which specifica y .ars petitioner from .eing a director is void since it deprives him of his vested rights. +espondent !ommission, thru the *o icitor -enera , fi ed a separate comment, a eging that after receiving a copy of the restraining order issued .y this !ourt and noting that the restraining order did not forec ose action .y it, the !ommission en #anc issued &rders "os. ))9, )5# and )51 in *0! !ase "o. 1875. %n answer to the a egation in the supp ementa petition, it states that &rder "o. )5# which denied deferment of %tem A of the (genda of the annua stoc9ho ders' meeting of respondent corporation, too9 into consideration an urgent manifestation fi ed with the !ommission .y petitioner on 1ay 8, 1977 which prayed, among others, that the discussion of %tem A of the (genda .e deferred. :he reason given for denia of deferment was that 'such action is within the authority of the corporation as we as fa ing within the sphere of stoc9ho ders' right to 9now, de i.erate upon and?or to e;press their wishes regarding disposition of corporate funds considering that their investments are the ones direct y affected.' %t was a eged that the main petition has, therefore, .ecome moot and academic. &n *eptem.er 29,1977, petitioner fi ed a second supp ementa petition with prayer for pre iminary injunction, a eging that the actuations of respondent *0! tended to deprive him of his right to due process, and 'that a possi. e =uestions on the facts now pending .efore the

respondent !ommission are now .efore this /onora. e !ourt which has the authority and the competence to act on them as it may see fit.' C+eno, pp. 9272927.D Petitioner, in his memorandum, su.mits the fo owing issues for reso ution< C1D whether or not the provisions of the amended .y2 aws of respondent corporation, dis=ua ifying a competitor from nomination or e ection to the 3oard of 6irectors are va id and reasona. e< C2D whether or not respondent *0! grave y a.used its discretion in denying petitioner's re=uest for an e;amination of the records of *an 1igue %nternationa , %nc., a fu y owned su.sidiary of *an 1igue !orporation< and C8D whether or not respondent *0! committed grave a.use of discretion in a owing discussion of %tem A of the (genda of the (nnua *toc9ho ders' 1eeting on 1ay 1#, 1977, and the ratification of the investment in a foreign corporation of the corporate funds, a eged y in vio ation of section 1721?2 of the !orporation ,aw. % 1&et&er or not amended #(6la*s are valid is purel( a le'al question *&ic& pu#lic interest requires to #e resolved M %t is the position of the petitioner that 'it is not necessary to remand the case to respondent *0! for an appropriate ru ing on the intrinsic va idity of the amended .y2 aws in comp iance with the princip e of e;haustion of administrative remedies', considering thatB firstB 'whether or not the provisions of the amended .y2 aws are intrinsica y va id ... is pure y a ega =uestion. :here is no factua dispute as to what the provisions are and evidence is not necessary to determine whether such amended .y2 aws are va id as framed and approved ... '< secondB 'it is for the interest and guidance of the pu. ic that an immediate and fina ru ing on the =uestion .e made ... '< thirdB 'petitioner was denied due process .y *0!' when '!ommissioner de -u4man had open y shown prejudice against petitioner ... ', and '!ommissioner *u it ... approved the amended .y2 aws ex6parte and o.vious y found the same intrinsica y va id< and fina yB 'to remand the case to *0! wou d on y entai de ay rather than serve the ends of justice.'

+espondents (ndres 1. *oriano, Jr. and Jose 1. *oriano simi ar y pray that this !ourt reso ve the ega issues raised .y the parties in 9eeping with the 'cherished ru es of procedure' that 'a court shou d a ways strive to sett e the entire controversy in a sing e proceeding eaving no root or .ranch to .ear the seeds of future igiation', citing "a(on' v. "a(os. 2 :o the same effect is the prayer of *an 1igue !orporation that this !ourt reso ve on the merits the va idity of its amended .y aws and the rights and o. igations of the parties thereunder, otherwise 'the time spent and effort e;erted .y the parties concerned and, more important y, .y this /onora. e !ourt, wou d have .een for naught .ecause the main =uestion wi come .ac9 to this /onora. e !ourt for fina reso ution.' +espondent 0duardo +. >isaya su.mits a simi ar appea . %t is on y the *o icitor -enera who contends that the case shou d .e remanded to the *0! for hearing and decision of the issues invo ved, invo9ing the atter's primary jurisdiction to hear and decide case invo ving intra2corporate controversies. %t is an accepted ru e of procedure that the *upreme !ourt shou d a ways strive to sett e the entire controversy in a sing e proceeding, eaving nor root or .ranch to .ear the seeds of future itigation. 4 :hus, in 0rancisco v. $it( of Aavao, 5 this !ourt reso ved to decide the case on the merits instead of remanding it to the tria court for further proceedings since the ends of justice wou d not .e su.served .y the remand of the case. %n !epu#lic v. ecurit( $redit and Acceptance $orporation, et al., 6 this !ourt, finding that the main issue is one of aw, reso ved to decide the case on the merits '.ecause pu. ic interest demands an ear y disposition of the case', and in !epu#lic v. $entral uret( and -nsurance $ompan(, 7 this !ourt denied remand of the third2party comp aint to the tria court for further proceedings, citing precedent where this !ourt, in simi ar situations reso ved to decide the cases on the merits, instead of remanding them to the tria court where CaD the ends of justice wou d not .e su.served .y the remand of the case< or C.D where pu. ic interest demand an ear y disposition of the case< or CcD where the tria court had a ready received a the evidence presented .y .oth parties and the *upreme !ourt is now in a position, .ased upon said evidence, to decide the case on its merits. 7 %t is sett ed that the doctrine of primary jurisdiction has no app ication where on y a =uestion of aw is invo ved. 7a 3ecause uniformity may .e secured through review .y a sing e *upreme !ourt, =uestions of aw may appropriate y .e determined in the first instance .y courts. 73 %n the case at .ar, there are facts which cannot .e denied, vi4.B that the amended .y2 aws were adopted .y the 3oard of 6irectors of the *an 1igue !orporation in the e;ercise of the power de egated .y the stoc9ho ders ostensi. y pursuant to section 22 of the !orporation ,aw<

that in a specia meeting on $e.ruary 1#, 1977 he d specia y for that purpose, the amended .y2 aws were ratified .y more than 7#E of the stoc9ho ders of record< that the foreign investment in the /ong9ong 3rewery and 6iste ery, a .eer manufacturing company in /ong9ong, was made .y the *an 1igue !orporation in 19)7< and that in the stoc9ho ders' annua meeting he d in 1972 and 1977, a foreign investments and operations of *an 1igue !orporation were ratified .y the stoc9ho ders. %% 1&et&er or not t&e amended #(6la*s of ,$ of disqualif(in' a competitor from nomination or election to t&e Board of Airectors of ,$ are valid and reasona#le M :he va idity or reasona. eness of a .y2 aw of a corporation in pure y a =uestion of aw. 9 @hether the .y2 aw is in conf ict with the aw of the and, or with the charter of the corporation, or is in a ega sense unreasona. e and therefore un awfu is a =uestion of aw. 10 :his ru e is su.ject, however, to the imitation that where the reasona. eness of a .y2 aw is a mere matter of judgment, and one upon which reasona. e minds must necessari y differ, a court wou d not .e warranted in su.stituting its judgment instead of the judgment of those who are authori4ed to ma9e .y2 aws and who have e;ercised their authority. 11 Petitioner c aims that the amended .y2 aws are inva id and unreasona. e .ecause they were tai ored to suppress the minority and prevent them from having representation in the 3oard', at the same time depriving petitioner of his 'vested right' to .e voted for and to vote for a person of his choice as director. 5pon the other hand, respondents (ndres 1. *oriano, Jr., Jose 1. *oriano and *an 1igue !orporation content that e;. conc usion of a competitor from the 3oard is egitimate corporate purpose, considering that .eing a competitor, petitioner cannot devote an unse fish and undivided ,oya ty to the corporation< that it is essentia y a preventive measure to assure stoc9ho ders of *an 1igue !orporation of reasona. e protective from the unrestrained se f2interest of those charged with the promotion of the corporate enterprise< that access to confidentia information .y a competitor may resu t either in the promotion of the interest of the competitor at the e;pense of the *an 1igue !orporation, or the promotion of .oth the interests of petitioner and respondent *an 1igue !orporation, which may, therefore, resu t in a com.ination or

agreement in vio ation of (rtic e 17A of the +evised Pena !ode .y destroying free competition to the detriment of the consuming pu. ic. %t is further argued that there is not vested right of any stoc9ho der under Phi ippine ,aw to .e voted as director of a corporation. %t is a eged that petitioner, as of 1ay A, 1977, has e;ercised, persona y or thru two corporations owned or contro ed .y him, contro over the fo owing shareho dings in *an 1igue !orporation, vis.B CaD John -o9ongwei, Jr. I A,825 shares< C.D 5niversa +o.ina !orporation I 787,A)7 shares< CcD !$! !orporation I A57,818 shares, or a tota of 1,)#8,275 shares. *ince the outstanding capita stoc9 of *an 1igue !orporation, as of the present date, is represented .y 88,189,7)9 shares with a par va ue of P1#.##, the tota shares owned or contro ed .y petitioner represents ).28))E of the tota outstanding capita stoc9 of *an 1igue !orporation. %t is a so contended that petitioner is the president and su.stantia stoc9ho der of 5niversa +o.ina !orporation and !$! !orporation, .oth of which are a eged y contro ed .y petitioner and mem.ers of his fami y. %t is a so c aimed that .oth the 5niversa +o.ina !orporation and the !$! !orporation are engaged in .usinesses direct y and su.stantia y competing with the a eged .usinesses of *an 1igue !orporation, and of corporations in which *1! has su.stantia investments. ALLE"EA A!EA F0 $F,%ET-T-F2 BET1EE2 %ET-T-F2E!H $F!%F!AT-F2 A2A A2 ,-"NEL $F!%F!AT-F2 (ccording to respondent *an 1igue !orporation, the areas of, competition are enumerated in its 3oard the areas of competition are enumerated in its 3oard +eso ution dated (pri 27, 1977, thusB Product ,ine 0stimated 1ar9et *hare :ota 1977 *1! +o.ina2!$! :a. e 0ggs #.AE 1#.#E 1#.AE ,ayer Pu ets 88.#E 2).#E 57.#E 6ressed !hic9en 85.#E 1).#E )9.#E Pou try H /og $eeds )#.#E 12.#E 52.#E %ce !ream 7#.#E 18.#E 78.#E %nstant !offee )5.#E )#.#E 75.#E @oven $a.rics 17.5E 9.1E 2A.AE :hus, according to respondent *1!, in 197A, the areas of competition affecting *1! invo ved product sa es of over P)## mi ion or more than 2#E of the P2 .i ion tota product sa es of *1!. *ignificant y, the com.ined mar9et shares of *1! and !$!2+o.ina in ayer pu ets

dressed chic9en, pou try and hog feeds ice cream, instant coffee and woven fa.rics wou d resu t in a position of such dominance as to affect the prevai ing mar9et factors. %t is further asserted that in 1977, the !$!2+o.ina group was in direct competition on product ines which, for *1!, represented sa es amounting to more than O)77 mi ion. %n addition, !$!2+o.ina was direct y competing in the sa e of coffee with $i ipro, a su.sidiary of *1!, which product ine represented sa es for *1! amounting to more than P275 mi ion. :he !$!2+o.ina group C+o.ite;, e;c uding ,itton 1i s recent y ac=uired .y petitionerD is purported y a so in direct competition with +amie :e;ti e, %nc., su.sidiary of *1!, in product sa es amounting to more than P95 mi ion. :he areas of competition .etween *1! and !$!2+o.ina in 1977 represented, therefore, for *1!, product sa es of more than P7)9 mi ion. (ccording to private respondents, at the (nnua *toc9ho ders' 1eeting of 1arch 17, 197A, 9,79) stoc9ho ders, in person or .y pro;y, owning 28,)8A,75) shares in *1!, or more than 9#E of the tota outstanding shares of *1!, rejected petitioner's candidacy for the 3oard of 6irectors .ecause they 'rea i4ed the grave dangers to the corporation in the event a competitor gets a .oard seat in *1!.' &n *eptem.er 17, 1977, the 3oard of 6irectors of *1!, .y 'virtue of powers de egated to it .y the stoc9ho ders,' approved the amendment to ' he .y2 aws in =uestion. (t the meeting of $e.ruary 1#, 1977, these amendments were confirmed and ratified .y 5,71A shareho ders owning 2),278,9)5 shares, or more than 7#E of the tota outstanding shares. &n y 12 shareho ders, representing 7,##5 shares, opposed the confirmation and ratification. (t the (nnua *toc9ho ders' 1eeting of 1ay 1#, 1977, 11,8)9 shareho ders, owning 27,257.#1) shares, or more than 9#E of the outstanding shares, rejected petitioner's candidacy, whi e 9)A stoc9ho ders, representing 1,A)7,7#1 shares voted for him. &n the 1ay 9, 1977 (nnua *toc9ho ders' 1eeting, 12,)7# shareho ders, owning more than 8# mi ion shares, or more than 9#E of the tota outstanding shares. voted against petitioner. ANTBF!-T. F0 $F!%F!AT-F2 TF %!E $!-BE ONAL-0-$AT-F2 F0 A-!E$TF! EP%!E L. $F20E!!EA B. LA1 Private respondents contend that the disputed amended .y aws were adopted .y the 3oard of 6irectors of *an 1igue !orporation a2, a measure of se f2defense to protect the corporation from the c ear and present danger that the e ection of a .usiness competitor to the 3oard may cause upon the corporation and the other stoc9ho ders insepara. e

prejudice. *u.mitted for reso ution, therefore, is the issue I whether or not respondent *an 1igue !orporation cou d, as a measure of se f2 protection, dis=ua ify a competitor from nomination and e ection to its 3oard of 6irectors. %t is recogni4ed .y an authorities that 'every corporation has the inherent power to adopt .y2 aws 'for its interna government, and to regu ate the conduct and prescri.e the rights and duties of its mem.ers towards itse f and among themse ves in reference to the management of its affairs. 12 (t common aw, the ru e was 'that the power to ma9e and adopt .y2 aws was in&erent in every corporation as one of its necessary and insepara. e ega incidents. (nd it is sett ed throughout the 5nited *tates that in the a.sence of positive egis ative provisions imiting it, every private corporation has this inherent power as one of its necessary and insepara. e ega incidents, independent of any specific ena. ing provision in its charter or in genera aw, such power of se f2government .eing essentia to ena. e the corporation to accomp ish the purposes of its creation. 12 %n this jurisdiction, under section 21 of the !orporation ,aw, a corporation may prescri.e in its .y2 aws 'the =ua ifications, duties and compensation of directors, officers and emp oyees ... ' :his must necessari y refer to a =ua ification in addition to that specified .y section 8# of the !orporation ,aw, which provides that 'every director must own in his right at east one share of the capita stoc9 of the stoc9 corporation of which he is a director ... ' %n"overnment v. El Bo'ar, 14 the !ourt sustained the va idity of a provision in the corporate .y2 aw re=uiring that persons e ected to the 3oard of 6irectors must .e ho ders of shares of the paid up va ue of P5,###.##, which sha .e he d as security for their action, on the ground that section 21 of the !orporation ,aw e;press y gives the power to the corporation to provide in its .y2 aws for the =ua ifications of directors and is 'high y prudent and in conformity with good practice. ' 2F /E TEA !-"BT F0 TF$)BFLAE! TF BE ELE$TEA A-!E$TF! (ny person 'who .uys stoc9 in a corporation does so with the 9now edge that its affairs are dominated #( a majorit( of the stoc9ho ders and that &e impliedl( contracts t&at t&e *ill of the majority sha govern in a matters within the imits of the act of incorporation and awfu y enacted .y2 aws and not for.idden .y aw.' 15 :o this e;tent, therefore, the stoc9ho der may .e considered to have 'parted with his persona right or privi ege to regu ate the disposition of his property which he has invested in the capita stoc9 of the corporation, and surrendered it to the wi of the majority of his fe ow incorporators. ... %t cannot therefore .e just y said

that the contract, e;press or imp ied, .etween the corporation and the stoc9ho ders is infringed ... .y any act of the former which is authori4ed .y a majority ... .' 16 %ursuant to section 39 of t&e $orporation La*, an( corporation ma( amend its articles of incorporation #( a vote or *ritten assent of t&e stoc+&olders representin' at least t*o6t&irds of t&e su#scri#ed capital stoc+ of t&e corporation -f t&e amendment c&an'es, diminis&es or restricts t&e ri'&ts of t&e existin' s&are&olders t&en t&e disentin' minorit( &as onl( one ri'&t, viz.Q 'to o.ject thereto in writing and demand payment for his share.' 5nder section 22 of the same aw, the owners of the majority of the su.scri.ed capita stoc9 may amend or repea any .y2 aw or adopt new .y2 aws. %t cannot .e said, therefore, that petitioner has a vested right to .e e ected director, in the face of the fact that the aw at the time such right as stoc9ho der was ac=uired contained the prescription that the corporate charter and the .y2 aw sha .e su.ject to amendment, a teration and modification. 17 %t .eing sett ed that the corporation has the power to provide for the =ua ifications of its directors, the ne;t =uestion that must .e considered is whether the dis=ua ification of a competitor from .eing e ected to the 3oard of 6irectors is a reasona. e e;ercise of corporate authority. A A-!E$TF! TA2A -2 A 0-AN$-A!. !ELAT-F2 TF TBE $F!%F!AT-F2 A2A -T BA!EBFLAE! ( though in the strict and technica sense, directors of a private corporation are not regarded as trustees, there cannot .e any dou.t that their character is that of a fiduciary insofar as the corporation and the stoc9ho ders as a .ody are concerned. (s agents entrusted with the management of the corporation for the co ective .enefit of the stoc9ho ders, 'they occupy a fiduciary re ation, and in this sense the re ation is one of trust.' 17 ':he ordinary trust re ationship of directors of a corporation and stoc9ho ders', according to As&aman v. ,iller, 19 'is not a matter of statutory or technica aw. %t springs from the fact that directors have the contro and guidance of corporate affairs and property and hence of the property interests of the stoc9ho ders. 0=uity recogni4es that stoc9ho ders are the proprietors of the corporate interests and are u timate y the on y .eneficiaries thereof U U U. Justice 6oug as, in %epper v. Litton, 20 emphatica y restated the standard of fiduciary o. igation of the directors of corporations, thusB

( director is a fiduciary. ... :heir powers are powers in trust. ... /e who is in such fiduciary position cannot serve himse f first and his cestuis second. ... /e cannot manipu ate the affairs of his corporation to their detriment and in disregard of the standards of common decency. /e cannot .y the intervention of a corporate entity vio ate the ancient precept against serving two masters ... /e cannot uti i4e his inside information and strategic position for his own preferment. /e cannot vio ate ru es of fair p ay .y doing indirect y through the corporation what he cou d not do so direct y. /e cannot vio ate ru es of fair p ay .y doing indirect y though the corporation what he cou d not do so direct y. /e cannot use his power for his persona advantage and to the detriment of the stoc9ho ders and creditors no matter how a.so ute in terms that power may .e and no matter how meticu ous he is to satisfy technica re=uirements. $or that power is at a times su.ject to the e=uita. e imitation that it may not .e e;ercised for the aggrandi4ement, preference or advantage of the fiduciary to the e;c usion or detriment of the cestuis. (nd in $ross v. 1est /ir'inia $ent, & %. !. !. $o.,
21

carried on not a together in the spirit of .rother y ove and affection. :he on y test that we can app y is as to whether or not the action of the 3oard is authori4ed and sanctioned .y aw. ... . 22 :hese princip es have .een app ied .y this !ourt in previous cases. 22 A2 A,E2A,E2T TF TBE $F!%F!AT-F2 B.6LA1 1B-$B !E2AE! A TF$)BFLAE! -2EL-"-BLE TF BE A-!E$TF!, -0 BE BE AL F A-!E$TF! -2 A $F!%F!AT-F2 1BF E BN -2E - -2 $F,%ET-T-F2 1-TB TBAT F0 TBE FTBE! $F!%F!AT-F2, BA BEE2 N TA-2EA A /AL-A %t is a sett ed state aw in the 5nited *tates, according to $ etcher, that corporations have the power to ma9e .y2 aws dec aring a person emp oyed in the service of a riva company to .e ine igi. e for the corporation's 3oard of 6irectors. ... C(Dn amendment which renders ine igi. e, or if e ected, su.jects to remova , a director if he .e a so a director in a corporation whose .usiness is in competition with or is antagonistic to the other corporation is va id.' 24 :his is .ased upon the princip e that where the director is so emp oyed in the service of a riva company, he cannot serve .oth, .ut must .etray one or the other. *uch an amendment 'advances the .enefit of the corporation and is good.' (n e;ception e;ists in "ew Jersey, where the *upreme !ourt he d that the !orporation ,aw in "ew Jersey prescri.ed the on y =ua ification, and therefore the corporation was not empowered to add additiona =ua ifications. 25 :his is the e;act opposite of the situation in the Phi ippines .ecause as stated heretofore, section 21 of the !orporation ,aw e;press y provides that a corporation may ma9e .y2 aws for the =ua ifications of directors. :hus, it has .een he d that an officer of a corporation cannot engage in a .usiness in direct competition with that of the corporation where he is a director .y uti i4ing information he has received as such officer, under 'the esta. ished aw that a director or officer of a corporation may not enter into a competing enterprise which cripp es or injures the .usiness of the corporation of which he is an officer or director. 26 %t is a so we esta. ished that corporate officers 'are not permitted to use their position of trust and confidence to further their private interests.' 27 %n a case where directors of a corporation cance ed a contract of the corporation for e;c usive sa e of a foreign firm's products, and after esta. ishing a riva .usiness, the directors entered into a new contract themse ves with the foreign firm for e;c usive sa e of its products, the court he d that e=uity wou d regard the new contract as an offshoot of the o d contract and, therefore, for the .enefit of the corporation, as a

it was saidB

... ( person cannot serve two hosti e and adverse master, without detriment to one of them. ( judge cannot .e impartia if persona y interested in the cause. "o more can a director. /uman nature is too wea9 2for this. :a9e whatever statute provision you p ease giving power to stoc9ho ders to choose directors, and in none wi you find any e;press prohi.ition against a discretion to se ect directors having the company's interest at heart, and it wou d simp y .e going far to deny .y mere imp ication the e;istence of such a sa utary power ... %f the .y2 aw is to .e he d reasona. e in dis=ua ifying a stoc9ho der in a competing company from .eing a director, the same reasoning wou d app y to dis=ua ify the wife and immediate mem.er of the fami y of such stoc9ho der, on account of the supposed interest of the wife in her hus.and's affairs, and his suppose inf uence over her. %t is perhaps true that such stoc9ho ders ought not to .e condemned as se fish and dangerous to the .est interest of the corporation unti tried and tested. *o it is a so true that we cannot condemn as se fish and dangerous and unreasona. e the action of the .oard in passing the .y2 aw. :he strife over the matter of contro in this corporation as in many others is perhaps

'fau t ess fiduciary may not reap the fruits of his misconduct to the e;c usion of his principa . 27 :he doctrine of 'corporate opportunity' 29 is precise y a recognition .y the courts that the fiduciary standards cou d not .e uphe d where the fiduciary was acting for two entities with competing interests. :his doctrine rests fundamenta y on the unfairness, in particu ar circumstances, of an officer or director ta9ing advantage of an opportunity for his own persona profit when the interest of the corporation just y ca s for protection. 20 %t is not denied that a mem.er of the 3oard of 6irectors of the *an 1igue !orporation has access to sensitive and high y confidentia information, such asB CaD mar9eting strategies and pricing structure< C.D .udget for e;pansion and diversification< CcD research and deve opment< and CdD sources of funding, avai a.i ity of personne , proposa s of mergers or tie2 ups with other firms. %t is o.vious y to prevent the creation of an opportunity for an officer or director of *an 1igue !orporation, who is a so the officer or owner of a competing corporation, from ta9ing advantage of the information which he ac=uires as director to promote his individua or corporate interests to the prejudice of *an 1igue !orporation and its stoc9ho ders, that the =uestioned amendment of the .y2 aws was made. !ertain y, where two corporations are competitive in a su.stantia sense, it wou d seem impro.a. e, if not impossi. e, for the director, if he were to discharge effective y his duty, to satisfy his oya ty to .oth corporations and p ace the performance of his corporation duties a.ove his persona concerns. :hus, in ,c)ee & $o. v. 0irst 2ational Ban+ of an Aie'o , supra the court sustained as va id and reasona. e an amendment to the .y2 aws of a .an9, re=uiring that its directors shou d not .e directors, officers, emp oyees, agents, nominees or attorneys of any other .an9ing corporation, affi iate or su.sidiary thereof. !hief Judge Par9er, in ,c)ee, e;p ained the reasons of the court, thusB ... ( .an9 director has access to a great dea of information concerning the .usiness and p ans of a .an9 which wou d i9e y .e injurious to the .an9 if 9nown to another .an9, and it was reasona. e and prudent to en arge this minimum dis=ua ification to inc ude any director, officer, emp oyee, agent, nominee, or attorney of any other .an9 in !a ifornia. :he As&+ins case, supra,

specifica y recogni4es protection against riva s and others who might ac=uire information which mi'&t .e used against the interests of the corporation as a egitimate o.ject of .y2 aw protection. @ith respect to attorneys or persons associated with a firm which is attorney for another .an9, in addition to the direct conf ict or potentia conf ict of interest, there is a so the danger of inadvertent ea9age of confidentia information through casua office discussions or accessi.i ity of fi es. 6efendant's directors determined that its we fare was .est protected if this opportunity for conf icting oya ties and potentia misuse and ea9age of confidentia information was forec osed. %n ,c)ee the !ourt further isted =ua ificationa .y2 aws uphe d .y the courts, as fo owsB C1D ( director sha not .e direct y or indirect y interested as a stoc9ho der in any other firm, company, or association which competes with the su.ject corporation. C2D ( director sha not .e the immediate mem.er of the fami y of any stoc9ho der in any other firm, company, or association which competes with the su.ject corporation, C8D ( director sha not .e an officer, agent, emp oyee, attorney, or trustee in any other firm, company, or association which compete with the su.ject corporation. C)D ( director sha .e of good mora character as an essentia =ua ification to ho ding office. C5D "o person who is an attorney against the corporation in a aw suit is e igi. e for service on the .oard. C(t p. 7.D :hese are not .ased on theorica a.stractions .ut on human e;perience I that a person cannot serve two hosti e masters without detriment to one of them. :he offer and assurance of petitioner that to avoid any possi.i ity of his ta9ing unfair advantage of his position as director of *an 1igue !orporation, he wou d a.sent himse f from meetings at which confidentia matters wou d .e discussed, wou d not detract from the va idity and

reasona. eness of the .y2 aws here invo ved. (part from the impractica resu ts that wou d ensue from such arrangement, it wou d .e inconsistent with petitioner's primary motive in running for .oard mem.ership I which is to protect his investments in *an 1igue !orporation. 1ore important, such a proposed norm of conduct wou d .e against a accepted princip es under ying a director's duty of fide ity to the corporation, for the po icy of the aw is to encourage and enforce responsi. e corporate management. (s e;p ained .y & ec9B 21 ':he aw win not to erate the passive attitude of directors ... without active and conscientious participation in the manageria functions of the company. (s directors, it is their duty to contro and supervise the day to day .usiness activities of the company or to promu gate definite po icies and ru es of guidance with a vigi ant eye toward seeing to it that these po icies are carried out. %t is on y then that directors may .e said to have fu fi ed their duty of fea ty to the corporation.' *ound princip es of corporate management counse against sharing sensitive information with a director whose fiduciary duty of oya ty may we re=uire that he disc ose this information to a competitive arriva . :hese dangers are enhanced considera. y where the common director such as the petitioner is a contro ing stoc9ho der of two of the competing corporations. %t wou d seem manifest that in such situations, the director has an economic incentive to appropriate for the .enefit of his own corporation the corporate p ans and po icies of the corporation where he sits as director. %ndeed, access .y a competitor to confidentia information regarding mar9eting strategies and pricing po icies of *an 1igue !orporation wou d su.ject the atter to a competitive disadvantage and unjust y enrich the competitor, for advance 9now edge .y the competitor of the strategies for the deve opment of e;isting or new mar9ets of e;isting or new products cou d ena. e said competitor to uti i4e such 9now edge to his advantage. 22 :here is another important consideration in determining whether or not the amended .y2 aws are reasona. e. :he !onstitution and the aw prohi.it com.inations in restraint of trade or unfair competition. :hus, section 2 of (rtic e N%> of the !onstitution providesB ':he *tate sha regu ate or prohi.it private monopo ies when the pu. ic interest so re=uires. "o com.inations in restraint of trade or unfair competition sha .e snowed.' (rtic e 17A of the +evised Pena !ode a so providesB

(rt. 17A. ,onopolies and com#inations in restraint of trade. I:he pena ty of prision correcciona in its minimum period or a fine ranging from two hundred to si; thousand pesos, or .oth, sha .e imposed uponB 1. (ny person who sha enter into any contract or agreement or sha ta9e part in any conspiracy or com.ination in the form of a trust or otherwise, in restraint of trade or commerce or to prevent .y artificia means free competition in the mar9et. 2. (ny person who shag monopo i4e any merchandise or o.ject of trade or commerce, or sha com.ine with any other person or persons to monopo i4e said merchandise or o.ject in order to a ter the price thereof .y spreading fa se rumors or ma9ing use of any other artifice to restrain free competition in the mar9et. 8. (ny person who, .eing a manufacturer, producer, or processor of any merchandise or o.ject of commerce or an importer of any merchandise or o.ject of commerce from any foreign country, either as principa or agent, who esa e or retai er, sha com.ine, conspire or agree in any manner with any person i9ewise engaged in the manufacture, production, processing, assem. ing or importation of such merchandise or o.ject of commerce or with any other persons not so simi ar y engaged for the purpose of ma9ing transactions prejudicia to awfu commerce, or of increasing the mar9et price in any part of the Phi ippines, or any such merchandise or o.ject of commerce manufactured, produced, processed, assem. ed in or imported into the Phi ippines, or of any artic e in the manufacture of which such manufactured, produced, processed, or imported merchandise or o.ject of commerce is used. :here are other egis ation in this jurisdiction, which prohi.it monopo ies and com.inations in restraint of trade. 22 3asica y, these anti2trust aws or aws against monopo ies or com.inations in restraint of trade are aimed at raising eve s of competition .y improving the consumers' effectiveness as the fina ar.iter in free mar9ets. :hese aws are designed to preserve free and unfettered

competition as the ru e of trade. '%t rests on the premise that the unrestrained interaction of competitive forces wi yie d the .est a ocation of our economic resources, the owest prices and the highest =ua ity ... .' 24 they operate to foresta concentration of economic power. 25 :he aw against monopo ies and com.inations in restraint of trade is aimed at contracts and com.inations that, .y reason of the inherent nature of the contemp ated acts, prejudice the pu. ic interest .y undu y restraining competition or undu y o.structing the course of trade. 26 :he terms 'monopo y', 'com.ination in restraint of trade' and 'unfair competition' appear to have a we defined meaning in other jurisdictions. ( 'monopo y' em.races any com.ination the tendency of which is to prevent competition in the .road and genera sense, or to contro prices to the detriment of the pu. ic. 27 %n short, it is the concentration of .usiness in the hands of a few. :he materia consideration in determining its e;istence is not that prices are raised and competition actua y e;c uded, .ut that po*er e;ists to raise prices or e;c ude competition when desired. 27 $urther, it must .e considered that the %dea of monopo y is now understood to inc ude a condition produced .y the mere act of individua s. %ts dominant thought is the notion of e;c usiveness or unity, or the suppression of competition .y the =ua ification of interest or management, or it may .e thru agreement and concert of action. %t is, in .rief, unified tactics with regard to prices. 29 $rom the foregoing definitions, it is apparent that the contentions of petitioner are not in accord with rea ity. :he e ection of petitioner to the 3oard of respondent !orporation can .ring a.out an i ega situation. :his is .ecause an e;press agreement is not necessary for the e;istence of a com.ination or conspiracy in restraint of trade. 40 %t is enough that a concert of action is contemp ated and that the defendants conformed to the arrangements, 41and what is to .e considered is what the parties actua y did and not the words they used. $or instance, the ! ayton (ct prohi.its a person from serving at the same time as a director in any two or more corporations, if such corporations are, .y virtue of their .usiness and ocation of operation, competitors so that the e imination of competition .etween them wou d constitute vio ation of any provision of the anti2trust aws. 42 :here is here a statutory recognition of the anti2 competitive dangers which may arise when an individua simu taneous y acts as a director of two or more competing corporations. ( common director of two or more competing corporations wou d have access to confidentia sa es, pricing and mar9eting information and wou d .e in a position to coordinate po icies or to aid one corporation at the e;pense of

another, there.y stif ing competition. :his situation has .een apt y e;p ained .y :ravers, thusB
:he argument for prohi.iting competing corporations from sharing even one director is that the interloc+ permits t&e coordination of policies #et*een nominall( independent firms to an extent t&at competition #et*een t&em ma( #e completel( eliminated. %ndeed, if a director, for e;amp e, is to .e faithfu to .oth corporations, some accommodation must resu t. *uppose N is a director of .oth !orporation ( and !orporation 3. N cou d hard y vote for a po icy .y ( that wou d injure 3 without vio ating his duty of oya ty to 3 at the same time he cou d hard y a.stain from voting without depriving ( of his .est judgment. -f t&e firms reall( do compete I in the sense of vying for economic advantage at the e;pense of the other I t&ere can &ardl( #e an( reason for an inter oc9 .etween competitors other than the suppression of competition. 42 C0mphasis supp ied.D

(ccording to the +eport of the /ouse Judiciary !ommittee of the 5. *. !ongress on section 9 of the ! ayton (ct, it was esta. ished thatB '3y means of the inter oc9ing directorates one man or group of men have .een a. e to dominate and contro a great num.er of corporations ... to the detriment of the sma ones dependent upon them and to the injury of the pu. ic. 44 *hared information on cost accounting may ead to price fi;ing. !ertain y, shared information on production, orders, shipments, capacity and inventories may ead to contro of production for the purpose of contro ing prices. &.vious y, if a competitor has access to the pricing po icy and cost conditions of the products of *an 1igue !orporation, the essence of competition in a free mar9et for the purpose of serving the owest priced goods to the consuming pu. ic wou d .e frustrated, :he competitor cou d so manipu ate the prices of his products or vary its mar9eting strategies .y region or .y .rand in order to get the most out of the consumers. @here the two competing firms contro a su.stantia segment of the mar9et this cou d ead to co usion and com.ination in restraint of trade. +eason and e;perience point to the inevita. e conc usion that the inherent tendency of inter oc9ing directorates .etween companies that are re ated to each other as competitors is to . unt the edge of riva ry .etween the corporations, to see9 out ways of compromising opposing interests, and thus e iminate competition. (s respondent *1! apt y

o.serves, 9now edge .y !$!2+o.ina of *1!'s costs in various industries and regions in the country win ena. e the former to practice price discrimination. !$!2+o.ina can segment the entire consuming popu ation .y geographica areas or income groups and change varying prices in order to ma;imi4e profits from every mar9et segment. !$!2 +o.ina cou d determine the most profita. e vo ume at which it cou d produce for every product ine in which it competes with *1!. (ccess to *1! pricing po icy .y !$!2+o.ina wou d in effect destroy free competition and deprive the consuming pu. ic of opportunity to .uy goods of the highest possi. e =ua ity at the owest prices. $ina y, considering that .oth +o.ina and *1! are, to a certain e;tent, engaged in agricu ture, then the e ection of petitioner to the 3oard of *1! may constitute a vio ation of the prohi.ition contained in section 18C5D of the !orporation ,aw. *aid section provides in part that 'any stoc9ho der of more than one corporation organi4ed for the purpose of engaging in agricu ture may ho d his stoc9 in such corporations solel( for investment and not for the purpose of .ringing a.out or attempting to .ring a.out a com.ination to e;ercise contro of incorporations ... .' "either are @e persuaded .y the c aim that the .y2 aw was %ntended to prevent the candidacy of petitioner for e ection to the 3oard. %f the .y2 aw were to .e app ied in the case of one stoc9ho der .ut waived in the case of another, then it cou d .e reasona. y c aimed that the .y2 aw was .eing app ied in a discriminatory manner. /owever, the .y aw, .y its terms, app ies to a stoc9ho ders. :he e=ua protection c ause of the !onstitution re=uires on y that the .y2 aw operate e=ua y upon a persons of a c ass. 3esides, .efore petitioner can .e dec ared ine igi. e to run for director, there must .e hearing and evidence must .e su.mitted to .ring his case within the am.it of the dis=ua ification. *ound princip es of pu. ic po icy and management, therefore, support the view that a .y2 aw which dis=ua ifies a competition from e ection to the 3oard of 6irectors of another corporation is va id and reasona. e. %n the a.sence of any ega prohi.ition or overriding pu. ic po icy, wide atitude may .e accorded to the corporation in adopting measures to protect egitimate corporation interests. :hus, 'where the reasona. eness of a .y2 aw is a mere matter of judgment, and upon which reasona. e minds must necessari y differ, a court wou d not .e warranted in su.stituting its judgment instead of the judgment of those who are authori4ed to ma9e .y2 aws and who have e;pressed their authority. 45 ( though it is asserted that the amended .y2 aws confer on the present 3oard powers to perpetua themse ves in power such fears appear to .e

misp aced. :his power, .ut is very nature, is su.ject to certain we esta. ished imitations. &ne of these is inherent in the very convert and definition of the terms 'competition' and 'competitor'. '!ompetition' imp ies a strugg e for advantage .etween two or more forces, each possessing, in su.stantia y simi ar if not %dentica degree, certain characteristics essentia to the .usiness sought. %t means an independent endeavor of two or more persons to o.tain the .usiness patronage of a third .y offering more advantageous terms as an inducement to secure trade. 46 :he test must .e whether the .usiness does in fact compete, not whether it is capa. e of an indirect and high y unsu.stantia dup ication of an iso ated or non2characteristics activity. 47 %t is, therefore, o.vious that not every person or entity engaged in .usiness of the same 9ind is a competitor. *uch factors as =uantum and p ace of .usiness, %dentity of products and area of competition shou d .e ta9en into consideration. %t is, therefore, necessary to show that petitioner's .usiness covers a su.stantia portion of the same mar9ets for simi ar products to the e;tent of not ess than 1#E of respondent corporation's mar9et for competing products. @hi e @e here sustain the va idity of the amended .y2 aws, it does not fo ow as a necessary conse=uence that petitioner is ipso facto dis=ua ified. !onsonant with the re=uirement of due process, there must .e due hearing at which the petitioner must .e given the fu est opportunity to show that he is not covered .y the dis=ua ification. (s trustees of the corporation and of the stoc9ho ders, it is the responsi.i ity of directors to act with fairness to the stoc9ho ders. 47 Pursuant to this o. igation and to remove any suspicion that this power may .e uti i4ed .y the incum.ent mem.ers of the 3oard to perpetuate themse ves in power, any decision of the 3oard to dis=ua ify a candidate for the 3oard of 6irectors shou d .e reviewed .y the *ecurities .ehind 0;change !ommission en .anc and its decision sha .e fina un ess reversed .y this !ourt on certiorari. 49 %ndeed, it is a sett ed princip e that where the action of a 3oard of 6irectors is an a.use of discretion, or for.idden .y statute, or is against pu. ic po icy, or is u tra vires, or is a fraud upon minority stoc9ho ders or creditors, or wi resu t in waste, dissipation or misapp ication of the corporation assets, a court of e=uity has the power to grant appropriate re ief.50 %%% 1&et&er or not respondent E$ 'ravel( a#used its discretion in den(in' petitionerHs request for an examination of t&e records of an ,i'uel -nternational -nc., a full( o*ned su#sidiar( of an ,i'uel $orporation M +espondent *an 1igue !orporation stated in its memorandum that petitioner's c aim that he was denied inspection rights as stoc9ho der of

*1! 'was made in the teeth of undisputed facts that, over a specific period, petitioner had .een furnished numerous documents and information,' to witB C1D a comp ete ist of stoc9ho ders and their stoc9ho dings< C2D a comp ete ist of pro;ies given .y the stoc9ho ders for use at the annua stoc9ho ders' meeting of 1ay 17, 1975< C8D a copy of the minutes of the stoc9ho ders' meeting of 1arch 17,197A< C)D a .rea9down of *1!'s P17A.A mi ion investment in associated companies and other companies as of 6ecem.er 81, 1975< C5D a isting of the sa aries, a owances, .onuses and other compensation or remunerations received .y the directors and corporate officers of *1!< CAD a copy of the 5* V1## mi ion 0uro26o ar ,oan (greement of *1!< and C7D copies of the minutes of all meetings of the 3oard of 6irectors from January 1975 to 1ay 197A, with de etions of sensitive data, which de etions were not o.jected to .y petitioner. $urther, it was averred that upon re=uest, petitioner was informed in writing on *eptem.er 17, 197A< C1D that *1!'s foreign investments are hand ed .y *an 1igue %nternationa , %nc., incorporated in 3ermuda and who y owned .y *1!< this was *1!'s first venture a.road, having started in 19)7 with an initia out ay of O5##,###.##, augmented .y a oan of /ong9ong VA mi ion from a foreign .an9 under the persona guaranty of *1!'s former President, the ate !o . (ndres *oriano< C2D that as of 6ecem.er 81, 1975, the estimated va ue of *1% wou d amount to a most P)## mi ion C8D that the tota cash dividends received .y *1! from *1% since 1958 has amount to 5* V 9.) mi ion< and C)D that from 197221975, *1% did not dec are cash or stoc9 dividends, a earnings having .een used in ine with a program for the setting up of .reweries .y *1% :hese averments are supported .y the affidavit of the !orporate *ecretary, enc osing photocopies of the afore2mentioned documents.

respect to his interest as a stoc9ho der and for some purpose germane thereto or in the interest of the corporation. 52 %n other words, the inspection has to .e germane to the petitioner's interest as a stoc9ho der, and has to .e proper and awfu in character and not inimica to the interest of the corporation. 54 %n "re( v. -nsular Lum#er, 55 this !ourt he d that 'the right to e;amine the .oo9s of the corporation must .e e;ercised in good faith, for specific and honest purpose, and not to gratify curiosity, or for specific and honest purpose, and not to gratify curiosity, or for specu ative or ve;atious purposes. :he weight of judicia opinion appears to .e, that on app ication for mandamus to enforce the right, it is proper for the court to in=uire into and consider the stoc9ho der's good faith and his purpose and motives in see9ing inspection. 56 :hus, it was he d that 'the right given .y statute is not a.so ute and may .e refused when the information is not sought in good faith or is used to the detriment of the corporation.' 573ut the 'impropriety of purpose such as wi defeat enforcement must .e set up the corporation defensive y if the !ourt is to ta9e cogni4ance of it as a =ua ification. %n other words, the specific provisions ta9e from the stoc9ho der the .urden of showing propriety of purpose and p ace upon the corporation the .urden of showing impropriety of purpose or motive. 57 %t appears to .e the genera ru e that stoc9ho ders are entit ed to fu information as to the management of the corporation and the manner of e;penditure of its funds, and to inspection to o.tain such information, especia y where it appears that the company is .eing mismanaged or that it is .eing managed for the persona .enefit of officers or directors or certain of the stoc9ho ders to the e;c usion of others.' 59 @hi e the right of a stoc9ho der to e;amine the .oo9s and records of a corporation for a awfu purpose is a matter of aw, the right of such stoc9ho der to e;amine the .oo9s and records of a who y2owned su.sidiary of the corporation in which he is a stoc9ho der is a different thing. *ome state courts recogni4e the right under certain conditions, whi e others do not. :hus, it has .een he d that where a corporation owns appro;imate y no property e;cept the shares of stoc9 of su.sidiary corporations which are mere y agents or instrumenta ities of the ho ding company, the ega fiction of distinct corporate entities may .e disregarded and the .oo9s, papers and documents of a the corporations may .e re=uired to .e produced for e;amination, 60 and that a writ of mandamus, may .e granted, as the records of the su.sidiary were, to a incontents and purposes, the records of the parent even though su.sidiary was not named as a party. 61mandamus was i9ewise he d proper to inspect .oth the su.sidiary's and the parent corporation's .oo9s

51

Pursuant to the second paragraph of section 51 of the !orporation ,aw, 'CtDhe record of a .usiness transactions of the corporation and minutes of any meeting sha .e open to the inspection of any director, mem.er or stoc9ho der of the corporation at reasona. e hours.' :he stoc9ho der's right of inspection of the corporation's .oo9s and records is .ased upon their ownership of the assets and property of the corporation. %t is, therefore, an incident of ownership of the corporate property, whether this ownership or interest .e termed an e=uita. e ownership, a .eneficia ownership, or a ownership. 52 :his right is predicated upon the necessity of se f2protection. %t is genera y he d .y majority of the courts that where the right is granted .y statute to the stoc9ho der, it is given to him as such and must .e e;ercised .y him with

upon proof of sufficient contro or dominion .y the parent showing the re ation of principa or agent or something simi ar thereto. 62 &n the other hand, mandamus at the suit of a stoc9ho der was refused where the su.sidiary corporation is a separate and distinct corporation domici ed and with its .oo9s and records in another jurisdiction, and is not ega y su.ject to the contro of the parent company, a though it owned a vast majority of the stoc9 of the su.sidiary. 62,i9ewise, inspection of the .oo9s of an a ied corporation .y stoc9ho der of the parent company which owns a the stoc9 of the su.sidiary has .een refused on the ground that the stoc9ho der was not within the c ass of 'persons having an interest.' 64 %n the 2as& case, 65 :he *upreme !ourt of "ew For9 he d that the contractua right of former stoc9ho ders to inspect .oo9s and records of the corporation inc uded the right to inspect corporation's su.sidiaries' .oo9s and records which were in corporation's possession and contro in its office in "ew For9.' %n the Baile( case, 66 stoc9ho ders of a corporation were he d entit ed to inspect the records of a contro ed su.sidiary corporation which used the same offices and had %dentica officers and directors. %n his '5rgent 1otion for Production and %nspection of 6ocuments' .efore respondent *0!, petitioner contended that respondent corporation 'had .een attempting to suppress information for the stoc9ho ders' and that petitioner, 'as stoc9ho der of respondent corporation, is entit ed to copies of some documents which for some reason or another, respondent corporation is very re uctant in revea ing to the petitioner notwithstanding the fact that no harm wou d .e caused there.y to the corporation.' 67 :here is no =uestion that stoc9ho ders are entit ed to inspect the .oo9s and records of a corporation in order to investigate the conduct of the management, determine the financia condition of the corporation, and genera y ta9e an account of the stewardship of the officers and directors. 67 %n the case at .ar, considering that the foreign su.sidiary is who y owned .y respondent *an 1igue !orporation and, therefore, under its contro , it wou d .e more in accord with e=uity, good faith and fair dea ing to construe the statutory right of petitioner as stoc9ho der to inspect the .oo9s and records of the corporation as e;tending to .oo9s and records of such who y su.sidiary which are in respondent corporation's possession and contro .

%> 1&et&er or not respondent E$ 'ravel( a#used its discretion in allo*in' t&e stoc+&olders of respondent corporation to ratif( t&e investment of corporate funds in a forei'n corporation Petitioner reiterates his contention in *0! !ase "o. 1)28 that respondent corporation invested corporate funds in *1% without prior authority of the stoc9ho ders, thus vio ating section 1721?2 of the !orporation ,aw, and a eges that respondent *0! shou d have investigated the charge, .eing a statutory offense, instead of a owing ratification of the investment .y the stoc9ho ders. +espondent *0!'s position is that su.mission of the investment to the stoc9ho ders for ratification is a sound corporate practice and shou d not .e thwarted .ut encouraged. *ection 1721?2 of the !orporation ,aw a ows a corporation to 'invest its funds in any other corporation or .usiness or for any purpose other than the main purpose for which it was organi4ed' provided that its 3oard of 6irectors has .een so authori4ed .y the affirmative vote of stoc9ho ders ho ding shares entit ing them to e;ercise at east two2thirds of the voting power. %f the investment is made in pursuance of the corporate purpose, it does not need the approva of the stoc9ho ders. %t is on y when the purchase of shares is done so e y for investment and not to accomp ish the purpose of its incorporation that the vote of approva of the stoc9ho ders ho ding shares entit ing them to e;ercise at east two2thirds of the voting power is necessary. 69 (s stated .y respondent corporation, the purchase of .eer manufacturing faci ities .y *1! was an investment in the same .usiness stated as its main purpose in its (rtic es of %ncorporation, which is to manufacture and mar9et .eer. %t appears that the origina investment was made in 19)72 19)7, when *1!, then *an 1igue 3rewery, %nc., purchased a .eer .rewery in /ong9ong C/ong9ong 3rewery H 6isti ery, ,td.D for the manufacture and mar9eting of *an 1igue .eer thereat. +estructuring of the investment was made in 197#21971 thru the organi4ation of *1% in 3ermuda as a ta; free reorgani4ation. 5nder these circumstances, the ru ing in Ae la !ama v. ,anao u'ar $entral $o., -nc., supra, appears re evant. %n said case, one of the issues was the ega ity of an investment made .y 1anao *ugar !entra !o., %nc., without prior reso ution approved .y the affirmative vote of 2?8 of the

stoc9ho ders' voting power, in the Phi ippine $i.er Processing !o., %nc., a company engaged in the manufacture of sugar .ags. :he ower court said that 'there is more ogic in the stand that if the investment is made in a corporation whose .usiness is important to the investing corporation and wou d aid it in its purpose, to re=uire authority of the stoc9ho ders wou d .e to undu y curtai the power of the 3oard of 6irectors.' :his !ourt affirmed the ru ing of the court a quo on the matter and, =uoting Prof. *u picio *. -uevara, saidB 'j. %o*er to acquire or dispose of s&ares or securities. I ( private corporation, in order to accomp ish is purpose as stated in its artic es of incorporation, and su.ject to the imitations imposed .y the !orporation ,aw, has the power to ac=uire, ho d, mortgage, p edge or dispose of shares, .onds, securities, and other evidence of inde.tedness of any domestic or foreign corporation. uc& an act, if done in pursuance of t&e corporate purpose, does not need t&e approval of stoc+&oldersJ #ut *&en t&e purc&ase of s&ares of anot&er corporation is done solel( for investment and not to accomplis& t&e purpose of its incorporation, t&e vote of approval of t&e stoc+&olders is necessar(. %n any case, the purchase of such shares or securities must .e su.ject to the imitations esta. ished .y the !orporations aw< name y, CaD that no agricu tura or mining corporation sha .e restricted to own not more than 15E of the voting stoc9 of nay agricu tura or mining corporation< and CcD that such ho dings sha .e so e y for investment and not for the purpose of .ringing a.out a monopo y in any ine of commerce of com.ination in restraint of trade.' :he Phi ippine !orporation ,aw .y *u picio *. -uevara, 19A7 0d., p. 79D C0mphasis supp ied.D )#. %o*er to invest corporate funds. I ( private corporation has the power to invest its corporate funds 'in any other corporation or .usiness, or for any purpose other than the main purpose for which it was organi4ed, provide that 'its .oard of directors has .een so authori4ed in a reso ution .y the affirmative vote of stoc9ho ders ho ding shares in the corporation entit ing them to e;ercise at east two2thirds of the voting power on such a propose at a stoc9ho ders' meeting ca ed for that purpose,' and provided further, that no agricu tura or mining corporation sha in anywise .e interested in any

other agricu tura or mining corporation. 1&en t&e investment is necessar( to accomplis& its purpose or purposes as stated in its articles of incorporation t&e approval of t&e stoc+&olders is not necessar(.'' C-d., p. 1#7D C0mphasis ours.D Cpp. 2572259D. (ssuming ar'uendo that the 3oard of 6irectors of *1! had no authority to ma9e the assai ed investment, there is no =uestion that a corporation, i9e an individua , may ratify and there.y render .inding upon it the origina y unauthori4ed acts of its officers or other agents. 70 :his is true .ecause the =uestioned investment is neither contrary to aw, mora s, pu. ic order or pu. ic po icy. %t is a corporate transaction or contract which is within the corporate powers, .ut which is defective from a supported fai ure to o.serve in its e;ecution the. re=uirement of the aw that the investment must .e authori4ed .y the affirmative vote of the stoc9ho ders ho ding two2thirds of the voting power. :his re=uirement is for the .enefit of the stoc9ho ders. :he stoc9ho ders for whose .enefit the re=uirement was enacted may, therefore, ratify the investment and its ratification .y said stoc9ho ders o. iterates any defect which it may have had at the outset. '1ere ultra vires acts', said this !ourt in Pirovano, 71 'or those which are not i ega and void a# initio, .ut are not mere y within the scope of the artic es of incorporation, are mere y voida. e and may .ecome .inding and enforcea. e when ratified .y the stoc9ho ders. 3esides, the investment was for the purchase of .eer manufacturing and mar9eting faci ities which is apparent y re evant to the corporate purpose. :he mere fact that respondent corporation su.mitted the assai ed investment to the stoc9ho ders for ratification at the annua meeting of 1ay 1#, 1977 cannot .e construed as an admission that respondent corporation had committed an ultra vires act, considering the common practice of corporations of periodica y su.mitting for the gratification of their stoc9ho ders the acts of their directors, officers and managers. @/0+0$&+0, judgment is here.y rendered as fo owsB :he !ourt voted unanimous y to grant the petition insofar as it prays that petitioner .e a owed to e;amine the .oo9s and records of *an 1igue %nternationa , %nc., as specified .y him. &n the matter of the va idity of the amended .y2 aws of respondent *an 1igue !orporation, si; CAD Justices, name y, Justices 3arredo, 1a9asiar, (ntonio, *antos, (.ad *antos and 6e !astro, voted to sustain the

va idity per se of the amended .y2 aws in =uestion and to dismiss the petition without prejudice to the =uestion of the actua dis=ua ification of petitioner John -o9ongwei, Jr. to run and if e ected to sit as director of respondent *an 1igue !orporation .eing decided, after a new and proper hearing .y the 3oard of 6irectors of said corporation, whose decision sha .e appea a. e to the respondent *ecurities and 0;change !ommission de i.erating and acting en #anc and u timate y to this !ourt. 5n ess dis=ua ified in the manner herein provided, the prohi.ition in the afore2mentioned amended .y2 aws sha not app y to petitioner. :he afore2mentioned si; CAD Justices, together with Justice $ernando, voted to dec are the issue on the va idity of the foreign investment of respondent corporation as moot. !hief Justice $red +ui4 !astro reserved his vote on the va idity of the amended .y2 aws, pending hearing .y this !ourt on the app ica.i ity of section 18C5D of the !orporation ,aw to petitioner. Justice $ernando reserved his vote on the va idity of su.ject amendment to the .y2 aws .ut otherwise concurs in the resu t. $our C)D Justices, name y, Justices :eehan9ee, !oncepcion, Jr., $ernande4 and -uerrero fi ed a separate opinion, wherein they voted against the va idity of the =uestioned amended .y aws and that this =uestion shou d proper y .e reso ved first .y the *0! as the agency of primary jurisdiction. :hey concur in the resu t that petitioner may .e a owed to run for and sit as director of respondent *1! in the schedu ed 1ay A, 1979 e ection and su.se=uent e ections unti dis=ua ified after proper hearing .y the respondent's 3oard of 6irectors and petitioner's dis=ua ification sha have .een sustained .y respondent *0! en #anc and u timate y .y fina judgment of this !ourt. %n resume, su.ject to the =ua ifications aforestated judgment is here.y rendered -+(":%"- the petition .y a owing petitioner to e;amine the .oo9s and records of *an 1igue %nternationa , %nc. as specified in the petition. :he petition, insofar as it assai s the va idity of the amended .y2 aws and the ratification of the foreign investment of respondent corporation, for ac9 of necessary votes, is here.y 6%*1%**06. "o costs. ,a+asiar, antos A#ad antos and Ae $astro, @@., concur. Aquino, and ,elencio Berrera @@., too+ no part.

G.R. No. 91477 %#3*.a*y 7, 1991 RO$I'A )E>A petitioner, vs. 'HE COUR' O% A))EAL$, $)OU$E$ RI$ING '. YA) an CA'ALINA YA), )AM)ANGA BU$ CO., INC., -E$U$ DOMINGO, -OA=UIN BRIONE$, $AL&ADOR BERNARDE6, MARCELINO ENRI=UE6 an EDGARDO A. 6ABA',respondents. $esar L. /illanueva for petitioner. ,artin 2. !oque for private respondents.

GANCAYCO, J.:p :he va idity of the redemption of a forec osed rea property is the center of this controversy. :he facts as found .y the respondent court are not disputed. ( reading of the records shows that JPampanga 3us !o.K P(135*!&, origina owners of the ots in =uestion under :!: "os. )81), )815 and )81A, mortgaged the same to the 6eve opment 3an9 of the Phi ippines C63PD on January 8, 19A2 in consideration of the amount of P985,###.##. :his mortgage was forec osed. %n the forec osure sa e under (ct "o. 8185 he d on &cto.er 25, 197), the said properties were awarded to +osita PeWa as highest .idder. ( certificate of sa e was issued in her favor .y the *enior 6eputy *heriff of Pampanga, 0dgardo (. Ra.at, upon payment of the sum of P127,###.## to the &ffice of the Provincia *heriff C0;h. 28D. :he certificate of sa e was registered on &cto.er 29, 197) C0;h. -D. &n "ovem.er 19, 197), the .oard of directors of P(135*!&, through three C8D out of its five C5D directors, reso ved to assign its right of redemption over the aforesaid ots and authori4ed one of its mem.ers, (tty. Joa=uin 3riones 'to e;ecute and sign a 6eed of (ssignment for and in .eha f of P(135*!& in favor of any interested party . . .' C0;h. 2)D. !onse=uent y, on

1arch 17, 1975, 3riones e;ecuted a 6eed of (ssignment of P(135*!&'s redemption right over the su.ject ots in favor of 1arce ino 0nri=ue4 C0;h. 25D. :he atter then redeemed the said properties and a certificate of redemption dated (ugust 15, 1975 was issued in his favor .y *heriff Ra.at upon payment of the sum of one hundred forty thousand, four hundred seventy four pesos P1)#,)7).##D to the &ffice of the Provincia *heriff of Pampanga C0;h. 2AD. ( day after the aforesaid certificate was issued, 0nri=ue4 e;ecuted a deed of a.so ute sa e of the su.ject properties in favor of p aintiffs2appe ants, the spouses +ising :. Fap and !ata ina ,ugue, for the sum of P1)#,###.## C0;h. $D. &n (ugust 17, 1975, a evy on attachment in favor of !apito ( ied :rading was entered as an additiona encum.rance on :!: "os. )81), )815 and )81A and a "otice of a pending consulta was a so annotated on the same tit es concerning the ( ied :rading case entit ed Aante "utierrez, et al.vs. %A,BN $F C!ivi !ase "o. )81#D in which the registra.i ity of the aforesaid ots in the name of the spouses Fap was sought to .e reso ved C0;h. 2#2$D. :he certificate of sa e issued .y the *heriff in favor of defendant PeWa, the reso ution of the P(135*!&'s .oard of directors assigning its redemption rights to any interested party, the deed of assignment P(135*!& e;ecuted in favor of 1arce ino 3. 0nri=ue4, the certificate of redemption issued .y the *heriff in favor of 0nri=ue4 as we as the deed of a.so ute sa e of the su.ject ots e;ecuted .y 0nri=ue4 in favor of the p aintiffs2 appe ants were a annotated on the same certificates of tit e i9ewise on (ugust 17, 1975. ( so, on the same date, the &ffice of the Provincia *heriff of *an $ernando, Pampanga informed defendant2appe ee .y registered mai 'that the properties under :!: "os. )81), )815 and )81A . . . . were a redeemed .y 1r. 1arce ino 3. 0nri=ue4 on (ugust 15,1975 . . . <' and that she may now get her money at the *heriffs &ffice C0;h. J and J21D. &n *eptem.er 7, 1975, PeWa wrote the *heriff notifying him that the redemption was not va id as it was made under a void deed of assignment. *he then re=uested the reca of the said redemption and a restraint on any

registration or transaction regarding the ots in =uestion C0;h. 27D. &n *ept. 1#, 1975, the !$% 3ranch %%%, Pampanga in the aforementioned !ivi !ase "o. )81#, entit edAante "utierrez, et al. vs. %A,BN $F, et al., ordered the +egister of 6eeds of Pampanga . . . to desist from registering or noting in his registry of property . . . any of the fo owing documents under contract, unti further ordersB CaD 6eed of (ssignment dated 1arch 17, 1975 e;ecuted .y the defendant Pampanga 3us !ompany in virtue of a reso ution of its 3oard of 6irectors in favor of defendant 1arce ino 0nri=ue4< C.D ( !ertificate of +edemption issued .y defendant 6eputy *heriff 0dgardo Ra.at in favor of defendant 1arce ino 0nri=ue4 dated (ugust 15, 1975< CcD 6eed of *a e dated (ugust 1A, 1975 e;ecuted .y defendant 1arce ino 0nri=ue4 in favor of defendant +ising Fap. C&rigina +ecord, p. 2))D &n "ovem.er 17, 1975, the ,and +egistration !ommission opined under ,+! +eso ution "o. 1#29 that 'the evy on attachment in favor of !apito ( ied :rading Crepresented .y 6ante -utierre4D shou d .e carried over on the new tit e that wou d .e issued in the name of +ising Fap in the event that he is a. e to present the owner's dup icates of the certificates of tit e herein invo ved' C0;h. -D. 1eanwhi e, defendant PeWa, through counse , wrote the *heriff as9ing for the e;ecution of a deed of fina sa e in her favor on the ground that 'the one C1D year period of redemption has ong e apsed without any va id redemption having .een e;ercised<' hence she 'wi now refuse to receive the redemption money . . . C0;h. 27D. &n 6ec. 8#, 1977, p aintiff Fap wrote defendant PeWa as9ing payment of .ac9 renta s in the amount of P)2,75#.## 'for the use and occupancy of the and and

house ocated at *ta. ,ucia, *an $ernando, Pampanga,' and informing her of an increase in month y renta to P2,###< otherwise, to vacate the premises or face an eviction cum co ection suit C0;h. 6D. %n the meantime, the su.ject ots, former y under :!: "os. )81), )815 and )81A were registered on June 1A, 1977 in the name of the spouses Fap under :!: "os. 1)79782+, 1)797)2+ and 1)79752+, with an annotation of a evy on attachment in favor of !apito ( ied :rading. :he ,+! +eso ution "o. 1#29 a owing the conditioned registration of the su.ject ots in the name of the spouses Fap was a so annotated on :!: "o. )815 on June 1A, 1977 and the notice of a pending consu ta noted thereon on (ugust 17, 1975 was cance ed on the same date. "o :ria on the merits was he d concerning !ivi !ase "o. )81#. %n an order dated $e.ruary 17, 1978, the case was dismissed without prejudice.
6espite the foregoing, defendant2appe ee PeWa remained in possession of the ots in =uestion hence, the spouses Fap were prompted to fi e the instant case. 1

defendants fina y vacate the . . . premises in =uestion with interest at the ega rate C+ecord, p. A1D. %n their answer, defendants +osita PeWa and @ashington 6isti ery denied the materia a egations of the comp aint and .y way of an affirmative and specia defense asserted that PeWa is now the egitimate owner of the su.ject ands for having purchased the same in a forec osure proceeding instituted .y the 63P . . . against P(135*!& . . . and no va id redemption having .een effected within the period provided .y aw. %t was contended that p aintiffs cou d not have ac=uired ownership over the su.ject properties under a deed of a.so ute sa e e;ecuted in their favor .y one 1arce ino 3. 0nri=ue4 who i9ewise cou d not have .ecome JtheK owner of the properties in =uestion .y redeeming the same on (ugust 17, 1975 C0;h. 2AD under an a egedJ yK void deed of assignment e;ecuted in his favor on 1arch 17, 1975 .y the origina owners of the and in =uestion, the P(135*!&. :he defense was that since the deed of assignment e;ecuted .y P(135*!& in favor of 0nri=ue4 was void a# initiofor .eing an ultra vires act of its .oard of directors and, for .eing without any va ua. e consideration, it cou d not have had any ega effect< hence, a the acts which f owed from it and a the rights and o. igations which derived from the aforesaid void deed are i9ewise void and without any ega effect. $urther, it was a eged in the same (nswer that p aintiffs are .uyers in .ad faith .ecause they have caused the tit es of the su.ject properties with the +egister of 6eeds to .e issued in their names despite an order from the then !$%, 3r. %%%, Pampanga in !ivi !ase "o. )81#, entit ed Aante "utierrez, et al. vs. %ampan'a Bus $ompan(, -nc., et al., to desist from registering or noting in his registry of property . . . any of the a.ove2mentioned documents under contest, unti further orders. C+ecord, p. 11D. $or its part, defendant @ashington 6isti ery stated that it has never occupied the su.ject ots hence they shou d not have .een imp eaded in the comp aint.

:he antecedents of the present petition are as fo owsB P aintiffs2appe ants, the spouses +ising :. Fap and !ata ina ,ugue, are the registered owners of the ots in =uestion under :ransfer !ertificate of :it e C:!:D "os. 1)79782+, 1)797)2+, 1)79752+. %n the comp aint fi ed on 6ecem.er 15, 1977, appe ants sought to recover possession over the su.ject ands from defendants +osita PeWa and @ashington 6isti ery on the ground that .eing registered owners, they have to enforce their right to possession against defendants who have .een a eged y in un awfu possession thereof since &cto.er 197) 'when the previous owners assigned CtheirD right to co ect renta s . . . in favor of p aintiffs' C+ecord, p. 5D. :he amount c aimed as damages is pegged on the tota amount of unpaid renta s from &cto.er 197) Cas ta9en from the a egations in the comp aintD up to 6ecem.er 1977 at a month y rate of P1,5##.## 'and the further sum of P2,###.## a month from January 1979 unti the

:he defendants, therefore, prayed that the comp aint .e dismissed< that the deed of assignment e;ecuted in favor of 1arce ino 0nri=ue4, the certificate of redemption issued .y the Provincia *heriff a so in favor of 1arce ino 0nri=ue4, and the deed of sa e of these parce s of and e;ecuted .y 1arce ino 0nri=ue4 in favor of the p aintiffs herein .e a dec ared nu and void< and further, that :!: "os. 1)79782+, 1)797)2+ and 1)79752+, covering these parce s issued in the p aintiffs name .e cance ed and, in ieu thereof, corresponding certificates of tit e over these same parce s .e issued in the name of defendant +osita PeWa. :hereafter, the defendants with prior eave of court fi ed a third2party comp aint third2party defendants P(135*!&, Jesus 6omingo, Joa=uin 3riones, *a vador 3ernarde4 Cas mem.ers of the 3oard of 6irectors of P(135*!&D, 1arce ino 0nri=ue4, and 6eputy *heriff 0dgardo Ra.at of Pampanga. ( these third2party defendants, how ever, were dec ared as in defau t for fai ure to fi e their answer, e;cept 0dgardo Ra.at who did fi e his answer .ut fai ed to appear at the pre2tria . (fter tria , a decision was rendered .y the court in favor of the defendants2appe ees, to witB @/0+0$&+0, and in view of a the foregoing, judgment is here.y rendered dismissing the comp aint fi ed .y the p aintiffs against the defendants and dec aring as nu and void the fo owingB CaD :he reso ution of the 3oard of 6irectors of P(135*!& approved on "ovem.er 19, 197) assigning the P(135*!&'s right of redemption concerning the parce s invo ved herein C.D :he deed of assignment dated 1arch 17, 1975 e;ecuted in favor of 1arce ino 0nri=ue4 pursuant to the reso ution referred to in the preceding paragraph<

CcD :he certificate of redemption dated (ugust 15, 1975 issued .y 6eputy *heriff 0dgardo Ra.at in favor of 1arce ino 0nri=ue4 concerning these parce s< CdD :he deed of a.so ute sa e dated (ugust 15, 1975 e;ecuted .y 1arce ino 0nri=ue4 in favor of the p aintiffs concerning the same parce s and CeD :!: "os. 1)79782+, 1)797)2+ and 1)79752+ of the +egister of 6eeds of Pampanga in the name of the p aintiffs a so covering these parce s. :hird2party defendant 0dgardo Ra.at, in his capacity as 6eputy *heriff of Pampanga is directed to e;ecute in favor of defendant +osita PeWa the corresponding certificate of fina sa e invo ving the parce s .ought .y her in the auction sa e of &cto.er 25, 197) for which a certificate of sa e had .een issued to her.
$ina y, the third2party defendants herein e;cept 6eputy *heriff 0dgardo Ra.at are here.y ordered to pay the defendants?third party p aintiffs, joint y and severa y, the amount of P1#,###.## as attorney's fees p us costs. 2

:hus, an appea from said judgment of the tria court was interposed .y private respondents to the !ourt of (ppea s wherein in due course a decision was rendered on June 2#, 1979, the dispositive part of which reads as fo owsB @/0+0$&+0, premises considered, the judgment of the tria court on appea is +0>0+*06. 6efendant2appe ee PeWa is here.y ordered to vacate the ands in =uestion and pay the p aintiffs2appe ants the accrued renta s from &cto.er, 197) in the amount of P1,5##.## per month up to 6ecem.er, 1977 and the amount of P2,###.## per

month thereafter, unti appe ee fina y vacate CsicD the premises with interest at the ega rate.
*& &+60+06. 2

0"+%G50R %* "&: >&%6 &+ (: :/0 >0+F ,0(*: >&%6(3,0 &+ +0*!%**%3,0. $ifth (ssignment of 0rror :/0 +0*P&"60": !&5+: &$ (PP0(,* 0++06 %" "&: /&,6%"- :/(: :/0 G50*:%&"06 6006 &$ (**%-"10":, 6(:06 7 1(+!/ 1975, @(* >&%6 AB -2-T-F $&+ $(%,%"- :& !&1P,F @%:/ :/0 $&+1(,%:%0* 1("6(:&+%,F +0G5%+06 5"60+ :/0 ,(@ $&+ 6&"(:%&"*. *i;th (ssignment of 0rror :/0 +0*P&"60": !&5+: &$ (PP0(,* 0++06 %" /&,6%"- :/(: +0*P&"60":* F(P (+0 P5+!/(*0+* %" -&&6 $(%:/ ("6 %" $5+:/0+ /&,6%"- :/(: %: @(* :&& ,(:0 $&+ P0:%:%&"0+ :& %":0+P&*0 :/0 %**50 :/(: +0*P&"60":* F(P @0+0 P5+!/(*0+* %" 3(6 $(%:/. *eventh (ssignment of 0rror
:/0 +0*P&"60": !&5+: &$ (PP0(,* 0++06 %" +0>0+*%"- :/0 60!%*%&" &$ :/0 :+%(, !&5+:. 4

( motion for reconsideration fi ed .y the appe ee was denied in a reso ution dated 6ecem.er 27, 1979. /ence, this petition for review on certiorari of said decision and reso ution of the appe ate court predicated on the fo owing assigned errorsB $irst (ssignment of 0rror :/0 +0*P&"60": !&5+: &$ (PP0(,* 0++06 %" /&,6%"- :/(: :/0 :+%(, !&5+: /(6 "& J5+%*6%!:%&" :& +5,0 &" :/0 >(,%6%:F &$ :/0 G50*:%&"06 +0*&,5:%&" ("6 :+("*$0+*. *econd (ssignment of 0rror :/0 +0*P&"60": !&5+: &$ (PP0(,* 0++06 %" /&,6%"- :/(: P0:%:%&"0+ /(* "& ,0-(, *:("6%"- :& (**(%, :/0 >(,%6%:F &$ :/0 G50*:%&"06 +0*&,5:%&" ("6 :/0 *0+%0* &$ *5!!006%"- :+("*(!:%&"* ,0(6%"- :& :/0 +0-%*:+(:%&" &$ :/0 *53J0!: P+&P0+:%0* %" $(>&+ &$ :/0 +0*P&"60":* F(P. :hird (ssignment of 0rror :/0 +0*P&"60": !&5+: &$ (PP0(,* 0++06 %" /&,6%"- :/(: :/0 +0*&,5:%&" &$ +0*P&"60": P(135*!&, (6&P:06 &" 19 "&>0130+ 197), (**%-"%"- %:* +%-/: &$ +0601P:%&" %* "&: >&%6 &+ (: :/0 >0+F ,0(*: ,0-(,,F 60$0!:%>0. $ourth (ssignment of 0rror :/0 +0*P&"60": !&5+: &$ (PP0(,* 0++06 %" /&,6%"- :/(: :/0 6006 &$ (**%-"10":, 6(:06 7 1(+!/ 1975, %" $(>&+ &$ +0*P&"60":

:he petition is impressed with merit. $irst, the pre iminary issues. :he respondent court ru ed that the tria court has no jurisdiction to annu the .oard reso ution as the matter fa s within the jurisdiction of the *ecurities and 0;change !ommission C*0!D and that petitioner did not have the proper standing to have the same dec ared nu and void. %n %&ilex ,inin' $orporation vs. !e(es, 5 this !ourt he d that it is the fact of re ationship .etween the parties that determines the proper and e;c usive jurisdiction of the *0! to hear and decide intra2corporate disputes< that un ess the controversy has arisen .etween and among stoc9ho ders of the corporation, or .etween the stoc9ho ders and the officers of the corporation, then the case is not within the jurisdiction of the *0!. @here the issue invo ves a party who is neither a stoc9ho der

or officer of the corporation, the same is not within the jurisdiction of the *0!. %n Nnion "lass & $ontainer $orporation vs. ecurities and Exc&an'e $ommission, 6 this !ourt defined the re ationships which are covered within 'intra2corporate disputes' under Presidentia 6ecree "o. 9#22(, as amended, as fo owsB &therwise stated, in order that the *0! can ta9e cogni4ance of a case, the controversy must pertain to any of the fo owing re ationships CaD .etween the corporation, partnership or association and the pu. ic< C.D .etween the corporation, partnership or association and its stoc9ho ders, partners, mem.ers, or officers< CcD .etween the corporation, partnership or association and the state in so far as its franchise, permit or icense to operate is concerned< and CdD among the stoc9ho ders, partners or associates themse ves. %n this case, neither petitioner nor respondents Fap spouses are stoc9ho ders or officers of P(135*!&. !onse=uent y, the issue of the va idity of the series of transactions resu ting in the su.ject properties .eing registered in the names of respondents Fap may .e reso ved on y .y the regu ar courts. +espondent court he d that petitioner .eing a stranger to the =uestioned reso ution and series of succeeding transactions has no ega standing to =uestion their va idity. %n Teves vs. %eopleHs Bomesite and Bousin' $orporation, 7 this !ourt he dB @e note however, in reading the comp aint that the p aintiff is see9ing the dec aration of the nu ity of the deed of sa e, not as a party in the deed, or .ecause she is o. iged principa y or su.sidiari y under the deed, .ut .ecause she has an interest that is affected .y the deed. T&is $ourt &as &eld t&at a person *&o is not a part( o#li'ed principall( or su#sidiaril( in a contract ma( exercise an action for nullit( of t&e contract if &e is prejudiced in &is ri'&ts *it& respect to one of t&e contractin' parties, and can s&o* t&e detriment *&ic& *ould positivel( result to &im from t&e contract in *&ic&

&e &ad no intervention, %ndeed, in the case now .efore 5s, the comp aint a eges facts which show that p aintiff suffered detriment as a resu t of the deed of sa e entered into .y and .etween defendant P//! and defendant 1e isenda ,. *antos. @e .e ieve that the p aintiff shou d .e given a chance to present evidence to esta. ish that she suffered detriment and that she is entit ed to re ief. C0mphasis supp ied.D :here can .e no =uestion in this case that the =uestioned reso ution and series of transactions resu ting in the registration of the properties in the name of respondent Fap spouses adverse y affected the rights of petitioner to the said properties. !onse=uent y, petitioner has the ega standing to =uestion the va idity of said reso ution and transactions. (s to the =uestion of va idity of the .oard reso ution of respondent P(135*!& adopted on "ovem.er 19, 197), *ection ), (rtic e %%% of the amended .y2 aws of respondent P(135*!&, provides as fo owsB
*ec. ). "otices of regu ar and specia meetings of the 3oard of 6irectors sha .e mai ed to each 6irector not ess than five days .efore any such meeting, and notices of specia meeting sha state the purpose or purposes thereof "otices of regu ar meetings sha .e sent .y the *ecretary and notices of specia meetings .y the President or 6irectors issuing the ca . "o fai ure or irregu arity of notice of meeting sha inva idate any regu ar meeting or proceeding thereat< %rovided a =uorum of the 3oard is present, nor of any specia meeting<%rovided at least four Airectors are present. C0mphasis supp ied.D 7

:he tria court in finding the reso ution void he d as fo owsB &n the other hand, this !ourt finds merit in the position ta9en .y the defendants that the =uestioned reso ution shou d .e dec ared inva id it having .een approved in a meeting attended .y on y 8 of the 5 mem.ers of the 3oard of 6irectors of P(135*!& which attendance is short of the num.er re=uired .y the .y2 aws of the corporation. ;;; ;;; ;;;

%n the meeting of "ovem.er 19, 197) when the =uestioned reso ution was approved, the three mem.ers of the 3oard of 6irectors of P(135*!& who were present were Jesus 6omingo, Joa=uin 3riones, and *a vador 3ernarde4 :he remaining 2 others, name yB Judge Pio 1arcos and ( fredo 1amuyac were .oth a.sent therefrom.
(s it .ecomes c ear that the reso ution approved on "ovem.er 19, 197) is nu and void it having .een approved .y on y 8 of the mem.ers of the 3oard of 6irectors who were the on y ones present at the said meeting, the deed of assignment su.se=uent y e;ecuted in favor of 1arce ino 0nri=ue4 pursuant to this reso ution a so .ecomes nu and void. . . . 9

/owever, the respondent court overturning said ega conc usions of the tria court made the fo owing dis=uisitionB %t shou d .e noted that the provision in *ection ), (rtic e %%% of P(135*!&'s amended .y2 aws wou d app y on y in case of a fai ure to notify the mem.ers of the .oard of directors on the ho ding of a specia meeting, . . . . %n the instant case, however, there was no proof whatsoever, either .y way of documentary or testimonia evidence, that there was such a fai ure or irregu arity of notice as to ma9e the aforecited provision app y. :here was not even such an a egation in the (nswer that shou d have necessitated a proof thereof. :he fact a one that on y three C8D out of five C5D mem.ers of the .oard of directors attended the su.ject specia meeting, was not enough to dec are the aforesaid proceeding void a# initio, much ess the .oard reso ution .orne out of it, when there was no proof of irregu arity nor fai ure of notice and when the defense made in the (nswer did not touch upon the said fai ure of attendance. :herefore, the judgment dec aring the nu ity of the su.ject .oard reso ution must .e set aside for ac9 of proof.
1oreover, there is no categorica dec aration in the .y2 aws that a fai ure to comp y with the attendance re=uirement in a specia meeting shou d ma9e a the acts of the .oard therein nu and void a# initio. ( cursory reading of the su.ject

provision, as afore=uoted, wou d show that its framers on y intended to ma9e voida. e a .oard meeting he d without the necessary comp iance with the attendance re=uirement in the .y2 aws. Just the use of the word 'inva idate' a ready denotes a ega imputation of va idity to the =uestioned .oard meeting a.sent its inva idation in the proceedings prescri.ed .y the corporation's .y2 aws and?or the genera incorporation aw. 1ore significant y, it shou d .e noted that even if the su.ject specia meeting is itse f dec ared void, it does not fo ow that the acts of the .oard therein are ipso facto void and without any ega effect. @ithout the dec aration of nu ity of the su.ject .oard proceedings, its va idity shou d .e maintained and the acts .orne out of it shou d .e presumed va id. !onsidering that the su.ject specia .oard meeting has not .een dec ared void in a proper proceeding, nor even in the tria .y the court .e ow, there is no reason why the acts of the .oard in the said specia meeting shou d .e treated as void (3. initio. . . . 10

:he !ourt disagrees. :he .y2 aws of a corporation are its own private aws which su.stantia y have the same effect as the aws of the corporation. :hey are in effect, written, into the charter. %n this sense they .ecome part of the fundamenta aw of the corporation with which the corporation and its directors and officers must comp y. 11 (pparent y, on y three C8D out of five C5D mem.ers of the .oard of directors of respondent P(135*!& convened on "ovem.er 19, 197) .y virtue of a prior notice of a specia meeting. :here was no =uorum to va id y transact .usiness since, under *ection ) of the amended .y2 aws hereina.ove reproduced, at east four C)D mem.ers must .e present to constitute a =uorum in a specia meeting of the .oard of directors of respondent P(135*!&. 5nder *ection 25 of the !orporation !ode of the Phi ippines, the artic es of incorporation or .y2 aws of the corporation may fi; a greater num.er than the majority of the num.er of .oard mem.ers to constitute the =uorum necessary for the va id transaction of .usiness. (ny num.er ess than the num.er provided in the artic es or .y2 aws therein cannot constitute a =uorum and any act therein wou d not .ind the corporation< a that the attending directors cou d do is to adjourn. 12

1oreover, the records show that respondent P(135*!& ceased to operate as of "ovem.er 15, 19)9 as evidenced .y a etter of the *0! to said corporation dated (pri 17, 197#. 12 3eing a dormant corporation for severa years, it was high y irregu ar, if not anoma ous, for a group of three C8D individua s representing themse ves to .e the directors of respondent P(135*!& to pass a reso ution disposing of the on y remaining asset of the corporation in favor of a former corporate officer. (s a matter of fact, the three C8D a eged directors who attended the specia meeting on "ovem.er 19, 197) were not isted as directors of respondent P(135*!& in the atest genera information sheet of respondent P(135*!& fi ed with the *0! dated 17 1arch 1951. 14 *imi ar y, the atest ist of stoc9ho ders of respondent P(135*!& on fi e with the *0! does not show that the said a eged directors were among the stoc9ho ders of respondent P(135*!&. 15 5nder *ection 8# of the then app ica. e !orporation ,aw, on y persons who own at east one C1D share in their own right may =ua ify to .e directors of a corporation. $urther, under *ection 27 1?2 of the said aw, the sa e or disposition of an and?or su.stantia y a properties of the corporation re=uires, in addition to a proper .oard reso ution, the affirmative votes of the stoc9ho ders ho ding at east two2thirds C2?8D of the voting power in the corporation in a meeting du y ca ed for that purpose. "o dou.t, the =uestioned reso ution was not confirmed at a su.se=uent stoc9ho ders meeting du y ca ed for the purpose .y the affirmative votes of the stoc9ho ders ho ding at east two2thirds C2?8D of the voting power in the corporation. :he same re=uirement is found in *ection )# of the present !orporation !ode. %t is a so undisputed that at the time of the passage of the =uestioned reso ution, respondent P(135*!& was inso vent and its on y remaining asset was its right of redemption over the su.ject properties. *ince the disposition of said redemption right of respondent P(135*!& .y virtue of the =uestioned reso ution was not approved .y the re=uired num.er of stoc9ho ders under the aw, the said reso ution, as we as the su.se=uent assignment e;ecuted on 1arch 7, 1975 assigning to respondent 0nri=ue4 the said right of redemption, shou d .e struc9 down as nu and void. +espondent court, in upho ding the =uestioned deed of assignment, which appears to .e without any consideration at a , he d that the consideration thereof is the i.era ity of the respondent P(135*!& in favor of its former corporate officer, respondent 0nri=ue4, for services rendered. (ssuming this to .e so, then as correct y argued .y petitioner,

it is not just an ordinary deed of assignment, .ut is in fact a donation. 5nder (rtic e 725 of the !ivi !ode, in order to .e va id, such a donation must .e made in a pu. ic document and the acceptance must .e made in the same or in a separate instrument. %n the atter case, the donor sha .e notified of the acceptance in an authentic form and such step must .e noted in .oth instruments. 16 "on2comp iance with this re=uirement renders the donation nu and void. 17 *ince undenia. y the deed of assignment dated 1arch 7, 1975 in =uestion, 17 shows that there was no acceptance of the donation in the same and in a separate document, the said deed of assignment is thus void a# initio and of no force and effect. @/0+0$&+0, the petition is -+(":06. :he =uestioned decision of the respondent !ourt of (ppea s dated June 2#, 1979 and its reso ution dated 6ecem.er 27, 1979 are here.y +0>0+*06 ("6 *0: (*%60 and another judgment is here.y rendered ($$%+1%"- in toto the decision of the tria court. *& &+60+06. 2arvasa, $ruz, "rio6Aquino and ,edialdea, @@., concu

C.
G.R. No. 96551 No9#:3#* 4, 1996 )REMIUM MARBLE RE$OURCE$, INC., petitioner, vs. 'HE COUR' O% A))EAL$ an IN'ERNA'IONAL COR)ORA'E BAN4, respondents. )RIN'LINE COR)ORA'ION, petitioner, vs. 'HE COUR' O% A))EAL$ an IN'ERNA'IONAL COR)ORA'E BAN4, respondents.

'ORRE$, -R., J.:

(ssai ed in the instant petition for review is the decision 1 of the !ourt of (ppea s in !(2-.+. !> "o. 1A71# dated *eptem.er 27, 199# which affirmed the tria court's dismissa of petitioners' comp aint for damages. :he antecedentsB &n Ju y 17, 197A, Premium 1ar. e +esources, %nc. CPremium for .revityD, assisted .y (tty. (rnu fo 6umadag as counse , fi ed an action for damages against %nternationa !orporate 3an9 which was doc9eted as !ivi !ase "o. 1))18. :he comp aint states, inter aliaB 8. *ometime in (ugust to &cto.er 1972, (ya a %nvestment and 6eve opment !orporation issued three C8D chec9s J"os. #97#77, #97)1) H 2777)K in the aggregate amount of P81,AA8.77 paya. e to the p aintiff and drawn against !iti.an9< ;;; ;;; ;;; 5. &n or a.out (ugust to &cto.er 1972, former officers of the p aintiff corporation headed .y *aturnino -. 3e en, Jr., without any authority whatsoever from the p aintiff deposited the a.ove2mentioned chec9s to the current account of his conduit corporation, %ntervest 1erchant $inance C%ntervest, for .revityD which the atter maintained with the defendant .an9 under account "o. #2##2#2#272 7< A. ( though the chec9s were c ear y paya. e to the p aintiff corporation and crossed on their face and for payee's account on y, defendant .an9 accepted the chec9s to .e deposited to the current account of %ntervest and thereafter presented the same for co ection from the drawee .an9 which su.se=uent y c eared the same thus a owing %ntervest to ma9e use of the funds to the prejudice of the p aintiff< ;;; ;;; ;;; 1). :he p aintiff has demanded upon the defendant to restitute the amount representing the va ue of the chec9s .ut defendant refused and continue to refuse to honor p aintiff's demands up to the present<

15. (s a resu t of the i ega and irregu ar acts perpetrated .y the defendant .an9, the p aintiff was damaged to the e;tent of the amount of P81,AA8.77< Premium prayed that judgment .e rendered ordering defendant .an9 to pay the amount of P81,AA8.77 representing the va ue of the chec9s p us interest, P1##,###.## as e;emp ary damages< and P8#,###.## as attorney's fees. %n its (nswer %nternationa !orporate 3an9 a eged, inter alia, that Premium has no capacity?persona ity?authority to sue in this instance and the comp aint shou d, therefore, .e dismissed for fai ure to state a cause of action. ( few days after Premium fi ed the said case, Print ine !orporation, a sister company of Premium a so fi ed an action for damages against %nternationa !orporate 3an9 doc9eted as !ivi !ase "o. 1)))). :hereafter, .oth civi cases were conso idated. 1eantime, the same corporation, i.e., Premium, .ut this time represented .y *iguion +eyna, 1onteci io and &ngsia9o ,aw &ffice as counse , fi ed a motion to dismiss on the ground that the fi ing of the case was without authority from its du y constituted .oard of directors as shown .y the e;cerpt of the minutes of the Premium's .oard of directors' meeting. 2 %n its opposition to the motion to dismiss, Premium thru (tty. 6umadag contended that the persons who signed the .oard reso ution name y 3e en, Jr., "ogra es H +eyes, are not directors of the corporation and were a eged y former officers and stoc9ho ders of Premium who were dismissed for various irregu arities and fraudu ent acts< that *iguion +eyna ,aw office is the awyer of 3e en and "ogra es and not of Premium and that the (rtic es of %ncorporation of Premium shows that 3e en, "ogra es and +eyes are not majority stoc9ho ders. &n the other hand, *iguion +eyna ,aw firm as counse of Premium in a rejoinder, asserted that it is the genera information sheet fi ed with the *ecurities and 0;change !ommission, among others, that is the .est evidence that wou d show who are the stoc9ho ders of a corporation and not the (rtic es of %ncorporation since the atter does not 9eep trac9 of the many changes that ta9e p ace after new stoc9ho ders su.scri.e to corporate shares of stoc9s.

%n the interim, defendant .an9 fi ed a manifestation that it is adopting in toto Premium's motion to dismiss and, therefore, joins it in the praying for the dismissa of the present case on the ground that Premium ac9s authority from its du y constituted .oard of directors to institute the action. %n its &rder, the ower court conc uded thatB !onsidering that the officers CdirectorsD of p aintiff corporation enumerated in the (rtic es of %ncorporation, fi ed on "ovem.er 9, 1979, were 'to serve unti their successors are e ected and =ua ified' and considering further that as of 1arch ), 1971, the officers of the p aintiff corporation were ( .erto "ogra es, $ernando /i ario, (ugusto -a ace, Jose ,.+. +eyes, Pido (gui ar and *aturnino 3e en, Jr., who presuma. y are the officers represented .y the *iguion +eyna ,aw $irm, and that together with the defendants, they are moving for the dismissa of the a.ove2entit ed case, the !ourt finds that the officers represented .y (tty. 6umadag do not as yet have the ega capacity to sue for and in .eha f of the p aintiff corporation and?or the fi ing of the present action C!ivi !ase 1))18D .y them .efore !ase "o. 2A77 of the *0! cou d .e decided is a premature e;ercise of authority or assumption of ega capacity for and in .eha f of p aintiff corporation. :he issues raised in !ivi !ase "o. 1)))) are simi ar to those raised in !ivi !ase "o. 1))18. :his !ourt is of the opinion that .efore *0! !ase "o. 2A77 cou d .e decided, neither the set of officers represented .y (tty. 6umadag nor that set represented .y the *iguion +eyna, 1onteci o and &ngsia9o ,aw &ffice, may prosecute cases in the name of the p aintiff corporation.
%t is c ear from the p eadings fi ed .y the parties in these two cases that the e;istence of a cause of action against the defendants is dependent upon the reso ution of the case invo ving intra2corporate controversy sti pending .efore the *0!. 2

Petitioner su.mits the fo owing assignment of errorsB % :he !ourt of (ppea s erred in giving due course to the motion to dismiss fi ed .y the *iguion +eyna ,aw &ffice when the said motion is c ear y fi ed not in .eha f of the petitioner .ut in .eha f of the group of 3e en who are the c ients of the said aw office. %% :he !ourt of (ppea s erred in giving due course to the motion to dismiss fi ed .y the *iguion +eyna ,aw &ffice in .eha f of petitioner when the said aw office had a ready appeared in other cases wherein the petitioner is the adverse party. %%% :he !ourt of (ppea s erred when it ru ed that undersigned counse was not authori4ed .y the 3oard of 6irectors to fi e !ivi !ase "os. 1))18 and 1)))). %> :he !ourt of (ppea s erred in conc uding that under *0! !ase "o. 2A77 the incum.ent directors cou d not act for and in .eha f of the corporation. > :he !ourt of (ppea s is without jurisdiction to prohi.it the incum.ent 3oard of 6irectors from acting and fi ing this case when the *0! where *0! !ase "o. 2A77 is pending has not even made the prohi.ition. @e find the petition without merit. :he on y issue in this case is whether or not the fi ing of the case for damages against private respondent was authori4ed .y a du y constituted 3oard of 6irectors of the petitioner corporation.

&n appea , the !ourt of (ppea s affirmed the tria court's &rder 4 which dismissed the conso idated cases. /ence, this petition.

Petitioner, through the first set of officers, viz., 1ario Rava a, &scar -an, ,ione Pengson, Jose 1a. *i va, (derito Fujuico and +odo fo 1i are, presented the 1inutes 5 of the meeting of its 3oard of 6irectors he d on (pri 1, 1972, as proof that the fi ing of the case against private respondent was authori4ed .y the 3oard. &n the other hand, the second set of officers, viz., *aturnino -. 3e en, Jr., ( .erto !. "ogra es and Jose ,.+. +eyes, presented a +eso ution 6 dated Ju y 8#, 197A, to show that Premium did not authori4e the fi ing in its .eha f of any suit against the private respondent %nternationa !orporate 3an9. ,ater on, petitioner su.mitted its (rtic es of %ncorporation 7 dated "ovem.er A, 1979 with the fo owing as 6irectorsB 1ario !. Rava a, Pedro !. !e so, &scar 3. -an, ,ione Pengson, and Jose 1a. *i va. /owever, it appears from the genera information sheet and the !ertification issued .y the *0! on (ugust 19, 197A 7 that as of 1arch ), 1971, the officers and mem.ers of the .oard of directors of the Premium 1ar. e +esources, %nc. wereB ( .erto !. "ogra es I President?6irector $ernando 6. /i ario I >ice President?6irector (ugusto %. -a ace I :reasurer Jose ,.+. +eyes I *ecretary?6irector Pido 0. (=ui ar I 6irector *aturnino -. 3e en, Jr. I !hairman of the 3oard. @hi e the 1inutes of the 1eeting of the 3oard on (pri 1, 1972 states that the new y e ected officers for the year 1972 were &scar -an, 1ario Rava a, (derito Fujuico and +odo fo 1i are, petitioner fai ed to show proof that this e ection was reported to the *0!. %n fact, the ast entry in their -enera %nformation *heet with the *0!, as of 197A appears to .e the set of officers e ected in 1arch 1971. @e agree with the finding of pu. ic respondent !ourt of (ppea s, that 'in the a.sence of ?any .oard reso ution from its .oard of directors the J sicK authority to act for and in .eha f of the corporation, the present action must necessari y fai . :he power of the corporation to sue and .e sued in any court is odged with the .oard of directors that e;ercises its corporate powers. :hus, the issue of authority and the inva idity of p aintiff2appe ant 's su.scription which is sti pending, is a matter that is a so addressed, considering the premises, to the sound judgment of the *ecurities H 0;change !ommission.' 9

3y the e;press mandate of the !orporation !ode C*ection 2AD, a corporations du y organi4ed pursuant thereto are re=uired to su.mit within the period therein stated C8# daysD to the *ecurities and 0;change !ommission the names, nationa ities and residences of the directors, trustees and officers e ected. *ec. 2A of the !orporation !ode provides, thusB *ec. 2A. !eport of election of directors, trustees and officers. I @ithin thirty C8#D days after the e ection of the directors, trustees and officers of the corporation, the secretary, or any other officer of the corporation, sha su.mit to the *ecurities and 0;change !ommission, the names, nationa ities and residences of the directors, trustees and officers e ected. . . . 0vident y, the o.jective sought to .e achieved .y *ection 2A is to give the pu. ic information, under sanction of oath of responsi. e officers, of the nature of .usiness, financia condition and operationa status of the company together with information on its 9ey officers or managers so that those dea ing with it and those who intend to do .usiness with it may 9now or have the means of 9nowing facts concerning the corporation's financia resources and .usiness responsi.i ity. 10 :he c aim, therefore, of petitioners as represented .y (tty. 6umadag, that Ra.a a, et a ., are the incum.ent officers of Premium has not .een fu y su.stantiated. %n the a.sence of an authority from the .oard of directors, no person, not even the officers of the corporation, can va id y .ind the corporation. 11 @e find no reversi. e error in the decision sought to .e reviewed. (!!&+6%"-,F, for ac9 of merit, the petition is here.y 60"%06. *& &+60+06. G.R. No. 152542 -.1y 7, 2004

MON%OR' HERMANO$ AGRICUL'URAL DE&ELO)MEN' COR)ORA'ION, a( *#;*#(#n!# 3y MA. AN'ONIA M. $AL&A'IERRA, petitioner, vs.

AN'ONIO B. MON%OR' III, MA. LUI$A MON%OR' A$CALON, ILDE%ON$O B. MON%OR', AL%REDO B. MON%OR', CARLO$ M. RODRIGUE6, EMILY %RANCI$CA R. DOLI=UE6, ENCARNACION CECILIA R. )AYLADO, -O$E MAR'IN M. RODRIGUE6 an COUR' O% A))EAL$, respondents. G.R. No. 155472 -.1y 7, 2004

address, on jurisdictiona considerations, the issue of 1a. (ntonia 1. *a vatierra's capacity to fi e a comp aint for rep evin on .eha f of the !orporation in !ivi !ase "o. 5#A2! .efore the +egiona :ria !ourt of !adi4 !ity, 3ranch A#. 1onfort /ermanos (gricu tura 6eve opment !orporation, a domestic private corporation, is the registered owner of a farm, fishpond and sugar cane p antation 9nown as /aciendas *an (ntonio %%, 1arapara, Pinanoag and :inampa2an, a situated in !adi4 !ity.8 %t a so owns one unit of motor vehic e and two units of tractors.) :he same a owed +amon /. 1onfort, its 0;ecutive >ice President, to .reed and maintain fighting coc9s in his persona capacity at /acienda *an (ntonio. 5 %n 1997, the group of (ntonio 1onfort %%%, through force and intimidation, a eged y too9 possession of the ) /aciendas, the produce thereon and the motor vehic e and tractors, as we as the fighting coc9s of +amon /. 1onfort. %n -.+. "o. 155)72B &n (pri 1#, 1997, the !orporation, represented .y its President, 1a. (ntonia 1. *a vatierra, and +amon /. 1onfort, in his persona capacity, fi ed against the group of (ntonio 1onfort %%%, a comp aint A for de ivery of motor vehic e, tractors and 877 fighting coc9s, with prayer for injunction and damages, doc9eted as !ivi !ase "o. 5#A2!, .efore the +egiona :ria !ourt of "egros &ccidenta , 3ranch A#. :he group of (ntonio 1onfort %%% fi ed a motion to dismiss contending, inter alia, that 1a. (ntonia 1. *a vatierra has no capacity to sue on .eha f of the !orporation .ecause the 1arch 81, 1997 3oard +eso ution7 authori4ing 1a. (ntonia 1. *a vatierra and?or +amon /. 1onfort to represent the !orporation is void as the purported 1em.ers of the 3oard who passed the same were not va id y e ected officers of the !orporation. &n 1ay ), 1997, the tria court denied the motion to dismiss.7 :he group of (ntonio 1onfort %%% fi ed a petition for certiorari with the !ourt of (ppea s .ut the same was dismissed on June 7, 2##2. 9 :he *pecia $ormer :hirteenth 6ivision of the appe ate court did not reso ve the va idity of the 1arch 81, 1997 3oard +eso ution and the e ection of the officers who signed it, ratiocinating that the determination of said =uestion is within the competence of the tria court.

AN'ONIO B. MON%OR' III, MA. LUI$A MON%OR' A$CALON, ILDE%ON$O B. MON%OR', AL%REDO B. MON%OR', CARLO$ M. RODRIGUE6, EMILY %RANCI$CA R. DOLI=UE6, ENCARNACION CECILIA R. )AYLADO, -O$E MAR'IN M. RODRIGUE6, petitioners, vs. HON. COUR' O% A))EAL$, MON%OR' HERMANO$ AGRICUL'URAL DE&ELO)MEN' COR)ORA'ION, a( *#;*#(#n!# 3y MA. AN'ONIA M. $AL&A'IERRA, an RAMON H. MON%OR', respondents.

60!%*%&"

YNARE$-$AN'IAGO, J.8 3efore the !ourt are conso idated petitions for review of the decisions of the !ourt of (ppea s in the comp aints for forci. e entry and rep evin fi ed .y 1onfort /ermanos (gricu tura 6eve opment !orporation C!orporationD and +amon /. 1onfort against the chi dren, nephews, and nieces of its origina incorporators Cco ective y 9nown as 'the group of (ntonio 1onfort %%%'D. :he petition in -.+. "o. 1525)2, assai s the &cto.er 5, 2##1 6ecision 1 of the *pecia :enth 6ivision of the !ourt of (ppea s in !(2-.+. *P "o. 58A52, which ru ed that 1a. (ntonia 1. *a vatierra has no ega capacity to represent the !orporation in the forci. e entry case doc9eted as !ivi !ase "o. 58)2!, .efore the 1unicipa :ria !ourt of !adi4 !ity. &n the other hand, the petition in -.+. "o. 155)72, see9s to set aside the June 7, 2##2 6ecision2 rendered .y the *pecia $ormer :hirteenth 6ivision of the !ourt of (ppea s in !(2-.+. *P "o. )9251, where it refused to

:he motion for reconsideration fi ed .y the group of (ntonio 1onfort %%% was denied.1# /ence, they instituted a petition for review with this !ourt, doc9eted as -.+. "o. 155)72. %n -.+. "o. 1525)2B &n (pri 21, 1997, 1a. (ntonia 1. *a vatierra fi ed on .eha f of the !orporation a comp aint for forci. e entry, pre iminary mandatory injunction with temporary restraining order and damages against the group of (ntonio 1onfort %%%, .efore the 1unicipa :ria !ourt C1:!D of !adi4 !ity.11 %t contended that the atter through force and intimidation, un awfu y too9 possession of the ) /aciendas and deprived the !orporation of the produce thereon. %n their answer, the group of (ntonio 1onfort %%% a eged that they are possessing and contro ing the /aciendas and harvesting the produce therein on .eha f of the corporation and not for themse ves. :hey i9ewise raised the affirmative defense of ac9 of ega capacity of 1a. (ntonia 1. *a vatierra to sue on .eha f of the !orporation.
12

1em.ers of the 3oard who passed the same were not va id y e ected officers of the !orporation. ( corporation has no power e;cept those e;press y conferred on it .y the !orporation !ode and those that are imp ied or incidenta to its e;istence. %n turn, a corporation e;ercises said powers through its .oard of directors and?or its du y authori4ed officers and agents. :hus, it has .een o.served that the power of a corporation to sue and .e sued in any court is odged with the .oard of directors that e;ercises its corporate powers. %n turn, physica acts of the corporation, i9e the signing of documents, can .e performed on y .y natura persons du y authori4ed for the purpose .y corporate .y2 aws or .y a specific act of the .oard of directors. 17 !oro ary thereto, corporations are re=uired under *ection 2A of the !orporation !ode to su.mit to the *0! within thirty C8#D days after the e ection the names, nationa ities and residences of the e ected directors, trustees and officers of the !orporation. %n order to 9eep stoc9ho ders and the pu. ic transacting .usiness with domestic corporations proper y informed of their organi4ationa operationa status, the *0! issued the fo owing ru esB ;;; ;;; ;;;

&n $e.ruary 17, 1997, the 1:! of !adi4 !ity rendered a decision dismissing the comp aint.18 &n appea , the +egiona :ria !ourt of "egros &ccidenta , 3ranch A#, reversed the 6ecision of the 1:!! and remanded the case for further proceedings. 1) (ggrieved, the group of (ntonio 1onfort %%% fi ed a petition for review with the !ourt of (ppea s. &n &cto.er 5, 2##1, the *pecia :enth 6ivision set aside the judgment of the +:! and dismissed the comp aint for forci. e entry for ac9 of capacity of 1a. (ntonia 1. *a vatierra to represent the !orporation.15 :he motion for reconsideration fi ed .y the atter was denied .y the appe ate court.1A 5nfa4ed, the !orporation fi ed a petition for review with this !ourt, doc9eted as -.+. "o. 1525)2 which was conso idated with -.+. "o. 155)72 per +eso ution dated January 21, 2##). 17 :he foca issue in these conso idated petitions is whether or not 1a. (ntonia 1. *a vatierra has the ega capacity to sue on .eha f of the !orporation. :he group of (ntonio 1onfort %%% c aims that the 1arch 81, 1997 3oard +eso ution authori4ing 1a. (ntonia 1. *a vatierra and?or +amon /. 1onfort to represent the !orporation is void .ecause the purported

2. ( G#n#*a1 In/o*:a!+on $"##! sha .e fi ed with this !ommission within thirty C8#D days fo owing the date of the annua stoc9ho ders' meeting. "o e;tension of said period sha .e a owed, e;cept for very justifia. e reasons stated in writing .y the President, *ecretary, :reasurer or other officers, upon which the !ommission may grant an e;tension for not more than ten C1#D days. 2.(. *hou d a director, trustee or officer die, resign or in any manner, cease to ho d office, the corporation sha report such fact to the !ommission with fifteen C15D days after such death, resignation or cessation of office. 8. %f for any justifia. e reason, the annua meeting has to .e postponed, the company shou d notify the !ommission in writing of such postponement. '"# G#n#*a1 In/o*:a!+on $"##! ("a11 (!a!#, a:on, o!"#*(, !"# na:#( o/ !"# #1#0!# +*#0!o*( an o//+0#*(, !o,#!"#* ?+!" !"#+* 0o**#(;on +n, ;o(+!+on !+!1#@ C0mphasis supp iedD

%n the instant case, the si; signatories to the 1arch 81, 1997 3oard +eso ution authori4ing 1a. (ntonia 1. *a vatierra and?or +amon /. 1onfort to represent the !orporation, wereB 1a. (ntonia 1. *a vatierra, President< +amon /. 1onfort, 0;ecutive >ice President< 6irectors Pau 1. 1onfort, Fvete 1. 3enedicto and Ja=ue ine 1. Fusay< and 0ster *. 1onfort, *ecretary.19 /owever, the names of the ast four C)D signatories to the said 3oard +eso ution do not appear in the 199A -enera %nformation *heet su.mitted .y the !orporation with the *0!. 5nder said -enera %nformation *heet the composition of the 3oard is as fo owsB 1. 1a. (ntonia 1. *a vatierra C!hairmanD< 2. +amon /. 1onfort C1em.erD< 8. (ntonio /. 1onfort, Jr., C1em.erD< ). Joa=uin /. 1onfort C1em.erD< 5. $rancisco /. 1onfort C1em.erD and A. Jesus (ntonio /. 1onfort C1em.erD. 2# :here is thus a dou.t as to whether Pau 1. 1onfort, Fvete 1. 3enedicto, Ja=ue ine 1. Fusay and 0ster *. 1onfort, were indeed du y e ected 1em.ers of the 3oard ega y constituted to .ring suit in .eha f of the !orporation.21 %n %remium ,ar#le !esources, -nc. v. $ourt of Appeals ,22 the !ourt was confronted with the simi ar issue of capacity to sue of the officers of the corporation who fi ed a comp aint for damages. %n the said case, we sustained the dismissa of the comp aint .ecause it was not esta. ished that the 1em.ers of the 3oard who authori4ed the fi ing of the comp aint were the awfu y e ected officers of the corporation. :hus Q :he on y issue in this case is whether or not the fi ing of the case for damages against private respondent was authori4ed .y a du y constituted 3oard of 6irectors of the petitioner corporation. Petitioner, through the first set of officers, viz., 1ario Rava a, &scar -an, ,ione Pengson, Jose 1a. *i va, (derito Fujuico and +odo fo 1i are, presented the 1inutes of the meeting of its 3oard of 6irectors he d on (pri 1, 1972, as proof that the fi ing of the case against private respondent was authori4ed .y the 3oard. &n

the other hand, the second set of officers, viz., *aturnino -. 3e en, Jr., ( .erto !. "ogra es and Jose ,.+. +eyes, presented a +eso ution dated Ju y 8#, 197A, to show that Premium did not authori4e the fi ing in its .eha f of any suit against the private respondent %nternationa !orporate 3an9. ,ater on, petitioner su.mitted its (rtic es of %ncorporation dated "ovem.er A, 1979 with the fo owing as 6irectorsB 1ario !. Rava a, Pedro !. !e so, &scar 3. -an, ,ione Pengson, and Jose 1a. *i va. /owever, it appears from the genera information sheet and the !ertification issued .y the *0! on (ugust 19, 197A that as of 1arch ), 1971, the officers and mem.ers of the .oard of directors of the Premium 1ar. e +esources, %nc. wereB ( .erto !. "ogra es I President?6irector $ernando 6. /i ario I >ice President?6irector (ugusto %. -a ace I :reasurer Jose ,.+. +eyes I *ecretary?6irector Pido 0. (gui ar I 6irector *aturnino -. 3e en, Jr. I !hairman of the 3oard. @hi e the 1inutes of the 1eeting of the 3oard on (pri 1, 1972 states that the new y e ected officers for the year 1972 were &scar -an, 1ario Rava a, (derito Fujuico and +odo fo 1i are, petitioner fai ed to show proof that this e ection was reported to the *0!. %n fact, the ast entry in their -enera %nformation *heet with the *0!, as of 197A appears to .e the set of officers e ected in 1arch 1971. @e agree with the finding of pu. ic respondent !ourt of (ppea s, that 'in the a.sence of any .oard reso ution from its .oard of directors the JsicK authority to act for and in .eha f of the corporation, the present action must necessari y fai . :he power of the corporation to sue and .e sued in any court is odged with the .oard of directors that e;ercises its corporate powers. :hus, the issue of authority and the inva idity of p aintiff2appe ant's

su.scription which is sti pending, is a matter that is a so addressed, considering the premises, to the sound judgment of the *ecurities H 0;change !ommission.' 3y the e;press mandate of the !orporation !ode C*ection 2AD, a corporations du y organi4ed pursuant thereto are re=uired to su.mit within the period therein stated C8# daysD to the *ecurities and 0;change !ommission the names, nationa ities and residences of the directors, trustees and officers e ected. *ec. 2A of the !orporation !ode provides, thusB '*ec. 2A. !eport of election of directors, trustees and officers. I @ithin thirty C8#D days after the e ection of the directors, trustees and officers of the corporation, the secretary, or any other officer of the corporation, sha su.mit to the *ecurities and 0;change !ommission, the names, nationa ities and residences of the directors, trustees and officers e ected. ;;;' 0vident y, the o.jective sought to .e achieved .y *ection 2A is to give the pu. ic information, under sanction of oath of responsi. e officers, of the nature of .usiness, financia condition and operationa status of the company together with information on its 9ey officers or managers so that those dea ing with it and those who intend to do .usiness with it may 9now or have the means of 9nowing facts concerning the corporation's financia resources and .usiness responsi.i ity. :he c aim, therefore, of petitioners as represented .y (tty. 6umadag, that Ra.a a, et a ., are the incum.ent officers of Premium has not .een fu y su.stantiated. %n the a.sence of an authority from the .oard of directors, no person, not even the officers of the corporation, can va id y .ind the corporation. %n the case at .ar, the fact that four of the si; 1em.ers of the 3oard isted in the 199A -enera %nformation *heet28 are a ready dead2) at the time the 1arch 81, 1997 3oard +eso ution was issued, does not automatica y ma9e the four signatories Ci.e., Pau 1. 1onfort, Fvete 1. 3enedicto, Ja=ue ine 1. Fusay and 0ster *. 1onfortD to the said 3oard +eso ution Cwhose name do not appear in the 199A -enera %nformation *heetD as among the incum.ent 1em.ers of the 3oard. :his is .ecause

it was not esta. ished that they were du y e ected to rep ace the said deceased 3oard 1em.ers. :o correct the a eged error in the -enera %nformation *heet, the retained accountant of the !orporation informed the *0! in its "ovem.er 11, 1997 etter that the non2inc usion of the awfu y e ected directors in the 199A -enera %nformation *heet was attri.uta. e to its oversight and not the fau t of the !orporation.25 :his .e ated attempt, however, did not erase the dou.t as to whether an e ection was indeed he d. (s previous y stated, a corporation is mandated to inform the *0! of the names and the change in the composition of its officers and .oard of directors within 8# days after e ection if one was he d, or 15 days after the death, resignation or cessation of office of any of its director, trustee or officer if any of them died, resigned or in any manner, ceased to ho d office. :his, the !orporation fai ed to do. :he a eged e ection of the directors and officers who signed the 1arch 81, 1997 3oard +eso ution was he d on &cto.er 1A, 199A, .ut the *0! was informed thereof more than two years ater, or on "ovem.er 11, 1997. :he ) 6irectors appearing in the 199A -enera %nformation *heet died .etween the years 197) Q 1977,2A .ut the records do not show if such demise was reported to the *0!. @hat further mi itates against the purported e ection of those who signed the 1arch 81, 1997 3oard +eso ution was the .e ated su.mission of the a eged 1inutes of the &cto.er 1A, 199A meeting where the =uestioned officers were e ected. :he issue of ega capacity of 1a. (ntonia 1. *a vatierra was raised .efore the ower court .y the group of (ntonio 1onfort %%% as ear y as 1997, .ut the 1inutes of said &cto.er 1A, 199A meeting was presented .y the !orporation on y in its $#;!#:3#* 29, 1999 !omment .efore the !ourt of (ppea s.27 1oreover, the !orporation fai ed to prove that the same &cto.er 1A, 199A 1inutes was su.mitted to the *0!. %n fact, the 1997-enera %nformation *heet27 su.mitted .y the !orporation does not ref ect the names of the ) 6irectors c aimed to .e e ected on &cto.er 1A, 199A. !onsidering the foregoing, we find that 1a. (ntonia 1. *a vatierra fai ed to prove that four of those who authori4ed her to represent the !orporation were the awfu y e ected 1em.ers of the 3oard of the !orporation. (s such, they cannot confer va id authority for her to sue on .eha f of the corporation. :he !ourt notes that the comp aint in !ivi !ase "o. 5#A2!, for rep evin .efore the +egiona :ria !ourt of "egros &ccidenta , 3ranch A#, has 2 causes of action, i.e., un awfu detention of the !orporation's motor

vehic e and tractors, and the un awfu detention of the of 877 fighting coc9s of +amon /. 1onfort. *ince +amon sought redress of the atter cause of action in his persona capacity, the dismissa of the comp aint for ac9 of capacity to sue on .eha f of the corporation shou d .e imited on y to the corporation's cause of action for de ivery of motor vehic e and tractors. %n view, however, of the demise of +amon on June 25, 1999,29 su.stitution .y his heirs is proper. <HERE%ORE, in view of a the foregoing, the petition in -.+. "o. 1525)2 is 60"%06. :he &cto.er 5, 2##1 6ecision of the *pecia :enth 6ivision of the !ourt of (ppea s in !(2-.+. *P "o. 58A52, which set aside the (ugust 1), 1997 6ecision of the +egiona :ria !ourt of "egros &ccidenta , 3ranch A# in !ivi !ase "o. 722, is ($$%+106. %n -.+. "o. 155)72, the petition is -+(":06 and the June 7, 2##2 6ecision rendered .y the *pecia $ormer :hirteenth 6ivision of the !ourt of (ppea s in !(2-.+. *P "o. )9251, dismissing the petition fi ed .y the group of (ntonio 1onfort %%%, is +0>0+*06 and *0: (*%60. :he comp aint for forci. e entry doc9eted as !ivi !ase "o. 722 .efore the 1unicipa :ria !ourt of !adi4 !ity is 6%*1%**06. %n !ivi !ase "o. 5#A2! with the +egiona :ria !ourt of "egros &ccidenta , 3ranch A#, the action for de ivery of persona property fi ed .y 1onfort /ermanos (gricu tura 6eve opment !orporation is i9ewise 6%*1%**06. @ith respect to the action fi ed .y +amon /. 1onfort for the de ivery of 877 fighting coc9s, the +egiona :ria !ourt of "egros &ccidenta , 3ranch A#, is ordered to effect the corresponding su.stitution of parties. "o costs. $O ORDERED. G.R. No. 107905 O0!o3#* 22, 1997 GRACE CHRI$'IAN HIGH $CHOOL, petitioner, vs. 'HE COUR' O% A))EAL$, GRACE &ILLAGE A$$OCIA'ION, INC., ALE-ANDRO G. BEL'RAN, an ERNE$'O L. GO, respondents.

:he =uestion for decision in this case is the right of petitioner's representative to sit in the .oard of directors of respondent -race >i age (ssociation, %nc. as a permanent mem.er thereof. $or fifteen years I from 1975 unti 1979 I petitioner's representative had .een recogni4ed as a 'permanent director' of the association. 3ut on $e.ruary 18, 199#, petitioner received notice from the association's committee on e ection that the atter was 'ree;amining' Cactua y, reconsideringD the right of petitioner's representative to continue as an une ected mem.er of the .oard. (s the .oard denied petitioner's re=uest to .e a owed representation without e ection, petitioner .rought an action for mandamus in the /ome %nsurance and -uaranty !orporation. %ts action was dismissed .y the hearing officer whose decision was su.se=uent y affirmed .y the appea s .oard. Petitioner appea ed to the !ourt of (ppea s, which in turn uphe d the decision of the /%-!'s appea s .oard. /ence this petition for review .ased on the fo owing contentionsB 1. :he Petitioner herein has a ready ac=uired a vested right to a permanent seat in the 3oard of 6irectors of -race >i age (ssociation< 2. :he amended 3y2 aws of the (ssociation drafted and promu gated .y a !ommittee on 6ecem.er 2#, 1975 is va id and .inding< and
8. :he Practice of to erating the automatic inc usion of petitioner as a permanent mem.er of the 3oard of 6irectors of the (ssociation without the .enefit of e ection is a owed under the aw. 1

3rief y stated, the facts are as fo owsB Petitioner -race !hristian /igh *choo is an educationa institution offering preparatory, 9indergarten and secondary courses at the -race >i age in Gue4on !ity. Private respondent -race >i age (ssociation, %nc., on the other hand, is an organi4ation of ot and?or .ui ding owners, essees and residents at -race >i age, whi e private respondents ( ejandro -. 3e tran and 0rnesto ,. -o were its president and chairman of the committee on e ection, respective y, in 199#, when this suit was .rought. (s adopted in 19A7, the .y2 aws of the association provided in (rtic e %>, as fo owsB

MENDO6A, J.:

:he annua meeting of the mem.ers of the (ssociation sha .e he d on the first *unday of January in each ca endar year at the principa office of the (ssociation at 2B## P.1. where they sha e ect .y p ura ity vote and .y secret .a oting, the 3oard of 6irectors, composed of e even C11D mem.ers to serve for one C1D year unti their successors are du y e ected and have =ua ified. 2

sent to the mem.ers of the association that the provision on e ection of directors of the 19A7 .y2 aws of the association wou d .e o.served. Petitioner re=uested the chairman of the e ection committee to change the notice of e ection .y fo owing the procedure in previous e ections, c aiming that the notice issued for the 199# e ections ran 'counter to the practice in previous years' and was 'in vio ation of the .y2 aws Cof 1975D' and 'un awfu y depriveJdK -race !hristian /igh *choo of its vested right JtoK a permanent seat in the .oard.' 5 (s the association denied its re=uest, the schoo .rought suit for mandamus in the /ome %nsurance and -uaranty !orporation to compe the .oard of directors of the association to recogni4e its right to a permanent seat in the .oard. Petitioner .ased its c aim on the fo owing portion of the proposed amendment which, it contended, had .ecome part of the .y2 aws of the association as (rtic e >%, paragraph 2, thereofB :he $&arter and Associate ,em#ers sha e ect the 6irectors of the (ssociation. :he candidates receiving the first fourteen >3G? highest num.er of votes sha .e dec ared and proc aimed e ected unti their successors are e ected and =ua ified. "!A$E $B!- T-A2 B-"B $BFFL representative is a permanent Airector of t&e A F$-AT-F2. %t appears that the opinion of the *ecurities and 0;change !ommission on the va idity of this provision was sought .y the association and that in rep y to the =uery, the *0! rendered an opinion to the effect that the practice of a owing une ected mem.ers in the .oard was contrary to the e;isting .y2 aws of the association and to X92 of the !orporation !ode C3.P. 3 g. A7D. Private respondent association cited the *0! opinion in its answer. (dditiona y, the association contended that the .asis of the petition for mandamus was mere y 'a proposed .y2 aws which has not yet .een approved .y competent authority nor registered with the *0! or /%-!.' %t argued that 'the .y2 aws which was registered with the *0! on January 1A, 19A9 shou d .e the prevai ing .y2 aws of the association and not the proposed amended .y2 aws.' 6 %n rep y, petitioner maintained that the 'amended .y2 aws is va id and .inding' and that the association was estopped from =uestioning the .y2 aws. 7

%t appears, that on 6ecem.er 2#, 1975, a committee of the .oard of directors prepared a draft of an amendment to the .y2 aws, reading as fo owsB 2 /-. A22NAL ,EET-2" :he (nnua 1eeting of the mem.ers of the (ssociation sha .e he d on the second T&ursda( of January of each year. 0ach $&arter or Associate 1em.er of the (ssociation is entit ed to vote. /e sha .e entit ed to as many votes as he has ac=uired thru his month y mem.ership fees onl(computed on a ratio of TE2 >%3:.::? %E F for one vote. :he $&arter and Associate ,em#ers sha e ect the 6irectors of the (ssociation. :he candidates receiving the first fourteen >3G? highest num.er of votes sha .e dec ared and proc aimed e ected unti their successors are e ected and =ua ified. "!A$E $B!- T-A2 B-"B $BFFL representative is a permanent Airector of t&e A F$-AT-F2. :his draft was never presented to the genera mem.ership for approva . "everthe ess, from 1975, after it was presuma. y su.mitted to the .oard, up to 199#, petitioner was given a permanent seat in the .oard of directors of the association. &n $e.ruary 18, 199#, the association's committee on e ection in a etter informed James :an, principa of the schoo , that 'it was the sentiment that a directors shou d .e e ected .y mem.ers of the association' .ecause 'to ma9e a person or entity a permanent 6irector wou d deprive the right of voters to vote for fifteen C15D mem.ers of the 3oard,' and 'it is undemocratic for a person or entity to ho d office in perpetuity.' 4 $or this reason, :an was to d that 'the proposa to ma9e the -race !hristian /igh *choo representative as a permanent director of the association, a though previous y to erated in the past e ections shou d .e ree;amined.' $o owing this advice, notices were

( pre iminary conference was he d on 1arch 29, 199# .ut nothing su.stantia was agreed upon. :he parties mere y agreed that the .oard of directors of the association shou d meet on (pri 17, 199# and (pri 2), 199# for the purpose of discussing the amendment of the .y2 aws and a possi. e amica. e sett ement of the case. ( meeting was he d on (pri 17, 199#, .ut the parties fai ed to reach an agreement. %nstead, the .oard adopted a reso ution dec aring the 1975 provision nu and void for ac9 of approva .y mem.ers of the association and the 19A7 .y2 aws to .e effective. &n June 2#, 199#, the hearing officer of the /%-! rendered a decision dismissing petitioner's action. :he hearing officer he d that the amended .y2 aws, upon which petitioner .ased its c aim, 'JwasK mere y a proposed .y2 aws which, a though imp emented in the past, had not yet .een ratified .y the mem.ers of the association nor approved .y competent authority'< that, on the contrary, in the meeting he d on (pri 17, 199#, the directors of the association dec ared 'the proposed .y2 aw dated 6ecem.er 2#, 1975 prepared .y the committee on .y2 aws . . . nu and void' and the .y2 aws of 6ecem.er 17, 19A7 as the 'prevai ing .y2 aws under which the association is to operate unti such time that the proposed amendments to the .y2 aws are approved and ratified .y a majority of the mem.ers of the association and du y fi ed and approved .y the pertinent government agency.' :he hearing officer rejected petitioner's contention that it had ac=uired a vested right to a permanent seat in the .oard of directors. /e he d that past practice in e ection of directors cou d not give rise to a vested right and that departure from such practice was justified .ecause it deprived mem.ers of association of their right to e ect or to .e voted in office, not to say that 'a owing the automatic inc usion of a mem.er representative of petitioner as permanent director JwasK contrary to aw and the registered .y2 aws of respondent association.' 7 :he appea s .oard of the /%-! affirmed the decision of the hearing officer in its reso ution dated *eptem.er 18, 199#. %t cited the opinion of the *0! .ased on X92 of the !orporation !ode which readsB X92. Election and term of trustees. I 5n ess otherwise provided in the artic es of incorporation or the .y2 aws, the .oard of trustees of non2stoc9 corporations, which may .e more than fifteen C15D in num.er as may .e fi;ed in their artic es of incorporation or .y2 aws, sha , as soon as organi4ed, so c assify themse ves that the term of office of one2third C1?8D of the num.er sha e;pire every year< and su.se=uent e ections of trustees comprising one2third

C1?8D of the .oard of trustees sha .e he d annua y and trustees so e ected sha have a term of three C8D years. :rustees thereafter e ected to fi vacancies occurring .efore the e;piration of a particu ar term sha ho d office on y for the une;pired period. :he /%-! appea s .oard denied c aims that the schoo 'JwasK .eing deprived of its right to .e a mem.er of the 3oard of 6irectors of respondent association,' .ecause the fact was that 'it may nominate as many representatives to the (ssociation's 3oard as it may deem appropriate.' %t said that 'what is mere y .eing uphe d is the act of the incum.ent directors of the 3oard of correcting a ong standing practice which is not anchored upon any ega .asis.' 9 Petitioner appea ed to the !ourt of (ppea s .ut petitioner again ost as the appe ate court on $e.ruary 9, 1998, affirmed the decision of the /%-!. :he !ourt of (ppea s he d that there was no va id amendment of the association's .y2 aws .ecause of fai ure to comp y with the re=uirement of its e;isting .y2 aws, prescri.ing the affirmative vote of the majority of the mem.ers of the association at a regu ar or specia meeting ca ed for the adoption of amendment to the .y2 aws. (rtic e N%N of the .y2 aws providesB 10 :he mem.ers of the (ssociation .y an affirmative vote of the majority at any regu ar or specia meeting ca ed for the purpose, may a ter, amend, change or adopt any new .y2 aws. :his provision of the .y2 aws actua y imp ements X22 of the !orporation ,aw C(ct "o. 1)59D which providesB X22. :he owners of a majority of the su.scri.ed capita stoc9, or a majority of the mem.ers if there .e no capita stoc9, may, at a regu ar or specia meeting du y ca ed for the purpose, amend or repea any .y2 aw or adopt new .y2 aws. :he owners of two2thirds of the su.scri.ed capita stoc9, or two2thirds of the mem.ers if there .e no capita stoc9, may de egate to the .oard of directors the power to amend or repea any .y2 aw or to adopt new .y2 awsB %rovided, &o*ever, :hat any power de egated to the .oard of directors to amend or repea any .y2 aw or adopt new .y2 aws sha .e considered as revo9ed

whenever a majority of the stoc9ho ders or of the mem.ers of the corporation sha so vote at a regu ar or specia meeting. And provided, furt&er, :hat the 6irector of the 3ureau of !ommerce and %ndustry sha not hereafter fi e an amendment to the .y2 aws of any .an9, .an9ing institution or .ui ding and oan association, un ess accompanied .y certificate of the 3an9 !ommissioner to the effect that such amendments are in accordance with aw. :he proposed amendment to the .y2 aws was never approved .y the majority of the mem.ers of the association as re=uired .y these provisions of the aw and .y2 aws. 3ut petitioner contends that the mem.ers of the committee which prepared the proposed amendment were du y authori4ed to do so and that .ecause the mem.ers of the association thereafter imp emented the provision for fifteen years, the proposed amendment for a intents and purposes shou d .e considered to have .een ratified .y them. Petitioner contendsB 11 !onsidering, therefore, that the 'agents' or committee were du y authori4ed to draft the amended .y2 aws and the acts done .y the 'agents' were in accordance with such authority, the acts of the 'agents' from the very .eginning were awfu and .inding on the homeowners Cthe principa sD per sewithout need of any ratification or adoption. :he more has the amended .y2 aws .ecome .inding on the homeowners when the homeowners fo owed and imp emented the provisions of the amended .y2 aws. :his is not mere y tantamount to tacit ratification of the acts done .y du y authori4ed 'agents' .ut e;press approva and confirmation of what the 'agents' did pursuant to the authority granted to them. !oro ari y, petitioner c aims that it has ac=uired a vested right to a permanent seat in the .oard. *ays petitionerB :he right of the petitioner to an automatic mem.ership in the .oard of the (ssociation was granted .y the mem.ers of the (ssociation themse ves and this grant has .een imp emented .y mem.ers of the .oard themse ves a through the years. &utside the present mem.ership of the .oard, not a sing e mem.er of the (ssociation has registered any desire to remove the right of herein petitioner to an automatic mem.ership in the .oard. %f

there is any.ody who has the right to ta9e away such right of the petitioner, it wou d .e the individua mem.ers of the (ssociation through a referendum and not the present .oard some of the mem.ers of which are motivated .y persona interest. Petitioner disputes the ru ing that the provision in =uestion, giving petitioner's representative a permanent seat in the .oard of the association, is contrary to aw. Petitioner c aims that that is not so .ecause there is rea y no provision of aw prohi.iting une ected mem.ers of .oards of directors of corporations. +eferring to X92 of the present !orporation !ode, petitioner saysB %t is c ear that the a.ove provision of the !orporation !ode on y provides for the manner of e ection of the mem.ers of the .oard of trustees of non2stoc9 corporations which may .e more than fifteen in num.er and which manner of e ection is even su.ject to what is provided in the artic es of incorporation or .y2 aws of the association thus showing that the a.ove provisions JareK not even mandatory. 0ven a carefu perusa of the a.ove provision of the !orporation !ode wou d not show that it prohi.its a non2 stoc9 corporation or association from granting one of its mem.ers a permanent seat in its .oard of directors or trustees. %f there is no such ega prohi.ition then it is a owa. e provided it is so provided in the (rtic es of %ncorporation or in the .y2 aws as in the instant case. ;;; ;;; ;;; %f fact, the truth is that this is a owed and is .eing practiced .y some corporations du y organi4ed and e;isting under the aws of the Phi ippines. &ne e;amp e is the P us N%% !atho ic !enter, %nc. 5nder the .y2 aws of this corporation, that whoever is the (rch.ishop of 1ani a is considered a mem.er of the .oard of trustees without .enefit of e ection. (nd not on y that. /e a so automatica y sits as the !hairman of the 3oard of :rustees, again without need of any e ection.

(nother concrete e;amp e is the !ardina *antos 1emoria /ospita , %nc. %t is a so provided in the .y2 aws of this corporation that whoever is the (rch.ishop of 1ani a is considered a mem.er of the .oard of trustees year after year without .enefit of any e ection and he a so sits automatica y as the !hairman of the 3oard of :rustees. %t is actua y XX27 and 29 of the !orporation ,aw I not X92 of the present aw or X29 of the former one I which re=uire mem.ers of the .oards of directors of corporations to .e e ected. :hese provisions readB X27. Nnless ot&er*ise provided in t&is Act, t&e corporate po*ers of all corporations formed under t&is Act s&all #e exercised, all #usiness conducted and all propert( of suc& corporations controlled and &eld #( a #oard of not less t&an five nor more t&an eleven directors to #e elected from amon' t&e &olders of stoc+ or, *&ere t&ere is no stoc+, from t&e mem#ers of t&e corporationB %rovided, &o*ever, :hat in corporations, other than .an9s, in which the 5nited *tates has or may have a vested interest, pursuant to the powers granted or de egated .y the :rading with the 0nemy (ct, as amended, and simi ar (cts of !ongress of the 5nited *tates re ating to the same su.ject, or .y 0;ecutive &rder "o. 9#95 of the President of the 5nited *tates, as heretofore or hereafter amended, or .oth, the directors need not .e e ected from among the ho ders of the stoc9, or, where there is no stoc9 from the mem.ers of the corporation. Cemphasis addedD X29. (t the meeting for the adoption of the origina .y2 aws, or at such su.se=uent meeting as may .e then determined, directors sha .e e ected to ho d their offices for one year and unti their successors are e ected and =ua ified. :hereafter the directors of t&e corporation s&all #e elected annuall( #( t&e stoc+&olders if it #e a stoc+ corporation or #( t&e mem#ers if it #e a nonstoc+ corporation, and if no provision is made in t&e #(6la*s for t&e time of election t&e same s&all #e &eld on t&e first Tuesda( after t&e first ,onda( in @anuar( . 5n ess otherwise provided in the .y2 aws, two wee9s' notice of the e ection of directors must .e given .y pu. ication in some newspaper of genera circu ation devoted to the

pu. ication of genera news at the p ace where the principa office of the corporation is esta. ished or ocated, and .y written notice deposited in the post2office, postage pre2paid, addressed to each stoc9ho der, or, if there .e no stoc9ho ders, then to each mem.er, at his ast 9nown p ace of residence. %f there .e no newspaper pu. ished at the p ace where the principa office of the corporation is esta. ished or ocated, a notice of the e ection of directors sha .e posted for a period of three wee9s immediate y preceding the e ection in at east three pu. ic p aces, in the p ace where the principa office of the corporation is esta. ished or ocated. C0mphasis addedD :he present !orporation !ode C3.P. 3 g. A7D, which too9 effect on 1ay 1, 197#, 12 simi ar y providesB X28. T&e Board of Airectors or Trustees. I 5n ess otherwise provided in this !ode, the corporate powers of a corporations formed under this !ode sha .e e;ercised, a .usiness conducted and a property of such corporations contro ed and he d .y the .oard of directors or trustees to #e electedfrom among the ho ders of stoc9s, or where there is no stoc9, from among the mem.ers of the corporation, who sha ho d office for one C1D year and unti their successors are e ected and =ua ified. C0mphasis addedD :hese provisions of the former and present corporation aw eave no room for dou.t as to their meaningB the .oard of directors of corporations must .e e ected from among the stoc9ho ders or mem.ers. :here may .e corporations in which there are une ected mem.ers in the .oard .ut it is c ear that in the e;amp es cited .y petitioner the une ected mem.ers sit as ex officio mem.ers, i.e., .y virtue of and for as ong as they ho d a particu ar office. 3ut in the case of petitioner, there is no reason at a for its representative to .e given a seat in the .oard. "or does petitioner c aim a right to such seat .y virtue of an office he d. %n fact it was not given such seat in the .eginning. %t was on y in 1975 that a proposed amendment to the .y2 aws sought to give it one. *ince the provision in =uestion is contrary to aw, the fact that for fifteen years it has not .een =uestioned or cha enged .ut, on the contrary, appears to have .een imp emented .y the mem.ers of the association cannot foresta a ater cha enge to its va idity. "either can it attain va idity through ac=uiescence .ecause, if it is contrary to aw, it is .eyond

the power of the mem.ers of the association to waive its inva idity. $or that matter the mem.ers of the association may have forma y adopted the provision in =uestion, .ut their action wou d .e of no avai .ecause no provision of the .y2 aws can .e adopted if it is contrary to aw. 12 %t is pro.a. e that, in a owing petitioner's representative to sit on the .oard, the mem.ers of the association were not aware that this was contrary to aw. %t shou d .e noted that they did not actua y imp ement the provision in =uestion e;cept perhaps insofar as it increased the num.er of directors from 11 to 15, .ut certain y not the a owance of petitioner's representative as an une ected mem.er of the .oard of directors. %t is more accurate to say that the mem.ers mere y to erated petitioner's representative and to erance cannot .e considered ratification. "or can petitioner c aim a vested right to sit in the .oard on the .asis of 'practice.' Practice, no matter how ong continued, cannot give rise to any vested right if it is contrary to aw. 0ven ess tena. e is petitioner's c aim that its right is 'coterminus with the e;istence of the association.' 14 $ina y, petitioner =uestions the authority of the *0! to render an opinion on the va idity of the provision in =uestion. %t contends that jurisdiction over this case is e;c usive y vested in the /%-!. 3ut this case was not decided .y the *0! .ut .y the /%-!. :he /%-! mere y cited as authority for its ru ing the opinion of the *0! chairman. :he /%-! cou d have cited any other authority for the view that under the aw mem.ers of the .oard of directors of a corporation must .e e ected and it wou d .e none the worse for doing so. @/0+0$&+0, the decision of the !ourt of (ppea s is ($$%+106. *& &+60+06. G.R. No. L-45574 O0!o3#* 27, 1927

Barve( and FHBrien for petitioners. La*rence, elp& and $arrasco for respondents.

&ILLA-REAL, J.: :his is a petition for certiorari fi ed .y 3. /. *i en, *. J. @i son , J. -eorge, !. +. ,u4uriaga and $rancis ,us9 against the /onora. e Jose &. >era, Judge of the !ourt of $irst %nstance of 1ani a, ,eon +osentha , $rederic /. *tevens and -on4a o P. "ava praying for the reason stated in their p eadings, that, after the proper proceedings the !ourt of $irst %nstance of 1ani a, presided over .y the respondent judge, .e dec ared to have acted without or a.used its jurisdiction in issuing a writ of pre iminary injunction in case "o. 51#1) of the !ourt of $irst %nstances of 1ani a. :he =uestion to .e decided in this case is whether or not the !ourt of $irst %nstance of 1ani a, presided over .y the respondent judge, acted without or e;ceeded its jurisdiction and a.used its discretion in issuing in civi case "o. 51#1) of said court the writ of pre iminary injunction, which is the su.ject matter of this petition, pending the tria and determination of said case. %n the comp aint fi ed .y the herein respondents ,eon +osentha , $rederic /. *tevens and -on4a o P. "ava against the herein petitioners on 1arch ), 987, in said civi case "o. 51#1) of the !ourt of $irst %nstance of 1ani a it was prayed that the genera meeting of stoc9ho ders of the Ram.a es !hromite 1ining !o., %nc., he d on 1arch 1, 1987, the e ection of the defendants, other than $rancis ,us9, as directors, and the e ection of defendants 3. /. *i en, *. J. @i son, J. -eorge and $rancis ,us9, as president, vise2president, treasurer and secretary, respective y, of said corporation, .e dec ared nu and void and without effect< that each of the atter .e ousted from his respective office on the ground that the e ection in =uestion was not he d in accordance with the .y2 aws, and that they .e prohi.ited from mo esting the therein p aintiffs and herein respondents and from interfering in the discharge of their rights, privi eges and duties as directors and officers of said corporation. *ection 2#7 of the !ode of !ivi Procedure imp ied y authori4es the .ringing of an action against the directors of a corporation .y means of quo *arranto proceedings to determine the ega ity or i ega ity of their e ection. 3y its purpose and .y the imp ied admission of the parties, the

B. H. $ILEN, $. -. <IL$ON, -. GEORGE, C. R. LU6URIAGA, an %RANCI$ LU$4, petitioners, vs. -O$E O. &ERA, -. ,# o/ %+*(! In(!an0# o/ Man+1a, LEON RO$EN'HAL, %REDERICH. $'E&EN$, an GON6ALO ). NA&A, respondents.

action .rought .y the herein respondents against the herein petitioner in the !ourt of $irst %nstance of 1ani a is therefore, in the nature of a quo *arranto. @hen the writ of pre iminary injunction was issued ex parte in said case, the =uestion of the ega ity or i ega ity of the e ection of the herein petitioners, as directors of the Ram.a es not yet .een decided. %t is inferred from the app ication and from the reso ution of the respondent judge, denying the motion to disso ve the writ of pre iminary injunction, that said directors upon their e ection, entered upon the discharge of their offices and, in turn, chose their officers who, as soon as they were e ected i9ewise .egan performing their respective functions .y issuing chec9s, withdrawing funds from the Phi ippine "ationa 3an9 and transacting .usiness in the name of the corporation. &n said date, 1arch 1, 1987, the herein respondents ,eon +osentha , $rederic /. *tevens and -on4a o P. "ava were discharging the offices of directors and of president, vice2president and secretary2 treasurer, respective y, of said corporation, .y virtue of the e ection he d .y the .oard of directors at its meeting on 1arch 5, 198A. %n a decision in case -. +. "o. )5)78, promu gated on 1arch 18, 1987 1 this court dec ared nu and void the e ection of said respondents as directors and officers of the Ram.a es !hromite 1ining !o., %nc., at the genera meeting of stoc9ho ders on 1arch 2, 198A, and ordered the ho ding of a new e ection of officers of said corporation. %nasmuch as section % of the .y2 aws of said corporation provides that the directors thereof sha ho d office for one year or unti their successors are e ected and =ua ified, said respondents continued to discharge their respective offices whi e said decision had not yet .ecome fina and the new e ection ordered therein had not yet .een he d. /owever, pending the reso ution of the motion for reconsideration of the decision in the =uestion fi ed .y said respondents, 1arch 1, 1987, the date of the e;piration of their term of office of one year, arrived. ( genera meeting of stoc9ho ders was, therefore, he d in accordance with the .y2 aws of the corporation, resu ting, as a ready stated, in the e ection as directors of the corporation of the herein petitioners who e ected their officers, who upon their e ection, in turn .egan to perform their respective functions. :his e ection of the petitioners as directors of the Ram.a es !hromite 1ining !o., %nc., and their assumption of office as such directors ended the term of office of the former directors, the herein respondents, .y virtue of the provision of said section % of the .y2 aws. (s a conse=uence of the issuance of the writ of pre iminary injunction under consideration, the therein defendants, petitioners herein, were suspended from discharging the offices of directors, president, vice2

president and secretary2treasurer, respective y, of the Ram.a es !hromite 1ining !o., %nc., then .eing occupied .y them as a resu t of the e ection he d at the genera meeting of stoc9ho ders on 1arch 1, 1987, and the p aintiffs therein, respondents herein, were reinstated in their respective offices of directors, president, vice2president, secretary and treasurer of said corporation in which they had a ready ceased, as stated a.ove. :herefore the defendants therein, petitioners herein, were practica y ousted from their respective offices, and the former directors and officers, the p aintiffs therein and respondents herein, reinstated in the same offices in which they had a ready ceased ipso jure. %t is c ear, therefore, that in the present case the pre iminary injunction has supp anted the quo *arrantoproceeding in which it was issued as an anci ary remedy, there.y .ecoming a principa remedy, a function thereof not contemp ated .y *ection 1A2 of the !ode of !ivi Procedure. '%njunction is not the proper remedy for the remova of an officer of a private corporation, nor for restoring one wrongfu y removed' C82 !. J., 2)#D. :herefore the respondent judge acted in e;cess of his jurisdiction and a.used his discretion in issuing the writ of pre iminary injunction the nu ity of which is sought, and the writ of certiorari app ied for shou d .e issued C!hua Le vs. (.eto, A8 Phi ., 589, and the decision cited therein. $or the foregoing consideration, this court is of the opinion and so ho d that in quo *arranto proceedings instituted for the so e purpose of =uestion the ega ity of the e ection of the directors of a corporation, he d at a genera meeting of stoc9ho ders, and of the e ection of the officers thereof he d .y the .oard of directors, a in the fu performance of their respective functions, a pre iminary injunction does not ie to prevent said directors and officers from discharging their offices and to restore the former directors, and the issuance thereof constitutes an e;cess of jurisdiction and an a.use of discretion. @herefore, the remedy of certiorari app ied for is granted and the pre iminary injunction, issued in case "o. 51#1) of the court of $irst %nstance of 1ani a, is dec ared nu and void, with the costs to the respondents e;cept the respondent judge, the /onora. e Jose &. >era. *o ordered. A#ad antos, -mperial, Aiaz, Laurel and $oncepcion, @@., concur. G.R. No. 152412 Ma*0" 1, 2007

NEC'ARINA $. RANIEL an MA. &IC'ORIA R. )AG-ONG, Petitioners, vs. )AUL -OCHICO, -OHN $'E%%EN$ an $URYA &IRIYA, +espondents. 60!%*%&" AU$'RIA-MAR'INE6, J.: (ssai ed in the present Petition for +eview on $ertiorari is the 6ecision1 of the !ourt of (ppea s C!(D dated (pri 8#, 2##2, affirming with modification the 6ecision dated &cto.er 27, 2### rendered .y the *ecurities and 0;change !ommission C*0!D which he d as va id the remova of petitioners 1a. >ictoria +. Pag2ong CPag2ongD as director and "ectarina *. +anie C+anie D as director and corporate officer of "ephro *ystems 6ia ysis !enter C"ephroD. Petitioners first =uestioned their remova in *0! !ase "o. #2297259#2 for 6ec aration of "u ity of the % ega (cts of +espondents, 6amages and %njunction. Petitioners, together with respondents Pau Jochico CJochicoD, John *teffens and *urya >iriya, were incorporators and directors of "ephro, with +anie acting as !orporate *ecretary and (dministrator. :he conf ict started when petitioners =uestioned respondents' p an to enter into a joint venture with the 3utuan 6octors' /ospita and !o ege, %nc. sometime in 6ecem.er 1997. 3ecause of this, petitioners c aim that respondents tried to compe them to waive and assign their shares with "ephro .ut they refused. :hereafter, +anie sought an indefinite eave of a.sence due to stress, .ut this was denied .y Jochico, as "ephro President. +anie , neverthe ess, did not report for wor9, causing Jochico to demand an e;p anation from her why she shou d not .e removed as (dministrator and !orporate *ecretary. +anie rep ied, e;pressing her sentiments over the disapprova of her re=uest for eave and respondents' decision with regard to the 3utuan venture. &n January 8#, 1997, Jochico issued a "otice of *pecia 3oard 1eeting on $e.ruary 2, 1997. 6espite receipt of the notice, petitioners did not attend the .oard meeting. %n said meeting, the 3oard passed severa reso utions ratifying the disapprova of +anie 's re=uest for eave, dismissing her as (dministrator of "ephro, dec aring the position of !orporate *ecretary vacant, appointing &te io Jochico as the new !orporate *ecretary and authori4ing the ca of a *pecia *toc9ho ders' 1eeting on $e.ruary 1A, 1997 for the purpose of the remova of petitioners as directors of "ephro.

&te io Jochico issued the corresponding notices for the *pecia *toc9ho ders' 1eeting to .e he d on $e.ruary 1A, 1997 which were received .y petitioners on $e.ruary 2, 1997. (gain, they did not attend the meeting. :he stoc9ho ders who were present removed the petitioners as directors of "ephro. :hus, petitioners fi ed *0! !ase "o. #2297259#2. &n &cto.er 27, 2###, the *0! rendered its 6ecision, the dispositive portion of which readsB @/0+0$&+0, the !ommission so ho ds that comp ainants cannot .e awarded the re iefs prayed for in reinstating "ectarina *. +anie as secretary and administrator. :he corporation acting thru its 3oard of 6irectors can va id y remove its corporate officers, particu ar y comp ainant "ectarina *. +anie as corporate secretary, treasurer and administrator of the 6ia ysis ! inic. ( so, the !ommission cannot grant the re ief prayed for .y comp ainants in restraining the respondents from interfering in the administration of the 6ia ysis ! inic owned .y the corporation and the use of corporate funds. :he administration of the 6ia ysis ! inic of the corporation and the use of corporate funds, rightfu y .e ong to the officers of the corporation, which in this case are the respondents. :he counterc aim of respondents to return or assign .ac9 the comp ainants' shares in favor of respondent Pau Jochico or his nominee is here.y denied for ac9 of merit. :he respondents fai ed to show any c ear and convincing evidence to re.ut the presumption of the va idity and truthfu ness of documents su.mitted to the !ommission in the grant of corporate icense. :he c aim for attorney's fees and damages of .oth parties are i9ewise denied for ac9 of merit, as neither party shou d .e punished for vindicating a right, which he?she .e ieves shou d .e protected or enforced. *& &+60+06.2 6issatisfied, petitioners fi ed a petition for review with the !(.

&n (pri 8#, 2##2, the !( rendered the assai ed 6ecision, with the fo owing dispositive portionB @/0+0$&+0, in ight of the foregoing discussions, the appea ed decision of the *ecurities and 0;change !ommission is here.y ($$%+106 with the 1&6%$%!(:%&" that the renewa of petitioners as directors of "ephro is dec ared va id. *& &+60+06.8 +espondents fi ed a 1anifestation and 1otion to !orrect :ypographica 0rror, stating that the term 'renewa ' as provided in the !( 6ecision shou d .e 'remova .') Petitioners, on the other hand, fi ed the present petition for review on certiorari. &n "ovem.er 2#, 2##2, the !( issued a +eso ution reso ving to refrain from acting on a pending incidents .efore it in view of the fi ing of the petition with the !ourt.5 %n the present petition, petitioners raised .asica y the same argument they had .efore the *0! and the !(, i.e., their remova from "ephro was not va id. 3oth the *0! and the !( he d that Pag2ong's remova as director and +anie 's remova as director and officer of "ephro were va id. $or its part, the *0! ru ed that the 3oard of 6irectors had sufficient ground to remove +anie as officer due to oss of trust and confidence, as her a.rupt and unauthori4ed eave of a.sence e;hi.ited her disregard of her responsi.i ities as an officer of the corporation and disrupted the operations of "ephro. :he *0! a so he d that the *pecia 3oard 1eeting he d on $e.ruary 2, 1997 was va id and the reso utions adopted therein are .inding on petitioners.A :he !( uphe d the *0!'s conc usions, adding further that the specia stoc9ho ders' meeting on $e.ruary 1A, 1997 was i9ewise va id y he d. :he !( a so ru ed that Pag2ong's remova as director of "ephro was justified as it was due to her 'undenied de ay in the re ease of "ephro's medica supp ies from the warehouse of the $ y2/igh 3ro9erage where she was an officer, on top of her and her co2petitioner +anie 's a.sence from the aforementioned directors' and stoc9ho ders' meetings of "ephro despite due notice.'7

%t is we to stress the sett ed ru e that the findings of fact of administrative .odies, such as the *0!, wi not .e interfered with .y the courts in the a.sence of grave a.use of discretion on the part of said agencies, or un ess the aforementioned findings are not supported .y su.stantia evidence. :hey carry even more weight when affirmed .y the !(. 7 *uch findings are accorded not on y great respect .ut even fina ity, and are .inding upon this !ourt, un ess it is shown that it had ar.itrari y disregarded or misapprehended evidence .efore it to such an e;tent as to compe a contrary conc usion had such evidence .een proper y appreciated.9 :his ru e is rooted in the doctrine that this !ourt is not a trier of facts, as we as in the respect to .e accorded the determinations made .y administrative .odies in genera on matters fa ing within their respective fie ds of specia i4ation or e;pertise. 1# ( review of the petition fai ed to demonstrate any reversi. e error committed .y the two tri.una s, hence, the petition must .e denied. %t does not present any argument which convinces the !ourt that the *0! and the !( made any misappreciation of the facts and the app ica. e aws such that their decisions shou d .e overturned. ( corporation e;ercises its powers through its .oard of directors and?or its du y authori4ed officers and agents, e;cept in instances where the !orporation !ode re=uires stoc9ho dersP approva for certain specific acts.11 3ased on *ection 28 of the !orporation !ode which providesB *0!. 28. T&e Board of Airectors or Trustees. 5n ess otherwise provided in this !ode, the corporate powers of a corporations formed under this !ode sha .e e;ercised, a .usiness conducted and a property of such corporations contro ed and he d .y the .oard of directors or trustees ; ; ;. a corporationPs .oard of directors is understood to .e that .ody which C1D e;ercises a powers provided for under the !orporation !ode< C2D conducts a .usiness of the corporation< and C8D contro s and ho ds a property of the corporation. %ts mem.ers have .een characteri4ed as trustees or directors c othed with a fiduciary character. 121oreover, the directors may appoint officers and agents and a( +n0+ #n! !o !"+( ;o?#* o/ a;;o+n!:#n!, !"#y :ay +(0"a*,# !"o(# a;;o+n!# .18 %n this case, petitioner +anie was removed as a corporate officer through the reso ution of "ephro's 3oard of 6irectors adopted in a specia

meeting on $e.ruary 2, 1997. (s correct y ru ed .y the *0!, petitioners' remova was a va id e;ercise of the powers of "ephro's 3oard of 6irectors, viz.B %n the instant comp aint, do respondents have sufficient grounds to cause the remova of +anie from her positions as !orporate *ecretary, :reasurer and (dministrator of the 6ia ysis ! inicO 3ased on the facts proven during the hearing of this case, the answer is in the affirmative. +anie 's etter of January 2A, 1997 spea9s for itse f. /er re=uest for an indefinite eave, immediate y effective yet without prior notice, revea s a disregard of the critica responsi.i ities pertaining to the sensitive positions she he d in the corporation. Prior to her hasty departure, +anie did not ma9e a proper turn2over of her duties and had to .e e;press y re=uested to hand over documents and records, inc uding 9eys to the office and the ca.inets C0;h. 15D. ;;;; *ince +anie occupied a three positions in "ephro, it is not difficu t to foresee the disruption that her immediate and indefinite a.sence can inf ict on the operations of the company. 3y eaving a.rupt y, +anie a.andoned the positions she is now trying to rec aim. +anie 's actuation has .een sufficient y proven to warrant oss of the 3oard's confidence. 1) :he *0! a so correct y conc uded that petitioner +anie was removed as an officer of "ephro in comp iance with esta. ished procedure, thusB :he reso utions of the 3oard dismissing comp ainant +anie from her various positions in "ephro are va id. "otwithstanding the a.sence of comp ainants from the meeting, a =uorum was va id y constituted. ; ; ;. ;;;; 3ased on its artic es of incorporation, "ephro has five directors Q two of the positions were occupied .y comp ainants and the remaining three are he d .y respondents. :his .eing the case, the presence of a three respondents in the *pecia 1eeting of the 3oard on $e.ruary 2, 1997 esta. ished a =uorum for the conduct of .usiness. :he unanimous reso utions carried .y the 3oard during such meeting are therefore va id and .inding against comp ainants.

%t .ears emphasis that +anie was given sufficient opportunity to .e heard. Jochico's etters of January 2A, 1997 and January 27, 1997, a .eit adversaria , recogni4ed her right to e;p ain herse f and gave her the chance to do so. %n fact, +anie did respond to Jochico's etter on January 27, 1997 and too9 the occasion to voice her opinions a.out Jochico's a eged 'practice of using others for your own .enefit, without cost.' C0;h. 1)D. 1oreover, the *pecia 1eeting of the 3oard cou d have .een the appropriate venue for +anie to air her side. /ad +anie decided to grace the meeting with her presence, she cou d have e;p ained herse f .efore the .oard and tried to convince them to a ow her to 9eep her posts. 15 Petitioners +anie and Pag2ong's remova as mem.ers of "ephro's 3oard of 6irectors was i9ewise va id. &n y stoc9ho ders or mem.ers have the power to remove the directors or trustees e ected .y them, as aid down in ection ;9 of t&e $orporation $ode,1A which provides in partB *0!. 27. !emoval of directors or trustees. 22 Any +*#0!o* o* !*.(!## o/ a 0o*;o*a!+on :ay 3# *#:o9# /*o: o//+0# 3y a 9o!# o/ !"# (!o0A"o1 #*( "o1 +n, o* *#;*#(#n!+n, a! 1#a(! !?o-!"+* ( B2C2D o/ !"# o.!(!an +n, 0a;+!a1 (!o0A, or if the corporation .e a non2stoc9 corporation, .y a vote of at east two2thirds C2?8D of the mem.ers entit ed to voteB %rovided, that such remova sha ta9e p ace either at a regu ar meeting of the corporation or at a specia meeting ca ed for the purpose, and in either case, after previous notice to stoc9ho ders or mem.ers of the corporation of the intention to propose such remova at the meeting. ( specia meeting of the stoc9ho ders or mem.ers of a corporation for the purpose of remova of directors or trustees or any of them, must .e ca ed .y the secretary on order of the president or on the written demand of the stoc9ho ders representing or ho ding at east a majority of the outstanding capita stoc9, or if it .e a non2stoc9 corporation, on the written demand of a majority of the mem.ers entit ed to vote. ; ; ; "otice of the time and p ace of such meeting, as we as of the intention to propose such remova , must .e given .y pu. ication or .y written notice as prescri.ed in this !ode. ; ; ; R#:o9a1 :ay 3# ?+!" o* ?+!"o.! 0a.(#8 %rovided, That remova without cause may not .e used to deprive minority stoc9ho ders or mem.ers of the right of representation to which they may .e entit ed under *ection 2) of this !ode. C0mphasis supp iedD Petitioners do not dispute that the stoc9ho ders' meeting was he d in accordance with "ephro's 3y2,aws. :he ownership of "ephro's outstanding capita stoc9 is distri.uted as fo owsB Jochico 2 2## shares< *teffens 2 1## shares< >iriya 2 1## shares< +anie 2 75 shares< and Pag2

ong 2 25 shares,17 or a tota of 5## shares. ( two2thirds vote of "ephro's outstanding capita stoc9 wou d .e 888.88 shares, and during the *toc9ho ders' *pecia 1eeting he d on $e.ruary 1A, 1997, )## shares voted for petitioners' remova . *aid num.er of votes is more than enough to oust petitioners from their respective positions as mem.ers of the .oard, with or without cause. >eri y therefore, there is no cogent reason to grant the present petition. @/0+0$&+0, the petition is DENIED for ac9 of merit. $O ORDERED. G.R. No. 152776 -an.a*y 14, 2004

*ection A 0ach of the fo owing events and occurrences sha constitute an 0vent of 6efau t C'0vent of 6efau t'D under this (greementB aD the 3&++&@0+ fai s to ma9e payment when due and paya. e of any amount he is o. igated to pay under this (greement< .D the 3&++&@0+ fai s to mortgage in favor of the ,0"60+ rea property sufficient to cover the amount of the ,&(".) (s petitioner fai ed to pay the insta ments as they .ecame due, respondent, apparent y in answer to a proposa of petitioner respecting the sett ement of the oan, advised him .y etter dated Ju y 15, 1997 that he may use his retirement .enefits in *9y >ision in partia sett ement of his oan after he sett es his accounta.i ities to the atter and gives his written instructions to it C*9y >isionD.5 Petitioner protested the computation indicated in the Ju y 15, 1997 etter, he asserting that the imputed un i=uidated advances from *9y >ision had a ready .een proper y i=uidated.A &n (ugust 17, 1997, respondent fi ed a comp aint for co ection of sum of money with damages at the +egiona :ria !ourt C+:!D of Pasig !ity against petitioner, a eging that petitioner vio ated the a.ove2=uoted *ection A of the oan agreement as he fai ed to put up the needed co atera for the oan and pay the insta ments as they .ecame due, and that despite his receipt of etters of demand dated 6ecem.er 1, 19977 and January 18, 1997,7he refused to pay. %n his answer, petitioner a eged that the oan agreement did not ref ect his true agreement with respondent, it .eing mere y a 'cover document' to evidence the reward to him of ten mi ion pesos CP1#,###,###.##D for his oya ty and e;ce ent performance as -enera 1anager of *9y >ision and that the payment, if any was e;pected, was in the form of continued service< and that it was when he was compe ed .y respondent to retire that the form of payment agreed upon was rendered impossi. e, prompting the ate 0ugenio ,ope4, Jr. to agree that his retirement .enefits from *9y >ision wou d instead .e app ied to the oan. 9

MEL &. &ELARDE, petitioner, vs. LO)E6, INC., respondent. 60!%*%&" CAR)IO-MORALE$, J.8 :his petition for review on certiorari under +u e )5 of the +u es of !ourt, which see9s to review the decision1 and reso ution2 of the !ourt of (ppea s, raises the issue of whether the defendant in a comp aint for co ection of sum of money can raise a counterc aim for retirement .enefits, unpaid sa aries and incentives, and other .enefits arising from services rendered .y him in a su.sidiary of the p aintiff corporation. &n January A, 1997, 0ugenio ,ope4 Jr., then President of respondent ,ope4, %nc., as ,0"60+, and petitioner 1e >e arde, then -enera 1anager of *9y >ision !orporation C*9y >isionD, a su.sidiary of respondent, as 3&++&@0+, forged a notari4ed oan agreement covering the amount of ten mi ion CP1#,###,###.##D pesos. :he agreement e;press y provided for, among other things, the manner of payment and the circumstances constituting defau t which wou d give the ender the right to dec are the oan together with accrued interest immediate y due and paya. e. 8 *ec. A of the agreement detai ed what constituted an 'event of defau t' as fo owsB

3y way of compu sory counterc aim, petitioner c aimed that he was entit ed to retirement .enefits from *9y >ision in the amount of P97,27#,###.##, unpaid sa aries in the amount of P2,7)#,###.##, unpaid incentives in the amount of P5##,###, unpaid share from the 'net income of P aintiff corporation,' e=uity in his service vehic e in the amount of P1,5##,###, reasona. e return on the stoc9 ownership p an for services rendered as -enera 1anager, and mora damages and attorneyPs fees.1# Petitioner thus prayed for the dismissa of the comp aint and the award of the fo owing sums of money in the form of compu sory counterc aimsB 1. P1#8,#2#,###.##, P,5* the va ue of 6efendantPs stoc9 options and unpaid share from the net income with P aintiff corporation Cto .e computedD as actua damages< 2. P15,###,###.##, as mora damages< and 8. P1,5##,###.##, as attorneyPs fees p us appearance fees and the costs of suit.11 +espondent fi ed a manifestation and a motion to dismiss the counterc aim for want of jurisdiction, which drew petitioner to assert in his comment and opposition thereto that the vei of corporate fiction must .e pierced to ho d respondent ia. e for his counterc aims. 3y &rder of January 8, 2###, 3ranch 155 of the +:! of Pasig denied respondentPs motion to dismiss the counterc aim on the fo owing premisesB ( counterc aim .eing essentia y a comp aint, the princip e that a motion to dismiss hypothetica y admits the a egations of the comp aint is app ica. e< the counterc aim is compu sory, hence, within its jurisdiction< and there is identity of interest .etween respondent and *9y >ision to merit the piercing of the vei of corporate fiction. 12 +espondentPs motion for reconsideration of the tria courtPs &rder of January 8, 2### having .een denied, it fi ed a Petition for !ertiorari at the !ourt of (ppea s which he d that respondent is not the rea party2in2 interest on the counterc aim and that there was fai ure to show the presence of any of the circumstances to justify the app ication of the princip e of 'piercing the vei of corporate fiction.' :he &rders of the tria court were thus set aside and the counterc aims of petitioner were according y dismissed.18

:he !ourt of (ppea s having denied petitionerPs motion for reconsideration, the instant Petition for +eview was fi ed which assigns the fo owing errors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hi e petitioner correct y invo9es the ru ing in Atienza v. $ourt of Appeals15 to postu ate that not every denia of a motion to dismiss can .e corrected .y certiorari under +u e A5 and that, as a genera ru e, the remedy from such denia is to appea in due course after a decision has .een rendered on the merits, there are e;ceptions thereto, as when the court in denying the motion to dismiss acted without or in e;cess of jurisdiction or with patent grave a.use of discretion, 1A or when the assai ed inter ocutory order is patent y erroneous and the remedy of

appea wou d not afford ade=uate and e;peditious re ief, 17 or when the ground for the motion to dismiss is improper venue, 17 res judicata,19 or ac9 of jurisdiction2# as in the case at .ar. 0ar y on, it .ears noting, when the case was sti with the tria court, respondent fi ed a motion to dismiss the counterc aims to assai its jurisdiction, respondent asserting that the counterc aims, .eing money c aims arising from a a.or re ationship, are within the e;c usive competence of the "ationa ,a.or +e ations !ommission. 21 &n the other hand, petitioner a eged that due to the tortuous manner he was coerced into retirement, it is the +egiona :ria !ourts C+:!sD and not the "ationa ,a.or +e ations !ommission which has e;c usive jurisdiction over his counterc aims. %n determining which has jurisdiction over a case, the averments of the comp aint?counterc aim, ta9en as a who e, are considered. 22 %n his counterc aim, petitioner a eged thatB ;;; 29. %t was on y on Ju y 15, 1997 that ,ope4, %nc. su.mitted a computation of the retirement .enefit due to the 6efendant. C!opy attached as (""0N )D. %mmediate y after receiving this computation, 6efendant immediate y informed P aintiff of the erroneous figure used as sa ary in the computation of .enefits. :his was done in a te ephone conversation with a certain (tty. (mina (mado of ,ope4, %nc. 29.1 :he 6efendant a so informed her that the so ca ed 'un i=uidated advances amounting to P)22,922.77 since 1995' had a .een proper y i=uidated as ref ected in a the reports of the company. :he 6efendant reminded (tty. (mado of unpaid incentives and sa aries for 1997. 29.2 6efendant i9ewise informed P aintiff that the one month for every year of service as a .asis for the computation of the 6efendantPs retirement .enefit is erroneous. :his computation is even ess than what the ran9 and fi e emp oyees get. :hat !0&Ps, !&&Ps and senior e;ecutives of the eve of (3*2!3", *9y >ision, 3enpres, 1era co and other ,ope4 companies had and have received a ot more than the regu ar ran9 and fi e emp oyees. ( these retired e;ecutives and records can .e summoned for verification.

29.8 :he circumstances of the retirement of the 6efendant are not those for a simp e and ordinary ran9 and fi e emp oyee. 1r. ,ope4, %%% admitted that he and the 6efendant have had pro. ems which accumu ated through time and that they chose to part ways in a manner that was dignified for .oth of them. :reating the 6efendant as a ran9 and fi e emp oyee is hard y dignified not just to the 6efendant .ut a so to the ,ope4es whose e;isting e;ecutives serving them wi draw essons from the 6efendantPs e;perience. ;8.G T&ese circumstances &ardl( reflect a simple retirement. T&e Aefendant, *&o is +no*n in t&e local and international media communit(, is &ardl( considered a ran+ and file emplo(ee. Aefendant *as a stoc+&older of t&e $orporation and a dul(6 elected mem#er of t&e Board of Airectors. !ertain government officia s can attest to the sensitivity of issues and matters the 6efendant had represented for the ,ope4es that are hard y issues hand ed .y a simp e ran9 and fi e emp oyee. +especta. e individua s in government and industry are wi ing to testify to this regard.; ; ;28 C5nderscoring and ita ics supp iedD. (t the heart of petitionerPs counterc aim is his a eged forced retirement which is a so the .asis of his c aim for, among other things, unpaid sa aries, unpaid incentives, reasona. e return on the stoc9 ownership p an, and other .enefits from a su.sidiary company of the respondent. *ection 5CcD of P.6. 9#22( Cas amended .y +.(. 7799, the *ecurities +egu ation !odeD app ies to a corporate officerPs dismissa . $or a corporate officerPs dismissa is a ways a corporate act and?or an intra2 corporate controversy and that its nature is not a tered .y the reason or wisdom which the 3oard of 6irectors may have in ta9ing such action. 2) @ith regard to petitionerPs c aim for unpaid sa aries, unpaid share in net income, reasona. e return on the stoc9 ownership p an and other .enefits for services rendered to *9y >ision, jurisdiction thereon pertains to the *ecurities 0;change !ommission even if the comp aint .y a corporate officer inc udes money c aims since such c aims are actua y part of the prere=uisite of his position and, therefore, inter in9ed with his re ations with the corporation.25 :he =uestion of remuneration invo ving a person who is not a mere emp oyee .ut a stoc9ho der and officer of the corporation is not a simp e a.or pro. em .ut a matter that comes within the area of corporate affairs and management, and is in fact a corporate controversy in contemp ation of the !orporation !ode. 2A

@hi e petitionerPs counterc aims were fi ed on 6ecem.er 1, 1997, the second cha enged order of the tria court denying respondentPs motion for reconsideration of the denia of its motion to dismiss was issued on &cto.er 9, 2### at which time P.6. 9#22( had .een amended .y +.(. 7799 Capproved on Ju y 19, 2###D which mandated the transfer of jurisdiction over intra2corporate controversies, su.ject of the counterc aims, to +:!s. 3ut even if the su.ject matter of the counterc aims is now cogni4a. e .y +:!s, the fi ing thereof against respondent is improper, it not .eing the rea party2in2interest, for it is petitionerPs emp oyer *9y >ision, respondentPs su.sidiary. %t cannot .e gainsaid that a su.sidiary has an independent and separate juridica persona ity, distinct from that of its parent company, hence, any c aim or suit against the atter does not .ind the former and vice versa. Petitioner argues neverthe ess that jurisdiction over the su.sidiary is justified .y piercing the vei of corporate fiction. Piercing the vei of corporate fiction is warranted, however, on y in cases when the separate ega entity is used to defeat pu. ic convenience, justify wrong, protect fraud, or defend crime, such that in the case of two corporations, the aw wi regard the corporations as merged into one. 27 :he rationa e .ehind piercing a corporationPs identity is to remove the .arrier .etween the corporation from the persons comprising it to thwart the fraudu ent and i ega schemes of those who use the corporate persona ity as a shie d for underta9ing certain proscri.ed activities.27 %n app ying the doctrine of piercing the vei of corporate fiction, the fo owing re=uisites must .e esta. ishedB C1D contro , not mere y majority or comp ete stoc9 contro < C2D such contro must have .een used .y the defendant to commit fraud or wrong, to perpetuate the vio ation of a statutory or other positive ega duty, or dishonest acts in contravention of p aintiffPs ega rights< and C8D the aforesaid contro and .reach of duty must pro;imate y cause the injury or unjust oss comp ained of. 29 "owhere, however, in the p eadings and other records of the case can it .e gathered that respondent has comp ete contro over *9y >ision, not on y of finances .ut of po icy and .usiness practice in respect to the transaction attac9ed, so that *9y >ision had at the time of the transaction no separate mind, wi or e;istence of its own. :he e;istence of inter oc9ing directors, corporate officers and shareho ders is not enough

justification to pierce the vei of corporate fiction in the a.sence of fraud or other pu. ic po icy considerations. :his !ourt is thus not convinced that the rea party2in2interest with regard to the counterc aim for damages arising from the a eged tortuous manner .y which petitioner was forced to retire as -enera 1anager of *9y >ision is respondent. Petitioner mudd es the issues .y arguing that respondent fraudu ent y too9 advantage of the contro over the matter of compensation and .enefits of an emp oyee of *9y >ision to deceive petitioner into signing the oan agreement on the mis eading assurance that it was mere y for the purpose of documenting the reward to him of ten mi ion pesos. :his argument does not persuade. Petitioner, .eing a awyer, is presumed to 9now the ega and .inding effects of oan agreements. %t .ears emphasis that *9y >isionPs invo vement in the transaction su.ject of the case sprang on y after a proposa was apparent y proffered .y petitioner that his retirement .enefits from *9y >ision .e used in partia payment of his oan from respondent as gathered from the Ju y 15, 1997 etter8# of +omme 6uran, >ice2President and -enera 1anager of respondent, to petitioner readingB 6ear 1r. >e ardeB (s re=uested, we have made computations on the outstanding amount of your oan with ,ope4, %nc. shou d your retirement .enefits from *9y >ision !orporation?!entra !(:>, %nc. ''*9y?!entra 'D .e app ied to the partia payment of your oan. P ease note that in order to effect the app ication of your retirement .enefits to the partia payment of your oan, you wi need to give *9y?!entra written instructions on the same in the soonest possi. e time. (s you wi see in the attached computation, the amount of P),#77,#77.18 wi .e app ied to the payment of your oan to retroact on January 1, 1997. :he amount of P)22,922.77, representing un i=uidated advances made .y *9y?!entra to you Csee attached istingD, has .een deducted from your retirement pay of P).5 mi ion. *hou d you .e a. e to i=uidate the advances as re=uested .y *9y?!entra , the said amount wi .e app ied to the partia payment of your oan and we

sha adjust the amount of principa and interest due from you according y. (fter the app ication of the amount of P),#77,#77.18 to the partia payment of your oan, the amount of P7,575,912.7A wi .e immediate y due and demanda. e. :he amount of P7,575,912.7A represents the outstanding principa and interest due as of Ju y 15, 1997. @ithout the app ication of your retirement .enefits to the partia payment of your oan, the amount of P11,75#,###.## is due as of Ju y 15, 1997. @e reiterate our demand for fu payment of your outstanding o. igation immediate y. C5nderscoring supp iedD (s for the tria courtPs ru ing that the agreement to set2off is an amendment of the oan agreement resu ting to an identity of interest .etween respondent and *9y >ision and, therefore, sufficient to pierce the vei of corporate fiction, it is untena. e. :he a.ove=uoted etter is c ear that, to effect a set2off, it is a condition sine qua non that the approva thereof .y '*9y?!entra ' must .e o.tained, and that petitioner i=uidate his advances from *9y >ision. :hese conditions hard y manifest that respondent possessed that degree of contro over *9y >ision as to ma9e the atter its mere instrumenta ity, agency or adjunct. @/0+0$&+0, the instant petition for review on certiorari is here.y 60"%06. *& &+60+06. G.R. No. L-5772 No9#:3#* 27, 1952

meeting .y giving proper notice to the stoc9ho ders, as re=uired .y aw or .y aws of the corporation, unti after the majority of the stoc9ho ders present and =ua ified to vote sha have chosen one of them to act as presiding officer of the meeting< another order denying a motion of the petitioners to have the previous order set aside< and a third order denying a motion to the same effect as the one previous y fi ed. :he petitioners aver that the 6aguhoy 0nterprises, %nc., was du y registered as such on 2) June 19)7< that on 1A (pri 1951 at a meeting du y ca ed, the vo untary disso ution of the corporation and the appointment of Potenciano -apo as receiver were agreed upon and to that end a petitioner 6omingo Ponce< that instead of fi ing the petition for vo untary disso ution of the of the corporation as agreed upon, the respondent Potenciano -apo , who is the argest stoc9ho der, charged his mind and fi ed a comp aint in the !ourt of $irst %nstance of 1ani a Ccivi "o. 18758D to compe the petitioners to render an accounting of the funds and assets of the corporation, to reim.urse it, joint y and severa y, in the sum of P),5##, the purchase price of a parce of and ac=uired .y the corporation< PA,19# oaned to the wife of petitioner 6omingo Ponce< and P7,### spent .y the atter in his trip to the 5nited *tates, or a tota sum of P17,A9#, p us interest, or such sum as may .e found after the accounting sha have .een rendered to have .een misspent, misapp ied, missappropriated and converted .y the petitioner 6omingo Ponce to his own use and .enefit< that on 17 1ay 1951 the p aintiff in that case, the respondent Potenciano -apo in this case, fi ed a motion praying that the petitioners .e removed as mem.ers of the .oard of directors which was denied .y the court< that on 8 January 1952 respondent Potenciano -apo fi ed a petition Ccivi "o. 15))5, 0;hi.it ,D, praying for an order directing him to a ca a meeting of the stoc9ho ders of the corporation and to preside at such meeting in accordance with section 2A of the !orporation aw< that two days ater, without notice to the petitioners and to the other mem.ers of the .oard of directors and in vio ation of the +u es of !ourt which re=uire that the adverse parties .e notified of the hearing of the motion three days in advance, the respondent court issued the order as prayed for C0;hi.it 1D< that the petitioners earned on y of this order of the court on 27 $e.ruary, when the 3an9 of (merica refused to recogni4e the new .oard of directors e ected at such meeting and returned the chec9s drawn upon it .y the said .oard of directors< that the e ection of Juanito +. :ian4on as mem.er of the .oard of directors of the corporation he must .e a mem.er of the Le'ionarios del Tra#ajo, as re=uired and provided for in artic e 7 of the .y2 aws of the corporation< that on 5 1arch the petitioners fi ed a petition in the respondent court to have the order of 5 January set aside .ut on (pri , the date set for the hearing of the petition, as the respondent judge was on eave vacation

DOMINGO )ONCE AND BUHAY L. )ONCE, petitioners, vs. DEME'RIO B. ENCARNACION, -. ,# o/ !"# Co.*! o/ %+*(! In(!an0# o/ Man+1a, B*an0" I, an )O'ENCIANO GA)OL, respondents. ,arcelino Lonto+ for petitioners. Iavalla, Bautista and 2uevas for respondents. )ADILLA, J.: :his is a petition for a writ of certiorari to annu an order of the respondent court granting Potenciano -apo authority, pursuant to section 2A, (ct "o. 1)59, otherwise 9nown as the !orporation ,aw, to ca a meeting of the stoc9ho ders of the 6agunoy 0nterprises, %nc. and to preside at such

judge directed its transfer to the .ranch of the respondent judge< that without having set the motion for hearing, the respondent court denied the motion of 5 1arch in its order of 7 1ay< that on 1) 1ay the petitioners fi ed another motion inviting the attention of the respondent court to the irregu arity and i ega ity of its procedure and setting the motion for hearing on 21 1ay, .ut the court denied the motion .y its order of 18 June. :he on y =uestion to determine in this case is whether under and pursuant to section 2A of (ct "o. 1)59, 9nown as the !orporation aw, the respondent court may issue the order comp ained of. *aid section providesB I @henever, from any cause, there is no person authori4ed to ca a meeting, or when the officer authori4ed to do so refuses, fai s or neg ects to ca a meeting, any judge of a !ourt of $irst %nstance on the showing of good cause therefor, may issue an order to any stoc9ho der or mem.er of a corporation, directing him to ca a meeting of the corporation .y giving the proper notice re=uired .y this (ct or .y2 aws< and if there .e no person ega y authori4ed to preside at such meeting, the judge of the !ourt of $irst %nstance may direct the person ca ing the meeting to preside at the same unti a majority of the mem.ers or stoc9ho ders representing a majority of the stoc9 mem.ers or stoc9ho ders presenting a majority of the stoc9 present and permitted .y aw to .e voted have chosen one of their num.er to act as presiding officer for the purposes of the meeting. &n the showing of good cause therefor, the court may authori4e a stoc9ho der to ca a meeting and to preside threat unti the majority stoc9ho ders representing a majority stroc9ho ders representing a majority of the stoc9 present and permitted to .e voted sha have chosen one among them to preside it. (nd this showing of good cause therefor e;ists when the court is apprised of the fact that the .y2 aws of the corporation re=uire the ca ing of a genera meeting of the stoc9ho ders to e ect the .oard of directors .ut ca for such meeting has not .een done. (rtic e 9 of the .y2 aws of the 6aguhoy 0nterprises, %nc., providesB :he 3oard of 6irectors sha compose of five C5D mem.ers who sha .e e ected .y the stoc9ho ders in a genera meeting ca ed for that purpose which sha .e he d every even year during the month of January.

(rtic e 2# of the .y2 aws in part providesB . . . +egu ar genera meetings are those which sha .e ca ed for every even year, . . . . :he re=uirement that 'on the showing of good cause therefor,' the court may grant to a stoc9ho der the authority to ca such meeting and to preside thereat does not mean that the petition must .e set for hearing with notice served upon the .oard of directors. :he respondent court was satisfied that there was a showing of good cause for authori4ing the respondent Potenciano -apo to ca a meeting of the stoc9ho ders for the purpose of e ecting the .oard of directors as re=uired and provided for in the .y2 aws, .ecause the chairman of the .oard of directors ca ed upon to do so had fai ed, neg ected, or refused to perform his duty. %t may .e i9ened to a writ of pre iminary injunction or of attachment which may .e issued ex6parte upon comp iance with the re=uirements of the ru es and upon the court .eing satisfied that the same shou d .e issue. *uch provisiona re iefs have not .een deemed and he d as vio ative of the due process of aw c ause of the !onstitution. %n severa state of the 5nion1 the remedy which may .e avai ed of our resorted to in a situation such as the one .rought a.out in this case is mandamus to compe the officer or incum.ent .oard of directors to perform a duties specifica y enjoined .y aw or .y2 aws, to witB to ca a meeting of the stoc9ho ders. 6e a ware is the estate that has a aw simi ar to ours and there the chance or of a chancery court may summari y issue or enter an order authori4ing a stoc9ho der to ca a meeting of the stoc9ho ders of the corporation and preside thereat. 2 %t means that the chance or may issue such order without notice and hearing. :hat the re ief granted .y the respondent court ies within its jurisdiction is not disputed. /aving the authority to grant the re ief, the respondent court did not e;ceed its jurisdiction< nor did it a.use its discretion in granting it. @ith persistency petitioners c aim that they have .een deprived of their right without due process of aw. :hey had no right to continue as directors of the corporation un ess ref ected .y the stoc9ho ders in a meeting ca ed for that purpose every even year. :hey had no right to a ho d2over .rought a.out .y the fai ure to perform the duty incum.ent upon one of them. %f they fe t that they were sure to .e ree ected, why did they fai , neg ect, or refuse to ca the meeting to e ect the mem.ers of the

.oardO &r, why did they not see9 their ree ection at the meeting ca ed to e ect the directors pursuant to the order of the respondent court. :he a eged i ega ity of the e ection of one mem.er of the .oard of directors at the meeting ca ed .y the respondent Potenciano -apo as authori4ed .y the court .eing su.se=uent to the order comp ained of cannot affect the va idity and ega ity of the order. %f it .e true that one of the directors e ected at the meting ca ed .y the respondent Potenciano -apo , as authori4ed .y the order of the court comp ained of, was not =ua ified in accordance with the provisions of the .y2 aws, the remedy of an aggrieved party wou d .e =uo a warranto. ( so, the a eged previous agreement to disso ve the corporation does not affect or render i ega the order issued .y the respondent court. :he petition is denied, with costs against the petitioners. %aras, $.@., %a#lo, Ben'zon, Tuason, ,ontema(or, !e(es, @u'o, Bautista An'elo and La#rador, @@., concur. G.R. No. 152467 A.,.(! 17, 2006 )AUL LEE 'AN, ANDRE< LIU$ON, E$'HER <ONG, $'E)HEN CO, -AME$ 'AN, -UDI'H 'AN, ERNE$'O 'ANCHI -R., ED<IN NGO, &IRGINIA 4HOO, $ABINO )ADILLA -R., EDUARDO ). LI6ARE$ an GRACE CHRI$'IAN HIGH $CHOOL, Petitioners, vs. )AUL $YCI) an MERRI''O LIM, +espondents. 60!%*%&" )ANGANIBAN, CJ.8 $or stoc9 corporations, the '=uorum' referred to in *ection 52 of the !orporation !ode is .ased on the num.er of outstanding voting stoc9s. $or nonstoc9 corporations, on y those who are actua , iving mem.ers with votin' ri'&tssha .e counted in determining the e;istence of a =uorum during mem.ersP meetings. 6ead mem.ers sha not .e counted. :he !ase :he present Petition for +eview on !ertiorari J1K under +u e )5 of the +u es of !ourt see9s the reversa of the January 28 2 and 1ay 7, 2##2, 8 +eso utions of the !ourt of (ppea s C!(D in !(2-+ *P "o.

A72#2. :he first assai ed +eso ution dismissed the appea fi ed .y petitioners with the !(. ( eged y, without the proper authori4ation of the other petitioners, the >erification and !ertification of "on2$orum *hopping were signed .y on y one of them 22 (tty. *a.ino Padi a Jr. :he second +eso ution denied reconsideration. '"# %a0!( Petitioner -race !hristian /igh *choo C-!/*D is a nonstoc9, non2profit educationa corporation with fifteen C15D regu ar mem.ers, who a so constitute the .oard of trustees. J)K 6uring the annua mem.ersP meeting he d on (pri A, 1997, there were on y e even C11D J5K iving mem.er2 trustees, as four C)D had a ready died. &ut of the e even, seven C7D A attended the meeting through their respective pro;ies. :he meeting was convened and chaired .y (tty. *a.ino Padi a Jr. over the o.jection of (tty. (ntonio !. Pacis, who argued that there was no =uorum. 7 %n the meeting, Petitioners 0rnesto :anchi, 0dwin "go, >irginia Lhoo, and Judith :an were voted to rep ace the four deceased mem.er2trustees. @hen the controversy reached the *ecurities and 0;change !ommission C*0!D, petitioners maintained that the deceased mem.er2trustees shou d not .e counted in the computation of the =uorum .ecause, upon their death, mem.ers automatica y ost a their rights Cinc uding the right to voteD and interests in the corporation. *0! /earing &fficer 1a thie -. 1i itar dec ared the (pri A, 1997 meeting nu and void for ac9 of =uorum. *he he d that the .asis for determining the =uorum in a meeting of mem.ers shou d .e their num.er as specified in the artic es of incorporation, not simp y the num.er of iving mem.ers. 7 *he e;p ained that the =ua ifying phrase 'entit ed to vote' in *ection 2) 9 of the !orporation !ode, which provided the .asis for determining a =uorum for the e ection of directors or trustees, shou d .e read together with *ection 79. 1# :he hearing officer a so opined that (rtic e %%% C2D 11 of the 3y2,aws of -!/*, insofar as it prescri.ed the mode of fi ing vacancies in the .oard of trustees, must .e interpreted in conjunction with *ection 29 12 of the !orporation !ode. :he *0! en .anc denied the appea of petitioners and affirmed the 6ecision of the hearing officer in toto. 18 %t found to .e untena. e their contention that the word 'mem.ers,' as used in *ection 52 1) of the !orporation !ode, referred on y to the iving mem.ers of a nonstoc9 corporation. 15

(s ear ier stated, the !( dismissed the appea of petitioners, .ecause the >erification and !ertification of "on2$orum *hopping had .een signed on y .y (tty. *a.ino Padi a Jr. "o *pecia Power of (ttorney had .een attached to show his authority to sign for the rest of the petitioners. /ence, this Petition. 1A

>erification and !ertification< and 2D whether dead mem.ers shou d sti .e counted in the determination of the =uorum, for purposes of conducting the annua mem.ersP meeting. :he !ourtPs +u ing :he present Petition is part y meritorious.

%ssues Procedura %ssueB Petitioners state the issues as fo owsB >erification and !ertification of "on2$orum *hopping 'Petitioners principa y pray for the reso ution of the ega =uestion of whether or not in "&"2*:&!L corporations,dead mem#ers shou d sti .e counted in determination of =uorum for purposed of conducting the (nnua 1em.ersP 1eeting. 'Petitioners have maintained .efore the courts .e ow that the 60(6 mem.ers shou d no onger .e counted in computing =uorum primari y on the ground that mem.ersP rights are Ypersonal and non6transfera#leR as provided in *ections 9# and 91 of the !orporation !ode of the Phi ippines. ':he *0! ru ed against the petitioners so e y on the .asis of a 1979 *0! &pinion that did not even invo ve a non6stoc+ corporation as petitioner -!/*. ':he /onora. e !ourt of (ppea s on the other hand simp y refused to reso ve this =uestion and instead dismissed the petition for review on a technica ity Q the fai ure to time y su.mit an *P( from the petitioners authori4ing theirco6petitioner Padi a, their counse and also a petitioner .efore the !ourt of (ppea s, to sign the petition on .eha f of the rest of the petitioners. 'Petitioners hum. y su.mit that the action of .oth the *0! and the !ourt of (ppea s are not in accord with aw particu ar y the pronouncements of this /onora. e !ourt in Escorpizo v. Nniversit( of Ba'uio C8#A *!+( )97D,!o#ern Aevelopment $orporation v. Ouitain C815 *!+( 15#,D and ,$ En'ineerin', -nc. v. 2L!$, C8A# *!+( 178D. 6ue course shou d have .een given the petition .e ow and the merits of the case decided in petitionersP favor.' 17 %n sum, the issues may .e stated simp y in this wiseB 1D whether the !( erred in denying the Petition .e ow, on the .asis of a defective :he Petition .efore the !( was initia y f awed, .ecause the >erification and !ertification of "on2$orum *hopping were signed .y on y one, not .y all, of the petitioners< further, it fai ed to show proof that the signatory was authori4ed to sign on .eha f of a of them. *u.se=uent y, however, petitioners su.mitted a *pecia Power of (ttorney, attesting that (tty. Padi a was authori4ed to fi e the action on their .eha f. 17 %n the interest of su.stantia justice, this initia procedura apse may .e e;cused. 19 :here appears to .e no intention to circumvent the need for proper verification and certification, which are aimed at assuring the truthfu ness and correctness of the a egations in the Petition for +eview and at discouraging forum shopping. 2#1ore important, the su.stantia merits of petitionersP case and the pure y ega =uestion invo ved in the Petition shou d .e considered specia circumstances 21 or compe ing reasons that justify an e;ception to the strict re=uirements of the verification and the certification of non2forum shopping. 22 1ain %ssueB 3asis for Guorum -enera y, stoc9ho dersP or mem.ersP meetings are ca ed for the purpose of e ecting directors or trustees 28 and transacting some other .usiness ca ing for or re=uiring the action or consent of the shareho ders or mem.ers, 2)such as the amendment of the artic es of incorporation and .y aws, sa e or disposition of a or su.stantia y a corporate assets, conso idation and merger and the i9e, or any other .usiness that may proper y come .efore the meeting. 5nder the !orporation !ode, stoc9ho ders or mem.ers periodica y e ect the .oard of directors or trustees, who are charged with the management

of the corporation. 25 :he .oard, in turn, periodica y e ects officers to carry out management functions on a day2to2day .asis. (s owners, though, the stoc9ho ders or mem.ers have residua powers over fundamenta and major corporate changes. @hi e stoc9ho ders and mem.ers Cin some instancesD are entit ed to receive profits, the management and direction of the corporation are odged with their representatives and agents 22 the .oard of directors or trustees. 2A %n other words, acts of management pertain to the .oard< and those of ownership, to the stoc9ho ders or mem.ers. %n the atter case, the .oard cannot act a one, .ut must see9 approva of the stoc9ho ders or mem.ers. 27 !onforma. y with the foregoing princip es, one of the most important rights of a =ua ified shareho der or mem.er is the right to vote 22 either persona y or .y pro;y 22 for the directors or trustees who are to manage the corporate affairs. 27:he right to choose the persons who wi direct, manage and operate the corporation is significant, .ecause it is the main way in which a stoc9ho der can have a voice in the management of corporate affairs, or in which a mem.er in a nonstoc9 corporation can have a say on how the purposes and goa s of the corporation may .e achieved. 29 &nce the directors or trustees are e ected, the stoc9ho ders or mem.ers re in=uish corporate powers to the .oard in accordance with aw. %n the a.sence of an e;press charter or statutory provision to the contrary, the genera ru e is that every mem.er of a nonstoc9 corporation, and every ega owner of shares in a stoc9 corporation, has a right to .e present and to vote in a corporate meetings. !onverse y, those who are not stoc9ho ders or mem.ers have no right to vote. 8#>oting may .e e;pressed persona y, or through pro;ies who vote in their representative capacities. 81 -enera y, the right to .e present and to vote in a meeting is determined .y the time in which the meeting is he d. 82 *ection 52 of the !orporation !ode statesB '*ection 52. Guorum in 1eetings. Q 5n ess otherwise provided for in this !ode or in the .y2 aws, a =uorum sha consist of the stoc9ho ders representing a majority of the outstanding capita stoc9 or a majority of the mem.ers in the case of non2stoc9 corporations.'

%n stoc9 corporations, the presence of a =uorum is ascertained and counted on the .asis of the outstanding capita stoc9, as defined .y the !ode thusB '*0!:%&" 187. &utstanding capita stoc9 defined. Q :he term Youtstanding capita stoc9P as used in this !ode, means the tota shares of stoc9 issued under .inding su.scription agreements to su.scri.ers or stoc9ho ders, whether or not fu y or partia y paid, e;cept treasury shares.' C5nderscoring supp iedD The Right to ote in Stock Corporations :he right to vote is inherent in and incidenta to the ownership of corporate stoc9s. 88 %t is sett ed that unissued stoc9s may not .e voted or considered in determining whether a =uorum is present in a stoc9ho dersP meeting, or whether a re=uisite proportion of the stoc9 of the corporation is voted to adopt a certain measure or act. &n y stoc9 actua y issued and outstanding may .e voted. 8) 5nder *ection A of the !orporation !ode, each share of stoc9 is entit ed to vote, un ess otherwise provided in the artic es of incorporation or dec ared de in=uent 85 under *ection A7 of the !ode. "either the stoc9ho ders nor the corporation can vote or represent shares that have never passed to the ownership of stoc9ho ders< or, having so passed, have again .een purchased .y the corporation. 8A :hese shares are not to .e ta9en into consideration in determining majorities. @hen the aw spea9s of a given proportion of the stoc9, it must .e construed to mean the shares that have passed from the corporation, and that may .e voted. 87 *ection A of the !orporation !ode, in part, providesB '*ection A. ! assification of shares. Q :he shares of stoc9 of stoc9 corporations may .e divided into c asses or series of shares, or .oth, any of which c asses or series of shares may have such rights, privi eges or restrictions as may .e stated in the artic es of incorporationB Provided, :hat no share may .e deprived of voting rights e;cept those c assified and issued as 'preferred' or 'redeema. e' shares, un ess otherwise provided in this !odeB Provided, further, that there sha a ways .e a c ass or series of shares which have comp ete voting rights.

;;;;;;;;; '@here the artic es of incorporation provide for non2voting shares in the cases a owed .y this !ode, the ho ders of such shares sha neverthe ess .e entit ed to vote on the fo owing mattersB 1. (mendment of the artic es of incorporation< 2. (doption and amendment of .y2 aws< 8. *a e, ease, e;change, mortgage, p edge or other disposition of a or su.stantia y a of the corporation property< ). %ncurring, creating or increasing .onded inde.tedness< 5. %ncrease or decrease of capita stoc9< A. 1erger or conso idation of the corporation with another corporation or other corporations< 7. %nvestment of corporate funds in another corporation or .usiness in accordance with this !ode< and 7. 6isso ution of the corporation. '0;cept as provided in the immediate y preceding paragraph, the vote necessary to approve a particu ar corporate act as provided in this !ode sha .e deemed to refer on y to stoc9s with voting rights.' :a9en in conjunction with *ection 187, the ast paragraph of *ection A shows that the intention of the awma9ers was to .ase the =uorum mentioned in *ection 52 on the num.er of outstanding voting stoc9s. 87 The Right to ote in !onstock Corporations %n nonstoc9 corporations, the voting rights attach to mem.ership. 89 1em.ers vote as persons, in accordance with the aw and the .y aws of the corporation. 0ach mem.er sha .e entit ed to one vote un ess so imited, .roadened, or denied in the artic es of incorporation or .y aws. )# @e ho d that when the princip e for

determining the =uorum for stoc9 corporations is app ied .y ana ogy to nonstoc9 corporations, on y those who are actua mem.ers with voting rights shou d .e counted. 5nder *ection 52 of the !orporation !ode, the majority of the mem.ers representing the actua num.er of voting rights, not the num.er or numerica constant that may origina y .e specified in the artic es of incorporation, constitutes the =uorum. )1 :he 1arch 8, 197A *0! &pinion )2 cited .y the hearing officer uses the phrase 'majority vote of the mem.ers'< i9ewise *ection )7 of the !orporation !ode refers to 5# percent of 9) Cthe num.er of registered mem.ers of the association mentioned thereinD p us one. :he .est evidence of who are the present mem.ers of the corporation is the 'mem.ership .oo9'< in the case of stoc9 corporations, it is the stoc9 and transfer .oo9. )8 *ection 25 of the !ode specifica y provides that a majority of the directors or trustees, as fi;ed in the artic es of incorporation, sha constitute a =uorum for the transaction of corporate .usiness Cun ess the artic es of incorporation or the .y aws provide for a greater majorityD. %f the intention of the awma9ers was to .ase the =uorum in the meetings of stoc9ho ders or mem.ers on their a.so ute num.er as fi;ed in the artic es of incorporation, it wou d have e;press y specified so. &therwise, the on y ogica conc usion is that the egis ature did not have that intention. Effect of the "eath of a #em$er or Shareholder /aving thus determined that the =uorum in a mem.ersP meeting is to .e rec9oned as the actua num.er of mem.ers of the corporation, the ne;t =uestion to reso ve is what happens in the event of the death of one of them. %n stoc9 corporations, shareho ders may genera y transfer their shares. :hus, on the death of a shareho der, the e;ecutor or administrator du y appointed .y the !ourt is vested with the ega tit e to the stoc9 and entit ed to vote it. 5nti a sett ement and division of the estate is effected, the stoc9s of the decedent are he d .y the administrator or e;ecutor. )) &n the other hand, mem.ership in and a rights arising from a nonstoc9 corporation are persona and non2transfera. e, un ess the artic es of

incorporation or the .y aws of the corporation provide otherwise. )5 %n other words, the determination of whether or not 'dead mem.ers' are entit ed to e;ercise their voting rights Cthrough their e;ecutor or administratorD, depends on those artic es of incorporation or .y aws. 5nder the 3y2,aws of -!/*, mem.ership in the corporation sha , among others, .e terminated .y the death of the mem.er. )A *ection 91 of the !orporation !ode further provides that termination e;tinguishes a the rights of a mem.er of the corporation, un ess otherwise provided in the artic es of incorporation or the .y aws. (pp ying *ection 91 to the present case, we ho d that dead mem.ers who are dropped from the mem.ership roster in the manner and for the cause provided for in the 3y2,aws of -!/* are not to .e counted in determining the re=uisite vote in corporate matters or the re=uisite =uorum for the annua mem.ersP meeting. @ith 11 remaining mem.ers, the =uorum in the present case shou d .e A. :herefore, there .eing a =uorum, the annua mem.ersP meeting, conducted with si; )7 mem.ers present, was va id. acanc% in the &oard of Trustees (s regards the fi ing of vacancies in the .oard of trustees, *ection 29 of the !orporation !ode providesB '*0!:%&" 29. /acancies in t&e office of director or trustee. 22 (ny vacancy occurring in the .oard of directors or trustees other than .y remova .y the stoc9ho ders or mem.ers or .y e;piration of term, may .e fi ed .y the vote of at east a majority of the remaining directors or trustees, if sti constituting a quorum< otherwise, said vacancies must .e fi ed .y the stoc9ho ders in a regu ar or specia meeting ca ed for that purpose. ( director or trustee so e ected to fi a vacancy sha .e e ected on y for the une;pired term of his predecessor in office.' 5ndou.ted y, trustees may fi vacancies in the .oard, provided that those remaining sti constitute a =uorum. :he phrase 'may .e fi ed' in *ection 29 shows that the fi ing of vacancies in the .oard .y the remaining directors or trustees constituting a =uorum is mere y permissive, not mandatory. )7 !orporations, therefore, may choose how vacancies in their respective .oards may .e fi ed up 22 either .y the remaining directors

constituting a =uorum, or .y the stoc9ho ders or mem.ers in a regu ar or specia meeting ca ed for the purpose. )9 :he 3y2,aws of -!/* prescri.ed the specific mode of fi ing up e;isting vacancies in its .oard of directors< that is, .y a majority vote of the remaining mem.ers of the .oard. 5# @hi e a majority of the remaining corporate mem.ers were present, however, the 'e ection' of the four trustees cannot .e ega y uphe d for the o.vious reason that it was he d in an annua meeting of the mem.ers, not of the .oard of trustees. @e are not unmindfu of the fact that the mem.ers of -!/* themse ves a so constitute the trustees, .ut we cannot ignore the -!/* .y aw provision, which specifica y prescri.es that vacancies in the .oard must .e fi ed up .y the remaining trustees. %n other words, these remaining mem.er2trustees must sit as a #oardin order to va id y e ect the new ones. %ndeed, there is a we 2defined distinction .etween a corporate act to .e done .y the .oard and that .y the constituent mem.ers of the corporation. :he .oard of trustees must act, not individua y or separate y, .ut as a .ody in a awfu meeting. &n the other hand, in their annua meeting, the mem.ers may .e represented .y their respective pro;ies, as in the contested annua mem.ersP meeting of -!/*. @/0+0$&+0, the Petition is part y 'R(!TE".:he assai ed +eso utions of the !ourt of (ppea s are here.y +0>0+*06 ("6 *0: (*%60. :he remaining mem.ers of the .oard of trustees of -race !hristian /igh *choo C-!/*D may convene and fi up the vacancies in the .oard, in accordance with this 6ecision. "o pronouncement as to costs in this instance. *& &+60+06. G.R. No. L-26649 -.1y 12, 1927

'HE GO&ERNMEN' O% 'HE )HILI))INE I$LAND$ Bon *#1a!+on o/ !"# A!!o*n#y-G#n#*a1D, p aintiff, vs. EL HOGAR %ILI)INO, defendant. Attorne(6"eneral @aranilla and olicitor6"eneral !e(es for plaintiff. 0is&er, Ae1itt, %er+ins and Brad(J $amus, Ael'ado and !ecto and

Antonio anz for defendant. 1m. @. !o&de as amicus curiae. $'REE', J.: :his is a quo *arranto proceeding instituted origina y in this court .y the -overnment of the Phi ippine %s ands on the re ation of the (ttorney2 -enera against the .ui ding and oan association 9nown as 0 /ogar $i ipino, for the purpose of depriving it of its corporate franchise, e;c uding it from a corporate rights and privi eges, and effecting a fina disso ution of said corporation. :he comp aint enumerates seventeen distinct causes of action, to a of which the defendant has answered upon the merits, first admitting the averments of the first paragraph in the statement of the first cause of action, wherein it is a eged that the defendant was organi4ed in the year 1911 as a .ui ding and oan association under the aws of the Phi ippine %s ands, and that, since its organi4ation, the corporation has .een doing .usiness in the Phi ippine %s ands, with its principa office in the !ity of 1ani a. &ther facts a eged in the various causes of action in the comp aint are either denied in the answer or controverted in ega effect .y other facts. (fter issue had .een thus joined upon the merits, the attorneys entered into an e a.orate agreement as to the fact, there.y removing from the fie d of dispute such matters of fact as are necessary to the so ution of the controversy. %t fo ows that we are here confronted on y with the ega =uestions arising upon the agreed statement. &n 1arch 1, 19#A, the Phi ippine !ommission enacted what is 9nown as the !orporation ,aw C(ct "o. 1)59D effective upon (pri 1 of the same year. *ection 171 to 19#, inc usive, of this (ct are devoted to the su.ject of .ui ding and oan associations, defining their o.jects ma9ing various provisions governing their organi4ation and administration, and providing for the supervision to .e e;ercised over them. :hese provisions appear to .e adopted from (merican statutes governing .ui ding and oan associations and they of course ref ect the idea s and princip es found in (merican aw re ative to such associations. :he respondent, 0 /ogar $i ipino, was apparent y the first corporation organi4ed in the Phi ippine %s ands under the provisions cited, and the association has .een favored with e;traordinary success. :he artic es of incorporation .ear the date of 6ecem.er 27, 191#, at which time capita stoc9 in the association had .een su.scri.ed to the amount of P15#,### of which the sum of P1#,A2# had .een paid in. 5nder the aw as it then stood, the capita of the (ssociation was not permitted to e;ceed P8,###,###, .ut .y (ct "o. 2#92, passed 6ecem.er 28, 1911, the statute was so amended as to

permit the capita i4ation of .ui ding and oan associations to the amount of ten mi ions. *oon thereafter the association too9 advantage of this enactment .y amending its artic es so as to provide that the capita shou d .e in an amount not e;ceeding the then awfu imit. $rom the time of its first organi4ation the num.er of shareho ders has constant y increased, with the resu t that on 6ecem.er 81, 1925, the association had 5,72A shareho ders ho ding 125,75# shares, with a tota paid2up va ue of P7,7#8,A#2.25. 6uring the period of its e;istence prior to the date ast a.ove2mentioned the association paid to withdrawing stoc9ho ders the amount of P7,A17,257,.72< and in the same period it distri.uted in the form of dividends among its stoc9ho ders the sum of P7,A21,5A5.71. 0irst cause of action. I :he first cause of action is .ased upon the a eged i ega ho ding .y the respondent of the tit e to rea property for a period in e;cess of five years after the property had .een .ought in .y the respondent at one of its own forec osure sa es. :he provision of aw re evant to the matter is found in section 75 of (ct of !ongress of Ju y 1, 19#2 Crepeated in su.section 5 of section 18 of the !orporation ,aw.D %n .oth of these provisions it is in su.stance dec ared that whi e corporations may oan funds upon rea estate security and purchase rea estate when necessary for the co ection of oans, they sha dispose of rea estate so o.tained within five years after receiving the tit e. %n this connection it appears that in the year 192# 0 /ogar $i ipino was the ho der of a recorded mortgage upon a tract of and in the municipa ity of *an ! emente, Province of :ar ac, as security for a oan of P2),### to the shareho ders of 0 /ogar $i ipino who were the owners of said property. :he .orrowers having defau ted in their payments, 0 /ogar $i ipino forec osed the mortgage and purchased the and at the forec osure sa e for the net amount of the inde.tedness, name y, the sum of P28,7)).17. :he auction sa e of the mortgaged property too9 p ace "ovem.er 17, 192#, and the deed conveying the property to 0 /ogar $i ipino was e;ecuted and de ivered 6ecem.er 22, 192#. &n 6ecem.er 27, 192#, the deed conveying the property to 0 /ogar $i ipino was sent to the register of deeds of the Province of :ar ac, with the re=uest that the certificate of tit e then standing in the name of the former owners .e cance ed and that a new certificate of tit e .e issued in the name of 0 /ogar $i ipino. *aid deed was received in the office of the register of deeds of :ar ac on 6ecem.er 27, 192#, together with the o d certificate of tit e, and thereupon the register made upon the said deed the fo owing annotationB

:he foregoing document was received in this office at ).1# p. m., 6ecem.er 27, 192#, according to entry 1797, page 5# of 3oo9 &ne of the 6ay 3oo9 and registered on the .ac9 of certificate of tit e "o. 2211 and its dup icate, fo io 198 of 3oo9 (21# of the register of origina certificate. :ar ac, :ar ac, January 12, 1921. C*gd.D *%,>%"& ,&P0R 60 J0*5*, !e'ister of Aeeds. $or months no rep y was received .y 0 /ogar $i ipino from the register of deeds of :ar ac, and etters were written to him .y 0 /ogar $i ipino on the su.ject in 1arch and (pri , 1921, re=uesting action. "o answer having .een received to these etters, a comp aint was made .y 0 /ogar $i ipino to the !hief of the -enera ,and +egistration &ffice< and on 1ay 7, 1921, the certificate of tit e to the *an ! emente and was received .y 0 /ogar $i ipino from the register of deeds of :ar ac. &n 1arch 1#, 1921, the .oard of directors of 0 /ogar $i ipino adopted a reso ution authori4ing >icente 3eng4on, an agent of the corporation, to endeavor to find a .uyer for the *an ! emente and. &n Ju y 27, 1921, 0 /ogar $i ipino authori4ed one Jose ,aguardia to endeavor to find a purchaser for the *an ! emente and for the sum of P28,### underta9ing to pay the said ,aguardia a commission of 5 per centum of the se ing price for his services, .ut no offers to purchase were o.tained through this agent or through the agent 3eng4on. %n Ju y, 1928, p ans of the *an ! emente and were sent to 1r. ,uis -ome4, 1r. J. -on4a e4 and 1r. ( fonso de !aste vi, as prospective purchasers, .ut no offers were received from them. %n January, 192A, the agent not having succeeded in finding a .uyer, the *an ! emente and was advertised for sa e .y 0 /ogar $i ipino in El Ae#ate, La /an'uardia and Tali#a, three newspapers of genera circu ation in the Phi ippine %s ands pu. ished in the !ity of 1ani a. &n 1arch 1A, 192A, the first offer for the purchase of the *an ! emente and was received .y 0 /ogar $i ipino. :his offer was made to it in writing .y one ( cantara, who offered to .uy it for the sum of P),###, Phi ippine currency, paya. e P5## in cash, and the remainder within thirty days. ( cantara's offer having .een reported .y the manager of 0 /ogar $i ipino to its .oard of directors, it was decided, .y a reso ution adopted at a meeting of the .oard he d on 1arch 25, 192A, to accept the offer, and this acceptance was communicated to the prospective .uyer. ( cantara was given successive e;tensions of the time, the ast of which e;pired (pri 8#, 192A, within which to ma9e the payment agreed upon< and upon his fai ure to do so 0 /ogar $i ipino treated the contract with him as rescinded, and efforts were made at once to find another .uyer. $ina y the and was so d to 6oWa $e ipa ( .erto for PA,### .y a pu. ic instrument e;ecuted .efore a notary pu. ic at 1ani a, P. %., on Ju y 8#, 192A.

5pon consideration of the facts a.ove set forth it is evident that the strict etter of the aw was vio ated .y the respondent< .ut it is e=ua y o.vious that its conduct has not .een characteri4ed .y o.duracy or pertinacity in contempt of the aw. 1oreover, severa facts connected with the incident tend to mitigate the offense. :he (ttorney2-enera points out that the respondent ac=uired tit e on 6ecem.er 22, 192#, when the deed was e;ecuted and de ivered, .y which the property was conveyed to it as purchaser at its forec osure sa e, and this tit e remained in it unti Ju y 8#, 192A, when the property was fina y so d to $e ipa ( .erto. :he interva .etween these two conveyances is thus more than five years< and it is contended that the five year period did not .egin to run against the respondent unti 1ay 7, 1921, when the register of deeds of :ar ac de ivered the new certificate of tit e to the respondent pursuant to the deed .y which the property was ac=uired. (s an e=uita. e consideration affecting the case this contention, though not decisive, is in our opinion more than respecta. e. %t has .een he d .y this court that a purchaser of and registered under the :orrens system cannot ac=uire the status of an innocent purchaser for va ue un ess his vendor is a. e to p ace in his hands an owner's dup icate showing the tit e of such and to .e in the vendor C6irector of ,ands vs. (ddison, )9, Phi ., 19< +odrigue4 vs. , orente, -. +. "o. 2AA151D. %t resu ts that prior to 1ay 7, 1921, 0 /ogar $i ipino was not rea y in a position to pass an indefeasi. e tit e to any purchaser. %n this connection it wi .e noted that section 75 of the (ct of !ongress of Ju y 1, 19#2, and the simi ar provision in section 18 of the !orporation ,aw, a ow the corporation 'five years after receiving the tit e,' within which to dispose of the property. ( fair interpretation of these provisions wou d seem to indicate that the date of the receiving of the tit e in this case was the date when the respondent received the owner's certificate, or 1ay 7, 1921, for it was on y after that date that the respondent had an une=uivoca and un=uestiona. e power to pass a comp ete tit e. :he fai ure of the respondent to receive the certificate sooner was not due in any wise to its fau t, .ut to une;p ained de ay on the part of the register of deeds. $or this de ay the respondent cannot .e he d accounta. e. (gain, it is urged for the respondent that the period .etween 1arch 25, 192A, and (pri 8#, 192A, shou d not .e counted as part of the five2year period. :his was the period during which the respondent was under o. igation to se the property to ( cantara, prior to the rescission of the contract .y reason of ( cantara's fai ure to ma9e the stipu ated first payment. 5pon this point the contention of the respondent is, in our opinion, we founded. :he acceptance .y it of ( cantara's offer o. igated the respondent to ( cantara< and if it had not .een for the defau t of ( cantara, the effective sa e of the property wou d have resu ted. :he

respondent was not at a chargea. e with the co apse of these negotiations< and hence in any e=uita. e app ication of the aw this period shou d .e deducted from the five2year period within which the respondent ought to have made the sa e. (nother circumstance e;p anatory of the respondent's de ay in se ing the property is found in the fact that it purchased the property for the fu amount of the inde.tedness due to it from the former owner, which was near y P2),###. %t was su.se=uent y found that the property was not sa a. e for anything i9e that amount and in the end it had to .e so d for PA,###, notwithstanding energetic efforts on the part of the respondent to find a purchaser upon .etter terms. :he =uestion then arises whether the fai ure of the respondent to get rid of the *an ! emente property within five years after it first ac=uired the deed thereto, even supposing the five2year period to .e proper y counted from that date, is such a vio ation of aw as shou d wor9 a forfeiture of its franchise and re=uire a judgment to .e entered for its disso ution in this action of quo *arranto. 5pon this point we do not hesitate to say that in our opinion the corporation has not .een shown to have offended against the aw in a manner that shou d entai a forfeiture of its charter. !ertain y no court with any discretion to use in the matter wou d visit upon the respondent and its thousands of shareho ders the e;treme pena ty of the aw as a conse=uence of the de in=uency here shown to have .een committed. :he aw app ica. e to the case is in our opinion found in section 212 of the !ode of !ivi Procedure, as app ied .y this court in "overnment of t&e %&ilippine -slands vs. %&ilippine u'ar Estates Aevelopment $o. C87 Phi ., 15D. :his section C212D, in prescri.ing the judgment to .e rendered against a corporation in an action of quo *arranto, among other things saysB . . . @hen it is found and adjudged that a corporation has offended in any matter or manner which does not .y aw wor9 as a surrender or forfeiture, or has misused a franchise or e;ercised a power not conferred .y aw, .ut not of such a character as to wor9 a surrender or forfeiture of its franchise, judgment sha .e rendered that it .e outset from the continuance of such offense or the e;ercise of such power. :his provision c ear y shows that the court has a discretion with respect to the inf iction of capita punishment upon corporation and that there are certain misdemeanors and misuses of franchises which shou d not .e recogni4ed as re=uiring their disso ution. %n "overnment of t&e %&ilippine -slands vs. %&ilippine u'ar Estates Aevelopment $o. C87 Phi ., 15D, it

was found that the offending corporation had .een arge y Cthough indirect yD engaged in the .uying and ho ding or rea property for specu ative purposes in contravention of its charter and contrary to the e;press provisions of aw. 1oreover, in that case the offending corporation was found to .e sti interested in the properties so purchased for specu ative at the time the action was .rought. "everthe ess, instead of ma9ing an a.so ute and unconditiona order for the disso ution of the corporation, the judgment of ouster was made conditiona upon the fai ure of the corporation to discontinue its un awfu conduct within si; months after fina decision. %n the case .efore us the respondent appears to have rid itse f of the *an ! emente property many months prior to the institution of this action. %t is evident from this that the disso ution of the respondent wou d not .e an appropriate remedy in this case. @e do not of course underta9e to say that a corporation might not .e disso ved for offenses of this nature perpetrated in the past, especia y if its conduct had e;hi.ited a wi fu o.duracy and contempt of aw. @e content ourse ves with ho ding that upon the facts here .efore us the pena ty of disso ution wou d .e e;cessive y severe and fraught with conse=uences a together disproportionate to the offense committed. :he evident purpose .ehind the aw restricting the rights of corporations with respect to the tenure of and was to prevent the reviva of the entai Cma(oraz'oD or other simi ar institution .y which and cou d .e fettered and its a ienation hampered over ong periods of time. %n the case .efore us the respondent corporation has in good faith disposed of the piece of property which appears to have .een in its hands at the e;piration of the period fi;ed .y aw, and a fair e;p anation is given of its fai ure to dispose of it sooner. 5nder these circumstances the destruction of the corporation wou d .ring irrepara. e oss upon the thousand of innocent shareho ders of the corporation without any corresponding .enefit to the pu. ic. :he discretion permitted to this court in the app ication of the remedy of quo *arranto for.ids so radica a use of the remedy. 3ut the case for the p aintiff supposes that the discretion of this court in matters i9e that now .efore us has .een e;press y ta9en away .y the third section of (ct "o. 2792, and that the disso ution of the corporation is o. igatory upon the court a mere finding that the respondent has vio ated the provision of the !orporation ,aw in any respect. :his ma9es necessary to e;amine the (ct ast a.ove2mentioned with some care. 5pon referring thereto, we find that it consists of three sections under the fo owing sty eB "o. 2792. I (n (ct to amend certain sections of the !orporation ,aw, (ct "um.ered $ourteen hundred and fifty2nine, providing for

the pu. ication of the assets and ia.i ities of corporations registering in the 3ureau of !ommerce and %ndustry, determining the ia.i ity of the officers of corporations with regard to the issuance of stoc9 or .onus, esta. ishing pena ties for certain things, and for other purposes. :he first two section contain amendments to the !orporation ,aw with respect to matters with which we are not here concurred. :he third section contains anew enactment to .e inserted as section 19# C(D in the corporation ,aw immediate y fo owing section 19#. :his new section reads as fo owsB *0!. 19#. C(D. %enalties. I :he vio ation of any of the provisions of this (ct and its amendments not otherwise pena i4ed therein, sha .e punished .y a fine of not more than one thousand pesos, or .y imprisonment for not more than five years, or .oth, in the discretion of the court. %f the vio ation .eing proved, .e disso ved .y quo *arranto proceedings instituted .y the (ttorney2-enera or .y any provincia fisca , .y order of said (ttorney2-enera B Provided, :hat nothing in this section provided sha .e construed to repea the other causes for the disso ution of corporation prescri.ed .y e;isting aw, and the remedy provided for in this section sha .e considered as additiona to the remedies a ready e;isting. :he contention for the p aintiff is to the effect that the second sentence in this enactment has entire y a.rogated the discretion of this court with respect to the app ication of the remedy of qou *arranto, as e;pressed in section 212 of the !ode of !ivi Procedure, and that it is now mandatory upon us to disso ved any corporation whenever we find that it has committed any vio ation of the !orporation ,aw, however trivia . %n our opinion in this radica view of the meaning of the enactment is untena. e. @hen the statute says, '%f the vio ation is committed .y a corporation, the same sha , upon such vio ation .eing proved, .e disso ved .y quo *arranto proceedings . . .,' the intention was to indicate that the remedy against the corporation sha .e .y action of quo *arranto. :here was no intention to define the princip es governing said remedy, and it must .e understood that in app ying the remedy the court is sti contro ed .y the princip es esta. ished in immemoria jurisprudence. :he interpretation p aced upon this anguage in the .rief of the (ttorney2-enera wou d .e dangerous in the e;treme, since it wou d actua y p ace the ife of a corporate investments in the officia . "o corporate enterprise of any moment can .e conducted perpetua y without some trivia misdemeanor against corporate aw .eing committed .y some one or other of its

numerous emp oyees. (s i ustrations of the preposterous effects of the provision, in the sense contended for .y the (ttorney2-enera , the attorneys for the respondent have ca ed attention to the fact that under section 52 of the !orporation ,aw, a .usiness corporation is re=uired to 9eep a stoc9 .oo9 and a transfer .oo9 in which the names of stoc9ho ders sha 9ept in a pha.etica order. (gain, under section 9), rai road corporations are re=uired to cause a emp oyees wor9ing on passenger trains or at a station for passengers to wear a .adge on his cap or hat which wi indicate his office. !an it .e supposed that the ,egis ature intended to pena i4e the vio ation of such provisions as these .y disso ution of the corporation invo vedO 0vident y such cou d not have .een the intention< and the on y way to avoid the conse=uence suggested is to ho d, as we now ho d, that the provision now under consideration has not impaired the discretion of this court in app ying the writ of quo *arranto. (nother way to put the same conc usion is to say that the e;pression 'sha .e disso ved .y quo *arrantoproceedings' means in effect, 'may .e disso ved .y quo *arranto proceedings in the discretion of the court.' :he proposition that the word 'sha ' may .e construed as 'may', when addressed .y the ,egis ature to the courts, is we supported in jurisprudence. %n the case of Bec+er vs. Le#anon and ,. t. !(. $o., C177 Pa., )7)D, the *upreme !ourt of Pennsy vania had under consideration a statute providing as fo owsB %t sha .e the duty of the court . . . to e;amine, in=uire and ascertain whether such corporation does in fact posses the right or franchise to do the act from which such a eged injury to private rights or to the rights and franchises of other corporations resu ts< and if such rights or franchises have not .een conferred upon such corporations, such courts, it e;ercising e=uita. e power, s&all, .y injunction, at suit of the private parties or other corporations, restrain such injurious acts. %n an action .ased on this statute the p aintiff c aimed injunctive re ief as a matter of right. 3ut this was denied the court sayingB "otwithstanding, therefore, the use of the imperative 'sha ' the injunction is not to .e granted un ess a proper case for injunction .e made out, in accordance with the princip es and practice of e=uity. :he word 'sha ' when used .y the egis ature to a court, is usua y a grant of authority and means 'may', and even if it .e intended to .e mandatory it must .e su.ject to the necessary

imitation that a proper case has .een made out for the e;ercise of the power. &ther authorities amp y sustain this view CPeop e vs. "use.aum, AA ". F. *upp., 129, 188< @est @isconsin +. !o.vs. $o ey, 9) 5. *., 1##, 1#8< 2) ,aw. 0d., 71< ! ancy vs. 1c0 roy, 8# @ash., 5A7< 7# Pac., 1#95< *tate vs. @est, 8 &hio *tate, 5#9, 511< -n re ,ent, )# ". F. *upp., 57#, 572< 1A 1isc. +ep., A#A< ,ud ow vs. ,ud ow's 0;ecutors, ) ". J. ,aw J1 *othardK, 877, 89)< @hipp e vs. 0ddy, 1A1 % ., 11)<)8 ". 0., 779, 79#< 3or9heim vs. $ireman's $und %ns. !o., 87 !a ., 5#5, 5#A< 3eas ey vs. Peop e, 79 % ., 571, 575< 6onne y vs. *mith, 127 %owa, 257< 1#8 ". @., 77AD. 3ut section 8 of (ct "o. 2792 is cha enged .y the respondent on the ground that the su.ject2matter of this section is not e;pressed in the tit e of the (ct, with the resu t that the section is inva id. :his criticism is in our opinion we founded. *ection 8 of our organic aw CJones 3i D dec ares, among other things, that '"o .i which may .e enacted into aw sha em.race more than one su.ject, and that su.ject sha .e e;pressed in the tit e of the .i .' (ny aw or part of a aw passed .y the Phi ippine ,egis ature since this provision went into effect and offending against its re=uirement is necessari y void. 5pon e;amining the entire (ct C"o. 2792D, we find that it is directed to three ends which are successive y dea t with in the first three sections of the (ct. 3ut it wi .e noted that these three matters a re ate to the !orporation ,aw< and it is at once apparent that they might proper y have .een em.odied in a sing e (ct if a tit e of sufficient unity and genera ity had .een prefi;ed thereto. $urthermore, it is o.vious, even upon casua inspection, that the su.ject2matter of each of the first two sections is e;pressed and defined with sufficient precision in the tit e. @ith respect to the su.ject2matter of section 8 the on y words in the tit e which can .e ta9en to refer to the su.ject2matter of said section are these, '(n (ct . . . esta. ishing pena ties for certain things, and for other purposes.' :hese words undou.ted y have sufficient genera ity to cover the su.ject2matter of section 8 of the (ct. 3ut this is not enough. :he Jones ,aw re=uires that the su.ject2matter of the .i 'sha .e e;pressed in the tit e of the .i .' @hen reference is had to the e;pression 'esta. ishing pena ties for certain things,' it is o.vious that these words e;press nothing. :he constitutiona provision was undou.ted y adopted in order that the pu. ic might .e informed as to what the ,egis ature is a.out whi e .i s are in process of passage. :he e;pression 'esta. ishing pena ties for certain

things' wou d give no definite information to any.ody as to the project of egis ation intended under this e;pression. (n e;amination of the decided cases shows that courts have a ways .een indu gent of the practices of the ,egis ature with respect to the form and genera ity of tit e, for if e;treme refinements were indu ged .y the courts, the wor9 of egis ation wou d .e unnecessari y hampered. 3ut, as has .een o.served .y the !a ifornia court, there must .e some reasona. e imit to the genera ity of tit es that wi .e a owed. :he measure of ega ity is whether the tit e is sufficient to give notice of the genera su.ject of the proposed egis ation to the persons and interests i9e y to .e affected. %n Le*is vs. Aunne C18) !a ., 291D, the court had .efore it a statute entit ed '(n (ct to revise the !ode of !ivi Procedure of the *tate of !a ifornia, .y amending certain sections, repea ing others, and adding certain new sections.' :his tit e was he d to em.race more than one su.ject, which were not sufficient y e;pressed in the tit e. %n discussing the =uestion the court saidB U U U %t is apparent that the anguage of the tit e of the act in =uestion, in and of itse f, e;press no su.ject whatever. "o one cou d te from the tit e a one what su.ject of egis ation was dea t with in the .ody of the act< such su.ject so far as the tit e of the act informs us, might have .een entire y different from anything to .e found in the act itse f. @e cannot agree with the contention of some of respondent's counse I apparent y to some e;tent countenanced .y a few authorities I that the provision of the constitution in =uestion can .e entire y avoided .y the simp e device of putting into the tit e of an act words which denote a su.ject '.road' enough to cover everything. 5nder that view, the tit e, '(n act concerning the aws of the state,' wou d .e good, and the convention and peop e who framed and adopted the constitution wou d .e convicted of the fo y of e a.orate y constructing a grave constitutiona imitation of egis ative power upon a most important su.ject, which the egis ature cou d at once circumvent .y a mere ver.a tric9. :he word 'su.ject' is used in the constitution em.race .ut 'one su.ject' it necessari y imp ies I what every.ody 9nows I that there are numerous su.jects of the egis ation, and dec ares that on y one of these su.jects sha em.raced in any one act. ( su.jects cannot .e conjured into one su.ject .y the mere magic of a word in a tit e.

%n !ader vs. To*ns&ip of Nnion C89 ". J. ,., 5#9, 515D, the *upreme !ourt of "ew Jersey made the fo owing o.servationB U U U %t is true, that it may .e difficu t to indicate, .y a formu a, how specia i4ed the tit e of a statute must .e< .ut it is not difficu t to conc ude that it must mean something in the way of .eing a notice of what is doing. 5n ess it does not enough that it em.races the egis ative purpose I it must e;press it< and where the anguage is too genera , it wi accomp ish the former, .ut not the atter. :hus, a aw entit ed '(n act for a certain purpose,' wou d em.race any su.ject, .ut wou d e;press none, and, conse=uent y, it wou d not stand the constitutiona test. :he doctrine proper y app ica. e in matters of this 9ind is, we thin9, fair y summed up in a current repository of jurisprudence in the fo owing anguageB U U U @hi e it may .e difficu t to formu ate a ru e .y which to determine the e;tent to which the tit e of a .i must specia i4e its o.ject, it may .e safe y assumed that the tit e must not on y em.race the su.ject of proposed egis ation, .ut a so e;press it c ear y and fu y enough to give notice of the egis ative purpose. C25 +. !. ,., p. 758.D %n dea ing with the pro. em now .efore us the words 'and for other purposes 'found at the end of the caption of (ct "o. 2792, must .e aid comp ete y out of consideration. :hey e;press nothing, and amount to nothing as a comp iance with the constitutiona re=uirement to which attention has .een directed. :his e;pression 'Cfor other purposes'D is fre=uent y found in the tit e of acts adopted .y the Phi ippine ,egis ature< and its presence in our aws is due to the adoption .y our ,egis ature of the sty e used in !ongression a egation. 3ut it must .e remem.ered that the egis ation of !ongress is su.ject to no constitutiona restriction with respect to the tit e of .i s. !onse=uent y, in !ongressiona egis ation the words 'and for other purposes' at east serve the purpose of admonishing the pu. ic that the .i whose heading contains these words contains egis ation upon other su.jects than that e;pressed in the tit e. "ow, so ong as the Phi ippine ,egis ature was su.ject to no restriction with respect to the tit e of .i s intended for enactment into genera aws, the e;pression 'for other purposes' cou d .e appropriate y used in tit es, not precise y for the purpose of conveying information as to the matter egis ated upon, .ut for the purpose ad admonishing the pu. ic that any .i containing such words in the tit e might contain other su.jects than that e;pressed in the definitive part of the tit e. 3ut, when congress

adopted the Jones ,aw, the restriction with which we are now dea ing .ecame effective here and the words 'for other purposes' cou d no onger .e appropriate y used in the tit e of egis ative .i s. "everthe ess, the custom of using these words has sti .een fo owed, a though they can no onger serve to cover matter not germane to the .i in the tit e of which they are used. 3ut the futi ity of adding these words to the sty e of any act is now o.vious C!oo ey, !onst. ,ims., 7th ed., p. 8#2D %n the .rief for the p aintiff it is intimated that the constitutiona restriction which we have .een discussing is more or ess of a dead etter in this jurisdiction< and it seems to .e ta9en for granted that no court wou d ever presume to ho d a egis ative act or part of a egis ative act inva id for non2 comp iance with the re=uirement. :his is a mista9e< and no utterance of this court can .e cited as giving currency to any such notion. &n the contrary the discussion contained in $entral $apiz vs. !amirez C)# Phi ., 778D, shows that when a case arises where a vio ation of the restriction is apparent, the court has no a ternative .ut to dec are the egis ation affected there.y to .e inva id. econd cause of action. I :he second cause of action is .ased upon a charge that the respondent is owning and ho ding a .usiness ot, with the structure thereon, in the financia district of the !ity of 1ani a is e;cess of its reasona. e re=uirements and in contravention of su.section 5 of section 18 of the corporation ,aw. :he facts on which this charge is .ased appear to .e theseB &n (ugust 27, 1918, the respondent purchased 1,)18 s=uare meters of and at the corner of Juan ,una *treet and the 1ue e de a %ndustria, in the !ity of 1ani a, immediate y adjacent to the .ui ding then occupied .y the /ong9ong and *hanghai 3an9ing !orporation. (t the time the respondent ac=uired this ot there stood upon it a .ui ding, then near y fifty years o d, which was occupied in part .y the offices of an importing firm and in part .y warehouses of the same firm. :he materia used in the construction was -uada upe stone and hewn tim.er, and the .ui ding contained none of the faci ities usua y found in a modern office .ui ding. %n purchase of a design which had .een formed prior to the purchase of the property, the directors of the 0 /ogar $i ipino caused the o d .ui ding to .e demo ished< and they erected thereon a modern reinforced concrete office .ui ding. (s at first constructed the new .ui ding was three stories high in the main, .ut in 192#, in order to o.tain greater advantage from the use of the and, an additiona story was added to the .ui ding, ma9ing a structure of four stories e;cept in one corner where an additiona story was p ace, ma9ing it five stories high over an area of

117.52 s=uare meters. %t is admitted in the p aintiffs .rief that this 'no. e and imposing structure' I to use the words of the (ttorney2-enera I 'has great y improved the aspect of the .an9ing and commercia district of 1ani a and has great y contri.uted to the movement and campaign for the 1ani a 3eautifu .' %t is a so admitted that the competed .ui ding is reasona. y proportionate in va ue and revenue producing capacity to the va ue of the and upon which it stands. :he tota out ay of the respondent for the and and the improvements thereon was PA9#,### and at this va uation the property is carried on the .oo9s of the company, whi e the assessed va uation of the and and improvements is at P77A,)77. *ince the new .ui ding was comp eted the respondent has used a.out 82) s=uare meters of f oor space for its own offices and has rented the remainder of the office space in said .ui ding, consisting of a.out 8,175 s=uare meters, to other persons and entities. %n the second cause of action of the comp aint it is supposed that the ac=uisition of this ot, the construction of the new office .ui ding thereon, and the su.se=uent renting of the same in great part to third persons, are ultra vires acts on the part of the corporation, and that the proper pena ty to .e enforced against it in this action is that if disso ution. @ith this contention we are una. e to agree. 5nder su.section 5 of section 18 of the !orporation ,aw, every corporation has the power to purchase, ho d and ease such rea property as the transaction of the awfu .usiness of the corporation may reasona. y and necessari y re=uire. @hen this property was ac=uired in 191A, the .usiness of 0 /ogar $i ipino had deve oped to such an e;tent, and its prospects for the future were such as to justify its directors in ac=uiring a ot in the financia district of the !ity of 1ani a and in constructing thereon a suita. e .ui ding as the site of its offices< and it cannot .e fair y said that the area of the ot I 1,)18 s=uare meters I was in e;cess of its reasona. e re=uirements. :he aw e;press y dec ares that corporations may ac=uire such rea estate as is reasona. y necessary to ena. e them to carry out the purposes for which they were created< and we are of the opinion that the owning of a .usiness ot upon which to construct and maintain its offices is reasona. y necessary to a .ui ding and oan association such as the respondent was at the time this property was ac=uired. ( different ru ing on this point wou d compe important enterprises to conduct their .usiness e;c usive y in eased offices I a resu t which cou d serve no usefu end .ut wou d retard industria growth and .e inimica to the .est interests of society. @e are furthermore of the opinion that, inasmuch as the ot referred to was awfu y ac=uired .y the respondent, it is entit ed to the fu .eneficia

use thereof. "o egitimate princip e can discovered which wou d deny to one owner the right to enjoy his Cor itsD property to the same e;tent that is conceded to any other owner< and an intention to discriminate .etween owners in this respect is not ight y to .e imputed to the ,egis ature. :he point here invo ved has .een the su.ject of consideration in many decisions of (merican courts under statutes even more restrictive than that which prevai s in this jurisdiction< and the conc usion has uniform y .een that a corporations whose .usiness may proper y .e conducted in a popu ous center may ac=uire an appropriate ot and construct thereon an edifice with faci ities in e;cess of its own immediate re=uirements. :hus in %eople vs. %ullmanHs %alace6$ar $o. C175 % ., 125< A) ,. +. (., 8AAD, it appeared that the respondent corporation owned and contro ed a arge ten2story .usiness . oc9 in the !ity of !hicago, worth V2,###,###, and that it occupied on y a.out one2fourth thereof for its own purposes, easing the remainder to others at heavy renta s. :he corporate charter mere y permitted the ho ding of such rea estate .y the respondent as might .e necessary for the successfu prosecution of its .usiness. (n attempt was made to o.tain the disso ution of the corporation in a quo *arranto proceeding simi ar to that now .efore us, .ut the remedy was denied. %n !ector vs. Bartford Aeposit $o., a =uestion was raised as to the power of the 6eposit !ompany to erect and own a fourteen2story .ui ding I containing eight storerooms, one hundred suites of offices, and one safety deposit vau t, under a statute authori4ing the corporation to possess so much rea estate 'as sha .e necessary for the transaction of their .usiness.' :he court saidB :hat the appe ee company possessed amp e power to ac=uire rea property and construct a .ui ding thereon for the purpose of transacting therein the egitimate .usiness of the corporation is .eyond the range of de.ate. "or is the contrary contended, .ut the insistence is that, under the guise of erecting a .ui ding for corporate purposes, the appe ee company purpose y constructed a much arger .ui ding than its .usiness re=uired, containing many rooms intended to .e rented to others for offices and .usiness purposes, I among them, the .asement rooms contracted to .e eased to the appe ant, I and that in so doing it designed y e;ceeded its corporate powers. :he position off appe ant therefore is that the appe ee corporation has f agrant y a.used its genera power to ac=uire rea estate and construct a .ui ding thereon . . . %t was within the genera scope of the e;press powers of the appe ee corporation to own and possess a

.ui ding necessary for its proper corporate purposes. %n p anning and constructing such a .ui ding, as was said in %eople vs. %ullmanHs %alace $ar $o., supra, the corporation shou d not necessari y .e restricted to a .ui ding containing the precise num.er of rooms its then .usiness might re=uire, and no more, .ut that the future pro.a. e growth and vo ume of its .usiness might .e considered and anticipated, and a arger .ui ding, and one containing more rooms than the present vo ume of .usiness re=uired .e erected, and the rooms not needed might .e rented .y the corporation, I provided, of course, such course shou d .e ta9en in good faith, and not as a mere evasion of the pu. ic aw and the po icy of the state re ative to the ownership of rea estate .y corporations. %n such state of case the =uestion is whether the corporation has a.used or e;cessive y and unjustifia. y used the power and authority granted it .y the state to construct .ui dings and own rea estate necessary for its corporate purposes. %n /ome savings .ui ding Association vs. Ariver C129 Ly., 75)D, one of the =uestions .efore the court was precise y the same as that now .efore us. 5pon this the *upreme !ourt of Lentuc9y saidB :he third =uestion is, has the association the right to erect, remode , or own a .ui ding of more than sufficient capacity to accommodate its own .usiness and to rent out the e;cessO :here is nothing in the !onstitution, charter of the association, or statutes p acing any imitation upon the character of a .ui ding which a corporation may erect as a home in which to conduct its .usiness. ( corporation conducting a .usiness of the character of that in which appe ant is engaged natura y e;pects its .usiness to grow and e;pand from time to time, and, in .ui ding a home it wou d .e e;ercising .ut a short2sighted judgment if it did not ma9e provision for the future .y .ui ding a home arge enough to ta9e care of its e;panding .usiness, and hence, even if it shou d .ui d a house arger and roomier than its present needs or interests re=uire, it wou d .e acting c ear y with the e;ercise of its corporate right and power. :he imitation which the statute imposes is that proper conduct of its .usiness, .ut it does not attempt to p ace any restriction or imitation upon the right of the corporation or association as to the character of .ui ding it sha erect on said rea estate< and, whi e the !onstitution and the statutes provide that no corporation sha engage in any .usiness other than that e;press y authori4ed .y its charter, we are of opinion that, in renting out the unoccupied and unused portions of the .ui ding so erected, the association cou d not .e said to

engaged in any other .usiness than that authori4ed .y its charter. :he renting of the unused portions of the .ui ding is a mere incident in the conduct of its rea .usiness. @e wou d not say that a .ui ding association might em.ar9 in the .usiness of .ui ding houses and renting or easing them, .ut there is =uite a difference in .ui ding or renting a house in which to conduct its own .usiness and easing the unused portion thereof for the time .eing, or unti such time as they may .e needed .y the association, and in .ui ding houses for the purpose of renting or easing them. :he one might proper y .e said to .e the proper e;ercise of a power incident to the conduct of its egitimate .usiness, whereas the other wou d .e a c ear vio ation of that provision of the statute which denies to any corporation the right to conduct any .usiness other than that authori4ed .y its charter. :o ho d otherwise wou d .e to charge most of the .an9ing institutions, trust companies and other corporations, such as tit e guaranty companies, etc., doing with vio ating the aw< for it is 9nown that there are few of such institutions that do not, at times, rent out or ease the unneeded portions of the .ui ding occupied .y them as homes. @e do not thin9 that in so doing they are vio ating any provisions of the aw, .ut that the renting out of the unused or unoccupied portions of their .ui dings is .ut an incident in the conduct of their .usiness. %n 1in'ert vs. 0irst 2ational Ban+ of Ba'ersto*n, ,d. C175 $ed., 789, 7)1D, a stoc9ho der sought to enjoin the .an9 from .ui ding a si;2story .ui ding owned .y the .an9 in the commercia district of /agerstown of which on y the first story was to .e used .y the .an9, the remaining stories to .e rented out for offices and p aces of .usiness, on the theory that such action was ultra vires and in vio ation of the provisions of the nationa .an9ing act confining such corporations to the ho ding, on y, of such rea estate 'as sha .e necessary for its immediate accommodation in the transaction of its .usiness.' :he injunction was denied, the court adopting the opinion of the ower court in which the fo owing was saidB ':he other ground urged .y the comp ainant is that the proposed action is vio ative of the restriction which permits a nationa .an9 to ho d on y such rea estate as sha .e necessary for its immediate accommodation in the transaction of its .usiness, and that, therefore, the erection of a .ui ding which wi contain offices not necessary for the .usiness of the .an9 is not permitted .y the aw, a though that method of improving the ot may .e the most

.eneficia use that can .e made of it. %t is matter of common 9now edge that the actua practice of nationa .an9s is to the contrary. @here ground is va ua. e, it may pro.a. y .e tru y said that the majority of nationa .an9 .ui dings are .ui t with accommodations in e;cess of the needs of the .an9 for the purpose of essening the .an9's e;pense .y renting out the unused portion. %f that were not a owa. e, many sma er .an9s in cities wou d .e driven to .ecome tenants as the great cost of the ot wou d .e prohi.itive of using it e;c usive y for the .an9ing accommodation of a sing e .an9. (s indicative of the interpretation of the aw common y received and acted upon, reference may .e made to the rep y of the !omptro er of the !urrency to the injury .y the .an9 in this case as9ing whether the aw for.ids the .an9 constructing such a .ui ding as was contemp ated. ':he rep y was fo owsB 'Four etter of the 9th instant received, stating that the directors contemp ate ma9ing improvements in the .an9 .ui ding and in=uiring if there is anything in the nationa .an9ing aws prohi.iting the construction of a .ui ding which wi contain f oors for offices to .e rented out .y the .an9 as we as the .an9ing room. Four attention is ca ed to the case of Bro*n vs. c&leier, 117 $ed., 971 J55 !. !. (, )75K, in which the court he d thatB '%f the and which a nationa .an9 purchases or eases for the accommodation of its .usiness is very va ua. e it may e;ercise the same rights that .e ong to other andowners of improving it in a way that wi yie d the argest income, essen its own rent, and render that part of its funds which are invested in rea ty most productive.'' :his seems to .e the common sense interpretation of the act of !ongress and is the one which prevai s.' %t wou d seem to .e unnecessary to e;tend the opinion .y engthy citations upon the point under consideration, .ut Bro*n vs. c&leier C117 $ed., 971D, may .e cited as .eing in harmony with the foregoing authorities. %n dea ing with the powers of a nationa .an9 the court, in this case, saidB @hen an occasion arises for an investment in rea property for either of the purposes specified in the statute the nationa .an9 act permits .an9ing associations to act as any prudent person wou d act in ma9ing an investment in rea estate, and to e;ercise the same measure of judgment and discretion. :he act ought not to .e construed in such as way as to compe a nationa .an9,

when it ac=uires rea property for a egitimate purpose, to dea with it otherwise than a prudent and owner wou d ordinari y dea with such property. %n the .rief of the (ttorney2-enera re iance is p ace a most entire y upon two % inois cases, name y Africani Bome %urc&ase and Loan Association vs. $arroll C2A7 % ., 87#D, and 0irst ,et&odist Episcopal $&urc& of $&ica'o vs. Aixon C177 % ., 2A#D. %n our opinion these cases are either distinguisha. e from that now .efore us, or they ref ect a view of the aw which is incorrect. (t any rate the weight of judicia opinion is so overwhe ming y in favor of sustaining the va idity of the acts a eged in the second cause of action to have .een done .y the respondent in e;cess of its powers that we refrain from commenting at any ength upon said cases. :he ground stated in the second cause of action is in our opinion without merit. T&ird cause of action. I 5nder the third cause of action the respondent is charged with engaging in activities foreign to the purposes for which the corporation was created and not reasona. e necessary to its egitimate ends. :he specifications under this cause of action re ate to three different sorts of activities. :he first consist of the administration of the offices in the 0 /ogar .ui ding not used .y the respondent itse f and the renting of such offices to the pu. ic. (s stated in the discussion connected with the second cause of action, the respondent uses on y a.out ten per cent of the office space in the 0 /ogar .ui ding for its own purposes, and it eases the remainder to strangers. %n the years 192) and 1925 the respondent received as rent for the eased portions of the .ui ding the sums of P75,895.#A and P57,259.27, respective y. :he activities here critici4ed c ear y fa within the egitimate powers of the respondent, as shown in what we have said a.ove re ative to the second cause of action. :his matter wi therefore no onger detain us. %f the respondent had the power to ac=uire the ot, construct the edifice and ho d it .eneficia y, as there decided, the .eneficia administration .y it of such parts of the .ui ding as are et to others must necessari y .e awfu . :he second specification under the third cause of action has reference to the administration and management of properties .e onging to de in=uent shareho ders of the association. %n this connection it appears that in case of de in=uency on the part of its shareho ders in the payment of interest, premium, and dues, the association has .een accustomed Cpursuant to c ause 7 of its standard mortgageD to ta9e over and manage the mortgaged property for the purpose of app ying the income to the o. igations of the de.tor party. $or these services the respondent charges a commission at the rate of 2Z per centum on sums co ected.

:he case for the government supposes that the on y remedy which the respondent has in case of defau t on the part of its shareho ders is to proceed to enforce co ection of the who e oan in the manner contemp ated in section 175 of the !orporation ,aw. %t wi .e noted, however, that, according to said section, the association may treat the who e inde.tedness as due, 'at the option of the .oard of directors,' and this remedy is not made e;c usive. @e see no reason to dou.t the va idity of the c ause giving the association the right to ta9e over the property which constitutes the security for the de in=uent de.t and to manage it with a view to the satisfaction of the o. igations due to the de.tor than the immediate enforcement of the entire o. igation, and the va idity of the c ause a owing this course to .e ta9en appears to us to .e not open to dou.t. :he second specification under this cause of action is therefore without merit, as was true of the first. :he third specification under this cause of action re ates to certain activities which are descri.ed in the fo owing paragraphs contained in the agreed statements of factsB. 0 /ogar $i ipino has underta9en the management of some parce s of improved rea estate situated in 1ani a not under mortgage to it, .ut owned .y shareho ders, and has he d itse f out .y advertisement as prepared to do so. :he num.er of properties so managed during the years 1921 to 1925, inc usive, was as fo owsB 1921 eight properties 1922 si; properties 1928 ten properties 192) fourteen properties 1925 fourteen properties. :his service is imited to shareho ders< .ut some of the persons whose properties are so managed for them .ecame shareho ders on y to ena. e them to ta9e advantage thereof. :he services rendered in the management of such improved rea estate .y 0 /ogar $i ipino consist in the renting of the same, the payment of rea estate ta;es and insurance for the account of the

owner, causing the necessary repairs for up9eep to .e made, and co ecting rents due from tenants. $or the services so rendered in the management of such properties 0 /ogar $i ipino receives compensation in the form of commissions upon the gross receipts from such properties at rates varying from two and one2ha f per centum to five per centum of the sums so co ected, according to the ocation of the property and the effort invo ved in its management. :he wor9 of managing rea estate .e onging to non2.orrowing shareho ders administered .y 0 /ogar $i ipino is carried on .y the same mem.ers of the staff who attend to the detai s of the management of properties administered .y the manager of 0 /ogar $i ipino under the provisions of paragraph 7 of the standard mortgage form, and of properties .ought in on forec osure of mortgage. :he practice descri.ed in the passage a.ove =uoted from the agreed facts is in our opinion unauthori4ed .y aw. *uch was the view ta9en .y the .an9 e;aminer of the :reasury 3ureau in his report to the %nsu ar :reasurer on 6ecem.er 21, 1925, wherein the practice in =uestion was critici4ed. :he administration of property in the manner descri.ed is more .efitting to the .usiness of a rea estate agent or trust company than to the .usiness of a .ui ding and oan association. :he practice to which this criticism is directed re ates of course so e y to the management and administration of properties which are not mortgaged to the association. :he circumstance that the owner of the property may have .een re=uired to su.scri.e to one or more shares of the association with a view to =ua ifying him to receive this service is of no significance. %t is a genera ru e of aw that corporations possess on y such e;press powers. :he management and administration of the property of the shareho ders of the corporation is not e;press y authori4ed .y aw, and we are una. e to see that, upon any fair construction of the aw, these activities are necessary to the e;ercise of any of the granted powers. :he corporation, upon the point now under the criticism, has c ear y e;tended itse f .eyond the egitimate range of its powers. 3ut it does not resu t that the disso ution of the corporation is in order, and it wi mere y .e enjoined from further activities of this sort. 0ourt& cause of action. I %t appears that among the .y aws of the association there is an artic e C"o. 1#D which reads as fo owsB :he .oard of directors of the association, .y the vote of an a.so ute majority of its mem.ers, is empowered to cance shares

and to return to the owner thereof the .a ance resu ting from the i=uidation thereof whenever, .y reason of their conduct, or for any other motive, the continuation as mem.ers of the owners of such shares is not desira. e. :his .y2 aw is of course a patent nu ity, since it is in direct conf ict with the atter part of section 177 of the !orporation ,aw, which e;press y dec ares that the .oard of directors sha not have the power to force the surrender and withdrawa of unmatured stoc9 e;cept in case of i=uidation of the corporation or of forfeiture of the stoc9 for de in=uency. %t is agreed that this provision of the .y2 aws has never .een enforced, and in fact no attempt has ever .een made .y the .oard of directors to ma9e use of the power therein conferred. %n "ovem.er, 1928, the (cting %nsu ar :reasurer addressed a etter to 0 /ogar $i ipino, ca ing attention to artic e 1# of its .y2 aws and e;pressing the view that said artic e was inva id. %t was therefore suggested that the artic e in =uestion shou d .e e iminated from the .y2 aws. (t the ne;t meeting of the .oard of directors the matter was ca ed to their attention and it was reso ved to recommend to the shareho ders that in their ne;t annua meeting the artic e in =uestion .e a.rogated. %t appears, however, that no annua meeting of the shareho ders ca ed since that date has .een attended .y a sufficient num.er of shareho ders to constitute a =uorum, with the resu t that the provision referred to has no .een e iminated from the .y2 aws, and it sti stands among the .y2 aws of the association, notwithstanding its patent conf ict with the aw. %t is supposed, in the fourth cause of action, that the e;istence of this artic e among the .y2 aws of the association is a misdemeanor on the part of the respondent which justifies its disso ution. %n this view we are una. e to concur. :he o.no;ious .y2 aw, as it stands, is a mere nu ity, and cou d not .e enforced even if the directors were to attempt to do so. :here is no provision of aw ma9ing it a misdemeanor to incorporate an inva id provision in the .y2 aws of a corporation< and if there were such, the ha4ards incident to corporate effort wou d certain y .e arge y increased. :here is no merit in this cause of action. 0ift& cause of action. I %n section 81 of the !orporation ,aw it is dec ared that, 'at a e ections of directors there must .e present, either in person or .y representative authori4ed to act .y written pro;y, the owners of the majority of the su.scri.ed capita stoc9 entit ed to vote. . . .' !onforma. y with this re=uirement it is dec ared in artic e A1 of the .y2 aws of 0 /ogar $i ipino that, 'the attendance in person or .y pro;y of shareho ders owning one2ha f p us one of the shareho ders sha .e necessary to constitute a =uorum for the e ection of directors. (t the

genera annua meetings of the 0 /ogar $i ipino he d in the years 1911 and 1912, there was a =uorum of shares present or represented at the meetings and directors were du y e ected according y. (s the corporation has grown, however, it has .een fond increasing y difficu t to get together a =uorum of the shareho ders, or their pro;ies, at the annua meetings< and with the e;ception of the annua meeting he d in 1917, when a new directorate was e ected, the meetings have fai ed for ac9 of =uorum. %t has .een foreseen .y the officia s in charge of the respondent that this condition of affairs wou d ead to em.arrassment, and a specia effort was made .y the management to induce a sufficient num.er of shareho ders to attend the annua meeting for $e.ruary, 1928. %n addition to the pu. ication of notices in the newspapers, as re=uired .y the .y2 aws, a etter of notification was sent to every shareho der at his ast 9nown address, together with a . an9 form of pro;y to .e used in the event the shareho der cou d not persona y attend the meeting. "otwithstanding these specia efforts the meeting was attended on y .y shareho ders, in person and .y pro;y, representing 8,779 shares, out of a tota of 1#A,)91 then outstanding and entit ed to vote. &wing to the fai ure of a =uorum at most of the genera meetings since the respondent has .een in e;istence, it has .een the practice of the directors to fi vacancies in the directorate .y choosing suita. e persons from among the stoc9ho ders. :his custom finds its sanction in artic e 71 of the .y2 aws, which reads as fo owsB (+:. 71. :he directors sha e ect from among the shareho ders mem.ers to fi the vacancies that may occur in the .oard of directors unti the e ection at the genera meeting. :he person thus chosen to fi vacancies in the directorate have, it is admitted, uniform y .een e;perienced and successfu .usiness and professiona men of means, enjoying earned incomes of from P12,### to P5#,### per annum, with an annua average of P8#,### in addition to such income as they derive from their properties. 1oreover, it appears that severa of the individua s constituting the origina directorate and persons chosen to supp y vacancies therein .e ong to prominent $i ipino fami ies, and that they are more or ess re ated to each other .y . ood or marriage. %n addition to this it appears that it has .een the po icy of the directorate to 9eep thereon some mem.er or another of a sing e prominent (merican aw firm in the city. %t is supposed in the statement of the fifth cause of action in the comp aint that the fai ure of the corporation to ho d annua meetings and the fi ing of vacancies in the directorate in the manner descri.ed constitute

misdemeanors on the part of the respondent which justify the resumption of the franchise .y the -overnment and disso ution of the corporation< and in this connection it is charge that the .oard of directors of the respondent has .ecome a permanent and se f perpetuating .ody composed of wea thy men instead of wage earners and persons of moderate means. @e are una. e to see the s ightest merit in the charge. "o fau t can .e imputed to the corporation on account of the fai ure of the shareho ders to attend the annua meetings< and their non2attendance at such meetings is dou.t ess to .e interpreted in part as e;pressing their satisfaction of the way in which things have .een conducted. 5pon fai ure of a =uorum at any annua meeting the directorate natura y ho ds over and continues to function unti another directorate is chosen and =ua ified. 5n ess the aw or the charter of a corporation e;press y provides that an office sha .ecome vacant at the e;piration of the term of office for which the officer was e ected, the genera ru e is to a ow the officer to ho dover unti his successor is du y =ua ified. 1ere fai ure of a corporation to e ect officers does not terminate the terms of e;isting officers nor disso ve the corporation CGuitman &i !ompany vs. Peacoc9, 1) -a. (pp., 55#< Jen9ins vs. 3a;ter, 1A# Pa. *tate, 199< "ew For9 3. H 0. +y. !o. vs. 1oti , 71 !onn., )AA< /atch vs. ,uc9y 3i 1ining !ompany, 71 Pac., 7A5< Fouree vs. /ome :own 1atua %ns. !ompany, 17# 1issouri, 158< !asse vs. ,e;ington, /. and P. :urnpi9e +oad !o., 1# Ly. ,. +., )7AD. :he doctrine a.ove stated finds e;pressions in artic e AA of the .y2 aws of the respondent which dec ares in so many words that directors sha ho d office 'for the term of one year on unti their successors sha have .een e ected and ta9en possession of their offices.' %t resu t that the practice of the directorate of fi ing vacancies .y the action of the directors themse ves is va id. "or can any e;ception .e ta9en to then persona ity of the individua s chosen .y the directors to fi vacancies in the .ody. !ertain y it is no fair criticism to say that they have chosen competent .usinessmen of financia responsi.i ity instead of e ecting poor persons to so responsi. e a position. :he possession of means does not dis=ua ify a man for fi ing positions of responsi.i ity in corporate affairs. ixt& cause of action. I 5nder the si;th cause of action it is a eged that the directors of 0 /ogar $i ipino, instead of serving without pay, or receiving nomina pay or a fi;ed sa ary, I as the comp aint supposes wou d .e proper, I have .een receiving arge compensation, varying in amount from time to time, out of the profits of the respondent. :he facts re ating to this cause of action are in su.stance theseB

5nder section 92 of the .y2 aws of 0 /ogar $i ipino 5 per centum of the net profit shown .y the annua .a ance sheet is distri.uted to the directors in proportion to their attendance at meetings of the .oard. :he compensation paid to the directors from time to time since the organi4ation was organi4ed in 191# to the end of the year 1925, together with the num.er of meetings of the .oard he d each year, is e;hi.ited in the fo owing ta. eB 2um#er of meetin's &eld 25 29 27 27 25 27 2A 2# 21 27 25 !ate per meetin' as a *&ole P 1AA.71 8A2.)7 578.8# 7#9.7# 9A1.81 978.55 1,2#).77 1,A)2.91 1,729.)A 2,2A7.)A 1,)72.A1

.ear

$ompensation paid directors as a *&ole P ),1A7.9A 1#,511.77 15,)79.29 19,1A).72 2),#82.75 27,589.5# 81,827.## 82,757.85 8A,817.77 A8,517.#1 8A,715.88

1911 .............................. .... 1912 .............................. .... 1918 .............................. .... 191) .............................. .... 1915 .............................. .... 191A .............................. .... 1917 .............................. .... 1917 .............................. .... 1919 .............................. .... 192# .............................. .... 1921 ..............................

.... 1922 .............................. .... 1928 .............................. .... 192) .............................. .... 1925 .............................. .... )8,188.78 89,778.A1 87,A51.92 85,719.27 25 27 2A 2A 1,725.8) 1,)78.#9 1,)7A.A1 1,878.71

%t wi .e note that the compensation a.ove indicated as accruing to the directorate as a who e has .een divided among the mem.ers actua y present at the different meetings. (s a resu t of this practice, and the i.era measure of compensation adopted, we find that the attendance of the mem.ership at the .oard meetings has .een e;traordinari y good. :hus, during the years 192# to 1925, inc usive, when the .oard was composed of nine mem.ers, the attendance has regu ar y .een eight meeting with the e;ception of two years when the average attendance was seven. %t is insisted in the .rief for the (ttorney2-enera that the payment of the compensation indicated is e;cessive and prejudicia to he interests of the shareho ders at arge. $or the respondent, attention is directed to the fact that the i.era po icy adopted .y the association with respect to the compensation of the directors has had high y .eneficia resu ts, not on y in securing a constant attendance on the part of the mem.ership, .ut in o.taining their inte igent attention to the affairs of the association. !ertain y, in this connection, the fo owing words from the report of the government e;aminers for 1917 to the %nsu ar :reasurer contain matter worthy of considerationB :he management of the association is entrusted to men of recogni4ed a.i ity in financia affairs and it is .e ieved that they have ong foreseen a possi. e future contingencies and that under such men the interests of the stoc9ho ders are du y protected. :he steps ta9en .y the directorate to curtai the inf u; of unnecessary capita into the association's coffers, as mentioned a.ove, revea s how the men at grasp the situation and to app y the necessary remedy as the circumstances were found in the same e;ce ent condition as in the previous e;amination.

%n so far as this court is concerned the =uestion here .efore us is not one concerning the propriety and wisdom of the measure of compensation adopted .y the respondent .ut rather the =uestion of the va idity of the measure. 5pon this point there can, it seems to us, .e no difference of inte igent opinion. :he !orporation ,aw does not underta9e to prescri.e the rate of compensation for the directors of corporations. :he power to fi;ed the compensation they sha receive, if any, is eft to the corporation, to .e determined in its .y2 awsC(ct "o. 1)59, sec. 21D. Pursuant to this authority the compensation for the directors of 0 /ogar $i ipino has .een fi;ed in section 92 of its .y2 aws, as a ready stated. :he justice and property of this provision was a proper matter for the shareho ders when the .y2 aws were framed< and the circumstance that, with the growth of the corporation, the amount paid as compensation to the directors has increased .eyond what wou d pro.a. y .e necessary to secure ade=uate service from them is matter that cannot .e corrected in this action< nor can it proper y .e made a .asis for depriving the respondent of its franchise, or even for enjoining it from comp iance with the provisions of its own .y2 aws. %f a mista9e has .een made, or the ru e adopted in the .y2 aws meeting to change the ru e. :he remedy, if any, seems to ie rather in pu. icity and competition, rather than in a court proceeding. :he si;th cause of action is in our opinion without merit. event& cause of action. I %t appears that the promoter and organi4er of 0 /ogar $i ipino was 1r. (ntonio 1e ian, and in the ear y stages of the organi4ation of the association the .oard of directors authori4ed the association to ma9e a contract with him with regard to the services him therefor. Pursuant to this authority the president of the corporation, on January 11, 1911, entered into a written agreement with 1r. 1e ian, which is reproduced in the agreed statement of facts and of which the important c auses are theseB 1. :he corporation '0 /ogar $i ipino *ociedad 1utua de !onstruccion y Prestamos,' and on its .eha f its president, 6on (ntonio +. +o;as, here.y confers on 6on (ntonio 1e ian the office of manager of said association for the period of one year from the date of this contract. 2. 6on (ntonio 1e ian accepts said office and underta9es to render the services thereto corresponding for the period of one year, as prescri.ed .y the .y2 aws of the corporation, without sa ary.

8. 6on (ntonio 1e ian furthermore underta9es to pay for his own account, a the e;penses incurred in the organi4ation of the corporation. ). 6on (ntonio 1e ian further underta9es to end to the corporation, without interest the sum of si; thousand pesos CPA,###D, Phi ippine !urrency, for the purpose of meeting the e;pense of rent, office supp ies, etcetera, unti such time as the association has sufficient funds of its own with which to return this oanB%rovided, nevert&eless, :hat the ma;imum period thereof sha not e;ceed three C8D years. 5. 6on (ntonio 1e ian underta9es that the capita of the association sha amount to the sum of four hundred thousand pesos CP)##,###D, Phi ippine currency, par va ue, during the first year of its duration. A. %n compensation of the studies made and services rendered .y 6on (ntonio 1e ian for its organi4ation, the e;penses incurred .y him to that end, and in further consideration of the said oan of si; thousand pesos CPA,###D, and of the services to .e rendered .y him as manager, and of the o. igation assumed .y him that the nomina va ue of the capita of the association sha reach the sum of four hundred thousand pesos CP)##,###D during the first year of its duration, the corporation '0 /ogar $i ipino *ociedad 1utua de !onstruccion y Prestamos' here.y grants him five per centum C5ED of the net profits to .e earned .y it in each year during the period fi;ed for the duration of the association .y its artic es of incorporation< %rovided, that this participation in the profits sha .e transmitted to the heirs of *eWor 1e ian in the event of his death<And provided furt&er, that the performance of a the o. igations assumed .y *eWor 1e ian in favor of the association, in accordance with this contract, sha and does constitute a condition precedent to the ac=uisition .y *eWor 1e ian of the right to the said participation in the profits of the association, un ess the non2performance of such o. igations sha .e due to a fortuitous event or force majeure. %n conformity with this agreement there was inserted in section 92 of the .y2 aws of the association a provision recogni4ing the rights of 1e ian, as founder, to 5 per centum of the net profits shown .y the annua .a ance sheet, payment of the same to .e made to him or his heirs during the ife of the association. %t is dec ared in said artic e that this portion of the earnings of the association is conceded to him in compensation for the

studies, wor9 and contri.utions made .y him for the organi4ation of 0 /ogar $i ipino and the performance on his part of the contract of January 11, 1911, a.ove =uoted. 6uring the who e ife of the association, thus far, it has comp ied with the o. igations assumed .y it in the contract a.ove2 mentioned< and during the years 1911 to 1925, inc usive, it paid to him as founder's roya ty the sum of P)59,#11.19, in addition to compensation received from the association .y him in to remuneration of services to the association in various officia capacities. (s a seventh cause of action it is a eged in the comp aint that this roya ty of the founder is 'unconsciona. e, e;cessive and out of a proportion to the services rendered, .esides .eing contrary to and incompati. e with the spirit and purpose of .ui ding and oan associations.' %t is not a eged that the ma9ing of this contract was .eyond the powers of the association Cultra viresD< nor it a eged that it is vitiated .y fraud of any 9ind in its procurement. "everthe ess, it is pretended that in ma9ing and o.serving said contract the respondent committed an offense re=uiring its disso ution, or, as is otherwise suggested, that the association shou d .e enjoined from performing the agreement. %t is our opinion that this contention is entire y without merit. *tated in its true simp icity, the primary =uestion here is whether the ma9ing of a Cpossi. yD indiscreet contract is a capita offense in a corporation, I a =uestion which answers itse f. "o possi. e dou.t e;ists as to the power of a corporation to contract for services rendered and to .e rendered .y a promoter in connection with organi4ing and maintaining the corporation. %t is true that contracts with promoters must .e characteri4ed .y good faith< .ut cou d it .e said with certainty, in the ight of facts e;isting at the time this contract was made, that the compensation therein provided was e;cessiveO %f the amount of the compensation now appears to .e a su.ject of egitimate criticism, this must .e due to the e;traordinary deve opment of the association in recent years. %f the 1e ian contract had .een c ear y ultra vires I which is not charged and is certain y untrue I its continued performance might conceiva. y .e enjoined in such a proceeding as this< .ut if the defect from which it suffers is mere matter for an action .ecause 1e ian is not a party. %t is rudimentary in aw that an action to annu a contract cannot .e maintained without joining .oth the contracting parties as defendants. 1oreover, the proper party to .ring such an action is either the corporation itse f, or some shareho der who has an interest to protect. :he mere fact that the compensation paid under this contract is in e;cess of what, in the fu ight of history, may .e considered appropriate is not a

proper consideration for this court, and supp ies no ground for interfering with its performance. %n the case of El Bo'ar 0ilipino vs. !affert( C87 Phi ., 995D, which was .efore this court near y ten years ago, this court he d that the 0 /ogar $i ipino is contract with 1r. 1e ian did not affect the association's ega character. :he inference is that the contract under consideration was then considered .inding, and it occurred to no one that it was inva id. %t wou d .e a radica step indeed for a court to attempt to su.stitute its judgment for the judgment of the contracting parties and to ho d, as we are invited to ho d under this cause of action, that the ma9ing of such a contract as this removes the respondent association from the pa e of the aw. :he majority of the court is of the opinion that our traditiona respect for the sanctity of the contract o. igation shou d prevai over the radica and innovating tendencies which find acceptance with some and which, if given fu rein, wou d go far to sin9 egitimate enterprise in the %s ands into the pit of popu ism and .o shevism. :he seventh count is not sustaina. e. Ei'&t cause of action. I 5nder the fourth cause of action we had case where the a eged ground for the revocation of the respondent's charter was .ased upon the presence in the .y2 aws of artic e 1# that was found to .e inconsistent with the e;press provisions of aw. 5nder the eight cause of action the a eged ground for putting an end to the corporate ife of the respondent is found in the presence of other artic es in the .y2 aws, name y, artic es 7# and 7A, which are a eged to .e un awfu .ut which, as wi present y .e seen, are entire y va id. (rtic e 7# of the .y2 aws in effect re=uires that persons e ected to the .oard of directors must .e ho ders of shares of the paid up va ue of P5,### which sha .e he d as security may .e put up in the .eha f of any director .y some other ho der of shares in the amount stated. (rtic e 7A of the .y2 aws dec ares that the directors waive their right as shareho ders to receive oans from the association. %t is asserted, under the eight cause of action, that artic e 7# is o.jectiona. e in that, under the re=uirement for security, a poor mem.er, or wage2earner, cannot serve as director, irrespective of other =ua ifications and that as a matter of fact on y men of means actua y sit on the .oard. (rtic e 7A is critici4ed on the ground that the provision re=uiring directors to renounce their right to oans unreasona. y imits their rights and privi eges as mem.ers. :here is nothing of va ue in either of theses suggestions. *ection 21 of the !orporation ,aw e;press y gives the power to the corporation to provide in its .y2 aws for the =ua ifications of directors< and the re=uirement of security from them for the proper discharge of the duties of their office, in the manner prescri.ed in artic e 7#, is high y prudent and in conformity with good practice. (rtic e 7A,

prohi.iting directors from ma9ing oans to themse ves, is of course designed to prevent the possi.i ity of the ooting of the corporation .y unscrupu ous directors. ( more discreet provision to insert in the .y2 aws of a .ui ding and oan association wou d .e hard to imagine. ! ear y, the eighth cause of action cannot .e sustained. 2int& cause of action. I :he specification under this head is in effect that the respondent has a.used its franchise in issuing 'specia ' shares. :he issuance of these shares is a ege to .e i ega and inconsistent with the p an and purposes of .ui ding and oan associations< and in particu ar, it is a eged and inconsistent with the p an and purposes of .ui ding and oan associations< and in particu ar, it is a eged that they are, in the main, he d .y we 2to2wage2earners for accumu ating their modest savings for the .ui ding of homes. %n the artic es of incorporation we find the specia shares descri.ed as fo owsB '*pecia ' shares sha .e issued upon the payment of 7# per cent of their par va ue in cash, or in month y dues of P1#. :he 2# per cent remaining of the par va ue of such shares sha .e comp eted .y the accumu ation thereto of their proportionate part of the profits of the corporation. (t the end of each =uarter the ho ders of specia shares sha .e entit ed to receive in cash such part of the net profits of the corporation corresponding to the amount on such date paid in .y the ho ders of specia shares, on account thereof, as sha .e determined .y the directors, and at the end of each year the fu amount of the net profits avai a. e for distri.ution corresponding to the specia shares. :he directors sha app y such part as they deem advisa. e to the amorti4ation of the su.scription to capita with respect to shares not fu y paid up, and the remainder of the profits, if any, corresponding to such shares, sha .e de ivered to the ho ders thereof in accordance with the provision of the .y2 aws. :he ground for supposing the issuance of the 'specia ' shares to .e un awfu is that specia shares are not mentioned in the !orporation ,aw as one of the forms of security which may .e issued .y the association. %n the agreed statement of facts it is said that specia shares are issued upon two p ans. 3y the second, the shareho der, upon su.scri.ing, pays in cash P1# for each share ta9en, and underta9es to pay P1# a month, as dues, unti the tota so paid in amounts to P1A# per share. &n 6ecem.er 81, 1925, there were outstanding 2#,7)) specia shares of a tota paid va ue Cinc uding accumu ations D of P8,A7#,1A2.51. :he practice

of 0 /ogar $i ipino, since 1915, has .een to accumu ate to each specia share, at the end of the year, one2tenth of the divident dec ared and to pay the remainder of the divident in cash to the ho ders of shares. *ince the same year dividend have .een dec ared on the specia and common shares at the rate of 1# per centum per annum. @hen the amount paid in upon any specia share p us the accumu ated dividends accruing to it, amounts to the par va ue of the share CP2##D, such share matures and ceases to participate further in the earning. :he amount of the par va ue of the share CP2##D is then returned to the shareho der and the share cance ed. /o ders of specia and ordinary shares participate rata. y in the dividends dec ared and distri.uted, the part pertaining to each share .eing computed on the .asis of the capita paid in, p us the accumu ated dividends pertaining to each share at the end of the year. :he tota num.er of shares of 0 /ogar $i ipino outstanding on 6ecem.er 81, 1925, was 125,75#, owned .y 5,72A shareho ders, and dividend into c asses as fo owsB Preferred shares .................................. *pecia shares ..................................... &rdinary shares .................................. 1,5#8 2#,77) 1#8,8A8

to .e an act of supererogation on our part to go over the same ground again. :he discussion wi therefore not .e repeated, and what is now to .e said shou d .e considered supp ementa thereto. 5pon e;amination of the nature of the specia shares in the ight of (merican usage, it wi .e found that said shares are precise y the same 9ind of shares that, in some (merican jurisdictions, are genera y 9nown as advance payment shares< in if c ose attention .e paid to the anguage used in the ast sentence of section 177 of the !orporation ,aw, it wi .e found that specia shares where evident y created for the purpose of meeting the condition cause .y the prepayment of dues that is there permitted. :he anguage of this provision is as fo ow 'payment of dues or interest may .e made in advance, .ut the corporation sha not a ow interest on such advance payment at a greater rate than si; per centum per annum nor for a onger period than one year.' %n one sort of specia shares the dues are prepaid to the e;tent of P1A# per share< in the other sort prepayment is made in the amount of P1# per share, and the su.scri.ers assume the o. igation to pay P1# month y unti P1A# sha have .een paid. %t wi escape notice that the provision =uoted say that interest sha not .e a owed on the advance payments at a greater rate than si; per centum per annum nor for a onger period than one year. :he word 'interest ' as there used must .e ta9en in its true sense of compensation for the used of money oaned, and it not must not .e confused with the dues upon which it is contemp ated that the interest may .e paid. "ow, in the a.sence of any showing to the contrary, we infer that no interest is ever paid .y the association in any amount for the advance payments made on these shares< and the reason is to .e found in the fact that the participation of the specia shares in the earnings of the corporation, in accordance with section 177 of the !orporation ,aw, sufficient y compensates the shareho der for the advance payments made .y him< and no other incentive is necessary to induce inventors to purchase the stoc9. %t wi .e o.served that the fina 2# per centum of the par va ue of each specia share is not paid for .y the shareho der with funds out of the poc9et. :he amount is satisfied .y app ying a portion of the shareho der's participation in the annua earnings. 3ut as the right of every shareho der to such participation in the earnings is undenia. e, the portion thus annua y app ied is as much the property of the shareho der as if it were in fact ta9en out of his poc9et. %t fo ows that the mission of the specia shares does not invo ve any vio ation of the princip e that the shares must .e so d at par.

:he matter of the propriety of the issuance of specia shares .y 0 /ogar $i ipino has .een .efore this court in two ear ier cases, in .oth of which the =uestion has received the fu est consideration from this court. %n El Bo'ar 0ilipino vs. !affert( C87 Phi ., 995D, it was insisted that the issuance of such shares constituted a departure on the part of the association from the princip e of mutua ity< and it was c aimed .y the !o ector of %nterna +evenue that this rendered the association ia. e for the income ta; to which other corporate entities are su.ject. %t was he d that this contention was untena. e and that 0 /ogar $i ipino was a egitimate .ui ding and oan association notwithstanding the issuance of said shares. %n evireno vs. El Bo'ar 0ilipino C-. +. "o. 2)92AD,2 and the re ated cases of -ervasio 1iraf ores and -i ,opes against the same entity, it was asserted .y the p aintiffs that the emission of specia shares deprived the herein responded of the privi eges and immunities of a .ui ding and oan association and that as a conse=uence the oans that had .een made to the p aintiffs in those cases were usurious. 5pon an e a.orate review of the authorities, the court, though divided, adhered to the princip e announced in the ear ier case and he d that the issuance of the specia shares did not affect the respondent's character as a .ui ding and oan association nor ma9e its oans usurious. %n view of the engthy discussion contained in the decisions a.ove2mentioned, it wou d appear

$rom what has .een said it wi .e seen that there is e;press authority, even in the very etter of the aw, for the emission of advance2payment or 'specia ' shares, and the argument that these shares are inva id is seen to .e .ase ess. %n addition to this it is satisfactori y demonstrated in everino vs. El Bo'ar 0ilipino, supra, that even assuming that the statute has not e;press y authori4ed such shares, yet the association has imp ied authority to issue them. :he comp aint conse=uent y fai s a so as regards the stated in the ninth cause of action. Tent& cause of action. I 5nder this head of the comp aint it is a eged that the defendant is pursuing a po icy of depreciating, at the rate of 1# per centum per annum, the va ue of the rea properties ac=uired .y it at its sa es< and it is a eged that this rate is e;cessive. $rom the agreed statement it appears that since its organi4ation in 191# 0 /ogar $i ipino, prior to the end of the year 1925, had made 1,878 oans to its shareho ders secured .y first mortgages on rea estate as we as .y the p edge of the shares of the .orrowers. %n the same period the association has purchased at forec osure sa es the rea estate constituting the security for 5) of the aforesaid oans. %n ma9ing these purchases the association has a ways .id the fu amount due to it from the de.tor, after deducting the withdrawa va ue of the shares p edged as co atera , with the resu t that in no case has the shareho der .een ca ed upon to pay a deficiency judgement on forec osure. 0 /ogar $i ipino p aces rea estate so purchased in its inventory at actua cost, as determined .y the amount .id on forec osure sa e< and thereafter unti so d the .oo9 va ue of such rea estate is depreciated at the rate fi;ed .y the directors in accordance with their judgment as to each parce , the annua average depreciation having varied from nothing to a ma;imum of 1).187 per cent. :he sa es thereof, .ut sa es are made for the .est prices o.taina. e, whether greater or ess than the .oo9 va ue. %t is a eged in the comp aint that depreciation is charged .y the association at the rate of 1# per centum per annum. :he agreed statement of facts on this point shows that the annua average varies from nothing to a ma;imum of something over 1) per centum. @e are thus eft in the dar9 as to the precise depreciation a owed from year to year. %t is not c aimed for the -overnment that the association is without power to a ow some depreciation< and it is =uite c ear that the .oard of directors possesses a discretion in this matter. :here is no positive provision of aw prohi.iting the association from writing off a reasona. e amount for depreciation on its assets for the purpose of determining its rea profits< and artic e 7) of its .y2 aws e;press y authori4es the .oard of directors to determine each year the amount to .e written down upon the

e;penses of insta ation and the property of the corporation. :here can .e no =uestion that the power to adopt such a .y2 aw is em.raced within the power to ma9e .y2 aws for the administration of the corporate affairs of the association and for the management of its .usiness, as we as the care, contro and disposition of its property C(ct "o. 1)59, sec. 18 J7KD. 3ut the (ttorney2-enera =uestions the e;ercise of the direction confided to the .oard< and it is insisted that the e;cessive depreciation of the property of the association is o.jectiona. e in severa respects, .ut main y .ecause it tends to increase undu y the reserves of the association, there.y frustrating the right of the shareho ders to participate annua y and e=ua y in the earnings of the association. :his count for the comp aint proceeds, in our opinion, upon an erroneous notion as to what a court may do in determining the interna po icy of a .usiness corporation. %f the criticism contained in the .rief of the (ttorney2-enera upon the practice of the respondent association with respect to depreciation .e we founded, the ,egis ature shou d supp y the remedy .y defining the e;tent to which depreciation may .e a owed .y .ui ding and oan associations. !ertain y this court cannot underta9e to contro the discretion of the .oard of directors of the association a.out an administrative matter as to which they have egitimate power of action. :he tenth cause of action is therefore not we founded. Elevent& and t*elft& causes of action. I :he same comment is appropriate with respect to the e eventh and twe fth causes of action, which are treated together in the .riefs, and wi .e here com.ined. :he specification in the e eventh cause of action is that the respondent maintains e;cessive reserve funds, and in the twe fth cause of action that the .oard of directors has sett ed upon the un awfu po icy of paying a straight annua dividend of 1# per centum, regard ess of osses suffered and profits made .y the corporation and in contravention of the re=uirements of section 177 of the !orporation ,aw. :he facts re ating to these two counts in the comp aint, as set forth in the stipu ation, are theseB %n artic e 92 of the .y2 aws of 0 /ogar $i ipino it is provided that 5 per centum of the net profits earned each year, as shown .y the annua .a ance sheet sha .e carried to a reserve fund. :he fund so created is ca ed the -enera +eserve. (rtic e 98 of the .y2 aws authori4es the directors to carry funds to a specia reserve, whenever in their judgment it is advisa. e to do so, provided that the annua dividend in the year in which funds are carried to specia reserve e;ceeds 7 per centum. %t appears to have .een the po icy of the .oard of directors for severa years past to p ace in the specia reserve any .a ance in the profit and

oss account after the satisfaction of preferentia charges and the payment of a dividend of 1# per centum to a specia and ordinary shares Cwith accumu ated dividendsD. (s things stood in 192A the genera reserve contained an amount e=uiva ent to a.out 5 per centum of the paid2in va ue of shared. :his fund has never .een drawn upon for the purpose of maintaining the regu ar annua dividend< .ut recourse has .een had to the specia reserve on three different occasions to ma9e good the amount necessary to pay dividends. %t appears that in the ast five years the reserves have dec ined from something over 9 per cent to something over 7. %t is insisted in the .rief of the (ttorney2-enera that the maintenance of reserve funds is unnecessary in the case of .ui ding and oan associations, and at any rate the 9eeping of reserves is inconsistent with section 177 of the !orporation ,aw. 1oreover, it is said that the practice of the association in dec aring regu ar y a 1# per cent dividend is in effect a guaranty .y the association of a fi;ed dividend which is contrary to the intention of the statute. 5pon carefu consideration of the =uestions invo ved we find no reason to dou.t the right of the respondent to maintain these reserves. %t is true that the corporation aw does not e;press y grant this power, .ut we thin9 it is to .e imp ied. %t is a fact of common o.servation that a commercia enterprises encounter periods when earnings fa .e ow the average, and the prudent manager ma9es provision for such contingencies. :o regard a surp us as profit is to neg ect one of the primary canons of good .usiness practice. 3ui ding and oan associations, though among the most so id of financia institutions, are neverthe ess su.ject to vicissitudes. $ uctuations in the dividend rate are high y detrimenta to any fisca institutions, whi e uniformity in the payments of dividends, continued over ong periods, supp ies the surest foundations of pu. ic confidence. :he =uestion now under consideration is not new in jurisprudence, for the (merican courts have .een ca ed upon more than once to consider the ega ity of the maintenance of reserves .y institutions of this or simi ar character. %n "reeff vs. Equita#le Life Assurance ociet(, the court had under consideration a charter provision of a ife insurance company, organi4ed on the mutua p an, in its re ation to the power of the company to provide reserves. :here the statute provided that 'the officers of the company, within si;ty days from the e;piration of the first five years, from 6ecem.er 81, 1759, and within the first si;ty days of every su.se=uent period of five

years, sha cause a .a ance to .e struc9 of the affairs of the company, which sha e;hi.it its assets and ia.i ities, .oth present and contingent, and a so the net surp us, after deducting a sufficient amount to cover a outstanding ris9s and other o. igations. 0ach po icy ho der sha .e credited with an e=uita. e share of the said surp us.' :he court saidB "o prudent person wou d .e inc ined to ta9e a po icy in a company which had so improvident y conducted its affairs that it on y retained a fund .are y sufficient to pay its present ia.i ities, and, therefore, was in a condition where any change .y the reduction of interest upon, or depreciation in, the va ue of its securities, or any increase of morta ity, wou d render it inso vent and su.ject to .e p aced in the hands of a receiver. :he evident purpose of the provisions of the defendant's charter and po icy re ating to this su.ject was to vest in the directors of the corporation a discretion to determine the proportion of its surp us which shou d .e dividend each year. %n a friend y suit tried in a circuit court of @isconsin in 191A, entit ed Bo&eman Bld'. and Loan Association vs. )nolt, the court, in commenting on the nature of these reserves, saidB :he apparent function of this fund is to insure the stoc9ho ders against osses. %ts purpose is not un i9e that of the various forms of insurance now in such common use. :his contri.ution is as egitimate an item of e;pense as are the premiums paid on any insurance po icy. C ee ! ar9s and !hase, 3ui ding and ,oan (ssociation, footnote, page 8)).D %n commenting on the necessity of such funds, *undheim saysB %t is optiona with the association whether to maintain such a fund or not, .ut justice and good .usiness po icy seem to re=uire it. :he retiring stoc9ho der must .e paid the va ue of his stoc9 in cash and eave for those remaining a arge num.er of securities and perhaps some rea estate purchased to protect the associations interest. /ow much wi .e rea i4ed on these securities, or rea estate, no human foresight can te . $urther, the rea i4ing on these securities may entai considera. e itigation and e;pense. :here are many other contingencies which might cause a shrin9age in the association's assets, such as defective tit es,

undisc osed defa cations on the part of an officer, a misca cu ation of assets and ia.i ities, and many other errors and omissions which must a ways .e rec9oned within the conduct of human affairs. :he contingent fund is mere y insurance against possi. e oss. :hat osses may occur from time to time seems a most inevita. e and it is, therefore, ine=uita. e that the remaining stoc9ho ders shou d .e compe ed to accept a securities at par, so, to say the east, the maintenance of this fund is justified. :he association teaches the duty of providing for the prover.ia rainy day. @hy shou d it not provide for the hour of adversityO :he reserve fund has protected the maturing or withdrawing mem.er during the period of his mem.ership. %n case of oss it has or wou d have reim.ursed him and, at a times, it has protected him and given strength and standing to the association. ,osses may occur, after his mem.ership ceases, that arose from some mista9e or mismanagement committed during the period of his mem.ership, and in fairness and e=uity the remaining mem.ers shou d have some protection against this. C*undheim, ,aw of 3ui ding and ,oan (ssociation, sec. 58.D :he government insists, we thing, upon an interpretation of section 177 of the !orporation ,aw that is a together too strict and itera . $rom the fact that the statute provides that profits and osses sha .e annua y apportioned among the shareho ders it is argued that a earnings shou d .e distri.uted without carrying anything to the reserve. 3ut it wi .e noted that it is provided in the same section that the profits and osses sha .e determined .y the .oard of directorsB and this means that they sha e;ercise the usua discretion of good .usinessmen in a ocating a portion of the annua profits to purposes needfu to the we fare of the association. :he aw contemp ates the distri.ution of earnings and osses after other egitimate o. igations have .een met. &ur conc usion is that the respondent has the power to maintain the reserves critici4ed in the e eventh and twe fth counts of the comp aint< and at any rate, if it .e supposed that the reserves referred to have .ecome e;cessive, the remedy is in the hands of the ,egis ature. %t is no proper function of the court to arrogate to itse f the contro of administrative matters which have .een confided to the discretion of the .oard of directors. :he causes of action under discussion must .e pronounced to .e without merit.

T&irteent& cause of action. I :he specification under this head is, in effect, that the respondent association has made oans which, to the 9now edge of the associations officers were intended to .e used .y the .orrowers for other purposes than the .ui ding of homes. %n this connection it appears that, though oans have .een made .y the association e;c usive y to its shareho ders, no attempt has .een made .y it to contro the .orrowers with respect to the use made of the .orrowed funds, the association .eing content to see that the security given for the oan in each case is sufficient. &n 6ecem.er 81, 1925, the respondent had five hundred forty2four oans outstanding secured .y mortgages upon rea estate and .y the p edge of the .orrowers' shares in an amount sufficient at maturity to amorti4e the oans. @ith respect to the nature of the rea estate upon which these oans were made it appears that three hundred fifty2one oans were secured .y mortgages upon city residences, seven .y mortgages upon commercia .ui ding in cities, and three mortgages upon unimproved city ots. (t the same time one hundred eighty2three of the oans were secured .y mortgages upon groves, sugar and, and rice and, with a tota area of a.out 7,557 hectares. $rom information gathered .y the association from vo untary statements of .orrowers given at the time of app ication with respect to the use intended to .e made of the .orrowed funds, it appears that the amount of PA98,2## was .orrowed to redeem rea property from e;isting mortgages or pactos de retro, P27#,7## to .uy rea estate, P))9,1## to erect .ui dings, P2),### to improve and repair .ui dings, P1,)7#,9## for agricu tura purposes, whi e the amount of P5,7A8,7## was .orrowed for purposes not disc osed. 5pon these facts an e a.orate argument has .een constructed in .eha f of the p aintiff to the effect that in ma9ing oans for other purposes than the .ui ding of residentia houses the association has i ega y departed from its character and made itse f amena. e to the pena ty of disso ution. (side from .eing direct y opposed to the decision of this court in Lopez and @avelona vs. El Bo'ar 0ilipino and !e'istrar of Aeeds of Fccidental 2e'ros C)7 Phi ., 2)9D, this contention finds no su.stantia support in the prevai ing decisions made in (merican courts< and our attention has not .een directed to a sing e case wherein the disso ution of a .ui ding and oan association has .een decreed in a quo *arranto proceeding .ecause the association a owed its .orrowers to use the oans for other purposes than the ac=uisition of homes. :he case principa y re ied upon for the -overnment appears to .e %feister vs. 1&eelin' Buildin' Association C19 @. >a., A7A, 71AD,which invo ved the =uestion whether a .ui ding and oan association cou d recover the fu amount of a note given to it .y a mem.er and

secured .y a mortgage from a stranger. (t the time the case arose there was a statute in force in the *tate of @est >irginia e;press y for.idding .ui ding and oan associations to use or direct their funds for or to any other o.ject or purpose than the .uying of ots or houses or in .ui ding and repairing houses, and it was dec ared that in case the funds shou d .e improper y directed to other o.jects, the offending association shou d forfeit a rights and privi eges as a corporation. 5nder the statute so worded the court he d that the p aintiff cou d on y recover the amount actua y advanced .y it with awfu interest and fines, without premium< and judgment was given according y. :he suggestion in that case that the resu t wou d have .een the same even in the a.sence of statute was mere dictum and is not supported .y respecta. e authority. +e iance is a so p aced in the p aintiff's .rief upon ,c$aule( vs. Buildin' & avin' Association. :he statute in force in the *tate of :ennessee at the time this action arose provided that a oans shou d .e made to the mem.ers of the association at open stated meetings and that the money shou d .e ent to the highest .idder. %nconsistent y with this provision, there was inserted in the .y2 aws of the association a provision to the effect that no oan shou d .e made at a greater premium than 8# per cent, nor at a ess premium than 29 7?7 per cent. %t was he d that this .y2 aw made free and open competition impossi. e and that it in effect esta. ished a fi;ed premium. %t was according y he d, in the case cited, that an association cou d not recover such part of the oan as had .een app ied .y it to the satisfaction of a premium of 8# per centum. @e have no criticism to ma9e upon the resu t reached in either of the two decisions cited, .ut it is apparent that much of the discussion contained in the opinions in those cases does not ref ect the doctrine now prevai ing in the 5nited *tates< and much ess are those decisions app ica. e in this jurisdiction. :here is no statute here e;press y dec aring that oans may .e made .y these associations solel( for the purpose of .ui ding homes. &n the contrary, the .ui ding of homes is mentioned in section 171 of the !orporation ,aw as on y one among severa ends which .ui ding and oan associations are designed to promote. $urthermore, section 171 of the !orporation ,aw e;press y authorities the 3oard of directors of the association from time to time to fi; the premium to .e charged. %n the .rief of the p aintiff a num.er of e;cerpts from te;t.oo9s and decisions have .een co ated in which the idea is deve oped that the primary design of .ui ding and oan associations shou d .e to he p poor peop e to procure homes of their own. :his .eneficent end is undou.ted y served .y these associations, and it is not to .e denied that they have .een genera y fostered with this end in view. 3ut in this jurisdiction at

east the awma9er has ta9en care not to imit the activities of .ui ding and oan associations in an e;c usive manner, and the e;ercise of the .roader powers must in the end approve itse f to the .usiness community. Judging from the past history of these institutions it can .e tru y said that they have done more to encourage thrift, economy and saving among the peop e at arge than any other institution of modern times, not e;cepting even the saving .an9s. %n this connection 1r. *undheim, in a ate treatise upon the su.ject of the aw of .ui ding and oan associations, ma9es the fo owing commentB :hey have grown to such an e;tent in recent years that they no onger restrict their money to the home .uyer, .ut oan their money to the mere investor or dea er in rea estate. :hey are the ho der of arge mortgages secured upon farms, factories and other .usiness properties and rows of stores and dwe ings. :his is not an a.use of their powers or departure from their main purposes, .ut on y a natura and proper e;pansion a ong hea thy and egitimate ines. C*undheim, 3ui ding and ,oan (ssociations, sec. 7.D *pea9ing of the purpose for which oans may .e made, the same author addsB ,oans are made for the purpose of purchasing a homestead, or other rea estate, or for any awfu purpose or .usiness, .ut there is no duty or o. igation of the association to in=uire for what purpose the oan is o.tained, or to re=uire any stipu ation from the .orrower as to what use he wi ma9e of the money, or in any manner to supervise or contro its dis.ursement. C*undheim, 3ui ding and ,oan (ssociation, sec. 111.D %n Lopez and @avelona vs. El Bo'ar 0ilipino and !e'istrar of Aeeds of Fccidental 2e'ros, this court had .efore it the =uestion whether a oan made .y the respondent association upon the security of a mortgage upon agricu tura and, I where the oan was dou.t ess used for agricu tura purposes, I was usurious or not< and the case turned upon the point whether, in ma9ing such oans, the association had vio ated the aw and departed from its fundamenta purposes. :he conc usion of the court was that the oan was va id and cou d .e awfu y enforced .y a nonjudicia forec osure in conformity with the terms of the contract .etween the association and the .orrowing mem.er. @e now find no reason to depart from the conc usion reached in that case, and it is unnecessary to repeat what was then said. :he thirteenth cause of action must therefore .e pronounced unfounded.

0ourteent& cause of action. I :he specification under this head is that the oans made .y the defendant for purposes other than .ui ding or ac=uiring homes have .een e;tended in e;treme y arge amounts and to wea thy persons and arge companies. %n this connection attention is directed to eight oans made at different times in the ast severa years to different persons or entities, ranging in amounts from P12#,### to P89#,### and to two arge oans made to the +o;as 0state and to the Pacific @arehouse !ompany in the amounts of P1,122,### and P2,82#,###, respective y. %n connection with the arger of the two after this oan was made the avai a. e funds of 0 /ogar $i ipino were reduced to the point that the association was compe ed to ta9e advantage of certain provisions of its .y2 aws authori4ing the postponement of the payment of c aims resu ting from withdrawa s, whereas previous y the association had a ways sett ed these c aims prompt y from current funds. (t no time was there apparent y any de ay in the payment of matured shares< .ut in four or five cases there was as much as ten months de ay in the payment of withdrawa app ications. :here is itt e that can .e said upon the ega aspects of this cause of action. %n so far, as it re ates to the purposes for which these oans were made, the matter is covered .y what was said a.ove with reference to the thirteenth cause of action< and in so far as it re ates to the persona ity of the .orrowers, the =uestion .e ongs more direct y to the discussion under the si;teenth cause of action, which wi .e found .e ow. :he point, then, which remains for consideration here is whether it is a suicida act on the part of a .ui ding and oan association to ma9e oans in arge amount. %f the oans which are here the su.ject of criticism had .een made upon inade=uate security, especia y in case of the argest two, the conse=uences certain y wou d have .een disastrous to the association in the e;treme< .ut no such fact is a eged< and it is to .e assumed that none of the ten .orrowers have defau ted in their contracts. "ow, it must .e admitted that two of these oans at east are of a very arge si4e, considering the average range of financia transaction in this country< and the ma9ing of the argest oan was fo owed, as we have a ready see, with unp easant conse=uences to the association in dea ing with current c aims. "everthe ess the agreed statement of facts shoes that a of the oan referred to are on y ten out of a tota of five hundred forty2four outstanding on 6ecem.er 81, 1925< and the average of a the oans ta9en together is modest enough. %t appears that the chief e;aminer of .an9s and corporations of the Phi ippine :reasury, after his e;amination of 0 /ogar $i ipino at the end of the year 1925, made a report concerning this association as of January 81, 192A, in which he critici4ed the Pacific @arehouse !ompany oan as .eing so arge that it

temporari y cripp ed the ending power of the association for some time. :his criticism was apparent y justified as proper comment on the activities of the association< .ut the =uestion for use here to decide is whether the ma9ing of this and the other arge oans constitutes such a misuser of the franchise as wou d justify us in depriving the association of its corporate ife. :his =uestion appears to us to .e so simp e as a most to answer itse f. :he aw states no imit with respect to the si4e of the oans to .e made .y the association. :hat matter is confided to the discretion of the .oard of directors< and this court cannot arrogate to itse f a contro over the discretion of the chosen officia s of the company. %f it shou d .e thought wise in the future to put a imit upon the amount of oans to .e made to a sing e person or entity, resort shou d .e had to the ,egis ature< it is not a matter amena. e to judicia contro . :he fourteenth cause of action is therefore o.vious y without merit. 0ifteent& cause of action. I :he criticism here comes .ac9 to the supposed misdemeanor of the respondent in maintaining its reserve funds, I a matter a ready discussed under the e eventh and twe fth causes of action. 5nder the fifteenth cause of action it is c aimed that upon the e;piration of the franchise of the association through the eff u;ion of time, or ear ier i=uidation of its .usiness, the accumu ated reserves and other properties wi accrue to the founder, or his heirs, and the then directors of the corporation and to those persons who may at that time to .e ho ders of the ordinary and specia shares of the corporation. %n this connection we note that artic e 95 of the .y2 aws reads as fo owsB (+:. 95. :he funds o.tained .y the i=uidation of the association sha .e app ied in the first p ace to the repayment of shares and the .a ance, if any, sha .e distri.ute in accordance with the system esta. ished for the distri.ution of annua profits. %t wi .e noted that the cause of action with which we are now concerned is not directed to any positive misdemeanor supposed to have .een committed .y the association. %t has e;c usive re ation to what may happen some thirty2five years hence when the franchise e;pires, supposing of course that the corporation shou d not .e reorgani4ed and continued after that date. :here is nothing in artic e 95 of the .y2 aws which is, in our opinion, su.ject to criticism. :he rea point of criticism is that upon the fina i=uidation of the corporation years hence there may .e in e;istence a reserve fund out of a proportion to the re=uirements that may then fa upon it in the i=uidation of the company. %t seems to us that this is matter that may .e eft to the prevision of the directors or to egis ative action if it shou d .e deemed e;pedient to re=uire the gradua

suppression of the reserve funds as the time for disso ution approaches. %t is no matter for judicia interference, and much ess cou d the resumption of the franchise on this ground .e justified. :here is no merit in the fifteenth cause of action. ixteent& cause of action. I :his part of the comp aint assigns as cause of action that various oans now outstanding have .een made .y the respondent to corporations and partnerships, and that these entities have in some instances su.scri.ed to shares in the respondent for the so e purpose of o.taining such oans. %n this connection it appears from the stipu ation of facts that of the 5,72A shareho ders of 0 /ogar $i ipino, which composed its mem.ership on 6ecem.er 81, 1925, twenty2eight are juridica entities, comprising si;teen corporations and fourteen partnerships< whi e of the five hundred forty2four oans of the association outstanding on the same date, nine had .een made to corporations an five to partnerships. %t is a so admitted that some of these juridica entities .ecame shareho ders mere y for the purpose of =ua ifying themse ves to ta9e oans from the association, and the same is said with respect to many natura persons who have ta9en shares in the association. "othing is said in the agreed statement of facts on the point whether the corporations and partnerships that have ta9en oans from the respondent are =ua ified .y aw governing their own organi4ation to enter into these contracts with the respondent. %n section 178 of the !orporation ,aw it is dec ared that 'any person' may .ecome a stoc9ho der in .ui ding and oan associations. :he word 'person' appears to .e here used in its genera sense, and there is nothing in the conte;t to indicate that the e;pression is used in the restricted sense of .oth natura and artificia persons, as indicated in section 2 of the (dministrative !ode. @e wou d not say that the word 'person' or persons,' is to .e ta9en in this .road sense in every part of the !orporation ,aw. $or instance, it wou d seem reasona. e to say that the incorporators of a corporation ought to .e natura persons, a though in section A it is said that five or more 'persons', a though in section A it is said that five or more 'persons,' not e;ceeding fifteen, may form a private corporation. 3ut the conte;t there, as we as the common sense of the situation, suggests that natura persons are meant. @hen it is said, however, in section 178, that 'any person' may .ecome a stoc9ho der in a .ui ding and oan association, no reason is seen why the phrase may not .e ta9en in its proper .road sense of either a natura or artificia person. (t any rate the =uestion whether these oans and the attendant su.scriptions were proper y made invo ves a consideration of the power of the su.scri.ing corporations and partnerships to own the stoc9 and ta9e the oans< and it is not a eged in the comp aint that they were

without power in the premises. &f course the mere motive with which su.scriptions are made, whether to =ua ify the stoc9ho ders to ta9e a oan or for some other reason, is of no moment in determining whether the su.scri.ers were competent to ma9e the contracts. :he resu t is that we find nothing in the a egations of the si;teenth cause of action, or in the facts deve oped in connection therewith, that wou d justify us in granting the re ief. eventeent& cause of action. I 5nder the seventeenth cause of action, it is charged that in disposing of rea estates purchased .y it in the co ection of its oans, the defendant has no various occasions so d some of the said rea estate on credit, transferring the tit e thereto to the purchaser< that the properties so d are then mortgaged to the defendant to secure the payment of the purchase price, said amount .eing considered as a oan, and carried as such in the .oo9s of the defendant, and that severa such o. igations are sti outstanding. %t is further charged that the persons and entities to which said properties are so d under the condition charged are not mem.ers or shareho ders nor are they made mem.ers or shareho ders of the defendant. :his part of the comp aint is .ased upon a mere technica ity of .oo99eeping. :he centra idea invo ved in the discussion is the provision of the !orporation ,aw re=uiring oans to .e stoc9ho ders on y and on the security of rea estate and shares in the corporation, or of shares a one. %t seems to .e supposed that, when the respondent se s property ac=uired at its own forec osure sa es and ta9es a mortgage to secure the deferred payments, the o. igation of the purchaser is a true oan, and hence prohi.ited. 3ut in re=uiring the respondent to se rea estate which it ac=uires in connection with the co ection of its oans within five years after receiving tit e to the same, the aw does not prescri.e that the property must .e so d for cash or that the purchaser sha .e a shareho der in the corporation. *uch sa es can of course .e made upon terms and conditions approved .y the parties< and when the association ta9es a mortgage to secure the deferred payments, the o. igation of the purchaser cannot .e fair y descri.ed as arising out of a oan. "or does the fact that it is carried as a oan on the .oo9s of the respondent ma9e it a oan on the .oo9s of the respondent ma9e it a oan in aw. :he contention of the -overnment under this head is untena. e. %n conc usion, the respondent is enjoined in the future from administering rea property not owned .y itse f, e;cept as may .e permitted to it .y contract when a .orrowing shareho der defau ts in his o. igation. %n a other respects the comp aint is dismissed, without costs. *o ordered.

Avancea, $. @., @o&nson, /illamor and /ila6!eal, @@., concur.

stoc9ho ders on the security of unencum.ered rea estate and the p edge of shares of capita stoc9 owned .y the stoc9ho ders as co atera security, sha .e 9nown as .ui ding and oan corporation, and the words mutua .ui ding and oan association sha form part of the name of every such corporation. :he artic es of incorporation of 0 /ogar $i ipino show that the purpose of the corporation areB C1D :he accumu ation of the savings of its shareho ders< C2D the return to said shareho ders of their accumu ated savings and profits upon the surrender and cance ation of their shares< C8D the encouragement of industry, fruga ity, and home .ui ding among its shareho ders< C)D the oan of its funds and funds .orrowed for the purpose to its shareho ders on the security of unencum.ered rea estate and the p edge of shares of capita stoc9 of the company owned .y its shareho ders as co atera security< and C5D the .orrowing of money upon the credit of the corporation and the issuance of .onds or other documents evidencing the e;istence of such o. igations. :he capita of the corporation is made not to e;ceed P1#,###,###. (t the end of 1925 it had 5,72A shareho ders ho ding 125,75# shares, the tota paid up va ue of which was P7,7#8,A#2.25. 0 /ogar $i ipino having .een incorporated under Phi ippine aw as a mutua .ui ding and oan association, the primary in=uiry shou d natura y .e as to the nature, purposes, and operations of mutua .ui ding and oan associations. %n the case of El Bo'ar 0ilipino vs. !affert( CJ1917K 87 Phi ., 995D,this court had presented the =uestion of whether 0 /ogar $i ipino, as a .ui ding and oan association, was re ieved from the necessity of paying an income ta;. %t was he d that it was. 1r. Justice Johnson, spea9ing for the court, saidB ( .ui ding and oan association is an organi4ation created for the purpose of accumu ating a fund .y the month y su.scription or saving of its mem.ers, to assist them in .ui ding or purchasing for themse ves dwe ings or rea estate, .y oaning to them the re=uisite money from the funds of the society. :o a particu ar intent it may .e said to .e to ena. e a num.er of associates to have and invest their savings to mutua advantage, so that, from time to time, any individua among them may receive, out of the accumu ation of the pittances which each contri.utes periodica y, a sum, .y way of oan, wherewith to .ui d or pay for a home, and u timate y ma9ing it a.so ute y his own .y the payment of such

$#;a*a!# O;+n+on( MALCOLM, -., ?+!" ?"o: 0on0.* O$'RAND an -OHN$, JJ., dissentingB $or the second time in the history of the court I so counse for p aintiff inform us I we must try a corporation for the vio ation of a aw which carries with it a death warrant I so counse for defendant intimates. :hat the corporation at .ar is wea thy and powerfu shou d neither prejudice us against it nor cause us to cringe .efore its might. :he court has a duty to perform and shou d perform it with fairness to the corporation and with justice to the pu. ic, whose interests are invo ved. 0 /ogar $i ipino, deserves e;act y the same consideration as any other itigant. "o more, no ess. :he proceeding is one of quo *arranto, .egun .y the -overnment of the Phi ippine %s ands under authority of section 19#2( of the !orporation ,aw, and of sections 197221A, 519 of the !ode of !ivi Procedure. :he comp aint contains seventeen causes of action. :o a of them, the defendant has made answer. :he facts have .een covered .y stipu ation. :he government as9s for an order of disso ution. 6efendant tenacious y resists. 0 /ogar de $i ipino is a corporation organi4ed as a mutua .ui ding and oan association under the provisions of the !orporation ,aw C(ct "o. 1)59D. :he aw ast mentioned, it may reca ed, is divided into two parts. !hapter one is entit ed '-enera Provisions.' %n chapter two is entit ed '*pecia Provisions'. %n chapter two, section 171 to 19#, inc usive, are found the specia provisions pertaining to .ui ding and oan corporations. *ection 171 thereof is indicative of the egis ative purpose. %t providesB ( corporations whose capita stoc9 is re=uired or is permitted to .e paid in .y the stoc9ho ders in regu ar, e=ua , periodica payments and whose purpose is to accumu ate the savings of its stoc9ho ders, to repay to said stoc9ho der their accumu ated savings and profits upon surrender of their stoc9, to encourage industry, fruga ity, and home .ui ding among its stoc9ho ders, and to oan its funds and funds .orrowed for the purpose to

sma amounts from time to time. C+hodes vs. 1issouri *avings H ,oan !o., 178 % ., A21< )2 ,. +. (., 98.D :he same opinion =uoted from 0nd ich on 3ui ding (ssociations, section 7, who was termed a eading authority upon such associations, on the su.ject of the primary designs and genera operation of .ui ding associations, the fo owingB :he idea which first gave rise to the institution of .ui ding associations, which furnished their ostensi. e and egitimate raison dHetre, and which secured to them their popu arity and their, in many respects, e;ceptiona y favored position .efore the aw, is that of ena. ing persons .e onging to a c ass whose earning are sma , and with whom the s owness of the accumu ation discourages the effort, to .ecome .y a process of gradua and compu sory savings, either at the end of a certain period, or .y anticipation of it, the owners of homesteads. :he operation of the scheme may .e easi y understood. :he same opinion =uoted from :hornton and 3 ac9 edge in their wor9 on 3ui ding and ,oan (ssociations, at page A the fo owingB *ocieties, 9nown as .ui ding, oan fund, and savings association, are now recogni4ed as important factors in the socia and economic deve opment of this country. :he contro ing idea is the massing of the separate earnings of wage2wor9ers, and the savings of persons of sma means, in such a manner as to aid them in procuring homes. %t is the organi4ation of thrift and se f2 he p< a practica app ication of the ma;im that in 'union there is strength.' :he effect of such a movement is to dignify the home< to foster mora ity, and to ma9e thoughtfu , wise, and responsi. e citi4ens. %t is for such reason that the aw and the courts, where such associations have .een proper y conducted, have oo9ed upon them with favor. @hether they sha retain the favora. e estimation of egis atures and courts wi depend in arge measure upon the wise forecast and determined purpose of those who contro such institutions. :hose departures from the origina idea, intended to enhance the profits of investors, without in any degree aiding those who are endeavoring to .ui d homes, have .een, and in the future pro.a. y wi .e, severe y censured .y the courts.

%n the case of Lopez and @avelona vs. El Bo'ar 0ilipino and !e'istrar of Aeeds of Fccidental 2e'ros CJ1925K, )7 Phi ., 2)9D, the principa issue had to do with the re ation of 0 /ogar $i ipino to the 5sury ,aw permitting it to charge a higher rate of interest than persons or entities, charge than simi ar y organi4ed mutua .ui ding and oan associations. 1r. Justice Johns, in a vigorous dissenting opinion, saidB :here must .e and is va id reason for the e;ception made in the statute which permits .ui ding and oan associations to charge and receive 17 per cent per annum as interest, and which imits a other oans made .y any other person, firm or corporation to interest at 12 per cent per annum. ( .ui ding and oan associations are founded, and e;ceptions made in their favor as to the rate of interest, upon the theory that they wi ena. e a person with sma means or sma income who has a fami y to support, to .ui d a home in which to ive and to improve his property and deve op the country. @hen the e;ception was made .y the ,egis ature, it was never intended that the 0 /ogar $i ipino or any other corporation, under the guise of a .ui ding and oan association, shou d ma9e a oan upon a sugar p antation of the nature of the one in =uestion. ;;; ;;; ;;;

%t wi .e noted that the e;ception made in the statute a.ove =uoted is for mutua .ui ding and oan societies incorporated under the !orporation (ct. :he use of the word mutua is significant and important. 5nder the statute, it is not sufficient that the corporation shou d .e a .ui ding and oan association. %t must .e a mutua .ui ding and oan association. %n the same dissent, reference was made to the case of El Bo'ar 0ilipino vs. !affert(, supra, and the remar9s of 0nd ich, and :hornton and 3 ac9 edge on the purposes of mutua .ui ding and oan associations. $ etcher, !yc opedia of !orporation, vo ume 1, page 18A, was a so =uoted from as fo owsB (n incorporated .ui ding and oan association is a corporation for the purpose of raising, .y periodica su.scriptions of mem.ers, a stoc9 or fund to assist mem.ers .y advances or oans, genera y on mortgage security, in .ui ding or purchasing homes. *uch

corporations are different from corporations formed for pecuniary profit. :he term C.ui ding and oan associationD does not genera y inc ude corporations un ess their purpose is to accumu ate funds and end the same to mem.ers to assists them in purchasing or .ui ding homes . . . C!ases cited.D %t does not inc ude a corporation . . . for the purpose of purchasing and improving rea estate and advancing money on mortgages . . . or a corporation mere y for the purpose of oaning money. %n the same dissent, reference was made to what !orpus Juris, vo ume 9, page 92#, contains on the su.ject of the o.ject and purpose of .ui ding and oan associations, name yB (s it is sometimes stated in the statutes re ating to, and in the charters and constitutions of, .ui ding and oan associations, the principa o.ject of a .ui ding and oan association is to create a oan fund for the .enefit of its .orrowing mem.ers, the under ying idea .eing that, .y means of the system of sma periodica payments provided, peop e of imited means wi .e ena. ed to .ecome the owners of homes, and thrift, economy, and good citi4enship wi there.y .e promoted. 3y reason of the favora. e resu ts attending the operation of these associations, and their .eneficent purposes, they have, especia y .efore they attained their present tremendous growth, .een favored and granted specia privi eges .y the various egis atures, such as permission to charge high rates of interest and e;emption from ta;ation. . . .' %n ieu of asteris9 the ne;t succeeding sentence from !orpus Juris cou d a so have .een appropriate y usedB '/owever, with the growth of these organi4ations, evi s have crept in, the privi eges granted have in many instances .een a.used .y unscrupu ous officers, and, in recent years, the courts have .een compe ed to su.ject their transactions to c oser scrutiny. *pea9ing of the purposes for which oans can .e made .y .ui ding and oan associations, +osentha , in his wor9 on 3ui ding, ,oan and *avings (ssociations, third edition, page 1#7, saysB %n our opinion, the o.ject of .ui ding, oan and savings associations is to furnish funds for homes rather than for mercanti e or manufacturing improvements. *ome of the arger associations have granted oans of this character, and we

consider it a dangerous departure from the purposes for which these associations were created. :hompson on 3ui ding (ssociations, page 5, 28, 2), 282 and 557, saysB :he .ui ding association as now e;isting is a private corporation designed for the accumu ation, .y the mem.ers, of their money, .y periodica payments into its treasury, to .e invested from time to time in oans to the mem.ers upon rea estate for home purposes, :he .ui ding association is a home .ui der. :he mem.er .y its system is ena. ed to ac=uire a home, and to pay for it he p edges his future savings. . . . %t enforces economy, and awa9ens thoughts of citi4enship in its .etter sense of offering homes. :his is the first purpose of these institutions. :he anguage of the *upreme !ourt of -eorgia is time yB ':he they have improved our towns .y eading to the erection of a num.er of new .ui dings, furnished many fami ies with homes of their own, that cou d not otherwise have possessed the, given a considera. e impu se to mechanica enterprise, and in many other ways promoted the prosperity and we fare of the communities where they e;ist, is undou.ted y true. 3ut whether they wi continue to .e entit ed to the epithet of the 'poor man's e;che=uer,' and whether they wi , as they promise to do, ena. e every man to .ecome his own and ord, wi depend entire y upon the manner in which they conduct their .usiness . . .' :hese institutions are we 9nown a over the 5nited *tates to .e depositories of money savings, and investors of those savings in homes for mem.ers. :he egis ature has created them in the interest of good citi4enship, to ena. e the peop e to save their money and ac=uire homes and .ecome steady citi4ens. :he u timate egis ative purpose is home2.ui ding. %f it was mere y a depository of savings it wou d have no strong reason for e;istence, .ecause the savings .an9s furnish that< .ut it goes further, and is designed .y aw to use those savings in procuring homes for its mem.ers. (nd the courts shou d prompt y cur. any disposition to depart from the corporate purposes. . . . 3ut a .ui ding association is not an ordinary corporation< in fact, it e;ercises some e;traordinary privi eges, particu ar y in not .eing amena. e to the usury aws. %t is created for the dec ared

purposes of accumu ating money and ending the accumu ation to mem.ers to .ui d or ac=uire homes for themse ves. :he egis ature devised this p an of cooperative accumu ations for the purpose of assisting each mem.er to .ecome his own and ord. :he state has a se fish motive in the promotion of a .ui ding association, as through its wor9ings it is p anting deep y the roots of citi4enship. :he drifting, thrift ess c asses are offered a schoo of economy, and the earnest and economica c asses are given an opportunity. :here is, then, the formation of a steady, energetic and accumu ating citi4en. :he cares of the state are essened .y decreasing poverty, and its prosperity is increased .y growing materia wea th. @e may c ear y conceive, then, that the intention of the egis ature in the creation of .ui ding associations is, first, to encourage savings< second, to secure homes for the savers. %n the case of ,andlin vs. American avin's and Loan Association CJ179AK,A8 1inn., 857D, the court saidB *o2ca ed '.ui ding societies,' operated on the p an of the defendant, have so often .ecome the instrument of oppression and e;tortion as to ca down the censure of some eminent courts. :he origina purpose of .ui ding societies, viz., to ena. e peop e of sma means to .ui d or .uy homes, is entire y wanting. '*uch a .ody' says $o et, J., in ei#el vs. /ictoria Buildin' Association C)8 &hio *t., 871, p. 878D, 'e;ists for the e=ua .enefit of a its mem.ers, who are presumed to .e persons whose earnings are sma , and who see9 to use wee9 y savings in procuring suita. e homesteads. 0very mem.er is presumed to .ecome after sometime a .orrower to the e;tent of his interest. 3ui ding associations are not intended to ena. e money enders to o.tain e;traordinary interest, .ut they are intended to he p in securing homes with the aid of sma incomes.' C3arry ,aw of 3ui ding *ocieties, p. 8, sec. ).D %n case of 2ort& American Buildin' Associaton vs. utton CJ17A#K, 85 Pa., )A8D, the court saidB %t is we 9nown that the origina design of the egis ature was to encourage the erection of .ui dings. :he motive for the grant of the franchise was pu. ic improvement. 3ut the practica wor9ing of the associations formed under the aw has not .een what was

anticipated. :hough ca ed '.ui ding societies,' they are, in truth, on y agencies .y which a greater than ega interest is o.tained from the necessitous and unwary. %n the case of $ontinental 2ational Buildin' and Loan Association vs. ,iller CJ19#2K, )) $ a., 757D, the court saidB @hen oca in their operations and prudent y managed they have served a usefu purpose ena. ing the man of sma means to .ui d his modest homes or to ma9e a safe and profita. e investment of his meager earnings< .ut when they .ranch out and forget the origina purposes and imitations that have given them this favored position, trou. e not infre=uent y arises. %n the case of t. @osep& and )ansas Loan and Buildin' Association vs. T&ompson CJ1777K, 19 Lansas, 821D, the court saidB %t was never intended that these corporations, organi4ed as this one was for the purpose of giving to its mem.ers through their savings an easy way to discharge encum.rances and to .ui d homes, shou d oan their funds to others than their own mem.ers. %n case of %ar+er vs. 0ulton Loan and Buildin' Association CJ1772K,)A -a., 1AAD, the court saidB @hether such a contract though ega upon its face, was, in fact, i ega , wou d depend upon the o.ject of the association. %f it were, in truth, a mere devise to evade the usury aws, then it wou d depend upon the o.ject of the association. %f it were, in truth, a mere devise to evade the usury aws, then it wou d .e i ega , if in fact more was ta9en for the use of money than 7 per cent per annum. 3ut if the organi4ation were in fact and #ona fide a p an with the rea intent and o.ject of accumu ating a fund .y month y su.scriptions or savings of the mem.ers thereof, to assist them in procuring for themse ves such rea estates as they may deem proper,' then it wou d not .e i ega . :he practica app ication of the resources of these institutions C.ui ding and oan associationsD to the .ui ding of homes and aiding their mem.ers to change their conditions from rent2paying tenants to home2owning citi4ens has .een recogni4ed as a wor9 of vita importance and of the highest he pfu ness to the interest of

the state and nation. C+osentha !yc. of 3ui ding, ,oan H *avings (ssociation, p. 78.D :he aim and purpose of a .ui ding association is to aid and encourage its mem.ers to earn and practice thrift .y regu ar systematic saving, and to provide ways and means so that every fami y may procure home. C+osentha !yc. of 3ui ding, ,oan H *avings (ssociation, p. 9.D :he funds of the first associations were app ied to aid its mem.ers to procure homes. :his was in fact the one outstanding feature of the p an and the high purpose for which the association was organi4ed. :he wish and desire to own their own home, was, in fact the primary, fundamenta inspiration on which the first .ui ding association was formed, and has ever continued to .e the shining po e star which has guided and directed the progress of these .ui ding associations to the present day. :he desire to own a home is one of the primary, natura instincts of every rea man or woman. (n institution organi4ed and operated on a fair and e=uita. e p an which has for its o.ject the gratifying of that desire, is sure to ma9e a strong appea to a humanity. :he constant appea which .ui ding associations have a ways made to this deep2seated human desire, is the rea secret of their great success. C+osentha !yc. of 3ui ding, ,oan H *avings (ssociation, p. 18.D ( recent president of the 5nited *tates ,eague of ,oca 3ui ding and ,oan (ssociations said the '&ur associations are serving just two c asses of customersB receiving the savings of thrifty and farseeing peop e, and oaning these funds to mem.ers who wish to .uy or .ui d a home. "ever was the need for .ui ding or owning a home greater than in the past few years, and as you we 9now, ac9 of sufficient funds has .een one of our pro. ems.' 3ui ding and ,oan (ssociations started as neigh.orhood c u.s in most parts of the country. "eigh.ors wished to .ecome home owners and .egan contri.uting a certain sum month y to a treasurer. :he aggregate of these month y payments was soon sufficient to .uy or .ui d a home for one of the mem.ers. :he fund was then oaned to one of them, and as other funds accumu ated, others cou d .orrow. :he joint purposes of thrift and home ownership are insepara. e and are of e=ua importance. :here cou d .e no cooperative .ui ding and oan association

without .oth. C! ar9 and !hase 3ui ding and ,oan (ssociation, p. )D. :he !ommissioner of %nterna +evenue of the 5nited *tates in artic e 515 of his new regu ations, out ines the particu ar associations entit ed to e;emption, under the $edera ,aw as fo owsB %n genera , a .ui ding and oan association entit ed to e;emption is one organi4ed pursuant to the aws of any state, territory or the 6istrict of !o u m.ia, which accumu ates funds to .e oaned primari y to the shareho ders for the purpose of .ui ding or ac=uiring homes. C+osentha !yc. of 3ui ding, ,oan H *avings (ssociation, p. 9).D :he authorities cou d .e pi ed up mountain high. :hey a disc ose that mutua .ui ding and oan associations are pecu iar and specia corporations. :hey can e;ercise on y such powers as are conferred .y the egis ative .ody creating them, either .y e;press terms or .y necessary imp ication. :heir .asic and essentia idea is mutua ity. :he primary o.ject is to encourage thrift and to assist in home .ui ding. '0 /ogar $i ipino' I or as it is in 0ng ish ':he $i ipino /ome' I that is the magic thought which attracts sma investors. 3ut when pseudo associations .ranch out and forget the origina purposes and imitations that have given them their favored positions, it is incum.ent on the judiciary to p ace them .ac9 in their rightfu p aces. @e are fran9 to say that it is these e ementary princip es, which, in our opinion, the majority have fai ed to grasp, which have ed them into error in the decision of this case. @hy are mutua .ui ding and oan associations granted specia privi egesO @hy are mutua .ui ding and oan associations e;empted from ta;ation, as disc osed in 0 /ogar $i ipino vs. +afferty, supraO @hy are .ui ding and oan associations permitted to charge high rates of interest, as disc osed in ,ope4 and Jave ona vs. 0 /ogar $i ipino, and +egistrar of 6eeds of &ccidenta "egros, supraO @hyO "eed answers .e given. %f so, it is so that mutua .ui ding and oan associations may with one hand accept favors rightfu y theirs, and with the other hand grasp favors proper y .e onging to strict y private corporations or oan societies. 0 /ogar $i ipino has offended against the aw of its creation, and has departed from the fundamenta purposes of mutua .ui ding and oan associations in thisB

(. %n that it has engaged in .usiness activities entire y foreign to and not reasona. y necessary for the purposes for which it was organi4ed, such as the administration of properties and the management of properties not mortgaged< 3. %n that it has inserted in artic e 1# of its .y2 aws a provision giving the .oard of directors, .y majority vote, the un=ua ified right to cance and forfeit shares .y mere y returning to their owners the amount which may resu t from the accounting, in vio ation of the !orporation ,aw< !. %n that its .oard of directors has .ecome a permanent and se f2 perpetuating .ody, since with the e;ception of the years 1911, 1912, and 1917, there has .een no e ection of directors and since .etween 1912 and 1917, and from 1917 unti the present, the mem.ership of the .oard has not .een changed, e;cept to fi vacancies which have .een fi ed .y the .oard itse f, in vio ation of the !orporation ,aw, and of the .y2 aws of the corporation< 6. %n that the directors, instead of serving without pay or for nomina sa aries, have .een receiving re ative y arge compensations out of the profits in accordance with artic e 92 of the .y2 aws, providing that 5 percent of the annua profits sha .e devoted to the compensation of the directors, according to their attendance at the meetings< 0. %n that the corporation has .een giving to (ntonio 1e ian, its founder, under provisions of artic e 92 of its .y2 aws 5 per cent of the year y net profits, and wi continue to do so, for the fu fifty2year period of ife of the defendant, and under which 1r. 1e ian has received a tota sum of PA15,78)< $. %n that artic es 7# and 7A of its .y2 aws are contrary to aw, since they on y permit the e ection or appointment to the .oard of directors of persons owning P5,### worth of paid up shares, which is made a condition precedent to e igi.i ity to the .oard of directors< -. %n that it has issued so2ca ed specia shares, in vio ation .oth of the etter and spirit of the !orporation ,aw< /. %n that it has maintained out of its profits an unnecessari y arge reserve fund, c assified into genera reserve fund and specia reserve fund, instead of distri.uting its profits among its mem.ers<

%. %n that it has made arge oans to persons and companies, such as a oan of P2,82#,### to the Pacific @arehouse !ompany, which so dep eted the funds of the corporation that for sometime it was una. e to act on app ications for sma oans and for the retirement of shares< J. %n that under artic es 92 and 95 of the .y2 aws of the corporation, upon the e;piration of its period of ife or upon ear ier i=uidation of its .usiness, the accumu ated reserves and other properties wi .e distri.uted among and wi .enefit on y its directors and its founder, together with a few other persons< L. %n that its mem.ership is in part composed of corporations, companies, and associations, for instance of si;teen corporations and fourteen partnerships< ,. %n that it has disposed of rea estate purchased .y it in the co ection of its oans on credit, thereafter accepting mortgages on the property transferred, in vio ation of the !orporation ,aw< 1. (nd, ast y, in the 0 /ogar $i ipino has fai ed to carry our and fu fi the main purpose for which it was created, and in consideration of which it has .een granted specia privi eges and e;emptions. :he foregoing are not trivia or iso ated infractions of the aw to .e .rushed away with a wave of the hand. :hey constitute grave a.uses. :hey disc ose 0 /ogar $i ipino as an octopus whose tentac es have reached out to em.race and stif e vita pu. ic interests. :he court wou d .e entire y justified in peremptori y decreeing the disso ution of the corporation for misuse of its powers. *ection 19#2( of the !orporation ,aw, inserted .y section 8 of (ct "o. 2792, ma9es it the imperative duty of the court to disso ve a corporation for any vio ation which it has committed. %t is .e ieved, however, that counse for the defendant is entire y correct in his argument to the effect that the egis ature is without power to diminish the jurisdiction of the court, and to direct a particu ar judgment in a particu ar case. +ather wou d we prefer to fo ow the precedent in the case of the -overnment of the Phi ippine %s ands vs. Phi ippine *ugar 0states 6eve opment !ompany CJ1917K, 87 Phi ., 15D,wherein in was ordered that the corporation .e disso ved and prohi.ited from continuing to do .usiness in the Phi ippine %s ands un ess it comp ied with the conditions mentioned in the decision.

%n amp ification of the a.ove suggestion, it must .e said that 0 /ogar $i ipino is the possessor of important property rights which shou d not .e disastrous y distur.ed. %t must a so .e said that a mutua .ui ding and oan association proper y conducted is an institution which shou d .e encourage in the community. :he resu t shou d, therefore, .e to confine 0 /ogar $i ipino to its egitimate purposes and to force it to e iminate its i egitimate purposes and :he government has made out its case, .ut the defendant shou d .e permitted a reasona. e time to fu fi the conditions aid down in this decision.

ROMUALDE6, J., dissentingB % .e ieve that the defendant corporation shou d .e compe ed to o.serve the aw and to confine itse f to its o.ject and purposes as a .ui ding and oan association e;isting under (ct. "o. 1)59, and that it shou d .e given a reasona. e period within which to do so. % am of this opinion on the ground that, to my mind, said corporation has deviated from the aw and its own o.ject and purposes .y adopting artic es 1#, 7#, and 7A of its .y2 aws in permitting the perpetuation of the same directors, and in ma9ing oans to persons who are not stoc9ho ders and to wea thy persons or companies in e;treme y arge amounts.