TITLE 1 AND 2 CASES

INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner, vs. HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE
FOOTBALL FEDERATION, respondents.
DECISION
KAPUNAN, J.:
On June 30 1989, petitioner International Express Travel and Tour Services, Inc., through its managing director, wrote a letter to the Philippine Football
Federation (Federation), through its president private respondent Henri Kahn, wherein the former offered its services as a travel agency to the latter.[1] The offer was
accepted.
Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation to the South East Asian Games in Kuala Lumpur as well as various
other trips to the People's Republic of China and Brisbane. The total cost of the tickets amounted to P449,654.83. For the tickets received, the Federation made two
partial payments, both in September of 1989, in the total amount of P176,467.50.[2]
On 4 October 1989, petitioner wrote the Federation, through the private respondent a demand letter requesting for the amount of P265,894.33.[3] On 30 October
1989, the Federation, through the Project Gintong Alay, paid the amount of P31,603.00. [4]
On 27 December 1989, Henri Kahn issued a personal check in the amount of P50,000 as partial payment for the outstanding balance of the
Federation.[5] Thereafter, no further payments were made despite repeated demands.
This prompted petitioner to file a civil case before the Regional Trial Court of Manila. Petitioner sued Henri Kahn in his personal capacity and as President of the
Federation and impleaded the Federation as an alternative defendant. Petitioner sought to hold Henri Kahn liable for the unpaid balance for the tickets purchased by the
Federation on the ground that Henri Kahn allegedly guaranteed the said obligation.[6]
Henri Kahn filed his answer with counterclaim. While not denying the allegation that the Federation owed the amount P207,524.20, representing the unpaid
balance for the plane tickets, he averred that the petitioner has no cause of action against him either in his personal capacity or in his official capacity as president of the
Federation. He maintained that he did not guarantee payment but merely acted as an agent of the Federation which has a separate and distinct juridical personality. [7]
On the other hand, the Federation failed to file its answer, hence, was declared in default by the trial court. [8]
In due course, the trial court rendered judgment and ruled in favor of the petitioner and declared Henri Kahn personally liable for the unpaid obligation of the
Federation. In arriving at the said ruling, the trial court rationalized:
Defendant Henri Kahn would have been correct in his contentions had it been duly established that defendant Federation is a corporation. The trouble, however, is that
neither the plaintiff nor the defendant Henri Kahn has adduced any evidence proving the corporate existence of the defendant Federation.In paragraph 2 of its
complaint, plaintiff asserted that "Defendant Philippine Football Federation is a sports association xxx." This has not been denied by defendant Henri Kahn in his
Answer. Being the President of defendant Federation, its corporate existence is within the personal knowledge of defendant Henri Kahn. He could have easily denied
specifically the assertion of the plaintiff that it is a mere sports association, if it were a domestic corporation. But he did not.
xxx
A voluntary unincorporated association, like defendant Federation has no power to enter into, or to ratify, a contract. The contract entered into by its officers or agents
on behalf of such association is not binding on, or enforceable against it. The officers or agents are themselves personally liable.
x x x[9]
The dispositive portion of the trial court's decision reads:
WHEREFORE, judgment is rendered ordering defendant Henri Kahn to pay the plaintiff the principal sum of P207,524.20, plus the interest thereon at the legal rate
computed from July 5, 1990, the date the complaint was filed, until the principal obligation is fully liquidated; and another sum of P15,000.00 for attorney's fees.
The complaint of the plaintiff against the Philippine Football Federation and the counterclaims of the defendant Henri Kahn are hereby dismissed.
With the costs against defendant Henri Kahn.[10]
Only Henri Kahn elevated the above decision to the Court of Appeals. On 21 December 1994, the respondent court rendered a decision reversing the trial court,
the decretal portion of said decision reads:
WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED and SET ASIDE and another one is rendered dismissing the complaint against
defendant Henri S. Kahn.[11]

In finding for Henri Kahn, the Court of Appeals recognized the juridical existence of the Federation. It rationalized that since petitioner failed to prove that Henri
Kahn guaranteed the obligation of the Federation, he should not be held liable for the same as said entity has a separate and distinct personality from its officers.
Petitioner filed a motion for reconsideration and as an alternative prayer pleaded that the Federation be held liable for the unpaid obligation. The same was
denied by the appellate court in its resolution of 8 February 1995, where it stated that:
As to the alternative prayer for the Modification of the Decision by expressly declaring in the dispositive portion thereof the Philippine Football Federation (PFF) as
liable for the unpaid obligation, it should be remembered that the trial court dismissed the complaint against the Philippine Football Federation, and the plaintiff did not
appeal from this decision. Hence, the Philippine Football Federation is not a party to this appeal and consequently, no judgment may be pronounced by this Court
against the PFF without violating the due process clause, let alone the fact that the judgment dismissing the complaint against it, had already become final by virtue of
the plaintiff's failure to appeal therefrom. The alternative prayer is therefore similarly DENIED.[12]
Petitioner now seeks recourse to this Court and alleges that the respondent court committed the following assigned errors: [13]
A. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAD DEALT WITH THE PHILIPPINE FOOTBALL
FEDERATION (PFF) AS A CORPORATE ENTITY AND IN NOT HOLDING THAT PRIVATE RESPONDENT HENRI KAHN WAS THE ONE
WHO REPRESENTED THE PFF AS HAVING A CORPORATE PERSONALITY.
B. THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE RESPONDENT HENRI KAHN PERSONALLY LIABLE FOR
THE OBLIGATION OF THE UNINCORPORATED PFF, HAVING NEGOTIATED WITH PETITIONER AND CONTRACTED THE
OBLIGATION IN BEHALF OF THE PFF, MADE A PARTIAL PAYMENT AND ASSURED PETITIONER OF FULLY SETTLING THE
OBLIGATION.
C. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN IS NOT PERSONALLY LIABLE, THE HONORABLE COURT OF
APPEALS ERRED IN NOT EXPRESSLY DECLARING IN ITS DECISION THAT THE PFF IS SOLELY LIABLE FOR THE OBLIGATION.
The resolution of the case at bar hinges on the determination of the existence of the Philippine Football Federation as a juridical person.In the assailed decision,
the appellate court recognized the existence of the Federation. In support of this, the CA cited Republic Act 3135, otherwise known as the Revised Charter of the
Philippine Amateur Athletic Federation, and Presidential Decree No. 604 as the laws from which said Federation derives its existence.
As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604 recognized the juridical existence of national sports associations. This may be
gleaned from the powers and functions granted to these associations. Section 14 of R.A. 3135 provides:
SEC. 14. Functions, powers and duties of Associations. - The National Sports' Association shall have the following functions, powers and duties:
1. To adopt a constitution and by-laws for their internal organization and government;
2. To raise funds by donations, benefits, and other means for their purposes.
3. To purchase, sell, lease or otherwise encumber property both real and personal, for the accomplishment of their purpose;
4. To affiliate with international or regional sports' Associations after due consultation with the executive committee;
xxx
13. To perform such other acts as may be necessary for the proper accomplishment of their purposes and not inconsistent with this Act.
Section 8 of P.D. 604, grants similar functions to these sports associations:
SEC. 8. Functions, Powers, and Duties of National Sports Association. - The National sports associations shall have the following functions, powers, and duties:
1. Adopt a Constitution and By-Laws for their internal organization and government which shall be submitted to the Department and any amendment thereto shall take
effect upon approval by the Department: Provided, however, That no team, school, club, organization, or entity shall be admitted as a voting member of an association
unless 60 per cent of the athletes composing said team, school, club, organization, or entity are Filipino citizens;
2. Raise funds by donations, benefits, and other means for their purpose subject to the approval of the Department;
3. Purchase, sell, lease, or otherwise encumber property, both real and personal, for the accomplishment of their purpose;
4. Conduct local, interport, and international competitions, other than the Olympic and Asian Games, for the promotion of their sport;
5. Affiliate with international or regional sports associations after due consultation with the Department;

xxx
13. Perform such other functions as may be provided by law.
The above powers and functions granted to national sports associations clearly indicate that these entities may acquire a juridical personality. The power to
purchase, sell, lease and encumber property are acts which may only be done by persons, whether natural or artificial, with juridical capacity. However, while we agree
with the appellate court that national sports associations may be accorded corporate status, such does not automatically take place by the mere passage of these laws.
It is a basic postulate that before a corporation may acquire juridical personality, the State must give its consent either in the form of a special law or a general
enabling act. We cannot agree with the view of the appellate court and the private respondent that the Philippine Football Federation came into existence upon the
passage of these laws. Nowhere can it be found in R.A. 3135 or P.D. 604 any provision creating the Philippine Football Federation. These laws merely recognized the
existence of national sports associations and provided the manner by which these entities may acquire juridical personality. Section 11 of R.A. 3135 provides:
SEC. 11. National Sports' Association; organization and recognition. - A National Association shall be organized for each individual sports in the Philippines in the
manner hereinafter provided to constitute the Philippine Amateur Athletic Federation. Applications for recognition as a National Sports' Association shall be filed with
the executive committee together with, among others, a copy of the constitution and by-laws and a list of the members of the proposed association, and a filing fee of
ten pesos.
The Executive Committee shall give the recognition applied for if it is satisfied that said association will promote the purposes of this Act and particularly section three
thereof. No application shall be held pending for more than three months after the filing thereof without any action having been taken thereon by the executive
committee. Should the application be rejected, the reasons for such rejection shall be clearly stated in a written communication to the applicant. Failure to specify the
reasons for the rejection shall not affect the application which shall be considered as unacted upon: Provided, however, That until the executive committee herein
provided shall have been formed, applications for recognition shall be passed upon by the duly elected members of the present executive committee of the Philippine
Amateur Athletic Federation. The said executive committee shall be dissolved upon the organization of the executive committee herein provided: Provided,
further, That the functioning executive committee is charged with the responsibility of seeing to it that the National Sports' Associations are formed and organized
within six months from and after the passage of this Act.
Section 7 of P.D. 604, similarly provides:
SEC. 7. National Sports Associations. - Application for accreditation or recognition as a national sports association for each individual sport in the Philippines shall be
filed with the Department together with, among others, a copy of the Constitution and By-Laws and a list of the members of the proposed association.
The Department shall give the recognition applied for if it is satisfied that the national sports association to be organized will promote the objectives of this Decree and
has substantially complied with the rules and regulations of the Department: Provided, That the Department may withdraw accreditation or recognition for violation of
this Decree and such rules and regulations formulated by it.
The Department shall supervise the national sports association: Provided, That the latter shall have exclusive technical control over the development and promotion of
the particular sport for which they are organized.
Clearly the above cited provisions require that before an entity may be considered as a national sports association, such entity must be recognized by the
accrediting organization, the Philippine Amateur Athletic Federation under R.A. 3135, and the Department of Youth and Sports Development under P.D. 604. This fact
of recognition, however, Henri Kahn failed to substantiate. In attempting to prove the juridical existence of the Federation, Henri Kahn attached to his motion for
reconsideration before the trial court a copy of the constitution and by-laws of the Philippine Football Federation. Unfortunately, the same does not prove that said
Federation has indeed been recognized and accredited by either the Philippine Amateur Athletic Federation or the Department of Youth and Sports
Development. Accordingly, we rule that the Philippine Football Federation is not a national sports association within the purview of the aforementioned laws and does
not have corporate existence of its own.
Thus being said, it follows that private respondent Henry Kahn should be held liable for the unpaid obligations of the unincorporated Philippine Football
Federation. It is a settled principal in corporation law that any person acting or purporting to act on behalf of a corporation which has no valid existence assumes such
privileges and becomes personally liable for contract entered into or for other acts performed as such agent. [14] As president of the Federation, Henri Kahn is presumed
to have known about the corporate existence or non-existence of the Federation. We cannot subscribe to the position taken by the appellate court that even assuming
that the Federation was defectively incorporated, the petitioner cannot deny the corporate existence of the Federation because it had contracted and dealt with the
Federation in such a manner as to recognize and in effect admit its existence. [15] The doctrine of corporation by estoppel is mistakenly applied by the respondent court to
the petitioner. The application of the doctrine applies to a third party only when he tries to escape liability on a contract from which he has benefited on the irrelevant
ground of defective incorporation.[16] In the case at bar, the petitioner is not trying to escape liability from the contract but rather is the one claiming from the contract.
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The decision of the Regional Trial Court of Manila, Branch 35, in Civil Case No.
90-53595 is hereby REINSTATED.
SO ORDERED.

G.R. No. 117097. March 21, 1997]

SAMAHAN NG OPTOMETRISTS SA PILIPINAS, ILOCOS SUR-ABRA CHAPTER, EDUARDO MA. GUIRNALDA, DANTE G. PACQUING and
OCTAVIO A. DE PERALTA, petitioners, vs. ACEBEDO INTERNATIONAL CORPORATION and the HON. COURT OF
APPEALS, respondents.
DECISION
HERMOSISIMA, JR., J.:
Before us is a petition seeking the review and ultimately the reversal of the decision [1] of the Court of Appeals[2] which rejected what petitioners vehemently
claim to be a prohibition, under Republic Act (RA.) No. 1998, popularly known as the old Optometry Law, against the employment by corporations, usually optical
shops and eyeware stores, of optometrists, such practice, according to petitioners, being an indirect violation of the rule against corporations exercising professions
reserved only to natural persons. Petitioners understandably did not welcome the herein assailed decision because they have, earlier, obtained a decision[3] favorable to
them from the Regional Trial Court of Candon, Ilocos Sur, Branch 23, presided over by Judge Gabino Balbin, Jr. The said judge had, in the main, ruled that the
operations of private respondent Acebedo International Corporation involves the practice of optometry which is precluded by RA. No. 1998.
The undisputed facts of the case, as found by the respondent Court of Appeals and quoted by petitioners, are as follows:
"On February 22, 1991, x x x [private respondent] filed an application with the Office of the Mayor of Candon, Ilocos Sur, for the issuance of a permit for the opening
and operation of a branch of the Acebedo Optical in that municipality.
The application was opposed by the x x x [petitioner] Samahan ng Optometrists sa Pilipinas (SOP) which contended that x x x [private respondent] is a juridical entity
not qualified to practice optometry.
On March 6, 1991, x x x [private respondent] filed its answer, arguing it is not the corporation, but the optometrists employed by it, who would be practicing optometry.
On April 17, 1991, the Mayor of Candon created a committee, composed of "public respondents Eduardo Ma. Guirnalda, Dante G. Pacquing and Octavio de Peralta, to
pass on [private respondent's] application.
On September 26, 1991 the committee rendered a decision denying [private respondent's] application for a mayor's permit to operate a branch in Candon and ordering x
x x [private respondent] to close its establishment within fifteen (15) days from receipt of the decision. Acebedo moved for a reconsideration but its motion was denied
on November 14, 1991. x x x [Private respondent] was ordered to close its establishment within ten (10) days from receipt of the order.
On December 9, 1991, x x x [private respondent] filed with the Court of Appeals a petition for certiorari (CA G.R SP No. 26782), questioning the decision of
respondent committee. Its petition, however, was referred to the court a quo, which on December 16, 1992, dismissed Acebedo's petition. Hence, x x x [the] appeal [to
the respondent Court of Appeals]."[4]
The singular issue, admittedly extensively debated and intensely contested not only by the members of the optometry profession and the players in the business
of selling optical ware, supplies, substances and instruments but also by the members of the Senate during the deliberations respecting R A. 8050, otherwise known as
Revised New Optometry Law, is this: May corporations, engaged in the business of selling optical wares, supplies, substances and instruments which, as an incident to
and in the ordinary course of the business hire optometrists, be said to be practicing the profession of optometry which, by legal mandate, may only be engaged in by
natural persons possessed of specific legal qualifications?
The trial court resolved this issue in the affirmative. In so finding, it explained, thus:
"The denial of the application of Acebedo rested on the grounds that it is operating an optical shop and it is practicing optometry where its charter does not grant to it
authority to practice the former. Acebedo submits that the findings of the Commission have no basis both in law and in fact. It argues that the hiring of optometrists by
the petitioner is merely incidental to its main business which is the sale of optical products. Acebedo contends further that its employees have a personality separate and
distinct from that of Acebedo which is a juridical entity, and it cannot therefore be considered as engaged in optometry.
The Court disagrees.
Quoted for the enlightenment of both parties is a portion of the contested Decision, to wit:
'The visit revealed the following:
1.
The establishment was manned by three personnel: Dr. Salvador Pagarigan, optometrist; Miss Lilibeth Begonia, receptionist; and a laboratory technician, who
refused to give his name;
2.

There were several shelves containing eyeglasses;

3.

There were benches where, according to Miss Begonia, would-be clients can sit while waiting for their turn to be examined;

4.

An examination room complete with an optical chair and optical charts; and,

5.

An optical laboratory.'

The Court is very much aware of the existence of several shops owned by Acebedo. They are operating up to the present. But the Court has to rely in this case on the
findings of the Commission created by the Mayor of Candon in the absence of proof that the same was arrived at hastily and without regard for the rights of the parties.
In fact, the contested Decision was issued only after an ocular inspection was conducted and the parties have submitted their respective memorandum.
The findings of the Commission reveal that the operation of Acebedo's local shop involves the practice of optometry. If indeed Acebedo is engaged in the sale of optical
products, the absence of sales clerks more than demonstrate its real business. In the contested Decision, the floor plan of the shop was even commented on as that of an
optical shop. As noted by the members of the Commission, there was also a banner in front of the shop prominently display advertising free consultations (libreng
consulta sa mata). These facts, taken together, denote that Acebedo was operating in Candon an optical shop contrary to law.
While it is also true that a corporation has a personality separate and distinct from that of its personnel, the veil of corporate fiction cannot be used for the purpose of
some illegal activity. The veil of corporate fiction can be pierced, as in this case, and the acts of the personnel of the corporation will be considered as those of the
corporation. Acebedo then is engaged in the practice of optometry."[5]
Disagreeing with the foregoing decision of the trial court, private respondent appealed therefrom and asked the respondent Court of Appeals to reverse the same
on the ground that the court a quo erred in concluding that private respondent was engaged in the practice of optometry by operating an optical shop.
Respondent appellate court found that private respondent's contentions merited the reversal of the court a quo's decision. The respondent court, speaking through
Court of Appeals Presiding Justice, now Supreme Court Associate Justice Vicente V. Mendoza, ratiocinated in this wise:
"First.
x x x [Private respondent] maintains that it is not practicing optometry nor is it operating an optical clinic. The contention has merit. The amended Articles
of Incorporation of x x x [private respondent] in part states:
PRIMARY PURPOSES
1.
To own, maintain, conduct, operate and carry on the business of dispensing opticians and optical establishments, and in the course of the business, to buy, sell,
ship, store and otherwise use, deal in, acquire and dispose of every kind of optical, ophthalmic and scientific instrument, glass, lens, optical solutions or equipment
necessary or convenient to the operation and conduct of the general business of dispensing opticians.
SECONDARY PURPOSES
....
3.
To do all and everything necessary, suitable or proper for the accomplishment of any of the purposes, the attainment of any of the objects, or in the exercise of
any of the powers herein set forth, either alone or in conjunction with other corporations, firms or individuals and either as principal or agents and to do every other act
or acts, thing or things, incidental or appurtenant to or growing out of or connected with the abovementioned objects, purposes or powers.
Clearly, the corporation is not an optical clinic. Nor is it but rather the optometrists employed by it who are engaged in the practice of optometry. Petitionerappellant simply dispenses optical and ophthalmic instruments and supplies.
Indeed, the Optometry Law (Rep. Act No. 1998), which x x x [petitioners] cite, does not prohibit corporations, like x x x [private respondent; from employing licensed
optometrists.
What it prohibits is the practice of the profession without license by those engaged in it. This is clear from Sec. 2 of the law which provides:
No person shall practice or attempt to practice optometry as defined in this Act, without holding a valid certificate of registration as optometrist issued to him by the
Board of Examiners in Optometry herein created and in accordance with the provisions hereof: Provided, that valid certificates of registration as optometrists shall be
issued to optometrists of good moral character now registered in accordance with the provisions of chapter thirty-three of the Revised Administrative Code, who shall,
by application within a period of one year from the effectivity of this Act, be exempt from the provisions of sections eleven, twelve and twenty-three of this Act. . . .
The prohibition is thus addressed to natural persons who are required to have a valid certificate of registration as optometrist' and who must be of 'good moral character'.
The prohibition can have no application to x x x [private respondent] which is not itself engaged in the practice of optometry. As the Professional Regulation
Commission said, "Acebedo Optical, Acebedo Optical Clinic, Acebedo Optical Co., Inc. and Acebedo International, Inc. are not natural persons who can take the
Optometrist licensure examinations. They are not, and cannot be registered as Optometrist under RA 1998 [The Optometry Law].'"[6]
Petitioners filed a Motion for Reconsideration of the aforegoing decision. It was, however, denied by respondent appellate court. Hence, this petition anchored on
the following sole ground:

"ISSUE

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT PRIVATE RESPONDENT ACEBEDO INTERNATIONAL
CORPORATION DOES NOT VIOLATE THE OPTOMETRY LAW (R. A. NO. 1998) WHEN IT EMPLOYS OPTOMETRISTS TO ENGAGE IN THE PRACTICE
OF OPTOMETRY UNDER ITS NAME AND FOR ITS BEHALF
The herein petitioner most respectfully submits that the private respondent Acebedo International Corporation flagrantly violates R. A. No. 1998 and the Corporation
Code of the Philippines when it employs optometrists to engage in the practice of optometry under its name and for its behalf."[7]
We hold that the petition lacks merit.
Private respondent does not deny that it employs optometrists whose role in the operations of its optical shops is to administer the proper eye examination in
order to determine the correct type and grade of lenses to prescribe to persons purchasing the same from private respondent's optical shops. Petitioners vehemently insist
that in so employing said optometrists, private respondent is in effect itself practicing optometry. Such practice, petitioners conclude, is in violation of RA. No. 1998,
which, it must be noted at this juncture, has been repealed and superseded by RA. 8050.
Petitioners' contentions are, however, untenable. The fact that private respondent hires optometrists who practice their profession in the course of their
employment in private respondent's optical shops, does not translate into a practice of optometry by private respondent itself. Private respondent is a corporation created
and organized for the purpose of conducting the business of selling optical lenses or eyeglasses, among others. The clientele of private respondent understably, would
largely be composed of persons with defective vision and thus need the proper lenses to correct the same and enable them to gain normal vision. The determination of
the proper lenses to sell to private respondent's clientele entails the employment of optometrists who have been precisely trained for that purpose. Private respondent's
business is not the determination itself of the proper lenses needed by persons with defective vision. Private respondent's business, rather, is the buying and importing of
eyeglasses and lenses and other similar or allied instruments from suppliers thereof and selling the same to consumers.
For petitioners' argument to hold water, there need be clear showing that RA. No. 1998 prohibits a corporation from hiring optometrists, for only then would it be
undeniably evident that the intention of the legislature is to preclude the formation of the so-called optometry corporations because such is tantamount to the practice of
the profession of optometry which is legally exercisable only by natural persons and professional partnerships. We have carefully reviewed RA. No. 1998 however, and
we find nothing therein that supports petitioner's insistent claims.[8]
It is significant to note that even under RA. No. 8050, known as the Revised Optometry Law, [9] we find no prohibition against the hiring by corporations of
optometrists. The pertinent provisions of RA. No. 8050, regarding the practice of optometry, are reproduced below for ready reference:

"THE PRACTICE OF OPTOMETRY

SEC. 4.

Acts Constituting the practice of Optometry. Any of the following acts constitute the practice of optometry:

a)
The examination of the human eye through the employment of subjective and objective procedures, including the use of specific topical diagnostic
pharmaceutical agents or drugs and instruments, tools, equipment, implements, visual aids, apparatuses, machines, ocular exercises and related devices, for the purpose
of determining the condition and acuity of human vision to correct and improve the same in accordance with subsections (b), (c) and (d) hereof; vision to correct and
improve the same in accordance with subsections (b), (c) and (d) hereof;
b)
The prescription and dispensing of ophthalmic lenses, prisms, contact lenses and their accessories and solutions, frames and their accessories, and supplies for
the purpose of correcting and treating defects, deficiencies and abnormalities of vision.
c)
The conduct of ocular exercises and vision training, the provision of orthoptics and other devices and procedures to aid and correct abnormalities of human
vision, and the installation of prosthetic devices;
d)

The counseling of patients with regard to vision and eye care and hygiene;

e)

The establishment of offices, clinics, and similar places where optometric services are offered; and

f)

The collection of professional fees for the performance of any of the acts mentioned in paragraphs (a), (b), (c) and (d) of this section.

SEC. 5.
Prohibition Against the Unauthorized Practice of Optometry. - No person shall practice optometry as defined in Section 3 of this Act nor perform any of
the acts, constituting the practice of optometry as setforth in Section 4 hereof, without having been first admitted to the practice of this profession under the provisions
of this Act and its implementing rules and regulations: Provided, That this prohibition shall not apply to regularly licensed and duly registered physicians who have
received post-graduate training in the diagnosis and treatment of eye diseases: Provided, however, That the examination of the human eye by duly registered physicians
in connection with the physical examination of patients shall not be considered as practice of optometry: Provided, further, That public health workers trained and
involved in the government's blindness prevention program may conduct only visual acuity test and visual screening.

SEC. 6
Disclosure of Authority to Practice. An optometrist shall be required to indicate his professional license number and the date of its expiration in the
documents he issues or signs in connection with the practice of his profession. He shall also display his certificate of registration in a conspicuous area of his clinic or
office."
All told, there is no law that prohibits the hiring by corporations of optometrists or considers the hiring by corporations of optometrists as a practice by the
corporation itself of the profession of optometry.
WHEREFORE, the instant petition is hereby DISMISSED.
Costs against the petitioners.
SO ORDERED.

[G.R. Nos. 116124-25. November 22, 2000]

BIBIANO O. REYNOSO, IV, petitioner, vs. HON. COURT OF APPEALS and GENERAL CREDIT CORPORATION,respondents.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for review is the consolidated decision of the Court of Appeals dated July 7, 1994, which reversed the separate decisions of the Regional
Trial Court of Pasig City and the Regional Trial Court of Quezon City in two cases between petitioner Reynoso and respondent General Credit Corporation (GCC).
Sometime in the early 1960s, the Commercial Credit Corporation (hereinafter, CCC), a financing and investment firm, decided to organize franchise
companies in different parts of the country, wherein it shall hold thirty percent (30%) equity. Employees of the CCC were designated as resident managers of the
franchise companies. Petitioner Bibiano O. Reynoso, IV was designated as the resident manager of the franchise company in Quezon City, known as the Commercial
Credit Corporation of Quezon City (hereinafter, CCC-QC).
CCC-QC entered into an exclusive management contract with CCC whereby the latter was granted the management and full control of the business activities of
the former. Under the contract, CCC-QC shall sell, discount and/or assign its receivables to CCC. Subsequently, however, this discounting arrangement was
discontinued pursuant to the so-called DOSRI Rule, prohibiting the lending of funds by corporations to its directors, officers, stockholders and other persons with
related interests therein.
On account of the new restrictions imposed by the Central Bank policy by virtue of the DOSRI Rule, CCC decided to form CCC Equity Corporation,
(hereinafter, CCC-Equity), a wholly-owned subsidiary, to which CCC transferred its thirty (30%) percent equity in CCC-QC, together with two seats in the latters
Board of Directors.
Under the new set-up, several officials of Commercial Credit Corporation, including petitioner Reynoso, became employees of CCC-Equity. While petitioner
continued to be the Resident Manager of CCC-QC, he drew his salaries and allowances from CCC-Equity. Furthermore, although an employee of CCC-Equity,
petitioner, as well as all employees of CCC-QC, became qualified members of the Commercial Credit Corporation Employees Pension Plan.
As Resident Manager of CCC-QC, petitioner oversaw the operations of CCC-QC and supervised its employees. The business activities of CCC-QC pertain to
the acceptance of funds from depositors who are issued interest-bearing promissory notes. The amounts deposited are then loaned out to various borrowers. Petitioner,
in order to boost the business activities of CCC-QC, deposited his personal funds in the company. In return, CCC-QC issued to him its interest-bearing promissory
notes.
On August 15, 1980, a complaint for sum of money with preliminary attachment,[1] docketed as Civil Case No. Q-30583, was instituted in the then Court of First
Instance of Rizal by CCC-QC against petitioner, who had in the meantime been dismissed from his employment by CCC-Equity. The complaint was subsequently
amended in order to include Hidelita Nuval, petitioners wife, as a party defendant. [2] The complaint alleged that petitioner embezzled the funds of CCC-QC amounting
to P1,300,593.11. Out of this amount, at least P630,000.00 was used for the purchase of a house and lot located at No. 12 Macopa Street, Valle Verde I, Pasig
City. The property was mortgaged to CCC, and was later foreclosed.
In his amended Answer, petitioner denied having unlawfully used funds of CCC-QC and asserted that the sum of P1,300,593.11 represented his money
placements in CCC-QC, as shown by twenty-three (23) checks which he issued to the said company. [3]
The case was subsequently transferred to the Regional Trial Court of Quezon City, Branch 86, pursuant to the Judiciary Reorganization Act of 1980.
On January 14, 1985, the trial court rendered its decision, the decretal portion of which states:
Premises considered, the Court finds the complaint without merit. Accordingly, said complaint is hereby DISMISSED.
By reason of said complaint, defendant Bibiano Reynoso IV suffered degradation, humiliation and mental anguish.

On the counterclaim, which the Court finds to be meritorious, plaintiff corporation is hereby ordered:
a)

to pay defendant the sum of P185,000.00 plus 14% interest per annum from October 2, 1980 until fully paid;

b)
to pay defendant P3,639,470.82 plus interest thereon at the rate of 14% per annum from June 24, 1981, the date of filing of Amended Answer, until fully paid;
from this amount may be deducted the remaining obligation of defendant under the promissory note of October 24, 1977, in the sum of P9,738.00 plus penalty at the
rate of 1% per month from December 24, 1977 until fully paid;
c)

to pay defendants P200,000.00 as moral damages;

d)

to pay defendants P100,000.00 as exemplary damages;

e)

to pay defendants P25,000.00 as and for attorney's fees; plus costs of the suit.

SO ORDERED.
Both parties appealed to the then Intermediate Appellate Court. The appeal of Commercial Credit Corporation of Quezon City was dismissed for failure to pay
docket fees. Petitioner, on the other hand, withdrew his appeal.
Hence, the decision became final and, accordingly, a Writ of Execution was issued on July 24, 1989. [4] However, the judgment remained unsatisfied,[5] prompting
petitioner to file a Motion for Alias Writ of Execution, Examination of Judgment Debtor, and to Bring Financial Records for Examination to Court. CCC-QC filed an
Opposition to petitioners motion,[6] alleging that the possession of its premises and records had been taken over by CCC.
Meanwhile, in 1983, CCC became known as the General Credit Corporation.
On November 22, 1991, the Regional Trial Court of Quezon City issued an Order directing General Credit Corporation to file its comment on petitioners motion
for alias writ of execution.[7] General Credit Corporation filed a Special Appearance and Opposition on December 2, 1991, [8] alleging that it was not a party to the case,
and therefore petitioner should direct his claim against CCC-QC and not General Credit Corporation. Petitioner filed his reply,[9] stating that the CCC-QC is an adjunct
instrumentality, conduit and agency of CCC. Furthermore, petitioner invoked the decision of the Securities and Exchange Commission in SEC Case No. 2581,
entitled, Avelina G. Ramoso, et al., Petitioner versus General Credit Corp., et al., Respondents, where it was declared that General Credit Corporation, CCC-Equity
and other franchised companies including CCC-QC were declared as one corporation.
On December 9, 1991, the Regional Trial Court of Quezon City ordered the issuance of an alias writ of execution. [10] On December 20, 1991, General Credit
Corporation filed an Omnibus Motion,[11] alleging that SEC Case No. 2581 was still pending appeal, and maintaining that the levy on properties of the General Credit
Corporation by the deputy sheriff of the court was erroneous.
In his Opposition to the Omnibus Motion, petitioner insisted that General Credit Corporation is just the new name of Commercial Credit Corporation; hence,
General Credit Corporation and Commercial Credit Corporation should be treated as one and the same entity.
On February 13, 1992, the Regional Trial Court of Quezon City denied the Omnibus Motion. [12] On March 5, 1992, it issued an Order directing the issuance of an
alias writ of execution.[13]
Previously, on February 21, 1992, General Credit Corporation instituted a complaint before the Regional Trial Court of Pasig against Bibiano Reynoso IV and
Edgardo C. Tanangco, in his capacity as Deputy Sheriff of Quezon City, [14] docketed as Civil Case No. 61777, praying that the levy on its parcel of land located in
Pasig, Metro Manila and covered by Transfer Certificate of Title No. 29940 be declared null and void, and that defendant sheriff be enjoined from consolidating
ownership over the land and from further levying on other properties of General Credit Corporation to answer for any liability under the decision in Civil Case No. Q30583.
The Regional Trial Court of Pasig, Branch 167, did not issue a temporary restraining order. Thus, General Credit Corporation instituted two (2) petitions for
certiorari with the Court of Appeals, docketed as CA-G.R. SP No. 27518[15] and CA-G.R. SP No. 27683. These cases were later consolidated.
On July 7, 1994, the Court of Appeals rendered a decision in the two consolidated cases, the dispositive portion of which reads:
WHEREFORE, in SP No. 27518 we declare the issue of the respondent court's refusal to issue a restraining order as having been rendered moot by our Resolution of 7
April 1992 which, by way of injunctive relief, provided that "the respondents and their representatives are hereby enjoined from conducting an auction sale (on
execution) of petitioner's properties as well as initiating similar acts of levying (upon) and selling on execution other properties of said petitioner". The injunction thus
granted, as modified by the words in parenthesis, shall remain in force until Civil Case No. 61777 shall have been finally terminated.
In SP No. 27683, we grant the petition for certiorari and accordingly NULLIFY and SET ASIDE, for having been issued in excess of jurisdiction, the Order of 13
February 1992 in Civil Case No. Q-30583 as well as any other order or process through which the petitioner is made liable under the judgment in said Civil Case No. Q30583.
No damages and no costs.
SO ORDERED.[16]

Hence, this petition for review anchored on the following arguments:

1. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO. 27683 WHEN IT NULLIFIED AND SET ASIDE THE 13 FEBRUARY 1992 ORDER
AND OTHER ORDERS OR PROCESS OF BRANCH 86 OF THE REGIONAL TRIAL COURT OF QUEZON CITY THROUGH WHICH GENERAL CREDIT
CORPORATION IS MADE LIABLE UNDER THE JUDGMENT THAT WAS RENDERED IN CIVIL CASE NO. Q-30583.
2. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO. 27518 WHEN IT ENJOINED THE AUCTION SALE ON EXECUTION OF THE
PROPERTIES OF GENERAL CREDIT CORPORATION AS WELL AS INITIATING SIMILAR ACTS OF LEVYING UPON AND SELLING ON EXECUTION
OF OTHER PROPERTIES OF GENERAL CREDIT CORPORATION.
3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT GENERAL CREDIT CORPORATION IS A STRANGER TO CIVIL CASE NO. Q30583, INSTEAD OF, DECLARING THAT COMMERCIAL CREDIT CORPORATION OF QUEZON CITY IS THE ALTER EGO, INSTRUMENTALITY,
CONDUIT OR ADJUNCT OF COMMERCIAL CREDIT CORPORATION AND ITS SUCCESSOR GENERAL CREDIT CORPORATION.
At the outset, it must be stressed that there is no longer any controversy over petitioners claims against his former employer, CCC-QC, inasmuch as the decision
in Civil Case No. Q-30583 of the Regional Trial Court of Quezon City has long become final and executory. The only issue, therefore, to be resolved in the instant
petition is whether or not the judgment in favor of petitioner may be executed against respondent General Credit Corporation. The latter contends that it is a corporation
separate and distinct from CCC-QC and, therefore, its properties may not be levied upon to satisfy the monetary judgment in favor of petitioner. In short, respondent
raises corporate fiction as its defense. Hence, we are necessarily called upon to apply the doctrine of piercing the veil of corporate entity in order to determine if
General Credit Corporation, formerly CCC, may be held liable for the obligations of CCC-QC.
The petition is impressed with merit.
A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by
law or incident to its existence.[17] It is an artificial being invested by law with a personality separate and distinct from those of the persons composing it as well as from
that of any other legal entity to which it may be related. [18] It was evolved to make possible the aggregation and assembling of huge amounts of capital upon which big
business depends. It also has the advantage of non-dependence on the lives of those who compose it even as it enjoys certain rights and conducts activities of natural
persons.
Precisely because the corporation is such a prevalent and dominating factor in the business life of the country, the law has to look carefully into the exercise of
powers by these artificial persons it has created.
Any piercing of the corporate veil has to be done with caution. However, the Court will not hesitate to use its supervisory and adjudicative powers where the
corporate fiction is used as an unfair device to achieve an inequitable result, defraud creditors, evade contracts and obligations, or to shield it from the effects of a court
decision. The corporate fiction has to be disregarded when necessary in the interest of justice.
In First Philippine International Bank v. Court of Appeals, et al.,[19] we held:
When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the
achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the
members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals.
Also in the above-cited case, we stated that this Court has pierced the veil of corporate fiction in numerous cases where it was used, among others, to avoid a
judgment credit;[20] to avoid inclusion of corporate assets as part of the estate of a decedent; [21] to avoid liability arising from debt;[22] when made use of as a shield to
perpetrate fraud and/or confuse legitimate issues; [23] or to promote unfair objectives or otherwise to shield them.[24]
In the appealed judgment, the Court of Appeals sustained respondents arguments of separateness and its character as a different corporation which is a non-party
or stranger to this case.
The defense of separateness will be disregarded where the business affairs of a subsidiary corporation are so controlled by the mother corporation to the extent
that it becomes an instrument or agent of its parent. But even when there is dominance over the affairs of the subsidiary, the doctrine of piercing the veil of corporate
fiction applies only when such fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime. [25]
We stated in Tomas Lao Construction v. National Labor Relations Commission,[26] that the legal fiction of a corporation being a judicial entity with a distinct and
separate personality was envisaged for convenience and to serve justice. Therefore, it should not be used as a subterfuge to commit injustice and circumvent the law.
Precisely for the above reasons, we grant the instant petition.
It is obvious that the use by CCC-QC of the same name of Commercial Credit Corporation was intended to publicly identify it as a component of the CCC group
of companies engaged in one and the same business, i.e., investment and financing. Aside from CCC-Quezon City, other franchise companies were organized such as
CCC-North Manila and CCC-Cagayan Valley. The organization of subsidiary corporations as what was done here is usually resorted to for the aggrupation of capital,
the ability to cover more territory and population, the decentralization of activities best decentralized, and the securing of other legitimate advantages. But when the
mother corporation and its subsidiary cease to act in good faith and honest business judgment, when the corporate device is used by the parent to avoid its liability for
legitimate obligations of the subsidiary, and when the corporate fiction is used to perpetrate fraud or promote injustice, the law steps in to remedy the problem. When
that happens, the corporate character is not necessarily abrogated. It continues for legitimate objectives. However, it is pierced in order to remedy injustice, such as that
inflicted in this case.

Factually and legally, the CCC had dominant control of the business operations of CCC-QC. The exclusive management contract insured that CCC-QC would
be managed and controlled by CCC and would not deviate from the commands of the mother corporation. In addition to the exclusive management contract, CCC
appointed its own employee, petitioner, as the resident manager of CCC-QC.
Petitioners designation as resident manager implies that he was placed in CCC-QC by a superior authority. In fact, even after his assignment to the subsidiary
corporation, petitioner continued to receive his salaries, allowances, and benefits from CCC, which later became respondent General Credit Corporation. Not only
that. Petitioner and the other permanent employees of CCC-QC were qualified members and participants of the Employees Pension Plan of CCC.
There are other indications in the record which attest to the applicability of the identity rule in this case, namely: the unity of interests, management, and control;
the transfer of funds to suit their individual corporate conveniences; and the dominance of policy and practice by the mother corporation insure that CCC-QC was an
instrumentality or agency of CCC.
As petitioner stresses, both CCC and CCC-QC were engaged in the same principal line of business involving a single transaction process. Under their
discounting arrangements, CCC financed the operations of CCC-QC. The subsidiary sold, discounted, or assigned its accounts receivables to CCC.
The testimony of Joselito D. Liwanag, accountant and auditor of CCC since 1971, shows the pervasive and intensive auditing function of CCC over CCCQC.[27] The two corporations also shared the same office space. CCC-QC had no office of its own.
The complaint in Civil Case No. Q-30583, instituted by CCC-QC, was even verified by the director-representative of CCC. The lawyers who filed the complaint
and amended complaint were all in-house lawyers of CCC.
The challenged decision of the Court of Appeals states that CCC, now General Credit Corporation, is not a formal party in the case. The reason for this is that the
complaint was filed by CCC-QC against petitioner. The choice of parties was with CCC-QC. The judgment award in this case arose from the counterclaim which
petitioner set up against CCC-QC.
The circumstances which led to the filing of the aforesaid complaint are quite revealing. As narrated above, the discounting agreements through which CCC
controlled the finances of its subordinates became unlawful when Central Bank adopted the DOSRI prohibitions. Under this rule the directors, officers, and
stockholders are prohibited from borrowing from their company. Instead of adhering to the letter and spirit of the regulations by avoiding DOSRI loans altogether,
CCC used the corporate device to continue the prohibited practice. CCC organized still another corporation, the CCC-Equity Corporation. However, as a wholly
owned subsidiary, CCC-Equity was in fact only another name for CCC. Key officials of CCC, including the resident managers of subsidiary corporations, were
appointed to positions in CCC-Equity.
In order to circumvent the Central Banks disapproval of CCC-QCs mode of reducing its DOSRI lender accounts and its directive to follow Central Bank
requirements, resident managers, including petitioner, were told to observe a pseudo-compliance with the phasing out orders. For his unwillingness to satisfactorily
conform to these directives and his reluctance to resort to illegal practices, petitioner earned the ire of his employers. Eventually, his services were terminated, and
criminal and civil cases were filed against him.
Petitioner issued twenty-three checks as money placements with CCC-QC because of difficulties faced by the firm in implementing the required phase-out
program. Funds from his current account in the Far East Bank and Trust Company were transferred to CCC-QC. These monies were alleged in the criminal complaints
against him as having been stolen. Complaints for qualified theft and estafa were brought by CCC-QC against petitioner. These criminal cases were later
dismissed. Similarly, the civil complaint which was filed with the Court of First Instance of Pasig and later transferred to the Regional Trial Court of Quezon City was
dismissed, but his counterclaims were granted.
Faced with the financial obligations which CCC-QC had to satisfy, the mother firm closed CCC-QC, in obvious fraud of its creditors. CCC-QC, instead of
opposing its closure, cooperated in its own demise. Conveniently, CCC-QC stated in its opposition to the motion for alias writ of execution that all its properties and
assets had been transferred and taken over by CCC.
Under the foregoing circumstances, the contention of respondent General Credit Corporation, the new name of CCC, that the corporate fiction should be
appreciated in its favor is without merit.
Paraphrasing the ruling in Claparols v. Court of Industrial Relations,[28] reiterated in Concept Builders Inc. v. National Labor Relations,[29]it is very obvious that
respondent seeks the protective shield of a corporate fiction whose veil the present case could, and should, be pierced as it was deliberately and maliciously designed to
evade its financial obligation of its employees.
If the corporate fiction is sustained, it becomes a handy deception to avoid a judgment debt and work an injustice. The decision raised to us for review is an
invitation to multiplicity of litigation. As we stated in Islamic Directorate vs. Court of Appeals,[30] the ends of justice are not served if further litigation is encouraged
when the issue is determinable based on the records.
A court judgment becomes useless and ineffective if the employer, in this case CCC as a mother corporation, is placed beyond the legal reach of the judgment
creditor who, after protracted litigation, has been found entitled to positive relief. Courts have been organized to put an end to controversy. This purpose should not be
negated by an inapplicable and wrong use of the fiction of the corporate veil.
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and ASIDE. The injunction against the holding of an auction sale for the execution
of the decision in Civil Case No. Q-30583 of properties of General Credit Corporation, and the levying upon and selling on execution of other properties of General
Credit Corporation, is LIFTED.
SO ORDERED.
G.R. No. L-4935

May 28, 1954

J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA ARANETA, INC., plaintiff-appellee,
vs.
QUIRINO BOLAOS, defendant-appellant.
Araneta and Araneta for appellee.
Jose A. Buendia for appellant.
REYES, J.:
This is an action originally brought in the Court of First Instance of Rizal, Quezon City Branch, to recover possesion of registered land situated in barrio Tatalon,
Quezon City.
Plaintiff's complaint was amended three times with respect to the extent and description of the land sought to be recovered. The original complaint described the land as
a portion of a lot registered in plaintiff's name under Transfer Certificate of Title No. 37686 of the land record of Rizal Province and as containing an area of 13 hectares
more or less. But the complaint was amended by reducing the area of 6 hectares, more or less, after the defendant had indicated the plaintiff's surveyors the portion of
land claimed and occupied by him. The second amendment became necessary and was allowed following the testimony of plaintiff's surveyors that a portion of the area
was embraced in another certificate of title, which was plaintiff's Transfer Certificate of Title No. 37677. And still later, in the course of trial, after defendant's surveyor
and witness, Quirino Feria, had testified that the area occupied and claimed by defendant was about 13 hectares, as shown in his Exhibit 1, plaintiff again, with the leave
of court, amended its complaint to make its allegations conform to the evidence.
Defendant, in his answer, sets up prescription and title in himself thru "open, continuous, exclusive and public and notorious possession (of land in dispute) under claim
of ownership, adverse to the entire world by defendant and his predecessor in interest" from "time in-memorial". The answer further alleges that registration of the land
in dispute was obtained by plaintiff or its predecessors in interest thru "fraud or error and without knowledge (of) or interest either personal or thru publication to
defendant and/or predecessors in interest." The answer therefore prays that the complaint be dismissed with costs and plaintiff required to reconvey the land to
defendant or pay its value.
After trial, the lower court rendered judgment for plaintiff, declaring defendant to be without any right to the land in question and ordering him to restore possession
thereof to plaintiff and to pay the latter a monthly rent of P132.62 from January, 1940, until he vacates the land, and also to pay the costs.
Appealing directly to this court because of the value of the property involved, defendant makes the following assignment or errors:
I. The trial court erred in not dismissing the case on the ground that the case was not brought by the real property in interest.
II. The trial court erred in admitting the third amended complaint.
III. The trial court erred in denying defendant's motion to strike.
IV. The trial court erred in including in its decision land not involved in the litigation.
V. The trial court erred in holding that the land in dispute is covered by transfer certificates of Title Nos. 37686 and 37677.
Vl. The trial court erred in not finding that the defendant is the true and lawful owner of the land.
VII. The trial court erred in finding that the defendant is liable to pay the plaintiff the amount of P132.62 monthly from January, 1940, until he vacates the
premises.
VIII. The trial court erred in not ordering the plaintiff to reconvey the land in litigation to the defendant.
As to the first assigned error, there is nothing to the contention that the present action is not brought by the real party in interest, that is, by J. M. Tuason and Co., Inc.
What the Rules of Court require is that an action be brought in the name of, but not necessarily by, the real party in interest. (Section 2, Rule 2.) In fact the practice is for
an attorney-at-law to bring the action, that is to file the complaint, in the name of the plaintiff. That practice appears to have been followed in this case, since the
complaint is signed by the law firm of Araneta and Araneta, "counsel for plaintiff" and commences with the statement "comes now plaintiff, through its undersigned
counsel." It is true that the complaint also states that the plaintiff is "represented herein by its Managing Partner Gregorio Araneta, Inc.", another corporation, but there
is nothing against one corporation being represented by another person, natural or juridical, in a suit in court. The contention that Gregorio Araneta, Inc. can not act as
managing partner for plaintiff on the theory that it is illegal for two corporations to enter into a partnership is without merit, for the true rule is that "though a
corporation has no power to enter into a partnership, it may nevertheless enter into a joint venture with another where the nature of that venture is in line with the
business authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in the record
to indicate that the venture in which plaintiff is represented by Gregorio Araneta, Inc. as "its managing partner" is not in line with the corporate business of either of
them.

Errors II, III, and IV, referring to the admission of the third amended complaint, may be answered by mere reference to section 4 of Rule 17, Rules of Court, which
sanctions such amendment. It reads:
Sec. 4. Amendment to conform to evidence. When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be
treated in all respects, as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the
evidence and to raise these issues may be made upon motion of any party at my time, even of the trial of these issues. If evidence is objected to at the trial on
the ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be amended and shall be so freely when the
presentation of the merits of the action will be subserved thereby and the objecting party fails to satisfy the court that the admission of such evidence would
prejudice him in maintaining his action or defense upon the merits. The court may grant a continuance to enable the objecting party to meet such evidence.
Under this provision amendment is not even necessary for the purpose of rendering judgment on issues proved though not alleged. Thus, commenting on the provision,
Chief Justice Moran says in this Rules of Court:
Under this section, American courts have, under the New Federal Rules of Civil Procedure, ruled that where the facts shown entitled plaintiff to relief other
than that asked for, no amendment to the complaint is necessary, especially where defendant has himself raised the point on which recovery is based, and
that the appellate court treat the pleadings as amended to conform to the evidence, although the pleadings were not actually amended. (I Moran, Rules of
Court, 1952 ed., 389-390.)
Our conclusion therefore is that specification of error II, III, and IV are without merit..
Let us now pass on the errors V and VI. Admitting, though his attorney, at the early stage of the trial, that the land in dispute "is that described or represented in Exhibit
A and in Exhibit B enclosed in red pencil with the name Quirino Bolaos," defendant later changed his lawyer and also his theory and tried to prove that the land in
dispute was not covered by plaintiff's certificate of title. The evidence, however, is against defendant, for it clearly establishes that plaintiff is the registered owner of lot
No. 4-B-3-C, situate in barrio Tatalon, Quezon City, with an area of 5,297,429.3 square meters, more or less, covered by transfer certificate of title No. 37686 of the
land records of Rizal province, and of lot No. 4-B-4, situated in the same barrio, having an area of 74,789 square meters, more or less, covered by transfer certificate of
title No. 37677 of the land records of the same province, both lots having been originally registered on July 8, 1914 under original certificate of title No. 735. The
identity of the lots was established by the testimony of Antonio Manahan and Magno Faustino, witnesses for plaintiff, and the identity of the portion thereof claimed by
defendant was established by the testimony of his own witness, Quirico Feria. The combined testimony of these three witnesses clearly shows that the portion claimed
by defendant is made up of a part of lot 4-B-3-C and major on portion of lot 4-B-4, and is well within the area covered by the two transfer certificates of title already
mentioned. This fact also appears admitted in defendant's answer to the third amended complaint.
As the land in dispute is covered by plaintiff's Torrens certificate of title and was registered in 1914, the decree of registration can no longer be impugned on the ground
of fraud, error or lack of notice to defendant, as more than one year has already elapsed from the issuance and entry of the decree. Neither court the decree be
collaterally attacked by any person claiming title to, or interest in, the land prior to the registration proceedings. (Sorogon vs. Makalintal,1 45 Off. Gaz., 3819.) Nor
could title to that land in derogation of that of plaintiff, the registered owner, be acquired by prescription or adverse possession. (Section 46, Act No. 496.) Adverse,
notorious and continuous possession under claim of ownership for the period fixed by law is ineffective against a Torrens title. (Valiente vs. Judge of CFI of
Tarlac,2 etc., 45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the right to secure possession under a decree of registration does not prescribed. (Francisco vs.
Cruz, 43 Off. Gaz., 5105, 5109-5110.) A recent decision of this Court on this point is that rendered in the case of Jose Alcantara et al., vs. Mariano et al., 92 Phil., 796.
This disposes of the alleged errors V and VI.
As to error VII, it is claimed that `there was no evidence to sustain the finding that defendant should be sentenced to pay plaintiff P132.62 monthly from January, 1940,
until he vacates the premises.' But it appears from the record that that reasonable compensation for the use and occupation of the premises, as stipulated at the hearing
was P10 a month for each hectare and that the area occupied by defendant was 13.2619 hectares. The total rent to be paid for the area occupied should therefore be
P132.62 a month. It is appears from the testimony of J. A. Araneta and witness Emigdio Tanjuatco that as early as 1939 an action of ejectment had already been filed
against defendant. And it cannot be supposed that defendant has been paying rents, for he has been asserting all along that the premises in question 'have always been
since time immemorial in open, continuous, exclusive and public and notorious possession and under claim of ownership adverse to the entire world by defendant and
his predecessors in interest.' This assignment of error is thus clearly without merit.
Error No. VIII is but a consequence of the other errors alleged and needs for further consideration.
During the pendency of this case in this Court appellant, thru other counsel, has filed a motion to dismiss alleging that there is pending before the Court of First Instance
of Rizal another action between the same parties and for the same cause and seeking to sustain that allegation with a copy of the complaint filed in said action. But an
examination of that complaint reveals that appellant's allegation is not correct, for the pretended identity of parties and cause of action in the two suits does not appear.
That other case is one for recovery of ownership, while the present one is for recovery of possession. And while appellant claims that he is also involved in that order
action because it is a class suit, the complaint does not show that such is really the case. On the contrary, it appears that the action seeks relief for each individual
plaintiff and not relief for and on behalf of others. The motion for dismissal is clearly without merit.
Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff.
Paras, C.J., Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.
G.R. No. 89561 September 13, 1990

BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA M. CASTILLO, BERTILLA C. RADA, MARIETTA C. ABAEZ,
LEOVINA C. JALBUENA and SANTIAGO M. RIVERA, petitioners,
vs.
COURT OF APPEALS, BORMAHECO, INC. and PHILIPPINE MACHINERY PARTS MANUFACTURING CO., INC., respondents.
Edmundo T. Zepeda for petitioners.
Martin M. De Guzman for respondent BORMAHECO, Inc.
Renato J. Robles for P.M. Parts Manufacturing Co., Inc.

REGALADO, J.:
This is a petition to review the decision of respondent Court of Appeals, dated August 3, 1989, in CA-GR CV No. 15412, entitled "Buenaflor M. Castillo Umali, et al.
vs. Philippine Machinery Parts Manufacturing Co., Inc., et al.," 1the dispositive portion whereof provides:
WHEREFORE, viewed in the light of the entire record, the judgment appealed from must be, as it is hereby REVERSED. In lieu thereof, a
judgment is hereby rendered1) Dismissing the complaint, with cost against plaintiffs;
2) Ordering plaintiffs-appellees to vacate the subject properties; and
3) Ordering plaintiffs-appellees to pay upon defendants' counterclaims:
a) To defendant-appellant PM Parts: (i) damages consisting of the value of the fruits in the subject parcels of land of which
they were deprived in the sum of P26,000.00 and (ii) attorney's fees of P15,000.00
b) To defendant-appellant Bormaheco: (i) expenses of litigation in the amount of P5,000.00 and (ii) attorney's fees of
P15,000.00.
SO ORDERED.
The original complaint for annulment of title filed in the court a quo by herein petitioners included as party defendants the Philippine Machinery Parts Manufacturing
Co., Inc. (PM Parts), Insurance Corporation of the Philippines (ICP), Bormaheco, Inc., (Bormaheco) and Santiago M. Rivera (Rivera). A Second Amended Complaint
was filed, this time impleading Santiago M. Rivera as party plaintiff.
During the pre-trial conference, the parties entered into the following stipulation of facts:
As between all parties: Plaintiff Buenaflor M. Castillo is the judicial administratrix of the estate of Felipe Castillo in
Special Proceeding No. 4053, pending before Branch IX, CFI of Quezon (per Exhibit A) which intestate proceedings was
instituted by Mauricia Meer Vda. de Castillo, the previous administratrix of the said proceedings prior to 1970 (per exhibits
A-1 and A-2) which case was filed in Court way back in 1964;
b) The four (4) parcels of land described in paragraph 3 of the Complaint were originally covered by TCT No. T-42104 and
Tax Dec. No. 14134 with assessed value of P3,100.00; TCT No. T 32227 and Tax Dec. No. 14132, with assessed value of
P5,130,00; TCT No. T-31762 and Tax Dec. No. 14135, with assessed value of P6,150.00; and TCT No. T-42103 with Tax
Dec. No. 14133, with assessed value of P3,580.00 (per Exhibits A-2 and B, B-1 to B-3 C, C-1 -to C3
c) That the above-enumerated four (4) parcels of land were the subject of the Deed of Extra-Judicial Partition executed by
the heirs of Felipe Castillo (per Exhibit D) and by virtue thereof the titles thereto has (sic) been cancelled and in lieu
thereof, new titles in the name of Mauricia Meer Vda. de Castillo and of her children, namely: Buenaflor, Bertilla, Victoria,
Marietta and Leovina, all surnamed Castillo has (sic) been issued, namely: TCT No. T-12113 (Exhibit E ); TCT No. T13113 (Exhibit F); TCT No. T-13116 (Exhibit G ) and TCT No. T13117 (Exhibit H )
d) That mentioned parcels of land were submitted as guaranty in the Agreement of Counter-Guaranty with Chattel-Real
Estate Mortgage executed on 24 October 1970 between Insurance Corporation of the Philippines and Slobec Realty
Corporation represented by Santiago Rivera (Exhibit 1);

e) That based on the Certificate of Sale issued by the Sheriff of the Province of Quezon in favor of Insurance Corporation
of the Philippines it was able to transfer to itself the titles over the lots in question, namely: TCT No. T-23705 (Exhibit M),
TCT No. T 23706 (Exhibit N ), TCT No. T-23707 (Exhibit 0) and TCT No. T 23708 (Exhibit P);
f) That on 10 April 1975, the Insurance Corporation of the Philippines sold to PM Parts the immovables in question (per
Exhibit 6 for PM Parts) and by reason thereof, succeeded in transferring unto itself the titles over the lots in dispute,
namely: per TCT No. T-24846 (Exhibit Q ), per TCT No. T-24847 (Exhibit R ), TCT No. T-24848 (Exhibit), TCT No. T24849 (Exhibit T );
g) On 26 August l976, Mauricia Meer Vda. de Castillo' genther letter to Modesto N. Cervantes stating that she and her
children refused to comply with his demands (Exhibit V-2);
h) That from at least the months of October, November and December 1970 and January 1971, Modesto N. Cervantes was
the Vice-President of Bormaheco, Inc. later President thereof, and also he is one of the Board of Directors of PM Parts; on
the other hand, Atty. Martin M. De Guzman was the legal counsel of Bormaheco, Inc., later Executive Vice-President
thereof, and who also is the legal counsel of Insurance Corporation of the Philippines and PM Parts; that Modesto N.
Cervantes served later on as President of PM Parts, and that Atty. de Guzman was retained by Insurance Corporation of the
Philippines specifically for foreclosure purposes only;
i) Defendant Bormaheco, Inc. on November 25, 1970 sold to Slobec Realty and Development, Inc., represented by
Santiago Rivera, President, one (1) unit Caterpillar Tractor D-7 with Serial No. 281114 evidenced by a contract marked
Exhibit J and Exhibit I for Bormaheco, Inc.;
j) That the Surety Bond No. 14010 issued by co-defendant ICP was likewise secured by an Agreement with CounterGuaranty with Real Estate Mortgage executed by Slobec Realty & Development, Inc., Mauricia Castillo Meer, Buenaflor
Castillo, Bertilla Castillo, Victoria Castillo, Marietta Castillo and Leovina Castillo, as mortgagors in favor of ICP which
document was executed and ratified before notary public Alberto R. Navoa of the City of Manila on October 24,1970;
k) That the property mortgaged consisted of four (4) parcels of land situated in Lucena City and covered by TCT Nos. T13114, T13115,
T-13116 and T-13117 of the Register of Deeds of Lucena City;
l) That the tractor sold by defendant Bormaheco, Inc. to Slobec Realty & Development, Inc. was delivered to Bormaheco,
Inc. on or about October 2,1973, by Mr. Menandro Umali for purposes of repair;
m) That in August 1976, PM Parts notified Mrs. Mauricia Meer about its ownership and the assignment of Mr. Petronilo
Roque as caretaker of the subject property;
n) That plaintiff and other heirs are harvest fruits of the property (daranghita) which is worth no less than Pl,000.00 per
harvest.
As between plaintiffs and
defendant Bormaheco, Inc
o) That on 25 November 1970, at Makati, Rizal, Same Rivera, in representation of the Slobec Realty & Development
Corporation executed in favor of Bormaheco, Inc., represented by its Vice-President Modesto N. Cervantes a Chattel
Mortgage concerning one unit model CAT D7 Caterpillar Crawler Tractor as described therein as security for the payment
in favor of the mortgagee of the amount of P180,000.00 (per Exhibit K) that Id document was superseded by another
chattel mortgage dated January 23, 1971 (Exhibit 15);
p) On 18 December 1970, at Makati, Rizal, the Bormaheco, Inc., represented by its Vice-President Modesto Cervantes and
Slobec Realty Corporation represented by Santiago Rivera executed the sales agreement concerning the sale of one (1) unit
Model CAT D7 Caterpillar Crawler Tractor as described therein for the amount of P230,000.00 (per Exhibit J) which
document was superseded by the Sales Agreement dated January 23,1971 (Exhibit 16);
q) Although it appears on the document entitled Chattel Mortgage (per Exhibit K) that it was executed on 25 November
1970, and in the document entitled Sales Agreement (per Exhibit J) that it was executed on 18 December 1970, it appears
in the notarial register of the notary public who notarized them that those two documents were executed on 11 December
1970. The certified xerox copy of the notarial register of Notary Public Guillermo Aragones issued by the Bureau of
Records Management is hereto submitted as Exhibit BB That said chattel mortgage was superseded by another document
dated January 23, 1971;

r) That on 23 January 1971, Slobec Realty Development Corporation, represented by Santiago Rivera, received from
Bormaheco, Inc. one (1) tractor Caterpillar Model D-7 pursuant to Invoice No. 33234 (Exhibits 9 and 9-A, Bormaheco,
Inc.) and delivery receipt No. 10368 (per Exhibits 10 and 10-A for Bormaheco, Inc
s) That on 28 September 1973, Atty. Martin M. de Guzman, as counsel of Insurance Corporation of the Philippines
purchased at public auction for said corporation the four (4) parcels of land subject of tills case (per Exhibit L), and which
document was presented to the Register of Deeds on 1 October 1973;
t) Although it appears that the realties in issue has (sic) been sold by Insurance Corporation of the Philippines in favor of
PM Parts on 1 0 April 1975, Modesto N. Cervantes, formerly Vice- President and now President of Bormaheco, Inc., sent
his letter dated 9 August 1976 to Mauricia Meer Vda. de Castillo (Exhibit V), demanding that she and her children should
vacate the premises;
u) That the Caterpillar Crawler Tractor Model CAT D-7 which was received by Slobec Realty Development Corporation
was actually reconditioned and repainted. " 2
We cull the following antecedents from the decision of respondent Court of Appeals:
Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda. de Castillo. The Castillo family are the owners of a parcel of land located
in Lucena City which was given as security for a loan from the Development Bank of the Philippines. For their failure to pay the amortization,
foreclosure of the said property was about to be initiated. This problem was made known to Santiago Rivera, who proposed to them the
conversion into subdivision of the four (4) parcels of land adjacent to the mortgaged property to raise the necessary fund. The Idea was accepted
by the Castillo family and to carry out the project, a Memorandum of Agreement (Exh. U p. 127, Record) was executed by and between Slobec
Realty and Development, Inc., represented by its President Santiago Rivera and the Castillo family. In this agreement, Santiago Rivera obliged
himself to pay the Castillo family the sum of P70,000.00 immediately after the execution of the agreement and to pay the additional amount of
P400,000.00 after the property has been converted into a subdivision. Rivera, armed with the agreement, Exhibit U , approached Mr. Modesto
Cervantes, President of defendant Bormaheco, and proposed to purchase from Bormaheco two (2) tractors Model D-7 and D-8 Subsequently, a
Sales Agreement was executed on December 28,1970 (Exh. J, p. 22, Record).
On January 23, 1971, Bormaheco, Inc. and Slobec Realty and Development, Inc., represented by its President, Santiago Rivera, executed a Sales
Agreement over one unit of Caterpillar Tractor D-7 with Serial No. 281114, as evidenced by the contract marked Exhibit '16'. As shown by the
contract, the price was P230,000.00 of which P50,000.00 was to constitute a down payment, and the balance of P180,000.00 payable in eighteen
monthly installments. On the same date, Slobec, through Rivera, executed in favor of Bormaheco a Chattel Mortgage (Exh. K, p. 29, Record)
over the said equipment as security for the payment of the aforesaid balance of P180,000.00. As further security of the aforementioned unpaid
balance, Slobec obtained from Insurance Corporation of the Phil. a Surety Bond, with ICP (Insurance Corporation of the Phil.) as surety and
Slobec as principal, in favor of Bormaheco, as borne out by Exhibit '8' (p. 111, Record). The aforesaid surety bond was in turn secured by an
Agreement of Counter-Guaranty with Real Estate Mortgage (Exhibit I, p. 24, Record) executed by Rivera as president of Slobec and Mauricia
Meer Vda. de Castillo, Buenaflor Castillo Umali, Bertilla Castillo-Rada, Victoria Castillo, Marietta Castillo and Leovina Castillo Jalbuena, as
mortgagors and Insurance Corporation of the Philippines (ICP) as mortgagee. In this agreement, ICP guaranteed the obligation of Slobec with
Bormaheco in the amount of P180,000.00. In giving the bond, ICP required that the Castillos mortgage to them the properties in question,
namely, four parcels of land covered by TCTs in the name of the aforementioned mortgagors, namely TCT Nos. 13114, 13115, 13116 and 13117
all of the Register of Deeds for Lucena City.
On the occasion of the execution on January 23, 1971, of the Sales Agreement Exhibit '16', Slobec, represented by Rivera received from
Bormaheco the subject matter of the said Sales Agreement, namely, the aforementioned tractor Caterpillar Model D-7 as evidenced by Invoice
No. 33234 (Exhs. 9 and 9-A, p. 112, Record) and Delivery Receipt No. 10368 (Exhs. 10 and 10-A, p. 113). This tractor was known by Rivera to
be a reconditioned and repainted one [Stipulation of Facts, Pre-trial Order, par. (u)].
Meanwhile, for violation of the terms and conditions of the Counter-Guaranty Agreement (Exh. 1), the properties of the Castillos were foreclosed
by ICP As the highest bidder with a bid of P285,212.00, a Certificate of Sale was issued by the Provincial Sheriff of Lucena City and Transfer
Certificates of Title over the subject parcels of land were issued by the Register of Deeds of Lucena City in favor of ICP namely, TCT Nos. T23705, T 23706, T-23707 and T-23708 (Exhs. M to P, pp. 38-45). The mortgagors had one (1) year from the date of the registration of the
certificate of sale, that is, until October 1, 1974, to redeem the property, but they failed to do so. Consequently, ICP consolidated its ownership
over the subject parcels of land through the requisite affidavit of consolidation of ownership dated October 29, 1974, as shown in Exh. '22'(p.
138, Rec.). Pursuant thereto, a Deed of Sale of Real Estate covering the subject properties was issued in favor of ICP (Exh. 23, p. 139, Rec.).
On April 10, 1975, Insurance Corporation of the Phil. ICP sold to Phil. Machinery Parts Manufacturing Co. (PM Parts) the four (4) parcels of
land and by virtue of said conveyance, PM Parts transferred unto itself the titles over the lots in dispute so that said parcels of land are now
covered by TCT Nos. T-24846, T-24847, T-24848 and T-24849 (Exhs. Q-T, pp. 46-49, Rec.).
Thereafter, PM Parts, through its President, Mr. Modesto Cervantes, sent a letter dated August 9,1976 addressed to plaintiff Mrs. Mauricia Meer
Castillo requesting her and her children to vacate the subject property, who (Mrs. Castillo) in turn sent her reply expressing her refusal to comply
with his demands.

On September 29, 1976, the heirs of the late Felipe Castillo, particularly plaintiff Buenaflor M. Castillo Umali as the appointed administratrix of
the properties in question filed an action for annulment of title before the then Court of First Instance of Quezon and docketed thereat as Civil
Case No. 8085. Thereafter, they filed an Amended Complaint on January 10, 1980 (p. 444, Record). On July 20, 1983, plaintiffs filed their
Second Amended Complaint, impleading Santiago M. Rivera as a party plaintiff (p. 706, Record). They contended that all the aforementioned
transactions starting with the Agreement of Counter-Guaranty with Real Estate Mortgage (Exh. I), Certificate of Sale (Exh. L) and the Deeds of
Authority to Sell, Sale and the Affidavit of Consolidation of Ownership (Annexes F, G, H, I) as well as the Deed of Sale (Annexes J, K, L and M)
are void for being entered into in fraud and without the consent and approval of the Court of First Instance of Quezon, (Branch IX) before whom
the administration proceedings has been pending. Plaintiffs pray that the four (4) parcels of land subject hereof be declared as owned by the estate
of the late Felipe Castillo and that all Transfer Certificates of Title Nos. 13114,13115,13116,13117, 23705, 23706, 23707, 23708, 24846, 24847,
24848 and 24849 as well as those appearing as encumbrances at the back of the certificates of title mentioned be declared as a nullity and
defendants to pay damages and attorney's fees (pp. 71071 1, Record).
In their amended answer, the defendants controverted the complaint and alleged, by way of affirmative and special defenses that the complaint
did not state facts sufficient to state a cause of action against defendants; that plaintiffs are not entitled to the reliefs demanded; that plaintiffs are
estopped or precluded from asserting the matters set forth in the Complaint; that plaintiffs are guilty of laches in not asserting their alleged right
in due time; that defendant PM Parts is an innocent purchaser for value and relied on the face of the title before it bought the subject property (p.
744, Record). 3
After trial, the court a quo rendered judgment, with the following decretal portion:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants, declaring the following documents:
Agreement of Counter-Guaranty with Chattel-Real Estate Mortgage dated October 24,1970 (Exhibit 1);
Sales Agreement dated December 28, 1970 (Exhibit J)
Chattel Mortgage dated November 25, 1970 (Exhibit K)
Sales Agreement dated January 23, 1971 (Exhibit 16);
Chattel Mortgage dated January 23, 1971 (Exhibit 17);
Certificate of Sale dated September 28, 1973 executed by the Provincial Sheriff of Quezon in favor of Insurance
Corporation of the Philippines (Exhibit L);
null and void for being fictitious, spurious and without consideration. Consequently, Transfer Certificates of Title Nos. T 23705, T-23706,
T23707 and T-23708 (Exhibits M, N, O and P) issued in the name of Insurance Corporation of the Philippines, are likewise null and void.
The sale by Insurance Corporation of the- Philippines in favor of defendant Philippine Machinery Parts Manufacturing Co., Inc., over Id four (4)
parcels of land and Transfer Certificates of Title Nos. T 24846, T-24847, T-24848 and T-24849 subsequently issued by virtue of said sale in the
name of Philippine Machinery Parts Manufacturing Co., Inc., are similarly declared null and void, and the Register of Deeds of Lucena City is
hereby directed to issue, in lieu thereof, transfer certificates of title in the names of the plaintiffs, except Santiago Rivera.
Orders the defendants jointly and severally to pay the plaintiffs moral damages in the sum of P10,000.00, exemplary damages in the amount of
P5,000.00, and actual litigation expenses in the sum of P6,500.00.
Defendants are likewise ordered to pay the plaintiffs, jointly and severally, the sum of P10,000.00 for and as attomey's fees. With costs against
the defendants.
SO ORDERED. 4
As earlier stated, respondent court reversed the aforequoted decision of the trial court and rendered the judgment subject of this petitionPetitioners contend that respondent Court of Appeals erred:
1. In holding and finding that the actions entered into between petitioner Rivera with Cervantes are all fair and regular and therefore binding
between the parties thereto;
2. In reversing the decision of the lower court, not only based on erroneous conclusions of facts, erroneous presumptions not supported by the
evidence on record but also, holding valid and binding the supposed payment by ICP of its obligation to Bormaheco, despite the fact that the
surety bond issued it had already expired when it opted to foreclose extrajudically the mortgage executed by the petitioners;

3. In aside the finding of the lower court that there was necessity to pierce the veil of corporate existence; and
4. In reversing the decision of the lower court of affirming the same 5
I. Petitioners aver that the transactions entered into between Santiago M. Rivera, as President of Slobec Realty and Development Company (Slobec) and Mode
Cervantes, as Vice-President of Bormaheco, such as the Sales Agreement, 6 Chattel Mortgage 7 and the Agreement of Counter-Guaranty with Chattel/Real Estate
Mortgage, 8 are all fraudulent and simulated and should, therefore, be declared nun and void. Such allegation is premised primarily on the fact that contrary to the
stipulations agreed upon in the Sales Agreement (Exhibit J), Rivera never made any advance payment, in the alleged amount of P50,000.00, to Bormaheco; that the
tractor was received by Rivera only on January 23, 1971 and not in 1970 as stated in the Chattel Mortgage (Exhibit K); and that when the Agreement of CounterGuaranty with Chattel/Real Estate Mortgage was executed on October 24, 1970, to secure the obligation of ICP under its surety bond, the Sales Agreement and Chattel
Mortgage had not as yet been executed, aside from the fact that it was Bormaheco, and not Rivera, which paid the premium for the surety bond issued by ICP
At the outset, it will be noted that petitioners submission under the first assigned error hinges purely on questions of fact. Respondent Court of Appeals made several
findings to the effect that the questioned documents are valid and binding upon the parties, that there was no fraud employed by private respondents in the execution
thereof, and that, contrary to petitioners' allegation, the evidence on record reveals that petitioners had every intention to be bound by their undertakings in the various
transactions had with private respondents. It is a general rule in this jurisdiction that findings of fact of said appellate court are final and conclusive and, thus, binding on
this Court in the absence of sufficient and convincing proof, inter alia, that the former acted with grave abuse of discretion. Under the circumstances, we find no
compelling reason to deviate from this long-standing jurisprudential pronouncement.
In addition, the alleged failure of Rivera to pay the consideration agreed upon in the Sales Agreement, which clearly constitutes a breach of the contract, cannot be
availed of by the guilty party to justify and support an action for the declaration of nullity of the contract. Equity and fair play dictates that one who commits a breach of
his contract may not seek refuge under the protective mantle of the law.
The evidence of record, on an overall calibration, does not convince us of the validity of petitioners' contention that the contracts entered into by the parties are either
absolutely simulated or downright fraudulent.
There is absolute simulation, which renders the contract null and void, when the parties do not intend to be bound at all by the same. 9 The basic characteristic of this
type of simulation of contract is the fact that the apparent contract is not really desired or intended to either produce legal effects or in any way alter the juridical
situation of the parties. The subsequent act of Rivera in receiving and making use of the tractor subject matter of the Sales Agreement and Chattel Mortgage, and the
simultaneous issuance of a surety bond in favor of Bormaheco, concomitant with the execution of the Agreement of Counter-Guaranty with Chattel/Real Estate
Mortgage, conduce to the conclusion that petitioners had every intention to be bound by these contracts. The occurrence of these series of transactions between
petitioners and private respondents is a strong indication that the parties actually intended, or at least expected, to exact fulfillment of their respective obligations from
one another.
Neither will an allegation of fraud prosper in this case where petitioners failed to show that they were induced to enter into a contract through the insidious words and
machinations of private respondents without which the former would not have executed such contract. To set aside a document solemnly executed and voluntarily
delivered, the proof of fraud must be clear and convincing. 10 We are not persuaded that such quantum of proof exists in the case at bar.
The fact that it was Bormaheco which paid the premium for the surety bond issued by ICP does not per se affect the validity of the bond. Petitioners themselves admit
in their present petition that Rivera executed a Deed of Sale with Right of Repurchase of his car in favor of Bormaheco and agreed that a part of the proceeds thereof
shall be used to pay the premium for the bond. 11 In effect, Bormaheco accepted the payment of the premium as an agent of ICP The execution of the deed of sale with a
right of repurchase in favor of Bormaheco under such circumstances sufficiently establishes the fact that Rivera recognized Bormaheco as an agent of ICP Such
payment to the agent of ICP is, therefore, binding on Rivera. He is now estopped from questioning the validity of the suretyship contract.
II. Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the legal fiction that a corporation is an entity with a juridical
personality separate and distinct from its members or stockholders may be disregarded. In such cases, the corporation will be considered as a mere association of
persons. The members or stockholders of the corporation will be considered as the corporation, that is, liability will attach directly to the officers and
stockholders. 12 The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, 13 or when it is made
as a shield to confuse the legitimate issues 14 or where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. 15
In the case at bar, petitioners seek to pierce the V621 Of corporate entity of Bormaheco, ICP and PM Parts, alleging that these corporations employed fraud in causing
the foreclosure and subsequent sale of the real properties belonging to petitioners While we do not discount the possibility of the existence of fraud in the foreclosure
proceeding, neither are we inclined to apply the doctrine invoked by petitioners in granting the relief sought. It is our considered opinion that piercing the veil of
corporate entity is not the proper remedy in order that the foreclosure proceeding may be declared a nullity under the circumstances obtaining in the legal case at bar.
In the first place, the legal corporate entity is disregarded only if it is sought to hold the officers and stockholders directly liable for a corporate debt or obligation. In the
instant case, petitioners do not seek to impose a claim against the individual members of the three corporations involved; on the contrary, it is these corporations which
desire to enforce an alleged right against petitioners. Assuming that petitioners were indeed defrauded by private respondents in the foreclosure of the mortgaged
properties, this fact alone is not, under the circumstances, sufficient to justify the piercing of the corporate fiction, since petitioners do not intend to hold the officers
and/or members of respondent corporations personally liable therefor. Petitioners are merely seeking the declaration of the nullity of the foreclosure sale, which relief
may be obtained without having to disregard the aforesaid corporate fiction attaching to respondent corporations. Secondly, petitioners failed to establish by clear and
convincing evidence that private respondents were purposely formed and operated, and thereafter transacted with petitioners, with the sole intention of defrauding the
latter.

The mere fact, therefore, that the businesses of two or more corporations are interrelated is not a justification for disregarding their separate personalities, 16 absent
sufficient showing that the corporate entity was purposely used as a shield to defraud creditors and third persons of their rights.
III. The main issue for resolution is whether there was a valid foreclosure of the mortgaged properties by ICP Petitioners argue that the foreclosure proceedings should
be declared null and void for two reasons, viz.: (1) no written notice was furnished by Bormaheco to ICP anent the failure of Slobec in paying its obligation with the
former, plus the fact that no receipt was presented to show the amount allegedly paid by ICP to Bormaheco; and (b) at the time of the foreclosure of the mortgage, the
liability of ICP under the surety bond had already expired.
Respondent court, in finding for the validity of the foreclosure sale, declared:
Now to the question of whether or not the foreclosure by the ICP of the real estate mortgage was in the exercise of a legal right, We agree with
the appellants that the foreclosure proceedings instituted by the ICP was in the exercise of a legal right. First, ICP has in its favor the legal
presumption that it had indemnified Bormaheco by reason of Slobec's default in the payment of its obligation under the Sales Agreement,
especially because Bormaheco consented to ICPs foreclosure of the mortgage. This presumption is in consonance with pars. R and Q Section 5,
Rule 5, * New Rules of Court which provides that it is disputably presumed that private transactions have been fair and regular. likewise, it is
disputably presumed that the ordinary course of business has been followed: Second, ICP had the right to proceed at once to the foreclosure of the
mortgage as mandated by the provisions of Art. 2071 Civil Code for these further reasons: Slobec, the principal debtor, was admittedly insolvent;
Slobec's obligation becomes demandable by reason of the expiration of the period of payment; and its authorization to foreclose the mortgage
upon Slobec's default, which resulted in the accrual of ICPS liability to Bormaheco. Third, the Agreement of Counter-Guaranty with Real Estate
Mortgage (Exh. 1) expressly grants to ICP the right to foreclose the real estate mortgage in the event of 'non-payment or non-liquidation of the
entire indebtedness or fraction thereof upon maturity as stipulated in the contract'. This is a valid and binding stipulation in the absence of
showing that it is contrary to law, morals, good customs, public order or public policy. (Art. 1306, New Civil Code). 17
1. Petitioners asseverate that there was no notice of default issued by Bormaheco to ICP which would have entitled Bormaheco to demand payment from ICP under the
suretyship contract.
Surety Bond No. B-1401 0 which was issued by ICP in favor of Bormaheco, wherein ICP and Slobec undertook to guarantee the payment of the balance of P180,000.00
payable in eighteen (18) monthly installments on one unit of Model CAT D-7 Caterpillar Crawler Tractor, pertinently provides in part as follows:
1. The liability of INSURANCE CORPORATION OF THE PHILIPPINES, under this BOND will expire Twelve (I 2) months from date hereof.
Furthermore, it is hereby agreed and understood that the INSURANCE CORPORATION OF THE PHILIPPINES will not be liable for any claim
not presented in writing to the Corporation within THIRTY (30) DAYS from the expiration of this BOND, and that the obligee hereby waives his
right to bring claim or file any action against Surety and after the termination of one (1) year from the time his cause of action accrues. 18
The surety bond was dated October 24, 1970. However, an annotation on the upper part thereof states: "NOTE: EFFECTIVITY DATE OF THIS BOND
SHALL BE ON JANUARY 22, 1971." 19
On the other hand, the Sales Agreement dated January 23, 1971 provides that the balance of P180,000.00 shall be payable in eighteen (18) monthly installments. 20 The
Promissory Note executed by Slobec on even date in favor of Bormaheco further provides that the obligation shall be payable on or before February 23, 1971 up to July
23, 1972, and that non-payment of any of the installments when due shall make the entire obligation immediately due and demandable. 21
It is basic that liability on a bond is contractual in nature and is ordinarily restricted to the obligation expressly assumed therein. We have repeatedly held that the extent
of a surety's liability is determined only by the clause of the contract of suretyship as well as the conditions stated in the bond. It cannot be extended by implication
beyond the terms the contract. 22
Fundamental likewise is the rule that, except where required by the provisions of the contract, a demand or notice of default is not required to fix the surety's
liability. 23 Hence, where the contract of suretyship stipulates that notice of the principal's default be given to the surety, generally the failure to comply with the
condition will prevent recovery from the surety. There are certain instances, however, when failure to comply with the condition will not extinguish the surety's liability,
such as a failure to give notice of slight defaults, which are waived by the obligee; or on mere suspicion of possible default; or where, if a default exists, there is excuse
or provision in the suretyship contract exempting the surety for liability therefor, or where the surety already has knowledge or is chargeable with knowledge of the
default. 24
In the case at bar, the suretyship contract expressly provides that ICP shag not be liable for any claim not filed in writing within thirty (30) days from the expiration of
the bond. In its decision dated May 25 1987, the court a quocategorically stated that '(n)o evidence was presented to show that Bormaheco demanded payment from ICP
nor was there any action taken by Bormaheco on the bond posted by ICP to guarantee the payment of plaintiffs obligation. There is nothing in the records of the
proceedings to show that ICP indemnified Bormaheco for the failure of the plaintiffs to pay their obligation. " 25 The failure, therefore, of Bormaheco to notify ICP in
writing about Slobec's supposed default released ICP from liability under its surety bond. Consequently, ICP could not validly foreclose that real estate mortgage
executed by petitioners in its favor since it never incurred any liability under the surety bond. It cannot claim exemption from the required written notice since its case
does not fall under any of the exceptions hereinbefore enumerated.
Furthermore, the allegation of ICP that it has paid Bormaheco is not supported by any documentary evidence. Section 1, Rule 131 of the Rules of Court provides that
the burden of evidence lies with the party who asserts an affirmative allegation. Since ICP failed to duly prove the fact of payment, the disputable presumption that
private transactions have been fair and regular, as erroneously relied upon by respondent Court of Appeals, finds no application to the case at bar.

2. The liability of a surety is measured by the terms of his contract, and, while he is liable to the full extent thereof, such liability is strictly limited to that assumed by its
terms. 26 While ordinarily the termination of a surety's liability is governed by the provisions of the contract of suretyship, where the obligation of a surety is, under the
terms of the bond, to terminate at a specified time, his obligation cannot be enlarged by an unauthorized extension thereof. 27 This is an exception to the general rule that
the obligation of the surety continues for the same period as that of the principal debtor. 28
It is possible that the period of suretyship may be shorter than that of the principal obligation, as where the principal debtor is required to make payment by
installments. 29 In the case at bar, the surety bond issued by ICP was to expire on January 22, 1972, twelve (1 2) months from its effectivity date, whereas Slobec's
installment payment was to end on July 23, 1972. Therefore, while ICP guaranteed the payment by Slobec of the balance of P180,000.00, such guaranty was valid only
for and within twelve (1 2) months from the date of effectivity of the surety bond, or until January 22, 1972. Thereafter, from January 23, 1972 up to July 23, 1972, the
liability of Slobec became an unsecured obligation. The default of Slobec during this period cannot be a valid basis for the exercise of the right to foreclose by ICP since
its surety contract had already been terminated. Besides, the liability of ICP was extinguished when Bormaheco failed to file a written claim against it within thirty (30)
days from the expiration of the surety bond. Consequently, the foreclosure of the mortgage, after the expiration of the surety bond under which ICP as surety has not
incurred any liability, should be declared null and void.
3. Lastly, it has been held that where The guarantor holds property of the principal as collateral surety for his personal indemnity, to which he may resort only after
payment by himself, until he has paid something as such guarantor neither he nor the creditor can resort to such collaterals. 30
The Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage states that it is being issued for and in consideration of the obligations assumed by the
Mortgagee-Surety Company under the terms and conditions of ICP Bond No. 14010 in behalf of Slobec Realty Development Corporation and in favor of Bormaheco,
Inc. 31 There is no doubt that said Agreement of Counter-Guaranty is issued for the personal indemnity of ICP Considering that the fact of payment by ICP has never
been established, it follows, pursuant to the doctrine above adverted to, that ICP cannot foreclose on the subject properties,
IV. Private respondent PM Parts posits that it is a buyer in good faith and, therefore, it acquired a valid title over the subject properties. The submission is without merit
and the conclusion is specious
We have stated earlier that the doctrine of piercing the veil of corporate fiction is not applicable in this case. However, its inapplicability has no bearing on the good
faith or bad faith of private respondent PM Parts. It must be noted that Modesto N. Cervantes served as Vice-President of Bormaheco and, later, as President of PM
Parts. On this fact alone, it cannot be said that PM Parts had no knowledge of the aforesaid several transactions executed between Bormaheco and petitioners. In
addition, Atty. Martin de Guzman, who is the Executive Vice-President of Bormaheco, was also the legal counsel of ICP and PM Parts. These facts were admitted
without qualification in the stipulation of facts submitted by the parties before the trial court. Hence, the defense of good faith may not be resorted to by private
respondent PM Parts which is charged with knowledge of the true relations existing between Bormaheco, ICP and herein petitioners. Accordingly, the transfer
certificates of title issued in its name, as well as the certificate of sale, must be declared null and void since they cannot be considered altogether free of the taint of bad
faith.
WHEREFORE, the decision of respondent Court of Appeals is hereby REVERSED and SET ASIDE, and judgment is hereby rendered declaring the following as null
and void: (1) Certificate of Sale, dated September 28,1973, executed by the Provincial Sheriff of Quezon in favor of the Insurance Corporation of the Philippines; (2)
Transfer Certificates of Title Nos. T-23705, T-23706, T-23707 and T-23708 issued in the name of the Insurance Corporation of the Philippines; (3) the sale by
Insurance Corporation of the Philippines in favor of Philippine Machinery Parts Manufacturing Co., Inc. of the four (4) parcels of land covered by the aforesaid
certificates of title; and (4) Transfer Certificates of Title Nos. T-24846, T-24847, T-24848 and T24849 subsequently issued by virtue of said sale in the name of the
latter corporation.
The Register of Deeds of Lucena City is hereby directed to cancel Transfer Certificates of Title Nos. T-24846, T-24847, T24848 and T-24849 in the name of Philippine
Machinery Parts Manufacturing Co., Inc. and to issue in lieu thereof the corresponding transfer certificates of title in the name of herein petitioners, except Santiago
Rivera.
The foregoing dispositions are without prejudice to such other and proper legal remedies as may be available to respondent Bormaheco, Inc. against herein petitioners.
SO ORDERED.
G.R. No. L-22973

January 30, 1968

MAMBULAO LUMBER COMPANY, plaintiff-appellant,

vs.
PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provincial Sheriff of Camarines Norte,defendants-appellees.
Ernesto P. Vilar and Arthur Tordesillas for plaintiff-appellant.
Tomas Besa and Jose B. Galang for defendants-appellees.
ANGELES, J.:
An appeal from a decision, dated April 2, 1964, of the Court of First Instance of Manila in Civil Case No. 52089, entitled "Mambulao Lumber Company, plaintiff,
versus Philippine National Bank and Anacleto Heraldo, defendants", dismissing the complaint against both defendants and sentencing the plaintiff to pay to defendant

Philippine National Bank (PNB for short) the sum of P3,582.52 with interest thereon at the rate of 6% per annum from December 22, 1961 until fully paid, and the costs
of suit.
In seeking the reversal of the decision, the plaintiff advances several propositions in its brief which may be restated as follows:
1. That its total indebtedness to the PNB as of November 21, 1961, was only P56,485.87 and not P58,213.51 as concluded by the court a quo; hence, the
proceeds of the foreclosure sale of its real property alone in the amount of P56,908.00 on that date, added to the sum of P738.59 it remitted to the PNB
thereafter was more than sufficient to liquidate its obligation, thereby rendering the subsequent foreclosure sale of its chattels unlawful;
2. That it is not liable to pay PNB the amount of P5,821.35 for attorney's fees and the additional sum of P298.54 as expenses of the foreclosure sale;
3. That the subsequent foreclosure sale of its chattels is null and void, not only because it had already settled its indebtedness to the PNB at the time the sale
was effected, but also for the reason that the said sale was not conducted in accordance with the provisions of the Chattel Mortgage Law and the venue
agreed upon by the parties in the mortgage contract;
4. That the PNB, having illegally sold the chattels, is liable to the plaintiff for its value; and
5. That for the acts of the PNB in proceeding with the sale of the chattels, in utter disregard of plaintiff's vigorous opposition thereto, and in taking
possession thereof after the sale thru force, intimidation, coercion, and by detaining its "man-in-charge" of said properties, the PNB is liable to plaintiff for
damages and attorney's fees.
The antecedent facts of the case, as found by the trial court, are as follows:
On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 with the Naga Branch of defendant PNB and the former offered real estate,
machinery, logging and transportation equipments as collaterals. The application, however, was approved for a loan of P100,000 only. To secure the
payment of the loan, the plaintiff mortgaged to defendant PNB a parcel of land, together with the buildings and improvements existing thereon, situated in
the poblacion of Jose Panganiban (formerly Mambulao), province of Camarines Norte, and covered by Transfer Certificate of Title No. 381 of the land
records of said province, as well as various sawmill equipment, rolling unit and other fixed assets of the plaintiff, all situated in its compound in the
aforementioned municipality.
On August 2, 1956, the PNB released from the approved loan the sum of P27,500, for which the plaintiff signed a promissory note wherein it promised to
pay to the PNB the said sum in five equal yearly installments at the rate of P6,528.40 beginning July 31, 1957, and every year thereafter, the last of which
would be on July 31, 1961.
On October 19, 1956, the PNB made another release of P15,500 as part of the approved loan granted to the plaintiff and so on the said date, the latter
executed another promissory note wherein it agreed to pay to the former the said sum in five equal yearly installments at the rate of P3,679.64 beginning July
31, 1957, and ending on July 31, 1961.
The plaintiff failed to pay the amortization on the amounts released to and received by it. Repeated demands were made upon the plaintiff to pay its
obligation but it failed or otherwise refused to do so. Upon inspection and verification made by employees of the PNB, it was found that the plaintiff had
already stopped operation about the end of 1957 or early part of 1958.
On September 27, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte requesting him to take possession of the parcel of land, together
with the improvements existing thereon, covered by Transfer Certificate of Title No. 381 of the land records of Camarines Norte, and to sell it at public
auction in accordance with the provisions of Act No. 3135, as amended, for the satisfaction of the unpaid obligation of the plaintiff, which as of September
22, 1961, amounted to P57,646.59, excluding attorney's fees. In compliance with the request, on October 16, 1961, the Provincial Sheriff of Camarines Norte
issued the corresponding notice of extra-judicial sale and sent a copy thereof to the plaintiff. According to the notice, the mortgaged property would be sold
at public auction at 10:00 a.m. on November 21, 1961, at the ground floor of the Court House in Daet, Camarines Norte.
On November 6, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte requesting him to take possession of the chattels mortgaged to it by
the plaintiff and sell them at public auction also on November 21, 1961, for the satisfaction of the sum of P57,646.59, plus 6% annual interest therefore from
September 23, 1961, attorney's fees equivalent to 10% of the amount due and the costs and expenses of the sale. On the same day, the PNB sent notice to the
plaintiff that the former was foreclosing extrajudicially the chattels mortgaged by the latter and that the auction sale thereof would be held on November 21,
1961, between 9:00 and 12:00 a.m., in Mambulao, Camarines Norte, where the mortgaged chattels were situated.
On November 8, 1961, Deputy Provincial Sheriff Anacleto Heraldo took possession of the chattels mortgaged by the plaintiff and made an inventory thereof
in the presence of a PC Sergeant and a policeman of the municipality of Jose Panganiban. On November 9, 1961, the said Deputy Sheriff issued the
corresponding notice of public auction sale of the mortgaged chattels to be held on November 21, 1961, at 10:00 a.m., at the plaintiff's compound situated in
the municipality of Jose Panganiban, Province of Camarines Norte.
On November 19, 1961, the plaintiff sent separate letters, posted as registered air mail matter, one to the Naga Branch of the PNB and another to the
Provincial Sheriff of Camarines Norte, protesting against the foreclosure of the real estate and chattel mortgages on the grounds that they could not be

effected unless a Court's order was issued against it (plaintiff) for said purpose and that the foreclosure proceedings, according to the terms of the mortgage
contracts, should be made in Manila. In said letter to the Naga Branch of the PNB, it was intimated that if the public auction sale would be suspended and the
plaintiff would be given an extension of ninety (90) days, its obligation would be settled satisfactorily because an important negotiation was then going on
for the sale of its "whole interest" for an amount more than sufficient to liquidate said obligation.
The letter of the plaintiff to the Naga Branch of the PNB was construed by the latter as a request for extension of the foreclosure sale of the mortgaged
chattels and so it advised the Sheriff of Camarines Norte to defer it to December 21, 1961, at the same time and place. A copy of said advice was sent to the
plaintiff for its information and guidance.
The foreclosure sale of the parcel of land, together with the buildings and improvements thereon, covered by Transfer Certificate of Title No. 381, was,
however, held on November 21, 1961, and the said property was sold to the PNB for the sum of P56,908.00, subject to the right of the plaintiff to redeem the
same within a period of one year. On the same date, Deputy Provincial Sheriff Heraldo executed a certificate of sale in favor of the PNB and a copy thereof
was sent to the plaintiff.
In a letter dated December 14, 1961 (but apparently posted several days later), the plaintiff sent a bank draft for P738.59 to the Naga Branch of the PNB,
allegedly in full settlement of the balance of the obligation of the plaintiff after the application thereto of the sum of P56,908.00 representing the proceeds of
the foreclosure sale of parcel of land described in Transfer Certificate of Title No. 381. In the said letter, the plaintiff reiterated its request that the
foreclosure sale of the mortgaged chattels be discontinued on the grounds that the mortgaged indebtedness had been fully paid and that it could not be legally
effected at a place other than the City of Manila.
In a letter dated December 16, 1961, the plaintiff advised the Provincial Sheriff of Camarines Norte that it had fully paid its obligation to the PNB, and
enclosed therewith a copy of its letter to the latter dated December 14, 1961.
On December 18, 1961, the Attorney of the Naga Branch of the PNB, wrote to the plaintiff acknowledging the remittance of P738.59 with the advice,
however, that as of that date the balance of the account of the plaintiff was P9,161.76, to which should be added the expenses of guarding the mortgaged
chattels at the rate of P4.00 a day beginning December 19, 1961. It was further explained in said letter that the sum of P57,646.59, which was stated in the
request for the foreclosure of the real estate mortgage, did not include the 10% attorney's fees and expenses of the sale. Accordingly, the plaintiff was
advised that the foreclosure sale scheduled on the 21st of said month would be stopped if a remittance of P9,161.76, plus interest thereon and guarding fees,
would be made.
On December 21, 1961, the foreclosure sale of the mortgaged chattels was held at 10:00 a.m. and they were awarded to the PNB for the sum of P4,200 and
the corresponding bill of sale was issued in its favor by Deputy Provincial Sheriff Heraldo.
In a letter dated December 26, 1961, the Manager of the Naga Branch of the PNB advised the plaintiff giving it priority to repurchase the chattels acquired
by the former at public auction. This offer was reiterated in a letter dated January 3, 1962, of the Attorney of the Naga Branch of the PNB to the plaintiff,
with the suggestion that it exercise its right of redemption and that it apply for the condonation of the attorney's fees. The plaintiff did not follow the advice
but on the contrary it made known of its intention to file appropriate action or actions for the protection of its interests.
On May 24, 1962, several employees of the PNB arrived in the compound of the plaintiff in Jose Panganiban, Camarines Norte, and they informed Luis
Salgado, Chief Security Guard of the premises, that the properties therein had been auctioned and bought by the PNB, which in turn sold them to Mariano
Bundok. Upon being advised that the purchaser would take delivery of the things he bought, Salgado was at first reluctant to allow any piece of property to
be taken out of the compound of the plaintiff. The employees of the PNB explained that should Salgado refuse, he would be exposing himself to a litigation
wherein he could be held liable to pay big sum of money by way of damages. Apprehensive of the risk that he would take, Salgado immediately sent a wire
to the President of the plaintiff in Manila, asking advice as to what he should do. In the meantime, Mariano Bundok was able to take out from the plaintiff's
compound two truckloads of equipment.
In the afternoon of the same day, Salgado received a telegram from plaintiff's President directing him not to deliver the "chattels" without court order, with
the information that the company was then filing an action for damages against the PNB. On the following day, May 25, 1962, two trucks and men of
Mariano Bundok arrived but Salgado did not permit them to take out any equipment from inside the compound of the plaintiff. Thru the intervention,
however, of the local police and PC soldiers, the trucks of Mariano Bundok were able finally to haul the properties originally mortgaged by the plaintiff to
the PNB, which were bought by it at the foreclosure sale and subsequently sold to Mariano Bundok.
Upon the foregoing facts, the trial court rendered the decision appealed from which, as stated in the first paragraph of this opinion, sentenced the Mambulao Lumber
Company to pay to the defendant PNB the sum of P3,582.52 with interest thereon at the rate of 6% per annum from December 22, 1961 (day following the date of the
questioned foreclosure of plaintiff's chattels) until fully paid, and the costs. Mambulao Lumber Company interposed the instant appeal.
We shall discuss the various points raised in appellant's brief in seriatim.
The first question Mambulao Lumber Company poses is that which relates to the amount of its indebtedness to the PNB arising out of the principal loans and the
accrued interest thereon. It is contended that its obligation under the terms of the two promissory notes it had executed in favor of the PNB amounts only to P56,485.87
as of November 21, 1961, when the sale of real property was effected, and not P58,213.51 as found by the trial court.

There is merit to this claim. Examining the terms of the promissory note executed by the appellant in favor of the PNB, we find that the agreed interest on the loan of
P43,000.00 P27,500.00 released on August 2, 1956 as per promissory note of even date (Exhibit C-3), and P15,500.00 released on October 19, 1956, as per
promissory note of the same date (Exhibit C-4) was six per cent (6%) per annum from the respective date of said notes "until paid". In the statement of account of the
appellant as of September 22, 1961, submitted by the PNB, it appears that in arriving at the total indebtedness of P57,646.59 as of that date, the PNB had compounded
the principal of the loan and the accrued 6% interest thereon each time the yearly amortizations became due, and on the basis of these compounded amounts charged
additional delinquency interest on them up to September 22, 1961; and to this erroneously computed total of P57,646.59, the trial court added 6% interest per annum
from September 23, 1961 to November 21 of the same year. In effect, the PNB has claimed, and the trial court has adjudicated to it, interest on accrued interests from
the time the various amortizations of the loan became due until the real estate mortgage executed to secure the loan was extra-judicially foreclosed on November 21,
1961. This is an error. Section 5 of Act No. 2655 expressly provides that in computing the interest on any obligation, promissory note or other instrument or contract,
compound interest shall not be reckoned, except by agreement, or in default thereof, whenever the debt is judicially claimed. This is also the clear mandate of Article
2212 of the new Civil Code which provides that interest due shall earn legal interest only from the time it is judicially demanded, and of Article 1959 of the same code
which ordains that interest due and unpaid shall not earn interest. Of course, the parties may, by stipulation, capitalize the interest due and unpaid, which as added
principal shall earn new interest; but such stipulation is nowhere to be found in the terms of the promissory notes involved in this case. Clearly therefore, the trial court
fell into error when it awarded interest on accrued interests, without any agreement to that effect and before they had been judicially demanded.
Appellant next assails the award of attorney's fees and the expenses of the foreclosure sale in favor of the PNB. With respect to the amount of P298.54 allowed as
expenses of the extra-judicial sale of the real property, appellant maintains that the same has no basis, factual or legal, and should not have been awarded. It likewise
decries the award of attorney's fees which, according to the appellant, should not be deducted from the proceeds of the sale of the real property, not only because there is
no express agreement in the real estate mortgage contract to pay attorney's fees in case the same is extra-judicially foreclosed, but also for the reason that the PNB
neither spent nor incurred any obligation to pay attorney's fees in connection with the said extra-judicial foreclosure under consideration.
There is reason for the appellant to assail the award of P298.54 as expenses of the sale. In this respect, the trial court said:
The parcel of land, together with the buildings and improvements existing thereon covered by Transfer Certificate of Title No. 381, was sold for P56,908.
There was, however, no evidence how much was the expenses of the foreclosure sale although from the pertinent provisions of the Rules of Court, the
Sheriff's fees would be P1 for advertising the sale (par. k, Sec. 7, Rule 130 of the Old Rules) and P297.54 as his commission for the sale (par. n, Sec. 7, Rule
130 of the Old Rules) or a total of P298.54.
There is really no evidence of record to support the conclusion that the PNB is entitled to the amount awarded as expenses of the extra-judicial foreclosure sale. The
court below committed error in applying the provisions of the Rules of Court for purposes of arriving at the amount awarded. It is to be borne in mind that the fees
enumerated under paragraphs k and n, Section 7, of Rule 130 (now Rule 141) are demandable, only by a sheriff serving processes of the court in connection with
judicial foreclosure of mortgages under Rule 68 of the new Rules, and not in cases of extra-judicial foreclosure of mortgages under Act 3135. The law applicable is
Section 4 of Act 3135 which provides that the officer conducting the sale is entitled to collect a fee of P5.00 for each day of actual work performed in addition to his
expenses in connection with the foreclosure sale. Admittedly, the PNB failed to prove during the trial of the case, that it actually spent any amount in connection with
the said foreclosure sale. Neither may expenses for publication of the notice be legally allowed in the absence of evidence on record to support it. 1It is true, as pointed
out by the appellee bank, that courts should take judicial notice of the fees provided for by law which need not be proved; but in the absence of evidence to show at least
the number of working days the sheriff concerned actually spent in connection with the extra-judicial foreclosure sale, the most that he may be entitled to, would be the
amount of P10.00 as a reasonable allowance for two day's work one for the preparation of the necessary notices of sale, and the other for conducting the auction sale
and issuance of the corresponding certificate of sale in favor of the buyer. Obviously, therefore, the award of P298.54 as expenses of the sale should be set aside.
But the claim of the appellant that the real estate mortgage does not provide for attorney's fees in case the same is extra-judicially foreclosed, cannot be favorably
considered, as would readily be revealed by an examination of the pertinent provision of the mortgage contract. The parties to the mortgage appear to have stipulated
under paragraph (c) thereof, inter alia:
. . . For the purpose of extra-judicial foreclosure, the Mortgagor hereby appoints the Mortgagee his attorney-in-fact to sell the property mortgaged under Act
3135, as amended, to sign all documents and to perform all acts requisite and necessary to accomplish said purpose and to appoint its substitute as such
attorney-in-fact with the same powers as above specified. In case of judicial foreclosure, the Mortgagor hereby consents to the appointment of the Mortgagee
or any of its employees as receiver, without any bond, to take charge of the mortgaged property at once, and to hold possession of the same and the rents,
benefits and profits derived from the mortgaged property before the sale, less the costs and expenses of the receivership; the Mortgagor hereby agrees further
that in all cases, attorney's fees hereby fixed at Ten Per cent (10%) of the total indebtedness then unpaid which in no case shall be less than P100.00
exclusive of all fees allowed by law, and the expenses of collection shall be the obligation of the Mortgagor and shall with priority, be paid to the Mortgagee
out of any sums realized as rents and profits derived from the mortgaged property or from the proceeds realized from the sale of the said property and this
mortgage shall likewise stand as security therefor. . . .
We find the above stipulation to pay attorney's fees clear enough to cover both cases of foreclosure sale mentioned thereunder, i.e., judicially or extra-judicially. While
the phrase "in all cases" appears to be part of the second sentence, a reading of the whole context of the stipulation would readily show that it logically refers to extrajudicial foreclosure found in the first sentence and to judicial foreclosure mentioned in the next sentence. And the ambiguity in the stipulation suggested and pointed out
by the appellant by reason of the faulty sentence construction should not be made to defeat the otherwise clear intention of the parties in the agreement.
It is suggested by the appellant, however, that even if the above stipulation to pay attorney's fees were applicable to the extra-judicial foreclosure sale of its real
properties, still, the award of P5,821.35 for attorney's fees has no legal justification, considering the circumstance that the PNB did not actually spend anything by way
of attorney's fees in connection with the sale. In support of this proposition, appellant cites authorities to the effect: (1) that when the mortgagee has neither paid nor
incurred any obligation to pay an attorney in connection with the foreclosure sale, the claim for such fees should be denied; 2 and (2) that attorney's fees will not be
allowed when the attorney conducting the foreclosure proceedings is an officer of the corporation (mortgagee) who receives a salary for all the legal services performed
by him for the corporation. 3 These authorities are indeed enlightening; but they should not be applied in this case. The very same authority first cited suggests that said
principle is not absolute, for there is authority to the contrary. As to the fact that the foreclosure proceeding's were handled by an attorney of the legal staff of the PNB,

we are reluctant to exonerate herein appellant from the payment of the stipulated attorney's fees on this ground alone, considering the express agreement between the
parties in the mortgage contract under which appellant became liable to pay the same. At any rate, we find merit in the contention of the appellant that the award of
P5,821.35 in favor of the PNB as attorney's fees is unconscionable and unreasonable, considering that all that the branch attorney of the said bank did in connection
with the foreclosure sale of the real property was to file a petition with the provincial sheriff of Camarines Norte requesting the latter to sell the same in accordance with
the provisions of Act 3135.
The principle that courts should reduce stipulated attorney's fees whenever it is found under the circumstances of the case that the same is unreasonable, is now deeply
rooted in this jurisdiction to entertain any serious objection to it. Thus, this Court has explained:
But the principle that it may be lawfully stipulated that the legal expenses involved in the collection of a debt shall be defrayed by the debtor does not imply
that such stipulations must be enforced in accordance with the terms, no matter how injurious or oppressive they may be. The lawful purpose to be
accomplished by such a stipulation is to permit the creditor to receive the amount due him under his contract without a deduction of the expenses caused by
the delinquency of the debtor. It should not be permitted for him to convert such a stipulation into a source of speculative profit at the expense of the debtor.
Contracts for attorney's services in this jurisdiction stands upon an entirely different footing from contracts for the payment of compensation for any other
services. By express provision of section 29 of the Code of Civil Procedure, an attorney is not entitled in the absence of express contract to recover more
than a reasonable compensation for his services; and even when an express contract is made the court can ignore it and limit the recovery to reasonable
compensation if the amount of the stipulated fee is found by the court to be unreasonable. This is a very different rule from that announced in section 1091 of
the Civil Code with reference to the obligation of contracts in general, where it is said that such obligation has the force of law between the contracting
parties. Had the plaintiff herein made an express contract to pay his attorney an uncontingent fee of P2,115.25 for the services to be rendered in reducing the
note here in suit to judgment, it would not have been enforced against him had he seen fit to oppose it, as such a fee is obviously far greater than is necessary
to remunerate the attorney for the work involved and is therefore unreasonable. In order to enable the court to ignore an express contract for an attorney's
fees, it is not necessary to show, as in other contracts, that it is contrary to morality or public policy (Art. 1255, Civil Code). It is enough that it is
unreasonable or unconscionable. 4
Since then this Court has invariably fixed counsel fees on a quantum meruit basis whenever the fees stipulated appear excessive, unconscionable, or unreasonable,
because a lawyer is primarily a court officer charged with the duty of assisting the court in administering impartial justice between the parties, and hence, the fees
should be subject to judicial control. Nor should it be ignored that sound public policy demands that courts disregard stipulations for counsel fees, whenever they appear
to be a source of speculative profit at the expense of the debtor or mortgagor. 5 And it is not material that the present action is between the debtor and the creditor, and
not between attorney and client. As court have power to fix the fee as between attorney and client, it must necessarily have the right to say whether a stipulation like
this, inserted in a mortgage contract, is valid. 6
In determining the compensation of an attorney, the following circumstances should be considered: the amount and character of the services rendered; the responsibility
imposed; the amount of money or the value of the property affected by the controversy, or involved in the employment; the skill and experience called for in the
performance of the service; the professional standing of the attorney; the results secured; and whether or not the fee is contingent or absolute, it being a recognized rule
that an attorney may properly charge a much larger fee when it is to be contingent than when it is not. 7 From the stipulation in the mortgage contract earlier quoted, it
appears that the agreed fee is 10% of the total indebtedness, irrespective of the manner the foreclosure of the mortgage is to be effected. The agreement is perhaps fair
enough in case the foreclosure proceedings is prosecuted judicially but, surely, it is unreasonable when, as in this case, the mortgage was foreclosed extra-judicially, and
all that the attorney did was to file a petition for foreclosure with the sheriff concerned. It is to be assumed though, that the said branch attorney of the PNB made a
study of the case before deciding to file the petition for foreclosure; but even with this in mind, we believe the amount of P5,821.35 is far too excessive a fee for such
services. Considering the above circumstances mentioned, it is our considered opinion that the amount of P1,000.00 would be more than sufficient to compensate the
work aforementioned.
The next issue raised deals with the claim that the proceeds of the sale of the real properties alone together with the amount it remitted to the PNB later was more than
sufficient to liquidate its total obligation to herein appellee bank. Again, we find merit in this claim. From the foregoing discussion of the first two errors assigned, and
for purposes of determining the total obligation of herein appellant to the PNB as of November 21, 1961 when the real estate mortgage was foreclosed, we have the
following illustration in support of this conclusion:1wph1.t

A. I.

Principal Loan
(a) Promissory note dated August 2, 1956
(1) Interest at 6% per annum from Aug. 2, 1956 to Nov. 21, 1961
(b) Promissory note dated October 19, 1956
(1) Interest at 6% per annum from Oct.19, 1956 to Nov. 21, 1961

II.

Sheriff's fees [for two (2) day's work]

III.

Attorney's fee

P27,500.00
8,751.78
P15,500.00
4,734.08
10.00
1,000.00

Total obligation as of Nov. 21, 1961

P57,495.86

I.

Proceeds of the foreclosure sale of the real estate mortgage on Nov. 21, 1961

P56,908.00

II.

Additional amount remitted to the PNB on Dec. 18, 1961

B. -

738.59

Total amount of Payment made to PNB as of Dec. 18, 1961

P57,646.59

Deduct: Total obligation to the PNB

P57,495.86

Excess Payment to the PNB

P 150.73
========

From the foregoing illustration or computation, it is clear that there was no further necessity to foreclose the mortgage of herein appellant's chattels on December 21,
1961; and on this ground alone, we may declare the sale of appellant's chattels on the said date, illegal and void. But we take into consideration the fact that the PNB
must have been led to believe that the stipulated 10% of the unpaid loan for attorney's fees in the real estate mortgage was legally maintainable, and in accordance with
such belief, herein appellee bank insisted that the proceeds of the sale of appellant's real property was deficient to liquidate the latter's total indebtedness. Be that as it
may, however, we still find the subsequent sale of herein appellant's chattels illegal and objectionable on other grounds.
That appellant vigorously objected to the foreclosure of its chattel mortgage after the foreclosure of its real estate mortgage on November 21, 1961, can not be doubted,
as shown not only by its letter to the PNB on November 19, 1961, but also in its letter to the provincial sheriff of Camarines Norte on the same date. These letters were
followed by another letter to the appellee bank on December 14, 1961, wherein herein appellant, in no uncertain terms, reiterated its objection to the scheduled sale of
its chattels on December 21, 1961 at Jose Panganiban, Camarines Norte for the reasons therein stated that: (1) it had settled in full its total obligation to the PNB by the
sale of the real estate and its subsequent remittance of the amount of P738.59; and (2) that the contemplated sale at Jose Panganiban would violate their agreement
embodied under paragraph (i) in the Chattel Mortgage which provides as follows:
(i) In case of both judicial and extra-judicial foreclosure under Act 1508, as amended, the parties hereto agree that the corresponding complaint for
foreclosure or the petition for sale should be filed with the courts or the sheriff of the City of Manila, as the case may be; and that the Mortgagor shall pay
attorney's fees hereby fixed at ten per cent (10%) of the total indebtedness then unpaid but in no case shall it be less than P100.00, exclusive of all costs and
fees allowed by law and of other expenses incurred in connection with the said foreclosure. [Emphasis supplied]
Notwithstanding the abovequoted agreement in the chattel mortgage contract, and in utter disregard of the objection of herein appellant to the sale of its chattels at Jose
Panganiban, Camarines Norte and not in the City of Manila as agreed upon, the PNB proceeded with the foreclosure sale of said chattels. The trial court, however,
justified said action of the PNB in the decision appealed from in the following rationale:
While it is true that it was stipulated in the chattel mortgage contract that a petition for the extra-judicial foreclosure thereof should be filed with the Sheriff
of the City of Manila, nevertheless, the effect thereof was merely to provide another place where the mortgage chattel could be sold in addition to those
specified in the Chattel Mortgage Law. Indeed, a stipulation in a contract cannot abrogate much less impliedly repeal a specific provision of the statute.
Considering that Section 14 of Act No. 1508 vests in the mortgagee the choice where the foreclosure sale should be held, hence, in the case under
consideration, the PNB had three places from which to select, namely: (1) the place of residence of the mortgagor; (2) the place of the mortgaged chattels
were situated; and (3) the place stipulated in the contract. The PNB selected the second and, accordingly, the foreclosure sale held in Jose Panganiban,
Camarines Norte, was legal and valid.
To the foregoing conclusion, We disagree. While the law grants power and authority to the mortgagee to sell the mortgaged property at a public place in the
municipality where the mortgagor resides or where the property is situated, 8 this Court has held that the sale of a mortgaged chattel may be made in a place other than
that where it is found, provided that the owner thereof consents thereto; or that there is an agreement to this effect between the mortgagor and the mortgagee. 9 But
when, as in this case, the parties agreed to have the sale of the mortgaged chattels in the City of Manila, which, any way, is the residence of the mortgagor, it cannot be
rightly said that mortgagee still retained the power and authority to select from among the places provided for in the law and the place designated in their agreement
over the objection of the mortgagor. In providing that the mortgaged chattel may be sold at the place of residence of the mortgagor or the place where it is situated, at
the option of the mortgagee, the law clearly contemplated benefits not only to the mortgagor but to the mortgagee as well. Their right arising thereunder, however, are
personal to them; they do not affect either public policy or the rights of third persons. They may validly be waived. So, when herein mortgagor and mortgagee agreed in
the mortgage contract that in cases of both judicial and extra-judicial foreclosure under Act 1508, as amended, the corresponding complaint for foreclosure or the
petition for sale should be filed with the courts or the Sheriff of Manila, as the case may be, they waived their corresponding rights under the law. The correlative
obligation arising from that agreement have the force of law between them and should be complied with in good faith. 10
By said agreement the parties waived the legal venue, and such waiver is valid and legally effective, because it, was merely a personal privilege they waived,
which is not contrary, to public policy or to the prejudice of third persons. It is a general principle that a person may renounce any right which the law gives
unless such renunciation is expressly prohibited or the right conferred is of such nature that its renunciation would be against public policy. 11

On the other hand, if a place of sale is specified in the mortgage and statutory requirements in regard thereto are complied with, a sale is properly conducted
in that place. Indeed, in the absence of a statute to the contrary, a sale conducted at a place other than that stipulated for in the mortgage is invalid, unless the
mortgagor consents to such sale. 12
Moreover, Section 14 of Act 1508, as amended, provides that the officer making the sale should make a return of his doings which shall particularly describe the articles
sold and the amount received from each article. From this, it is clear that the law requires that sale be made article by article, otherwise, it would be impossible for him
to state the amount received for each item. This requirement was totally disregarded by the Deputy Sheriff of Camarines Norte when he sold the chattels in question in
bulk, notwithstanding the fact that the said chattels consisted of no less than twenty different items as shown in the bill of sale. 13 This makes the sale of the chattels
manifestly objectionable. And in the absence of any evidence to show that the mortgagor had agreed or consented to such sale in gross, the same should be set aside.
It is said that the mortgagee is guilty of conversion when he sells under the mortgage but not in accordance with its terms, or where the proceedings as to the sale of
foreclosure do not comply with the statute. 14 This rule applies squarely to the facts of this case where, as earlier shown, herein appellee bank insisted, and the appellee
deputy sheriff of Camarines Norte proceeded with the sale of the mortgaged chattels at Jose Panganiban, Camarines Norte, in utter disregard of the valid objection of
the mortgagor thereto for the reason that it is not the place of sale agreed upon in the mortgage contract; and the said deputy sheriff sold all the chattels (among which
were a skagit with caterpillar engine, three GMC 6 x 6 trucks, a Herring Hall Safe, and Sawmill equipment consisting of a 150 HP Murphy Engine, plainer, large
circular saws etc.) as a single lot in violation of the requirement of the law to sell the same article by article. The PNB has resold the chattels to another buyer with
whom it appears to have actively cooperated in subsequently taking possession of and removing the chattels from appellant compound by force, as shown by the
circumstance that they had to take along PC soldiers and municipal policemen of Jose Panganiban who placed the chief security officer of the premises in jail to deprive
herein appellant of its possession thereof. To exonerate itself of any liability for the breach of peace thus committed, the PNB would want us to believe that it was the
subsequent buyer alone, who is not a party to this case, that was responsible for the forcible taking of the property; but assuming this to be so, still the PNB cannot
escape liability for the conversion of the mortgaged chattels by parting with its interest in the property. Neither would its claim that it afterwards gave a chance to herein
appellant to repurchase or redeem the chattels, improve its position, for the mortgagor is not under obligation to take affirmative steps to repossess the chattels that were
converted by the mortgagee. 15 As a consequence of the said wrongful acts of the PNB and the Deputy Sheriff of Camarines Norte, therefore, We have to declare that
herein appellant is entitled to collect from them, jointly and severally, the full value of the chattels in question at the time they were illegally sold by them. To this effect
was the holding of this Court in a similar situation. 16
The effect of this irregularity was, in our opinion to make the plaintiff liable to the defendant for the full value of the truck at the time the plaintiff thus
carried it off to be sold; and of course, the burden is on the defendant to prove the damage to which he was thus subjected. . . .
This brings us to the problem of determining the value of the mortgaged chattels at the time of their sale in 1961. The trial court did not make any finding on the value
of the chattels in the decision appealed from and denied altogether the right of the appellant to recover the same. We find enough evidence of record, however, which
may be used as a guide to ascertain their value. The record shows that at the time herein appellant applied for its loan with the PNB in 1956, for which the chattels in
question were mortgaged as part of the security therefore, herein appellant submitted a list of the chattels together with its application for the loan with a stated value of
P107,115.85. An official of the PNB made an inspection of the chattels in the same year giving it an appraised value of P42,850.00 and a market value of
P85,700.00. 17 The same chattels with some additional equipment acquired by herein appellant with part of the proceeds of the loan were reappraised in a re-inspection
conducted by the same official in 1958, in the report of which he gave all the chattels an appraised value of P26,850.00 and a market value of P48,200.00. 18 Another reinspection report in 1959 gave the appraised value as P19,400.00 and the market value at P25,600.00. 19 The said official of the PNB who made the foregoing reports of
inspection and re-inspections testified in court that in giving the values appearing in the reports, he used a conservative method of appraisal which, of course, is to be
expected of an official of the appellee bank. And it appears that the values were considerably reduced in all the re-inspection reports for the reason that when he went to
herein appellant's premises at the time, he found the chattels no longer in use with some of the heavier equipments dismantled with parts thereof kept in the bodega; and
finding it difficult to ascertain the value of the dismantled chattels in such condition, he did not give them anymore any value in his reports. Noteworthy is the fact,
however, that in the last re-inspection report he made of the chattels in 1961, just a few months before the foreclosure sale, the same inspector of the PNB reported that
the heavy equipment of herein appellant were "lying idle and rusty" but were "with a shed free from rains" 20 showing that although they were no longer in use at the
time, they were kept in a proper place and not exposed to the elements. The President of the appellant company, on the other hand, testified that its caterpillar (tractor)
alone is worth P35,000.00 in the market, and that the value of its two trucks acquired by it with part of the proceeds of the loan and included as additional items in the
mortgaged chattels were worth no less than P14,000.00. He likewise appraised the worth of its Murphy engine at P16,000.00 which, according to him, when taken
together with the heavy equipments he mentioned, the sawmill itself and all other equipment forming part of the chattels under consideration, and bearing in mind the
current cost of equipments these days which he alleged to have increased by about five (5) times, could safely be estimated at P120,000.00. This testimony, except for
the appraised and market values appearing in the inspection and re-inspection reports of the PNB official earlier mentioned, stand uncontroverted in the record; but We
are not inclined to accept such testimony at its par value, knowing that the equipments of herein appellant had been idle and unused since it stopped operating its
sawmill in 1958 up to the time of the sale of the chattels in 1961. We have no doubt that the value of chattels was depreciated after all those years of inoperation,
although from the evidence aforementioned, We may also safely conclude that the amount of P4,200.00 for which the chattels were sold in the foreclosure sale in
question was grossly unfair to the mortgagor. Considering, however, the facts that the appraised value of P42,850.00 and the market value of P85,700.00 originally
given by the PNB official were admittedly conservative; that two 6 x 6 trucks subsequently bought by the appellant company had thereafter been added to the chattels;
and that the real value thereof, although depreciated after several years of inoperation, was in a way maintained because the depreciation is off-set by the marked
increase in the cost of heavy equipment in the market, it is our opinion that the market value of the chattels at the time of the sale should be fixed at the original
appraised value of P42,850.00.
Herein appellant's claim for moral damages, however, seems to have no legal or factual basis. Obviously, an artificial person like herein appellant corporation cannot
experience physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which are basis of moral damages. 21 A
corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral damages. The same cannot be considered under the facts of
this case, however, not only because it is admitted that herein appellant had already ceased in its business operation at the time of the foreclosure sale of the chattels, but
also for the reason that whatever adverse effects of the foreclosure sale of the chattels could have upon its reputation or business standing would undoubtedly be the
same whether the sale was conducted at Jose Panganiban, Camarines Norte, or in Manila which is the place agreed upon by the parties in the mortgage contract.
But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in proceeding with the sale in utter disregard of the agreement to have the
chattels sold in Manila as provided for in the mortgage contract, to which their attentions were timely called by herein appellant, and in disposing of the chattels in gross

for the miserable amount of P4,200.00, herein appellant should be awarded exemplary damages in the sum of P10,000.00. The circumstances of the case also warrant
the award of P3,000.00 as attorney's fees for herein appellant.
WHEREFORE AND CONSIDERING ALL THE FOREGOING, the decision appealed from should be, as hereby, it is set aside. The Philippine National Bank and the
Deputy Sheriff of the province of Camarines Norte are ordered to pay, jointly and severally, to Mambulao Lumber Company the total amount of P56,000.73, broken as
follows: P150.73 overpaid by the latter to the PNB, P42,850.00 the value of the chattels at the time of the sale with interest at the rate of 6% per annum from December
21, 1961, until fully paid, P10,000.00 in exemplary damages, and P3,000.00 as attorney's fees. Costs against both appellees.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro and Fernando, JJ., concur.
Bengzon, J.P. J., took no part.
SPECIAL THIRD DIVISION

FLIGHT ATTENDANTS AND

STEWARDS ASSOCIATION OF
THE PHILIPPINES (FASAP),
Petitioner,

G.R. No. 178083

Present:
Ynares-Santiago, J. (Chairperson),
Chico-Nazario,
Nachura,
Peralta, and
Bersamin,* JJ.

- versus -

PHILIPPINE AIRLINES, INC.,

PATRIA CHIONG and COURT
Promulgated:
OF APPEALS,
Respondents.
October 2, 2009
x ---------------------------------------------------------------------------------------- x
RESOLUTION
YNARES-SANTIAGO, J.:
For resolution is respondent Philippine Airlines, Inc.s (PAL) Motion for Reconsideration[1] of our Decision of July 22, 2008, the dispositive portion of
which provides:
WHEREFORE, the instant petition is GRANTED. The assailed Decision of the Court of Appeals in CA-G.R. SP No. 87956 dated
August 23, 2006, which affirmed the Decision of the NLRC setting aside the Labor Arbiters findings of illegal retrenchment and its Resolution
of May 29, 2007 denying the motion for reconsideration, are REVERSED and SET ASIDE and a new one is rendered:
1.

FINDING respondent Philippine Airlines, Inc. GUILTY of illegal dismissal;

2.
ORDERING Philippine Airlines, Inc. to reinstate the cabin crew personnel who were covered by the
retrenchment and demotion scheme of June 15, 1998 made effective on July 15, 1998, without loss of seniority rights and
other privileges, and to pay them full backwages, inclusive of allowances and other monetary benefits computed from the
time of their separation up to the time of their actual reinstatement, provided that with respect to those who had received
their respective separation pay, the amounts of payments shall be deducted from their backwages. Where reinstatement is
no longer feasible because the positions previously held no longer exist, respondent Corporation shall pay backwages plus,
in lieu of reinstatement, separation pay equal to one (1) month pay for every year of service;
3.
ORDERING Philippine Airlines, Inc. to pay attorneys fees equivalent to ten percent (10%) of the total
monetary award.
Costs against respondent PAL.
SO ORDERED.
In its Motion for Reconsideration, PAL maintains that it was suffering from financial distress which justified the retrenchment of more than 1,400 of its
flight attendants. This, it argued, was an established fact. Furthermore, FASAP never assailed the economic basis for the retrenchment, but only the allegedly
discriminatory and baseless manner by which it was carried out.
PAL asserts that it has presented proof of its claimed losses by attaching its petition for suspension of payments, as well as the June 23, 1998 Order of the
Securities and Exchange Commission (SEC) approving the said petition for suspension of payments, in its Motion to Dismiss and/or Consolidation of Case filed with
the Labor Arbiter in NLRC-NCR Case No. 06-05100-98, or the labor case subject of the herein petition. Also attached to the petition for suspension of payments were
its audited financial statements for its fiscal year ending March 1998, and interim financial statements as of the end of the month prior to the filing of its petition for
suspension of payments, as well as:

a)

A summary of its debts and other liabilities;

b)

A summary of its assets and properties;

c)
of each holder;

List of its equity security shareholders showing the name of the security holder and the kind of interest registered in the name

d)
A schedule which contains a full and true statement of all of its debts and liabilities, together with a list of all those to whom
said debts and liabilities are due;
e)
An inventory which contains an accurate description of all the real and personal property, estate and effects of PAL, together
with a statement of the value of each item of said property, estate and effects, their respective location and a statement of the encumbrances
thereon.
In the instant Motion for Reconsideration, PAL attached a copy of its audited financial statements for fiscal years 1996, 1997 and 1998. It justifies the
submission before the Court of Appeals of its 2002-2004, and not the 1996-1998, audited financial statements, to show that as of the time of their submission with the
Court of Appeals, PAL was still under rehabilitation, and not for the purpose of establishing its financial problems during the retrenchment period.
PAL asserts further that the Court should have accorded the SECs findings as regards its financial condition respect and finality, considering that said
findings were based on the financial statements and other documents submitted to it, which PAL now submits, albeit belatedly, via the instant Motion for
Reconsideration. It cites the case of Clarion Printing House Inc. v. National Labor Relations Commission,[2] where the Court declared that the appointment of a
receiver or management committee by the SEC presupposes a finding that, inter alia, a company possesses sufficient property to cover all its debts but foresees the
impossibility of meeting them when they respectively fall due and there is imminent danger of dissipation, loss, wastage or destruction of assets or other properties or
paralyzation of business operations. On the other hand, it claims that in Rivera v. Espiritu,[3] the Court made a finding that as a result of the pilots three-week strike
that began on June 5, 1998, PALs financial situation went from bad to worse and it was faced with bankruptcy, requiring it to seek rehabilitation and downsize its labor
force by more than one-third; and that said pilots strike was immediately followed by another four-day employee-wide strike on July 22, 1998, which involved 1,899
union[4] members.
PAL likewise cites previous decisions of the Court which declared a suspension of claims against it in light of pending rehabilitation proceedings and the
issuance of a stay order in the enforcement of all claims, whether for money or otherwise, which is effective from the date of its issuance until the dismissal of the
petition or the termination of the rehabilitation proceedings. [5]Moreover, it claims that the infusion of $200 million in PAL in June 1999 is proof of the airlines financial
distress, and was a condition sine qua non if PALs Amended and Restated Rehabilitation Plan were to be approved by the SEC, and if the absolute closure of PAL
were to be averted.
PAL underscores that its situation in 1998 was unique, as it had to contend with
the very distinct possibility that its losses would eventually result in default on its payments to creditors for its aircraft leases. If that happened,
creditors could have immediately seized all its leased planes and that would have spelled PALs demise. The petition for rehabilitation and
suspension of payments was precisely intended to avoid PALs collapse and eventual liquidation. [6]
Exercising its management prerogative and sound business judgment, it decided to cut its fleet of aircraft in order to minimize its operating losses and rescue
itself from total downfall; which meant that a corresponding company-wide reduction in manpower necessarily had to be made. As a result, 5,000 PAL employees
(including the herein 1,400 cabin attendants) were retrenched.
Further, PAL argues that aside from the confluence of simultaneous unfortunate events that occurred during the time, like successive strikes, peso
depreciation and the Asian currency crisis, there was a serious drop in passenger traffic which necessitated the closure of PALs entire European, Australian,
and Middle East operations and numerous Asian stations, as well as some of its domestic stations. Consequently, its 27 international routes were reduced to only 7, and
its 37 domestic routes to just 17.
PAL claims that it did not act with undue haste in effecting the mass retrenchment of cabin attendants since, as early as February 17, 1998, consultations
were being held in connection with the proposed retrenchment, and that twice-weekly meetings between the union and the airline were being held since February 12,
1998. It claims that it took PAL four months before the retrenchment scheme was finally implemented.
With regard to the implementation of Plan 22 instead of the original Plan 14, PAL asserts that, in so doing, it should not be found guilty of bad faith. It sets
out the chronology of events that led it to implement Plan 22 instead of Plan 14, thus:
The initial plan was, indeed, to reduce PALs fleet from 54 planes to 14. With a smaller fleet, PAL necessarily had to reduce
manpower accordingly, and this was the basis for the retrenchment. The retrenchment was done on the basis of the conditions and circumstances
existing at that time. However, a series of events ensued
PAL was placed under corporate rehabilitation by the SEC on June 23, 1998.
Later, on July 22, 1998, the rank-and-file employees belonging to PALEA staged a strike.
Then, on August 28, 1998, President Joseph Ejercito Estrada issued Administrative Order No. 16 creating Inter-Agency Task Force to
aid PAL and its employees in solving the problem.
On September 4, 1998, PAL submitted an offer to the Task Force of a plan to transfer shares of stocks to its employees with a request
to suspend existing Collective Bargaining Agreements, which was later rejected by the employees.

On September 23, 1998, PAL ceased operations.

Then, President Estrada intervened again through the request of PAL employees. PALEA made an offer, which was rejected by PAL.
Finally, PALEA made an offer again which was successfully ratified by the employees on October 2, 1998 and accepted by PAL.
Subsequently, PAL partially resumed domestic operations on October 7, 1998 believing that the mutually beneficial terms of the
suspension agreement could possibly redeem PAL. Later, it partially resumed its operations internationally (Los Angeles and San
Francisco, United States).
True enough, with some degree of relief as a result of the suspension of payment and rehabilitation proceedings in the SEC and the
suspension of the CBA, PAL began to see slow but steady improvements. Also, airline industry experts who were commissioned by PAL to assist
in drafting its Amended and Restated Rehabilitation Plan came to a conclusion that PAL had to increase its fleet of planes to improve its financial
and operational viability. This advice was adopted by PAL in its Amended and Restated Rehabilitation Plan, which was eventually approved by
the SEC.
With these supervening events, PAL decided to implement Plan 22 upon reevaluation and optimistic future projection for its
operations. The decision to abandon Plan 14 was not done with precipitate haste. The Honorable Court should appreciate that the chain of
unfolding events after the retrenchment encouraged PAL, in the exercise of its sound business discretion, to implement Plan 22. This was not a
capricious decision. In fact, the SEC approved PALs Amended and Restated Rehabilitation Plan, which includes, among others, PALs Fleet
Plan composed of 22 planes.
Neither does it show that PAL was uncertain of its financial condition when it retrenched based on Plan 14. PAL would not have even
petitioned the SEC for its rehabilitation were it not certain of its dire financial state. The decision to later abandon Plan 14 was a business
judgment that PAL made in good faith upon the advice of foreign airline industry experts and in light of the supervening circumstances explained
above.
In this regard, this Honorable Court has once held that
Questions of policy or of management are left solely to the honest decision of the board as the business manager of the
corporation, and the court is without authority to substitute its judgment for that of the board, and as long as it acts in good
faith and in the exercise of honest judgment in the interest of the corporation, its orders are not reviewable by the courts.
On the basis of Plan 22, PAL decided to recall/rehire some of the retrenched employees.
With due respect, this Honorable Court is mistaken in its ruling that PAL acted in bad faith simply because it later on decided to recall
or rehire the employees it initially retrenched. The decision to recall/rehire was a logical consequence of PALs decision to increase its fleet from
14 to 22 planes, which as discussed earlier, was a business judgment exercised in good faith by PAL after a series of significant events.
PAL did not even have any legal obligation to rehire the employees who have already been paid their separation pay and who have
executed valid quitclaims. PAL, instead of being accused of bad faith for rehiring these employees, should in fact be commended. That the
retrenched employees were given priority in hiring is certainly not bad faith. Noteworthy is the fact that PAL never hired NEW employees until
November 2000 or more than 2 years after the 1998 retrenchment.
It is respectfully submitted that the legality of the retrenchment could not be made to depend on the fact that PAL recalled/rehired
some of the employees after five months without taking into account the supervening events. At the exact time of retrenchment, PAL was not in a
position to know with certainty that it could actually recover from the precarious financial problem it was facing and, if so, when.
The only thing PAL knew at that exact point in time was that it was in its most critical condition when its liabilities amounted to
about Php 85,109,075,351.00, while its assets amounted to only about Php 90,642,330,919.00 aggravated by many other circumstances as
explained earlier. At the time of the retrenchment in June 1998, PAL was at the brink of total collapse and it could not have known that in five
months, there will be supervening events that will impel it to reassess its initial decisions.
xxxx
In the present case, PAL beseeches this Honorable Court to take a second look at the peculiar facts and circumstances that clearly
show that the recall/rehire was done in good faith. These facts and circumstances make the case of PAL totally different from the other cases
decided by this Honorable Court where it found bad faith on the part of the employer for immediately rehiring or hiring employees after
retrenchment.
xxxx
But even then, PAL still endeavored to recall or rehire the maximum number of FASAP members that it could. Thus, out of the 1,423
FASAP members who were retrenched, 496 were eventually recalled or reinstated (those who did not receive separation pay and opted to resume
their employment with PAL with no loss of seniority).
On the other hand, 321 FASAP members were rehired (those who received separation pay and voluntarily rejoined PAL as new
employees). In this regard, PAL would like to take exception to the Honorable Courts observation that these employees were taken in as new
hires without due regard to their long years of service. The FASAP members who were rehired as new employees were those who already
received their separation pay because of the retrenchment but voluntarily accepted PALs offer for them to be rehired when Plan 22 was

implemented. It cannot be said that they were prejudiced by the rehire process, as they already cashed in on their tenure when they accepted the
separation pay. That they later on accepted PALs offer to rehire them as new employees was purely voluntary on their part.
Meanwhile, around 591 FASAP members opted not to return anymore after receiving their full separation pay. Thus, including those
who voluntarily opted not to resume their employment with PAL, only about 591 can be considered to have remained unrecalled or unrehired.
It is significant to mention that FASAP directly and actively participated in the recall process, and even suggested the names of its
members for prospective recall.
Likewise, in the recall process, PAL followed the provisions of the CBA and as a result, some of the recalled employees were
assigned to lower positions (or demoted as noted by this Honorable Court). However, this was only because there were not enough positions for
all of them to be restored to their previous posts. Evidently, with lesser planes flying international routes, not all international flight attendants
would be restored to international flight posts. Some of them would be downgraded to domestic flights. This was the natural and logical effect of
the fleet downsizing that PAL adopted. This could not be a badge of bad faith, as this Honorable Court seems to believe.
xxxx
Likewise, no bad faith should be inferred from PALs closure in September 1998. That decision was by no means easy being the
national flag carrier and the oldest airline in Asia (having operated for 57 years at the time). The closure could not have been a mere retaliation
for rejecting the offer of PAL, as it would have aggravated matters further and rendered rehabilitation impossible.
Hence, PALs decision to resume operations when the employees acceded to its request to suspend the CBA should be seen in this
context. This was not a coercive posture. PAL resumed operations only because the suspension of the CBA, among others, gave it hope that it
could recover.
Furthermore, any issue on the legality of the suspension of the CBA had already been put to rest by no less than this Honorable Court
in the case of Rivera vs. Espiritu where it held that
The assailed PAL-PALEA agreement was the result of voluntary collective bargaining negotiations undertaken in the
light of the severe financial situation faced by the employer, with the peculiar and unique intention of not merely
promoting industrial peace at PAL, but preventing the latters closure. [7] (Emphasis supplied)
PAL explains that the 140 probationary cabin attendants who were fired and subsequently rehired were part of an earlier retrenchment process in February
and March 1998, a component of PALs less drastic cost cutting measures then being implemented. Eventually, these rehired probationary cabin attendants were
included in the subject retrenchment of more than 1,400. Thus, it claims that it was inaccurate for the Court to have held that these 140 probationary cabin attendants
were retained while those with permanent status were fired.
Finally, PAL begs the Court to reconsider its finding that the retrenchment scheme in question did not pass the test of fairness and reasonableness with
respect to the criteria used in selecting those whose services should be retained or terminated. That it merely used the criteria stipulated in its CBA with FASAP where
efficiency rating and inverse seniority are the basic considerations as carried over from the parties previous CBAs could allegedly be seen from the manner the
retrenchment plan was carried out. The rating variables contained in the Performance Evaluation Form of each and every cabin crew personnels Grooming and
Appearance Handbook are fair and reasonable since they are inherent requirements (necessarily intertwined, as PAL would put it) for employment as flight attendant
or steward. More significantly, it claims that the criteria used in the implementation of the retrenchment scheme in question was based on the ratified PAL-FASAP
1996-2000 CBA, which should be considered as the law between the parties.
PAL believes that the Court may have misconstrued the significance of the term other reasons which the NLRC utilized in its summary of FASAP
members and causes for their retrenchment,[8] arguing that the use of the phrase does not necessarily mean that the employees were retrenched for obscure reasons that
are not acceptable under the law; it simply points to the NLRCs economy of language in lumping together various reasons for retrenchment, such as excess sick leaves,
previous admonitions, suspensions, passenger complaints, poor performance, tardiness, etc. It claims that it used seniority in conjunction with a combination of these
grounds in arriving at a conclusion of whether to retain or retrench.
PAL defends as well its use of a single year (1997) as basis for assessing the cabin attendants fitness for retention or retrenchment, stressing that its CBA
with FASAP requires as basis for reduction in personnel only one efficiency rating, which should be construed as that obtained by each cabin attendant for
a single year, in accordance with Section 112 of the CBA which provides:
In the event of redundancy, phase-out of equipment or reduction of operations, the following rules in the reduction of personnel shall
apply:
A.

Reduction in the number of Pursers:

1.
2.

B.

In the event of a reduction of purser OCARs, pursers who have not attained an efficiency rating of 85% shall
be downgraded to international Cabin Attendant in the reverse order of seniority.
If the reduction of purser OCARs would involve more than the number of pursers who have not
attained anefficiency rating of 85%, then pursers who have attained an efficiency rating of 85% shall be
downgraded to international Cabin Attendant in the inverse order of seniority.

In reducing the number of international Cabin Attendants due to reduction in international Cabin Attendant OCARs, the
same process in paragraph A shall be observed. International Cabin Attendants shall be downgraded to domestic.

C.

In the event of reduction of domestic OCARs thereby necessitating the retrenchment of personnel, the same process shall
be observed.

In no case, however, shall a regular Cabin Attendant be separated from the service in the event of retrenchment until all probationary
or contractual Cabin Attendant in the entire Cabin Attendants Corps, in that order, shall have been retrenched. (Emphasis and underscoring
supplied)
PAL asserts that since efficiency ratings for each cabin or flight attendant are computed on an annual basis, it should therefore mean that when Section 112
referred to an efficiency rating of 85%, then it should logically and practically follow that only one years worth of performance should be used as criteria for the
retrenchment of cabin attendants that is, the most recent efficiency rating obtained by each of them. For purposes of the present case, it would necessarily be that for
the year 1997, or the year immediately prior to the retrenchment, and no other.
Finally, regarding the quitclaims executed, PAL maintains that since the retrenchment scheme it implemented was essentially valid, then it should follow
that the quitclaims are regular as well, and more so given the absence of mistake, duress, fraud or misrepresentation.
In its Comment[9] to PALs Motion for Reconsideration, FASAP asserts that the issue is not centered on PALs financial condition but whether the
retrenchment of the 1,400 cabin personnel was warranted. It alleges that:
The issue is whether or not the nature and extent of the financial circumstances and the methods used to resolve fiscal difficulties warranted the
illegal and unceremonious dismissal of around 1,400 flight attendants, stewards, and cabin crew. It was the termination without considering the
legal factors for retrenchment. Because of the difficulties that the entire nation was going through, the ostensible name given was retrenchment.
But it was really an illegal dismissal and arbitrary termination. x x x
The casualties of illegal action, the ones sacrificed in the early stages of the situation and not as a last resort, are not the employer and its officers
or owner. As the Honorable Court pointed out, the questioned action struck at the very heart of the workers employment, the lifeblood upon
which the worker and his family owe their survival. No proof has been adduced in ten long years of litigation that retrenchment was only a
measure of last resort, (that) other less drastic means were considered and tried and found inadequate.
xxxx
The Court has treated the instant case for what it truly is an illegal retrenchment, one that was prematurely done and whimsically
carried out. x x x
This is about a bad faith retrenchment one which neither complied with the legal prerequisites therefor nor observed the provisions
of the PAL-FASAP CBA thereon; one which was not employed as a last resort and which did not have any fair and reasonable criteria to serve as
basis for selecting who would be retrenched; one which was capriciously and whimsically implemented; one which was illegally made.[10]
FASAP declares that although it recognized PALs financial difficulties in 1997 and 1998, it never conceded the same to be valid reason upon which to base
the questioned retrenchment, citing that in proceedings below, the reasonable necessity of the retrenchment and its effectiveness in preventing losses to PAL had been
squarely raised. FASAP maintains that prior negotiations with PAL (on the possible implementation of cost-cutting measures, employee rotation plans, triple and
quadruple room sharing arrangements, allocation of vacation leaves without pay, etc.) is proof of that recognition, but that ultimately, it was incumbent upon PAL to
have shown that it undertook a retrenchment scheme that was in proportion to and commensurate with the financial distress it was experiencing at the time.
Essentially, FASAP merely echoed our pronouncements, focusing upon our dissertation on each of the elements required in order to justify retrenchment,
most of which were found lacking in PALs retrenchment program or scheme. Specifically, FASAP points to the lack of prior resort to cost-cutting measures, the
rehiring of probationary employees, prior assurances by PAL that retrenchment was no longer necessary, and lack of fair and reasonable criteria in selecting the
employees to retrench.
Specifically, mention is made that there is nothing in its then existing CBA with PAL which mandates that a single year 1997 should be used as the
gauge or measure for determining the flight attendants performance for purposes of retrenchment. Asserting that PALs justification of its use of a single year was a
very strained interpretation of the provisions in the CBA, FASAP insists that seniority, loyalty and past efficiency are requirements of law and jurisprudence which
may not be summarily disregarded in choosing whom to retrench, demote or retain, a proposition it claims to find support in Article III, Section 7(A) of its CBA which
provides:
The Association (FASAP) hereby acknowledges that the management of the Company (PAL) and the direction of its employees; x x
x; and the lay-off and re-employment of employees in connection with increases or decreases in the work force are the exclusive rights and
functions of management provided only that the Company act in accordance with applicable laws and the provisions of this
Agreement.[11] (Words in parentheses supplied)
FASAP goes on further to suggest that the basic criterion for effecting the retrenchment scheme should have been seniority, as enunciated in Maya Farms
Employees Organization v. National Labor Relations Commission.[12] In said case, the employer was constrained to streamline its manpower base owing to losses and
setbacks in operations. Management sent notices of termination (due to redundancy) to 66 of its employees. In the labor case that ensued, the union pointed to a
violation of a specific provision in its CBA which declared, thus:
Sec. 2. LIFO RULE. In all cases of lay-off or retrenchment resulting in termination of employment in the line of work, the Last-InFirst-Out (LIFO) Rule must always be strictly observed.
Ultimately, we held therein that the employer did not violate the LIFO rule in the CBA. We explained therein that

It is not disputed that the LIFO rule applies to termination of employment in the line of work. Verily, what is contemplated in the
LIFO rule is that when there are two or more employees occupying the same position in the company affected by the retrenchment program, the
last one employed will necessarily be the first to go.
Moreover, the reason why there was no violation of the LIFO rule was amply explained by public respondent in this wise:
. . . The LIFO rule under the CBA is explicit. It is ordained that in cases of retrenchment resulting in termination
of employment in line of work, the employee who was employed on the latest date must be the first one to go. The
provision speaks of termination in the line of work. This contemplates a situation where employees occupying the same
position in the company are to be affected by the retrenchment program. Since there ought to be a reduction in the number
of personnel in such positions, the length of service of each employee is the determining factor, such that the employee
who has a longer period of employment will be retained.
In the case under consideration, specifically with respect to Maya Farms, several positions were affected by the
special involuntary redundancy program. These are packers, egg sorters/stockers, drivers. In the case of packers, prior to
the involuntary redundancy program, twenty-one employees occupied the position of packers. Out of this number, only 5
were retained. In this group of employees, the earliest date of employment was October 27, 1969, and the latest packer was
employed in 1989. The most senior employees occupying the position of packers who were retained are as follows:
Santos, Laura C.
Estrada, Mercedes
Hortaleza, Lita
Jimenez, Lolita
Aquino, Teresita

Oct. 27, 1969

Aug. 20, 1970
June 11, 1971
April 25, 1972
June 25, 1975

All the other packers employed after June 2, 1975 (sic) were separated from the service.
The same is true with respect to egg sorters. The egg sorters employed on or before April 26, 1972 were
retained. All those employed after said date were separated.
With respect to the position of drivers, there were eight drivers prior to the involuntary redundancy program.
Thereafter only 3 positions were retained. Accordingly, the three drivers who were most senior in terms of period of
employment, were retained.
They are: Ceferino D. Narag, Efren Macaraig and Pablito Macaraig.
The case of Roberta Cabrera and Lydia C. Bandong, Asst. Superintendent for packing and Asst. Superintendent
for meat processing respectively was presented by the union as an instance where the LIFO rule was not observed by
management. The union pointed out that Lydia Bandong who was retained by management was employed on a much later
date than Roberta Cabrera, and both are Assistant Superintendent. We cannot sustain the union's argument. It is indeed true
that Roberta Cabrera was employed earlier (January 28, 1961) and (sic) Lydia Bandong (July 9, 1966). However, it is
maintained that in meat processing department there were 3 Asst. Superintendents assigned as head of the 3 sections
thereat. The reason advanced by the company in retaining Bandong was that as Asst. Superintendent for meat processing
she could already take care of the operations of the other sections. The nature of work of each assistant superintendent as
well as experience were taken into account by management. Such criteria was not shown to be whimsical nor carpricious
(sic).[13]
Finally, FASAP claims that PAL did not provide reasons for retrenching the more than 1,400 flight attendants; that it was only when it filed its Supplemental
Memorandum before the Labor Arbiter in March 2000 that the airline submitted in evidence the ICCD Masterank and Seniority 1997 Ratings, which allegedly took into
account the subjective factors such as appearance and good grooming, which supposedly require the written conformity of its members if they were to be considered at
all, in accordance with Section 124, Article XXVI of the CBA.
By way of reply to FASAPs Comment, PAL insists that its decision to downsize the flight fleet was the principal reason why it had to put into effect a
corresponding downsizing of cabin crew personnel; that the reduction in fleet size was an integral part of its SEC-approved rehabilitation plan; that the reduction in the
number of its aircraft by 75% from 54 to just 14 likewise necessitated a corresponding 75% reduction in its total cabin crew personnel; and that its subsequent
decision to increase its remaining fleet from 14 aircraft to 22 was a business judgment exercised in good faith after a series of significant events and upon the advice of
airline industry experts who were assisting it in its rehabilitation efforts. [14] This increase from 14 to 22 aircraft was then included in its Amended and Restated
Rehabilitation Plan, which was subsequently approved by the SEC. Because of this, it then had to increase its manpower; it recalled or rehired the services of the
employees it had previously terminated.
PAL begs the Court to recognize this downsizing of aircraft as a valid exercise of its management prerogative to close its business operations, and not merely
to reduce personnel. In other words, PAL would have the Court believe that its retrenchment program is not merely a reduction of personnel for the purpose of cutting
on costs of operations, but as a closure of its business, a cessation of business operations to prevent further financial drain.[15] PAL argues that cost-cutting measures
could not have sufficed to nurse the airline back to financial health; it had to resort to partial closure of its business. Thus:
18.
Moreover, how can PAL possibly implement the cost-cutting measures allegedly suggested by FASAP with 75% of its fleet
already gone? The situation would be different if PAL retained its 54-plane fleet, and PALs only concern was to save on salaries and wages. In
such a situation, PAL is indeed obliged to resort to less drastic cost-cutting measures before it can validly proceed with retrenchment. But this
is not the case here. PALs financial condition could not have improved by merely adopting cost-cutting measures such as work rotation and

forced leaves. In fact, retrenchment alone could not have saved PAL from financial ruin. PAL had to resort to the drastic action of partially
closing its business operations by downsizing its fleet of aircrafts. This naturally resulted in the reduction of PALs personnel.
19.
Assuming arguendo that the jurisprudence relied upon by FASAP apply, the proven facts in this case show that retrenchment
was not the only option for PAL. The problem with FASAP is that it is taking a myopic view of what truly happened. It stubbornly claims that the
reduction of employees is a simple case of retrenchment program that was implemented in the first instance. But it is clear from the record that
when PAL suffered serious business losses, retrenchment was not the only option, obviously because the objective was to cut down on operating
expenses as a whole, and not merely in terms of salaries and wages, which is the only purpose of a retrenchment.
20.
What PAL did was to reduce its fleet of 54 planes to only 14 planes. It was only after PAL reduced its fleet of aircrafts that it
had to terminate the employment of its employees who were already in excess of the workforce required under the reduced fleet set-up. In other
words, retrenchment was merely a necessary and natural consequence of PALs earlier decision to downsize its fleet of aircrafts. There is thus
simply no basis to say that PAL implemented retrenchment in the first instance.
xxxx
22.
Neither is there basis to FASAPs claim that PAL made the assurance that there will be no more need for retrenchment. How
could have PAL given such assurance in light of its huge business losses, bordering on bankruptcy? The truth is, no such assurance was ever
given by PAL. This is clear in the minutes of all of the meetings with FASAP where the only issue discussed was how to proceed with the
retrenchment. These meetings were held in February to April 1998, or two to three months before the decision to reduce operations was made by
PAL due to various serious supervening events the strike staged by the Airline Pilots Association of the Philippines (ALPAP) and by the
Philippine Airlines Employees Association (PALEA).[16]
On the use of efficiency ratings obtained for the year 1997 as singular basis for determining the fitness of cabin crew personnel to continue working with it,
PAL explains that
24.
There is nothing unreasonable in using the year 1997 as basis for arriving at the efficiency ratings. FASAPs insinuations that
it ignored the employees alleged exceptional performance ratings and exemplary attendance records in the past are simply baseless, misleading
and erroneous.
24.1. First, while an employee may rack up hundreds of awards and commendations and hundreds of hours of
leave credits, it does not necessarily follow that the same employee, although admittedly of exceptional caliber, cannot be
terminated if just or authorized cause subsequently exists. For instance, if there is redundancy, an employee holding a
superfluous position may be terminated regardless of numerous awards and leave credits he may have earned. In this case,
it cannot be denied that PALs reduction, or partial closure, of its business operations, i.e., downsizing its flight fleet from
54 to 14 aircrafts, in order to prevent business losses and avoid total closure of its business, is one of the recognized
authorized causes expressly provided under Article 283 of the Labor Code.
PAL could, therefore, retrench employees regardless of the number of commendations, awards and accumulated
leave credits the latter obtained in the course of employment provided, of course, that the retrenchment is valid and legal.
In this case, the Labor Arbiter, the NLRC and the Court of Appeals unanimously found that the retrenchment is
intrinsicallyvalid and legal based on the same set of evidence. In fact, the Labor Arbiter categorically ruled:
there is no question that the rules imposed by law and jurisprudence to sustain retrenchment have
been amply satisfied by PAL. The only issue at hand is whether or not the retrenchment can be
upheld for complying with rules set forth in the collective bargaining agreement.
24.2. Second, in implementing retrenchment, the law does not require an employer to look back into far
reaches of time to check every good deed performed by every employee. This would not only be highly impractical, but
manifestly absurd as well. In evaluating job efficiency, it is enough for an employer to fix a determinate time frame within
which to base its evaluation. It can be six months, one year, two years, three years or ten years. It can in fact be any period
of time, subject to managements sound discretion.
But to be fair and reasonable, the application of the period must be uniform and consistent. It cannot be one year
for employee A, two years for employee B and three years for employee C. In this case, PAL selected a period of one year
(the year 1997), which was uniformly and consistently applied to all, without exception.
The year 1997 was chosen by PAL as it was the most logical period being the year immediately preceding the
retrenchment. All relevant records for the year 1997, such as attendance and performance evaluation, were complete and
accurate. Certainly, the year 1997 was not selected for the purpose of discriminating against any employee, but with the
sole objective of retaining the more efficient among the employees.
xxxx
26.
FASAP then insists that the basic criterion to effect lay-off or retrenchment is seniority. FASAP cites Article VII, Section 23 of
the PAL-FASAP 1995-2000 CBA:
The term seniority whenever used in this Agreement shall be deemed to mean a measure of a regular Cabin Attendants
claim in relation to other regular Cabin Attendants holding similar positions, to preferential consideration whenever the
Company exercises its right to promote to a higher paying position or lay-off of any Cabin Attendant.

27.
FASAP obviously misread and misinterpreted Section 23 of the PAL-FASAP 1995-2000 CBA. The provision does not even
mandate seniority to be a criterion whenever PAL implements a reduction or retrenchment, much less does it say that seniority is the one and only
criterion to be applied. Section 23 simply defines seniority and states that seniority may be given preferential consideration whenever PAL
exercises its right to promote to a higher paying position or lay-off of cabin attendants. PAL did just that in complying with Section 112 of the
PAL-FASAP CBA 1995-2000 when seniority was applied whenever all other factors were found to be equal. PAL clearly followed Section 23 of
the PAL-FASAP CBA in giving seniority preferential consideration. This is also reflected in the tabulation made by the NLRC in its Decision. [17]
PAL argues that in its past two CBAs with FASAP prior to the one under controversy, the same provisions and criteria for appearance, grooming, efficiency
and performance were used, without objections having been advanced by FASAP.
During oral arguments, PAL advanced an altogether new line of reasoning that has, until now, never been advanced as the primary argument in defense of its
retrenchment scheme: that the principal and true reason why PAL had to implement the mass lay-off of cabin personnel was not the downsizing of aircraft fleet
size, but the June 5, 1998 pilots strike, where approximately six hundred (600) of its pilots apparently abandoned their planes and simultaneously refused to
fly. Thus, counsel for PAL manifested to the Court that
ATTY. MENDOZA
As a consequence, if your Honor please, but what really brought about, shall we say, the really perilous situation of closure was that on
June 5, 1998, the pilots went on strike, ninety (90%) per cent of the pilots went on strike, approximately six hundred (600). These pilots strike
was so devastating because the pilots, if your Honors please, even left their place where they were at the time, somewhere inBangkok, somewhere
in Taipei and they just left the planes. Without any pilots no plane can fly, your Honor, that is the stark reality of the situation, and without
airplanes flying, there would be no place for employment of cabin attendants.[18] (Emphasis supplied)
As a result of this pilots strike, PAL claims to have suffered daily revenue losses equivalent to P100 million and P50 million of lost fixed costs, which came
at a time when PAL had no more money.[19] Owing to this pilots strike, PAL was brought to the brink of disaster and emergency that it needed to align the number
of cabin attendants with the number of airplanes that were flying. [20] After the pilots went on strike, PAL was left with only 68 pilots who chose to remain, but with
2,039 cabin attendants. Faced with this disproportionate ratio of pilots to cabin attendants, PAL immediately decided to terminate the services of more than 1,400 cabin
attendants via the retrenchment scheme in question. At the same time, the reduction in fleet which until that time remained a mere proposal had to be immediately
implemented, and cost-cutting measures were simply out of the question. Thus:
ATTY. MENDOZA
While meetings between PAL and FASAP may have occurred prior to June 1998 to discuss measures in which to possibly avoid
retrenchment with its planned reduction of fleet, PALs financial circumstances drastically changed in June 1998 that necessitated immediate and
corresponding measures. Harsh reality was that, there simply was no time. FASAP-suggested less drastic measures of work rotation,
forced vacation leaves, hotel sharing etc. were no longer feasible. Indeed, reduction by about 5,000 employees, including 1,423 cabin
crew, was the less drastic measure. The alternative, harsher obviously, was closure and liquidation. [21] (Emphasis supplied)
All throughout, it has been impressed upon us that PALs decision to downsize its fleet size is the principal reason why it had to put into effect a
corresponding downsizing of cabin crew personnel. However, on oral arguments before us, PAL now makes a total turnaround and attributes the retrenchment to the
June 5, 1998 pilots strike. Repeatedly, counsel for PAL blamed the pilots strike as the main culprit, thus:
ATTY. MENDOZA
As a consequence, if your Honor please, but what really brought about, shall we say, the really perilous situation of closure was that on
June 5, 1998, the pilots went on strike, ninety (90%) per cent of the pilots went on strike, approximately six hundred (600). These pilots strike
was so devastating x x x. Without any pilots no plane can fly, your Honor, that is the stark reality of the situation, and without airplanes flying,
there would be no place for employment of cabin attendants.
xxxx
ATTY. MENDOZA
Well, according to the Court, Your Honor, the Court principally invalidated this because, according to the Court it was fraudulent.
And it was fraudulent because PAL misrepresented that it was losing, but in fact it was not as the Court found. So, in other words, if Your Honor
please, as I have explained, there was no misrepresentation because the members of FASAP could not have but known that there were less planes
that were flying. And they could not have but known that the number of cabin attendants cannot have exceed that which were required by the
number of planes that were flying. So that was basically the reason for the redundancy and so it can never be said that this was redundant. But as I
have said, if Your Honor please, if the Court reconsiders its finding that there was illegal dismissal there would really be no relevance to this
quitclaim because, in any event, the separation pay has been received by some, except for those who declined it.
So therefore, if Your Honor please, if I may conclude since my time is practically up. First, there can hardly be any question, in fact, it
is considered by FASAP and found by the National Labor Relations Commission, the Labor Arbiter, and the Court of Appeals that circumstances
existed that did not only warrant the reduction of personnel including the members of FASAP and the cabin attendants but that these were
compelled by circumstances. If the cabin attendants were not retrenched you would have a situation where cabin attendants would be there but
were not needed but would earn compensation.

Second, if Your Honor please, as to the second issue, cost-cutting measures they were contemplated. But when the pilots
struck, an emergency situation arose and so there needed to be an immediate response to that situation and the only one of the
components of that response is this retrenchment.
Incidentally, if Your Honor please, a basic core of the rehabilitation of PAL was for the creditors to agree. PAL is a different business
than other businesses, Your Honor. An airline cannot stand still and the creditors demands are not met immediately, PAL would simply lose its
airplanes. And so far as Point No. 3 is concerned, if Your Honor please, PAL did the best it could under the circumstances. And as to number 3,
as I said, if Your Honor please, PAL acted in accordance with criteria in the Collective Bargaining Agreement which it followed meticulously
and religiously.
Whereas for the fourth, if Your Honor please, there was no fraud in the execution of the quitclaim but I must emphasize once again
that PALs case does not really rest on the quitclaims. PALs case rests on the response that we made on the first three (3) questions.
xxxx
ATTY. MENDOZA
Yes. As I explained, Your Honor, when the 1997 economic crisis took place and PAL saw that it was going to create a problem, PAL
started studying measures already. But before it could implement any of these measures, even conclude the study the pilots struck,when the
pilots struck the situations changed entirely. It put PAL in complete peril of total closure because no planes could fly, so that changed the
picture, there was no more time to engage in cost-cutting measures. What needed to be done, if Your Honor please, is to do what was
necessary to survive at that point? The first thing to do to survive was to fly as many planes as possible in order to earn some revenue. But you
could only fly as many planes as there were pilots, and that was the reason for the initial flights.
xxxx
ASSOCIATE JUSTICE NACHURA
During these conferences, did FASAP not suggest any other cost-cutting measures in order to determine the immediate
implementation of a retrenchment program?
ATTY. MENDOZA
Well, there was an endorsed initial conversation; there were suggestions if there is to be reduction of personnel, rotations, and so on
and so forth, Your Honor. So, by the time the pilots struck you have to retrench quickly x x x.
ASSOCIATE JUSTICE NACHURA
Because related to this is a statement in our Decision that the retrenchment was illegal because it was not actually the last resort that
PAL could have; it was not the last resort that PAL could have attended, well used. That means, there were other options that would probably
have opened to PAL which would not be as detrimental to FASAP as retrenchment.
ATTY. MENDOZA
If Your Honor please, may I put it this way? It was not just the last; it was the only resort, Your Honor, because of these
circumstances. There was no other option, but to operate flghts and spend only as necessary. If you have more cabin attendants than we
required for those planes which were flying you are spending needlessly actually, Your Honor, and that is certainly not conducive to bring about
a recovery of Philippine Airlines.
xxxx
ASSOCIATE JUSTICE DE CASTRO
You mentioned thatbefore that, that there is a need for rehabilitation because the PAL was in dire financial condition at that time,
and it was
ATTY. MENDOZA
Your Honor please, the rehabilitation came after the pilots strike. Actually, before the pilots strike the effort of PAL is to find the
way to address the Asian economic crisis. Its just like, if Your Honor please, a factory which is to be more efficient in order to be able to
compete, let us say, with the imported goods, so you downsize or you may try to be more efficient but the situation PAL confronted after the
pilots strike was entirely different. It was a case of survival already, Your Honor, because it meant closure and PAL was able to operate
some planes only because of what they called management pilots. There were certain pilots who were occupying supervisory positions but who
were employed still by PAL. They were the ones who actually flew the plane because the members of the pilots union simply stopped
working.[22] (Emphasis supplied)
On the other hand, FASAP argued and reiterated its original contentions, inter alia, that during negotiations for the implementation of cost-cutting measures,
it was assured by PAL that since there were negotiations with possible investors who were being eyed as business partners, retrenchment was no longer
necessary;[23] that although it admitted PALs financial difficulties, it did not concede that these losses justified the urgency, necessity and extent of the questioned
retrenchment scheme;[24] that the ICCD Masterank Listing was an afterthought, the same having been presented only on March 13, 2000, and was never shown to the

retrenched employees during the period of retrenchment; [25] that the criteria for retrenchment did not conform to the CBA; [26] and that no cost-cutting measures were
implemented.[27]
PAL has all this time tried to convince the Court that its decision to downsize its flight fleet was the principal reason why it undertook a corresponding
downsizing of cabin crew personnel. This time, however, it significantly changed stance and blamed the June 5, 1998 pilots strike as the real culprit which drove it to
undertake the massive retrenchment under scrutiny. This time, PAL characterizes the retrenchment scheme and the downsizing of aircraft as mere necessary reactions
to or unfortunate consequences of the pilots strike, which it claims likewise necessitated a disregard of all previous negotiations for the implementation of cost-cutting
measures that could have rendered the retrenchment scheme unnecessary, and which cost-cutting measures it no longer found necessary to undertake.
We find this argument untenable. The strike was a temporary occurrence that did not necessitate the immediate and sweeping retrenchment of 1,400 cabin
or flight attendants. By PALs own account, some of the striking pilots went back to work in July 1998, or less than one month after the strike began. Moreover, PAL
admitted that it remedied the situation by employing management pilots. [28] It could have hired new pilots as well. Certainly, it could have implemented the costcutting measures being discussed as a temporary measure to obviate the adverse effects of the pilots strike. There was no reason to drastically implement
a permanent retrenchment scheme in response to a temporary strike, which could have ended at any time, or remedied promptly, if management acted with
alacrity. Juxtaposed with its failure to implement the required cost-cutting measures, the retrenchment scheme was a knee-jerk solution to a temporary problem that
beset PAL at the time.
Besides, we cannot simply allow PAL to conveniently blame the striking pilots for causing the massive retrenchment of cabin personnel. Using them as
scapegoats to validate a comprehensive retrenchment scheme of cabin personnel without observing the requirements set by law is both unfair and underhanded. PAL
must still prove that it implemented cost-cutting measures to obviate retrenchment, which under the law should be the last resort. By PALs own admission, however,
the cabin personnel retrenchment scheme was one of the first remedies it resorted to, even before it could complete the proposed downsizing of its aircraft fleet. It
admittedly dropped all plans of implementing cost-cutting measures as soon as the pilots went on strike, and right away it sent notices of termination to its cabin
personnel.[29] This knee-jerk reaction would explain why it had to eventually recall and rehire some of the cabin attendants almost immediately after it retrenched them,
because the retrenchment simply was not commensurate with the downsizing of aircraft fleet size. This outcome only proves to show that the decision to retrench came
even before a final determination of how many aircraft were needed to be retained or discarded, or even before the rehabilitation plan could be approved.[30]
Again, it must be emphasized that in order for a retrenchment scheme to be valid, all of the following elements under Article 283 of the Labor Code must
concur or be present, to wit:
(1)
That retrenchment is reasonably necessary and likely to prevent business losses which, if already incurred, are not merelyde
minimis, but substantial, serious, actual and real, or if only expected, are reasonably imminent as perceived objectively and in good faith by the
employer;
(2)
That the employer served written notice both to the employees and to the Department of Labor and Employment at least one
month prior to the intended date of retrenchment;
(3)
That the employer pays the retrenched employees separation pay equivalent to one (1) month pay or at least one-half ()
month pay for every year of service, whichever is higher;
(4)
That the employer exercises its prerogative to retrench employees in good faith for the advancement of its interest and not to
defeat or circumvent the employees right to security of tenure; and,
(5)
That the employer uses fair and reasonable criteria in ascertaining who would be dismissed and who would be retained among
the employees, such as status, efficiency, seniority, physical fitness, age, and financial hardship for certain workers.
In the absence of one element, the retrenchment scheme becomes an irregular exercise of management prerogative. The employers obligation to exhaust all
other means to avoid further losses without retrenching its employees is a component of the first element as enumerated above. To impart operational meaning to the
constitutional policy of providing full protection to labor, the employers prerogative to bring down labor costs by retrenching must be exercised essentially as a
measure of last resort, after less drastic means have been tried and found wanting. [31]
In the instant case, PAL admitted that since the pilots strike allegedly created a situation of extreme urgency, it no longer implemented cost-cutting
measures and proceeded directly to retrench. This being so, it clearly did not abide by all the requirements under Article 283 of the Labor Code. At the time it was
implemented, the retrenchment scheme under scrutiny was not triggered directly by any financial difficulty PAL was experiencing at the time, nor borne of an actual
implementation of its proposed downsizing of aircraft. It was brought about by and resorted to as an immediate reaction to a pilots strike which, in strict point of
law and as herein earlier discussed, may not be considered as a valid reason to retrench, nor may it be used to excuse PAL for its non-observance of the requirements of
the law on retrenchment under the Labor Code.
On the basis of the foregoing disquisition, we find no further need to discuss the other arguments advanced by the parties in their pleadings and during the
oral arguments.
Therefore, this Court finds no reason to disturb its finding that the retrenchment of the flight attendants was illegally executed. As held in the Decision
sought to be reconsidered, PAL failed to observe the procedure and requirements for a valid retrenchment. Assuming that PAL was indeed suffering financial losses,
the requisite proof therefor was not presented before the NLRC which was the proper forum. More importantly, the manner of the retrenchment was not in accordance
with the procedure required by law. Hence, the retrenchment of the flight attendants amounted to illegal dismissal. Consequently, the flight attendants affected are
entitled to the reliefs provided by law, which include backwages and reinstatement or separation pay, as the case may be.
PAL begs the compassion of this Court and alleges that the monetary award it stands to pay to the affected flight attendants totals a whopping P2.3 billion,
the payment of which will certainly paralyze its operations and even lead to its untimely demise. However, a careful review of the records of the case, as well as the
respective allegations of the parties, shows that several of the crew members do not need to be paid full backwages or separation pay. A substantial fraction of the
1,400 flight attendants have already been either recalled, reinstated or relieved from the service. Still, some of them have reached the age of compulsory retirement or

even died. Likewise, a significant portion of these retrenched flight attendants have already received separation pay and signed quitclaim. All of these factors, to the
mind of the Court, will greatly reduce the quoted amount of the money judgment that PAL will have to pay.
After finality of this case, the records will have to be remanded to the Labor Arbiter who decided the case at the first instance. There, the actual amount of
PALs liability to each and every flight attendant will be computed. Both parties will have a chance to submit further proof and argument in support of their respective
proposed computations. For the guidance of the Labor Arbiter as well as the parties, this Court lays down the following yardsticks in the computation of the final
amount of liability, in order to avoid any protracted and heated debates which can again lead to further delays in the final resolution of this case and the full realization
by the retrenched flight attendants of the amounts necessary to compensate and indemnify them for the wrongful retrenchment.
1.
reinstatement.

Flight attendants who have been re-employed without loss of seniority rights shall be paid backwages but only up to the time of their actual

2.
Flight attendants who have been re-employed as new hires shall be restored their seniority and other preferential rights. However, their backwages
shall be computed only up to the date of actual re-hiring.
3.
Flight attendants who have reached their compulsory age of retirement shall receive backwages up to the date of their retirement only. The same is
true as regards the heirs of those who have passed away.
4.
Flight attendants who have not been re-employed by PAL, including those who executed quitclaims and received separation pay or financial
assistance, shall be reinstated without loss of seniority rights and paid full backwages. However, the amounts they already received should be deducted from whatever
amounts are finally adjudged to them individually.
Four members of the Division voted to include a fifth (5th) criterion, namely that flight attendants who had obtained substantially equivalent or even more
lucrative employment elsewhere in 1998 or thereafter are deemed to have severed their employment with PAL. They shall be entitled to full backwages from the date
of their retrenchment only up to the date they found employment elsewhere.
On a final note, this Court finds that the award of attorneys fees equivalent to 10% of the total monetary award should be tempered, considering the number
of flight attendants who stand to receive monetary awards and the totality of all amounts due to them. To be sure, attorneys fees in labor cases are awarded specifically
in actions for recovery of wages or where an employee was forced to litigate and thus incurred expenses to protect his rights and interests. In such cases, a maximum of
10% of the total monetary award is justifiable under Article 111 of the Labor Code, Section 8, Rule VIII, Book III of its Implementing Rules and paragraph 7, Article
2208 of the Civil Code.[32] The award of attorneys fees is proper where there is a showing that the lawful wages were not paid accordingly. [33]
x x x [T]here are two commonly accepted concepts of attorneys fees, the so-called ordinary and extraordinary. In its ordinary
concept, an attorneys fee is the reasonable compensation paid to a lawyer by his client for the legal services he has rendered to the latter. The
basis of this compensation is the fact of his employment by and his agreement with the client. In its extraordinary concept, attorneys fees are
deemed indemnity for damages ordered by the court to be paid by the losing party in a litigation. The instances where these may be awarded are
those enumerated in Article 2208 of the Civil Code, specifically par. 7 thereof which pertains to actions for recovery of wages, and is payable not
to the lawyer but to the client, unless they have agreed that the award shall pertain to the lawyer as additionalcompensation or as part
thereof. The extraordinary concept of attorneys fees is the one contemplated in Article 111 of the Labor Code, which provides:
Art. 111. Attorneys fees. (a) In cases of unlawful withholding of wages, the culpable party may be assessed
attorneys fees equivalent to ten percent of the amount of wages recovered x x x
The afore-quoted Article 111 is an exception to the declared policy of strict construction in the awarding of attorneys
fees. Although an express finding of facts and law is still necessary to prove the merit of the award, there need not be any showing that
the employer acted maliciously or in bad faith when it withheld the wages. There need only be a showing that the lawful wages were not
paid accordingly, as in this case.
In carrying out and interpreting the Labor Codes provisions and its implementing regulations, the employees welfare should be the
primordial and paramount consideration. This kind of interpretation gives meaning and substance to the liberal and compassionate spirit of the
law as provided in Article 4 of the Labor Code which states that [a]ll doubts in the implementation and interpretation of the provisions of [the
Labor] Code including its implementing rules and regulations, shall be resolved in favor of labor, and Article 1702 of the Civil Code which
provides that [i]n case of doubt, all labor legislation and all labor contracts shall be construed in favor of the safety and decent living for the
laborer. (Emphasis supplied)[34]
In the case of Concept Placement Resources, Inc. v. Funk,[35] this Court reduced the amount of attorneys fees which it ruled to be iniquitous and unconscionable
after finding that the lawyer did not encounter difficulty in representing his client. It was held:
We observe, however, that respondent did not encounter difficulty in representing petitioner. The complaint against it was dismissed
with prejudice. All that respondent did was to prepare the answer with counterclaim and possibly petitioners position paper. Considering
respondents limited legal services and the case involved is not complicated, the award of P50,000.00 as attorneys fees is a bit
excessive. In First Metro Investment Corporation vs. Este del Sol Mountain Reserve, Inc., we ruled that courts are empowered to reduce the
amount of attorneys fees if the same is iniquitous or unconscionable. Under the circumstances obtaining in this case, we consider the amount
of P20,000.00 reasonable.[36]
In the case at bar, we find that the flight attendants were represented by respondent union which, in turn, engaged the services of its own counsel. The flight
attendants had a common cause of action. While the work performed by respondents counsel was by no means simple, seeing as it spanned the whole litigation from
the Labor Arbiter stage all the way to this Court, nevertheless, the issues involved in this case are simple, and the legal strategies, theories and arguments advanced were
common for all the affected crew members. Hence, it may not be reasonable to award said counsel an amount equivalent to 10% of all monetary awards to be received

by each individual flight attendant. Based on the length of time that this case has been litigated, however, we find that the amount of P2,000,000.00 is reasonable as
attorneys fees. This amount should include all expenses of litigation that were incurred by respondent union.
WHEREFORE, for lack of merit, the Motion for Reconsideration is hereby DENIED with FINALITY. The assailed Decision dated July 22, 2008
is AFFIRMED with MODIFICATION in that the award of attorneys fees and expenses of litigation is reduced to P2,000,000.00. The case is
hereby REMANDED to the Labor Arbiter solely for the purpose of computing the exact amount of the award pursuant to the guidelines herein stated.
No further pleadings will be entertained.
SO ORDERED.

[G.R. No. 141994. January 17, 2005]

FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF
MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO, respondents.
DECISION
CARPIO, J.:
The Case
This petition for review[1] assails the 4 January 1999 Decision[2] and 26 January 2000 Resolution of the Court of Appeals in CA-G.R. CV No. 40151. The Court
of Appeals affirmed with modification the 14 December 1992 Decision [3] of the Regional Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of
Appeals held Filipinas Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre and Carmelo Rima liable for libel and ordered them to solidarily pay Ago
Medical and Educational Center-Bicol Christian College of Medicine moral damages, attorneys fees and costs of suit.

The Antecedents

Expos is a radio documentary[4] program hosted by Carmelo Mel Rima (Rima) and Hermogenes Jun Alegre (Alegre). [5] Expos is aired every morning
over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc. (FBNI). Expos is heard over Legazpi City, the Albay municipalities and other Bicol
areas.[6]
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from students, teachers and parents against Ago Medical and
Educational Center-Bicol Christian College of Medicine (AMEC) and its administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita Ago
(Ago), as Dean of AMECs College of Medicine, filed a complaint for damages [7]against FBNI, Rima and Alegre on 27 February 1990. Quoted are portions of the
allegedly libelous broadcasts:
JUN ALEGRE:
Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM, advise them to pass all subjects because if they fail in any
subject they will repeat their year level, taking up all subjects including those they have passed already. Several students had approached me stating that they had
consulted with the DECS which told them that there is no such regulation. If [there] is no such regulation why is AMEC doing the same?
xxx
Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized by DECS. xxx
Third: Students are required to take and pay for the subject even if the subject does not have an instructor - such greed for money on the part of AMECs
administration. Take the subject Anatomy: students would pay for the subject upon enrolment because it is offered by the school. However there would be no
instructor for such subject. Students would be informed that course would be moved to a later date because the school is still searching for the appropriate instructor.
xxx

It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving for the past few years since its inception because of funds
support from foreign foundations. If you will take a look at the AMEC premises youll find out that the names of the buildings there are foreign soundings. There is a
McDonald Hall. Why not Jose Rizal or Bonifacio Hall? That is a very concrete and undeniable evidence that the support of foreign foundations for AMEC is
substantial, isnt it? With the report which is the basis of the expose in DZRC today, it would be very easy for detractors and enemies of the Ago family to stop the
flow of support of foreign foundations who assist the medical school on the basis of the latters purpose. But if the purpose of the institution (AMEC) is to deceive
students at cross purpose with its reason for being it is possible for these foreign foundations to lift or suspend their donations temporarily.[8]
xxx
On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-Institute of Mass Communication in their effort to
minimize expenses in terms of salary are absorbing or continues to accept rejects. For example how many teachers in AMEC are former teachers of Aquinas
University but were removed because of immorality? Does it mean that the present administration of AMEC have the total definite moral foundation from catholic
administrator of Aquinas University. I will prove to you my friends, that AMEC is a dumping ground, garbage, not merely of moral and physical misfits.
Probably they only qualify in terms of intellect. The Dean of Student Affairs of AMEC is Justita Lola, as the family name implies. She is too old to work, being an old
woman. Is the AMEC administration exploiting the very [e]nterprising or compromising and undemanding Lola? Could it be that AMEC is just patiently making use of
Dean Justita Lola were if she is very old. As in atmospheric situation zero visibility the plane cannot land, meaning she is very old, low pay follows. By the way,
Dean Justita Lola is also the chairman of the committee on scholarship in AMEC. She had retired from Bicol University a long time ago but AMEC has patiently made
use of her.
xxx
MEL RIMA:
xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people. What does this mean? Immoral and physically misfits as
teachers.
May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to teach. You are too old. As an aviation, your case is zero
visibility. Dont insist.
xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that. The reason is practical cost saving in salaries, because an
old person is not fastidious, so long as she has money to buy the ingredient of beetle juice. The elderly can get by thats why she (Lola) was taken in as Dean.
xxx
xxx On our end our task is to attend to the interests of students. It is likely that the students would be influenced by evil. When they become members of society
outside of campus will be liabilities rather than assets. What do you expect from a doctor who while studying at AMEC is so much burdened with unreasonable
imposition? What do you expect from a student who aside from peculiar problems because not all students are rich in their struggle to improve their social status
are even more burdened with false regulations. xxx[9] (Emphasis supplied)
The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposs, FBNI, Rima and Alegre transmitted malicious
imputations, and as such, destroyed plaintiffs (AMEC and Ago) reputation. AMEC and Ago included FBNI as defendant for allegedly failing to exercise due
diligence in the selection and supervision of its employees, particularly Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer[10] alleging that the broadcasts against AMEC were fair and true. FBNI,
Rima and Alegre claimed that they were plainly impelled by a sense of public duty to report the goings-on in AMEC, [which is] an institution imbued with public
interest.
Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea, collaborating counsel of Atty. Lozares, filed a Motion to
Dismiss[11] on FBNIs behalf. The trial court denied the motion to dismiss. Consequently, FBNI filed a separate Answer claiming that it exercised due diligence in the
selection and supervision of Rima and Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster should (1) file an application; (2) be interviewed; and (3)
undergo an apprenticeship and training program after passing the interview. FBNI likewise claimed that it always reminds its broadcasters to observe truth, fairness
and objectivity in their broadcasts and to refrain from using libelous and indecent language. Moreover, FBNI requires all broadcasters to pass the Kapisanan ng mga
Brodkaster sa Pilipinas (KBP) accreditation test and to secure a KBP permit.
On 14 December 1992, the trial court rendered a Decision [12] finding FBNI and Alegre liable for libel except Rima. The trial court held that the broadcasts are
libelous per se. The trial court rejected the broadcasters claim that their utterances were the result of straight reporting because it had no factual basis. The broadcasters
did not even verify their reports before airing them to show good faith. In holding FBNI liable for libel, the trial court found that FBNI failed to exercise diligence in
the selection and supervision of its employees.
In absolving Rima from the charge, the trial court ruled that Rimas only participation was when he agreed with Alegres expos. The trial court found Rimas
statement within the bounds of freedom of speech, expression, and of the press. The dispositive portion of the decision reads:
WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of damages caused by the controversial utterances, which are not
found by this court to be really very serious and damaging, and there being no showing that indeed the enrollment of plaintiff school dropped, defendants
Hermogenes Jun Alegre, Jr. and Filipinas Broadcasting Network (owner of the radio station DZRC), are hereby jointly and severally ordered to pay plaintiff Ago

Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM) the amount of P300,000.00 moral damages, plus P30,000.00 reimbursement of
attorneys fees, and to pay the costs of suit.
SO ORDERED. [13] (Emphasis supplied)
Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the decision to the Court of Appeals. The Court of
Appeals affirmed the trial courts judgment with modification. The appellate court made Rima solidarily liable with FBNI and Alegre. The appellate court denied
Agos claim for damages and attorneys fees because the broadcasts were directed against AMEC, and not against her. The dispositive portion of the Court of Appeals
decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that broadcaster Mel Rima is SOLIDARILY ADJUDGED liable with
FBN[I] and Hermo[g]enes Alegre.
SO ORDERED.[14]
FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January 2000 Resolution.
Hence, FBNI filed this petition.[15]

The Ruling of the Court of Appeals

The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are libelous per se and that FBNI, Rima and Alegre failed to overcome the
legal presumption of malice. The Court of Appeals found Rima and Alegres claim that they were actuated by their moral and social duty to inform the public of the
students gripes as insufficient to justify the utterance of the defamatory remarks.
Finding no factual basis for the imputations against AMECs administrators, the Court of Appeals ruled that the broadcasts were made with reckless disregard
as to whether they were true or false. The appellate court pointed out that FBNI, Rima and Alegre failed to present in court any of the students who allegedly
complained against AMEC. Rima and Alegre merely gave a single name when asked to identify the students. According to the Court of Appeals, these circumstances
cast doubt on the veracity of the broadcasters claim that they were impelled by their moral and social duty to inform the public about the students gripes.
The Court of Appeals found Rima also liable for libel since he remarked that (1) AMEC-BCCM is a dumping ground for morally and physically misfit teachers;
(2) AMEC obtained the services of Dean Justita Lola to minimize expenses on its employees salaries; and (3) AMEC burdened the students with unreasonable
imposition and false regulations.[16]
The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of its employees for allowing Rima and Alegre to make the
radio broadcasts without the proper KBP accreditation. The Court of Appeals denied Agos claim for damages and attorneys fees because the libelous remarks were
directed against AMEC, and not against her. The Court of Appeals adjudged FBNI, Rima and Alegre solidarily liable to pay AMEC moral damages, attorneys fees and
costs of suit.

Issues

FBNI raises the following issues for resolution:

I.

WHETHER THE BROADCASTS ARE LIBELOUS;

II.

WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;

III.

WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and

IV.

WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL DAMAGES, ATTORNEYS FEES AND
COSTS OF SUIT.

The Courts Ruling

We deny the petition.

This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre against AMEC.[17] While AMEC did not point out clearly
the legal basis for its complaint, a reading of the complaint reveals that AMECs cause of action is based on Articles 30 and 33 of the Civil Code. Article

30[18] authorizes a separate civil action to recover civil liability arising from a criminal offense. On the other hand, Article 33[19] particularly provides that the injured
party may bring a separate civil action for damages in cases of defamation, fraud, and physical injuries. AMEC also invokes Article 19[20] of the Civil Code to justify its
claim for damages. AMEC cites Articles 2176[21] and 2180[22] of the Civil Code to hold FBNI solidarily liable with Rima and Alegre.

I.
Whether the broadcasts are libelous

A libel[23] is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or omission, condition, status, or circumstance
tending to cause the dishonor, discredit, or contempt of a natural or juridical person, or to blacken the memory of one who is dead.[24]
There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances tending to cause it dishonor, discredit and contempt.
Rima and Alegres remarks such as greed for money on the part of AMECs administrators; AMEC is a dumping ground, garbage of xxx moral and physical
misfits; and AMEC students who graduate will be liabilities rather than assets of the society are libelous per se. Taken as a whole, the broadcasts suggest that
AMEC is a money-making institution where physically and morally unfit teachers abound.
However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were plainly impelled by their civic duty to air the students
gripes. FBNI alleges that there is no evidence that ill will or spite motivated Rima and Alegre in making the broadcasts. FBNI further points out that Rima and Alegre
exerted efforts to obtain AMECs side and gave Ago the opportunity to defend AMEC and its administrators. FBNI concludes that since there is no malice, there is no
libel.
FBNIs contentions are untenable.
Every defamatory imputation is presumed malicious. [25] Rima and Alegre failed to show adequately their good intention and justifiable motive in airing the
supposed gripes of the students. As hosts of a documentary or public affairs program, Rima and Alegre should have presented the public issues free
from inaccurate and misleading information.[26] Hearing the students alleged complaints a month before the expos,[27] they had sufficient time to verify their sources
and information. However, Rima and Alegre hardly made a thorough investigation of the students alleged gripes. Neither did they inquire about nor confirm the
purported irregularities in AMEC from the Department of Education, Culture and Sports. Alegre testified that he merely went to AMEC to verify his report from an
alleged AMEC official who refused to disclose any information. Alegre simply relied on the words of the students because they were many and not because there is
proof that what they are saying is true.[28] This plainly shows Rima and Alegres reckless disregard of whether their report was true or not.
Contrary to FBNIs claim, the broadcasts were not the result of straight reporting. Significantly, some courts in the United States apply the privilege of neutral
reportage in libel cases involving matters of public interest or public figures. Under this privilege, a republisher whoaccurately and disinterestedly reports certain
defamatory statements made against public figures is shielded from liability, regardless of the republishers subjective awareness of the truth or falsity of the
accusation.[29] Rima and Alegre cannot invoke the privilege of neutral reportage because unfounded comments abound in the broadcasts. Moreover, there is no existing
controversy involving AMEC when the broadcasts were made. The privilege of neutral reportage applies where the defamed person is a public figure who is involved
in an existing controversy, and a party to that controversy makes the defamatory statement. [30]
However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court of Appeals,[31] FBNI contends that the broadcasts fall
within the coverage of qualifiedly privileged communications for being commentaries on matters of public interest. Such being the case, AMEC should prove malice
in fact or actual malice. Since AMEC allegedly failed to prove actual malice, there is no libel.
FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the doctrine of fair comment, thus:
[F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action for libel or slander. The doctrine of fair comment means that
while in general every discreditable imputation publicly made is deemed false, because every man is presumed innocent until his guilt is judicially proved, and every
false imputation is deemed malicious, nevertheless, when the discreditable imputation is directed against a public person in his public capacity, it is not necessarily
actionable. In order that such discreditable imputation to a public official may be actionable, it must either be a false allegation of fact or a comment based on
a false supposition. If the comment is an expression of opinion, based on established facts, then it is immaterial that the opinion happens to be mistaken, as long as
it might reasonably be inferred from the facts.[32] (Emphasis supplied)
True, AMEC is a private learning institution whose business of educating students is genuinely imbued with public interest. The welfare of the youth in
general and AMECs students in particular is a matter which the public has the right to know. Thus, similar to the newspaper articles in Borjal, the subject broadcasts
dealt with matters of public interest. However, unlike in Borjal, the questioned broadcasts are not based on established facts. The record supports the following
findings of the trial court:
xxx Although defendants claim that they were motivated by consistent reports of students and parents against plaintiff, yet, defendants have not presented in court, nor
even gave name of a single student who made the complaint to them, much less present written complaint or petition to that effect. To accept this defense of defendants
is too dangerous because it could easily give license to the media to malign people and establishments based on flimsy excuses that there were reports to them although
they could not satisfactorily establish it. Such laxity would encourage careless and irresponsible broadcasting which is inimical to public interests.
Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their duties, did not verify and analyze the truth of the reports before
they aired it, in order to prove that they are in good faith.
Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy courses. Yet, plaintiff produced a certificate coming from DECS
that as of Sept. 22, 1987 or more than 2 years before the controversial broadcast, accreditation to offer Physical Therapy course had already been given the plaintiff,
which certificate is signed by no less than the Secretary of Education and Culture herself, Lourdes R. Quisumbing (Exh. C-rebuttal). Defendants could have easily

known this were they careful enough to verify. And yet, defendants were very categorical and sounded too positive when they made the erroneous report that plaintiff
had no permit to offer Physical Therapy courses which they were offering.
The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald Foundation prove not to be true also. The truth is there is no
Mcdonald Foundation existing. Although a big building of plaintiff school was given the name Mcdonald building, that was only in order to honor the first missionary
in Bicol of plaintiffs religion, as explained by Dr. Lita Ago. Contrary to the claim of defendants over the air, not a single centavo appears to be received by plaintiff
school from the aforementioned McDonald Foundation which does not exist.
Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical students fail in one subject, they are made to repeat all the
other subject[s], even those they have already passed, nor their claim that the school charges laboratory fees even if there are no laboratories in the school. No evidence
was presented to prove the bases for these claims, at least in order to give semblance of good faith.
As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s] singled out Dean Justita Lola who is said to be so old, with zero
visibility already. Dean Lola testified in court last Jan. 21, 1991, and was found to be 75 years old. xxx Even older people prove to be effective teachers like Supreme
Court Justices who are still very much in demand as law professors in their late years. Counsel for defendants is past 75 but is found by this court to be still very sharp
and effective. So is plaintiffs counsel.
Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert and docile.
The contention that plaintiffs graduates become liabilities rather than assets of our society is a mere conclusion. Being from the place himself, this court is aware that
majority of the medical graduates of plaintiffs pass the board examination easily and become prosperous and responsible professionals. [33]
Had the comments been an expression of opinion based on established facts, it is immaterial that the opinion happens to be mistaken, as long as it might
reasonably be inferred from the facts.[34] However, the comments of Rima and Alegre were not backed up by facts. Therefore, the broadcasts are not privileged and
remain libelous per se.
The broadcasts also violate the Radio Code[35] of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink. (Radio Code). Item I(B) of the Radio Code provides:
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
1.

xxx

4.

Public affairs program shall present public issues free from personal bias, prejudice and inaccurate and misleading information. x x x
Furthermore, the station shall strive to present balanced discussion of issues. x x x.

xxx
7.

The station shall be responsible at all times in the supervision of public affairs, public issues and commentary programs so that they conform to the
provisions and standards of this code.

8.

It shall be the responsibility of the newscaster, commentator, host and announcer to protect public interest, general welfare and good order in the
presentation of public affairs and public issues.[36] (Emphasis supplied)

The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of ethical conduct governing practitioners in the radio
broadcast industry. The Radio Code is a voluntary code of conduct imposed by the radio broadcast industry on its own members. The Radio Code is a public warranty
by the radio broadcast industry that radio broadcast practitioners are subject to a code by which their conduct are measured for lapses, liability and sanctions.
The public has a right to expect and demand that radio broadcast practitioners live up to the code of conduct of their profession, just like other professionals. A
professional code of conduct provides the standards for determining whether a person has acted justly, honestly and with good faith in the exercise of his rights and
performance of his duties as required by Article 19 [37] of the Civil Code. A professional code of conduct also provides the standards for determining whether a person
who willfully causes loss or injury to another has acted in a manner contrary to morals or good customs under Article 21 [38] of the Civil Code.
II.
Whether AMEC is entitled to moral damages

FBNI contends that AMEC is not entitled to moral damages because it is a corporation.[39]
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such sentiments as
wounded feelings, serious anxiety, mental anguish or moral shock.[40] The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al.[41] to justify the award of moral
damages. However, the Courts statement in Mambulao that a corporation may have a good reputation which, if besmirched, may also be a ground for the award of
moral damages is an obiter dictum.[42]

Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219 [43] of the Civil Code. This provision expressly authorizes the recovery of
moral damages in cases of libel, slander or any other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person.
Therefore, a juridical person such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages.[44]
Moreover, where the broadcast is libelous per se, the law implies damages.[45] In such a case, evidence of an honest mistake or the want of character or reputation
of the party libeled goes only in mitigation of damages. [46] Neither in such a case is the plaintiff required to introduce evidence of actual damages as a condition
precedent to the recovery of some damages.[47] In this case, the broadcasts are libelous per se. Thus, AMEC is entitled to moral damages.
However, we find the award of P300,000 moral damages unreasonable. The record shows that even though the broadcasts were libelous per se, AMEC has not
suffered any substantial or material damage to its reputation. Therefore, we reduce the award of moral damages from P300,000 to P150,000.

III.
Whether the award of attorneys fees is proper

FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of attorneys fees. FBNI adds that the instant case does not fall
under the enumeration in Article 2208[48] of the Civil Code.
The award of attorneys fees is not proper because AMEC failed to justify satisfactorily its claim for attorneys fees. AMEC did not adduce evidence to warrant
the award of attorneys fees. Moreover, both the trial and appellate courts failed to explicitly state in their respective decisions the rationale for the award of attorneys
fees.[49] In Inter-Asia Investment Industries, Inc. v. Court of Appeals,[50]we held that:
[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule, and counsels fees are not to be awarded every time a party
wins a suit. The power of the court to award attorneys fees under Article 2208 of the Civil Code demands factual, legal and equitable justification, without
which the award is a conclusion without a premise, its basis being improperly left to speculation and conjecture. In all events, the court must explicitly state in
the text of the decision, and not only in the decretal portion thereof, the legal reason for the award of attorneys fees.[51] (Emphasis supplied)
While it mentioned about the award of attorneys fees by stating that it lies within the discretion of the court and depends upon the circumstances of each case,
the Court of Appeals failed to point out any circumstance to justify the award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre
for moral damages, attorneys fees
and costs of suit

FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and attorneys fees because it exercised due diligence in the
selection and supervision of its employees, particularly Rima and Alegre. FBNI maintains that its broadcasters, including Rima and Alegre, undergo a very
regimented process before they are allowed to go on air. Those who apply for broadcaster are subjected to interviews, examinations and an apprenticeship program.
FBNI further argues that Alegres age and lack of training are irrelevant to his competence as a broadcaster. FBNI points out that the minor deficiencies in the
KBP accreditation of Rima and Alegre do not in any way prove that FBNI did not exercise the diligence of a good father of a family in selecting and supervising
them. Rimas accreditation lapsed due to his non-payment of the KBP annual fees while Alegres accreditation card was delayed allegedly for reasons attributable to
the KBP Manila Office. FBNI claims that membership in the KBP is merely voluntary and not required by any law or government regulation.
FBNIs arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they commit.[52] Joint tort feasors are all the persons
who command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for
their benefit.[53] Thus, AMEC correctly anchored its cause of action against FBNI on Articles 2176 and 2180 of the Civil Code.
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages arising from the libelous broadcasts. As stated by the
Court of Appeals, recovery for defamatory statements published by radio or television may be had from theowner of the station, a licensee, the operator of the
station, or a person who procures, or participates in, the making of the defamatory statements. [54] An employer and employee are solidarily liable for a defamatory
statement by the employee within the course and scope of his or her employment, at least when the employer authorizes or ratifies the defamation.[55] In this case, Rima
and Alegre were clearly performing their official duties as hosts of FBNIs radio program Expos when they aired the broadcasts. FBNI neither alleged nor proved that
Rima and Alegre went beyond the scope of their work at that time. There was likewise no showing that FBNI did not authorize and ratify the defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due diligence in the selection and supervision of its employees, particularly Rima and
Alegre. FBNI merely showed that it exercised diligence in the selection of its broadcasters without introducing any evidence to prove that it observed the same
diligence in the supervision of Rima and Alegre. FBNI did not show how it exercised diligence in supervising its broadcasters. FBNIs alleged constant reminder to its
broadcasters to observe truth, fairness and objectivity and to refrain from using libelous and indecent language is not enough to prove due diligence in the supervision
of its broadcasters. Adequate training of the broadcasters on the industrys code of conduct, sufficient information on libel laws, and continuous evaluation of the
broadcasters performance are but a few of the many ways of showing diligence in the supervision of broadcasters.
FBNI claims that it has taken all the precaution in the selection of Rima and Alegre as broadcasters, bearing in mind their qualifications. However, no clear
and convincing evidence shows that Rima and Alegre underwent FBNIs regimented process of application. Furthermore, FBNI admits that Rima and Alegre had
deficiencies in their KBP accreditation,[56] which is one of FBNIs requirements before it hires a broadcaster. Significantly, membership in the KBP, while voluntary,

indicates the broadcasters strong commitment to observe the broadcast industrys rules and regulations. Clearly, these circumstances show FBNIs lack of diligence in
selecting and supervising Rima and Alegre. Hence, FBNI is solidarily liable to pay damages together with Rima and Alegre.
WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and Resolution of 26 January 2000 of the Court of Appeals in CAG.R. CV No. 40151 with the MODIFICATION that the award of moral damages is reduced from P300,000 toP150,000 and the award of attorneys fees is deleted.
Costs against petitioner.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Azcuna, JJ., concur.

G.R. No. 169836

July 31, 2007

PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY, petitioner,

vs.
COURT OF APPEALS, OFFICE OF THE PRESIDENT, DEPARTMENT OF FINANCE and the CITY OF ILOILO,respondents.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for review is the June 21, 2005 Decision 1 of the Court of Appeals in CA-G.R. SP No. 81228, which held that petitioner Philippine Fisheries
Development Authority (hereafter referred to as Authority) is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex (IFPC)
which are owned by the Republic of the Philippines but operated and governed by the Authority.
The facts are not disputed.
On August 11, 1976, then President Ferdinand E. Marcos issued Presidential Decree No. 977 (PD 977) creating the Authority and placing it under the direct control and
supervision of the Secretary of Natural Resources. On February 8, 1982, Executive Order No. 772 (EO 772) was issued amending PD 977, and renaming the Authority
as the now "Philippine Fisheries Development Authority," and attaching said agency to the Ministry of Natural Resources. Upon the effectivity of the Administrative
Code (EO 292), the Authority became an attached agency of the Department of Agriculture.2
Meanwhile, beginning October 31, 1981, the then Ministry of Public Works and Highways reclaimed from the sea a 21-hectare parcel of land in Barangay Tanza, Iloilo
City, and constructed thereon the IFPC, consisting of breakwater, a landing quay, a refrigeration building, a market hall, a municipal shed, an administration building, a
water and fuel oil supply system and other port related facilities and machineries. Upon its completion, the Ministry of Public Works and Highways turned over IFPC to
the Authority, pursuant to Section 11 of PD 977, which places fishing port complexes and related facilities under the governance and operation of the Authority.
Notwithstanding said turn over, title to the land and buildings of the IFPC remained with the Republic.
The Authority thereafter leased portions of IFPC to private firms and individuals engaged in fishing related businesses.
Sometime in May 1988, the City of Iloilo assessed the entire IFPC for real property taxes. The assessment remained unpaid until the alleged total tax delinquency of the
Authority for the fiscal years 1988 and 1989 amounted to P5,057,349.67, inclusive of penalties and interests. To satisfy the tax delinquency, the City of Iloilo scheduled
on August 30, 1990, the sale at public auction of the IFPC.
The Authority filed an injunction case with the Regional Trial Court. At the pre-trial, the parties agreed to avail of administrative proceedings, i.e., for the Authority to
file a claim for tax exemption with the Iloilo City Assessors Office. The latter, however, denied the claim for exemption, hence, the Authority elevated the case to the
Department of Finance (DOF).
In its letter-decision3 dated March 6, 1992, the DOF ruled that the Authority is liable to pay real property taxes to the City of Iloilo because it enjoys the beneficial use
of the IFPC. The DOF added, however, that in satisfying the amount of the unpaid real property taxes, the property that is owned by the Authority shall be auctioned,
and not the IFPC, which is a property of the Republic. 4
The Authority filed a petition before the Office of the President but it was dismissed. 5 It also denied the motion for reconsideration filed by the Authority. 6
On petition with the Court of Appeals, the latter affirmed the decision of the Office of the President. It opined, however, that the IFPC may be sold at public auction to
satisfy the tax delinquency of the Authority.7 The dispositive portion thereof, reads:
WHEREFORE, premises considered, the instant Petition for Review is DENIED, and accordingly the June 30, 2003 Decision and December 3, 2003 Order
of the Office of the President are hereby AFFIRMED.
SO ORDERED.8

Hence, this petition.

The issues are as follows: Is the Authority liable to pay real property tax to the City of Iloilo? If the answer is in the affirmative, may the IFPC be sold at public auction
to satisfy the tax delinquency?
To resolve said issues, the Court has to determine (1) whether the Authority is a government owned or controlled corporation (GOCC) or an instrumentality of the
national government; and (2) whether the IFPC is a property of public dominion.
The Court rules that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax.
However, said exemption does not apply to the portions of the IFPC which the Authority leased to private entities. With respect to these properties, the Authority is
liable to pay real property tax. Nonetheless, the IFPC, being a property of public dominion cannot be sold at public auction to satisfy the tax delinquency.
In Manila International Airport Authority (MIAA) v. Court of Appeals,9 the Court made a distinction between a GOCC and an instrumentality. Thus:
Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a government-owned or controlled corporation as follows:
SEC. 2. General Terms Defined. x x x
(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with functions
relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities
either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x
(Emphasis supplied)
A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is not organized as a stock or non-stock
corporation. MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting shares.
xxxx
Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is divided into shares and x x x authorized to distribute to the
holders of such shares dividends x x x." MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or voting shares.
Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a non-stock corporation as "one
where no part of its income is distributable as dividends to its members, trustees or officers." A non-stock corporation must have members. Even if we
assume that the Government is considered as the sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot
distribute any part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to
the National Treasury. This prevents MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious, educational, professional, cultural,
recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like chambers." MIAA is not
organized for any of these purposes. MIAA, a public utility, is organized to operate an international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or controlled corporation.10 (Emphasis supplied)
Thus, for an entity to be considered as a GOCC, it must either be organized as a stock or non-stock corporation. Two requisites must concur before one may be
classified as a stock corporation, namely: (1) that it has capital stock divided into shares, and (2) that it is authorized to distribute dividends and allotments of surplus
and profits to its stockholders. If only one requisite is present, it cannot be properly classified as a stock corporation. As for non-stock corporations, they must have
members and must not distribute any part of their income to said members. 11
On the basis of the parameters set in the MIAA case, the Authority should be classified as an instrumentality of the national government. As such, it is generally exempt
from payment of real property tax, except those portions which have been leased to private entities.
In the MIAA case, petitioner Philippine Fisheries Development Authority was cited as among the instrumentalities of the national government. Thus
Some of the national government instrumentalities vested by law with juridical personalities are:Bangko Sentral ng Pilipinas, Philippine Rice
Research Institute, Laguna Lake Development Authority,Fisheries Development Authority, Bases Conversion Development Authority, Philippine Ports
Authority, Cagayan de Oro Port Authority, San Fernando Port Authority, Cebu Port Authority, and Philippine National Railways.
Indeed, the Authority is not a GOCC but an instrumentality of the government. The Authority has a capital stock but it is not divided into shares of stocks.12 Also, it has
no stockholders or voting shares. Hence, it is not a stock corporation. Neither it is a non-stock corporation because it has no members.

The Authority is actually a national government instrumentality which is defined as an agency of the national government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter.13 When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless
the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also
corporate powers.
Thus, the Authority which is tasked with the special public function to carry out the governments policy "to promote the development of the countrys fishing industry
and improve the efficiency in handling, preserving, marketing, and distribution of fish and other aquatic products," exercises the governmental powers of eminent
domain,14 and the power to levy fees and charges.15 At the same time, the Authority exercises "the general corporate powers conferred by laws upon private and
government-owned or controlled corporations."16
The MIAA case held17 that unlike GOCCs, instrumentalities of the national government, like MIAA, are exempt from local taxes pursuant to Section 133(o) of the
Local Government Code. This exemption, however, admits of an exception with respect to real property taxes. Applying Section 234(a) of the Local Government Code,
the Court ruled that when an instrumentality of the national government grants to a taxable person the beneficial use of a real property owned by the Republic, said
instrumentality becomes liable to pay real property tax. Thus, while MIAA was held to be an instrumentality of the national government which is generally exempt
from local taxes, it was at the same time declared liable to pay real property taxes on the airport lands and buildings which it leased to private persons. It was held that
the real property tax assessments and notices of delinquencies issued by the City of Pasay to MIAA are void except those pertaining to portions of the airport which are
leased to private parties. Pertinent portions of the decision, reads:
Section 193 of the Local Government Code expressly withdrew the tax exemption of all juridical persons "[u]nless otherwise provided in this Code." Now,
Section 133(o) of the Local Government Codeexpressly provides otherwise, specifically prohibiting local governments from imposing any kind of tax on
national government instrumentalities. Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies andinstrumentalities, and local government units.
By express mandate of the Local Government Code, local governments cannot impose any kind of taxon national government instrumentalities like the
MIAA. Local governments are devoid of power to tax the national government, its agencies and instrumentalities. The taxing powers of local
governments do not extend to the national government, its agencies and instrumentalities, "[u]nless otherwise provided in this Code" as stated in the saving
clause of Section 133. x x x
xxxx
The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the Code, which makes the national government subject to
real estate tax when it gives the beneficial use of its real properties to a taxable entity. Section 234(a) of the Local Government Code provides:
SEC. 234. Exemptions from Real Property Tax The following are exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person.
x x x18 (Emphasis supplied)
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals of 5 October 2001 and 27 September 2002 in
CA-G.R. SP No. 66878. We DECLARE the Airport Lands and Buildings of the Manila International Airport Authority EXEMPT from the real estate tax
imposed by the City of Paraaque. We declare VOID all the real estate tax assessments, including the final notices of real estate tax delinquencies, issued by
the City of Paraaque on the Airport Lands and Buildings of the Manila International Airport Authority, except for the portions that the Manila International
Airport Authority has leased to private parties. We also declare VOID the assailed auction sale, and all its effects, of the Airport Lands and Buildings of the
Manila International Airport Authority.
x x x x.19 (Emphasis added)
In light of the foregoing, the Authority should be classified as an instrumentality of the national government which is liable to pay taxes only with respect to the
portions of the property, the beneficial use of which were vested in private entities. When local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local governments. The rule is that a tax is never presumed and there must be clear language in the law
imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against taxation. This rule applies with greater force when local governments
seek to tax national government instrumentalities.20

Thus, the real property tax assessments issued by the City of Iloilo should be upheld only with respect to the portions leased to private persons. In case the Authority
fails to pay the real property taxes due thereon, said portions cannot be sold at public auction to satisfy the tax delinquency. In Chavez v. Public Estates Authority it was
held that reclaimed lands are lands of the public domain and cannot, without Congressional fiat, be subject of a sale, public or private, thus:21
The salient provisions of CA No. 141, on government reclaimed, foreshore and marshy lands of the public domain, are as follows:
Sec. 59. The lands disposable under this title shall be classified as follows:
(a) Lands reclaimed by the Government by dredging, filling, or other means;
(b) Foreshore;
(c) Marshy lands or lands covered with water bordering upon the shores or banks of navigable lakes or rivers;
(d) Lands not included in any of the foregoing classes.
xxxx
Sec. 61. The lands comprised in classes (a), (b), and (c) of section fifty-nine shall be disposed of to private parties by lease only and not otherwise, as soon
as the President, upon recommendation by the Secretary of Agriculture, shall declare that the same are not necessary for the public service and are open to
disposition under this chapter. The lands included in class (d) may be disposed of by sale or lease under the provisions of this Act." (Emphasis supplied)
xxxx
Since then and until now, the only way the government can sell to private parties government reclaimed and marshy disposable lands of the public domain is
for the legislature to pass a law authorizing such sale. CA No. 141 does not authorize the President to reclassify government reclaimed and marshy lands into
other non-agricultural lands under Section 59 (d). Lands classified under Section 59 (d) are the only alienable or disposable lands for non-agricultural
purposes that the government could sell to private parties. (Emphasis supplied)
In the same vein, the port built by the State in the Iloilo fishing complex is a property of the public dominion and cannot therefore be sold at public auction. Article 420
of the Civil Code, provides:
ARTICLE 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others
of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth.
The Iloilo fishing port which was constructed by the State for public use and/or public service falls within the term "port" in the aforecited provision. Being a property
of public dominion the same cannot be subject to execution or foreclosure sale. 22 In like manner, the reclaimed land on which the IFPC is built cannot be the object of a
private or public sale without Congressional authorization. Whether there are improvements in the fishing port complexthat should not be construed to be embraced
within the term "port," involves evidentiary matters that cannot be addressed in the present case. As for now, considering that the Authority is a national government
instrumentality, any doubt on whether the entire IFPC may be levied upon to satisfy the tax delinquency should be resolved against the City of Iloilo.
In sum, the Court finds that the Authority is an instrumentality of the national government, hence, it is liable to pay real property taxes assessed by the City of Iloilo on
the IFPC only with respect to those portions which are leased to private entities. Notwithstanding said tax delinquency on the leased portions of the IFPC, the latter or
any part thereof, being a property of public domain, cannot be sold at public auction. This means that the City of Iloilo has to satisfy the tax delinquency through means
other than the sale at public auction of the IFPC.
WHEREFORE, the petition is GRANTED and the June 21, 2005 Decision of the Court of Appeals in CA-G.R. SP No. 81228 is SET ASIDE. The real property tax
assessments issued by the City Iloilo on the land and buildings of the Iloilo Fishing Port Complex, is declared VOID except those pertaining to the portions leased to
private parties. The City of Iloilo is DIRECTED to refrain from levying on the Iloilo Fishing Port Complex to satisfy the payment of the real property tax delinquency.
No costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 163072

April 2, 2009

MANILA INTERNATIONAL AIRPORT AUTHORITY, Petitioner,

vs.
CITY OF PASAY, SANGGUNIANG PANGLUNGSOD NG PASAY, CITY MAYOR OF PASAY, CITY TREASURER OF PASAY, and CITY ASSESSOR
OF PASAY, Respondents.
DECISION
CARPIO, J.:
This is a petition for review on certiorari1 of the Decision2 dated 30 October 2002 and the Resolution dated 19 March 2004 of the Court of Appeals in CA-G.R. SP No.
67416.
The Facts
Petitioner Manila International Airport Authority (MIAA) operates and administers the Ninoy Aquino International Airport (NAIA) Complex under Executive Order
No. 903 (EO 903),3 otherwise known as the Revised Charter of the Manila International Airport Authority. EO 903 was issued on 21 July 1983 by then President
Ferdinand E. Marcos. Under Sections 34 and 225 of EO 903, approximately 600 hectares of land, including the runways, the airport tower, and other airport buildings,
were transferred to MIAA. The NAIA Complex is located along the border between Pasay City and Paraaque City.
On 28 August 2001, MIAA received Final Notices of Real Property Tax Delinquency from the City of Pasay for the taxable years 1992 to 2001. MIAAs real property
tax delinquency for its real properties located in NAIA Complex, Ninoy Aquino Avenue, Pasay City (NAIA Pasay properties) is tabulated as follows:
TAX DECLA-RATION TAXABLE YEAR

TAX DUE

PENALTY

TOTAL

A7-183-08346

1997-2001

243,522,855.00

123,351,728.18

366,874,583.18

A7-183-05224

1992-2001

113,582,466.00

71,159,414.98

184,741,880.98

A7-191-00843

1992-2001

54,454,800.00

34,115,932.20

88,570,732.20

A7-191-00140

1992-2001

1,632,960.00

1,023,049.44

2,656,009.44

A7-191-00139

1992-2001

6,068,448.00

3,801,882.85

9,870,330.85

A7-183-05409

1992-2001

59,129,520.00

37,044,644.28

96,174,164.28

A7-183-05410

1992-2001

20,619,720.00

12,918,254.58

33,537,974.58

A7-183-05413

1992-2001

7,908,240.00

4,954,512.36

12,862,752.36

A7-183-05412

1992-2001

18,441,981.20

11,553,901.13

29,995,882.33

A7-183-05411

1992-2001

109,946,736.00

68,881,630.13

178,828,366.13

A7-183-05245

1992-2001

7,440,000.00

4,661,160.00

12,101,160.00

GRAND TOTAL

P642,747,726.20 P373,466,110.13 P1,016,213,836.33

On 24 August 2001, the City of Pasay, through its City Treasurer, issued notices of levy and warrants of levy for the NAIA Pasay properties. MIAA received the notices
and warrants of levy on 28 August 2001. Thereafter, the City Mayor of Pasay threatened to sell at public auction the NAIA Pasay properties if the delinquent real
property taxes remain unpaid.
On 29 October 2001, MIAA filed with the Court of Appeals a petition for prohibition and injunction with prayer for preliminary injunction or temporary restraining
order. The petition sought to enjoin the City of Pasay from imposing real property taxes on, levying against, and auctioning for public sale the NAIA Pasay properties.
On 30 October 2002, the Court of Appeals dismissed the petition and upheld the power of the City of Pasay to impose and collect realty taxes on the NAIA Pasay
properties. MIAA filed a motion for reconsideration, which the Court of Appeals denied. Hence, this petition.

The Court of Appeals Ruling

The Court of Appeals held that Sections 193 and 234 of Republic Act No. 7160 or the Local Government Code, which took effect on 1 January 1992, withdrew the
exemption from payment of real property taxes granted to natural or juridical persons, including government-owned or controlled corporations, except local water
districts, cooperatives duly registered under Republic Act No. 6938, non-stock and non-profit hospitals and educational institutions. Since MIAA is a governmentowned corporation, it follows that its tax exemption under Section 21 of EO 903 has been withdrawn upon the effectivity of the Local Government Code.
The Issue
The issue raised in this petition is whether the NAIA Pasay properties of MIAA are exempt from real property tax.
The Courts Ruling
The petition is meritorious.
In ruling that MIAA is not exempt from paying real property tax, the Court of Appeals cited Sections 193 and 234 of the Local Government Code which read:
SECTION 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all
persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No.
6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.
SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for
consideration or otherwise to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or religious cemeteries and all lands, buildings and
improvements actually, directly, and exclusively used for religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government owned or controlled corporations
engaged in the supply and distribution of water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and environment protection.
Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons, whether natural or juridical,
including all government-owned or controlled corporations are hereby withdrawn upon the effectivity of this Code.
The Court of Appeals held that as a government-owned corporation, MIAAs tax exemption under Section 21 of EO 903 has already been withdrawn upon the
effectivity of the Local Government Code in 1992.
In Manila International Airport Authority v. Court of Appeals6 (2006 MIAA case), this Court already resolved the issue of whether the airport lands and buildings of
MIAA are exempt from tax under existing laws. The 2006 MIAA case originated from a petition for prohibition and injunction which MIAA filed with the Court of
Appeals, seeking to restrain the City of Paraaque from imposing real property tax on, levying against, and auctioning for public sale the airport lands and buildings
located in Paraaque City. The only difference between the 2006 MIAA case and this case is that the 2006 MIAA case involved airport lands and buildings located in
Paraaque City while this case involved airport lands and buildings located in Pasay City. The 2006 MIAA case and this case raised the same threshold issue: whether
the local government can impose real property tax on the airport lands, consisting mostly of the runways, as well as the airport buildings, of MIAA. In the 2006 MIAA
case, this Court held:
To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory Provisions of the Administrative Code because it is
not organized as a stock or non-stock corporation. Neither is MIAA a government-owned or controlled corporation under Section 16, Article XII of the 1987
Constitution because MIAA is not required to meet the test of economic viability. MIAA is a government instrumentality vested with corporate powers and performing
essential public services pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. As a government instrumentality, MIAA is not subject to
any kind of tax by local governments under Section 133(o) of the Local Government Code. The exception to the exemption in Section 234(a) does not apply to MIAA
because MIAA is not a taxable entity under the Local Government Code. Such exception applies only if the beneficial use of real property owned by the Republic is
given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of public dominion. Properties of public dominion are
owned by the State or the Republic. Article 420 of the Civil Code provides:

Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridgesconstructed by the State, banks, shores, roadsteads, and others
of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth.
The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and Buildings of MIAA are intended for public use, and at the very
least intended for public service. Whether intended for public use or public service, the Airport Lands and Buildings are properties of public dominion. As properties of
public dominion, the Airport Lands and Buildings are owned by the Republic and thus exempt from real estate tax under Section 234(a) of the Local Government
Code.7 (Emphasis in the original)
The definition of "instrumentality" under Section 2(10) of the Introductory Provisions of the Administrative Code of 1987 uses the phrase "includes x x x governmentowned or controlled corporations" which means that a government "instrumentality" may or may not be a "government-owned or controlled corporation." Obviously,
the term government "instrumentality" is broader than the term "government-owned or controlled corporation." Section 2(10) provides:
SEC. 2. General Terms Defined. x x x
(10) Instrumentality refers to any agency of the national Government, not integrated within the department framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. This term includes
regulatory agencies, chartered institutions and government-owned or controlled corporations.
The term "government-owned or controlled corporation" has a separate definition under Section 2(13)8 of the Introductory Provisions of the Administrative Code of
1987:
SEC. 2. General Terms Defined. x x x
(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with functions relating to public needs
whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case
of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: Provided, That government-owned or controlled corporations may further be
categorized by the department of Budget, the Civil Service Commission, and the Commission on Audit for the purpose of the exercise and discharge of their respective
powers, functions and responsibilities with respect to such corporations.
The fact that two terms have separate definitions means that while a government "instrumentality" may include a "government-owned or controlled corporation," there
may be a government "instrumentality" that will not qualify as a "government-owned or controlled corporation."
A close scrutiny of the definition of "government-owned or controlled corporation" in Section 2(13) will show that MIAA would not fall under such definition. MIAA
is a government "instrumentality" that does not qualify as a "government-owned or controlled corporation." As explained in the 2006 MIAA case:
A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is not organized as a stock or non-stock corporation.
MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting shares. x x x
Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is divided into shares and x x x authorized to distribute to the holders of such
shares dividends x x x." MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock
corporation.
xxx
MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a non-stock corporation as "one where no part of its
income is distributable as dividends to its members, trustees or officers." A non-stock corporation must have members. Even if we assume that the Government is
considered as the sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of their income to their
members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the National Treasury. This prevents MIAA from
qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious, educational, professional, cultural, recreational,
fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like chambers." MIAA is not organized for any of these
purposes. MIAA, a public utility, is organized to operate an international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or controlled corporation. What then is the legal status of
MIAA within the National Government?

MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. MIAA is like any other government
instrumentality, the only difference is that MIAA is vested with corporate powers. x x x
When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is
organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA
exercises the governmental powers of eminent domain, police authority and the levying of fees and charges. At the same time, MIAA exercises "all the powers of a
corporation under the Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order." 9
Thus, MIAA is not a government-owned or controlled corporation but a government instrumentality which is exempt from any kind of tax from the local governments.
Indeed, the exercise of the taxing power of local government units is subject to the limitations enumerated in Section 133 of the Local Government Code.10 Under
Section 133(o)11 of the Local Government Code, local government units have no power to tax instrumentalities of the national government like the MIAA. Hence,
MIAA is not liable to pay real property tax for the NAIA Pasay properties.
Furthermore, the airport lands and buildings of MIAA are properties of public dominion intended for public use, and as such are exempt from real property tax under
Section 234(a) of the Local Government Code. However, under the same provision, if MIAA leases its real property to a taxable person, the specific property leased
becomes subject to real property tax.12 In this case, only those portions of the NAIA Pasay properties which are leased to taxable persons like private parties are subject
to real property tax by the City of Pasay.
WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 30 October 2002 and the Resolution dated 19 March 2004 of the Court of Appeals in
CA-G.R. SP No. 67416. We DECLARE the NAIA Pasay properties of the Manila International Airport Authority EXEMPT from real property tax imposed by the
City of Pasay. We declare VOID all the real property tax assessments, including the final notices of real property tax delinquencies, issued by the City of Pasay on the
NAIA Pasay properties of the Manila International Airport Authority, except for the portions that the Manila International Airport Authority has leased to private
parties.
No costs.
SO ORDERED.
G.R. No. 96161 February 21, 1992
PHILIPS EXPORT B.V., PHILIPS ELECTRICAL LAMPS, INC. and PHILIPS INDUSTRIAL DEVELOPMENT, INC.,petitioners,
vs.
COURT OF APPEALS, SECURITIES & EXCHANGE COMMISSION and STANDARD PHILIPS CORPORATION,respondents.
Emeterio V. Soliven & Associates for petitioners.
Narciso A. Manantan for private respondent.

MELENCIO-HERRERA, J.:
Petitioners challenge the Decision of the Court of Appeals, dated 31 July 1990, in CA-GR Sp. No. 20067, upholding the Order of the Securities and Exchange
Commission, dated 2 January 1990, in SEC-AC No. 202, dismissing petitioners' prayer for the cancellation or removal of the word "PHILIPS" from private respondent's
corporate name.
Petitioner Philips Export B.V. (PEBV), a foreign corporation organized under the laws of the Netherlands, although not engaged in business here, is the registered
owner of the trademarks PHILIPS and PHILIPS SHIELD EMBLEM under Certificates of Registration Nos. R-1641 and R-1674, respectively issued by the Philippine
Patents Office (presently known as the Bureau of Patents, Trademarks and Technology Transfer). Petitioners Philips Electrical Lamps, Inc. (Philips Electrical, for
brevity) and Philips Industrial Developments, Inc. (Philips Industrial, for short), authorized users of the trademarks PHILIPS and PHILIPS SHIELD EMBLEM, were
incorporated on 29 August 1956 and 25 May 1956, respectively. All petitioner corporations belong to the PHILIPS Group of Companies.
Respondent Standard Philips Corporation (Standard Philips), on the other hand, was issued a Certificate of Registration by respondent Commission on 19 May 1982.
On 24 September 1984, Petitioners filed a letter complaint with the Securities & Exchange Commission (SEC) asking for the cancellation of the word "PHILIPS" from
Private Respondent's corporate name in view of the prior registration with the Bureau of Patents of the trademark "PHILIPS" and the logo "PHILIPS SHIELD
EMBLEM" in the name of Petitioner, PEBV, and the previous registration of Petitioners Philips Electrical and Philips Industrial with the SEC.
As a result of Private Respondent's refusal to amend its Articles of Incorporation, Petitioners filed with the SEC, on 6 February 1985, a Petition (SEC Case No. 2743)
praying for the issuance of a Writ of Preliminary Injunction, alleging, among others, that Private Respondent's use of the word PHILIPS amounts to an infringement and
clear violation of Petitioners' exclusive right to use the same considering that both parties engage in the same business.

In its Answer, dated 7 March 1985, Private Respondent countered that Petitioner PEBV has no legal capacity to sue; that its use of its corporate name is not at all
similar to Petitioners' trademark PHILIPS when considered in its entirety; and that its products consisting of chain rollers, belts, bearings and cutting saw are grossly
different from Petitioners' electrical products.
After conducting hearings with respect to the prayer for Injunction; the SEC Hearing Officer, on 27 September 1985, ruled against the issuance of such Writ.
On 30 January 1987, the same Hearing Officer dismissed the Petition for lack of merit. In so ruling, the latter declared that inasmuch as the SEC found no sufficient
ground for the granting of injunctive relief on the basis of the testimonial and documentary evidence presented, it cannot order the removal or cancellation of the word
"PHILIPS" from Private Respondent's corporate name on the basis of the same evidence adopted in toto during trial on the merits. Besides, Section 18 of the
Corporation Code (infra) is applicable only when the corporate names in question are identical. Here, there is no confusing similarity between Petitioners' and Private
Respondent's corporate names as those of the Petitioners contain at least two words different from that of the Respondent. Petitioners' Motion for Reconsideration was
likewise denied on 17 June 1987.
On appeal, the SEC en banc affirmed the dismissal declaring that the corporate names of Petitioners and Private Respondent hardly breed confusion inasmuch as each
contains at least two different words and, therefore, rules out any possibility of confusing one for the other.
On 30 January 1990, Petitioners sought an extension of time to file a Petition for Review on Certiorari before this Court, which Petition was later referred to the Court
of Appeals in a Resolution dated 12 February 1990.
In deciding to dismiss the petition on 31 July 1990, the Court of
Appeals 1 swept aside Petitioners' claim that following the ruling in Converse Rubber Corporation v. Universal Converse Rubber Products, Inc., et al, (G. R. No. L27906, January 8, 1987, 147 SCRA 154), the word PHILIPS cannot be used as part of Private Respondent's corporate name as the same constitutes a dominant part of
Petitioners' corporate names. In so holding, the Appellate Court observed that the Converse case is not four-square with the present case inasmuch as the contending
parties in Converse are engaged in a similar business, that is, the manufacture of rubber shoes. Upholding the SEC, the Appellate Court concluded that "private
respondents' products consisting of chain rollers, belts, bearings and cutting saw are unrelated and non-competing with petitioners' products i.e. electrical lamps such
that consumers would not in any probability mistake one as the source or origin of the product of the other."
The Appellate Court denied Petitioners' Motion for Reconsideration on 20 November 1990, hence, this Petition which was given due course on 22 April 1991, after
which the parties were required to submit their memoranda, the latest of which was received on 2 July 1991. In December 1991, the SEC was also required to elevate its
records for the perusal of this Court, the same not having been apparently before respondent Court of Appeals.
We find basis for petitioners' plea.
As early as Western Equipment and Supply Co. v. Reyes, 51 Phil. 115 (1927), the Court declared that a corporation's right to use its corporate and trade name is a
property right, a right in rem, which it may assert and protect against the world in the same manner as it may protect its tangible property, real or personal, against
trespass or conversion. It is regarded, to a certain extent, as a property right and one which cannot be impaired or defeated by subsequent appropriation by another
corporation in the same field (Red Line Transportation Co. vs. Rural Transit Co., September 8, 1934, 20 Phil 549).
A name is peculiarly important as necessary to the very existence of a corporation (American Steel Foundries vs. Robertson, 269 US 372, 70 L ed 317, 46 S Ct 160;
Lauman vs. Lebanon Valley R. Co., 30 Pa 42; First National Bank vs. Huntington Distilling Co. 40 W Va 530, 23 SE 792). Its name is one of its attributes, an element
of its existence, and essential to its identity (6 Fletcher [Perm Ed], pp. 3-4). The general rule as to corporations is that each corporation must have a name by which it is
to sue and be sued and do all legal acts. The name of a corporation in this respect designates the corporation in the same manner as the name of an individual designates
the person (Cincinnati Cooperage Co. vs. Bate. 96 Ky 356, 26 SW 538; Newport Mechanics Mfg. Co. vs. Starbird. 10 NH 123); and the right to use its corporate name
is as much a part of the corporate franchise as any other privilege granted (Federal Secur. Co. vs. Federal Secur. Corp., 129 Or 375, 276 P 1100, 66 ALR 934; Paulino
vs. Portuguese Beneficial Association, 18 RI 165, 26 A 36).
A corporation acquires its name by choice and need not select a name identical with or similar to one already appropriated by a senior corporation while an individual's
name is thrust upon him (See Standard Oil Co. of New Mexico, Inc. v. Standard Oil Co. of California, 56 F 2d 973, 977). A corporation can no more use a corporate
name in violation of the rights of others than an individual can use his name legally acquired so as to mislead the public and injure another (Armington vs. Palmer, 21
RI 109. 42 A 308).
Our own Corporation Code, in its Section 18, expressly provides that:
No corporate name may be allowed by the Securities and Exchange Commission if the proposed name is identical or deceptively or confusingly
similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to
existing law.Where a change in a corporate name is approved, the commission shall issue an amended certificate of incorporation under the
amended name. (Emphasis supplied)
The statutory prohibition cannot be any clearer. To come within its scope, two requisites must be proven, namely:
(1) that the complainant corporation acquired a prior right over the use of such corporate name; and

(2) the proposed name is either:

(a) identical; or
(b) deceptively or confusingly similar
to that of any existing corporation or to any other name already protected by law; or
(c) patently deceptive, confusing or contrary to existing law.
The right to the exclusive use of a corporate name with freedom from infringement by similarity is determined by priority of adoption (1 Thompson, p. 80 citing Munn
v. Americana Co., 82 N. Eq. 63, 88 Atl. 30; San Francisco Oyster House v. Mihich, 75 Wash. 274, 134 Pac. 921). In this regard, there is no doubt with respect to
Petitioners' prior adoption of' the name ''PHILIPS" as part of its corporate name. Petitioners Philips Electrical and Philips Industrial were incorporated on 29 August
1956 and 25 May 1956, respectively, while Respondent Standard Philips was issued a Certificate of Registration on 12 April 1982, twenty-six (26) years later (Rollo, p.
16). Petitioner PEBV has also used the trademark "PHILIPS" on electrical lamps of all types and their accessories since 30 September 1922, as evidenced by Certificate
of Registration No. 1651.
The second requisite no less exists in this case. In determining the existence of confusing similarity in corporate names, the test is whether the similarity is such as to
mislead a person, using ordinary care and discrimination. In so doing, the Court must look to the record as well as the names themselves (Ohio Nat. Life Ins. Co. v.
Ohio Life Ins. Co., 210 NE 2d 298). While the corporate names of Petitioners and Private Respondent are not identical, a reading of Petitioner's corporate names, to wit:
PHILIPS EXPORT B.V., PHILIPS ELECTRICAL LAMPS, INC. and PHILIPS INDUSTRIAL DEVELOPMENT, INC., inevitably leads one to conclude that
"PHILIPS" is, indeed, the dominant word in that all the companies affiliated or associated with the principal corporation, PEBV, are known in the Philippines and
abroad as the PHILIPS Group of Companies.
Respondents maintain, however, that Petitioners did not present an iota of proof of actual confusion or deception of the public much less a single purchaser of their
product who has been deceived or confused or showed any likelihood of confusion. It is settled, however, that proof of actual confusion need not be shown. It suffices
that confusion is probably or likely to occur (6 Fletcher [Perm Ed], pp. 107-108, enumerating a long line of cases).
It may be that Private Respondent's products also consist of chain rollers, belts, bearing and the like, while petitioners deal principally with electrical products. It is
significant to note, however, that even the Director of Patents had denied Private Respondent's application for registration of the trademarks "Standard Philips &
Device" for chain, rollers, belts, bearings and cutting saw. That office held that PEBV, "had shipped to its subsidiaries in the Philippines equipment, machines and their
parts which fall under international class where "chains, rollers, belts, bearings and cutting saw," the goods in connection with which Respondent is seeking to register
'STANDARD PHILIPS' . . . also belong" ( Inter Partes Case No. 2010, June 17, 1988, SEC Rollo).
Furthermore, the records show that among Private Respondent's primary purposes in its Articles of Incorporation (Annex D, Petition p. 37, Rollo) are the following:
To buy, sell, barter, trade, manufacture, import, export, or otherwise acquire, dispose of, and deal in and deal with any kind of goods, wares, and
merchandise such as but not limited to plastics, carbon products, office stationery and supplies, hardware parts, electrical wiring devices,
electrical component parts, and/or complement of industrial, agricultural or commercial machineries, constructive supplies, electrical
supplies and other merchandise which are or may become articles of commerce except food, drugs and cosmetics and to carry on such business as
manufacturer, distributor, dealer, indentor, factor, manufacturer's representative capacity for domestic or foreign companies. (emphasis ours)
For its part, Philips Electrical also includes, among its primary purposes, the following:
To develop manufacture and deal in electrical products, including electronic, mechanical and other similar products . . . (p. 30, Record of SEC
Case No. 2743)
Given Private Respondent's aforesaid underlined primary purpose, nothing could prevent it from dealing in the same line of business of electrical devices, products or
supplies which fall under its primary purposes. Besides, there is showing that Private Respondent not only manufactured and sold ballasts for fluorescent lamps with
their corporate name printed thereon but also advertised the same as, among others, Standard Philips (TSN, before the SEC, pp. 14, 17, 25, 26, 37-42, June 14, 1985; pp.
16-19, July 25, 1985). As aptly pointed out by Petitioners, [p]rivate respondent's choice of "PHILIPS" as part of its corporate name [STANDARD PHILIPS
CORPORATION] . . . tends to show said respondent's intention to ride on the popularity and established goodwill of said petitioner's business throughout the world"
(Rollo, p. 137). The subsequent appropriator of the name or one confusingly similar thereto usually seeks an unfair advantage, a free ride of another's goodwill
(American Gold Star Mothers, Inc. v. National Gold Star Mothers, Inc., et al, 89 App DC 269, 191 F 2d 488).
In allowing Private Respondent the continued use of its corporate name, the SEC maintains that the corporate names of Petitioners PHILIPS ELECTRICAL LAMPS.
INC. and PHILIPS INDUSTRIAL DEVELOPMENT, INC. contain at least two words different from that of the corporate name of respondent STANDARD PHILIPS
CORPORATION, which words will readily identify Private Respondent from Petitioners and vice-versa.
True, under the Guidelines in the Approval of Corporate and Partnership Names formulated by the SEC, the proposed name "should not be similar to one already used
by another corporation or partnership. If the proposed name contains a word already used as part of the firm name or style of a registered company; the proposed name

must contain two other words different from the company already registered" (Emphasis ours). It is then pointed out that Petitioners Philips Electrical and Philips
Industrial have two words different from that of Private Respondent's name.
What is lost sight of, however, is that PHILIPS is a trademark or trade name which was registered as far back as 1922. Petitioners, therefore, have the exclusive right to
its use which must be free from any infringement by similarity. A corporation has an exclusive right to the use of its name, which may be protected by injunction upon a
principle similar to that upon which persons are protected in the use of trademarks and tradenames (18 C.J.S. 574). Such principle proceeds upon the theory that it is a
fraud on the corporation which has acquired a right to that name and perhaps carried on its business thereunder, that another should attempt to use the same name, or the
same name with a slight variation in such a way as to induce persons to deal with it in the belief that they are dealing with the corporation which has given a reputation
to the name (6 Fletcher [Perm Ed], pp. 39-40, citingBorden Ice Cream Co. v. Borden's Condensed Milk Co., 210 F 510). Notably, too, Private Respondent's name
actually contains only a single word, that is, "STANDARD", different from that of Petitioners inasmuch as the inclusion of the term "Corporation" or "Corp." merely
serves the Purpose of distinguishing the corporation from partnerships and other business organizations.
The fact that there are other companies engaged in other lines of business using the word "PHILIPS" as part of their corporate names is no defense and does not warrant
the use by Private Respondent of such word which constitutes an essential feature of Petitioners' corporate name previously adopted and registered and-having acquired
the status of a well-known mark in the Philippines and internationally as well (Bureau of Patents Decision No. 88-35 [TM], June 17, 1988, SEC Records).
In support of its application for the registration of its Articles of Incorporation with the SEC, Private Respondent had submitted an undertaking "manifesting its
willingness to change its corporate name in the event another person, firm or entity has acquired a prior right to the use of the said firm name or one deceptively or
confusingly similar to it." Private respondent must now be held to its undertaking.
As a general rule, parties organizing a corporation must choose a name at their peril; and the use of a name similar to one adopted by another
corporation, whether a business or a nonbusiness or non-profit organization if misleading and likely to injure it in the exercise in its corporate
functions, regardless of intent, may be prevented by the corporation having the prior right, by a suit for injunction against the new corporation to
prevent the use of the name (American Gold Star Mothers, Inc. v. National Gold Star Mothers, Inc., 89 App DC 269, 191 F 2d 488, 27 ALR 2d
948).
WHEREFORE, the Decision of the Court of Appeals dated 31 July 1990, and its Resolution dated 20 November 1990, are SET ASIDE and a new one entered
ENJOINING private respondent from using "PHILIPS" as a feature of its corporate name, and ORDERING the Securities and Exchange Commission to amend private
respondent's Articles of Incorporation by deleting the word PHILIPS from the corporate name of private respondent.
No costs.
SO ORDERED.
Paras, Padilla, Regalado and Nocon, JJ., concur.
TITLE 3 CASES
G.R. No. L-45911 April 11, 1979
JOHN GOKONGWEI, JR., petitioner,
vs.
SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M. SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO
BUNAO, WALTHRODE B. CONDE, MIGUEL ORTIGAS, ANTONIO PRIETO, SAN MIGUEL CORPORATION, EMIGDIO TANJUATCO, SR., and
EDUARDO R. VISAYA, respondents.
De Santos, Balgos & Perez for petitioner.
Angara, Abello, Concepcion, Regala, Cruz Law Offices for respondents Sorianos
Siguion Reyna, Montecillo & Ongsiako for respondent San Miguel Corporation.
R. T Capulong for respondent Eduardo R. Visaya.

ANTONIO, J.:
The instant petition for certiorari, mandamus and injunction, with prayer for issuance of writ of preliminary injunction, arose out of two cases filed by petitioner with
the Securities and Exchange Commission, as follows:

SEC CASE NO 1375

On October 22, 1976, petitioner, as stockholder of respondent San Miguel Corporation, filed with the Securities and Exchange Commission (SEC) a petition for
"declaration of nullity of amended by-laws, cancellation of certificate of filing of amended by- laws, injunction and damages with prayer for a preliminary injunction"
against the majority of the members of the Board of Directors and San Miguel Corporation as an unwilling petitioner. The petition, entitled "John Gokongwei Jr. vs.
Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel, Antonio Roxas, Emeterio Bunao, Walthrode B. Conde, Miguel Ortigas, Antonio Prieto and San Miguel
Corporation", was docketed as SEC Case No. 1375.
As a first cause of action, petitioner alleged that on September 18, 1976, individual respondents amended by bylaws of the corporation, basing their authority to do so
on a resolution of the stockholders adopted on March 13, 1961, when the outstanding capital stock of respondent corporation was only P70,139.740.00, divided into
5,513,974 common shares at P10.00 per share and 150,000 preferred shares at P100.00 per share. At the time of the amendment, the outstanding and paid up shares
totalled 30,127,047 with a total par value of P301,270,430.00. It was contended that according to section 22 of the Corporation Law and Article VIII of the by-laws of
the corporation, the power to amend, modify, repeal or adopt new by-laws may be delegated to the Board of Directors only by the affirmative vote of stockholders
representing not less than 2/3 of the subscribed and paid up capital stock of the corporation, which 2/3 should have been computed on the basis of the capitalization at
the time of the amendment. Since the amendment was based on the 1961 authorization, petitioner contended that the Board acted without authority and in usurpation of
the power of the stockholders.
As a second cause of action, it was alleged that the authority granted in 1961 had already been exercised in 1962 and 1963, after which the authority of the Board ceased
to exist.
As a third cause of action, petitioner averred that the membership of the Board of Directors had changed since the authority was given in 1961, there being six (6) new
directors.
As a fourth cause of action, it was claimed that prior to the questioned amendment, petitioner had all the qualifications to be a director of respondent corporation, being
a Substantial stockholder thereof; that as a stockholder, petitioner had acquired rights inherent in stock ownership, such as the rights to vote and to be voted upon in the
election of directors; and that in amending the by-laws, respondents purposely provided for petitioner's disqualification and deprived him of his vested right as aforementioned hence the amended by-laws are null and void. 1
As additional causes of action, it was alleged that corporations have no inherent power to disqualify a stockholder from being elected as a director and, therefore, the
questioned act is ultra vires and void; that Andres M. Soriano, Jr. and/or Jose M. Soriano, while representing other corporations, entered into contracts (specifically a
management contract) with respondent corporation, which was allowed because the questioned amendment gave the Board itself the prerogative of determining whether
they or other persons are engaged in competitive or antagonistic business; that the portion of the amended bylaws which states that in determining whether or not a
person is engaged in competitive business, the Board may consider such factors as business and family relationship, is unreasonable and oppressive and, therefore, void;
and that the portion of the amended by-laws which requires that "all nominations for election of directors ... shall be submitted in writing to the Board of Directors at
least five (5) working days before the date of the Annual Meeting" is likewise unreasonable and oppressive.
It was, therefore, prayed that the amended by-laws be declared null and void and the certificate of filing thereof be cancelled, and that individual respondents be made to
pay damages, in specified amounts, to petitioner.
On October 28, 1976, in connection with the same case, petitioner filed with the Securities and Exchange Commission an "Urgent Motion for Production and Inspection
of Documents", alleging that the Secretary of respondent corporation refused to allow him to inspect its records despite request made by petitioner for production of
certain documents enumerated in the request, and that respondent corporation had been attempting to suppress information from its stockholders despite a negative
reply by the SEC to its query regarding their authority to do so. Among the documents requested to be copied were (a) minutes of the stockholder's meeting field on
March 13, 1961, (b) copy of the management contract between San Miguel Corporation and A. Soriano Corporation (ANSCOR); (c) latest balance sheet of San Miguel
International, Inc.; (d) authority of the stockholders to invest the funds of respondent corporation in San Miguel International, Inc.; and (e) lists of salaries, allowances,
bonuses, and other compensation, if any, received by Andres M. Soriano, Jr. and/or its successor-in-interest.
The "Urgent Motion for Production and Inspection of Documents" was opposed by respondents, alleging, among others that the motion has no legal basis; that the
demand is not based on good faith; that the motion is premature since the materiality or relevance of the evidence sought cannot be determined until the issues are
joined, that it fails to show good cause and constitutes continued harrasment, and that some of the information sought are not part of the records of the corporation and,
therefore, privileged.
During the pendency of the motion for production, respondents San Miguel Corporation, Enrique Conde, Miguel Ortigas and Antonio Prieto filed their answer to the
petition, denying the substantial allegations therein and stating, by way of affirmative defenses that "the action taken by the Board of Directors on September 18, 1976
resulting in the ... amendments is valid and legal because the power to "amend, modify, repeal or adopt new By-laws" delegated to said Board on March 13, 1961 and
long prior thereto has never been revoked of SMC"; that contrary to petitioner's claim, "the vote requirement for a valid delegation of the power to amend, repeal or
adopt new by-laws is determined in relation to the total subscribed capital stock at the time the delegation of said power is made, not when the Board opts to exercise
said delegated power"; that petitioner has not availed of his intra-corporate remedy for the nullification of the amendment, which is to secure its repeal by vote of the
stockholders representing a majority of the subscribed capital stock at any regular or special meeting, as provided in Article VIII, section I of the by-laws and section 22
of the Corporation law, hence the, petition is premature; that petitioner is estopped from questioning the amendments on the ground of lack of authority of the Board.
since he failed, to object to other amendments made on the basis of the same 1961 authorization: that the power of the corporation to amend its by-laws is broad, subject
only to the condition that the by-laws adopted should not be respondent corporation inconsistent with any existing law; that respondent corporation should not be
precluded from adopting protective measures to minimize or eliminate situations where its directors might be tempted to put their personal interests over t I hat of the
corporation; that the questioned amended by-laws is a matter of internal policy and the judgment of the board should not be interfered with: That the by-laws, as
amended, are valid and binding and are intended to prevent the possibility of violation of criminal and civil laws prohibiting combinations in restraint of trade; and that

the petition states no cause of action. It was, therefore, prayed that the petition be dismissed and that petitioner be ordered to pay damages and attorney's fees to
respondents. The application for writ of preliminary injunction was likewise on various grounds.
Respondents Andres M. Soriano, Jr. and Jose M. Soriano filed their opposition to the petition, denying the material averments thereof and stating, as part of their
affirmative defenses, that in August 1972, the Universal Robina Corporation (Robina), a corporation engaged in business competitive to that of respondent corporation,
began acquiring shares therein. until September 1976 when its total holding amounted to 622,987 shares: that in October 1972, the Consolidated Foods Corporation
(CFC) likewise began acquiring shares in respondent (corporation. until its total holdings amounted to P543,959.00 in September 1976; that on January 12, 1976,
petitioner, who is president and controlling shareholder of Robina and CFC (both closed corporations) purchased 5,000 shares of stock of respondent corporation, and
thereafter, in behalf of himself, CFC and Robina, "conducted malevolent and malicious publicity campaign against SMC" to generate support from the stockholder "in
his effort to secure for himself and in representation of Robina and CFC interests, a seat in the Board of Directors of SMC", that in the stockholders' meeting of March
18, 1976, petitioner was rejected by the stockholders in his bid to secure a seat in the Board of Directors on the basic issue that petitioner was engaged in a competitive
business and his securing a seat would have subjected respondent corporation to grave disadvantages; that "petitioner nevertheless vowed to secure a seat in the Board
of Directors at the next annual meeting; that thereafter the Board of Directors amended the by-laws as afore-stated.
As counterclaims, actual damages, moral damages, exemplary damages, expenses of litigation and attorney's fees were presented against petitioner.
Subsequently, a Joint Omnibus Motion for the striking out of the motion for production and inspection of documents was filed by all the respondents. This was duly
opposed by petitioner. At this juncture, respondents Emigdio Tanjuatco, Sr. and Eduardo R. Visaya were allowed to intervene as oppositors and they accordingly filed
their oppositions-intervention to the petition.
On December 29, 1976, the Securities and Exchange Commission resolved the motion for production and inspection of documents by issuing Order No. 26, Series of
1977, stating, in part as follows:
Considering the evidence submitted before the Commission by the petitioner and respondents in the above-entitled case, it is hereby ordered:
1. That respondents produce and permit the inspection, copying and photographing, by or on behalf of the petitioner-movant, John Gokongwei,
Jr., of the minutes of the stockholders' meeting of the respondent San Miguel Corporation held on March 13, 1961, which are in the possession,
custody and control of the said corporation, it appearing that the same is material and relevant to the issues involved in the main case.
Accordingly, the respondents should allow petitioner-movant entry in the principal office of the respondent Corporation, San Miguel Corporation
on January 14, 1977, at 9:30 o'clock in the morning for purposes of enforcing the rights herein granted; it being understood that the inspection,
copying and photographing of the said documents shall be undertaken under the direct and strict supervision of this Commission. Provided,
however, that other documents and/or papers not heretofore included are not covered by this Order and any inspection thereof shall require the
prior permission of this Commission;
2. As to the Balance Sheet of San Miguel International, Inc. as well as the list of salaries, allowances, bonuses, compensation and/or remuneration
received by respondent Jose M. Soriano, Jr. and Andres Soriano from San Miguel International, Inc. and/or its successors-in- interest, the Petition
to produce and inspect the same is hereby DENIED, as petitioner-movant is not a stockholder of San Miguel International, Inc. and has, therefore,
no inherent right to inspect said documents;
3. In view of the Manifestation of petitioner-movant dated November 29, 1976, withdrawing his request to copy and inspect the management
contract between San Miguel Corporation and A. Soriano Corporation and the renewal and amendments thereof for the reason that he had already
obtained the same, the Commission takes note thereof; and
4. Finally, the Commission holds in abeyance the resolution on the matter of production and inspection of the authority of the stockholders of San
Miguel Corporation to invest the funds of respondent corporation in San Miguel International, Inc., until after the hearing on the merits of the
principal issues in the above-entitled case.
This Order is immediately executory upon its approval. 2
Dissatisfied with the foregoing Order, petitioner moved for its reconsideration.
Meanwhile, on December 10, 1976, while the petition was yet to be heard, respondent corporation issued a notice of special stockholders' meeting for the purpose of
"ratification and confirmation of the amendment to the By-laws", setting such meeting for February 10, 1977. This prompted petitioner to ask respondent Commission
for a summary judgment insofar as the first cause of action is concerned, for the alleged reason that by calling a special stockholders' meeting for the aforesaid purpose,
private respondents admitted the invalidity of the amendments of September 18, 1976. The motion for summary judgment was opposed by private respondents. Pending
action on the motion, petitioner filed an "Urgent Motion for the Issuance of a Temporary Restraining Order", praying that pending the determination of petitioner's
application for the issuance of a preliminary injunction and/or petitioner's motion for summary judgment, a temporary restraining order be issued, restraining
respondents from holding the special stockholder's meeting as scheduled. This motion was duly opposed by respondents.
On February 10, 1977, respondent Commission issued an order denying the motion for issuance of temporary restraining order. After receipt of the order of denial,
respondents conducted the special stockholders' meeting wherein the amendments to the by-laws were ratified. On February 14, 1977, petitioner filed a consolidated
motion for contempt and for nullification of the special stockholders' meeting.

A motion for reconsideration of the order denying petitioner's motion for summary judgment was filed by petitioner before respondent Commission on March 10, 1977.
Petitioner alleges that up to the time of the filing of the instant petition, the said motion had not yet been scheduled for hearing. Likewise, the motion for reconsideration
of the order granting in part and denying in part petitioner's motion for production of record had not yet been resolved.
In view of the fact that the annul stockholders' meeting of respondent corporation had been scheduled for May 10, 1977, petitioner filed with respondent Commission a
Manifestation stating that he intended to run for the position of director of respondent corporation. Thereafter, respondents filed a Manifestation with respondent
Commission, submitting a Resolution of the Board of Directors of respondent corporation disqualifying and precluding petitioner from being a candidate for director
unless he could submit evidence on May 3, 1977 that he does not come within the disqualifications specified in the amendment to the by-laws, subject matter of SEC
Case No. 1375. By reason thereof, petitioner filed a manifestation and motion to resolve pending incidents in the case and to issue a writ of injunction, alleging that
private respondents were seeking to nullify and render ineffectual the exercise of jurisdiction by the respondent Commission, to petitioner's irreparable damage and
prejudice, Allegedly despite a subsequent Manifestation to prod respondent Commission to act, petitioner was not heard prior to the date of the stockholders' meeting.
Petitioner alleges that there appears a deliberate and concerted inability on the part of the SEC to act hence petitioner came to this Court.
SEC. CASE NO. 1423
Petitioner likewise alleges that, having discovered that respondent corporation has been investing corporate funds in other corporations and businesses outside of the
primary purpose clause of the corporation, in violation of section 17 1/2 of the Corporation Law, he filed with respondent Commission, on January 20, 1977, a petition
seeking to have private respondents Andres M. Soriano, Jr. and Jose M. Soriano, as well as the respondent corporation declared guilty of such violation, and ordered to
account for such investments and to answer for damages.
On February 4, 1977, motions to dismiss were filed by private respondents, to which a consolidated motion to strike and to declare individual respondents in default and
an opposition ad abundantiorem cautelam were filed by petitioner. Despite the fact that said motions were filed as early as February 4, 1977, the commission acted
thereon only on April 25, 1977, when it denied respondents' motion to dismiss and gave them two (2) days within which to file their answer, and set the case for hearing
on April 29 and May 3, 1977.
Respondents issued notices of the annual stockholders' meeting, including in the Agenda thereof, the following:
6. Re-affirmation of the authorization to the Board of Directors by the stockholders at the meeting on March 20, 1972 to invest corporate funds in
other companies or businesses or for purposes other than the main purpose for which the Corporation has been organized, and ratification of the
investments thereafter made pursuant thereto.
By reason of the foregoing, on April 28, 1977, petitioner filed with the SEC an urgent motion for the issuance of a writ of preliminary injunction to restrain private
respondents from taking up Item 6 of the Agenda at the annual stockholders' meeting, requesting that the same be set for hearing on May 3, 1977, the date set for the
second hearing of the case on the merits. Respondent Commission, however, cancelled the dates of hearing originally scheduled and reset the same to May 16 and 17,
1977, or after the scheduled annual stockholders' meeting. For the purpose of urging the Commission to act, petitioner filed an urgent manifestation on May 3, 1977, but
this notwithstanding, no action has been taken up to the date of the filing of the instant petition.
With respect to the afore-mentioned SEC cases, it is petitioner's contention before this Court that respondent Commission gravely abused its discretion when it failed to
act with deliberate dispatch on the motions of petitioner seeking to prevent illegal and/or arbitrary impositions or limitations upon his rights as stockholder of
respondent corporation, and that respondent are acting oppressively against petitioner, in gross derogation of petitioner's rights to property and due process. He prayed
that this Court direct respondent SEC to act on collateral incidents pending before it.
On May 6, 1977, this Court issued a temporary restraining order restraining private respondents from disqualifying or preventing petitioner from running or from being
voted as director of respondent corporation and from submitting for ratification or confirmation or from causing the ratification or confirmation of Item 6 of the Agenda
of the annual stockholders' meeting on May 10, 1977, or from Making effective the amended by-laws of respondent corporation, until further orders from this Court or
until the Securities and Ex-change Commission acts on the matters complained of in the instant petition.
On May 14, 1977, petitioner filed a Supplemental Petition, alleging that after a restraining order had been issued by this Court, or on May 9, 1977, the respondent
Commission served upon petitioner copies of the following orders:
(1) Order No. 449, Series of 1977 (SEC Case No. 1375); denying petitioner's motion for reconsideration, with its supplement, of the order of the Commission 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 consolidated motion to declare respondents in contempt and to nullify the stockholders' meeting;
(2) Order No. 450, Series of 1977 (SEC Case No. 1375), allowing petitioner to run as a director of respondent corporation but stating that he should not sit as such if
elected, until such time that the Commission has decided the validity of the bylaws in dispute, and denying deferment of Item 6 of the Agenda for the annual
stockholders' meeting; and
(3) Order No. 451, Series of 1977 (SEC Case No. 1375), denying petitioner's motion for reconsideration of the order of respondent Commission denying petitioner's
motion for summary judgment;

It is petitioner's assertions, anent the foregoing orders, (1) that respondent Commission acted with indecent haste and without circumspection in issuing the aforesaid
orders to petitioner's irreparable damage and injury; (2) that it acted without jurisdiction and in violation of petitioner's right to due process when it decided en banc an
issue not raised before it and still pending before one of its Commissioners, and without hearing petitioner thereon despite petitioner's request to have the same
calendared for hearing , and (3) that the respondents acted oppressively against the petitioner in violation of his rights as a stockholder, warranting immediate judicial
intervention.
It is prayed in the supplemental petition that the SEC orders complained of be declared null and void and that respondent Commission be ordered to allow petitioner to
undertake discovery proceedings relative to San Miguel International. Inc. and thereafter to decide SEC Cases No. 1375 and 1423 on the merits.
On May 17, 1977, respondent SEC, Andres M. Soriano, Jr. and Jose M. Soriano filed their comment, alleging that the petition is without merit for the following
reasons:
(1) that the petitioner the interest he represents are engaged in business competitive and antagonistic to that of respondent San Miguel Corporation, it appearing that the
owns and controls a greater portion of his SMC stock thru the Universal Robina Corporation and the Consolidated Foods Corporation, which corporations are engaged
in business directly and substantially competing with the allied businesses of respondent SMC and of corporations in which SMC has substantial investments. Further,
when CFC and Robina had accumulated investments. Further, when CFC and Robina had accumulated shares in SMC, the Board of Directors of SMC realized the clear
and present danger that competitors or antagonistic parties may be elected directors and thereby have easy and direct access to SMC's business and trade secrets and
plans;
(2) that the amended by law were adopted to preserve and protect respondent SMC from the clear and present danger that business competitors, if allowed to become
directors, will illegally and unfairly utilize their direct access to its business secrets and plans for their own private gain to the irreparable prejudice of respondent SMC,
and, ultimately, its stockholders. Further, it is asserted that membership of a competitor in the Board of Directors is a blatant disregard of no less that the Constitution
and pertinent laws against combinations in restraint of trade;
(3) that by laws are valid and binding since a corporation has the inherent right and duty to preserve and protect itself by excluding competitors and antogonistic parties,
under the law of self-preservation, and it should be allowed a wide latitude in the selection of means to preserve itself;
(4) that the delay in the resolution and disposition of SEC Cases Nos. 1375 and 1423 was due to petitioner's own acts or omissions, since he failed to have the petition to
suspend, pendente lite the amended by-laws calendared for hearing. It was emphasized that it was only on April 29, 1977 that petitioner calendared the aforesaid
petition for suspension (preliminary injunction) for hearing on May 3, 1977. The instant petition being dated May 4, 1977, it is apparent that respondent Commission
was not given a chance to act "with deliberate dispatch", and
(5) that, even assuming that the petition was meritorious was, it has become moot and academic because respondent Commission has acted on the pending incidents,
complained of. It was, therefore, prayed that the petition be dismissed.
On May 21, 1977, respondent Emigdio G, Tanjuatco, Sr. filed his comment, alleging that the petition has become moot and academic for the reason, among others that
the acts of private respondent sought to be enjoined have reference to the annual meeting of the stockholders of respondent San Miguel Corporation, which was held on
may 10, 1977; that in said meeting, in compliance with the order of respondent Commission, petitioner was allowed to run and be voted for as director; and that in the
same meeting, Item 6 of the Agenda was discussed, voted upon, ratified and confirmed. Further it was averred that the questions and issues raised by petitioner are
pending in the Securities and Exchange Commission which has acquired jurisdiction over the case, and no hearing on the merits has been had; hence the elevation of
these issues before the Supreme Court is premature.
Petitioner filed a reply to the aforesaid comments, stating that the petition presents justiciable questions for the determination of this Court because (1) the respondent
Commission acted without circumspection, unfairly and oppresively against petitioner, warranting the intervention of this Court; (2) a derivative suit, such as the instant
case, is not rendered academic by the act of a majority of stockholders, such that the discussion, ratification and confirmation of Item 6 of the Agenda of the annual
stockholders' meeting of May 10, 1977 did not render the case moot; that the amendment to the bylaws which specifically bars petitioner from being a director is void
since it deprives him of his vested rights.
Respondent Commission, thru the Solicitor General, filed a separate comment, alleging that after receiving a copy of the restraining order issued by this Court and
noting that the restraining order did not foreclose action by it, the Commission en banc issued Orders Nos. 449, 450 and 451 in SEC Case No. 1375.
In answer to the allegation in the supplemental petition, it states that Order No. 450 which denied deferment of Item 6 of the Agenda of the annual stockholders' meeting
of respondent corporation, took into consideration an urgent manifestation filed with the Commission by petitioner on May 3, 1977 which prayed, among others, that
the discussion of Item 6 of the Agenda be deferred. The reason given for denial of deferment was that "such action is within the authority of the corporation as well as
falling within the sphere of stockholders' right to know, deliberate upon and/or to express their wishes regarding disposition of corporate funds considering that their
investments are the ones directly affected." It was alleged that the main petition has, therefore, become moot and academic.
On September 29,1977, petitioner filed a second supplemental petition with prayer for preliminary injunction, alleging that the actuations of respondent SEC tended to
deprive him of his right to due process, and "that all possible questions on the facts now pending before the respondent Commission are now before this Honorable
Court which has the authority and the competence to act on them as it may see fit." (Reno, pp. 927-928.)
Petitioner, in his memorandum, submits the following issues for resolution;

(1) whether or not the provisions of the amended by-laws of respondent corporation, disqualifying a competitor from nomination or election to the Board of Directors
are valid and reasonable;
(2) whether or not respondent SEC gravely abused its discretion in denying petitioner's request for an examination of the records of San Miguel International, Inc., a
fully owned subsidiary of San Miguel Corporation; and
(3) whether or not respondent SEC committed grave abuse of discretion in allowing discussion of Item 6 of the Agenda of the Annual Stockholders' Meeting on May
10, 1977, and the ratification of the investment in a foreign corporation of the corporate funds, allegedly in violation of section 17-1/2 of the Corporation Law.
I
Whether or not amended by-laws are valid is purely a legal question which public interest requires to be resolved
It is the position of the petitioner that "it is not necessary to remand the case to respondent SEC for an appropriate ruling on the intrinsic validity of the amended bylaws in compliance with the principle of exhaustion of administrative remedies", considering that: first: "whether or not the provisions of the amended by-laws are
intrinsically valid ... is purely a legal question. There is no factual dispute as to what the provisions are and evidence is not necessary to determine whether such
amended by-laws are valid as framed and approved ... "; second: "it is for the interest and guidance of the public that an immediate and final ruling on the question be
made ... "; third: "petitioner was denied due process by SEC" when "Commissioner de Guzman had openly shown prejudice against petitioner ... ", and "Commissioner
Sulit ... approved the amended by-laws ex-parte and obviously found the same intrinsically valid; and finally: "to remand the case to SEC would only entail delay rather
than serve the ends of justice."
Respondents Andres M. Soriano, Jr. and Jose M. Soriano similarly pray that this Court resolve the legal issues raised by the parties in keeping with the "cherished rules
of procedure" that "a court should always strive to settle the entire controversy in a single proceeding leaving no root or branch to bear the seeds of future ligiation",
citingGayong v. Gayos. 3 To the same effect is the prayer of San Miguel Corporation that this Court resolve on the merits the validity of its amended by laws and the
rights and obligations of the parties thereunder, otherwise "the time spent and effort exerted by the parties concerned and, more importantly, by this Honorable Court,
would have been for naught because the main question will come back to this Honorable Court for final resolution." Respondent Eduardo R. Visaya submits a similar
appeal.
It is only the Solicitor General who contends that the case should be remanded to the SEC for hearing and decision of the issues involved, invoking the latter's primary
jurisdiction to hear and decide case involving intra-corporate controversies.
It is an accepted rule of procedure that the Supreme Court should always strive to settle the entire controversy in a single proceeding, leaving nor root or branch to bear
the seeds of future litigation. 4 Thus, in Francisco v. City of Davao, 5 this Court resolved to decide the case on the merits instead of remanding it to the trial court for
further proceedings since the ends of justice would not be subserved by the remand of the case. In Republic v. Security Credit and Acceptance Corporation, et al., 6 this
Court, finding that the main issue is one of law, resolved to decide the case on the merits "because public interest demands an early disposition of the case", and
in Republic v. Central Surety and Insurance Company, 7 this Court denied remand of the third-party complaint to the trial court for further proceedings, citing precedent
where this Court, in similar situations resolved to decide the cases on the merits, instead of remanding them to the trial court where (a) the ends of justice would not be
subserved by the remand of the case; or (b) where public interest demand an early disposition of the case; or (c) where the trial court had already received all the
evidence presented by both parties and the Supreme Court is now in a position, based upon said evidence, to decide the case on its merits. 8 It is settled that the doctrine
of primary jurisdiction has no application where only a question of law is involved. 8a Because uniformity may be secured through review by a single Supreme Court,
questions of law may appropriately be determined in the first instance by courts. 8b In the case at bar, there are facts which cannot be denied, viz.: that the amended bylaws were adopted by the Board of Directors of the San Miguel Corporation in the exercise of the power delegated by the stockholders ostensibly pursuant to section 22
of the Corporation Law; that in a special meeting on February 10, 1977 held specially for that purpose, the amended by-laws were ratified by more than 80% of the
stockholders of record; that the foreign investment in the Hongkong Brewery and Distellery, a beer manufacturing company in Hongkong, was made by the San Miguel
Corporation in 1948; and that in the stockholders' annual meeting held in 1972 and 1977, all foreign investments and operations of San Miguel Corporation were
ratified by the stockholders.
II
Whether or not the amended by-laws of SMC of disqualifying a competitor from nomination or election to the Board of Directors of SMC are valid and reasonable
The validity or reasonableness of a by-law of a corporation in purely a question of law. 9 Whether the by-law is in conflict with the law of the land, or with the charter of
the corporation, or is in a legal sense unreasonable and therefore unlawful is a question of law. 10 This rule is subject, however, to the limitation that where the
reasonableness of a by-law is a mere matter of judgment, and one upon which reasonable minds must necessarily differ, a court would not be warranted in substituting
its judgment instead of the judgment of those who are authorized to make by-laws and who have exercised their authority. 11
Petitioner claims that the amended by-laws are invalid and unreasonable because they were tailored to suppress the minority and prevent them from having
representation in the Board", at the same time depriving petitioner of his "vested right" to be voted for and to vote for a person of his choice as director.
Upon the other hand, respondents Andres M. Soriano, Jr., Jose M. Soriano and San Miguel Corporation content that ex. conclusion of a competitor from the Board is
legitimate corporate purpose, considering that being a competitor, petitioner cannot devote an unselfish and undivided Loyalty to the corporation; that it is essentially a
preventive measure to assure stockholders of San Miguel Corporation of reasonable protective from the unrestrained self-interest of those charged with the promotion of
the corporate enterprise; that access to confidential information by a competitor may result either in the promotion of the interest of the competitor at the expense of the

San Miguel Corporation, or the promotion of both the interests of petitioner and respondent San Miguel Corporation, which may, therefore, result in a combination or
agreement in violation of Article 186 of the Revised Penal Code by destroying free competition to the detriment of the consuming public. It is further argued that there
is not vested right of any stockholder under Philippine Law to be voted as director of a corporation. It is alleged that petitioner, as of May 6, 1978, has exercised,
personally or thru two corporations owned or controlled by him, control over the following shareholdings in San Miguel Corporation, vis.: (a) John Gokongwei, Jr.
6,325 shares; (b) Universal Robina Corporation 738,647 shares; (c) CFC Corporation 658,313 shares, or a total of 1,403,285 shares. Since the outstanding capital
stock of San Miguel Corporation, as of the present date, is represented by 33,139,749 shares with a par value of P10.00, the total shares owned or controlled by
petitioner represents 4.2344% of the total outstanding capital stock of San Miguel Corporation. It is also contended that petitioner is the president and substantial
stockholder of Universal Robina Corporation and CFC Corporation, both of which are allegedly controlled by petitioner and members of his family. It is also claimed
that both the Universal Robina Corporation and the CFC Corporation are engaged in businesses directly and substantially competing with the alleged businesses of San
Miguel Corporation, and of corporations in which SMC has substantial investments.
ALLEGED AREAS OF COMPETITION BETWEEN PETITIONER'S CORPORATIONS AND SAN MIGUEL CORPORATION
According to respondent San Miguel Corporation, the areas of, competition are enumerated in its Board the areas of competition are enumerated in its Board Resolution
dated April 28, 1978, thus:
Product Line Estimated Market Share Total
1977 SMC Robina-CFC
Table Eggs 0.6% 10.0% 10.6%
Layer Pullets 33.0% 24.0% 57.0%
Dressed Chicken 35.0% 14.0% 49.0%
Poultry & Hog Feeds 40.0% 12.0% 52.0%
Ice Cream 70.0% 13.0% 83.0%
Instant Coffee 45.0% 40.0% 85.0%
Woven Fabrics 17.5% 9.1% 26.6%
Thus, according to respondent SMC, in 1976, the areas of competition affecting SMC involved product sales of over P400 million or more than 20% of the P2 billion
total product sales of SMC. Significantly, the combined market shares of SMC and CFC-Robina in layer pullets dressed chicken, poultry and hog feeds ice cream,
instant coffee and woven fabrics would result in a position of such dominance as to affect the prevailing market factors.
It is further asserted that in 1977, the CFC-Robina group was in direct competition on product lines which, for SMC, represented sales amounting to more than ?478
million. In addition, CFC-Robina was directly competing in the sale of coffee with Filipro, a subsidiary of SMC, which product line represented sales for SMC
amounting to more than P275 million. The CFC-Robina group (Robitex, excluding Litton Mills recently acquired by petitioner) is purportedly also in direct competition
with Ramie Textile, Inc., subsidiary of SMC, in product sales amounting to more than P95 million. The areas of competition between SMC and CFC-Robina in 1977
represented, therefore, for SMC, product sales of more than P849 million.
According to private respondents, at the Annual Stockholders' Meeting of March 18, 1976, 9,894 stockholders, in person or by proxy, owning 23,436,754 shares in
SMC, or more than 90% of the total outstanding shares of SMC, rejected petitioner's candidacy for the Board of Directors because they "realized the grave dangers to
the corporation in the event a competitor gets a board seat in SMC." On September 18, 1978, the Board of Directors of SMC, by "virtue of powers delegated to it by the
stockholders," approved the amendment to ' he by-laws in question. At the meeting of February 10, 1977, these amendments were confirmed and ratified by 5,716
shareholders owning 24,283,945 shares, or more than 80% of the total outstanding shares. Only 12 shareholders, representing 7,005 shares, opposed the confirmation
and ratification. At the Annual Stockholders' Meeting of May 10, 1977, 11,349 shareholders, owning 27,257.014 shares, or more than 90% of the outstanding shares,
rejected petitioner's candidacy, while 946 stockholders, representing 1,648,801 shares voted for him. On the May 9, 1978 Annual Stockholders' Meeting, 12,480
shareholders, owning more than 30 million shares, or more than 90% of the total outstanding shares. voted against petitioner.
AUTHORITY OF CORPORATION TO PRESCRIBE QUALIFICATIONS OF DIRECTORS EXPRESSLY CONFERRED BY LAW
Private respondents contend that the disputed amended by laws were adopted by the Board of Directors of San Miguel Corporation a-, a measure of self-defense to
protect the corporation from the clear and present danger that the election of a business competitor to the Board may cause upon the corporation and the other
stockholders inseparable prejudice. Submitted for resolution, therefore, is the issue whether or not respondent San Miguel Corporation could, as a measure of selfprotection, disqualify a competitor from nomination and election to its Board of Directors.
It is recognized by an authorities that 'every corporation has the inherent power to adopt by-laws 'for its internal government, and to regulate the conduct and prescribe
the rights and duties of its members towards itself and among themselves in reference to the management of its affairs. 12 At common law, the rule was "that the power
to make and adopt by-laws was inherent in every corporation as one of its necessary and inseparable legal incidents. And it is settled throughout the United States that
in the absence of positive legislative provisions limiting it, every private corporation has this inherent power as one of its necessary and inseparable legal incidents,
independent of any specific enabling provision in its charter or in general law, such power of self-government being essential to enable the corporation to accomplish
the purposes of its creation. 13
In this jurisdiction, under section 21 of the Corporation Law, a corporation may prescribe in its by-laws "the qualifications, duties and compensation of directors,
officers and employees ... " This must necessarily refer to a qualification in addition to that specified by section 30 of the Corporation Law, which provides that "every
director must own in his right at least one share of the capital stock of the stock corporation of which he is a director ... " InGovernment v. El Hogar, 14 the Court
sustained the validity of a provision in the corporate by-law requiring that persons elected to the Board of Directors must be holders of shares of the paid up value of

P5,000.00, which shall be held as security for their action, on the ground that section 21 of the Corporation Law expressly gives the power to the corporation to provide
in its by-laws for the qualifications of directors and is "highly prudent and in conformity with good practice. "
NO VESTED RIGHT OF STOCKHOLDER TO BE ELECTED DIRECTOR
Any person "who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and that he impliedly contracts
that the will of the majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted by-laws and not forbidden by law." 15 To this
extent, therefore, the stockholder may be considered to have "parted with his personal right or privilege to regulate the disposition of his property which he has invested
in the capital stock of the corporation, and surrendered it to the will of the majority of his fellow incorporators. ... It cannot therefore be justly said that the contract,
express or implied, between the corporation and the stockholders is infringed ... by any act of the former which is authorized by a majority ... ." 16
Pursuant to section 18 of the Corporation Law, any corporation may amend its articles of incorporation by a vote or written assent of the stockholders representing at
least two-thirds of the subscribed capital stock of the corporation If the amendment changes, diminishes or restricts the rights of the existing shareholders then the
disenting minority has only one right, viz.: "to object thereto in writing and demand payment for his share." Under section 22 of the same law, the owners of the
majority of the subscribed capital stock may amend or repeal any by-law or adopt new by-laws. It cannot be said, therefore, that petitioner has a vested right to be
elected director, in the face of the fact that the law at the time such right as stockholder was acquired contained the prescription that the corporate charter and the by-law
shall be subject to amendment, alteration and modification. 17
It being settled that the corporation has the power to provide for the qualifications of its directors, the next question that must be considered is whether the
disqualification of a competitor from being elected to the Board of Directors is a reasonable exercise of corporate authority.
A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE CORPORATION AND ITS SHAREHOLDERS
Although in the strict and technical sense, directors of a private corporation are not regarded as trustees, there cannot be any doubt that their character is that of a
fiduciary insofar as the corporation and the stockholders as a body are concerned. As agents entrusted with the management of the corporation for the collective benefit
of the stockholders, "they occupy a fiduciary relation, and in this sense the relation is one of trust." 18 "The ordinary trust relationship of directors of a corporation and
stockholders", according to Ashaman v. Miller, 19 "is not a matter of statutory or technical law. It springs from the fact that directors have the control and guidance of
corporate affairs and property and hence of the property interests of the stockholders. Equity recognizes that stockholders are the proprietors of the corporate interests
and are ultimately the only beneficiaries thereof * * *.
Justice Douglas, in Pepper v. Litton, 20 emphatically restated the standard of fiduciary obligation of the directors of corporations, thus:
A director is a fiduciary. ... Their powers are powers in trust. ... He who is in such fiduciary position cannot serve himself first and his cestuis
second. ... He cannot manipulate the affairs of his corporation to their detriment and in disregard of the standards of common decency. He cannot
by the intervention of a corporate entity violate the ancient precept against serving two masters ... He cannot utilize his inside information and
strategic position for his own preferment. He cannot violate rules of fair play by doing indirectly through the corporation what he could not do so
directly. He cannot violate rules of fair play by doing indirectly though the corporation what he could not do so directly. He cannot use his power
for his personal advantage and to the detriment of the stockholders and creditors no matter how absolute in terms that power may be and no
matter how meticulous he is to satisfy technical requirements. For that power is at all times subject to the equitable limitation that it may not be
exercised for the aggrandizement, preference or advantage of the fiduciary to the exclusion or detriment of the cestuis.
And in Cross v. West Virginia Cent, & P. R. R. Co., 21 it was said:
... A person cannot serve two hostile and adverse master, without detriment to one of them. A judge cannot be impartial if personally interested in
the cause. No more can a director. Human nature is too weak -for this. Take whatever statute provision you please giving power to stockholders
to choose directors, and in none will you find any express prohibition against a discretion to select directors having the company's interest at
heart, and it would simply be going far to deny by mere implication the existence of such a salutary power
... If the by-law is to be held reasonable in disqualifying a stockholder in a competing company from being a director, the same reasoning would apply to disqualify the
wife and immediate member of the family of such stockholder, on account of the supposed interest of the wife in her husband's affairs, and his suppose influence over
her. It is perhaps true that such stockholders ought not to be condemned as selfish and dangerous to the best interest of the corporation until tried and tested. So it is also
true that we cannot condemn as selfish and dangerous and unreasonable the action of the board in passing the by-law. The strife over the matter of control in this
corporation as in many others is perhaps carried on not altogether in the spirit of brotherly love and affection. The only test that we can apply is as to whether or not the
action of the Board is authorized and sanctioned by law. ... . 22
These principles have been applied by this Court in previous cases. 23
AN AMENDMENT TO THE CORPORATION BY-LAW WHICH RENDERS A STOCKHOLDER INELIGIBLE TO BE DIRECTOR, IF HE BE ALSO DIRECTOR IN A
CORPORATION WHOSE BUSINESS IS IN COMPETITION WITH THAT OF THE OTHER CORPORATION, HAS BEEN SUSTAINED AS VALID
It is a settled state law in the United States, according to Fletcher, that corporations have the power to make by-laws declaring a person employed in the service of a
rival company to be ineligible for the corporation's Board of Directors. ... (A)n amendment which renders ineligible, or if elected, subjects to removal, a director if he be
also a director in a corporation whose business is in competition with or is antagonistic to the other corporation is valid." 24 This is based upon the principle that where

the director is so employed in the service of a rival company, he cannot serve both, but must betray one or the other. Such an amendment "advances the benefit of the
corporation and is good." An exception exists in New Jersey, where the Supreme Court held that the Corporation Law in New Jersey prescribed the only qualification,
and therefore the corporation was not empowered to add additional qualifications. 25 This is the exact opposite of the situation in the Philippines because as stated
heretofore, section 21 of the Corporation Law expressly provides that a corporation may make by-laws for the qualifications of directors. Thus, it has been held that an
officer of a corporation cannot engage in a business in direct competition with that of the corporation where he is a director by utilizing information he has received as
such officer, under "the established law that a director or officer of a corporation may not enter into a competing enterprise which cripples or injures the business of the
corporation of which he is an officer or director. 26
It is also well established that corporate officers "are not permitted to use their position of trust and confidence to further their private interests." 27 In a case where
directors of a corporation cancelled a contract of the corporation for exclusive sale of a foreign firm's products, and after establishing a rival business, the directors
entered into a new contract themselves with the foreign firm for exclusive sale of its products, the court held that equity would regard the new contract as an offshoot of
the old contract and, therefore, for the benefit of the corporation, as a "faultless fiduciary may not reap the fruits of his misconduct to the exclusion of his principal. 28
The doctrine of "corporate opportunity" 29 is precisely a recognition by the courts that the fiduciary standards could not be upheld where the fiduciary was acting for two
entities with competing interests. This doctrine rests fundamentally on the unfairness, in particular circumstances, of an officer or director taking advantage of an
opportunity for his own personal profit when the interest of the corporation justly calls for protection. 30
It is not denied that a member of the Board of Directors of the San Miguel Corporation has access to sensitive and highly confidential information, such as: (a)
marketing strategies and pricing structure; (b) budget for expansion and diversification; (c) research and development; and (d) sources of funding, availability of
personnel, proposals of mergers or tie-ups with other firms.
It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel Corporation, who is also the officer or owner of a competing
corporation, from taking advantage of the information which he acquires as director to promote his individual or corporate interests to the prejudice of San Miguel
Corporation and its stockholders, that the questioned amendment of the by-laws was made. Certainly, where two corporations are competitive in a substantial sense, it
would seem improbable, if not impossible, for the director, if he were to discharge effectively his duty, to satisfy his loyalty to both corporations and place the
performance of his corporation duties above his personal concerns.
Thus, in McKee & Co. v. First National Bank of San Diego, supra the court sustained as valid and reasonable an amendment to the by-laws of a bank, requiring that its
directors should not be directors, officers, employees, agents, nominees or attorneys of any other banking corporation, affiliate or subsidiary thereof. Chief Judge
Parker, in McKee, explained the reasons of the court, thus:
... A bank director has access to a great deal of information concerning the business and plans of a bank which would likely be injurious to the
bank if known to another bank, and it was reasonable and prudent to enlarge this minimum disqualification to include any director, officer,
employee, agent, nominee, or attorney of any other bank in California. The Ashkins case, supra, specifically recognizes protection against rivals
and others who might acquire information which might be used against the interests of the corporation as a legitimate object of by-law protection.
With respect to attorneys or persons associated with a firm which is attorney for another bank, in addition to the direct conflict or potential
conflict of interest, there is also the danger of inadvertent leakage of confidential information through casual office discussions or accessibility of
files. Defendant's directors determined that its welfare was best protected if this opportunity for conflicting loyalties and potential misuse and
leakage of confidential information was foreclosed.
In McKee the Court further listed qualificational by-laws upheld by the courts, as follows:
(1) A director shall not be directly or indirectly interested as a stockholder in any other firm, company, or association which competes with the
subject corporation.
(2) A director shall not be the immediate member of the family of any stockholder in any other firm, company, or association which competes
with the subject corporation,
(3) A director shall not be an officer, agent, employee, attorney, or trustee in any other firm, company, or association which compete with the
subject corporation.
(4) A director shall be of good moral character as an essential qualification to holding office.
(5) No person who is an attorney against the corporation in a law suit is eligible for service on the board. (At p. 7.)
These are not based on theorical abstractions but on human experience that a person cannot serve two hostile masters without detriment to one of them.
The offer and assurance of petitioner that to avoid any possibility of his taking unfair advantage of his position as director of San Miguel Corporation, he would absent
himself from meetings at which confidential matters would be discussed, would not detract from the validity and reasonableness of the by-laws here involved. Apart
from the impractical results that would ensue from such arrangement, it would be inconsistent with petitioner's primary motive in running for board membership
which is to protect his investments in San Miguel Corporation. More important, such a proposed norm of conduct would be against all accepted principles underlying a
director's duty of fidelity to the corporation, for the policy of the law is to encourage and enforce responsible corporate management. As explained by Oleck: 31 "The
law win not tolerate the passive attitude of directors ... without active and conscientious participation in the managerial functions of the company. As directors, it is their

duty to control and supervise the day to day business activities of the company or to promulgate definite policies and rules of guidance with a vigilant eye toward seeing
to it that these policies are carried out. It is only then that directors may be said to have fulfilled their duty of fealty to the corporation."
Sound principles of corporate management counsel against sharing sensitive information with a director whose fiduciary duty of loyalty may well require that he
disclose this information to a competitive arrival. These dangers are enhanced considerably where the common director such as the petitioner is a controlling
stockholder of two of the competing corporations. It would seem manifest that in such situations, the director has an economic incentive to appropriate for the benefit of
his own corporation the corporate plans and policies of the corporation where he sits as director.
Indeed, access by a competitor to confidential information regarding marketing strategies and pricing policies of San Miguel Corporation would subject the latter to a
competitive disadvantage and unjustly enrich the competitor, for advance knowledge by the competitor of the strategies for the development of existing or new markets
of existing or new products could enable said competitor to utilize such knowledge to his advantage. 32
There is another important consideration in determining whether or not the amended by-laws are reasonable. The Constitution and the law prohibit combinations in
restraint of trade or unfair competition. Thus, section 2 of Article XIV of the Constitution provides: "The State shall regulate or prohibit private monopolies when the
public interest so requires. No combinations in restraint of trade or unfair competition shall be snowed."
Article 186 of the Revised Penal Code also provides:
Art. 186. Monopolies and combinations in restraint of trade. The penalty of prision correccional in its minimum period or a fine ranging from
two hundred to six thousand pesos, or both, shall be imposed upon:
1. Any person who shall enter into any contract or agreement or shall take part in any conspiracy or combination in the form of a trust or
otherwise, in restraint of trade or commerce or to prevent by artificial means free competition in the market.
2. Any person who shag monopolize any merchandise or object of trade or commerce, or shall combine with any other person or persons to
monopolize said merchandise or object in order to alter the price thereof by spreading false rumors or making use of any other artifice to restrain
free competition in the market.
3. Any person who, being a manufacturer, producer, or processor of any merchandise or object of commerce or an importer of any merchandise
or object of commerce from any foreign country, either as principal or agent, wholesale or retailer, shall combine, conspire or agree in any
manner with any person likewise engaged in the manufacture, production, processing, assembling or importation of such merchandise or object of
commerce or with any other persons not so similarly engaged for the purpose of making transactions prejudicial to lawful commerce, or of
increasing the market price in any part of the Philippines, or any such merchandise or object of commerce manufactured, produced, processed,
assembled in or imported into the Philippines, or of any article in the manufacture of which such manufactured, produced, processed, or imported
merchandise or object of commerce is used.
There are other legislation in this jurisdiction, which prohibit monopolies and combinations in restraint of trade.

33

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

is to be faithful to both corporations, some accommodation must result. Suppose X is a director of both Corporation A and Corporation B. X
could hardly vote for a policy by A that would injure B without violating his duty of loyalty to B at the same time he could hardly abstain from
voting without depriving A of his best judgment. If the firms really do compete in the sense of vying for economic advantage at the expense of
the other there can hardly be any reason for an interlock between competitors other than the suppression of competition. 43 (Emphasis
supplied.)
According to the Report of the House Judiciary Committee of the U. S. Congress on section 9 of the Clayton Act, it was established that: "By means of the interlocking
directorates one man or group of men have been able to dominate and control a great number of corporations ... to the detriment of the small ones dependent upon them
and to the injury of the public. 44
Shared information on cost accounting may lead to price fixing. Certainly, shared information on production, orders, shipments, capacity and inventories may lead to
control of production for the purpose of controlling prices.
Obviously, if a competitor has access to the pricing policy and cost conditions of the products of San Miguel Corporation, the essence of competition in a free market
for the purpose of serving the lowest priced goods to the consuming public would be frustrated, The competitor could so manipulate the prices of his products or vary
its marketing strategies by region or by brand in order to get the most out of the consumers. Where the two competing firms control a substantial segment of the market
this could lead to collusion and combination in restraint of trade. Reason and experience point to the inevitable conclusion that the inherent tendency of interlocking
directorates between companies that are related to each other as competitors is to blunt the edge of rivalry between the corporations, to seek out ways of compromising
opposing interests, and thus eliminate competition. As respondent SMC aptly observes, knowledge by CFC-Robina of SMC's costs in various industries and regions in
the country win enable the former to practice price discrimination. CFC-Robina can segment the entire consuming population by geographical areas or income groups
and change varying prices in order to maximize profits from every market segment. CFC-Robina could determine the most profitable volume at which it could produce
for every product line in which it competes with SMC. Access to SMC pricing policy by CFC-Robina would in effect destroy free competition and deprive the
consuming public of opportunity to buy goods of the highest possible quality at the lowest prices.
Finally, considering that both Robina and SMC are, to a certain extent, engaged in agriculture, then the election of petitioner to the Board of SMC may constitute a
violation of the prohibition contained in section 13(5) of the Corporation Law. Said section provides in part that "any stockholder of more than one corporation
organized for the purpose of engaging in agriculture may hold his stock in such corporations solely for investment and not for the purpose of bringing about or
attempting to bring about a combination to exercise control of incorporations ... ."
Neither are We persuaded by the claim that the by-law was Intended to prevent the candidacy of petitioner for election to the Board. If the by-law were to be applied in
the case of one stockholder but waived in the case of another, then it could be reasonably claimed that the by-law was being applied in a discriminatory manner.
However, the by law, by its terms, applies to all stockholders. The equal protection clause of the Constitution requires only that the by-law operate equally upon all
persons of a class. Besides, before petitioner can be declared ineligible to run for director, there must be hearing and evidence must be submitted to bring his case within
the ambit of the disqualification. Sound principles of public policy and management, therefore, support the view that a by-law which disqualifies a competition from
election to the Board of Directors of another corporation is valid and reasonable.
In the absence of any legal prohibition or overriding public policy, wide latitude may be accorded to the corporation in adopting measures to protect legitimate
corporation interests. Thus, "where the reasonableness of a by-law is a mere matter of judgment, and upon which reasonable minds must necessarily differ, a court
would not be warranted in substituting its judgment instead of the judgment of those who are authorized to make by-laws and who have expressed their authority. 45
Although it is asserted that the amended by-laws confer on the present Board powers to perpetua themselves in power such fears appear to be misplaced. This power,
but is very nature, is subject to certain well established limitations. One of these is inherent in the very convert and definition of the terms "competition" and
"competitor". "Competition" implies a struggle for advantage between two or more forces, each possessing, in substantially similar if not Identical degree, certain
characteristics essential to the business sought. It means an independent endeavor of two or more persons to obtain the business patronage of a third by offering more
advantageous terms as an inducement to secure trade. 46 The test must be whether the business does in fact compete, not whether it is capable of an indirect and highly
unsubstantial duplication of an isolated or non-characteristics activity. 47 It is, therefore, obvious that not every person or entity engaged in business of the same kind is a
competitor. Such factors as quantum and place of business, Identity of products and area of competition should be taken into consideration. It is, therefore, necessary to
show that petitioner's business covers a substantial portion of the same markets for similar products to the extent of not less than 10% of respondent corporation's
market for competing products. While We here sustain the validity of the amended by-laws, it does not follow as a necessary consequence that petitioner is ipso
facto disqualified. Consonant with the requirement of due process, there must be due hearing at which the petitioner must be given the fullest opportunity to show that
he is not covered by the disqualification. As trustees of the corporation and of the stockholders, it is the responsibility of directors to act with fairness to the
stockholders. 48 Pursuant to this obligation and to remove any suspicion that this power may be utilized by the incumbent members of the Board to perpetuate
themselves in power, any decision of the Board to disqualify a candidate for the Board of Directors should be reviewed by the Securities behind Exchange Commission
en banc and its decision shall be final unless reversed by this Court on certiorari. 49 Indeed, it is a settled principle that where the action of a Board of Directors is an
abuse of discretion, or forbidden by statute, or is against public policy, or is ultra vires, or is a fraud upon minority stockholders or creditors, or will result in waste,
dissipation or misapplication of the corporation assets, a court of equity has the power to grant appropriate relief. 50
III
Whether or not respondent SEC gravely abused its discretion in denying petitioner's request for an examination of the records of San Miguel International Inc., a fully
owned subsidiary of San Miguel Corporation
Respondent San Miguel Corporation stated in its memorandum that petitioner's claim that he was denied inspection rights as stockholder of SMC "was made in the teeth
of undisputed facts that, over a specific period, petitioner had been furnished numerous documents and information," to wit: (1) a complete list of stockholders and their
stockholdings; (2) a complete list of proxies given by the stockholders for use at the annual stockholders' meeting of May 18, 1975; (3) a copy of the minutes of the

stockholders' meeting of March 18,1976; (4) a breakdown of SMC's P186.6 million investment in associated companies and other companies as of December 31, 1975;
(5) a listing of the salaries, allowances, bonuses and other compensation or remunerations received by the directors and corporate officers of SMC; (6) a copy of the US
$100 million Euro-Dollar Loan Agreement of SMC; and (7) copies of the minutes of all meetings of the Board of Directors from January 1975 to May 1976, with
deletions of sensitive data, which deletions were not objected to by petitioner.
Further, it was averred that upon request, petitioner was informed in writing on September 18, 1976; (1) that SMC's foreign investments are handled by San Miguel
International, Inc., incorporated in Bermuda and wholly owned by SMC; this was SMC's first venture abroad, having started in 1948 with an initial outlay of
?500,000.00, augmented by a loan of Hongkong $6 million from a foreign bank under the personal guaranty of SMC's former President, the late Col. Andres Soriano;
(2) that as of December 31, 1975, the estimated value of SMI would amount to almost P400 million (3) that the total cash dividends received by SMC from SMI since
1953 has amount to US $ 9.4 million; and (4) that from 1972-1975, SMI did not declare cash or stock dividends, all earnings having been used in line with a program
for the setting up of breweries by SMI
These averments are supported by the affidavit of the Corporate Secretary, enclosing photocopies of the afore-mentioned documents. 51
Pursuant to the second paragraph of section 51 of the Corporation Law, "(t)he record of all business transactions of the corporation and minutes of any meeting shall be
open to the inspection of any director, member or stockholder of the corporation at reasonable hours."
The stockholder's right of inspection of the corporation's books and records is based upon their ownership of the assets and property of the corporation. It is, therefore,
an incident of ownership of the corporate property, whether this ownership or interest be termed an equitable ownership, a beneficial ownership, or a ownership. 52This
right is predicated upon the necessity of self-protection. It is generally held by majority of the courts that where the right is granted by statute to the stockholder, it is
given to him as such and must be exercised by him with respect to his interest as a stockholder and for some purpose germane thereto or in the interest of the
corporation. 53 In other words, the inspection has to be germane to the petitioner's interest as a stockholder, and has to be proper and lawful in character and not inimical
to the interest of the corporation. 54 In Grey v. Insular Lumber, 55 this Court held that "the right to examine the books of the corporation must be exercised 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 speculative or vexatious purposes. The
weight of judicial opinion appears to be, that on application for mandamus to enforce the right, it is proper for the court to inquire into and consider the stockholder's
good faith and his purpose and motives in seeking inspection. 56 Thus, it was held that "the right given by statute is not absolute and may be refused when the
information is not sought in good faith or is used to the detriment of the corporation." 57 But the "impropriety of purpose such as will defeat enforcement must be set up
the corporation defensively if the Court is to take cognizance of it as a qualification. In other words, the specific provisions take from the stockholder the burden of
showing propriety of purpose and place upon the corporation the burden of showing impropriety of purpose or motive. 58 It appears to be the general rule that
stockholders are entitled to full information as to the management of the corporation and the manner of expenditure of its funds, and to inspection to obtain such
information, especially where it appears that the company is being mismanaged or that it is being managed for the personal benefit of officers or directors or certain of
the stockholders to the exclusion of others." 59
While the right of a stockholder to examine the books and records of a corporation for a lawful purpose is a matter of law, the right of such stockholder to examine the
books and records of a wholly-owned subsidiary of the corporation in which he is a stockholder is a different thing.
Some state courts recognize the right under certain conditions, while others do not. Thus, it has been held that where a corporation owns approximately no property
except the shares of stock of subsidiary corporations which are merely agents or instrumentalities of the holding company, the legal fiction of distinct corporate entities
may be disregarded and the books, papers and documents of all the corporations may be required to be produced for examination, 60 and that a writ of mandamus, may
be granted, as the records of the subsidiary were, to all incontents and purposes, the records of the parent even though subsidiary was not named as a party. 61 mandamus
was likewise held proper to inspect both the subsidiary's and the parent corporation's books upon proof of sufficient control or dominion by the parent showing the
relation of principal or agent or something similar thereto. 62
On the other hand, mandamus at the suit of a stockholder was refused where the subsidiary corporation is a separate and distinct corporation domiciled and with its
books and records in another jurisdiction, and is not legally subject to the control of the parent company, although it owned a vast majority of the stock of the
subsidiary. 63 Likewise, inspection of the books of an allied corporation by stockholder of the parent company which owns all the stock of the subsidiary has been
refused on the ground that the stockholder was not within the class of "persons having an interest." 64
In the Nash case, 65 The Supreme Court of New York held that the contractual right of former stockholders to inspect books and records of the corporation included the
right to inspect corporation's subsidiaries' books and records which were in corporation's possession and control in its office in New York."
In the Bailey case, 66 stockholders of a corporation were held entitled to inspect the records of a controlled subsidiary corporation which used the same offices and had
Identical officers and directors.
In his "Urgent Motion for Production and Inspection of Documents" before respondent SEC, petitioner contended that respondent corporation "had been attempting to
suppress information for the stockholders" and that petitioner, "as stockholder of respondent corporation, is entitled to copies of some documents which for some reason
or another, respondent corporation is very reluctant in revealing to the petitioner notwithstanding the fact that no harm would be caused thereby to the
corporation." 67 There is no question that stockholders are entitled to inspect the books and records of a corporation in order to investigate the conduct of the
management, determine the financial condition of the corporation, and generally take an account of the stewardship of the officers and directors. 68
In the case at bar, considering that the foreign subsidiary is wholly owned by respondent San Miguel Corporation and, therefore, under its control, it would be more in
accord with equity, good faith and fair dealing to construe the statutory right of petitioner as stockholder to inspect the books and records of the corporation as
extending to books and records of such wholly subsidiary which are in respondent corporation's possession and control.

IV
Whether or not respondent SEC gravely abused its discretion in allowing the stockholders of respondent corporation to ratify the investment of corporate funds in a
foreign corporation
Petitioner reiterates his contention in SEC Case No. 1423 that respondent corporation invested corporate funds in SMI without prior authority of the stockholders, thus
violating section 17-1/2 of the Corporation Law, and alleges that respondent SEC should have investigated the charge, being a statutory offense, instead of allowing
ratification of the investment by the stockholders.
Respondent SEC's position is that submission of the investment to the stockholders for ratification is a sound corporate practice and should not be thwarted but
encouraged.
Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds in any other corporation or business or for any purpose other than the main purpose for
which it was organized" provided that its Board of Directors has been so authorized by the affirmative vote of stockholders holding shares entitling them to exercise at
least two-thirds of the voting power. If the investment is made in pursuance of the corporate purpose, it does not need the approval of the stockholders. It is only when
the purchase of shares is done solely for investment and not to accomplish the purpose of its incorporation that the vote of approval of the stockholders holding shares
entitling them to exercise at least two-thirds of the voting power is necessary. 69
As stated by respondent corporation, the purchase of beer manufacturing facilities by SMC was an investment in the same business stated as its main purpose in its
Articles of Incorporation, which is to manufacture and market beer. It appears that the original investment was made in 1947-1948, when SMC, then San Miguel
Brewery, Inc., purchased a beer brewery in Hongkong (Hongkong Brewery & Distillery, Ltd.) for the manufacture and marketing of San Miguel beer thereat.
Restructuring of the investment was made in 1970-1971 thru the organization of SMI in Bermuda as a tax free reorganization.
Under these circumstances, the ruling in De la Rama v. Manao Sugar Central Co., Inc., supra, appears relevant. In said case, one of the issues was the legality of an
investment made by Manao Sugar Central Co., Inc., without prior resolution approved by the affirmative vote of 2/3 of the stockholders' voting power, in the Philippine
Fiber Processing Co., Inc., a company engaged in the manufacture of sugar bags. The lower court said that "there is more logic in the stand that if the investment is
made in a corporation whose business is important to the investing corporation and would aid it in its purpose, to require authority of the stockholders would be to
unduly curtail the power of the Board of Directors." This Court affirmed the ruling of the court a quo on the matter and, quoting Prof. Sulpicio S. Guevara, said:
"j. Power to acquire or dispose of shares or securities. A private corporation, in order to accomplish is purpose as stated in its articles of
incorporation, and subject to the limitations imposed by the Corporation Law, has the power to acquire, hold, mortgage, pledge or dispose of
shares, bonds, securities, and other evidence of indebtedness of any domestic or foreign corporation. Such an act, if done in pursuance of the
corporate purpose, does not need the approval of stockholders; but when the purchase of shares of another corporation is done solely for
investment and not to accomplish the purpose of its incorporation, the vote of approval of the stockholders is necessary. In any case, the purchase
of such shares or securities must be subject to the limitations established by the Corporations law; namely, (a) that no agricultural or mining
corporation shall be restricted to own not more than 15% of the voting stock of nay agricultural or mining corporation; and (c) that such holdings
shall be solely for investment and not for the purpose of bringing about a monopoly in any line of commerce of combination in restraint of trade."
The Philippine Corporation Law by Sulpicio S. Guevara, 1967 Ed., p. 89) (Emphasis supplied.)
40. Power to invest corporate funds. A private corporation has the power to invest its corporate funds "in any other corporation or business, or
for any purpose other than the main purpose for which it was organized, provide that 'its board of directors has been so authorized in a resolution
by the affirmative vote of stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power on such
a propose at a stockholders' meeting called for that purpose,' and provided further, that no agricultural or mining corporation shall in anywise be
interested in any other agricultural or mining corporation. When the investment is necessary to accomplish its purpose or purposes as stated in its
articles of incorporation the approval of the stockholders is not necessary."" (Id., p. 108) (Emphasis ours.) (pp. 258-259).
Assuming arguendo that the Board of Directors of SMC had no authority to make the assailed investment, there is no question that a corporation, like an individual,
may ratify and thereby render binding upon it the originally unauthorized acts of its officers or other agents. 70 This is true because the questioned investment is neither
contrary to law, morals, public order or public policy. It is a corporate transaction or contract which is within the corporate powers, but which is defective from a
supported failure to observe in its execution the. requirement of the law that the investment must be authorized by the affirmative vote of the stockholders holding twothirds of the voting power. This requirement is for the benefit of the stockholders. The stockholders for whose benefit the requirement was enacted may, therefore, ratify
the investment and its ratification by said stockholders obliterates any defect which it may have had at the outset. "Mere ultra vires acts", said this Court in
Pirovano, 71 "or those which are not illegal and void ab initio, but are not merely within the scope of the articles of incorporation, are merely voidable and may become
binding and enforceable when ratified by the stockholders.
Besides, the investment was for the purchase of beer manufacturing and marketing facilities which is apparently relevant to the corporate purpose. The mere fact that
respondent corporation submitted the assailed investment to the stockholders for ratification at the annual meeting of May 10, 1977 cannot be construed as an admission
that respondent corporation had committed an ultra vires act, considering the common practice of corporations of periodically submitting for the gratification of their
stockholders the acts of their directors, officers and managers.
WHEREFORE, judgment is hereby rendered as follows:
The Court voted unanimously to grant the petition insofar as it prays that petitioner be allowed to examine the books and records of San Miguel International, Inc., as
specified by him.

On the matter of the validity of the amended by-laws of respondent San Miguel Corporation, six (6) Justices, namely, Justices Barredo, Makasiar, Antonio, Santos,
Abad Santos and De Castro, voted to sustain the validity per se of the amended by-laws in question and to dismiss the petition without prejudice to the question of the
actual disqualification of petitioner John Gokongwei, Jr. to run and if elected to sit as director of respondent San Miguel Corporation being decided, after a new and
proper hearing by the Board of Directors of said corporation, whose decision shall be appealable to the respondent Securities and Exchange Commission deliberating
and acting en banc and ultimately to this Court. Unless disqualified in the manner herein provided, the prohibition in the afore-mentioned amended by-laws shall not
apply to petitioner.
The afore-mentioned six (6) Justices, together with Justice Fernando, voted to declare the issue on the validity of the foreign investment of respondent corporation as
moot.
Chief Justice Fred Ruiz Castro reserved his vote on the validity of the amended by-laws, pending hearing by this Court on the applicability of section 13(5) of the
Corporation Law to petitioner.
Justice Fernando reserved his vote on the validity of subject amendment to the by-laws but otherwise concurs in the result.
Four (4) Justices, namely, Justices Teehankee, Concepcion, Jr., Fernandez and Guerrero filed a separate opinion, wherein they voted against the validity of the
questioned amended bylaws and that this question should properly be resolved first by the SEC as the agency of primary jurisdiction. They concur in the result that
petitioner may be allowed to run for and sit as director of respondent SMC in the scheduled May 6, 1979 election and subsequent elections until disqualified after
proper hearing by the respondent's Board of Directors and petitioner's disqualification shall have been sustained by respondent SEC en banc and ultimately by final
judgment of this Court.
In resume, subject to the qualifications aforestated judgment is hereby rendered GRANTING the petition by allowing petitioner to examine the books and records of
San Miguel International, Inc. as specified in the petition. The petition, insofar as it assails the validity of the amended by- laws and the ratification of the foreign
investment of respondent corporation, for lack of necessary votes, is hereby DISMISSED. No costs.
Makasiar, Santos Abad Santos and De Castro, JJ., concur.
Aquino, and Melencio Herrera JJ., took no part.
G.R. No. 129459 September 29, 1998
SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC., petitioner,
vs.
COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL DEVELOPMENT CORP. and JNM REALTY AND
DEVELOPMENT CORP., respondents.

PANGANIBAN, J.:
May corporate treasurer, by herself and without any authorization from he board of directors, validly sell a parcel of land owned by the corporation?. May the veil of
corporate fiction be pierced on the mere ground that almost all of the shares of stock of the corporation are owned by said treasurer and her husband?
The Case
These questions are answered in the negative by this Court in resolving the Petition for Review on Certioraribefore us, assailing the March 18, 1997 Decision 1 of the
Court of Appeals 2 in CA GR CV No. 46801 which, in turn, modified the July 18, 1994 Decision of the Regional Trial Court of Makati, Metro Manila, Branch 63 3 in
Civil Case No. 89-3511. The RTC dismissed both the Complaint and the Counterclaim filed by the parties. On the other hand, the Court of Appeals ruled:
WHEREFORE, premises considered, the appealed decision is AFFIRMED WITH MODIFICATION ordering defendant-appellee Nenita Lee
Gruenberg to REFUND or return to plaintiff-appellant the downpayment of P100,000.00 which she received from plaintiff-appellant. There is no
pronouncement as to costs. 4
The petition also challenges the June 10, 1997 CA Resolution denying reconsideration. 5
The Facts
The facts as found by the Court of Appeals are as follows:

Plaintiff-appellant San Juan Structural and Steel Fabricators, Inc.'s amended complaint alleged that on 14 February 1989, plaintiff-appellant
entered into an agreement with defendant-appellee Motorich Sales Corporation for the transfer to it of a parcel of land identified as Lot 30, Block
1 of the Acropolis Greens Subdivision located in the District of Murphy, Quezon City. Metro Manila, containing an area of Four Hundred
Fourteen (414) square meters, covered by TCT No. (362909) 2876: that as stipulated in the Agreement of 14 February 1989, plaintiff-appellant
paid the downpayment in the sum of One Hundred Thousand (P100,000.00) Pesos, the balance to be paid on or before March 2, 1989; that on
March 1, 1989. Mr. Andres T. Co, president of plaintiff-appellant corporation, wrote a letter to defendant-appellee Motorich Sales Corporation
requesting for a computation of the balance to be paid: that said letter was coursed through defendant-appellee's broker. Linda Aduca, who wrote
the computation of the balance: that on March 2, 1989, plaintiff-appellant was ready with the amount corresponding to the balance, covered by
Metrobank Cashier's Check No. 004223, payable to defendant-appellee Motorich Sales Corporation; that plaintiff-appellant and defendantappellee Motorich Sales Corporation were supposed to meet in the office of plaintiff-appellant but defendant-appellee's treasurer, Nenita Lee
Gruenberg, did not appear; that defendant-appellee Motorich Sales Corporation despite repeated demands and in utter disregard of its
commitments had refused to execute the Transfer of Rights/Deed of Assignment which is necessary to transfer the certificate of title; that
defendant ACL Development Corp. is impleaded as a necessary party since Transfer Certificate of Title No. (362909) 2876 is still in the name of
said defendant; while defendant JNM Realty & Development Corp. is likewise impleaded as a necessary party in view of the fact that it is the
transferor of right in favor of defendant-appellee Motorich Sales Corporation: that on April 6, 1989, defendant ACL Development Corporation
and Motorich Sales Corporation entered into a Deed of Absolute Sale whereby the former transferred to the latter the subject property; that by
reason of said transfer, the Registry of Deeds of Quezon City issued a new title in the name of Motorich Sales Corporation, represented by
defendant-appellee Nenita Lee Gruenberg and Reynaldo L. Gruenberg, under Transfer Certificate of Title No. 3571; that as a result of
defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corporation's bad faith in refusing to execute a formal Transfer of Rights/Deed
of Assignment, plaintiff-appellant suffered moral and nominal damages which may be assessed against defendants-appellees in the sum of Five
Hundred Thousand (500,000.00) Pesos; that as a result of defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corporation's
unjustified and unwarranted failure to execute the required Transfer of Rights/Deed of Assignment or formal deed of sale in favor of plaintiffappellant, defendants-appellees should be assessed exemplary damages in the sum of One Hundred Thousand (P100,000.00) Pesos; that by
reason of defendants-appellees' bad faith in refusing to execute a Transfer of Rights/Deed of Assignment in favor of plaintiff-appellant, the latter
lost the opportunity to construct a residential building in the sum of One Hundred Thousand (P100,000.00) Pesos; and that as a consequence of
defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corporation's bad faith in refusing to execute a deed of sale in favor of plaintiffappellant, it has been constrained to obtain the services of counsel at an agreed fee of One Hundred Thousand (P100,000.00) Pesos plus
appearance fee for every appearance in court hearings.
In its answer, defendants-appellees Motorich Sales Corporation and Nenita Lee Gruenberg interposed as affirmative defense that the President
and Chairman of Motorich did not sign the agreement adverted to in par. 3 of the amended complaint; that Mrs. Gruenberg's signature on the
agreement (ref: par. 3 of Amended Complaint) is inadequate to bind Motorich. The other signature, that of Mr. Reynaldo Gruenberg, President
and Chairman of Motorich, is required: that plaintiff knew this from the very beginning as it was presented a copy of the Transfer of Rights
(Annex B of amended complaint) at the time the Agreement (Annex B of amended complaint) was signed; that plaintiff-appellant itself drafted
the Agreement and insisted that Mrs. Gruenberg accept the P100,000.00 as earnest money; that granting, without admitting, the enforceability of
the agreement, plaintiff-appellant nonetheless failed to pay in legal tender within the stipulated period (up to March 2, 1989); that it was the
understanding between Mrs. Gruenberg and plaintiff-appellant that the Transfer of Rights/Deed of Assignment will be signed only upon receipt
of cash payment; thus they agreed that if the payment be in check, they will meet at a bank designated by plaintiff-appellant where they will
encash the check and sign the Transfer of Rights/Deed. However, plaintiff-appellant informed Mrs. Gruenberg of the alleged availability of the
check, by phone, only after banking hours.
On the basis of the evidence, the court a quo rendered the judgment appealed from[,] dismissing plaintiff-appellant's complaint, ruling that:
The issue to be resolved is: whether plaintiff had the right to compel defendants to execute a deed of absolute sale in
accordance with the agreement of February 14, 1989: and if so, whether plaintiff is entitled to damage.
As to the first question, there is no evidence to show that defendant Nenita Lee Gruenberg was indeed authorized by
defendant corporation. Motorich Sales, to dispose of that property covered by T.C.T. No. (362909) 2876. Since the
property is clearly owned by the corporation. Motorich Sales, then its disposition should be governed by the requirement
laid down in Sec. 40. of the Corporation Code of the Philippines, to wit:
Sec. 40, Sale or other disposition of assets. Subject to the provisions of existing laws on illegal
combination and monopolies, a corporation may by a majority vote of its board of directors . . . sell,
lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and
assets including its goodwill . . . when authorized by the vote of the stockholders representing at
least two third (2/3) of the outstanding capital stock . . .
No such vote was obtained by defendant Nenita Lee Gruenberg for that proposed sale[;] neither was there evidence to
show that the supposed transaction was ratified by the corporation. Plaintiff should have been on the look out under these
circumstances. More so, plaintiff himself [owns] several corporations (tsn dated August 16, 1993, p. 3) which makes him
knowledgeable on corporation matters.
Regarding the question of damages, the Court likewise, does not find substantial evidence to hold defendant Nenita Lee
Gruenberg liable considering that she did not in anyway misrepresent herself to be authorized by the corporation to sell the
property to plaintiff (tsn dated September 27, 1991, p. 8).

In the light of the foregoing, the Court hereby renders judgment DISMISSING the complaint at instance for lack of merit.
"Defendants" counterclaim is also DISMISSED for lack of basis. (Decision, pp. 7-8; Rollo, pp. 34-35)
For clarity, the Agreement dated February 14, 1989 is reproduced hereunder:
AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Agreement, made and entered into by and between:
MOTORICH SALES CORPORATION, a corporation duly organized and existing under and by virtue of Philippine Laws,
with principal office address at 5510 South Super Hi-way cor. Balderama St., Pio del Pilar. Makati, Metro Manila,
represented herein by its Treasurer, NENITA LEE GRUENBERG, hereinafter referred to as the TRANSFEROR;
and
SAN JUAN STRUCTURAL & STEEL FABRICATORS, a corporation duly organized and existing under and by virtue of
the laws of the Philippines, with principal office address at Sumulong Highway, Barrio Mambungan, Antipolo, Rizal,
represented herein by its President, ANDRES T. CO, hereinafter referred to as the TRANSFEREE.
WITNESSETH, That:
WHEREAS, the TRANSFEROR is the owner of a parcel of land identified as Lot 30 Block 1 of the ACROPOLIS GREENS SUBDIVISION
located at the District of Murphy, Quezon City, Metro Manila, containing an area of FOUR HUNDRED FOURTEEN (414) SQUARE METERS,
covered by a TRANSFER OF RIGHTS between JNM Realty & Dev. Corp. as the Transferor and Motorich Sales Corp. as the Transferee;
NOW, THEREFORE, for and in consideration of the foregoing premises, the parties have agreed as follows:
1. That the purchase price shall be at FIVE THOUSAND TWO HUNDRED PESOS (P5,200.00) per square meter; subject
to the following terms:
a. Earnest money amounting to ONE HUNDRED THOUSAND PESOS (P100,000.00), will be paid
upon the execution of this agreement and shall form part of the total purchase price;
b. Balance shall be payable on or before March 2, 1989;
2. That the monthly amortization for the month of February 1989 shall be for the account of the Transferor; and that the
monthly amortization starting March 21, 1989 shall be for the account of the Transferee;
The transferor warrants that he [sic] is the lawful owner of the above-described property and that there [are] no existing liens and/or
encumbrances of whatsoever nature;
In case of failure by the Transferee to pay the balance on the date specified on 1, (b), the earnest money shall be forfeited in favor of the
Transferor.
That upon full payment of the balance, the TRANSFEROR agrees to execute a TRANSFER OF RIGHTS/DEED OF ASSIGNMENT in favor of
the TRANSFEREE.
IN WITNESS WHEREOF, the parties have hereunto set their hands this 14th day of February, 1989 at Greenhills, San Juan, Metro Manila,
Philippines.
MOTORICH SALES CORPORATION SAN JUAN STRUCTURAL & STEEL FABRICATORS
TRANSFEROR TRANSFEREE
[SGD.] [SGD.]

By. NENITA LEE GRUENBERG By: ANDRES T. CO

Treasurer President
Signed In the presence of:
[SGD.] [SGD.]
6
In its recourse before the Court of Appeals, petitioner insisted:
1. Appellant is entitled to compel the appellees to execute a Deed of Absolute Sale in accordance with the Agreement of
February 14, 1989,
2. Plaintiff is entitled to damages. 7
As stated earlier, the Court of Appeals debunked petitioner's arguments and affirmed the Decision of the RTC with the modification that Respondent Nenita Lee
Gruenberg was ordered to refund P100,000 to petitioner, the amount remitted as "downpayment" or "earnest money." Hence, this petition before us. 8
The Issues
Before this Court, petitioner raises the following issues:
I. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in the instant case
II. Whether or not the appellate court may consider matters which the parties failed to raise in the lower court
III. Whether or not there is a valid and enforceable contract between the petitioner and the respondent corporation
IV. Whether or not the Court of Appeals erred in holding that there is a valid correction/substitution of answer in the
transcript of stenographic note[s].
V. Whether or not respondents are liable for damages and attorney's fees 9
The Court synthesized the foregoing and will thus discuss them seriatim as follows:
1. Was there a valid contract of sale between petitioner and Motorich?
2. May the doctrine of piercing the veil of corporate fiction be applied to Motorich?
3. Is the alleged alteration of Gruenberg's testimony as recorded in the transcript of stenographic notes material to the
disposition of this case?
4. Are respondents liable for damages and attorney's fees?
The Court's Ruling
The petition is devoid of merit.
First Issue: Validity of Agreement
Petitioner San Juan Structural and Steel Fabricators, Inc. alleges that on February 14, 1989, it entered through its president, Andres Co, into the disputed Agreement
with Respondent Motorich Sales Corporation, which was in turn allegedly represented by its treasurer, Nenita Lee Gruenberg. Petitioner insists that "[w]hen Gruenberg
and Co affixed their signatures on the contract they both consented to be bound by the terms thereof." Ergo, petitioner contends that the contract is binding on the two
corporations. We do not agree.

True, Gruenberg and Co signed on February 14, 1989, the Agreement, according to which a lot owned by Motorich Sales Corporation was purportedly sold. Such
contract, however, cannot bind Motorich, because it never authorized or ratified such sale.
A corporation is a juridical person separate and distinct from its stockholders or members. Accordingly, the property of the corporation is not the property of its
stockholders or members and may not be sold by the stockholders or members without express authorization from the corporation's board of directors. 10 Section 23 of
BP 68, otherwise known as the Corporation Code of the Philippines, provides;
Sec. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under
this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees
to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for
one (1) year and until their successors are elected and qualified.
Indubitably, a corporation may act only through its board of directors or, when authorized either by its bylaws or by its board resolution, through its officers or agents in
the normal course of business. The general principles of agency govern the relation between the corporation and its officers or agents, subject to the articles of
incorporation, bylaws, or relevant provisions of law. 11 Thus, this Court has held that "a corporate officer or agent may represent and bind the corporation in transactions
with third persons to the extent that the authority to do so has been conferred upon him, and this includes powers which have been intentionally conferred, and also such
powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and
usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation has caused persons dealing with the officer or agent to believe
that it has conferred." 12
Furthermore, the Court has also recognized the rule that "persons dealing with an assumed agent, whether the assumed agency be a general or special one bound at their
peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the
burden of proof is upon them to establish it (Harry Keeler v. Rodriguez, 4 Phil. 19)." 13 Unless duly authorized, a treasurer, whose powers are limited, cannot bind the
corporation in a sale of its assets. 14
In the case at bar, Respondent Motorich categorically denies that it ever authorized Nenita Gruenberg, its treasurer, to sell the subject parcel of land. 15 Consequently,
petitioner had the burden of proving that Nenita Gruenberg was in fact authorized to represent and bind Motorich in the transaction. Petitioner failed to discharge this
burden. Its offer of evidence before the trial court contained no proof of such authority. 16 It has not shown any provision of said respondent's articles of incorporation,
bylaws or board resolution to prove that Nenita Gruenberg possessed such power.
That Nenita Gruenberg is the treasurer of Motorich does not free petitioner from the responsibility of ascertaining the extent of her authority to represent the
corporation. Petitioner cannot assume that she, by virtue of her position, was authorized to sell the property of the corporation. Selling is obviously foreign to a
corporate treasurer's function, which generally has been described as "to receive and keep the funds of the corporation, and to disburse them in accordance with the
authority given him by the board or the properly authorized officers."17
Neither was such real estate sale shown to be a normal business activity of Motorich. The primary purpose of Motorich is marketing, distribution, export and import in
relation to a general merchandising business. 18 Unmistakably, its treasurer is not cloaked with actual or apparent authority to buy or sell real property, an activity which
falls way beyond the scope of her general authority.
Art. 1874 and 1878 of the Civil Code of the Philippines provides:
Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing: otherwise, the
sale shall be void.
Art. 1878. Special powers of attorney are necessary in the following case:
xxx xxx xxx
(5) To enter any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration;
xxx xxx xxx.
Petitioner further contends that Respondent Motorich has ratified said contract of sale because of its "acceptance of benefits," as evidenced by the receipt issued by
Respondent Gruenberg. 19 Petitioner is clutching at straws.
As a general rule, the acts of corporate officers within the scope of their authority are binding on the corporation. But when these officers exceed their authority, their
actions "cannot bind the corporation, unless it has ratified such acts or is estopped from disclaiming them." 20
In this case, there is a clear absence of proof that Motorich ever authorized Nenita Gruenberg, or made it appear to any third person that she had the authority, to sell its
land or to receive the earnest money. Neither was there any proof that Motorich ratified, expressly or impliedly, the contract. Petitioner rests its argument on the receipt
which, however, does not prove the fact of ratification. The document is a hand-written one, not a corporate receipt, and it bears only Nenita Gruenberg's signature.
Certainly, this document alone does not prove that her acts were authorized or ratified by Motorich.

Art. 1318 of the Civil Code lists the requisites of a valid and perfected contract: "(1) consent of the contracting parties; (2) object certain which is the subject matter of
the contract; (3) cause of the obligation which is established." As found by the trial court 21 and affirmed by the Court of Appeals, 22 there is no evidence that Gruenberg
was authorized to enter into the contract of sale, or that the said contract was ratified by Motorich. This factual finding of the two courts is binding on this Court. 23 As
the consent of the seller was not obtained, no contract to bind the obligor was perfected. Therefore, there can be no valid contract of sale between petitioner and
Motorich.
Because Motorich had never given a written authorization to Respondent Gruenberg to sell its parcel of land, we hold that the February 14, 1989 Agreement entered
into by the latter with petitioner is void under Article 1874 of the Civil Code. Being inexistent and void from the beginning, said contract cannot be ratified. 24
Second Issue:
Piercing the Corporate Veil Not Justified
Petitioner also argues that the veil of corporate fiction of Motorich should be pierced, because the latter is a close corporation. Since "Spouses Reynaldo L. Gruenberg
and Nenita R. Gruenberg owned all or almost all or 99.866% to be accurate, of the subscribed capital stock" 25 of Motorich, petitioner argues that Gruenberg needed no
authorization from the board to enter into the subject contract. 26 It adds that, being solely owned by the Spouses Gruenberg, the company can treated as a close
corporation which can be bound by the acts of its principal stockholder who needs no specific authority. The Court is not persuaded.
First, petitioner itself concedes having raised the issue belatedly, 27 not having done so during the trial, but only when it filed its sur-rejoinder before the Court of
Appeals. 28 Thus, this Court cannot entertain said issue at this late stage of the proceedings. It is well-settled the points of law, theories and arguments not brought to the
attention of the trial court need not be, and ordinarily will not be, considered by a reviewing court, as they cannot be raised for the first time on appeal. 29Allowing
petitioner to change horses in midstream, as it were, is to run roughshod over the basic principles of fair play, justice and due process.
Second, even if the above mentioned argument were to be addressed at this time, the Court still finds no reason to uphold it. True, one of the advantages of a corporate
form of business organization is the limitation of an investor's liability to the amount of the investment. 30 This feature flows from the legal theory that a corporate entity
is separate and distinct from its stockholders. However, the statutorily granted privilege of a corporate veil may be used only for legitimate purposes. 31 On equitable
considerations, the veil can be disregarded when it is utilized as a shield to commit fraud, illegality or inequity; defeat public convenience; confuse legitimate issues; or
serve as a mere alter ego or business conduit of a person or an instrumentality, agency or adjunct of another corporation. 32
Thus, the Court has consistently ruled that "[w]hen the fiction is used as a means of perpetrating a fraud or an illegal act or as vehicle for the evasion of an existing
obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law
covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of
individuals." 33
We stress that the corporate fiction should be set aside when it becomes a shield against liability for fraud, illegality or inequity committed on third persons. The
question of piercing the veil of corporate fiction is essentially, then, a matter of proof. In the present case, however, the Court finds no reason to pierce the corporate veil
of Respondent Motorich. Petitioner utterly failed to establish that said corporation was formed, or that it is operated, for the purpose of shielding any alleged fraudulent
or illegal activities of its officers or stockholders; or that the said veil was used to conceal fraud, illegality or inequity at the expense of third persons like petitioner.
Petitioner claims that Motorich is a close corporation. We rule that it is not. Section 96 of the Corporation Code defines a close corporation as follows:
Sec. 96. Definition and Applicability of Title. A close corporation, within the meaning of this Code, is one whose articles of incorporation
provide that: (1) All of the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a
specified number of persons, not exceeding twenty (20); (2) All of the issued stock of all classes shall be subject to one or more specified
restrictions on transfer permitted by this Title; and (3) The corporation shall not list in any stock exchange or make any public offering of any of
its stock of any class. Notwithstanding the foregoing, a corporation shall be deemed not a close corporation when at least two-thirds (2/3) of its
voting stock or voting rights is owned or controlled by another corporation which is not a close corporation within the meaning of this Code. . . . .
The articles of incorporation 34 of Motorich Sales Corporation does not contain any provision stating that (1) the number of stockholders shall not exceed 20, or (2) a
preemption of shares is restricted in favor of any stockholder or of the corporation, or (3) listing its stocks in any stock exchange or making a public offering of such
stocks is prohibited. From its articles, it is clear that Respondent Motorich is not a close corporation. 35 Motorich does not become one either, just because Spouses
Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed capital stock. The "[m]ere ownership by a single stockholder or by another corporation of all or
capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personalities." 36 So, too, a narrow distribution of ownership does
not, by itself, make a close corporation.
Petitioner cites Manuel R. Dulay Enterprises, Inc. v. Court of Appeals 37 wherein the Court ruled that ". . . petitioner corporation is classified as a close corporation and,
consequently, a board resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for the action of its president." 38 But
the factual milieu in Dulay is not on all fours with the present case. In Dulay, the sale of real property was contracted by the president of a close corporation with the
knowledge and acquiescence of its board of directors. 39 In the present case, Motorich is not a close corporation, as previously discussed, and the agreement was entered
into by the corporate treasurer without the knowledge of the board of directors.
The Court is not unaware that there are exceptional cases where "an action by a director, who singly is the controlling stockholder, may be considered as a binding
corporate act and a board action as nothing more than a mere formality." 40 The present case, however, is not one of them.

As stated by petitioner, Spouses Reynaldo and Nenita Gruenberg own "almost 99.866%" of Respondent Motorich.41 Since Nenita is not the sole controlling stockholder
of Motorich, the aforementioned exception does not apply. Grantingarguendo that the corporate veil of Motorich is to be disregarded, the subject parcel of land would
then be treated as conjugal property of Spouses Gruenberg, because the same was acquired during their marriage. There being no indication that said spouses, who
appear to have been married before the effectivity of the Family Code, have agreed to a different property regime, their property relations would be governed by
conjugal partnership of gains. 42 As a consequence, Nenita Gruenberg could not have effected a sale of the subject lot because "[t]here is no co-ownership between the
spouses in the properties of the conjugal partnership of gains. Hence, neither spouse can alienate in favor of another his or interest in the partnership or in any property
belonging to it; neither spouse can ask for a partition of the properties before the partnership has been legally dissolved." 43
Assuming further, for the sake of argument, that the spouses' property regime is the absolute community of property, the sale would still be invalid. Under this regime,
"alienation of community property must have the written consent of the other spouse or he authority of the court without which the disposition or encumbrance
is void." 44 Both requirements are manifestly absent in the instant case.
Third Issue: Challenged Portion of TSN Immaterial
Petitioner calls our attention to the following excerpt of the transcript of stenographic notes (TSN):
Q Did you ever represent to Mr. Co that you were authorized by the corporation to sell the property?
A Yes, sir. 45
Petitioner claims that the answer "Yes" was crossed out, and, in its place was written a "No" with an initial scribbled above it. 46 This, however, is insufficient to prove
that Nenita Gruenberg was authorized to represent Respondent Motorich in the sale of its immovable property. Said excerpt be understood in the context of her whole
testimony. During her cross-examination. Respondent Gruenberg testified:
Q So, you signed in your capacity as the treasurer?
[A] Yes, sir.
Q Even then you kn[e]w all along that you [were] not authorized?
A Yes, sir.
Q You stated on direct examination that you did not represent that you were authorized to sell the property?
A Yes, sir.
Q But you also did not say that you were not authorized to sell the property, you did not tell that to Mr. Co, is that correct?
A That was not asked of me.
Q Yes, just answer it.
A I just told them that I was the treasurer of the corporation and it [was] also the president who [was] also authorized to
sign on behalf of the corporation.
Q You did not say that you were not authorized nor did you say that you were authorized?
A Mr. Co was very interested to purchase the property and he offered to put up a P100,000.00 earnest money at that time.
That was our first meeting. 47
Clearly then, Nenita Gruenberg did not testify that Motorich had authorized her to sell its property. On the other hand, her testimony demonstrates that the president of
Petitioner Corporation, in his great desire to buy the property, threw caution to the wind by offering and paying the earnest money without first verifying Gruenberg's
authority to sell the lot.
Fourth Issue:
Damages and Attorney's Fees
Finally, petitioner prays for damages and attorney's fees, alleging that "[i]n an utter display of malice and bad faith, respondents attempted and succeeded in impressing
on the trial court and [the] Court of Appeals that Gruenberg did not represent herself as authorized by Respondent Motorich despite the receipt issued by the former

specifically indicating that she was signing on behalf of Motorich Sales Corporation. Respondent Motorich likewise acted in bad faith when it claimed it did not
authorize Respondent Gruenberg and that the contract [was] not binding, [insofar] as it [was] concerned, despite receipt and enjoyment of the proceeds of Gruenberg's
act." 48Assuming that Respondent Motorich was not a party to the alleged fraud, petitioner maintains that Respondent Gruenberg should be held liable because she
"acted fraudulently and in bad faith [in] representing herself as duly authorized by [R]espondent [C]orporation." 49
As already stated, we sustain the findings of both the trial and the appellate courts that the foregoing allegations lack factual bases. Hence, an award of damages or
attorney's fees cannot be justified. The amount paid as "earnest money" was not proven to have redounded to the benefit of Respondent Motorich. Petitioner claims that
said amount was deposited to the account of Respondent Motorich, because "it was deposited with the account of Aren Commercial c/o Motorich Sales
Corporation." 50 Respondent Gruenberg, however, disputes the allegations of petitioner. She testified as follows:
Q You voluntarily accepted the P100,000.00, as a matter of fact, that was encashed, the check was encashed.
A Yes. sir, the check was paid in my name and I deposit[ed] it.
Q In your account?
A Yes, sir. 51
In any event, Gruenberg offered to return the amount to petitioner ". . . since the sale did not push through." 52
Moreover, we note that Andres Co is not a neophyte in the world of corporate business. He has been the president of Petitioner Corporation for more than ten years and
has also served as chief executive of two other corporate entities. 53 Co cannot feign ignorance of the scope of the authority of a corporate treasurer such as Gruenberg.
Neither can he be oblivious to his duty to ascertain the scope of Gruenberg's authorization to enter into a contract to sell a parcel of land belonging to Motorich.
Indeed, petitioner's claim of fraud and bad faith is unsubstantiated and fails to persuade the Court. Indubitably, petitioner appears to be the victim of its own officer's
negligence in entering into a contract with and paying an unauthorized officer of another corporation.
As correctly ruled by the Court of Appeals, however, Nenita Gruenberg should be ordered to return to petitioner the amount she received as earnest money, as "no one
shall enrich himself at the expense of another." 54 a principle embodied in Article 2154 of Civil Code. 55 Although there was no binding relation between them,
petitioner paid Gruenberg on the mistaken belief that she had the authority to sell the property of Motorich. 56 Article 2155 of Civil Code provides that "[p]ayment by
reason of a mistake in the contruction or application of a difficult question of law may come within the scope of the preceding article."
WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED.
SO ORDERED.
Davide, Jr., Bellosillo, Vitug and Quisumbing, JJ., concur.
G.R. No. L-40620 May 5, 1979
RICARDO L. GAMBOA, LYDIA R. GAMBOA, HONORIO DE 1A RAMA, EDUARDO DE LA RAMA, and the HEIRS OF MERCEDES DE LA RAMABORROMEO, petitioners,
vs.
HON. OSCAR R. VICTORIANO as Presiding Judge of the Court of First Instance of Negros Occidental, Branch II, BENJAMIN LOPUE, SR., BENJAMIN
LOPUE, JR., LEONITO LOPUE, and LUISA U. DACLESrespondents.
Exequiel T. A Alejandro for petitioners.
Acua, Lirazan & Associates for private respondents.

CONCEPCION JR., J,:

Petition for certiorari to review the order of the respondent judge, dated January 2, 1975, denying the petitioners' motion to dismiss the complaint filed in Civil Case No.
10257 of the Court of First Instance of Negros Occidental, entitled, "Benjamin Lopue Sr., et al., plaintiffs, versus Ricardo Gamboa, et al., defendants," as well as the
order dated April 4, 1975, denying the motion for the reconsideration of Said order.
In the aforementioned Civil Case No. 10257 of the Court of First Instance of Negros Occidental, the herein petitioners, Ricardo L. Gamboa, Lydia R. Gamboa, Honorio
de la Rama, Eduardo de la Rama, and the late Mercedes de la Rama-Borromeo, now represented by her heirs, as well as Ramon de la Rama, Paz de la Rama-Battistuzzi,

and Enzo Battistuzzi, were sued by the herein private respondents, Benjamin Lopue, Sr., Benjamin Lopue, Jr., Leonito Lopue, and Luisa U. Dacles to nullify the
issuance of 823 shares of stock of the Inocentes de la Rama, Inc. in favor of the said defendants. The gist of the complaint, filed on April 4, 1972, is that the plaintiffs,
with the exception of Anastacio Dacles who was joined as a formal party, are the owners of 1,328 shares of stock of the Inocentes de la Rama, Inc., a domestic
corporation, with an authorized capital stock of 3,000 shares, with a par value of P100.00 per share, 2,177 of which were subscribed and issued, thus leaving 823 shares
unissued; that upon the plaintiffs' acquisition of the shares of stock held by Rafael Ledesma and Jose Sicangco, Jr., then President and Vice-President of the corporation,
respectively, the defendants Mercedes R. Borromeo, Honorio de la Rama, and Ricardo Gamboa, remaining members of the board of directors of the corporation, in
order to forestall the takeover by the plaintiffs of the afore-named corporation, surreptitiously met and elected Ricardo L. Gamboa and Honorio de la Rama as president
and vice-president of the corporation, respectively, and thereafter passed a resolution authorizing the sale of the 823 unissued shares of the corporation to the
defendants, Ricardo L. Gamboa, Lydia R. Gamboa, Honorio de la Rama, Ramon de la Rama, Paz R. Battistuzzi Eduardo de la Rama, and Mercedes R. Borromeo, at par
value, after which the defendants Honorio de la Rama, Lydia de la Rama-Gamboa, and Enzo Battistuzzi were elected to the board of directors of the corporation; that
the sale of the unissued 823 shares of stock of the corporation was in violation of the plaintiffs' and pre-emptive rights and made without the approval of the board of
directors representing 2/3 of the outstanding capital stock, and is in disregard of the strictest relation of trust existing between the defendants, as stockholders thereof;
and that the defendants Lydia de la Rama-Gamboa, Honorio de la Rama, and Enzo Battistuzzi were not legally elected to the board of directors of the said corporation
and has unlawfully usurped or intruded into said office to the prejudice of the plaintiffs. Wherefore, they prayed that a writ of preliminary injunction be issued
restraining the defendants from committing, or continuing the performance of an act tending to prejudice, diminish or otherwise injure the plaintiffs' rights in the
corporate properties and funds of the corporation, and from disposing, transferring, selling, or otherwise impairing the value of the 823 shares of stock illegally issued
by the defendants; that a receiver be appointed to preserve and administer the property and funds of the corporation; that defendants Lydia de la Rama-Gamboa,
Honorio de la Rama, and Enzo Battistuzzi be declared as usurpers or intruders into the office of director in the corporation and, consequently, ousting them therefrom
and declare Luisa U. Dacles as a legally elected director of the corporation; that the sale of 823 shares of stock of the corporation be declared null and void; and that the
defendants be ordered to pay damages and attorney's fees, as well as the costs of suit . 1
Acting upon the complaint, the respondent judge, after proper hearing, directed the clerk of court "to issue the corresponding writ of preliminary injunction restraining
the defendants and/or their representatives, agents, or persons acting in their behalf from the commission or continuance of any act tending in any way to prejudice,
diminish or otherwise injure plaintiffs' rights in the corporate properties and funds of the corporation Inocentes de la Rama, Inc.' and from disposing, transferring,
selling or otherwise impairing the value of the certificates of stock allegedly issued illegally in their names on February 11, 1972, or at any date thereafter, and ordering
them to deposit with the Clerk of Court the corresponding certificates of stock for the 823 shares issued to said defendants on February 11, 1972, upon plaintiffs' posting
a bond in the sum of P50,000.00, to answer for any damages and costs that may be sustained by the defendants by reason of the issuance of the writ, copy of the bond to
be furnished to the defendants. " 2 Pursuant thereto, the defendants deposited with the clerk of court the corporation's certificates of stock Nos. 80 to 86, inclusive,
representing the disputed 823 shares of stock of the corporation.3
On October 31, 1972, the plaintiffs therein, now private respondents, entered into a compromise agreement with the defendants Ramon de la Rama, Paz de la Rama
Battistuzzi and Enzo Battistuzzi , 4 whereby the contracting parties withdrew their respective claims against each other and the aforenamed defendants waived and
transferred their rights and interests over the questioned 823 shares of stock in favor of the plaintiffs, as follows:
3. That the defendants Ramon L. de la Rama, Paz de la Rama Battistuzzi and Enzo Battistuzzi will waive, cede, transfer or other wise convey, as
they hereby waive, cede, transfer and convey, free from all liens and encumbrances unto the plaintiffs, in such proportion as the plaintiffs may
among themselves determine, all of the rights, interests, participations or title that the defendants Ramon L. de la Rama, Paz de la Rama
Battistuzzi Enzo Battistuzzi now have or may have in the eight hundred twenty-three (823) shares in the capital stock of the corporation
INOCENTES DELA RAMA, INC.' which were issued in the names of the defendants in the above-entitled case on or about February 11, 1972,
or at any date thereafter and which shares are the subject-matter of the present suit.
The compromise agreement was approved by the trial court on December 4, 1972, 5 As a result, the defendants filed a motion to dismiss the complaint, on November
19, 1974, upon the grounds: (1) that the plaintiffs' cause of action had been waived or abandoned; and (2) that they were estopped from further prosecuting the case
since they have, in effect, acknowledged the validity of the issuance of the disputed 823 shares of stock. The motion was denied on January 2, 1975.6
The defendants also filed a motion to declare the defendants Ramon L. de la Rama, Paz de la Rama Battistuzzi and Enzo Battistuzzi in contempt of court, for having
violated the writ of preliminary injunction when they entered into the aforesaid compromise agreement with the plaintiffs, but the respondent judge denied the said
motion for lack of merit. 7
On February 10, 1975, the defendants filed a motion for the reconsideration of the order denying their motion to dismiss the complaint' and subsequently, an Addendum
thereto, claiming that the respondent court has no jurisdiction to interfere with the management of the corporation by the board of directors, and the enactment of a
resolution by the defendants, as members of the board of directors of the corporation, allowing the sale of the 823 shares of stock to the defendants was purely a
management concern which the courts could not interfere with. When the trial court denied said motion and its addendum, the defendants filed the instant petition for
certiorari for the review of said orders.
The petition is without merit. The questioned order denying the petitioners' motion to dismiss the complaint is merely interlocutory and cannot be the subject of a
petition for certiorari. The proper procedure to be followed in such a case is to continue with the trial of the case on the merits and, if the decision is adverse, to reiterate
the issue on appeal. It would be a breach of orderly procedure to allow a party to come before this Court every time an order is issued with which he does not agree.
Besides, the order denying the petitioners' motion to dismiss the complaint was not capriciously, arbitrarily, or whimsically issued, or that the respondent court lacked
jurisdiction over the cause as to warrant the issuance of the writ prayed for. As found by the respondent judge, the petitioners have not waived their cause of action
against the petitioners by entering into a compromise agreement with the other defendants in view of the express provision of the compromise agreement that the same
"shall not in any way constitute or be considered a waiver or abandonment of any claim or cause of action against the other defendants." There is also no estoppel
because there is nothing in the agreement which could be construed as an affirmative admission by the plaintiff of the validity of the resolution of the defendants which
is now sought to be judicially declared null and void. The foregoing circumstances and the fact that no consideration was mentioned in the agreement for the transfer of

rights to the said shares of stock to the plaintiffs are sufficient to show that the agreement was merely an admission by the defendants Ramon de la Rama, Paz de la
Rama Battistuzzi and Enzo Battistuzzi of the validity of the claim of the plaintiffs.
The claim of the petitioners, in their Addendum to the motion for reconsideration of the order denying the motion to dismiss the complaint, questioning the trial court's
jurisdiction on matters affecting the management of the corporation, is without merit. The well-known rule is that courts cannot undertake to control the discretion of
the board of directors about administrative matters as to which they have legitimate power of, 10 action and contractsintra vires entered into by the board of directors are
binding upon the corporation and courts will not interfere unless such contracts are so unconscionable and oppressive as to amount to a wanton destruction of the rights
of the minority. 11 In the instant case, the plaintiffs aver that the defendants have concluded a transaction among themselves as will result to serious injury to the
interests of the plaintiffs, so that the trial court has jurisdiction over the case.
The petitioners further contend that the proper remedy of the plaintiffs would be to institute a derivative suit against the petitioners in the name of the corporation in
order to secure a binding relief after exhausting all the possible remedies available within the corporation.
An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights,
whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder is
regarded as a nominal party, with the corporation as the real party in interest. 12 In the case at bar, however, the plaintiffs are alleging and vindicating their own
individual interests or prejudice, and not that of the corporation. At any rate, it is yet too early in the proceedings since the issues have not been joined. Besides,
misjoinder of parties is not a ground to dismiss an action. 13
WHEREFORE, the petition should be, as it is hereby DISMISSED for lack of merit. With costs against the petitioners.
SO ORDERED.
G.R. No. 161886

March 16, 2007

FILIPINAS PORT SERVICES, INC., represented by stockholders, ELIODORO C. CRUZ and MINDANAO TERMINAL AND BROKERAGE SERVICES,
INC., Petitioners,
vs.
VICTORIANO S. GO, ARSENIO LOPEZ CHUA, EDGAR C. TRINIDAD, HERMENEGILDO M. TRINIDAD, JESUS SYBICO, MARY JEAN D. CO,
HENRY CHUA, JOSELITO S. JAYME, ERNESTO S. JAYME, and ELIEZER B. DE JESUS, Respondents.
DECISION
GARCIA, J.:
Assailed and sought to be set aside in this petition for review on certiorari is the Decision 1 dated 19 January 2004 of the Court of Appeals (CA) in CA-G.R. CV No.
73827, reversing an earlier decision of the Regional Trial Court (RTC) of Davao City and accordingly dismissing the derivative suit instituted by petitioner Eliodoro C.
Cruz for and in behalf of the stockholders of co-petitioner Filipinas Port Services, Inc. (Filport, hereafter).
The case is actually an intra-corporate dispute involving Filport, a domestic corporation engaged in stevedoring services with principal office in Davao City. It was
initially instituted with the Securities and Exchange Commission (SEC) where the case hibernated and remained unresolved for several years until it was overtaken by
the enactment into law, on 19 July 2000, of Republic Act (R.A.) No. 8799, otherwise known as the Securities Regulation Code. From the SEC and consistent with R.A.
No. 8799, the case was transferred to the RTC of Manila, Branch 14, sitting as a corporate court. Subsequently, upon respondents motion, the case eventually landed at
the RTC of Davao City where it was docketed as Civil Case No. 28,552-2001. RTC-Davao City, Branch 10, ruled in favor of the petitioners prompting respondents to
go to the CA in CA-G.R. CV No. 73827. This time, the respondents prevailed, hence, this petition for review by the petitioners.
The relevant facts:
On 4 September 1992, petitioner Eliodoro C. Cruz, Filports president from 1968 until he lost his bid for reelection as Filports president during the general
stockholders meeting in 1991, wrote a letter2 to the corporations Board of Directors questioning the boards creation of the following positions with a monthly
remuneration of P13,050.00 each, and the election thereto of certain members of the board, to wit:
Asst. Vice-President for Corporate Planning - Edgar C. Trinidad (Director)
Asst. Vice-President for Operations - Eliezer B. de Jesus (Director)
Asst. Vice-President for Finance - Mary Jean D. Co (Director)
Asst. Vice-President for Administration - Henry Chua (Director)
Special Asst. to the Chairman - Arsenio Lopez Chua (Director)

Special Asst. to the President - Fortunato V. de Castro

In his aforesaid letter, Cruz requested the board to take necessary action/actions to recover from those elected to the aforementioned positions the salaries they have
received.
On 15 September 1992, the board met and took up Cruzs letter. The records do not show what specific action/actions the board had taken on the letter. Evidently,
whatever action/actions the board took did not sit well with Cruz.
On 14 June 1993, Cruz, purportedly in representation of Filport and its stockholders, among which is herein co-petitioner Mindanao Terminal and Brokerage Services,
Inc. (Minterbro), filed with the SEC a petition3 which he describes as a derivative suit against the herein respondents who were then the incumbent members of Filports
Board of Directors, for alleged acts of mismanagement detrimental to the interest of the corporation and its shareholders at large, namely:
1. creation of an executive committee in 1991 composed of seven (7) members of the board with compensation of P500.00 for each member per meeting, an
office which, to Cruz, is not provided for in the by-laws of the corporation and whose function merely duplicates those of the President and General
Manager;
2. increase in the emoluments of the Chairman, Vice-President, Treasurer and Assistant General Manager which increases are greatly disproportionate to the
volume and character of the work of the directors holding said positions;
3. re-creation of the positions of Assistant Vice-Presidents (AVPs) for Corporate Planning, Operations, Finance and Administration, and the election thereto
of board members Edgar C. Trinidad, Eliezer de Jesus, Mary Jean D. Co and Henry Chua, respectively; and
4. creation of the additional positions of Special Assistants to the President and the Board Chairman, with Fortunato V. de Castro and Arsenio Lopez Chua
elected to the same, the directors elected/appointed thereto not doing any work to deserve the monthly remuneration of P13,050.00 each.
In the same petition, docketed as SEC Case No. 06-93-4491, Cruz alleged that despite demands made upon the respondent members of the board of directors to desist
from creating the positions in question and to account for the amounts incurred in creating the same, the demands were unheeded. Cruz thus prayed that the respondent
members of the board of directors be made to pay Filport, jointly and severally, the sums of money variedly representing the damages incurred as a result of the creation
of the offices/positions complained of and the aggregate amount of the questioned increased salaries.
In their common Answer with Counterclaim,4 the respondents denied the allegations of mismanagement and materially averred as follows:
1. the creation of the executive committee and the grant of per diems for the attendance of each member are allowed under the by-laws of the corporation;
2. the increases in the salaries/emoluments of the Chairman, Vice-President, Treasurer and Assistant General Manager were well within the financial
capacity of the corporation and well-deserved by the officers elected thereto; and
3. the positions of AVPs for Corporate Planning, Operations, Finance and Administration were already in existence during the tenure of Cruz as president of
the corporation, and were merely recreated by the Board, adding that all those appointed to said positions of Assistant Vice Presidents, as well as the
additional position of Special Assistants to the Chairman and the President, rendered services to deserve their compensation.
In the same Answer, respondents further averred that Cruz and his co-petitioner Minterbro, while admittedly stockholders of Filport, have no authority nor standing to
bring the so-called "derivative suit" for and in behalf of the corporation; that respondent Mary Jean D. Co has already ceased to be a corporate director and so with
Fortunato V. de Castro, one of those holding an assailed position; and that no demand to cease and desist from further committing the acts complained of was made
upon the board. By way of affirmative defenses, respondents asserted that (1) the petition is not duly verified by petitioner Filport which is the real party-in-interest; (2)
Filport, as represented by Cruz and Minterbro, failed to exhaust remedies for redress within the corporation before bringing the suit; and (3) the petition does not show
that the stockholders bringing the suit are joined as nominal parties. In support of their counterclaim, respondents averred that Cruz filed the alleged derivative suit in
bad faith and purely for harassment purposes on account of his non-reelection to the board in the 1991 general stockholders meeting.
As earlier narrated, the derivative suit (SEC Case No. 06-93-4491) hibernated with the SEC for a long period of time. With the enactment of R.A. No. 8799, the case
was first turned over to the RTC of Manila, Branch 14, sitting as a corporate court. Thereafter, on respondents motion, it was eventually transferred to the RTC of
Davao City whereat it was docketed as Civil Case No. 28,552-2001 and raffled to Branch 10 thereof.
On 10 December 2001, RTC-Davao City rendered its decision5 in the case. Even as it found that (1) Filports Board of Directors has the power to create positions not
provided for in the by-laws of the corporation since the board is the governing body; and (2) the increases in the salaries of the board chairman, vice-president, treasurer
and assistant general manager are reasonable, the trial court nonetheless rendered judgment against the respondents by ordering the directors holding the positions of
Assistant Vice President for Corporate Planning, Special Assistant to the President and Special Assistant to the Board Chairman to refund to the corporation the salaries
they have received as such officers "considering that Filipinas Port Services is not a big corporation requiring multiple executive positions" and that said positions "were
just created for accommodation." We quote the fallo of the trial courts decision.
WHEREFORE, judgment is rendered ordering:

Edgar C. Trinidad under the third and fourth causes of action to restore to the corporation the total amount of salaries he received as assistant vice president for
corporate planning; and likewise ordering Fortunato V. de Castro and Arsenio Lopez Chua under the fourth cause of action to restore to the corporation the salaries they
each received as special assistants respectively to the president and board chairman. In case of insolvency of any or all of them, the members of the board who created
their positions are subsidiarily liable.
The counter claim is dismissed.
From the adverse decision of the trial court, herein respondents went on appeal to the CA in CA-G.R. CV No. 73827.
In its decision6 of 19 January 2004, the CA, taking exceptions to the findings of the trial court that the creation of the positions of Assistant Vice President for Corporate
Planning, Special Assistant to the President and Special Assistant to the Board Chairman was merely for accommodation purposes, granted the respondents appeal,
reversed and set aside the appealed decision of the trial court and accordingly dismissed the so-called derivative suit filed by Cruz, et al., thus:
IN VIEW OF ALL THE FOREGOING, the instant appeal is GRANTED, the challenged decision is REVERSED andSET ASIDE, and a new one
entered DISMISSING Civil Case No. 28,552-2001 with no pronouncement as to costs.
SO ORDERED.
Intrigued, and quite understandably, by the fact that, in its decision, the CA, before proceeding to address the merits of the appeal, prefaced its disposition with the
statement reading "[T]he appeal is bereft of merit,"7 thereby contradicting the very fallo of its own decision and the discussions made in the body thereof, respondents
filed with the appellate court a Motion For Nunc Pro Tunc Order, 8 thereunder praying that the phrase "[T]he appeal is bereft of merit," be corrected to read "[T]he
appeal is impressed with merit." In its resolution9 of 23 April 2004, the CA granted the respondents motion and accordingly effected the desired correction.
Hence, petitioners present recourse.
Petitioners assigned four (4) errors allegedly committed by the CA. For clarity, we shall formulate the issues as follows:
1. Whether the CA erred in holding that Filports Board of Directors acted within its powers in creating the executive committee and the positions of AVPs
for Corporate Planning, Operations, Finance and Administration, and those of the Special Assistants to the President and the Board Chairman, each with
corresponding remuneration, and in increasing the salaries of the positions of Board Chairman, Vice-President, Treasurer and Assistant General Manager;
and
2. Whether the CA erred in finding that no evidence exists to prove that (a) the positions of AVP for Corporate Planning, Special Assistant to the President
and Special Assistant to the Board Chairman were created merely for accommodation, and (b) the salaries/emoluments corresponding to said positions were
actually paid to and received by the directors appointed thereto.
For their part, respondents, aside from questioning the propriety of the instant petition as the same allegedly raises only questions of fact and not of law, also put in issue
the purported derivative nature of the main suit initiated by petitioner Eliodoro C. Cruz allegedly in representation of and in behalf of Filport and its stockholders.
The petition is bereft of merit.
It is axiomatic that in petitions for review on certiorari under Rule 45 of the Rules of Court, only questions of law may be raised and passed upon by the Court. Factual
findings of the CA are binding and conclusive and will not be reviewed or disturbed on appeal. 10 Of course, the rule is not cast in stone; it admits of certain exceptions,
such as when the findings of fact of the appellate court are at variance with those of the trial court, 11 as here. For this reason, and for a proper and complete resolution of
the case, we shall delve into the records and reexamine the same.
The governing body of a corporation is its board of directors. Section 23 of the Corporation Code12 explicitly provides that unless otherwise provided therein, the
corporate powers of all corporations formed under the Code shall be exercised, all business conducted and all property of the corporation shall be controlled and held by
a board of directors. Thus, with the exception only of some powers expressly granted by law to stockholders (or members, in case of non-stock corporations), the board
of directors (or trustees, in case of non-stock corporations) has the sole authority to determine policies, enter into contracts, and conduct the ordinary business of the
corporation within the scope of its charter, i.e., its articles of incorporation, by-laws and relevant provisions of law. Verily, the authority of the board of directors is
restricted to the management of the regular business affairs of the corporation, unless more extensive power is expressly conferred.
The raison detre behind the conferment of corporate powers on the board of directors is not lost on the Court. Indeed, the concentration in the board of the powers of
control of corporate business and of appointment of corporate officers and managers is necessary for efficiency in any large organization. Stockholders are too
numerous, scattered and unfamiliar with the business of a corporation to conduct its business directly. And so the plan of corporate organization is for the stockholders
to choose the directors who shall control and supervise the conduct of corporate business.13
In the present case, the boards creation of the positions of Assistant Vice Presidents for Corporate Planning, Operations, Finance and Administration, and those of the
Special Assistants to the President and the Board Chairman, was in accordance with the regular business operations of Filport as it is authorized to do so by the
corporations by-laws, pursuant to the Corporation Code.

The election of officers of a corporation is provided for under Section 25 of the Code which reads:
Sec. 25. Corporate officers, quorum. Immediately after their election, the directors of a corporation must formally organize by the election of a president, who shall be
a director, a treasurer who may or may not be a director, a secretary who shall be a resident and citizen of the Philippines, and such other officers as may be provided
for in the by-laws. (Emphasis supplied.)
In turn, the amended Bylaws of Filport14 provides the following:
Officers of the corporation, as provided for by the by-laws, shall be elected by the board of directors at their first meeting after the election of Directors. xxx
The officers of the corporation shall be a Chairman of the Board, President, a Vice-President, a Secretary, a Treasurer, a General Manager and such other officers as the
Board of Directors may from time to time provide, and these officers shall be elected to hold office until their successors are elected and qualified. (Emphasis supplied.)
Likewise, the fixing of the corresponding remuneration for the positions in question is provided for in the same by-laws of the corporation, viz:
xxx The Board of Directors shall fix the compensation of the officers and agents of the corporation. (Emphasis supplied.)
Unfortunately, the bylaws of the corporation are silent as to the creation by its board of directors of an executive committee. Under Section 35 15 of the Corporation
Code, the creation of an executive committee must be provided for in the bylaws of the corporation.
Notwithstanding the silence of Filports bylaws on the matter, we cannot rule that the creation of the executive committee by the board of directors is illegal or
unlawful. One reason is the absence of a showing as to the true nature and functions of said executive committee considering that the "executive committee," referred to
in Section 35 of the Corporation Code which is as powerful as the board of directors and in effect acting for the board itself, should be distinguished from other
committees which are within the competency of the board to create at anytime and whose actions require ratification and confirmation by the board.16 Another reason is
that, ratiocinated by both the two (2) courts below, the Board of Directors has the power to create positions not provided for in Filports bylaws since the board is the
corporations governing body, clearly upholding the power of its board to exercise its prerogatives in managing the business affairs of the corporation.
As well, it may not be amiss to point out that, as testified to and admitted by petitioner Cruz himself, it was during his incumbency as Filport president that the
executive committee in question was created, and that he was even the one who moved for the creation of the positions of the AVPs for Operations, Finance and
Administration. By his acquiescence and/or ratification of the creation of the aforesaid offices, Cruz is virtually precluded from suing to declare such acts of the board
as invalid or illegal. And it makes no difference that he sues in behalf of himself and of the other stockholders. Indeed, as his voice was not heard in protest when he
was still Filports president, raising a hue and cry only now leads to the inevitable conclusion that he did so out of spite and resentment for his non-reelection as
president of the corporation.
With regard to the increased emoluments of the Board Chairman, Vice-President, Treasurer and Assistant General Manager which are supposedly disproportionate to
the volume and nature of their work, the Court, after a judicious scrutiny of the increase vis--vis the value of the services rendered to the corporation by the officers
concerned, agrees with the findings of both the trial and appellate courts as to the reasonableness and fairness thereof.
Continuing, petitioners contend that the CA did not appreciate their evidence as to the alleged acts of mismanagement by the then incumbent board. A perusal of the
records, however, reveals that petitioners merely relied on the testimony of Cruz in support of their bold claim of mismanagement. To the mind of the Court, Cruz
testimony on the matter of mismanagement is bereft of any foundation. As it were, his testimony consists merely of insinuations of alleged wrongdoings on the part of
the board. Without more, petitioners posture of mismanagement must fall and with it goes their prayer to hold the respondents liable therefor.
But even assuming, in gratia argumenti, that there was mismanagement resulting to corporate damages and/or business losses, still the respondents may not be held
liable in the absence, as here, of a showing of bad faith in doing the acts complained of.
If the cause of the losses is merely error in business judgment, not amounting to bad faith or negligence, directors and/or officers are not liable.17 For them to be held
accountable, the mismanagement and the resulting losses on account thereof are not the only matters to be proven; it is likewise necessary to show that the directors
and/or officers acted in bad faith and with malice in doing the assailed acts. Bad faith does not simply connote bad judgment or negligence; it imports a dishonest
purpose or some moral obliquity and conscious doing of a wrong, a breach of a known duty through some motive or interest or ill-will partaking of the nature of
fraud.18 We have searched the records and nowhere do we find a "dishonest purpose" or "some moral obliquity," or "conscious doing of a wrong" on the part of the
respondents that "partakes of the nature of fraud."
We thus extend concurrence to the following findings of the CA, affirmatory of those of the trial court:
xxx As a matter of fact, it was during the term of appellee Cruz, as president and director, that the executive committee was created. What is more, it was appellee
himself who moved for the creation of the positions of assistant vice presidents for operations, for finance, and for administration. He should not be heard to complain
thereafter for similar corporate acts.
The increase in the salaries of the board chairman, president, treasurer, and assistant general manager are indeed reasonable enough in view of the responsibilities
assigned to them, and the special knowledge required, to be able to effectively discharge their respective functions and duties.

Surely, factual findings of trial courts, especially when affirmed by the CA, are binding and conclusive on this Court.
There is, however, a factual matter over which the CA and the trial court parted ways. We refer to the accommodation angle.
The trial court was with petitioner Cruz in saying that the creation of the positions of the three (3) AVPs for Corporate Planning, Special Assistant to the President and
Special Assistant to the Board Chairman, each with a salary of P13,050.00 a month, was merely for accommodation purposes considering that Filport is not a big
corporation requiring multiple executive positions. Hence, the trial courts order for said officers to return the amounts they received as compensation.
On the other hand, the CA took issue with the trial court and ruled that Cruzs accommodation theory is not based on facts and without any evidentiary substantiation.
We concur with the line of the appellate court. For truly, aside from Cruzs bare and self-serving testimony, no other evidence was presented to show the fact of
"accommodation." By itself, the testimony of Cruz is not enough to support his claim that accommodation was the underlying factor behind the creation of the
aforementioned three (3) positions.
It is elementary in procedural law that bare allegations do not constitute evidence adequate to support a conclusion. It is basic in the rule of evidence that he who alleges
a fact bears the burden of proving it by the quantum of proof required. Bare allegations, unsubstantiated by evidence, are not equivalent to proof under the Rules of
Court.19 The party having the burden of proof must establish his case by a preponderance of evidence.20
Besides, the determination of the necessity for additional offices and/or positions in a corporation is a management prerogative which courts are not wont to review in
the absence of any proof that such prerogative was exercised in bad faith or with malice.1awphi1.nt
Indeed, it would be an improper judicial intrusion into the internal affairs of Filport were the Court to determine the propriety or impropriety of the creation of offices
therein and the grant of salary increases to officers thereof. Such are corporate and/or business decisions which only the corporations Board of Directors can determine.
So it is that in Philippine Stock Exchange, Inc. v. CA,21 the Court unequivocally held:
Questions of policy or of management are left solely to the honest decision of the board as the business manager of the corporation, and the court is without authority to
substitute its judgment for that of the board, and as long as it acts in good faith and in the exercise of honest judgment in the interest of the corporation, its orders are not
reviewable by the courts.
In a last-ditch attempt to salvage their cause, petitioners assert that the CA went beyond the issues raised in the court of origin when it ruled on the absence of receipt of
actual payment of the salaries/emoluments pertaining to the positions of Assistant Vice-President for Corporate Planning, Special Assistant to the Board Chairman and
Special Assistant to the President. Petitioners insist that the issue of nonpayment was never raised by the respondents before the trial court, as in fact, the latter allegedly
admitted the same in their Answer With Counterclaim.
We are not persuaded.
By claiming that Filport suffered damages because the directors appointed to the assailed positions are not doing anything to deserve their compensation, petitioners are
saddled with the burden of proving that salaries were actually paid. Since the trial court, in effect, found that the petitioners successfully proved payment of the salaries
when it directed the reimbursements of the same, respondents necessarily have to raise the issue on appeal. And the CA rightly resolved the issue when it found that no
evidence of actual payment of the salaries in question was actually adduced. Respondents alleged admission of the fact of payment cannot be inferred from a reading of
the pertinent portions of the parties respective initiatory pleadings. Respondents allegations in their Answer With Counterclaim that the officers corresponding to the
positions created "performed the work called for in their positions" or "deserve their compensation," cannot be interpreted to mean that they were "actually paid" such
compensation. Directly put, the averment that "one deserves ones compensation" does not necessarily carry the implication that "such compensation was actually
remitted or received." And because payment was not duly proven, there is no evidentiary or factual basis for the trial court to direct respondents to make
reimbursements thereof to the corporation.
This brings us to the respondents claim that the case filed by the petitioners before the SEC, which eventually landed in RTC-Davao City as Civil Case No. 28,5522001, is not a derivative suit, as maintained by the petitioners.
We sustain the petitioners.
Under the Corporation Code, where a corporation is an injured party, its power to sue is lodged with its board of directors or trustees. But an individual stockholder may
be permitted to institute a derivative suit in behalf of the corporation in order to protect or vindicate corporate rights whenever the officials of the corporation refuse to
sue, or when a demand upon them to file the necessary action would be futile because they are the ones to be sued, or because they hold control of the corporation.22 In
such actions, the corporation is the real party-in-interest while the suing stockholder, in behalf of the corporation, is only a nominal party. 23
Here, the action below is principally for damages resulting from alleged mismanagement of the affairs of Filport by its directors/officers, it being alleged that the acts of
mismanagement are detrimental to the interests of Filport. Thus, the injury complained of primarily pertains to the corporation so that the suit for relief should be by the
corporation. However, since the ones to be sued are the directors/officers of the corporation itself, a stockholder, like petitioner Cruz, may validly institute a "derivative
suit" to vindicate the alleged corporate injury, in which case Cruz is only a nominal party while Filport is the real party-in-interest. For sure, in the prayer portion of
petitioners petition before the SEC, the reliefs prayed were asked to be made in favor of Filport.

Besides, the requisites before a derivative suit can be filed by a stockholder are present in this case, to wit:
a) the party bringing suit should be a shareholder as of the time of the act or transaction complained of, the number of his shares not being material;
b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of directors for the appropriate relief but the latter has failed or
refused to heed his plea; and
c) the cause of action actually devolves on the corporation, the wrongdoing or harm having been, or being caused to the corporation and not to the particular
stockholder bringing the suit.24
Indisputably, petitioner Cruz (1) is a stockholder of Filport; (2) he sought without success to have its board of directors remedy what he perceived as wrong when he
wrote a letter requesting the board to do the necessary action in his complaint; and (3) the alleged wrong was in truth a wrong against the stockholders of the
corporation generally, and not against Cruz or Minterbro, in particular. In the end, it is Filport, not Cruz which directly stands to benefit from the suit. And while it is
true that the complaining stockholder must show to the satisfaction of the court that he has exhausted all the means within his reach to attain within the corporation itself
the redress for his grievances, or actions in conformity to his wishes, nonetheless, where the corporation is under the complete control of the principal defendants, as
here, there is no necessity of making a demand upon the directors. The reason is obvious: a demand upon the board to institute an action and prosecute the same
effectively would have been useless and an exercise in futility. In fine, we rule and so hold that the petition filed with the SEC at the instance of Cruz, which ultimately
found its way to the RTC of Davao City as Civil Case No. 28,552-2001, is a derivative suit of which Cruz has the necessary legal standing to institute.
WHEREFORE, the petition is DENIED and the challenged decision of the CA is AFFIRMED in all respects.
No pronouncement as to costs.
SO ORDERED.
R.N. SYMACO TRADING CORPORATION and/or NORMA SYMACO, ESTATE OF MARIANO GUISON, petitioners,vs. LUISITO T. SANTOS, for and
in behalf of the MALABON FISH BROKERS ASSOCIATION, INC.,respondent.
DECISION
CALLEJO, SR., J.:
Respondent Malabon Fish Brokers Association, Inc. (MFBAI) was a non-stock corporation established to erect and operate the Malabon Fish Brokers
Association Fish Market, aimed at promoting the economic welfare of its members in their business of buying and selling fish and other marine products.[1] Linda
Sioson was elected as treasurer of the corporation.
On April 30, 1980, Mariano Guison, as lessor, and the MFBAI, as lessee, executed a contract of lease over a portion of five parcels of land located in Malabon,
Metro Manila. Included in the lease agreement was a portion of his property occupied by Rudy Symaco along Estrella Street, Malabon, Metro Manila. The lease was for
a period of ten years from the execution of the contract, renewable on such terms as agreed upon by the parties, provided that the rentals shall not be increased in excess
of 500% of the monthly rate agreed upon. As provided in the contract, the lessee paid P28,000.00 upon its execution as advance rentals for four years, and a monthly
rental of P600.00 to be paid thereafter.[2]
The MFBAI, thus, constructed the market on the leased property where its members installed their respective stalls.
On August 13, 1983, a group of MFBAI members, led by Marcos Valle, Jr., approved the corporations By-Laws.
On August 18, 1983, another set of MFBAI members, led by Lino Buhain, met and amended the By-Laws which the Securities and Exchange Commission
(SEC) approved on September 7, 1983. However, Valle, Jr. and ten others filed a petition with the SEC against Buhain, et al. for the nullification of the amended ByLaws; to give due course to the By-Laws approved on August 13, 1983; and to declare them (Valle, Jr., et al.) as the duly-established members of the corporations
Board of Directors.[3] The case was docketed as SEC Case No. 2521.
On May 8, 1987, the SEC Hearing Officer rendered a Decision [4] ordering the dismissal of the petition, and directing the hold-over officers to call for a
membership meeting to elect the new Board of Directors and Officers of the Malabon Fish Brokers Association, Inc. within 30 days from finality of the decision.
According to the hearing officer, from its incorporation, the MFBAI had only 35 legitimate members, [5] and respondent Luisito T. Santos was not listed as one of them.
The decision was appealed to the SEC, docketed as SEC-AC No. 205, which was, however, dismissed on November 2, 1988.[6] This prompted Valle, Jr., et al. to
elevate the decision to the Court of Appeals (CA) via petition for review.
Meanwhile, Mariano Guison died intestate. On April 30, 1990, the Heirs of Mariano Guison and petitioner Norma Symaco, then President and Chairman of the
Board of Directors of petitioner R.N. Symaco Trading Corporation (Symaco Corporation), executed an unnotarized contract of lease over a portion of the property
previously leased to MFBAI. Two rows of 25 stalls each, with a path in between, had been installed on the leased premises; there was also another perpendicular road
which intersected with Estrella Street. This latter area, consisting of about 5,978 square meters, was then occupied by the MFBAI.[7] The contract, which took effect on
May 1, 1990, was for a four-year period, renewable under the same terms and conditions, except as to the amount of rentals. [8] The parties also agreed on the following:
2. The monthly rental of the premises shall be TWENTY FIVE THOUSAND (P25,000.00) PESOS, PROVIDED that upon signing of this Agreement, the LESSEE
shall pay the LESSOR an advance rental equivalent to the First (1 st) year, or THREE HUNDRED THOUSAND (P300,000.00) PESOS, and PROVIDED furthermore,

that on May 1, 1990, the LESSEE shall again pay the LESSOR in advance, the rental for the second (2nd) year or another sum of THREE HUNDRED THOUSAND
(P300,000.00) PESOS less the ONE HUNDRED THOUSAND (P100,000.00) PESOS, which the LESSEE had advanced to the LESSOR on March 14, 1987. [9]
Norma Symaco was then also a member of the MFBAI Board of Directors.
Symaco Corporation had the stallholders evicted from the market, and filed a complaint for forcible entry against them with the Metropolitan Trial Court (MeTC)
of Malabon, Branch 55. On October 4, 1990, the MeTC issued a writ of preliminary mandatory injunction against the defendants. It rendered judgment in favor of the
plaintiff corporation on October 11, 1990.[10]
On May 31, 1990, the CA rendered judgment affirming the SEC decision in SEC Case No. 2521. The decision became final and executory.[11]
On October 29, 1990, respondent Santos, for and in behalf of the MFBAI, filed a complaint for the annulment of the April 30, 1990 Contract of Lease between
the Heirs of Mariano Guison and defendant Symaco Corporation, with injunctive relief, against petitioners Estate of Mariano Guison, Symaco Corporation, and Norma
Symaco in the Regional Trial Court (RTC) of Malabon.
Respondent Santos alleged, inter alia, that as an MFBAI member, he was a nominal party; he filed the derivative suit for and in behalf of MFBAI. He further
alleged that the April 30, 1990 Contract of Lease executed by the defendants was null and void since it was executed by Symaco Corporation, through Norma Symaco,
who was the president and chairman of the Board of Directors of the said corporation and still a member of the MFBAI Board of Directors; hence, the contract was
executed in violation of the principle of corporate opportunity under Sections 31 and 34 of the Corporation Code of the Philippines. It was also pointed out that Symaco
Corporation was actually owned by Norma Symacos family. It was, likewise, stated that the MFBAI failed to provide market stalls for its members on account of the
April 30, 1990 Contract of Lease between Symaco Corporation and the Heirs of Mariano Guison. Moreover, the complaint was filed since the officials of the
corporation, by their pronouncements and actions, had virtually accepted the April 30, 1990 Contract of Lease, thereby leaving no room for redress within the
corporation itself.
The complaint contained the following prayer:
WHEREFORE, it is most respectfully prayed that:
1.

The second lease contract between the Defendant Corporation and the Defendant Estate, which is evidenced by Annex B hereof, be annulled and set aside;

2.

The Defendant Estate be directed to execute a new contract over the aforesaid leased premises in favor of the Plaintiff Corporation;

3.
In the meantime that this action is pending, a temporary restraining order or a writ of preliminary injunction be issued stopping the Defendants or any other
person acting under them from enforcing, in any manner, the second lease contract (Annex B hereof), and, after hearing, to make this injunction permanent.
Plaintiff prays for such other just and equitable remedies proper under the premises.[12]
The petitioner Estate opposed the respondents plea for injunctive relief, alleging that Santos had filed the complaint simply because Patricinio Gaddi and
spouses Emmanuel and Angelina Cruz, the sublessees of his stall in the fish market, had been evicted based on the MTC decision in Civil Case No. 057-90.
During the hearing of the MFBAIs plea for injunction, Santos testified and declared that he was a member of the said corporation. A market was constructed on
the leased property, where he leased Stall No. 39, but Symaco Corporation had him evicted. When the contract of lease between Mariano Guison and MFBAI expired,
he asked the corporate secretary, Brigida Bautista, why it was not renewed, and he was told that nothing could be done about it. He also inquired from other officers, to
no avail. He admitted that he was not aware of any meeting of the MFBAI Board of Directors regarding the renewal of the contract of lease. He thus decided to file the
complaint in behalf of MFBAI.
Restituto Santos testified that Lino Buhain even issued a certification that his son, Luisito T. Santos, was member of MFBAI. [13]
In opposition to the motion for a writ of preliminary injunction, the petitioners presented Linda Sioson, MFBAI treasurer since 1979 to 1990. She testified that
although Santos had been a member of the MFBAI, he was able to pay his membership fee and monthly dues only from August 1983 to February 1984, and a part of
March 1984, and never offered to pay his dues despite reminders. [14]
Lino Buhain testified that the MFBAI failed to pay its rentals over the subject property for four years because of a dispute (between his group and that of Marcos
Valle, Jr.) as to who were its legitimate members and officers; its members likewise failed to pay their membership dues. Nonetheless, the MFBAI was able to build a
fish market on the property and leased the stalls therein to its members. On July 9, 1985, a Deed of Assignment over its leasehold rights under its contract of lease was
executed by Mariano Guison to the MFBAI, represented by its president, Luzviminda Francisco. On April 9, 1990, the corporation received a letter from the Heirs of
Mariano Guison informing it that the contract of lease would not be renewed.
Petitioner Norma Symaco testified that the defendant corporation was established in 1986 to engage in the business of leasing stalls. She further stated that
MFBAI could not renew its contract of lease with Mariano Guison because it had failed to pay rentals over the property for six years, since its members were not paying
their monthly dues. The corporate secretary, Brigida Bautista, tried to collect the dues from the members, to no avail. Moreover, there was an internal struggle between
two factions of its members. She clarified that Symaco Corporation leased a portion of the property from the petitioner Estate only after it decided not to renew the
lease contract with the MFBAI upon its expiry, and that the said corporation had likewise paid advance rentals of P100,000.00 to the Heirs of Mariano Guison.
In the meantime, 22 stallholders of the fish market, some of whom were MFBAI members, sought to intervene, seeking the same reliefs prayed for by the latter.
The petitioner Estate opposed the intervention on the ground that, the plaintiff had earlier filed a complaint with the RTC of Malabon City, docketed as Civil Case No.
1571, against the same defendants (Lino Buhain and Linda Sioson), praying for the same reliefs, plus damages; hence, the intervention filed for harassment purposes.
Nevertheless, the court allowed the intervenors to intervene, and admitted the complaint-in-intervention.[15]

On their evidence-in-chief, petitioners Norma Symaco and Symaco Corporation offered in evidence the decisions of the Hearing Officer in SEC Case No. 2521,
the SEC in SEC-AC No. 205, and that of the CA.[16] The petitioners also offered in evidence the testimonies of Guison, Buhain, Bautista and Norma Symaco during the
hearing of the plea for a writ of preliminary injunction, as well as the letters of the petitioner Estates counsel, dated April 9 and 16, 1990, addressed to Lino Buhain, as
evidence.[17]
The defendants Norma Symaco and Symaco Corporation adduced in evidence the Deed of Assignment dated July 9, 1985, where the leasehold rights over the
property were turned over to Tony Francisco,[18] and the letters of the counsel of Mariano Guisons Estate addressed to the plaintiff, through Lino Buhain, informing the
latter that the Estate had decided not to renew the contract of lease after its expiry. [19]
The court admitted all the documentary exhibits of the petitioners. The parties did not adduce any other further evidence on evidence-in-chief.
In their answer to the complaint, the petitioners specifically denied the allegation that (a) Luisito T. Santos was a member of MFBAI and as such, had no
standing to file the complaint for and in its behalf; (b) the petitioner Estate could not be compelled to execute a contract of lease in favor of MFBAI after the expiry of
the 1980 Contract of Lease; and (c) petitioner Norma Symaco was not personally liable for the execution of the 1990 Contract of Lease.
On September 27, 1993, the trial court rendered judgment in favor of the petitioners. The fallo of the decision reads:
WHEREFORE, in view of the foregoing, the complaint and complaint-in-intervention are hereby dismissed for lack of merit.
On defendants compulsory counterclaim, the plaintiffs are ordered to pay the sum of Ten Thousand (P10,000.00) Pesos to each counsel for the defendants for and as
attorneys fees and the costs of suit.
SO ORDERED.[20]
The court ruled that, based on the decisions of the SEC Hearing Officer, the SEC and the CA on appeal, Santos and most of the intervenors were not bona
fide members of the MFBAI; hence, they had no cause of action against the petitioners. It also ruled that Norma Symaco did not violate the doctrine of corporate
opportunity.
The private respondent and intervenors appealed the decision to the CA, wherein it averred that
I. THE COURT A QUO ERRED IN HOLDING THAT THE DEFENDANTS NORMA SYMACO AND/OR R.N. SYMACO TRADING CORP. DID
NOT VIOLATE THE DOCTRINE OF CORPORATE OPPORTUNITY.
II. THE COURT A QUO, WHILE HOLDING THAT THE CONTRACT OF LEASE BETWEEN DEFENDANTS R.N. SYMACO TRADING WITH
DEFENDANT ESTATE IS VALID, ERRED IN NOT ORDERING SYMACO TO PAY THE PLAINTIFFS DAMAGES.
III. THE COURT A QUO ERRED IN HOLDING THAT THE PLAINTIFF LUISITO SANTOS AND THE INTERVENORS CANNOT BRING A
DERIVATIVE SUIT FOR AND IN BEHALF OF THE MALABON FISH BROKERS ASSOCIATION, INC. [21]
The intervenors failed to file their respective briefs as appellees before the CA. As a consequence, the appellate court dismissed the intervenors appeal.[22]
On May 21, 1997, the CA rendered judgment reversing the decision of the RTC. The fallo of the decision reads:
WHEREFORE, the Decision dated December 27, 1993, of the court a quo is hereby reversed and SET ASIDE and a new judgment is entered ordering appellee Norma
T. Symaco to render an accounting to [the] appellant of all the profits acquired by [the] appellees during the five years that appellee R.N. Symaco Trading was the
lessee of the subject property from 1990 to 1995.
The records of the case are remanded to the court a quo which is directed to hear the accounting proceedings and thereafter to decide the case on the basis of the results
of the accounting.[23]
The CA held that as early as 1987, Norma Symaco had negotiated with the Heirs of Mariano Guison for the lease of the property; hence, she was guilty of
violating the doctrine of corporate opportunity. The appellate court failed to rule on the issue of whether Santos was a member of MFBAI or not.
The petitioners then filed a motion for the reconsideration of the decision, alleging that:
a.) The Honorable Court, with all due respects, erred in giving due course to the appeal, despite the lack of personality and authority of Luisito Santos to initiate the
same as a derivative suit, being a non-member of MFBAI and the abandonment and dismissal of the appeal of the intervenors;
b.) The Honorable Court, with all due respects, erred in its findings that defendant-appellee Norma Symaco negotiated for the lease of the subject property for RN
Symaco in 1987, while the lease with MFBAI was still subsisting;
c.)

The Honorable Court, with all due respects, erred in holding defendant-appellee Norma T. Symaco liable for violation of the doctrine of corporate opportunity.[24]

They also alleged that Santos was not a member of the MFBAI; hence, he had no legal personality and no authority to appeal the RTC decision. They
averred that petitioner Norma Symaco did not violate the doctrine of corporate opportunity because:

a)
As early as 1985, the MFBAI is (sic) already in shambles. It is (sic) in total disarray, with the members feuding, with two sets of officers, and with two persons
claiming to be President of the corporation leading to several cases filed by the officers against each other. (TSN, Lino Buhain, March 1, 1991, Pages 56-60)
b) MFBAI has NOT paid its rentals from 1984 up to the expiration of the contract in 1990. Stated otherwise, the MFBAI was only able to pay for 4 years out of a
10-year contract. (TSN, Norma Symaco, January 15, 1992, Pages 18, 35, 38 & 39)
Although the President of MFBAI, Lino Buhain insists that MFBAI failed to pay rentals only for a period of 4 years. (TSN, Lino Buhain, March 1, 1991, Pages 38, 50
& 51)
c)
Defendant-appellant Norma T. Symaco leased only a PORTION of the original property leased by MFBAI, while the other half is being leased by a certain Tony
Francisco of New Malabon Corporation, who is not even a member of MFBAI. (TSN, Norma T. Symaco, January 15, 1992, Pages 23, 43 & 44) (TSN, Lino Buhain,
March 1, 1991, Pages 77 & 78)
d)
Guizon (sic) Estate, through counsel, sent a letter to the MFBAI President Lino Buhain on April 9, 1990, notifying MFBAI that they are no longer interested in
renewing their contract. (Exh. 2-Guizon Injunction; Exh. 3-Symaco Injunction and TSN, Lino Buhain, Mar. 1, 1991, P. 52)[25]
On March 20, 1998, the CA issued a Resolution [26] granting the motion for reconsideration; it set aside its decision and affirmed that of the RTC. The appellate
court declared that when it rendered its initial ruling, it had no full view of the appeal because of the respondents failure to file their Brief. Relying on the decisions of
the SEC Hearing Officer and the SEC, the appellate court ruled that Santos was not a member of MFBAI; hence, he had no standing to file a complaint for and in behalf
of the said corporation.
This time, the respondent filed a motion for reconsideration of the CA Resolution. On February 21, 2000, the CA granted the motion and rendered an Amended
Decision, this time, in favor of the respondent. The fallo of the amended decision reads:
WHEREFORE, the Motion for Reconsideration filed by plaintiff-appellant is hereby given due course, the Resolution dated March 20, 1998 is hereby REVERSED
AND/OR REVIVING Our Decision dated May 21, 1997 with modification which reversed and SET ASIDE the Decision dated September 27, 1993 of the court a quo.
Accordingly, defendant-appellee Norma T. Symaco is hereby ordered to render an accounting to this Court of all the profits acquired by appellees during the five years
that appellee RN Symaco Trading was the lessee of the subject property from 1990 to 1995 and thereafter to turn over said profits to herein plaintiffs-appellants.
SO ORDERED.[27]
The appellate court ruled that based on the respondents claim in SEC Case No. 2521, the MFBAI had 42 legitimate members, including the 35 original members
and respondent Santos; moreover, the RTC resolved that Santos was a member. The petitioners were bound by the said evidence and were estopped from claiming that
Santos was not a member. Hence, Santos had the standing to file the complaint with the RTC for and in behalf of the appellant. The CA further held that Norma
Symaco violated the principle of corporate opportunity, and that the other members/stockholders of MFBAI should be impleaded as parties to the suit.
The petitioners filed the instant petition for review on certiorari under Rule 45 of the Rules of Court, as amended, raising the following issues:
1.

Whether respondent Luisito T. Santos was a bona fide member of the respondent corporation;

2.

Whether the petitioners are estopped from assailing the membership of Luisito T. Santos in the respondent corporation;

3.

Whether the case filed by Luisito T. Santos is a derivative suit, for and in behalf of the respondent corporation;

4.

Whether the other members of the respondent corporation should be impleaded as parties-respondents; and

5.

Whether the petitioners violated the principle of corporate opportunity.

On the first three issues, the petitioners aver that, as gleaned from the Hearing Officers Decision in SEC Case No. 2521, the Decision in SEC-AC No. 205, and
the CA ruling, Santos was not a member of MFBAI. Any admission made by Lino Buhain in the SEC could not bind it, unless approved by its board of directors or
majority of its members. The petitioners insist that estoppel will apply only when the party who relied on the admissions of another seeks only to enforce a purely
private right or private interest, and not when an action is to enforce a corporate right. They claim that respondent Santos action was not a derivative suit, and that the
complaint he filed was premature, considering that he failed to seek redress from MFBAI first before filing the complaint.
For his part, respondent Santos avers that the petitioners are estopped from claiming in the CA, and in this case, that he is not a member of the respondent
MFBAI. He insists that the RTC declared in its decision that, based on the petitioners (therein defendants) evidence, he was such a member.
The ruling of the CA is erroneous. As gleaned from the decision of the Hearing Officer in SEC Case No. 2521, there were 35 original members of the
respondent MFBAI, including petitioner Norma Symaco. Respondent Luisito Santos is not one of them, and failed to testify for or against any of the parties therein.
While it is true that Lino Buhain and the other respondents therein claimed that the MFBAI had 42 members, including the original members, the Hearing Officer
declared that such claim was not proven:

On the other hand, while the respondents claimed that MFBAI has forty-two (42) members, including the thirty-five (35) original members therein, this fact was,
likewise, not proven during the trial.
As regards Virgilio Sarmiento, who is one of the incorporators/directors of MFBAI whose name does not appear in the aforesaid list of members, there was no showing
that his membership therein has been terminated in one way or another.
Hence, We find that since its incorporation, MFBAI has not accepted any new member and, therefore, it has only thirty-five (35) legitimate members including that of
Virgilio Sarmiento.
The second and third issues are quite interrelated and thus can be resolved jointly.
From the evidence on hand, it appears that there was but one meeting for the election of the members of the board of directors and officers of MFBAI that took place in
1983 and that was the alleged membership meeting conducted by the petitioners group held on August 13, 1983. Said meeting, however, was not attended by the
majority of the aforesaid thirty-five (35) legitimate members of MFBAI; hence, there was no quorum (Section 52, Code). In fact, most of those present then were nonmembers. Therefore, since there was no quorum, it follows that all actions taken in said meeting, including the alleged adoption of the by-laws by the petitioners
group, are not valid. On the contrary, the respondents have categorically stated, in their answer, that the organizational meeting for the election of the members of the
Board of Directors and Officers of MFBAI, which was supposed to be held on September 17, 1983, did not proceed.
Accordingly, We hold that since there were no legally elected directors and officers of MFBAI for the year 1983, and the by-laws purportedly adopted on August 13,
1983, filed by the petitioners, has not been legally adopted and approved by the general membership of MFBAI since the meeting of the sixty-four (64) alleged
members held on August 13, 1983 was not valid.
Anent the fourth issue, our records show that the By-Laws of MFBAI was adopted by the majority of its members on August 18, 1983, certified to by a majority of the
original members of its Board of Directors and countersigned by its Corporate Secretary, Brigida Bautista. Said By-Laws was filed with, and approved by, the
Commission on September 7, 1983 pursuant to the provisions of Section 46 of the Code.
We do not agree with petitioners claim that MFBAIs By-Laws which was filed by the respondents has not been approved and adopted by the affirmative vote of at
least a majority of all the members of MFBAI. Petitioners would have been correct in their contention had there been either sixty-four (64) or forty-two (42) MFBAI
members at the time of the adoption of the said By-Laws. That is so since the signatories in said By-Laws are only twenty-one (21) members. But that is not the case.
The Commission has already ruled that from the time of its inception up to this moment, MFBAI has only thirty-five (35) legitimate members and the clear majority of
which is eighteen (18) members. Besides, the presumption of the validity and regularity in the adoption of the said By-Laws lies in favor of the respondents. The
petitioners failed to disprove said presumption.[28]
The SEC Hearing Officer concluded that from its inception, the MFBAI had not accepted any new member and, therefore, it had only 35 legitimate members,
including Virgilio Sarmiento.[29] The Hearing Officer also ruled that:
Consistent with our rulings, the Members of the Board of Directors appearing in the Articles of Incorporation of MFBAI shall hold office until their successors are
elected and qualified. As regards the officers of MFBAI, respondents Lino Buhain and Brigida Bautista shall act as President and Secretary of MFBAI, respectively,
since they were duly recognized by the majority of the said members of the Board of Directors appearing in the Articles of Incorporation as shown by the Certification
accompanying MFBAIs By-Laws and the Minutes of the Meeting held on August 18, 1983, the date when the By-Laws of MFBAI was adopted by the majority of its
members. Respondent Erlinda Sioson shall act as Treasurer, being the designated Treasurer whose name appears in the Articles of Incorporation. These three (3)
officers shall, likewise, hold their respective offices until their successors are elected and qualified.[30]
This ruling was affirmed by the SEC on appeal.
For its part, the CA affirmed the rulings of the Hearing Officer and the SEC on appeal, as follows:
The thirty (30) alleged members were not original members of the association. They showed up later on, i.e., long after the incorporation, and they failed to comply
with the requirements laid down in the by-laws aforementioned. They were never accepted as members even informally by the association. Their acceptance as
members could not be done by the president alone, let alone by Marcos Valle whose position as president has been successfully assailed here. There was no quorum in
the said meeting held on August 13, 1983 because those thirty (30) persons who attended were non-members; and whatever was agreed upon in said meeting was null
and void.[31]
In its Amended Decision, the appellate court relied on the statement in the RTC decision, that the petitioners (defendants therein) adduced evidence that Santos
was an MFBAI member. This reliance is misplaced. The CA failed to consider the RTC decision in its entirety and the ratio decidendi of the ruling. As gleaned from
the said decision, the RTC ruled in favor of the petitioners (defendants therein), and relied on the decisions of the Hearing Officer, the SEC on appeal and the CA; the
trial court did not rely on the parties evidence aliunde.[32] In fine, the RTC correctly considered the decisions of the Hearing Officer, the SEC and the CA on appeal as
conclusive and binding on it, prescinding from the parties evidence aliunde. Indeed, the testimonial and documentary evidence of the petitioners and the respondent
cannot prevail over the decisions of the Hearing Officer, the SEC and the CA. The respondent was proscribed from attacking the said decision either directly or
collaterally in the RTC.
It may not be amiss to observe that the erroneous amended decision of the CA was precipitated in part by the petitioners, when they adduced testimonial and
documentary evidence that Santos was a member of the respondent, but that he failed to pay his monthly dues from March 1984. The evidence on record showing that

Santos paid the membership fee and his monthly dues up to March 1984 and was certified as a member by Lino Buhain is not sufficient to qualify him as such member
under the By-laws of respondent MFBAI.
The Court also agrees with the petitioners contention that as respondent Santos was not a legitimate MFBAI member, he had no standing to file a derivative suit
for and in its behalf. One of the requisites of a derivative suit is that the party bringing the suit should be a stockholder/member at the time of the action or transaction
complained of.[33] The right to sue derivatively is an attribute of corporate ownership which, to be exercised, requires that the injury alleged be indirect as far as the
stockholders/members are concerned, and direct only insofar as the corporation is concerned. The whole purpose of the law authorizing a derivative suit is to allow the
stockholder/member to enforce rights which are derivative (secondary) in nature. [34] A derivative action is a suit by a shareholder/member to enforce a corporate cause
of action.[35]
The Court notes that several MFBAI members, like Brigida Baustista, Jose Cruz, Constantino Lopez, Eduardo del Rosario, Rogelio Vicente, Araceli Banaag and
Rosalinda Reyes, intervened as plaintiffs. However, they failed to file their Brief in the CA, which impelled the appellate court to dismiss their appeal. The resolution
of the court, likewise, became final and executory.
The Court also agrees with the petitioners contention that the CA erred in ordering that all the original members of the MFBAI should be impleaded as parties in
respondent Santos complaint. Contrary to the CA ruling, all the MFBAI members are not indispensable parties in a derivative suit. It is enough that a member or a
minority of such members file a derivative suit for and in behalf of the corporation. After all, the members/stockholders who filed a derivative suit are merely nominal
parties, the real party-in-interest being the corporation itself for and in whose behalf the suit is filed. [36] Any monetary benefits under the decision of the court shall
pertain to the corporation.[37]
In light of the foregoing, there is no longer a need for the Court to still resolve the other issues that were raised in the petition.
WHEREFORE, PREMISES CONSIDERED, the petition is GRANTED. The Amended Decision of the Court of Appeals in CA-G.R. CV No. 43425 dated
February 21, 2000 is REVERSED AND SET ASIDE. The Decision of the Regional Trial Court of Manila, Branch 51 in Civil Case No. 90-54960, as affirmed by the
CA in its Resolution dated March 20, 1998, is AFFIRMED. No costs.
SO ORDERED.
SECOND DIVISION

METRO DRUG DISTRIBUTION,

G.R. No. 147478

INC., MARSMAN and COMPANY,

INC., JOVEN D. REYES, ISIDRO
M. TARACHAN, BENJAMIN C.
JAVIER, FELIPE C. GUEVARA,
WILFREDO C. ROLDAN AND
GODOFREDO L. LABAY,
Petitioners,

Present:

PUNO, J., Chairperson,

SANDOVAL-GUTIERREZ,
-versus-

CORONA,
AZCUNA and
GARCIA, JJ.

NOEL M. NARCISO,
Respondent.

Promulgated:

July 17, 2006

x---------------------------------------- x

DECISION

CORONA, J.:

Before us is a petition for review[1] under Rule 45 of the Rules of Court seeking to annul and set aside the October 12, 2000 [2] and February 6, 2001[3] resolutions
of the Court of Appeals[4] in CA-G.R. SP No. 61001 entitled Metro Drug Distribution, Inc., Marsman and Company, Inc., et al. v. National Labor Relations
Commission, et al.

The antecedent facts follow.

An illegal dismissal complaint was filed by respondent Noel M. Narciso against petitioners on November 7, 1997.

On September 25, 1998, labor arbiter Donato G. Quinto, Jr. decided[5] in favor of petitioners and dismissed the complaint for lack of merit.

On May 22, 2000, the National Labor Relations Commission (NLRC) affirmed the findings of the labor arbiter but awarded separation pay to
respondent. The dispositive portion of its resolution read:

WHEREFORE, the foregoing premises considered, the appeal is DISMISSED and the Decision of the Labor Arbiter is hereby
AFFIRMED but is MODIFIED to include the award of separation pay to the complainant in the amount equivalent to one (1) month basic pay
of P20,000.00 for every year of service counted from March 1988 up to the finality of this Decision.

SO ORDERED.[6]

Petitioners filed a motion for reconsideration [7] on June 19, 2000 questioning the grant of separation pay. On June 30, 2000, the NLRC denied the motion for
reconsideration.[8]

On September 28, 2000, petitioners filed a petition for certiorari [9] under Rule 65 before the Court of Appeals. They questioned the NLRCs grant of separation
pay to respondent in the face of the finding that his dismissal was legal.

On October 26, 2000, petitioners received the first resolution:

The petition for certiorari filed by petitioner Metro Drug Distributions, Inc./Marsman and Company, Inc., et al. is DENIED DUE
COURSE and as a consequence DISMISSED for the following reasons:

1.

The caption of the petition did not specify all the petitioners as required on Section 1, Rule 7 of the 1997 Rules of Civil
Procedure; and

2.

The certification against forum shopping was executed and signed by the alleged Vice-President for Finance and Human
Resources without any evidence to prove his authority from the Board of Directors to represent the petitioner
corporation. Being a defective certification, it is equivalent to non-compliance with the requirement of Section 1 par. 2 of Rule
65 and Section 3 par. 3, Rule 46, 1997 Rules of Civil Procedure.

SO ORDERED. [10]

Petitioners moved for reconsideration on November 6, 2000. [11] On February 21, 2001, petitioners received the second assailed resolution [12] denying it. Hence,
the present petition for review centered on the following issues:
I

THE COURT OF APPEALS SERIOUSLY ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION IN DISMISSING THE [CA]
PETITION NOTWITHSTANDING THE FACT THAT:

A.

PETITIONERS SUBSTANTIALLY COMPLIED WITH SECTION 1, RULE 7 OF THE RULES OF COURT BY

INDICATING THE NAMES OF ALL THE PETITIONERS IN THE BODY OF THE CA PETITION.

B.

THE LACK OF A WRITTEN AUTHORITY FROM PETITIONERS BOARD OF DIRECTORS DOES NOT RENDER
THE CERTIFICATION AGAINST FORUM SHOPPING DEFECTIVE.

II

THE COURT OF APPEALS DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS IN THAT IT
ISSUED THE FIRST AND SECOND RESOLUTIONS IN VIOLATION OF THE RULE ON LIBERAL CONSTRUCTION OF THE RULES
OF COURT.[13]

We find no merit in the petition.

We have ruled time and again that litigants should have the amplest opportunity for a proper and just disposition of their cause free, as much as possible,
from the constraints of procedural technicalities. Our judicial system encourages full adjudication of the merits of an appeal. On the other hand, we also follow the
rule that, save for the most persuasive of reasons, strict compliance with procedural requirements must be observed to facilitate the orderly administration of justice. [14]

While litigation is not a game of technicalities and the rules of procedure should not be enforced at the cost of substantial justice, it does not mean that the
Rules of Court may be ignored at will and at random. Procedural rules should not be belittled or dismissed. Like all rules, their application is necessary except only
for the most persuasive of reasons.[15]

It therefore follows that a party invoking a liberal application of the rules of procedure should at least exert some effort to comply with them.

Here, petitioners failed to specify all the petitioners in the caption as required by Section 1, Rule 7 [16]of the Rules of Court. Despite the dismissal of their
petition because of this admitted inadvertence, they carelessly committed the same mistake in their motion for reconsideration.

The same error occured with respect to their certificate against forum shopping which failed to conform to the requirements of Section 1 (2), Rule
65[17] and Section 3 (3), Rule 46.[18] The appellate court correctly ruled that the certificate was defective because it was signed by the Vice-President for Finance and
Human Resources without evidence of her authority to represent petitioner corporation and the officers impleaded. Again, despite the dismissal of the petition on this
ground, petitioners repeated the omission in their motion for reconsideration. They failed to attach the required proof. The appellate court therefore found no reason
to reconsider the dismissal of the petition.

Petitioners maintain that the procedural requirements they allegedly disregarded applied only to original complaints or petitions. Thus, even if they wanted
to comply, they deliberately did not do so in their motion for reconsideration. We find this explanation unacceptable. In justifying their non-compliance, petitioners
lost sight of the fact that subsequently conforming with the rules could have cured the procedural defects of their petition and could have provided a basis for
reconsideration. In many instances, courts have reconsidered petitions initially deficient in form upon an erring partys satisfactory explanation and subsequent
compliance with the rules.[19]

Petitioners also insist that the Rules of Court did not require the presentation of an authority from the board of directors for the validity of a
certification of non-forum shopping. The lack of authority from petitioners board of directors should not have affected the validity of the certification
considering that it had already been signed by the Vice-President for Finance and Human Resources.
In Zulueta v. Asia Brewery, Inc.,[20] we held that the requirement for petitioner to sign the certificate of non-forum shopping applied even to corporations,
considering that the mandatory directives of the Rules of Court made no distinction between natural and juridical persons.

In case of a corporation, it has long been settled that the certificate must be signed for and on its behalf by a specifically authorized officer or agent who
has personal knowledge of the facts required to be disclosed.
We discussed the rationale behind the rule in National Steel Corporation v. Court of Appeals:[21]

Unlike natural persons, corporations may perform physical actions only through properly delegated individuals; namely, its officers
and/or agents.
The corporation, such as the petitioner, has no powers except those expressly conferred on it by the Corporation Code and those that
are implied or incidental to its existence. In turn, a corporation exercises said powers through its board of directors and/ or its duly authorized
officers or agents. Physical acts, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by
corporate by-laws or by specific act of the board of directors.[22]

Consequently, without the needed proof from the board of directors, the certificate would be considered defective. Thus, in another case,[23] we held that
even the regular officers of a corporation, like the chairman and president, may not even know the details required in a certificate of non-forum shopping; they must
therefore be authorized by the board of directors just like any other officer or agent.

The right to file a special civil action for certiorari is neither a natural right nor a part of due process. [24] The acceptance of a petition for certiorari as well as
the grant of due course thereto is addressed to the sound discretion of the court. [25] We will not therefore disturb the Court of Appeals decision to strictly apply the
rules.
WHEREFORE, the petition is hereby DENIED. The resolutions of the Court of Appeals dated October 12, 2000 and February 6, 2001 are
hereby AFFIRMED.

Costs against petitioners.

SO ORDERED.
Republic of the Philippines
Supreme Court
Manila

THIRD DIVISION

NECTARINA S. RANIEL and

MA. VICTORIA R. PAG-ONG,
Petitioners,

G.R. No. 153413

Present:

- versus -

YNARES-SANTIAGO, J.,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
CHICO-NAZARIO, and
NACHURA, JJ.

Chairperson,

PAUL JOCHICO, JOHN

STEFFENS and SURYA
VIRIYA,
Promulgated:
Respondents.
March 1, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION
AUSTRIA-MARTINEZ, J.:
Assailed in the present Petition for Review on Certiorari is the Decision[1] of the Court of Appeals (CA) dated April 30, 2002, affirming with modification
the Decision dated October 27, 2000 rendered by the Securities and Exchange Commission (SEC) which held as valid the removal of petitioners Ma. Victoria R. Pagong (Pag-ong) as director and Nectarina S. Raniel(Raniel) as director and corporate officer of Nephro Systems Dialysis Center (Nephro).
Petitioners first questioned their removal in SEC Case No. 02-98-5902 for Declaration of Nullity of the Illegal Acts of Respondents, Damages and
Injunction. Petitioners, together with respondents Paul Jochico (Jochico), John Steffens and SuryaViriya, were incorporators and directors of Nephro, with Raniel acting
as Corporate Secretary and Administrator. The conflict started when petitioners questioned respondents' plan to enter into a joint venture with the Butuan Doctors'
Hospital and College, Inc. sometime in December 1997. Because of this, petitioners claim that respondents tried to compel them to waive and assign their shares with
Nephro but they refused. Thereafter, Raniel sought an indefinite leave of absence due to stress, but this was denied byJochico, as Nephro President. Raniel,
nevertheless, did not report for work, causing Jochico to demand an explanation from her why she should not be removed as Administrator and Corporate
Secretary. Raniel replied, expressing her sentiments over the disapproval of her request for leave and respondents' decision with regard to the Butuan venture.
On January 30, 1998, Jochico issued a Notice of Special Board Meeting on February 2, 1998. Despite receipt of the notice, petitioners did not attend the
board meeting. In said meeting, the Board passed several resolutions ratifying the disapproval of Raniel's request for leave, dismissing her as Administrator of Nephro,
declaring the position of Corporate Secretary vacant, appointing Otelio Jochico as the new Corporate Secretary and authorizing the call of a Special Stockholders'
Meeting on February 16, 1998 for the purpose of the removal of petitioners as directors of Nephro.
Otelio Jochico issued the corresponding notices for the Special Stockholders' Meeting to be held on February 16, 1998 which were received by petitioners
on February 2, 1998. Again, they did not attend the meeting. The stockholders who were present removed the petitioners as directors of Nephro. Thus, petitioners filed
SEC Case No. 02-98-5902.
On October 27, 2000, the SEC rendered its Decision, the dispositive portion of which reads:

WHEREFORE, the Commission so holds that complainants cannot be awarded the reliefs prayed for in reinstating Nectarina S. Raniel
as secretary and administrator.
The corporation acting thru its Board of Directors can validly remove its corporate officers, particularly complainant Nectarina S.
Raniel as corporate secretary, treasurer and administrator of the Dialysis Clinic.
Also, the Commission cannot grant the relief prayed for by complainants in restraining the respondents from interfering in the
administration of the Dialysis Clinic owned by the corporation and the use of corporate funds.
The administration of the Dialysis Clinic of the corporation and the use of corporate funds, rightfully belong to the officers of the
corporation, which in this case are the respondents.
The counterclaim of respondents to return or assign back the complainants' shares in favor of respondent Paul Jochico or his nominee
is hereby denied for lack of merit.
The respondents failed to show any clear and convincing evidence to rebut the presumption of the validity and truthfulness of
documents submitted to the Commission in the grant of corporate license.
The claim for attorney's fees and damages of both parties are likewise denied for lack of merit, as neither party should be punished for
vindicating a right, which he/she believes should be protected or enforced.
SO ORDERED.[2]
Dissatisfied, petitioners filed a petition for review with the CA.

On April 30, 2002, the CA rendered the assailed Decision, with the following dispositive portion:
WHEREFORE, in light of the foregoing discussions, the appealed decision of the Securities and Exchange Commission is hereby
AFFIRMED with the MODIFICATION that the renewal of petitioners as directors of Nephro is declared valid.
SO ORDERED.[3]
Respondents filed a Manifestation and Motion to Correct Typographical Error, stating that the term renewal as provided in the CA Decision should be
removal.[4] Petitioners, on the other hand, filed the present petition for review on certiorari.
On November 20, 2002, the CA issued a Resolution resolving to refrain from acting on all pending incidents before it in view of the filing of the petition
with the Court.[5]
In the present petition, petitioners raised basically the same argument they had before the SEC and the CA, i.e., their removal from Nephro was not valid.
Both the SEC and the CA held that Pag-ong's removal as director and Raniel's removal as director and officer of Nephro were valid. For its part, the SEC
ruled that the Board of Directors had sufficient ground to remove Raniel as officer due to loss of trust and confidence, as her abrupt and unauthorized leave of absence
exhibited her disregard of her responsibilities as an officer of the corporation and disrupted the operations of Nephro. The SEC also held that the Special Board
Meeting held on February 2, 1998was valid and the resolutions adopted therein are binding on petitioners. [6]
The CA upheld the SEC's conclusions, adding further that the special stockholders' meeting on February 16, 1998 was likewise validly held. The CA also
ruled that Pag-ong's removal as director of Nephro was justified as it was due to her undenied delay in the release of Nephro's medical supplies from the warehouse of
the Fly-High Brokerage where she was an officer, on top of her and her co-petitioner Raniel's absence from the aforementioned directors' and stockholders' meetings of
Nephro despite due notice.[7]
It is well to stress the settled rule that the findings of fact of administrative bodies, such as the SEC, will not be interfered with by the courts in the absence of
grave abuse of discretion on the part of said agencies, or unless the aforementioned findings are not supported by substantial evidence. They carry even more weight
when affirmed by the CA.[8] Such findings are accorded not only great respect but even finality, and are binding upon this Court, unless it is shown that it had
arbitrarily disregarded or misapprehended evidence before it to such an extent as to compel a contrary conclusion had such evidence been properly appreciated. [9] This
rule is rooted in the doctrine that this Court is not a trier of facts, as well as in the respect to be accorded the determinations made by administrative bodies in general on
matters falling within their respective fields of specialization or expertise.[10]
A review of the petition failed to demonstrate any reversible error committed by the two tribunals, hence, the petition must be denied. It does not present
any argument which convinces the Court that the SEC and the CA made any misappreciation of the facts and the applicable laws such that their decisions should be
overturned.
A corporation exercises its powers through its board of directors and/or its duly authorized officers and agents, except in instances where the Corporation
Code requires stockholders approval for certain specific acts.[11]
Based on Section 23 of the Corporation Code which provides:
SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed
under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board ofdirectors or
trustees x x x.

a corporations board of directors is understood to be that body which (1) exercises all powers provided for under the CorporationCode; (2) conducts all business of
the corporation; and (3) controls and holds all property of the corporation. Its members have been characterized as trustees or directors clothed with a fiduciary
character. [12] Moreover, the directors may appoint officers and agents and as incident to this power of appointment, they may discharge those appointed.[13]
In this case, petitioner Raniel was removed as a corporate officer through the resolution of Nephro's Board of Directors adopted in a special meeting
on February 2, 1998. As correctly ruled by the SEC, petitioners' removal was a valid exercise of the powers of Nephro's Board of Directors, viz.:
In the instant complaint, do respondents have sufficient grounds to cause the removal of Raniel from her positions as Corporate
Secretary, Treasurer and Administrator of the Dialysis Clinic? Based on the facts proven during the hearing of this case, the answer is in the
affirmative.
Raniel's letter of January 26, 1998 speaks for itself. Her request for an indefinite leave, immediately effective yet without prior
notice, reveals a disregard of the critical responsibilities pertaining to the sensitive positions she held in the corporation. Prior to her hasty
departure, Raniel did not make a proper turn-over of her duties and had to be expressly requested to hand over documents and records, including
keys to the office and the cabinets (Exh. 15).
xxxx
Since Raniel occupied all three positions in Nephro, it is not difficult to foresee the disruption that her immediate and indefinite
absence can inflict on the operations of the company. By leaving abruptly, Raniel abandoned the positions she is now trying to reclaim. Raniel's
actuation has been sufficiently proven to warrant loss of the Board's confidence. [14]
The SEC also correctly concluded that petitioner Raniel was removed as an officer of Nephro in compliance with established procedure, thus:
The resolutions of the Board dismissing complainant Raniel from her various positions in Nephro are valid. Notwithstanding the
absence of complainants from the meeting, a quorum was validly constituted. x x x.
xxxx
Based on its articles of incorporation, Nephro has five directors two of the positions were occupied by complainants and the
remaining three are held by respondents. This being the case, the presence of all three respondents in the Special Meeting of the Board
onFebruary 2, 1998 established a quorum for the conduct of business. The unanimous resolutions carried by the Board during such meeting are
therefore valid and binding against complainants.
It bears emphasis that Raniel was given sufficient opportunity to be heard. Jochico's letters of January 26, 1998 and January 27, 1998,
albeit adversarial, recognized her right to explain herself and gave her the chance to do so. In fact, Raniel did respond to Jochico's letter
on January 28, 1998 and took the occasion to voice her opinions about Jochico's alleged practice of using others for your own benefit, without
cost. (Exh. 14). Moreover, the Special Meeting of the Board could have been the appropriate venue for Raniel to air her side. Had Raniel
decided to grace the meeting with her presence, she could have explained herself before the board and tried to convince them to allow her to keep
her posts.[15]
Petitioners Raniel and Pag-ong's removal as members of Nephro's Board of Directors was likewise valid.
Only stockholders or members have the power to remove the directors or trustees elected by them, as laid down in Section 28 of the Corporation
Code,[16] which provides in part:
SEC. 28. Removal of directors or trustees. -- Any director or trustee of a corporation may be removed from office by a vote of
the stockholders holding or representing at least two-thirds (2/3) of the outstanding capital stock, or if the corporation be a non-stock
corporation, by a vote of at least two-thirds (2/3) of the members entitled to vote: Provided, that such removal shall take place either at a regular
meeting of the corporation or at a special meeting called for the purpose, and in either case, after previous notice to stockholders or members of
the corporation of the intention to propose such removal at the meeting. A special meeting of the stockholders or members of a corporation for
the purpose of removal of directors or trustees or any of them, must be called by the secretary on order of the president or on the written demand
of the stockholders representing or holding at least a majority of the outstanding capital stock, or if it be a non-stock corporation, on the written
demand of a majority of the members entitled to vote. x x x Notice of the time and place of such meeting, as well as of the intention to propose
such removal, must be given by publication or by written notice as prescribed in this Code. x x xRemoval may be with or without
cause: Provided, That removal without cause may not be used to deprive minority stockholders or members of the right of representation to
which they may be entitled under Section 24 of this Code. (Emphasis supplied)

Petitioners do not dispute that the stockholders' meeting was held in accordance with Nephro's By-Laws. The ownership of Nephro's outstanding capital
stock is distributed as follows: Jochico - 200 shares; Steffens - 100 shares; Viriya - 100 shares; Raniel - 75 shares; and Pag-ong - 25 shares,[17] or a total of 500
shares. A two-thirds vote of Nephro's outstanding capital stock would be 333.33 shares, and during the Stockholders' Special Meeting held on February 16, 1998, 400
shares voted for petitioners' removal. Said number of votes is more than enough to oust petitioners from their respective positions as members of the board, with or
without cause.
Verily therefore, there is no cogent reason to grant the present petition.
WHEREFORE, the petition is DENIED for lack of merit.

SO ORDERED.
SECOND DIVISION

RYUICHI YAMAMOTO,
Petitioner,

G.R. No. 150283

Present:
QUISUMBING,* J., Chairperson,
CARPIO MORALES,**
TINGA,
VELASCO, JR., and
BRION, JJ.

- versus -

NISHINO LEATHER INDUSTRIES,

NISHINO,
Respondents.

INC.

and

IKUO

Promulgated:
April 16, 2008

x---------------------------------- --------------- x
DECISION
CARPIO MORALES, J.:
In 1983, petitioner, Ryuichi Yamamoto (Yamamoto), a Japanese national, organized under Philippine laws Wako Enterprises Manila, Incorporated
(WAKO), a corporation engaged principally in leather tanning, now known as Nishino Leather Industries, Inc. (NLII), one of herein respondents.
In 1987, Yamamoto and the other respondent, Ikuo Nishino (Nishino), also a Japanese national, forged a Memorandum of Agreement under which they
agreed to enter into a joint venture wherein Nishino would acquire such number of shares of stock equivalent to 70% of the authorized capital stock of WAKO.
Eventually, Nishino and his brother[1] Yoshinobu Nishino (Yoshinobu) acquired more than 70% of the authorized capital stock of WAKO, reducing
Yamamotos investment therein to, by his claim, 10%,[2] less than 10% according to Nishino.[3]
The corporate name of WAKO was later changed to, as reflected earlier, its current name NLII.
Negotiations subsequently ensued in light of a planned takeover of NLII by Nishino who would buy-out the shares of stock of Yamamoto. In the course of
the negotiations, Yoshinobu and Nishinos counsel Atty. Emmanuel G. Doce (Atty. Doce) advised Yamamoto by letter dated October 30, 1991, the pertinent portions
of which follow:
Hereunder is a simple memorandum of the subject matters discussed with me by Mr. Yoshinobu Nishino yesterday, October 29 th,
based on the letter of Mr. Ikuo Nishino from Japan, and which I am now transmitting to you.[4]
xxxx
12. Machinery and Equipment:
The following machinery/equipment have been contributed by you to the company:
Splitting machine
Samming machine
Forklift
Drums
Toggling machine

1 unit
1 unit
1 unit
4 units
2 units

Regarding the above machines, you may take them out with you (for your own use and sale) if you want, provided, the value of such
machines is deducted from your and Wakos capital contributions, which will be paid to you.
Kindly let me know of your comments on all the above, soonest.
x x x x[5] (Emphasis and underscoring supplied)
On the basis of such letter, Yamamoto attempted to recover the machineries and equipment which were, by Yamamotos admission, part of his investment in
the corporation,[6] but he was frustrated by respondents, drawing Yamamoto to file on January 15, 1992 before the Regional Trial Court (RTC) of Makati a
complaint[7] against them for replevin.
Branch 45 of the Makati RTC issued a writ of replevin after Yamamoto filed a bond. [8]

In their Answer with Counterclaim,[9] respondents claimed that the machineries and equipment subject of replevin form part of Yamamotos capital
contributions in consideration of his equity in NLII and should thus be treated as corporate property; and that the above-said letter of Atty. Doce to Yamamoto was
merely a proposal, conditioned on [Yamamotos] sell-out to . . . Nishino of his entire equity,[10] which proposal was yet to be authorized by the stockholders and
Board of Directors of NLII.
By way of Counterclaim, respondents, alleging that they suffered damage due to the seizure via the implementation of the writ of replevin over the
machineries and equipment, prayed for the award to them of moral and exemplary damages, attorneys fees and litigation expenses, and costs of suit.
The trial court, by Decision of June 9, 1995, decided the case in favor of Yamamoto,[11] disposing thus:
WHEREFORE, judgment is hereby rendered: (1) declaring plaintiff as the rightful owner and possessor of the machineries in
question, and making the writ of seizure permanent; (2) ordering defendants to pay plaintiff attorneys fees and expenses of litigation in the
amount of Fifty Thousand Pesos (P50,000.00), Philippine Currency; (3) dismissing defendants counterclaims for lack of merit; and (4) ordering
defendants to pay the costs of suit.
SO ORDERED.[12] (Underscoring supplied)
On appeal,[13] the Court of Appeals held in favor of herein respondents and accordingly reversed the RTC decision and dismissed the complaint.[14] In so
holding, the appellate court found that the machineries and equipment claimed by Yamamoto are corporate property of NLII and may not thus be retrieved without the
authority of the NLII Board of Directors;[15] and that petitioners argument that Nishino and Yamamoto cannot hide behind the shield of corporate fiction does not
lie,[16] nor does petitioners invocation of the doctrine of promissory estoppel. [17] At the same time, the Court of Appeals found no ground to support respondents
Counterclaim.[18]
The Court of Appeals having denied[19] his Motion for Reconsideration,[20] Yamamoto filed the present petition,[21]faulting the Court of Appeals
A.
x x x IN HOLDING THAT THE VEIL OF CORPORATE FICTION SHOULD NOT BE PIERCED IN THE CASE AT BAR.
B.
x x x IN HOLDING THAT THE DOCTRINE OF PROMISSORY ESTOPPEL DOES NOT APPLY TO THE CASE AT BAR.
C.
x x x IN HOLDING THAT RESPONDENTS ARE NOT LIABLE FOR ATTORNEYS FEES.[22]

The resolution of the petition hinges, in the main, on whether the advice in the letter of Atty. Doce that Yamamoto may retrieve the machineries and
equipment, which admittedly were part of his investment, bound the corporation. The Court holds in the negative.
Indeed, without a Board Resolution authorizing respondent Nishino to act for and in behalf of the corporation, he cannot bind the latter. Under the
Corporation Law, unless otherwise provided, corporate powers are exercised by the Board of Directors.[23]
Urging this Court to pierce the veil of corporate fiction, Yamamoto argues, viz:
During the negotiations, the issue as to the ownership of the Machiner[ies] never came up. Neither did the issue on the proper
procedure to be taken to execute the complete take-over of the Company come up since Ikuo, Yoshinobu, and Yamamoto were the owners
thereof, the presence of other stockholders being only for the purpose of complying with the minimum requirements of the law.
What course of action the Company decides to do or not to do depends not on the other members of the Board of
Directors. Itdepends on what Ikuo and Yoshinobu decide. The Company is but a mere instrumentality of Ikuo [and] Yoshinobu.[24]
xxxx
x x x The Company hardly holds board meetings. It has an inactive board, the directors are directors in name only and are there to do
the bidding of the Nish[i]nos, nothing more. Its minutes are paper minutes. x x x [25]
xxxx
The fact that the parties started at a 70-30 ratio and Yamamotos percentage declined to 10% does not mean the 20% went to others. x
x x The 20% went to no one else but Ikuo himself. x x x Yoshinobu is the younger brother of Ikuo and has no say at all in the
business. Only Ikuo makes the decisions. There were, therefore, no other members of the Board who have not given their
approval.[26] (Emphasis and underscoring supplied)
While the veil of separate corporate personality may be pierced when the corporation is merely an adjunct, a business conduit, or alter ego of a person,[27] the
mere ownership by a single stockholder of even all or nearly all of the capital stocks of a corporation is not by itself a sufficient ground to disregard the separate
corporate personality.[28]

The elements determinative of the applicability of the doctrine of piercing the veil of corporate fiction follow:
1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business
practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or
existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in contravention of the plaintiffs legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
The absence of any one of these elements prevents piercing the corporate veil. In applying the instrumentality or alter ego
doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendants relationship to
that operation.[29] (Italics in the original; emphasis and underscoring supplied)
In relation to the second element, to disregard the separate juridical personality of a corporation, the wrongdoing or unjust act in contravention of a plaintiffs legal
rights must be clearly and convincingly established; it cannot be presumed. [30] Without a demonstration that any of the evils sought to be prevented by the doctrine is
present, it does not apply.[31]
In the case at bar, there is no showing that Nishino used the separate personality of NLII to unjustly act or do wrong to Yamamoto in contravention of his
legal rights.
Yamamoto argues, in another vein, that promissory estoppel lies against respondents, thus:
Under the doctrine of promissory estoppel, x x x estoppel may arise from the making of a promise, even though without consideration,
if it was intended that the promise should be relied upon and in fact it was relied upon, and if a refusal to enforce it would be virtually to sanction
the perpetration of fraud or would result in other injustice.
x x x Ikuo and Yoshinobu wanted Yamamoto out of the Company. For this purpose negotiations were had between the
parties. Having expressly given Yamamoto, through the Letter and through a subsequent meeting at the Manila Peninsula where Ikuo himself
confirmed that Yamamoto may take out the Machinery from the Company anytime, respondents should not be allowed to turn around and do the
exact opposite of what they have represented they will do.
In paragraph twelve (12) of the Letter, Yamamoto was expressly advised that he could take out the Machinery if he wanted to so,
provided that the value of said machines would be deducted from his capital contribution x x x.
xxxx
Respondents cannot now argue that they did not intend for Yamamoto to rely upon the Letter. That was the purpose of the Letter to
begin with. Petitioner[s] in fact, relied upon said Letter and such reliance was further strengthened during their meeting at the ManilaPeninsula.
To sanction respondents attempt to evade their obligation would be to sanction the perpetration of fraud and injustice against
petitioner.[32] (Underscoring supplied)
It bears noting, however, that the aforementioned paragraph 12 of the letter is followed by a request for Yamamoto to give his comments on all the above,
soonest.[33]
What was thus proffered to Yamamoto was not a promise, but a mere offer, subject to his acceptance. Without acceptance, a mere offer produces no
obligation.[34]
Thus, under Article 1181 of the Civil Code, [i]n conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already
acquired, shall depend upon the happening of the event which constitutes the condition. In the case at bar, there is no showing of compliance with the condition for
allowing Yamamoto to take the machineries and equipment, namely, his agreement to the deduction of their value from his capital contribution due him in the buy-out
of his interests in NLII. Yamamotos allegation that he agreed to the condition[35] remained just that, no proof thereof having been presented.
The machineries and equipment, which comprised Yamamotos investment in NLII,[36] thus remained part of the capital property of the corporation.[37]
It is settled that the property of a corporation is not the property of its stockholders or members. [38] Under the trust fund doctrine, the capital stock, property,
and other assets of a corporation are regarded as equity in trust for the payment of corporate creditors which are preferred over the stockholders in the distribution of
corporate assets.[39] The distribution of corporate assets and property cannot be made to depend on the whims and caprices of the stockholders, officers, or directors of
the corporation unless the indispensable conditions and procedures for the protection of corporate creditors are followed. [40]
WHEREFORE, the petition is DENIED.
Costs against petitioner.
SO ORDERED.