Corpo 6

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 137686

February 8, 2000

RURAL BANK OF MILAOR (CAMARINES SUR), petitioner,

vs.
FRANCISCA OCFEMIA, ROWENA BARROGO, MARIFE O. NIO, FELICISIMO OCFEMIA,
RENATO OCFEMIA JR, and WINSTON OCFEMIA, respondents.
PANGANIBAN, J.:
When a bank, by its acts and failure to act, has clearly clothed its manager with apparent authority to
sell an acquired asset in the normal course of business, it is legally obliged to confirm the transaction
by issuing a board resolution to enable the buyers to register the property in their names. It has a
duty to perform necessary and lawful acts to enable the other parties to enjoy all benefits of the
contract which it had authorized.
The Case
Before this Court is a Petition for Review on Certiorari challenging the December 18, 1998 Decision
of the Court of Appeals 1 (CA) in CA-GR SP No. 46246, which affirmed the May 20, 1997
Decision 2 of the Regional Trial Court (RTC) of Naga City (Branch 28). The CA disposed as follows:
Wherefore, premises considered, the Judgment appealed from is hereby AFFIRMED. Costs
against the respondent-appellant. 3
The dispositive portion of the judgment affirmed by the CA ruled in this wise:
WHEREFORE, in view of all the foregoing findings, decision is hereby rendered whereby the
[petitioner] Rural Bank of Milaor (Camarines Sur), Inc. through its Board of Directors is
hereby ordered to immediately issue a Board Resolution confirming the Deed of Sale it
executed in favor of Renato Ocfemia marked Exhibits C, C-1 and C-2); to pay [respondents]
the sum of FIVE HUNDRED (P500.00) PESOS as actual damages; TEN THOUSAND
(P10,000.00) PESOS as attorney's fees; THIRTY THOUSAND (P30,000.00) PESOS as
moral damages; THIRTY THOUSAND (P30,000.00) PESOS as exemplary damages; and to
pay the costs. 4
Also assailed is the February 26, 1999 CA Resolution 5 which denied petitioner's Motion for
Reconsideration.
The Facts
The trial court's summary of the undisputed facts was reproduced in the CA Decision as follows:

This is an action for mandamus with damages. On April 10, 1996, [herein petitioner] was
declared in default on motion of the [respondents] for failure to file an answer within the
reglementary-period after it was duly served with summons. On April 26, 1996, [herein
petitioner] filed a motion to set aside the order of default with objection thereto filed by
[herein respondents].
On June 17, 1996, an order was issued denying [petitioner's] motion to set aside the order of
default. On July 10, 1996, the defendant filed a motion for reconsideration of the order of
June 17, 1996 with objection thereto by [respondents]. On July 12, 1996, an order was
issued denying [petitioner's] motion for reconsideration. On July 31, 1996, [respondents] filed
a motion to set case for hearing. A copy thereof was duly furnished the [petitioner] but the
latter did not file any opposition and so [respondents] were allowed to present their
evidence ex-parte. A certiorari case was filed by the [petitioner] with the Court of Appeals
docketed as CA GR No. 41497-SP but the petition was denied in a decision rendered on
March 31, 1997 and the same is now final.
The evidence presented by the [respondents] through the testimony of Marife O. Nio, one
of the [respondents] in this case, show[s] that she is the daughter of Francisca Ocfemia, a
co-[respondent] in this case, and the late Renato Ocfemia who died on July 23, 1994. The
parents of her father, Renato Ocfemia, were Juanita Arellano Ocfemia and Felicisimo
Ocfemia. Her other co-[respondents] Rowena O. Barrogo, Felicisimo Ocfemia, Renato
Ocfemia, Jr. and Winston Ocfemia are her brothers and sisters.
1wphi1.nt

Marife O. Nio knows the five (5) parcels of land described in paragraph 6 of the petition
which are located in Bombon, Camarines Sur and that they are the ones possessing them
which [were] originally owned by her grandparents, Juanita Arellano Ocfemia and Felicisimo
Ocfemia. During the lifetime of her grandparents, [respondents] mortgaged the said five (5)
parcels of land and two (2) others to the [petitioner] Rural Bank of Milaor as shown by the
Deed of Real Estate Mortgage (Exhs. A and A-1) and the Promissory Note (Exh. B).
The spouses Felicisimo Ocfemia and Juanita Arellano Ocfemia were not able to redeem the
mortgaged properties consisting of seven (7) parcels of land and so the mortgage was
foreclosed and thereafter ownership thereof was transferred to the [petitioner] bank. Out of
the seven (7) parcels that were foreclosed, five (5) of them are in the possession of the
[respondents] because these five (5) parcels of land described in paragraph 6 of the petition
were sold by the [petitioner] bank to the parents of Marife O. Nio as evidenced by a Deed of
Sale executed in January 1988 (Exhs. C, C-1 and C-2).
The aforementioned five (5) parcels of land subject of the deed of sale (Exh. C), have not
been, however transferred in the name of the parents of Merife O. Nio after they were sold
to her parents by the [petitioner] bank because according to the Assessor's Office the five (5)
parcels of land, subject of the sale, cannot be transferred in the name of the buyers as there
is a need to have the document of sale registered with the Register of Deeds of Camarines
Sur.
In view of the foregoing, Marife O. Nio went to the Register of Deeds of Camarines Sur with
the Deed of Sale (Exh. C) in order to have the same registered. The Register of Deeds,
however, informed her that the document of sale cannot be registered without a board
resolution of the [petitioner] Bank. Marife Nio then went to the bank, showed to if the Deed
of Sale (Exh. C), the tax declaration and receipt of tax payments and requested the
[petitioner] for a board resolution so that the property can be transferred to the name of

Renato Ocfemia the husband of petitioner Francisca Ocfemia and the father of the other
[respondents] having died already.
The [petitioner] bank refused her request for a board resolution and made many alibi[s]. She
was told that the [petitioner] bank ha[d] a new manager and it had no record of the sale. She
was asked and she complied with the request of the [petitioner] for a copy of the deed of sale
and receipt of payment. The president of the [petitioner] bank told her to get an authority
from her parents and other [respondents] and receipts evidencing payment of the
consideration appearing in the deed of sale. She complied with said requirements and after
she gave all these documents, Marife O. Nio was again told to wait for two (2) weeks
because the [petitioner] bank would still study the matter.
After two (2) weeks, Marife O. Nio returned to the [petitioner] bank and she was told that the
resolution of the board would not be released because the [petitioner] bank ha[d] no records
from the old manager. Because of this, Marife O. Nio brought the matter to her lawyer and
the latter wrote a letter on December 22, 1995 to the [petitioner] bank inquiring why no action
was taken by the board of the request for the issuance of the resolution considering that the
bank was already fully paid [for] the consideration of the sale since January 1988 as shown
by the deed of sale itself (Exh. D and D-1 ).
On January 15, 1996 the [petitioner] bank answered [respondents'] lawyer's letter (Exh. D
and D-1) informing the latter that the request for board resolution ha[d] already been referred
to the board of directors of the [petitioner] bank with another request that the latter should be
furnished with a certified machine copy of the receipt of payment covering the sale between
the [respondents] and the [petitioner] (Exh. E). This request of the [petitioner] bank was
already complied [with] by Marife O. Nio even before she brought the matter to her lawyer.
On January 23, 1996 [respondents'] lawyer wrote back the branch manager of the [petitioner]
bank informing the latter that they were already furnished the receipts the bank was asking
[for] and that the [respondents] want[ed] already to know the stand of the bank whether the
board [would] issue the required board resolution as the deed of sale itself already show[ed]
that the [respondents were] clearly entitled to the land subject of the sale (Exh. F). The
manager of the [petitioner] bank received the letter which was served personally to him and
the latter told Marife O. Nio that since he was the one himself who received the letter he
would not sign anymore a copy showing him as having already received said letter (Exh. F).
After several days from receipt of the letter (Exh. F) when Marife O. Nio went to the
[petitioner] again and reiterated her request, the manager of the [petitioner] bank told her that
they could not issue the required board resolution as the [petitioner] bank ha[d] no records of
the sale. Because of this Merife O. Nio already went to their lawyer and ha[d] this petition
filed.
The [respondents] are interested in having the property described in paragraph 6 of the
petition transferred to their names because their mother and co-petitioner, Francisca
Ocfemia, is very sickly and they want to mortgage the property for the medical expenses of
Francisca Ocfemia. The illness of Francisca Ocfemia beg[a]n after her husband died and her
suffering from arthritis and pulmonary disease already became serious before December
1995.
Marife O. Nio declared that her mother is now in serious condition and they could not have
her hospitalized for treatment as they do not have any money and this is causing the family

sleepless nights and mental anguish, thinking that their mother may die because they could
not submit her for medication as they do not have money. 6
The trial court granted the Petition. As noted earlier, the CA affirmed the RTC Decision.
Hence, this recourse. 7 In a Resolution dated June 23, 1999, this Court issued a Temporary
Restraining Order directing the trial court "to refrain and desist from executing [pending appeal] the
decision dated May 20, 1997 in Civil Case No. RTC-96-3513, effective immediately until further
orders from this Court." 8
Ruling of the Court of Appeals
The CA held that herein respondents were "able to prove their present cause of action" against
petitioner. It ruled that the RTC had jurisdiction over the case, because (1) the Petition involved a
matter incapable of pecuniary estimation; (2) mandamus fell within the jurisdiction of RTC; and (3)
assuming that the action was for specific performance as argued by the petitioner, it was still
cognizable by the said court.
Issues
In its Memorandum, 9 the bank posed the following questions:
1. Question of Jurisdiction of the Regional Trial Court. Has a Regional Trial Court original
jurisdiction over an action involving title to real property with a total assessed value of less
than P20,000.00?
2. Question of Law. May the board of directors of a rural banking corporation be
compelled to confirm a deed of absolute sale of real property owned by the corporation
which deed of sale was executed by the bank manager without prior authority of the board of
directors of the rural banking corporation? 10
This Court's Ruling
The present Petition has no merit.
First Issue:
Jurisdiction of the Regional Trial Court
Petitioner submits that the RTC had no jurisdiction over the case. Disputing the ruling of the
appellate court that the present action was incapable of pecuniary estimation, petitioner argues that
the matter in fact involved title to real property worth less than P20,000. Thus, under RA 7691, the
case should have been filed before a metropolitan trial court, a municipal trial court or a municipal
circuit trial court.
We disagree. The well-settled rule is that jurisdiction is determined by the allegations of the
complaint. 11 In the present case, the Petition for Mandamus filed by respondents before the trial
court prayed that petitioner-bank be compelled to issue a board resolution confirming the Deed of
Sale covering five parcels of unregistered land, which the bank manager had executed in their favor.
The RTC has jurisdiction over such action pursuant to Section 21 of BP 129, which provides:

Sec. 21. Original jurisdiction in other cases. Regional Trial Courts shall exercise original
jurisdiction;
(1) in the issuance of writ of certiorari, prohibition, mandamus, quo warranto, habeas
corpus and injunction which may be enforced in any part of their respective regions; and
(2) In actions affecting ambassadors and other public ministers and consuls.
A perusal of the Petition shows that the respondents did not raise any question involving the title to
the property, but merely asked that petitioner's board of directors be directed to issue the subject
resolution. Moreover, the bank did not controvert the allegations in the said Petition. To repeat, the
issue therein was not the title to the property; it was respondents' right to compel the bank to issue a
board resolution confirming the Deed of Sale.
Second Issue:
Authority of the Bank Manager
Respondents initiated the present proceedings, so that they could transfer to their names the subject
five parcels of land; and subsequently, to mortgage said lots and to use the loan proceeds for the
medical expenses of their ailing mother. For the property to be transferred in their names, however,
the register of deeds required the submission of a board resolution from the bank confirming both
the Deed of Sale and the authority of the bank manager, Fe S. Tena, to enter into such transaction.
Petitioner refused. After being given the runaround by the bank, respondents sued in exasperation.
Allegations in the Petition for Mandamus Deemed Admitted
Respondents based their action before the trial court on the Deed of Sale, the substance of which
was alleged in and a copy thereof was attached to the Petition for Mandamus. The Deed named Fe
S. Tena as the representative of the bank. Petitioner, however, failed to specifically deny under oath
the allegations in that contract. In fact, it filed no answer at all, for which reason it was declared in
default. Pertinent provisions of the Rules of Court read:
Sec. 7. Action or defense based on document. Whenever an action or defense is based
upon a written instrument or document, the substance of such instrument or document shall
be set forth in the pleading, and the original or a copy thereof shall be attached to the
pleading as an exhibit, which shall be deemed to be a part of the pleading, or said copy may
with like effect be set forth in the pleading.
Sec. 8. How to contest genuineness of such documents. When an action or defense is
founded upon a written instrument, copied in or attached to the corresponding pleading as
provided in the preceding section, the genuineness and due execution of the instrument shall
be deemed admitted unless the adverse party, under oath, specifically denies them, and sets
forth what he claims to be the facts; but this provision does not apply when the adverse party
does not appear to be a party to the instrument or when compliance with an order for an
inspection of the original instrument is refused. 12
In failing to file its answer specifically denying under oath the Deed of Sale, the bank admitted the
due execution of the said contract. Such admission means that it acknowledged that Tena was
authorized to sign the Deed of Sale on its behalf. 13 Thus, defenses that are inconsistent with the due
execution and the genuineness of the written instrument are cut off by an admission implied from a
failure to make a verified specific denial.

Other Acts of the Bank

In any event, the bank acknowledged, by its own acts or failure to act, the authority of Fe S. Tena to
enter into binding contracts. After the execution of the Deed of Sale, respondents occupied the
properties in dispute and paid the real estate taxes due thereon. If the bank management believed
that it had title to the property, it should have taken some measures to prevent the infringement or
invasion of its title thereto and possession thereof.
Likewise, Tena had previously transacted business on behalf of the bank, and the latter had
acknowledged her authority. A bank is liable to innocent third persons where representation is made
in the course of its normal business by an agent like Manager Tena, even though such agent is
abusing her authority. 14 Clearly, persons dealing with her could not be blamed for believing that she
was authorized to transact business for and on behalf of the bank. Thus, this Court has ruled
in Board of Liquidators v. Kalaw: 15
Settled jurisprudence has it that where similar acts have been approved by the directors as a
matter of general practice, custom, and policy, the general manager may bind the company
without formal authorization of the board of directors. In varying language, existence of such
authority is established, by proof of the course of business, the usages and practices of the
company and by the knowledge which the board of directors has, or must be presumed to
have, of acts and doings of its subordinates in and about the affairs of the corporation. So
also,
. . . authority to act for and bind a corporation may be presumed from acts of recognition in
other instances where the power was in fact exercised.
. . . Thus, when, in the usual course of business of a corporation, an officer has been allowed
in his official capacity to manage its affairs, his authority to represent the corporation may be
implied from the manner in which he has been permitted by the directors to manage its
business.
Notwithstanding the putative authority of the manager to bind the bank in the Deed of Sale, petitioner
has failed to file an answer to the Petition below within the reglementary period, let alone present
evidence controverting such authority. Indeed, when one of herein respondents, Marife S. Nino, went
to the bank to ask for the board resolution, she was merely told to bring the receipts. The bank failed
to categorically declare that Tena had no authority. This Court stresses the following:
. . . Corporate transactions would speedily come to a standstill were every person dealing
with a corporation held duty-bound to disbelieve every act of its responsible officers, no
matter how regular they should appear on their face. This Court has observed in Ramirez
vs. Orientalist Co., 38 Phil. 634, 654-655, that
In passing upon the liability of a corporation in cases of this kind it is always well to
keep in mind the situation as it presents itself to the third party with whom the
contract is made. Naturally he can have little or no information as to what occurs in
corporate meetings; and he must necessarily rely upon the external manifestation of
corporate consent. The integrity of commercial transactions can only be maintained
by holding the corporation strictly to the liability fixed upon it by its agents in
accordance with law; and we would be sorry to announce a doctrine which would
permit the property of man in the city of Paris to be whisked out of his hands and
carried into a remote quarter of the earth without recourse against the corporation
whose name and authority had been used in the manner disclosed in this case. As

already observed, it is familiar doctrine that if a corporation knowingly permits one of

its officers, or any other agent, to do acts within the scope of an apparent authority,
and thus holds him out to the public as possessing power to do those acts, the
corporation will, as against any one who has in good faith dealt with the corporation
through such agent, be estopped from denying his authority; and where it is said "if
the corporation permits this means the same as "if the thing is permitted by the
directing power of the corporation." 16
In this light, the bank is estopped from questioning the authority of the bank manager to enter into
the contract of sale. If a corporation knowingly permits one of its officers or any other agent to act
within the scope of an apparent authority, it holds the agent out to the public as possessing the
power to do those acts; thus, the corporation will, as against anyone who has in good faith dealt with
it through such agent, be estopped from denying the agent's authority. 17
Unquestionably, petitioner has authorized Tena to enter into the Deed of Sale. Accordingly, it has a
clear legal duty to issue the board resolution sought by respondent's. Having authorized her to sell
the property, it behooves the bank to confirm the Deed of Sale so that the buyers may enjoy its full
use.
The board resolution is, in fact, mere paper work. Nonetheless, it is paper work necessary in the
orderly operations of the register of deeds and the full enjoyment of respondents' rights. Petitionerbank persistently and unjustifiably refused to perform its legal duty. Worse, it was less than candid in
dealing with respondents regarding this matter. In this light, the Court finds it proper to assess the
bank treble costs, in addition to the award of damages.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision and Resolution
AFFIRMED. The Temporary Restraining Order issued by this Court is hereby LIFTED. Treble costs
against petitioner.
SO ORDERED.

THIRD DIVISION

[G.R. No. 125778. June 10, 2003]

INTER-ASIA INVESTMENTS INDUSTRIES, INC., petitioner, vs. COURT

OF APPEALS and ASIA INDUSTRIES, INC., respondents.
DECISION
CARPIO-MORALES, J.:

The present petition for review on certiorari assails the Court of Appeals
Decision of January 25, 1996 and Resolution of July 11, 1996.
[1]

[2]

The material facts of the case are as follows:

On September 1, 1978, Inter-Asia Industries, Inc. (petitioner), by a Stock
Purchase Agreement (the Agreement), sold to Asia Industries, Inc. (private
respondent) for and in consideration of the sum of P19,500,000.00 all its right,
title and interest in and to all the outstanding shares of stock of FARMACOR,
INC. (FARMACOR). The Agreement was signed by Leonides P. Gonzales
and Jesus J. Vergara, presidents of petitioner and private respondent,
respectively.
[3]

[4]

[5]

Under paragraph 7 of the Agreement, petitioner as seller made warranties

and representations among which were (iv.) [t]he audited financial statements
of FARMACOR at and for the year ended December 31, 1977... and the
audited financial statements of FARMACOR as of September 30, 1978 being
prepared by S[ycip,] G[orres,] V[elayo and Co.]... fairly present or will present
the financial position of FARMACOR and the results of its operations as of
said respective dates; said financial statements show or will show all liabilities
and commitments of FARMACOR, direct or contingent, as of said respective
dates . . .; and (v.) [t]he Minimum Guaranteed Net Worth of FARMACOR as
of September 30, 1978 shall be Twelve Million Pesos (P12,000,000.00).
[6]

The Agreement was later amended with respect to the Closing Date,
originally set up at 10:00 a.m. of September 30, 1978, which was moved to
October 31, 1978, and to the mode of payment of the purchase price.
[7]

The Agreement, as amended, provided that pending submission by SGV

of FARMACORs audited financial statements as of October 31, 1978, private
respondent may retain the sum of P7,500,000.00 out of the stipulated
purchase price of P19,500,000.00; that from this retained amount of
P7,500,000.00, private respondent may deduct any shortfall on the Minimum
Guaranteed Net Worth of P12,000,000.00; and that if the amount retained is
not sufficient to make up for the deficiency in the Minimum Guaranteed Net
Worth, petitioner shall pay the difference within 5 days from date of receipt of
the audited financial statements.
[8]

[9]

Respondent
paid
petitioner
a
total
amount
of
P
12,000,000.00: P5,000,000.00 upon the signing of the Agreement, and
P7,000,000.00 on November 2, 1978.
[10]

From the STATEMENT OF INCOME AND DEFICIT attached to the

financial report dated November 28, 1978 submitted by SGV, it appears that
FARMACOR had, for the ten months ended October 31, 1978, a deficit of
P11,244,225.00. Since
the
stockholders
equity
amounted
to
P10,000,000.00, FARMACOR had a net worth deficiency of P1,244,225.00.
The guaranteed net worth shortfall thus amounted to P13,244,225.00 after
adding the net worth deficiency of P1,244,225.00 to the Minimum Guaranteed
Net Worth of P12,000,000.00.
[11]

[12]

The adjusted contract price, therefore, amounted to P6,225,775.00 which

is the difference between the contract price of P19,500,000.00 and the
shortfall in the guaranteed net worth of P13,224,225.00. Private respondent
having already paid petitioner P12,000,000.00, it was entitled to a refund of
P5,744,225.00.
Petitioner thereafter proposed, by letter of January 24, 1980, signed by
its president, that private respondents claim for refund be reduced to
P4,093,993.00, it promising to pay the cost of the Northern Cotabato
Industries, Inc. (NOCOSII) superstructures in the amount of P759,570.00. To
the proposal respondent agreed. Petitioner, however, weiched on its promise.
Petitioners total liability thus stood at P4,853,503.00 (P4,093,993.00 plus
P759,570.00) exclusive of interest.
[13]

[14]

[15]

On April 5, 1983, private respondent filed a complaint against petitioner

with the Regional Trial Court of Makati, one of two causes of action of which
was for the recovery of above-said amount of P4,853,503.00 plus interest.
[16]

[17]

Denying private respondents claim, petitioner countered that private

respondent failed to pay the balance of the purchase price and accordingly set
up a counterclaim.

Finding for private respondent, the trial court rendered on November 27,
1991 a Decision, the dispositive portion of which reads:
[18]

WHEREFORE, judgment is rendered in favor of plaintiff and against defendant (a)

ordering the latter to pay to the former the sum of P4,853,503.00 plus interest thereon
at the legal rate from the filing of the complaint until fully paid, the sum of
P30,000.00 as attorneys fees and the costs of suit; and (b) dismissing the
counterclaim.
[19]

SO ORDERED.
On appeal to the Court of Appeals, petitioner raised the following errors:
THE TRIAL COURT ERRED IN HOLDING THE DEFENDANT LIABLE UNDER
THE FIRST CAUSE OF ACTION PLEADED BY THE PLAINTIFF.
THE TRIAL COURT ERRED IN AWARDING ATTORNEYS FEES AND IN
DISMISSING THE COUNTERCLAIM.
THE TRIAL COURT ERRED IN RENDERING JUDGMENT IN FAVOR OF THE
PLAINTIFF, THE ALLEGED BREACH OF WARRANTIES AND
REPRESENTATION NOT HAVING BEEN SHOWN, MUCH LESS ESTABLISHED
BY THE PLAINTIFF.
[20]

By Decision of January 25, 1996, the Court of Appeals affirmed the trial
courts decision. Petitioners motion for reconsideration of the decision having
been denied by the Court of Appeals by Resolution of July 11, 1996, the
present petition for review on certiorari was filed, assigning the following
errors:
I

THE RESPONDENT COURT ERRED IN NOT HOLDING THAT THE LETTER

OF THE PRESIDENT OF THE PETITIONER IS NOT BINDING ON THE
PETITIONER BEING ULTRA VIRES.
II

THE LETTER CAN NOT BE AN ADMISSION AND WAIVER OF THE

PETITIONER AS A CORPORATION.
III

THE RESPONDENT COURT ERRED IN NOT DECLARING THAT THERE IS NO

BREACH OF WARRANTIES AND REPRESENTATION AS ALLEGED BY THE
PRIVATE RESPONDENT.
IV

THE RESPONDENT COURT ERRED IN ORDERING THE PETITIONER TO PAY

ATTORNEYS FEES AND IN SUSTAINING THE DISMISSAL OF THE
COUNTERCLAIM. (Underscoring in the original)
18

Petitioner argues that the January 24, 1980 letter-proposal (for the
reduction of private respondents claim for refund upon petitioners promise to
pay the cost of NOCOSII superstructures in the amount of P759,570.00)
which was signed by its president has no legal force and effect against it as it
was not authorized by its board of directors, it citing the COrporation Law
which provides that unless the act of the president is authorized by the board
of directors, the same is not binding on it.
This Court is not persuaded.
The January 24, 1980 letter signed by petitioners president is valid and
binding. The case of Peoples Aircargo and Warehousing Co., Inc. v. Court of
Appeals instructs:
19

The general rule is that, in the absence of authority from the board of directors,
no person, not even its officers, can validly bind a corporation. A corporation is a
juridical person, separate and distinct from its stockholders and members, having x x
x powers, attributes and properties expressly authorized by law or incident to its
existence.
Being a juridical entity, a corporation may act through its board of directors, which
exercises almost all corporate powers, lays down all corporate business policies and is
responsible for the efficiency of management, as provided in Section 23 of the
Corporation Code of the Philippines:
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 x x x.
Under this provision, the power and responsibility to decide whether the corporation
should enter into a contract that will bind the corporation is lodged in the board,
subject to the articles of incorporation, bylaws, or relevant provisions of

law. However, just as a natural person may authorize another to do certain acts
for and on his behalf, the board of directors may validly delegate some of its
functions and powers to officers, committees or agents. The authority of such
individuals to bind the corporation is generally derived from law, corporate
bylaws or authorization from the board, either expressly or impliedly by habit,
custom or acquiescence in the general course of business, viz:
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 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 person dealing with the
officer or agent to believe that it has conferred.
xxx
[A]pparent authority is derived not merely from practice. Its existence may be
ascertained through (1) the general manner in which the corporation holds out an
officer or agent as having the power to act or, in other words the apparent authority to
act in general, with which it clothes him; or (2) the acquiescence in his acts of a
particular nature, with actual or constructive knowledge thereof, within or
beyond the scope of his ordinary powers.
It requires presentation of evidence of similar act(s) executed either in
its favor or in favor of other parties. It is not
the quantity of similar actswhich establishes apparent authority, but
the vesting of a corporate officer with power to bind the corporation.
x x x (Emphasis and underscoring supplied)
As correctly argued by private respondent, an officer of a corporation who
is authorized to purchase the stock of another corporation has the implied
power to perform all other obligations arising therefrom, such as payment of
the shares of stock. By allowing its president to sign the Agreement on its
behalf, petitioner clothed him with apparent capacity to perform all acts which
are expressly, impliedly and inherently stated therein.
[21]

Petitioner further argues that when the Agreement was executed on

September 1, 1978, its financial statements were extensively examined and
accepted as correct by private respondent, hence, it cannot later be disproved
by resorting to some scheme such as future financial auditing; and that it
should not be bound by the SGV Report because it is self-serving and biased,
[22]

SGV having been hired solely by private respondent, and the alleged shortfall
of FARMACOR occurred only after the execution of the Agreement.
This Court is not persuaded either.
The pertinent provisions of the Agreement read:
7.
Warranties and Representations - (a) SELLER warrants and represents as
follows:
xxx
(iv)

The audited financial statements of FARMACOR as at and for the year

ended December 31, 1977 and
the audited financial statementsof FARMACOR as at September 30,
1978 being prepared by SGV pursuant to paragraph 6(b) fairly pres
ent or will present thefinancial position of FARMACOR and the
results of its operations as of said respective dates; said financial
statements show or will show all liabilities and commitments of
FARMACOR, direct or contingent, as of said respective dates; and
the receivables set forth in said financial statements are fully due and
collectible, free and clear of any set-offs, defenses, claims and other
impediments to their collectibility.

(v)

The Minimum Guaranteed Net Worth of FARMACOR as of

September 30, 1978 shall be Twelve Million Pesos (P12,000,000.00),
Philippine Currency.

x x x (Underscoring in the original; emphasis supplied)

[23]

True, private respondent accepted as correct the financial statements

submitted to it when the Agreement was executed on September 1, 1978. But
petitioner expressly warranted that the SGV Reports fairly present or will
present the financial position of FARMACOR. By such warranty, petitioner is
estopped from claiming that the SGV Reports are self-serving and biased.
As to the claim that the shortfall occurred after the execution of the
Agreement, the declaration of Emmanuel de Asis, supervisor in the
Accounting Division of SGV and head of the team which conducted the
auditing of FARMACOR, that the period covered by the audit was from
January to October 1978 shows that the period before the Agreement was
entered into (on September 1, 1978) was covered.
[24]

As to petitioners assigned error on the award of attorneys fees which, it

argues, is bereft of factual, legal and equitable justification, this Court finds the
same well-taken.
On the matter of attorneys fees, it 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 Codedemands
factual, legal and equitable justification, without which the award is
a conclusion without a premise, its basis being improperly left
tospeculation 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.
[25]

x x x (Emphasis and underscoring supplied; citations omitted)

WHEREFORE, the instant petition is PARTLY GRANTED. The assailed
decision of the Court of Appeals affirming that of the trial court is modified in
that the award of attorneys fees in favor of private respondent is deleted. The
decision is affirmed in other respects.
SO ORDERED.

THIRD DIVISION
[G.R. NO. 132390 : May 21, 2004]
BPI FAMILY SAVINGS BANK, INC., Petitioner, v. FIRST METRO
INVESTMENT CORPORATION, Respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
For our resolution is the instant Petition for Review
on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, assailing the Decision1 dated July 4, 1997 and
Resolution2 dated January 28, 1998 of the Court of Appeals in CAG.R. CV No. 44986, First Metro Investment Corporation v. BPI
Family Bank.
The facts as found by the trial court and affirmed by the Court of
Appeals are as follows:
rbl rl l lbrr

First Metro Investment Corporation (FMIC), respondent, is an

investment house organized under Philippine laws.Petitioner, Bank
of Philippine Islands Family Savings Bank, Inc. is a banking
corporation also organized under Philippine laws.
On August 25, 1989, FMIC, through its Executive Vice President
Antonio Ong, opened current account no. 8401-07473-0 and
deposited METROBANK check no. 898679 of P100 million with BPI
Family Bank (BPI FB) San Francisco del Monte Branch (Quezon
City). Ong made the deposit upon request of his friend, Ador de
Asis, a close acquaintance of Jaime Sebastian, then Branch Manager
of BPI FB San Francisco del Monte Branch.Sebastians aim was to
increase the deposit level in his Branch.

BPI FB, through Sebastian, guaranteed the payment

of P14,667,687.01 representing 17% per annum interest of P100
million deposited by FMIC. The latter, in turn, assured BPI FB that it

will maintain its deposit of P100 million for a period of one year on
condition that the interest of 17% per annum is paid in advance.
This agreement between the parties was reached through their
communications in writing.
Subsequently, BPI FB paid FMIC 17% interest or P14,667,687.01
upon clearance of the latters check deposit.
However, on August 29, 1989, on the basis of an Authority to Debit
signed by Ong and Ma. Theresa David, Senior Manager of FMIC, BPI
FB transferred P80 million from FMICs current account to the
savings account of Tevesteco Arrastre Stevedoring, Inc. (Tevesteco).
FMIC denied having authorized the transfer of its funds to
Tevesteco, claiming that the signatures of Ong and David were
falsified. Thereupon, to recover immediately its deposit, FMIC, on
September 12, 1989, issued BPI FB check no. 129077
for P86,057,646.72 payable to itself and drawn on its deposit
withBPI FB SFDM branch. But upon presentation for payment on
September 13, 1989, BPI FB dishonored the check as it was drawn
against insufficient funds (DAIF).
Consequently, FMIC filed with the Regional Trial Court, Branch 146,
Makati City Civil Case No. 89-5280 against BPI FB. FMIC likewise
caused the filing by the Office of the State Prosecutors of an
Information for estafa against Ong, de Asis, Sebastian and four
others. However, the Information was dismissed on the basis of a
demurrer to evidence filed by the accused.
On October 1, 1993, the trial court rendered its Decision in Civil
Case No. 89-5280, the dispositive portion of which reads:
rbl rl l lbrr

Premises considered, judgment is rendered in favor of plaintiff,

ordering defendant to pay:
rbl rl l lbrr

a.the amount of P80 million with interest at the legal rate from the
time this complaint was filed less P14,667,678.01;
chanroble svirtuallawlibrary

b.the amount of P100,000.00 as reasonable attorneys fees; and

cralawlibrary

c.the cost.
SO ORDERED.
On appeal by both parties, the Court of Appeals rendered a Decision
affirming the assailed Decision with modification, thus:
rbl rl l lbrr

WHEREFORE, considering all the foregoing, this Court hereby

modifies the decision of the trial court and adjudges BPI Family
Bank liable to First Metro Investment Corporation for the amount
of P65,332,321.99 plus interest at 17% per annum from August 29,
1989 until fully restored. Further, this 17% interest shall itself earn
interest at 12% from October 4, 1989 until fully paid.
SO ORDERED.
BPI FB then filed a motion for reconsideration but was denied by the
Court of Appeals.
In the instant petition, BPI FB ascribes to the Appellate Court the
following assignments of error:
rbl rl l lbrr

A. IN VALIDATING A CLEARLY ILLEGAL AND VOID AGREEMENT

BETWEEN FMIC AND AN OVERSTEPPING BRANCH MANAGER OF BPI
FB, THE COURT OF APPEALS DECIDED THE APPEALED CASE IN A
MANNER NOT IN ACCORDANCE WITH LAW OR THE APPLICAPLE
DECISIONS OF THE HONORABLE COURT.
B.THE COURT OF APPEALS TOTALLY IGNORED THE JUDICIAL
ADMISSIONS MADE BY FMIC WHEN IT CHARACTERIZED THE
TRANSACTION BETWEEN FMIC AND BPI FB AS A TIME DEPOSIT
WHEN IN FACT IT WAS AN INTEREST-BEARING CURRENT ACCOUNT
WHICH, UNDER THE EXISTING BANK REGULATIONS, WAS AN
ILLEGAL TRANSACTION.
C.THE COURT OF APPEALS COMMITTED AN EGREGIOUS ERROR IN
RULING THAT BPI FB CLOTHED ITS BRANCH MANAGER WITH
APPARENT AUTHORITY TO ENTER INTO SUCH A PATENTLY ILLEGAL
ARRANGEMENT.

D.THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN

IT REFUSED TO CONSIDER THE NEGLIGENT ACTS COMMITTED BY
FMIC ITSELF WHICH LED TO THE TRANSFER OF THE P80 MILLION
FROM THE FMIC ACCOUNT TO THE TEVESTECO ACCOUNT.
E.THE COURT OF APPEALS DID NOT ADHERE TO SETTLED
JURISPRUDENCE WHEN IT ADJUDGED BPI FB LIABLE TO FMIC FOR
AN AMOUNT WHICH WAS MORE THAN WHAT WAS CONTEMPLATED
OR PRAYED FOR IN FMICS COMPLAINT, MOTION FOR
RECONSIDERATION OF THE TRIAL COURTS DECISION AND APPEAL
BRIEF.
F.IN SUPPORT OF ITS ALTERNATIVE PRAYER, PETITIONER SUBMITS
THAT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
NOT ORDERING THE CONSOLIDATION OF THE INSTANT CASE WITH
THE TEVESTECO CASE WHICH IS STILL PENDING BEFORE THE
MAKATI REGIONAL TRIAL COURT.
Petitioner BPI FB contends that the Court of Appeals erred in
awarding the 17% per annum interest corresponding to the amount
deposited by respondent FMIC. Petitioner insists that respondents
deposit is not a special savings account similar to a time deposit,
but actually a demand deposit, withdrawable upon
demand, proscribed from earning interest under Central Bank
Circular 777. Petitioner further contends that the transaction is not
valid as its Branch Manager, Jaime Sebastian, clearly overstepped
his authority in entering into such an agreement with respondents
Executive Vice President.
We hold that the parties did not intend the deposit to be treated as
a demand deposit but rather as an interest-earning time deposit not
withdrawable any time. This is quite obvious from the
communications between Jaime Sebastian, petitioners Branch
Manager, and Antonio Ong, respondents Executive Vice President.
Both agreed that the deposit of P100 million was nonwithdrawable for one year upon payment in advance of the
17% per annum interest. Respondents time deposit of P100
million was accepted by petitioner as shown by a deposit slip
prepared and signed by Ong himself who indicated therein the
account number to which the deposit is to be credited, the name of

FMIC as depositor or account holder, the date of deposit, and the

amount of P100 million as deposit in check. Clearly, when
respondent FMIC invested its money with petitioner BPI FB, they
intended the P100 million as a time deposit, to earn 17% per
annum interest and to remain intact until its maturity date one year
thereafter.
Ordinarily, a time deposit is defined as one the payment of which
cannot legally be required within such a specified number of days.3

rll

In contrast, demand deposits are all those liabilities of the Bangko

Sentral and of other banks which are denominated in Philippine
currency and are subject to payment in legal tender upon
demand by the presentation of (depositors) checks.4
rll

While it may be true that barely one month and seven days from
the date of deposit, respondent FMIC demanded the withdrawal
of P86,057,646.72 through the issuance of a check payable to itself,
the same was made as a result of the fraudulent and unauthorized
transfer by petitioner BPI FB of its P80 million deposit to Tevestecos
savings account.Certainly, such was a normal reaction of respondent
as a depositor to petitioners failure in its fiduciary duty to treat its
account with the highest degree of care.
Under this circumstance, the withdrawal of deposit by respondent
FMIC before the one-year maturity date did not change the nature
of its time deposit to one of demand deposit.
On another tack, petitioners argument that Central Bank regulations
prohibit demand deposit from earning interest is bereft of merit.
Under Central Bank Circular No. 22, Series of 1994, demand
deposits shall not be subject to any interest rate ceiling. This,
in effect, is an open authority to pay interest on demand deposits,
such interest not being subject to any rate ceiling.
Likewise, time deposits are not subject to interest rate ceiling. In
fact, the rate ceiling was abolished and even allowed to float
depending on the market conditions. Sections 1244 and 1244.1 of

the Manual of Regulations of the Central Bank of the Philippines

provide:
rbl rl l lbrr

Sec. 1244. Interest on time deposit. Time deposits shall not be

subject to any interest rate ceiling.
Sec. 1244.1. Time of payment. Interest on time deposit may be
paid at maturity or upon withdrawal or in advance. Provided,
however, That interest paid in advance shall not exceed the interest
for one year.
Thus, even assuming that respondents account with petitioner is a
demand deposit, still it would earn interest.
Going back to the unauthorized transfer of respondents funds to
Tevesteco, in its attempt to evade any liability therefor, petitioner
now impugns the validity of the subject agreement on the ground
that its Branch Manager, Jaime Sebastian, overstepped the limits of
his authority in accepting respondents deposit with 17% interest per
annum.We have held that if a corporation knowingly permits its
officer, or any other agent, to perform acts within the scope of an
apparent authority, holding him out to the public as possessing
power to do those acts, the corporation will, as against any person
who has dealt in good faith with the corporation through such
agent, be estopped from denying such authority.5We reiterated this
doctrine in Prudential Bank v. Court of Appeals,6 thus:
rbl rl l lbrr

A bank holding out its officers and agent as worthy of confidence

will not be permitted to profit by the frauds they may thus be
enabled to perpetrate in the apparent scope of their employment;
nor will it be permitted to shirk its responsibility for such frauds,
even though no benefit may accrue to the bank therefrom.
Accordingly, a banking corporation is liable to innocent third persons
where the representation is made in the course of its business by an
agent acting within the general scope of his authority even though
the agent is secretly abusing his authority and attempting to
perpetrate a fraud upon his principal or some other person for his
own ultimate benefit.
In Francisco v. Government Service Insurance System,7 we ruled:

rbl rl l lbrr

Corporate transactions would speedily come to a standstill were

every person dealing with a corporation held duty-bound to
disbelieve every act of its responsible officers, no matter how
regular they should appear on their face. This Court has observed
in Ramirez v. Orientalist Co., 38 Phil. 634, 654-655, that
In passing upon the liability of a corporation in cases of this kind it
is always well to keep in mind the situation as it presents itself to
the third party with whom the contract is made.Naturally he can
have little or no information as to what occurs in corporate
meetings; and he must necessarily rely upon the external
manifestations of corporate consent. The integrity of commercial
transactions can only be maintained by holding the corporation
strictly to the liability fixed upon it by its agents in accordance with
law; and we would be sorry to announce a doctrine which would
permit the property of a man in the city of Paris to be whisked out
of his hands and carried into a remote quarter of the earth without
recourse against the corporation whose name and authority had
been used in the manner disclosed in this case. As already
observed, it is familiar doctrine that if a corporation knowingly
permits one of its officers, or any other agent, to do acts within the
scope of an apparent authority, and thus holds him out to the public
as possessing power to do those acts, the corporation will, as
against any one who has in good faith dealt with the corporation
through such agent, be estopped from denying his authority; and
where it is said if the corporation permits, this means the same as if
the thing is permitted by the directing power of the corporation.
Petitioner maintains that respondent should have first inquired
whether the deposit ofP100 Million and the fixing of the interest rate
were pursuant to its (petitioners) internal procedures. Petitioners
stance is a futile attempt to evade an obligation clearly established
by the intent of the parties. What transpires in the corporate board
room is entirely an internal matter. Hence, petitioner may not
impute negligence on the part of respondents representative in
failing to find out the scope of authority of petitioners Branch
Manager. Indeed, the public has the right to rely on the
trustworthiness of bank managers and their acts. Obviously,
confidence in the banking system, which necessarily includes

reliance on bank managers, is vital in the economic life of our

society.
Significantly, the transaction was actually acknowledged and ratified
by petitioner when it paid respondent in advance the interest for
one year. Thus, petitioner is estopped from denying that it
authorized its Branch Manager to enter into an agreement with
respondents Executive Vice President concerning the deposit with
the corresponding 17% interest per annum.
Anent the award of interest, petitioner contends that such award is
not in order as it had not been prayed for by respondent in its
complaint nor was it an issue agreed upon by the parties during the
pre-trial of the case. Nonetheless, the rule is well settled that when
the obligation is breached, and it consists in the payment of a sum
of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing, as in this
case. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded.8 Besides, the
matter of how much interest respondent is entitled to falls squarely
within the issues framed by the parties in their respective pleadings
filed with the court a quo. At any rate, courts may indeed grant the
relief warranted by the allegations and proof even if no such
specific relief is prayed for if only to conclude a complete and
thorough resolution of the issues involved.9
rll

Finally, petitioner faults the Court of Appeals in not ordering the

consolidation of Civil Case No. 89-4996 (filed by petitioner against
Tevesteco) with Civil Case No. 89-5280 (the instant case). According
to petitioner, had there been consolidation of these two cases, it
would have been shown that the P80 Million transferred to
Tevestecos account were proceeds of a loan extended by respondent
FMIC to Tevesteco. Suffice it to state that as found by both the trial
court and the Appellate Court, petitioners transfer of
respondentsP80M to Tevesteco was unauthorized and tainted with
fraud.
At this point, we must emphasize that this Court is not a trier of
facts. Thus, we uphold the finding of both lower courts that
petitioner failed to exercise that degree of diligence required by the

nature of its obligations to its depositors. A bank is under obligation

to treat the accounts of its depositors with meticulous care, whether
such account consists only of a few hundred pesos or of million of
pesos.10 Here, petitioner cannot claim it exercised such a degree of
care required of it and must, therefore, bear the consequence.
WHEREFORE, the petition is DENIED. The assailed Decision dated
July 4, 1997 and the Resolution dated January 28, 1998 of the
Court of Appeals in CA-G.R. CV No. 44986 are hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.

FIRST DIVISION

[G.R. No. 160215. November 10, 2004]

HYDRO RESOURCES CONTRACTORS CORPORATION, petitioner,

vs. NATIONAL IRRIGATION ADMINISTRATION, respondent.
DECISION
YNARES-SANTIAGO, J.:

Challenged in this petition for review on certiorari under Rule 45 is the

Decision of the Court of Appeals dated October 29, 2002 and its Resolution
dated September 24, 2003 in CA-G.R. SP No. 44527, reversing the
judgment of the Construction Industry Arbitration Commission (CIAC) dated
June 10, 1997 in CIAC Case No. 14-98 in favor of petitioner Hydro
Resources Contractors Corporation.
[1]

[2]

[3]

[4]

The facts are undisputed and are matters of record.

In a competitive bidding conducted by the National Irrigation
Administration (NIA) sometime in August 1978, Hydro Resources Contractors
Corporation (Hydro) was awarded Contract MPI-C-2 involving the main civil
work of the Magat River Multi-Purpose Project. The contract price for the
work was pegged at P1,489,146,473.72 with the peso component thereof
amounting to P1,041,884,766.99 and the US$ component valued at
$60,657,992.37 at the exchange rate of P7.3735 to the dollar or
P447,361,706.73.
[5]

On November 6, 1978, the parties signed Amendment No. 1 of the

contract whereby NIA agreed to increase the foreign currency allocation for
equipment financing from US$28,000,000.00 for the first and second years of
the contract to US$38,000,000.00, to be made available in full during the first
year of the contract to enable the contractor to purchase the needed
equipment and spare parts, as approved by NIA, for the construction of the
project. On April 9, 1980, the parties entered into a Memorandum of
Agreement (MOA) whereby they agreed that Hydro may directly avail of the
foreign currency component of the contract for the sole purpose of purchasing
necessary spare parts and equipment for the project. This was made in order
[6]

[7]

for the contractor to avoid further delays in the procurement of the said spare
parts and equipment.
A few months after the MOA was signed, NIA and Hydro entered into a
Supplemental Memorandum of Agreement (Supplemental MOA) to include
among the items to be financed out of the foreign currency portion of the
Contract construction materials, supplies and services as well as equipment
and materials for incorporation in the permanent works of the Project.
[8]

Work on the project progressed steadily until Hydro substantially

completed the project in 1982 and the final acceptance was made by NIA on
February 14, 1984.
[9]

During the period of the execution of the contract, the foreign exchange
value of the peso against the US dollar declined and steadily deteriorated.
Whenever Hydros availment of the foreign currency component exceeded the
amount of the foreign currency payable to Hydro for a particular period, NIA
charged interest in dollars based on the prevailing exchange rate instead of
the fixed exchange rate of P7.3735 to the dollar. Yet when Hydro received
payments from NIA in Philippine Pesos, NIA made deductions from Hydros
foreign currency component at the fixed exchange rate of P7.3735 to US$1.00
instead of the prevailing exchange rate.
Upon completion of the project, a final reconciliation of the total entitlement
of Hydro to the foreign currency component of the contract was made. The
result of this final reconciliation showed that the total entitlement of Hydro to
the foreign currency component of the contract exceeded the amount of US
dollars required by Hydro to repay the advances made by NIA for its account
in the importation of new equipment, spare parts and tools. Hydro then
requested a full and final payment due to the underpayment of the foreign
exchange portion caused by price escalations and extra work orders. In 1983,
NIA and Hydro prepared a joint computation denominated as the MPI-C-2
Dollar Rate Differential on Foreign Component of Escalation. Based on said
joint computation, Hydro was still entitled to a foreign exchange differential of
US$1,353,771.79 equivalent to P10,898,391.17.
[10]

Hydro then presented its claim for said foreign exchange differential to NIA
on August 12, 1983 but the latter refused to honor the same. Hydro made
several demands to recover its claim until the same was turned down with
finality by then NIA Administrator Federico N. Alday, Jr. on January 6, 1987.
[11]

[12]

[13]

On December 7, 1994, Hydro filed a request for arbitration with the

Construction Industry Arbitration Commission (CIAC). In the said request,
[14]

Hydro nominated six (6) arbitrators. The case was docketed as CIAC Case
No. 18-94.
NIA filed its Answer with Compulsory Counterclaim raising laches,
estoppel and lack of jurisdiction by CIAC as its special defenses. NIA also
submitted its six (6) nominees to the panel of arbitrators. After appointment of
the arbitrators, both parties agreed on the Terms of Reference as well as the
issues submitted for arbitration.
[15]

[16]

On March 13, 1995, NIA filed a Motion to Dismiss questioning CIACs

jurisdiction to take cognizance of the case. The latter, however, deferred
resolution of the motion and set the case for hearing for the reception of
evidence. NIA moved for reconsideration but the same was denied by
CIAC in an Order dated April 25, 1995.
[17]

[18]

[19]

[20]

Dissatisfied, NIA filed a petition for certiorari and prohibition with the Court
of Appeals where the same was docketed as CA-G.R. SP No. 37180, which
dismissed the petition in a Resolution dated June 28, 1996.
[21]

[22]

NIA challenged the resolution of the Court of Appeals before this Court in a
special civil action for certiorari, docketed as G.R. No. 129169.
[23]

Meanwhile, on June 10, 1997, the CIAC promulgated a decision in favor of

Hydro. NIA filed a Petition for Review on Appeal before the Court of
Appeals, which was docketed as CA-G.R. SP No. 44527.
[24]

[25]

During the pendency of CA-G.R. SP No. 44527 before the Court of

Appeals, this Court dismissed special civil action for certiorari docketed as
G.R. No. 129169 on the ground that CIAC had jurisdiction over the dispute
and directed the Court of Appeals to proceed with reasonable dispatch in the
disposition of CA-G.R. SP No. 44527. NIA did not move for reconsideration of
the said decision, hence, the same became final and executory on December
15, 1999.
[26]

Thereafter, the Court of Appeals rendered the challenged decision in CAG.R. SP No. 44527, reversing the judgment of the CIAC on the grounds that:
(1) Hydros claim has prescribed; (2) assuming that Hydro was entitled to its
claim, the rate of exchange should be based on a fixed rate; (3) Hydros claim
is contrary to R.A. No. 529; (4) NIAs Certification of Non-Forum-Shopping
was proper even if the same was signed only by counsel and not by NIAs
authorized representative; and (5) NIA did not engage in forum-shopping.
[27]

Hydros Motion for Reconsideration was denied in Resolution of

September 24, 2003.
Hence, this petition.

Addressing first the issue of prescription, the Court of Appeals, in ruling

that Hydros claim had prescribed, reasoned thus:
Nevertheless, We find good reason to apply the principle of prescription against
HRCC. It is well to note that Section 25 of the General Conditions of the subject
contract provides (CIAC Decision, p. 15, Rollo, p. 57):
Any controversy or dispute arising out of or relating to this Contract which cannot be
resolved by mutual agreement shall be decided by the Administrator within thirty (30)
calendar days from receipt of a written notice from Contractor and who shall furnish
Contractor a written copy of this decision. Such decision shall be final and
conclusive unless within thirty (30) calendar days from the date of receipt thereof,
Contractor shall deliver to NIA a written notice addressed to the Administrator that
he desires that the dispute be submitted to arbitration. Pending decision from
arbitration, Contractor shall proceed diligently with the performance of the Contract
and in accordance with the decision of the Administrator. (Emphasis and
Underscoring Ours)
Both parties admit the existence of this provision in the Contract (Petition, p. 4;
Comment, p. 16; Rollo, pp. 12 and 131). Apropos, the following matters are clear: (1)
any controversy or dispute between the parties arising from the subject contract shall
be governed by the provisions of the contract; (2) upon the failure to arrive at a mutual
agreement, the contractor shall submit the dispute to the Administrator of NIA for
determination; and (3) the decision of the Administrator shall become final and
conclusive, unless within thirty (30) calendar days from the date of receipt thereof, the
Contractor shall deliver to NIA a written notice addressed to the Administrator that he
desires that the dispute be submitted for arbitration.
Prescinding from the foregoing matters, We find that the CIAC erred in granting
HRCCs claim considering that the latters right to make such demand had clearly
prescribed. To begin with, on January 7, 1986, Cesar L. Tech (NIAs Administrator at
the time) informed HRCC in writing that after a review of the additional points raised
by the latter, NIA confirms its original recommendation not to allow the said claim
(Annex F; Rollo, p. 81; CIAC Decision, p. 11; Rollo, p. 53). This should have
propelled private respondent to notify and signify to NIA of intention to submit the
dispute to arbitration pursuant to the provision of the contract. Yet, it did not. Instead
it persisted to send several letters to NIA reiterating the reason for its rejected claim
(CIAC Decision, p. 11; Rollo, p. 53).
[28]

We disagree for the following reasons:

First, the appellate court clearly overlooked the fact that NIA, through then
Administrator Fedrico N. Alday, Jr., denied with finality Hydros claim only on
January 6, 1987 in a letter bearing the same date which reads:
[29]

This refers to your letter dated November 7, 1986 requesting reconsideration on your
claim for payment of the Dollar Rate Differential of Price Escalation in Contract No.
MPI-C-2.
We have reviewed the relevant facts and issues as presented and the additional points
raised in the abovementioned letter in the context of the Contract Documents and we
find no strong and valid reason to reverse the earlier decision of NIAs previous
management denying your claim. Therefore, we regret that we have to reiterate the
earlier official stand of NIA under its letter dated January 7, 1986, that confirms the
original recommendation which had earlier been presented in our 4 th Indorsement
dated February 5, 1985 to your office.
In view hereof, we regret to say with finality that the claim cannot be given
favorable consideration. (Emphasis and italics supplied)
Hydro received the above-mentioned letter on January 27, 1987.
Pursuant to Section 25 of the Contracts General Conditions (GC-25), Hydro
had thirty (30) days from receipt of said denial, or until February 26, 1987,
within which to notify NIA of its desire to submit the dispute to arbitration.
[30]

On February 18, 1987, Hydro sent a letter to NIA, addressed to then NIA
Administrator Federico N. Alday, Jr., manifesting its desire to submit the
dispute to arbitration. The letter was received by NIA on February 19, 1987,
which was within the thirty-day prescriptive period.
[31]

Moreover, a circumspect scrutiny of the wording of GC-25 with regard to

the thirty-day prescriptive period shows that said proviso is intended to apply
to disputes which arose during the actual construction of the project and not
for controversies which occured after the project is completed. The rationale
for such a stipulation was aptly explained thus by the CIAC in its Decision in
CIAC Case No. 18-94:
In construction contracts, there is invariably a provision for interim settlement of
disputes. The right to settle disputes is given to the owner or his representative, either
an architect or engineer, designated as owners representative, only for the purpose
of avoiding delay in the completion of the project. In this particular contract, that right
was reserved to the NIA Administrator. The types of disputes contemplated were those
which may have otherwise affected the progress of the work. It is very clear that this
is the purpose of the limiting periods in this clause that the dispute shall be resolved

by the Administrator within 30 days from receipt of a written notice from the
Contractor and that the Contractor may submit to arbitration this dispute if it does not
agree with the decision of the Administrator, and Pending decision from arbitration,
Contractor shall proceed diligently with the performance of the Contract and in
accordance with the decision of the Administrator.
In this case, the dispute had arisen after completion of the Project. The reason for the
30-day limitation no longer applies, and we find no legal basis for applying it.
Moreover, in Exhibit B, NIA Administrator Cesar L. Tech had, instead of rendering
an adverse decision, by signing the document with HRCCs Onofre B. Banson,
implicitly approved the payment of the foreign exchange differential, but this payment
could not be made because of the opinion of Auditor Saldua and later of the
Commission on Audit.
[32]

Second, as early as April 1983, Hydro and NIA, through its Administrator
Cesar L. Tech, prepared the Joint Computation which shows that Hydro is
entitled to the foreign currency differential. As correctly found by the CIAC,
this computation constitutes a written acknowledgment of the debt by the
debtor under Article 1155 of the Civil Code, which states:
[33]

ART. 1155. The prescription of actions is interrupted when they are filed before the
court, when there is a written extrajudicial demand by the creditors, and when there is
any written acknowledgment of the debt by the debtor. (Emphasis and italics
supplied)
Instead of upholding the CIACs findings on this point, the Court of Appeals
ruled that Cesar L. Techs act of signing the Joint Computation was an ultra
vires act. This again is patent error. It must be noted that the Administrator is
the highest officer of the NIA. Furthermore, Hydro has been dealing with NIA
through its Administrator in all of its transactions with respect to the contract
and subsequently the foreign currency differential claim. The NIA
Administrator is empowered by the Contract to grant or deny foreign currency
differential claims. It would be preposterous for the NIA Administrator to have
the power of granting claims without the authority to verify the computation of
such claims. Finally, the records of the case will show that NIA
itself never disputed its Administrators capacity to sign the Joint Computation
because it knew that the Administrator, in fact, had such capacity.
Even assuming for the sake of argument that the Administrator had no
authority to bind NIA, the latter is already estopped after repeatedly
representing to Hydro that the Administrator had such authority. A corporation
may be held in estoppel from denying as against third persons the authority of

its officers or agents who have been clothed by it with ostensible or apparent
authority. Indeed
[34]

. . . The rule is of course settled that [a]lthough an officer or agent acts without, or in
excess of, his actual authority if he acts within the scope of an apparent authority with
which the corporation has clothed him by holding him out or permitting him to appear
as having such authority, the corporation is bound thereby in favor of a person who
deals with him in good faith in reliance on such apparent authority, as where an
officer is allowed to exercise a particular authority with respect to the business, or a
particular branch of it, continuously and publicly, for a considerable time.. . .
[35]

Third, NIA has clearly waived the prescriptive period when it continued to
entertain Hydros claim regarding new matters raised by the latter in its letters
to NIA and then issuing rulings thereon. In this regard, Article 1112 of the Civil
Code provides that:
ART. 1112. Persons with capacity to alienate property may renounce prescription
already obtained, but not the right to prescribe in the future.
Prescription is deemed to have been tacitly renounced when the renunciation
results from acts which imply the abandonment of the right acquired. (Emphasis
and italics supplied)
Certainly, when a party has renounced a right acquired by prescription
through its actions, it can no longer claim prescription as a defense.
[36]

Fourth, even assuming that NIA did not waive the thirty-day prescriptive
period, it clearly waived the effects of such period when it actively participated
in arbitration proceedings through the following acts:
a)
On January 6, 1995, NIA voluntarily filed its written appearance, readily
submitted its Answer and asserted its own Counterclaims;
b)
In the Compliance which accompanied the Answer, NIA also submitted its six
nominees to the Arbitral Tribunal to be constituted, among of which one was
eventually appointed to the tribunal;
c)
NIA also actively participated in the deliberations for and the formulation of the
Terms of Reference during the preliminary conference set by CIAC; and
d)
For the purpose of obviating the introduction of testimonial evidence on the
authenticity and due execution of its documentary evidence, NIA even had examined,

upon prior request to Hydro, all of the documents which the latter intended to present
as evidentiary exhibits for the said arbitration case.
We now come to the issue of whether or not the provisions of R.A. No.
529, otherwise known as an Act To Assure Uniform Value to Philippine Coin
And Currency, is applicable to Hydros claim.
The Contract between NIA and Hydro is an internationally tendered
contract considering that it was funded by the International Bank for
Reconstruction and Development (IBRD). As a contract funded by an
international organization, particularly one recognized by the Philippines, the
contract is exempt from the provisions of R.A. No. 529. R.A. No. 4100
amended the provisions of R.A. 529 thus:
[37]

SECTION 1.
Section one of Republic Act Numbered Five hundred and
twenty-nine, entitled An Act to Assure Uniform Value of Philippine Coin and
Currency, is hereby amended to read as follows:
Sec. 1. Every provision contained in, or made with respect to, any domestic obligation
to wit, any obligation contracted in the Philippines which provisions purports to give
the obligee the right to require payment in gold or in a particular kind of coin or
currency other than Philippine currency or in an amount of money of the Philippines
measured thereby, be as it is hereby declared against public policy, and null, void, and
of no effect, and no such provision shall be contained in, or made with respect to, any
obligation hereafter incurred. The above prohibition shall not apply to (a)
transactions where the funds involved are the proceeds of loans or investments
made directly or indirectly, through bona fide intermediaries or agents, by foreign
governments, their agencies and instrumentalities, and international financial and
banking institutions so long as the funds are identifiable, as having emanated from
the sources enumerated above; (b) transactions affecting high-priority economic
projects for agricultural, industrial and power development as may be determined by
the National Economic Council which are financed by or through foreign funds; (c)
forward exchange transaction entered into between banks or between banks and
individuals or juridical persons; (d) import-export and other international banking,
financial investment and industrial transactions. With the exception of the cases
enumerated in items (a), (b), (c) and (d) in the foregoing provisions, in which bases
the terms of the parties agreement shall apply, every other domestic obligation
heretofore or hereafter incurred, whether or not any such provision as to payment is
contained therein or made with respect thereto, shall be discharged upon payment in
any coin or currency which at the time of payment is legal tender for public and
private debts: Provided, That if the obligation was incurred prior to the enactment of
this Act and required payment in a particular kind of coin or currency other than

Philippine currency, it shall be discharged in Philippine currency measured at the

prevailing rates of exchange at the time the obligation was incurred, except in case of
a loan made in a foreign currency stipulated to be payable in the same currency in
which case the rate of exchange prevailing at the time of the stipulated date of
payment shall prevail. All coin and currency, including Central Bank notes, heretofore
and hereafter issued and declared by the Government of the Philippines shall be legal
tender for all debts, public and private.
SECTION 2. This Act shall take effect upon its approval. (Emphasis and italics
supplied)
Even assuming ex gratia argumenti that R.A. No. 529 is applicable, it is
still erroneous for the Court of Appeals to deny Hydros claim because Section
1 of R.A. No. 529 states that only the stipulation requiring payment in foreign
currency is void, but not the obligation to make payment. This can be gleaned
from the provision that every other domestic obligation heretofore or hereafter
incurred shall be discharged upon payment in any coin and currency which
at the time is legal tender for public and private debts. In Republic Resources
and Development Corporation v. Court of Appeals, it was held:
[38]

. . . it is clear from Section 1 of R.A. No. 529 that what is declared null and void is
the provision contained in, or made with respect to, any domestic obligation to wit,
any obligation contracted in the Philippines which provision purports to give the
obligee the right to require payment in gold or in a particular kind of coin or currency
other than Philippine currency or in an amount of money of the Philippines measured
thereby and not the contract or agreement which contains such proscribed
provision. (Emphasis supplied)
More succinctly, we held in San Buenaventura v. Court of Appeals that
[39]

It is to be noted under the foregoing provision that while an agreement to pay an

obligation in a currency other than Philippine currency is null and void as contrary to
public policy, what the law specifically prohibits is payment in currency other than
legal tender but does not defeat a creditors claim for payment. A contrary rule
would allow a person to profit or enrich himself inequitably at anothers expense.
(Emphasis supplied)
It is thus erroneous for the Court of Appeals to disallow petitioners claim
for foreign currency differential because NIAs obligation should be converted
to Philippine Pesos which was legal tender at the time.
[40]

The next issue to be resolved is whether or not Hydros claim should be

computed at the fixed rate of exchange.
When the MOA and the Supplemental MOA were in effect, there were
instances when the foreign currency availed of by Hydro exceeded the foreign
currency payable to it for that particular Progress Payment. In instances like
these, NIA actually charged Hydro interest in foreign currency computed at
the prevailing exchange rate and not at the fixed rate. NIA now insists that the
exchange rate should be computed according to the fixed rate and not the
escalating rate it actually charged Hydro.
[41]

[42]

Suffice it to state that this flip-flopping stance of NIA of adopting and

discarding positions to suit its convenience cannot be countenanced. A person
who, by his deed or conduct has induced another to act in a particular
manner, is barred from adopting an inconsistent position, attitude or course of
conduct that thereby causes loss or injury to another. Indeed, the application
of the principle of estoppel is proper and timely in heading off NIAs efforts at
renouncing its previous acts to the prejudice of Hydro which had dealt with it
honestly and in good faith.
[43]

. . . A principle of equity and natural justice, this is expressly adopted under Article
1431 of the Civil Code, and pronounced as one of the conclusive presumptions under
Rule 131, Section 3(a) of the Rules of Court, as follows:
Whenever a party has, by his own declaration, act or omission, intentionally and
deliberately led another to believe a particular thing to be true, and to act upon such a
belief he cannot, in any litigation arising out of such declaration, act or omission, be
permitted to falsify it.
Petitioner, having performed affirmative acts upon which the respondents based their
subsequent actions, cannot thereafter refute his acts or renege on the effects of the
same, to the prejudice of the latter. To allow him to do so would be tantamount to
conferring upon him the liberty to limit his liability at his whim and caprice, which is
against the very principles of equity and natural justice
[44]

NIA is, therefore, estopped from invoking the contractual stipulation

providing for the fixed rate to justify a lower computation than that claimed by
Hydro. It cannot be allowed to hide behind the very provision which it itself
continuously violated. An admission or representation is rendered conclusive
upon the person making it and cannot be denied or disproved as against the
person relying thereon. A party may not go back on his own acts and
representations to the prejudice of the other party who relied upon them.
[45]

[46]

[47]

NIA was guilty of forum-shopping. Forum-shopping refers to the act of

availing oneself of several judicial remedies in different courts, either
simultaneously or successively, substantially founded on the same transaction
and identical material facts and circumstances, raising basically the like issues
either pending in, or already resolved by, some other court.
[48]

It has been characterized as an act of malpractice that is prohibited and

condemned as trifling with the courts and abusing their processes. It
constitutes improper conduct which tends to degrade the administration of
justice. It has also been described as deplorable because it adds to the
congestion of the heavily burdened dockets of the courts. The test in
determining the presence of this pernicious practice is whether in the two or
more cases pending, there is identity of: (a) parties; (b) rights or causes of
action; and (c) reliefs sought.
[49]

[50]

Applying the foregoing yardstick to the instant case, it is clear that NIA
violated the prohibition against forum-shopping. Besides filing CA-G.R. SP
No. 44527 wherein the Court of Appeals decision is the subject of appeal in
this proceeding, NIA previously filed CA-G.R. SP No. 37180 and G.R. No.
129169 which is a special civil action for certiorari. In all three cases, the
parties are invariably Hydro and NIA. In all three petitions, NIA raised
practically the same issues and in all of them, NIAs prayer was the same: to
nullify the proceedings commenced at the CIAC.
[51]

It must be pointed out in this regard that the first two petitions namely, CAG.R. SP No. 37180 and G.R. No. 129169 are both originalactions. Since NIA
failed to file a petition for review on certiorari under Rule 45 of the Rules of
Court challenging the decision of the appellate court in CA-G.R. SP No. 37180
dismissing its petition, it opted to file an original action for certiorari under Rule
65 with this Court where the same was docketed as G.R. No. 129169. For its
failure to appeal the judgments in CA-G.R. SP No. 37180 and G.R. No.
129169, NIA is necessarily bound by the effects of those decisions. The filing
of CA-G.R. SP No. 44527, which raises the issues already passed upon in
both cases is a clear case of forum-shopping which merits outright dismissal.
The issue of whether or not the Certification of Non-Forum Shopping is
valid despite that it was signed by NIAs counsel must be answered in the
negative. Applicable is the ruling in Mariveles Shipyard Corp. v. Court of
Appeals, et al.:
[52]

It is settled that the requirement in the Rules that the certification of non-forum
shopping should be executed and signed by the plaintiff or the principal means that
counsel cannot sign said certification unless clothed with special authority to do so.

The reason for this is that the plaintiff or principal knows better than anyone else
whether a petition has previously been filed involving the same case or substantially
the same issues. Hence, a certification signed by counsel alone is defective and
constitutes a valid cause for dismissal of the petition. In the case of natural persons,
the Rule requires the parties themselves to sign the certificate of non-forum
shopping. However, in the case of the corporations, the physical act of signing may
be performed, on behalf of the corporate entity, only by specifically authorized
individuals for the simple reason that corporations, as artificial persons, cannot
personally do the task themselves. . . It cannot be gainsaid that obedience to the
requirements of procedural rule[s] is needed if we are to expect fair results
therefrom. Utter disregard of the rules cannot justly be rationalized by harking on
the policy of liberal construction. (Emphasis and italics supplied)
In this connection, the lawyer must be specifically authorized in order to
validly sign the certification.
[53]

In closing, we restate the rule that the courts will not interfere in matters
which are addressed to the sound discretion of government agencies
entrusted with the regulation of activities coming under the special technical
knowledge and training of such agencies.
[54]

An action by an administrative agency may be set aside by the judicial

department only if there is an error of law, abuse of power, lack of jurisdiction
or grave abuse of discretion clearly conflicting with the letter and spirit of the
law. In the case at bar, there is no cogent reason to depart from the general
rule because the action of the CIAC conforms rather than conflicts with the
governing statutes and controlling case law on the matter.
[55]

WHEREFORE, the petition is GRANTED. The Decision of the Court of

Appeals in CA-G.R. SP No. 44527 dated October 29, 2002 and the Resolution
dated September 24, 2003 are REVERSED and SET ASIDE. The Decision of
the Construction Industry Arbitration Commission dated June 10, 1997 in
CIAC Case No. 18-94 is REINSTATED.
SO ORDERED.

THIRD DIVISION

[G.R. No. 144661 and 144797. June 15, 2005]

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. SPOUSES

FRANCISCO ONG and LETICIA ONG,respondents.
DECISION
GARCIA, J.:

Appealed to this Court by way of a petition for review on certiorari are

the Decision[1] dated March 5, 1999 and Resolution dated July 19, 2000 of
the Court of Appeals in CA-G.R. CV No. 54919, affirming in toto an earlier
decision of the Regional Trial Court at Cagayan de Oro City, Branch 23, which
ruled in favor of herein respondents, the Spouses Francisco
Ong and Leticia Ong, in a suit for breach of contract and/or specific
performance with prayer for writ of preliminary injunction and damages thereat
commenced by them against petitioner Development Bank of the
Philippines (DBP).
Petitioner filed by registered mail a motion for extension time to submit
petition, paying the corresponding docket fees therefor by money order. Upon
receipt of the motion, the Court docketed the case as G.R. No. 144797.
Before actual receipt of said motion, however, petitioner personally filed its
petition, which was docketed with a lower number as G.R. No. 144661. What
then appears to be two (2) cases before us are actually just one, now the
subject of this decision.
The facts are simple and undisputed:
Petitioners foreclosed asset, formerly owned by one Enrique Abada under
TCT No. T-4786 and located at Corrales Extension, Cagayan de Oro City is
the subject of this controversy. On May 25, 1988, respondent Francisco Ong
with the conformity of his wife Leticia Ong, addressed a written offer to
petitioner thru its branch manager at Cagayan de Oro City to buy the subject
property on a negotiated sale basis and submitted his best and last offer to
purchase[2] under the following terms:

PURCHASE PRICE P136,000.00

DOWNPAYMENT ..
14,000.00
BALANCE
P122,000.00
TERM: C A S H MODE OF PAYMENT: Payable upon ejection
of occupants on the
property subject of my
offer.
I/We am/are depositing the amount of P14,000.00 in cash/check to accompany my/our
offer, it being expressly understood, however, that the same does not bind the DBP to
the offer until after my/our receipt of its approval by the higher authorities of the
bank. Should the bank receive an offer from a third-party buyer higher by more than
5% or at more advantageous term accompanied by a deposit of at least 10% of the
offered price, or a higher offer from the former-owner for at least the updated Total
Claim of the Bank accompanied by a minimum deposit of 20% of the purchase price,
the Bank may favorably consider the higher offer and thereafter refund my/our deposit
within three (3) working days after the determination of the most advantageous offer.
The foregoing offer was duly NOTED by petitioners branch head at its
Cagayan de Oro City Branch, Jose Z. Lagrito (Lagrito, for brevity), and Official
Receipt No. 3081947 was issued for the amount of P14,000.00 as
respondents deposit.
In a letter dated October 21, 1988 [3], sent to respondents via registered
mail, Lagrito informed the spouses that the bank recently received an offer
from another interested third-party-buyer of the same property at the same
price and term, but better and more advantageous to the Bank considering
that the buyer will assume the responsibility at her expense for the ejectment
of present occupants in the said property. Nonetheless, respondents were
given in the same letter three (3) days within which to match the said offer,
failing in which the Bank will immediately award the said property to the other
buyer, in which event respondents deposit of P14,000.00 shall be refunded
to them upon surrender of O.R. No. 3081947.
In yet another written offer dated October 28, 1988[4], respondents
matched the said offer of the second interested buyer by assuming the
responsibility at my/our own expense for the ejection of squatters/occupants,
if any, on the property.
On April 7, 1989, there was a conference between respondents, together
with their counsel, and the bank whereat respondents were informed why the

sale could not be awarded to them. Thereafter, in a letter dated September 6,

1990[5], respondents were notified that the property would instead be offered
for public bidding on September 24, 1990 at ten 10:00 oclock in the morning.
Feeling aggrieved by such turn of events, respondents filed with the
Regional Trial Court at Cagayan de Oro City a complaint for breach of
contract and/or specific performance against petitioner. Thereat, the complaint
was docketed as Civil Case No. 90-422 which was raffled to Branch 23 of the
court.
After pre-trial, the parties agreed to submit the case for judgment based on
the pleadings. Accordingly, the trial court required them to submit
simultaneously their respective memoranda within thirty (30) days. Only
petitioner filed its memorandum.
In a decision[6] dated April 25, 1995, the trial court dismissed the complaint
finding that there was no perfected contract of sale between the parties,
hence, there is no breach to speak of since there was no contract from the
very beginning. However, upon respondents motion for reconsideration, the
trial court vacated its judgment and set the case for the reception of evidence.
This time, only the respondents adduced their evidence consisting of the lone
testimony of respondent Francisco Ong and the documents identified by him
in the course thereof.
In his testimony, Ong gave the respondents version of what supposedly
transpired in their transaction with petitioner. According to him, he and his wife
went to the bank branch at Cabayan de Oro City and looked for Roy Palasan,
a bank clerk thereat and told the latter that they were interested to buy two (2)
lots. Palasan went to talk to Lagrito, the branch manager. Palasan returned to
the spouses and informed them that the branch manager agreed to sell the
property to them. Palasan further told them that they will be required to pay
ten (10%) percent of the purchase price as downpayment, adding that if they
were to pay the purchase price in cash, they would be entitled to a ten (10%)
percent discount. After some computations, respondents rounded up the
purchase price at P136,000.00 and pegged the downpayment therefor
at P14,000.00. They were then required by Palasan to sign a bank form
supposedly to express their firm offer to purchase the subject property. But
since the form signed by them contains the statement that the approval of
higher authorities of the bank is required to close the deal, respondents
queried Palasan about it. Palasan, however, told them that the documents
were only for formality purposes, and further assured them that the branch
manager has already agreed to sell the subject property to them.

Having completed the presentation of their evidence, respondents rested

their case. For its part, petitioner no longer adduced any evidence but merely
opted to formally offer its documentary exhibits. Thereafter, the case was
submitted for resolution.
On September 26, 1996, the trial court came out with a new decision, [7] this
time rendering judgment for the respondents, as follows:
WHEREFORE, by reason of preponderance of evidence, the Court hereby finds in
favor of the plaintiffs as against the defendant and hereby orders the defendant:
1. To execute a final sale of the lot subject matter of the contract of sale at
the original agreed price of P136,000.00;
2. Defendant to accept the balance of the purchase price from the plaintiffs;
3. Defendant to pay moral damages in the amount of P30,000.00;
4. Defendant to refund the amount of P10,000.00 actual litigation expenses;
and to pay attorneys fees in the amount of P20,000.00.
SO ORDERED.
Therefrom, petitioner went on appeal to the Court of Appeals in CA-G.R.
CV No. 54919, and, on March 5, 1999, the appellate court rendered the herein
assailed decision[8] affirming in toto that of the trial court, thus:
ACCORDINGLY, the foregoing premises considered, the appealed decision is hereby
AFFIRMED in toto.
SO ORDERED.
With its motion for reconsideration of the same decision having been
denied by the Court of Appeals in its equally challenged resolution of July 19,
2000,[9] petitioner is now with us thru the present recourse on the following
grounds:
A.

THAT THE RESPONDENTS INTRODUCTION OF PAROL EVIDENCE TO

PROVE THE ALLEGED MEETING OF MINDS BETWEEN THE PARTIES WAS
NOT SANCTIONED BY RULE 130, SEC. 9, RULES OF COURT, CONTRARY TO
THE FINDINGS OF THE LOWER COURTS, CONSIDERING THAT THERE WAS
NO WRITTEN CONTRACT THAT WAS EVER EXECUTED BY THE PARTIES IN

THIS CASE, BUT MERELY UNILATERAL WRITTEN COMMUNICATIONS, AT

BEST CONSTITUTING OFFERS AND COUNTER-OFFERS.
B.

THAT THE QUANTUM OF PROOF IS WANTING TO PROVE THE ALLEGED

PERFECTION OF CONTRACT OF SALE BETWEEN THE PARTIES BASED ON
THE SOLE, UNCORROBORATED, ORAL TESTIMONY THUS FAR
PRESENTED BY THE RESPONDENTS.
C.

THAT THE BURDEN OF PROOF THAT THERE WAS PERFECTION OF THE

CONTRACT OF SALE BETWEEN THE PARTIES BASICALLY REST WITH THE
RESPONDENTS, NOTWITHSTANDING THE NON-OBJECTION ON THE PART
OF HEREIN PETITIONER DURING THE INTRODUCTION OF THAT PAROL
EVIDENCE; THE ADMISSIBILITY OF PETITIONERS (sic.) PAROL
EVIDENCE DOES NOT AUTOMATICALLY RIPEN THE TESTIMONY AS A
TRUTH RESPECTING A MATTER OF FACT AS ITS CREDIBILITY AND
TRUSTWORTHINESS AND WEIGHT ARE STILL SUBJECT TO JUDICIAL
SCRUTINY AND APPRECIATION.
D.

THAT THERE WAS ACTUALLY OPPOSITION ON THE PART OF THE

PETITIONER TO THE CONTENTS OF THE ORAL TESTIMONY OF THE
RESPONDENT REGARDING THE ALLEGED PERFECTION OF CONTRACT OF
SALE BECAUSE THE PETITIONER HAD ALREADY INTERPOSED THEIR
DEFENSES WHEN IT FILED A MEMORANDUM ATTACHING THEREIN THE
DOCUMENTARY AS WELL AS DECLARATIONS IN ITS PLEADINGS ON THE
NON-PERFECTION OF SUCH CONTRACT WHEN THE CASE WAS THEN
SUBMITTED FOR JUDGMENT ON THE PLEADINGS, AS AGREED BY THE
PARTIES DURING THE PRE-TRIAL, AND SUCH EVIDENCES WERE
ALREADY PASSED UPON BY THE COURT WHEN IT RENDERED A
JUDGMENT DATED APRIL 25, 1995.
We GRANT the petition.
At the very core of the controversy is the question of whether or not there
actually was a perfected contract of sale between petitioner and respondents,
for which the Court may compel petitioner to issue a board resolution
approving the sale and to execute the final deed of sale in respondents favor,
and/or hold petitioner liable for a breach thereof. Needless to state, without a

perfected contract of sale, there could be no cause of action for specific

performance or breach thereof.
The trial court went on one direction by ruling in its earlier decision of April
25, 1995 that there was no perfected contract, but upon respondents motion
for reconsideration, went exactly the opposite path by completely reversing
itself in its herein challenged decision of September 26, 1996.
Apparently, the trial courts ruling that there was already a perfected
contract of sale was premised on its following factual findings:
1. That plaintiff [respondents] made a downpayment in a check that was
subsequently encashed by the defendant [petitioner] bank;
2. That the sister-in-law of plaintiff [respondents] entered into the same
arrangement and was able to buy the property she wanted to buy from
defendant [petitioner] bank;
3. That defendant [petitioner] never presented any witness to rebut the
positive and clear testimony of plaintiff [respondents] that it was a
perfected contract of sale entered into by the former with the defendant
[petitioner] bank.[10]
Sustaining the foregoing factual findings of the trial court, the appellate
court wrote in its assailed decision of March 5, 1999:
This positive and clear testimony of [respondent] Ong was not objected to nor
rebutted by the [petiotioner]. Notably, the bank personnel involved in the transaction,
namely, Roy Palasan and the Branch Manager of the [petitioners] Cagayan de Oro
Branch, Joe Lagrito, were never presented to refute the testimony of the [respondents]
that the bank has agreed to sell the property to the [respondents]. Suffice it to state
that [respondents] were entitled to rely on the representation of Lagrito who, after all,
is the banks manager. Under the premise that a bank is bound by the obligation
contracted by its officers, the contract of sale between [petitioner] and the
[respondents] was perfected when Palasan and Lagrito communicated the approval of
the sale of the lot to the [respondents].
Significantly, the unrebutted testimony of Francisco Ong reveals that Norma Silfavan,
[respondents] sister, made a similar offer to the [petitioner] under the same terms and
conditions as to that of the [respondents], and was likewise assured by the same bank
personnel that her offer, along with the [respondents] offer was already approved.
Eventually, the transaction resulted in a consummated sale between Silfavan and

DBP. Under these premises, We can not see any reason why the [petitioner] did not
accord the same treatment to the [respondents] who were similarly situated.
Evidently, the two (2) courts below were convinced that the actuation of
Palasan, a mere bank clerk, upon which respondents relied in believing that
their offer to purchase was already approved by the bank manager, would
bind the bank to a perfected contract of sale between the parties in this case.
The Court of Appeals further added that the acceptance of the offer to
purchase was sufficiently established from the parol evidence adduced by
respondents during the trial.
We do not agree.
Concededly, in petitions for review on certiorari, our task is not to review
once again the factual findings of the Court of Appeals and the trial court, but
to determine if, on the basis of the facts thus found, the conclusions of law
reached are correct or not.
Judging from the findings of the two (2) courts below and the testimony of
respondent Francisco Ong himself, it appears clear to us that the transaction
between the respondents and the petitioner was limited to Palasan, one of the
clerks of petitioners branch in Cagayan de Oro City. Lagrito, the branch
manager, had no personal or direct communication with respondents to
express his alleged consent to the sale transaction. Thus, the undisputed
evidence showed that it was Palasan, a mere bank clerk, and not the branch
manager himself who assured respondents that theirs was a closed deal.
We are very much aware of our pronouncement in Rural Bank of Milaor
vs. Ocfemia,[11] involving a mandamus suit where the supposed buyer of a
foreclosed property from a bank sought a court order to compel the bank to
issue the required board resolution confirming the sale between the parties
therein. There, this Court, speaking thru Mr. Justice Artemio Panganiban,
stated:
Notwithstanding the putative authority of the manager to bind the bank in the Deed of
Sale, petitioner has failed to file an answer to the Petition below within the
reglementary period, let alone present evidence controverting such authority. Indeed,
when one of herein respondents, Marife S. Nio, went to the bank to ask for the board
resolution, she was merely told to bring the receipts. The bank failed to categorically
declare that Tena had no authority. This Court stresses the following:
. . . Corporate transactions would speedily come to a standstill were every person
dealing with a corporation held duty-bound to disbelieve every act of its responsible

officers, no matter how regular they should appear on their face. This Court has
observed in Ramirez vs. Orientalist Co., 38 Phil. 634, 654-655, that
In passing upon the liability of a corporation in cases of this kind it is always well to
keep in mind the situation as it presents itself to the third party with whom the
contract is made. Naturally he can have little or no information as to what occurs in
corporate meetings; and he must necessarily rely upon the external manifestation of
corporate consent. The integrity of commercial transactions can only be maintained by
holding the corporation strictly to the liability fixed upon it by its agents in accordance
with law; and we would be sorry to announce a doctrine which would permit the
property of man in the city of Paris to be whisked out of his hands and carried into a
remote quarter of the earth without recourse against the corporation whose name and
authority had been used in the manner disclosed in this case. As already observed, it is
familiar doctrine that if a corporation knowingly permits one of its officers, or any
other agent, to do acts within the scope of an apparent authority, and thus holds him
out to the public as possessing power to do those acts, the corporation will, as against
any one who has in good faith dealt with the corporation through such agent, be
estopped from denying his authority; and where it is said 'if the corporation permits
this means the same as 'if the thing is permitted by the directing power of the
corporation.[12]
In this light, the bank is estopped from questioning the authority of the bank manager
to enter into the contract of sale. If a corporation knowingly permits one of its officers
or any other agent to act within the scope of an apparent authority, it holds the agent
out to the public as possessing the power to do those acts; thus, the corporation will,
as against anyone who has in good faith dealt with it through such agent, be estopped
from denying the agent's authority.[13]
Unquestionably, petitioner has authorized Tena to enter into the Deed of Sale.
Accordingly, it has a clear legal duty to issue the board resolution sought by
respondents. Having authorized her to sell the property, it behooves the bank to
confirm the Deed of Sale so that the buyers may enjoy its full use.
There is, however, a striking and very material difference between the
aforecited case and the one at bar. For, unlike in Milaor where it was
the branch manager who approved the sale for and in behalf of the bank,
here, there is absolutely no approval whatsoever by any responsible bank
officer of the petitioner. True it is that the signature of branch manager Lagrito
appears below the typewritten word NOTED at the bottom of respondents
offer to purchase dated May 25, 1988. [14] By no stretch of imagination,
however, can the mere NOTING of such an offer be taken to mean an
approval of the supposed sale. Quite the contrary, the very circumstance that

the offer to purchase was merely NOTED by the branch manager and not
approved, is a clear indication that there is no perfected contract of sale to
speak of.
The representation of Roy Palasan, a mere clerk at petitioners Cagayan
de Oro City branch, that the manager had already approved the sale, even if
true, cannot bind the petitioner bank to a contract of sale with respondents, it
being obvious to us that such a clerk is not among the bank officers upon
whom such putative authority may be reposed by a third party. There is, thus,
no legal basis to bind petitioner into any valid contract of sale with the
respondents, given the absolute absence of any approval or consent by any
responsible officer of petitioner bank.
And because there is here no perfected contract of sale between the
parties, respondents action for breach of contract and/or specific performance
is simply without any leg to stand on and must therefore fall.
We also disagree with the Court of Appeals that the encashment of the
check representing the P14,000.00 deposit in relation to respondents offer to
purchase is an indication or proof of perfection of a contract of sale. It must be
noted that the very documents[15]signed by the respondents as their offer to
purchase unmistakably state that the deposit shall only form part of the
purchase price if the offer to purchase is approved, it being expressly
understood xxx that the same (i.e., the deposit) does not bind DBP to the offer
until my/our receipt of its approval by higher authorities of the bank. It may
be so that the official receipt issued therefor by the petitioner termed such
deposit as a downpayment. But the very written offers of the respondents
unequivocably and invariably speak of such amount as deposit, above
deposit, we are depositing the amount of P14,000.00. Since there never
was any approval or acceptance by the higher authorities of petitioner of
respondents offer to purchase, the encashment of the check can not in any
way represent partial payment of any purchase price.
With the hard reality that no approval or acceptance of respondents offer
to buy exists in this case, any independent transaction between petitioner and
another third-party, like the one involving respondents sister, would be
irrelevant and immaterial insofar as respondents own transaction with the
petitioner is concerned. Besides, apart from saying that respondents sister
made a similar offer to the [petitioner] under the same terms and conditions
as to that of the [respondents], and was likewise assured by the same bank
personnel that her offer xxx was already approved, which eventually resulted
into a consummated sale between (the sister) and DBP, the Court of
Appeals made no finding that the sisters transaction with the petitioner was

made exactly under the same circumstances obtaining in the present case. In
any event, petitioners favorable action on the offer of respondents sister is
hardly, if ever, relevant and determinative in the resolution of the legal issue
presented in this case.
In sum, we cannot, in law, sustain the herein challenged issuances of the
Court of Appeals.
WHEREFORE, the instant petition is GRANTED and the assailed decision
and resolution of the Court of Appeals REVERSED and SET ASIDE. The
complaint filed in this case is accordingly DISMISSED.
No pronouncement as to costs.
SO ORDERED.

FIRST DIVISION

[G.R. No. 152542. July 8, 2004]

MONFORT
HERMANOS
AGRICULTURAL
DEVELOPMENT
CORPORATION, as represented by MA. ANTONIA M.
SALVATIERRA, petitioner, vs. ANTONIO B. MONFORT III, MA.
LUISA MONFORT ASCALON, ILDEFONSO B. MONFORT,
ALFREDO B. MONFORT, CARLOS M. RODRIGUEZ, EMILY
FRANCISCA R. DOLIQUEZ, ENCARNACION CECILIA R.
PAYLADO, JOSE MARTIN M. RODRIGUEZ and COURT OF
APPEALS,respondents.

[G.R. No. 155472. July 8, 2004]

ANTONIO B. MONFORT III, MA. LUISA MONFORT ASCALON,

ILDEFONSO B. MONFORT, ALFREDO B. MONFORT, CARLOS M.
RODRIGUEZ, EMILY FRANCISCA R. DOLIQUEZ, ENCARNACION
CECILIA
R.
PAYLADO,
JOSE
MARTIN
M.
RODRIGUEZ, petitioners, vs. HON. COURT OF APPEALS,
MONFORT
HERMANOS
AGRICULTURAL
DEVELOPMENT
CORPORATION, as represented by MA. ANTONIA M.
SALVATIERRA, and RAMON H. MONFORT, respondents.
DECISION
YNARES-SANTIAGO, J.:

Before the Court are consolidated petitions for review of the decisions of
the Court of Appeals in the complaints for forcible entry and replevin filed by
Monfort Hermanos Agricultural Development Corporation (Corporation) and
Ramon H. Monfort against the children, nephews, and nieces of its original
incorporators (collectively known as the group of Antonio Monfort III).

The petition in G.R. No. 152542, assails the October 5, 2001 Decision of
the Special Tenth Division of the Court of Appeals in CA-G.R. SP No. 53652,
which ruled that Ma. Antonia M. Salvatierra has no legal capacity to represent
the Corporation in the forcible entry case docketed as Civil Case No. 534-C,
before the Municipal Trial Court of Cadiz City. On the other hand, the petition
in G.R. No. 155472, seeks to set aside the June 7, 2002 Decision rendered
by the Special Former Thirteenth Division of the Court of Appeals in CA-G.R.
SP No. 49251, where it refused to address, on jurisdictional considerations,
the issue of Ma. Antonia M. Salvatierras capacity to file a complaint for
replevin on behalf of the Corporation in Civil Case No. 506-C before the
Regional Trial Court of Cadiz City, Branch 60.
[1]

[2]

Monfort Hermanos Agricultural Development Corporation, a domestic

private corporation, is the registered owner of a farm, fishpond and sugar
cane plantation known as Haciendas San Antonio II, Marapara, Pinanoag and
Tinampa-an, all situated in Cadiz City. It also owns one unit of motor vehicle
and two units of tractors. The same allowed Ramon H. Monfort, its Executive
Vice President, to breed and maintain fighting cocks in his personal capacity
at Hacienda San Antonio.
[3]

[4]

[5]

In 1997, the group of Antonio Monfort III, through force and intimidation,
allegedly took possession of the 4 Haciendas, the produce thereon and the
motor vehicle and tractors, as well as the fighting cocks of Ramon H. Monfort.
In G.R. No. 155472:
On April 10, 1997, the Corporation, represented by its President, Ma.
Antonia M. Salvatierra, and Ramon H. Monfort, in his personal capacity, filed
against the group of Antonio Monfort III, a complaint for delivery of motor
vehicle, tractors and 378 fighting cocks, with prayer for injunction and
damages, docketed as Civil Case No. 506-C, before the Regional Trial Court
of Negros Occidental, Branch 60.
[6]

The group of Antonio Monfort III filed a motion to dismiss contending, inter
alia, that Ma. Antonia M. Salvatierra has no capacity to sue on behalf of the
Corporation because the March 31, 1997 Board Resolution authorizing Ma.
Antonia M. Salvatierra and/or Ramon H. Monfort to represent the Corporation
is void as the purported Members of the Board who passed the same were
not validly elected officers of the Corporation.
[7]

On May 4, 1998, the trial court denied the motion to dismiss. The group of
Antonio Monfort III filed a petition for certiorari with the Court of Appeals but
[8]

the same was dismissed on June

Division of the appellate court did
1997 Board Resolution and the
ratiocinating that the determination
of the trial court.

7, 2002. The Special Former Thirteenth

not resolve the validity of the March 31,
election of the officers who signed it,
of said question is within the competence
[9]

The motion for reconsideration filed by the group of Antonio Monfort III
was denied. Hence, they instituted a petition for review with this Court,
docketed as G.R. No. 155472.
[10]

In G.R. No. 152542:

On April 21, 1997, Ma. Antonia M. Salvatierra filed on behalf of the
Corporation a complaint for forcible entry, preliminary mandatory injunction
with temporary restraining order and damages against the group of Antonio
Monfort III, before the Municipal Trial Court (MTC) ofCadiz City. It contended
that the latter through force and intimidation, unlawfully took possession of the
4 Haciendas and deprived the Corporation of the produce thereon.
[11]

In their answer, the group of Antonio Monfort III alleged that they are
possessing and controlling the Haciendas and harvesting the produce therein
on behalf of the corporation and not for themselves. They likewise raised the
affirmative defense of lack of legal capacity of Ma. Antonia M. Salvatierra to
sue on behalf of the Corporation.
[12]

On February 18, 1998, the MTC of Cadiz City rendered a decision

dismissing the complaint. On appeal, the Regional Trial Court of Negros
Occidental, Branch 60, reversed the Decision of the MTCC and remanded the
case for further proceedings.
[13]

[14]

Aggrieved, the group of Antonio Monfort III filed a petition for review with
the Court of Appeals. On October 5, 2001, the Special Tenth Division set
aside the judgment of the RTC and dismissed the complaint for forcible entry
for lack of capacity of Ma. Antonia M. Salvatierra to represent the Corporation.
The motion for reconsideration filed by the latter was denied by the
appellate court.
[15]

[16]

Unfazed, the Corporation filed a petition for review with this Court,
docketed as G.R. No. 152542 which was consolidated with G.R. No. 155472
per Resolution dated January 21, 2004.
[17]

The focal issue in these consolidated petitions is whether or not Ma.

Antonia M. Salvatierra has the legal capacity to sue on behalf of the
Corporation.
The group of Antonio Monfort III claims that the March 31, 1997 Board
Resolution authorizing Ma. Antonia M. Salvatierra and/or Ramon H. Monfort to
represent the Corporation is void because the purported Members of the
Board who passed the same were not validly elected officers of the
Corporation.
A corporation has no power 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 and agents. Thus, it has been observed that the
power of a corporation to sue and be sued in any court is lodged with the
board of directors that exercises its corporate powers. In turn, physical acts of
the corporation, like the signing of documents, can be performed only by
natural persons duly authorized for the purpose by corporate by-laws or by a
specific act of the board of directors.
[18]

Corollary thereto, corporations are required under Section 26 of the

Corporation Code to submit to the SEC within thirty (30) days after the
election the names, nationalities and residences of the elected directors,
trustees and officers of the Corporation. In order to keep stockholders and the
public transacting business with domestic corporations properly informed of
their organizational operational status, the SEC issued the following rules:
xxx

xxx

xxx

2.
A General Information Sheet shall be filed with this Commission within thirty
(30) days following the date of the annual stockholders meeting. No extension of said
period shall be allowed, except for very justifiable reasons stated in writing by the
President, Secretary, Treasurer or other officers, upon which the Commission may
grant an extension for not more than ten (10) days.
2.A.
Should a director, trustee or officer die, resign or in any manner, cease to
hold office, the corporation shall report such fact to the Commission with fifteen (15)
days after such death, resignation or cessation of office.
3.
If for any justifiable reason, the annual meeting has to be postponed, the
company should notify the Commission in writing of such postponement.

The General Information Sheet shall state, among others, the names of the
elected directors and officers, together with their corresponding position title
(Emphasis supplied)
In the instant case, the six signatories to the March 31, 1997 Board
Resolution authorizing Ma. Antonia M. Salvatierra and/or Ramon H. Monfort to
represent the Corporation, were: Ma. Antonia M. Salvatierra, President;
Ramon H. Monfort, Executive Vice President; Directors Paul M. Monfort,
Yvete M. Benedicto and Jaqueline M. Yusay; and Ester S. Monfort, Secretary.
However, the names of the last four (4) signatories to the said Board
Resolution do not appear in the 1996 General Information Sheet submitted by
the Corporation with the SEC. Under said General Information Sheet the
composition of the Board is as follows:
[19]

1.

Ma. Antonia M. Salvatierra (Chairman);

2.
Ramon H. Monfort (Member);
3.
Antonio H. Monfort, Jr., (Member);
4.
Joaquin H. Monfort (Member);
5.
Francisco H. Monfort (Member) and
6.
Jesus Antonio H. Monfort (Member).
[20]

There is thus a doubt as to whether Paul M. Monfort, Yvete M. Benedicto,

Jaqueline M. Yusay and Ester S. Monfort, were indeed duly elected Members
of the Board legally constituted to bring suit in behalf of the Corporation.
[21]

In Premium Marble Resources, Inc. v. Court of Appeals, the Court was

confronted with the similar issue of capacity to sue of the officers of the
corporation who filed a complaint for damages. In the said case, we sustained
the dismissal of the complaint because it was not established that the
Members of the Board who authorized the filing of the complaint were the
lawfully elected officers of the corporation. Thus
[22]

The only issue in this case is whether or not the filing of the case for damages against
private respondent was authorized by a duly constituted Board of Directors of the
petitioner corporation.
Petitioner, through the first set of officers, viz., Mario Zavalla, Oscar Gan, Lionel
Pengson, Jose Ma. Silva, Aderito Yujuico and Rodolfo Millare, presented the Minutes
of the meeting of its Board of Directors held on April 1, 1982, as proof that the filing
of the case against private respondent was authorized by the Board. On the other hand,
the second set of officers, viz., Saturnino G. Belen, Jr., Alberto C. Nograles and Jose
L.R. Reyes, presented a Resolution dated July 30, 1986, to show that Premium did not

authorize the filing in its behalf of any suit against the private respondent International
Corporate Bank.
Later on, petitioner submitted its Articles of Incorporation dated November 6,
1979 with the following as Directors: Mario C. Zavalla, Pedro C. Celso, Oscar B.
Gan, Lionel Pengson, and Jose Ma. Silva.
However, it appears from the general information sheet and the Certification issued by
the SEC on August 19, 1986 that as of March 4, 1981, the officers and members of the
board of directors of the Premium Marble Resources, Inc. were:
Alberto C. Nograles President/Director
Fernando D. Hilario Vice President/Director
Augusto I. Galace Treasurer
Jose L.R. Reyes Secretary/Director
Pido E. Aguilar Director
Saturnino G. Belen, Jr. Chairman of the Board.
While the Minutes of the Meeting of the Board on April 1, 1982 states that the newly
elected officers for the year 1982 were Oscar Gan, Mario Zavalla, Aderito Yujuico and
Rodolfo Millare, petitioner failed to show proof that this election was reported to the
SEC. In fact, the last entry in their General Information Sheet with the SEC, as of
1986 appears to be the set of officers elected in March 1981.
We agree with the finding of public respondent Court of Appeals, that in the absence
of any board resolution from its board of directors the [sic] authority to act for and in
behalf of the corporation, the present action must necessarily fail. The power of the
corporation to sue and be sued in any court is lodged with the board of directors that
exercises its corporate powers. Thus, the issue of authority and the invalidity of
plaintiff-appellants subscription which is still pending, is a matter that is also
addressed, considering the premises, to the sound judgment of the Securities &
Exchange Commission.
By the express mandate of the Corporation Code (Section 26), all corporations duly
organized pursuant thereto are required to submit within the period therein stated (30
days) to the Securities and Exchange Commission the names, nationalities and
residences of the directors, trustees and officers elected.
Sec. 26 of the Corporation Code provides, thus:
Sec. 26.
Report of election of directors, trustees and officers. Within thirty
(30) days after the election of the directors, trustees and officers of the corporation,

the secretary, or any other officer of the corporation, shall submit to the Securities
and Exchange Commission, the names, nationalities and residences of the
directors, trustees and officers elected. xxx
Evidently, the objective sought to be achieved by Section 26 is to give the public
information, under sanction of oath of responsible officers, of the nature of business,
financial condition and operational status of the company together with information
on its key officers or managers so that those dealing with it and those who intend to do
business with it may know or have the means of knowing facts concerning the
corporations financial resources and business responsibility.
The claim, therefore, of petitioners as represented by Atty. Dumadag, that Zaballa, et
al., are the incumbent officers of Premium has not been fully substantiated. In the
absence of an authority from the board of directors, no person, not even the officers of
the corporation, can validly bind the corporation.
In the case at bar, the fact that four of the six Members of the Board listed
in the 1996 General Information Sheet are already dead at the time the
March 31, 1997 Board Resolution was issued, does not automatically make
the four signatories (i.e., Paul M. Monfort, Yvete M. Benedicto, Jaqueline M.
Yusay and Ester S. Monfort) to the said Board Resolution (whose name do
not appear in the 1996 General Information Sheet) as among the incumbent
Members of the Board. This is because it was not established that they were
duly elected to replace the said deceased Board Members.
[23]

[24]

To correct the alleged error in the General Information Sheet, the retained
accountant of the Corporation informed the SEC in itsNovember 11,
1998 letter that the non-inclusion of the lawfully elected directors in the 1996
General Information Sheet was attributable to its oversight and not the fault of
the Corporation. This belated attempt, however, did not erase the doubt as to
whether an election was indeed held. As previously stated, a corporation is
mandated to inform the SEC of the names and the change in the composition
of its officers and board of directors within 30 days after election if one was
held, or 15 days after the death, resignation or cessation of office of any of its
director, trustee or officer if any of them died, resigned or in any manner,
ceased to hold office. This, the Corporation failed to do. The alleged election
of the directors and officers who signed the March 31, 1997 Board Resolution
was held on October 16, 1996, but the SEC was informed thereof more than
two years later, or on November 11, 1998. The 4 Directors appearing in the
1996 General Information Sheet died between the years 1984 1987, but
the records do not show if such demise was reported to the SEC.
[25]

[26]

What further militates against the purported election of those who signed
the March 31, 1997 Board Resolution was the belated submission of the
alleged Minutes of the October 16, 1996 meeting where the questioned
officers were elected. The issue of legal capacity of Ma. Antonia M.
Salvatierra was raised before the lower court by the group of Antonio Monfort
III as early as 1997, but the Minutes of said October 16, 1996 meeting was
presented by the Corporation only in its September 29, 1999 Comment
before the Court of Appeals. Moreover, the Corporation failed to prove that
the same October 16, 1996 Minutes was submitted to the SEC. In fact,
the 1997 General Information Sheet submitted by the Corporation does not
reflect the names of the 4 Directors claimed to be elected on October 16,
1996.
[27]

[28]

Considering the foregoing, we find that Ma. Antonia M. Salvatierra failed to

prove that four of those who authorized her to represent the Corporation were
the lawfully elected Members of the Board of the Corporation. As such, they
cannot confer valid authority for her to sue on behalf of the corporation.
The Court notes that the complaint in Civil Case No. 506-C, for replevin
before the Regional Trial Court of Negros Occidental, Branch 60, has 2
causes of action, i.e., unlawful detention of the Corporations motor vehicle
and tractors, and the unlawful detention of the of 387 fighting cocks of Ramon
H. Monfort. Since Ramon sought redress of the latter cause of action in
his personal capacity, the dismissal of the complaint for lack of capacity to sue
on behalf of the corporation should be limited only to the corporations cause
of action for delivery of motor vehicle and tractors. In view, however, of the
demise of Ramon on June 25, 1999, substitution by his heirs is proper.
[29]

WHEREFORE, in view of all the foregoing, the petition in G.R. No. 152542
is DENIED. The October 5, 2001 Decision of the Special Tenth Division of the
Court of Appeals in CA-G.R. SP No. 53652, which set aside the August 14,
1998 Decision of the Regional Trial Court of Negros Occidental, Branch 60 in
Civil Case No. 822, is AFFIRMED.
In G.R. No. 155472, the petition is GRANTED and the June 7, 2002
Decision rendered by the Special Former Thirteenth Division of the Court of
Appeals in CA-G.R. SP No. 49251, dismissing the petition filed by the group
of Antonio Monfort III, is REVERSED and SET ASIDE.
The complaint for forcible entry docketed as Civil Case No. 822 before
the Municipal Trial Court of Cadiz City is DISMISSED. In Civil Case No. 506C with the Regional Trial Court of Negros Occidental, Branch 60, the action for
delivery of personal property filed by Monfort Hermanos Agricultural
Development Corporation is likewise DISMISSED. With respect to the action

filed by Ramon H. Monfort for the delivery of 387 fighting cocks, the Regional
Trial Court of Negros Occidental, Branch 60, is ordered to effect the
corresponding substitution of parties.
No costs.
FIRST DIVISION
[G.R. No. 123358. February 1, 2000]
FCY CONSTRUCTION GROUP, INC., and FRANCIS C. YU, petitioners, vs.
THE COURT OF APPEALS, THE HON. JOSE C. DE LA RAMA, Presiding
Judge, Branch 139, Regional Trial Court, NCJR, Makati City, Metro Manila,
and LEY CONSTRUCTION AND DEVELOPMENT
CORPORATION, respondents.
DECISION
YNARES_SANTIAGO, J.:
On June 29, 1993, private respondent Ley Construction and Development Corporation
filed a Complaint for collection of a sum of money with application for preliminary
attachment against petitioner FCY Construction Group, Inc. and Francis C. Yu with
the Makati Regional Trial Court which was docketed as Civil Case No. 93-2112.
Private respondent alleged that it had a joint venture agreement with petitioner FCY
Construction Group, Inc. (wherein petitioner Francis C. Yu served as President) over
the Tandang Sora Commonwealth Flyover government project for which it had
provided funds and construction materials. The Complaint was filed in order to
compel petitioners to pay its half share in the collections received in the project as
well as those yet to be received therein. In support of its application for a writ of
attachment, private respondent alleged that petitioners were guilty of fraud in
incurring the obligation and had fraudulently misapplied or converted the money paid
them, to which it had an equal share.
On July 6, 1993, following an ex-parte hearing, the lower court issued an Order for
the issuance of a writ of preliminary attachment, conditioned upon the filing of a
P7,000,000.00 attachment bond.
Petitioners moved for the lifting of the writ of preliminary attachment on the
following grounds: (1) the attachment was heard, issued and implemented even before
service of summons upon them; (2) failure of the attaching officer to serve a copy of
the affidavit of merit upon them; and (3) that there was no fraud in incurring the
obligation. As an alternative prayer in their Motion, petitioners prayed that the

attachment be limited to their receivables with the Department of Public Works and
Highways. This alternative prayer was later withdrawn by petitioners in a
Manifestation and Motion.
On May 25, 1994, the lower court issued another Order denying petitioners' Motion to
Lift Attachment. It, however, reduced and confined the attachment to receivables due
petitioners from the Tandang Sora commonwealth Flyover project.
[1]

Subsequently, petitioners filed a Motion for Reconsideration as well as an Omnibus

Motion for Leave to file Amended Answer and/or to delete Francis C. Yu as partydefendant.
[2]

[3]

With the denial of both Motions by the lower court on September 4, 1994, petitioners
filed a Petition for Certiorari before the Court of Appeals on September 16, 1994.
The Petition was, however, denied on July 31, 1995; so was petitioners' Motion for
Reconsideration.
[4]

[5]

[6]

[7]

Hence, the instant Petition.

It is evident that the questioned writ of attachment was anchored upon Section
1(d), Rule 57 of the Revised Rules of Court, to wit "SECTION 1. Grounds upon which attachment may issue. - A plaintiff
or any proper party may, at the commencement of the action or at any
time thereafter, have the property of the adverse party attached as
security for the satisfaction of any judgment that may be recovered in the
following cases:
xxx

xxx

x x x.

(d) In an action against a party who has been guilty of a fraud in

contracting the debt or incurring the obligation upon which the action is
brought, or in concealing or disposing of the property for the taking,
detention or conversion of which the action is brought;
xxx

xxx

x x x."

Petitioners, however, insist that the writ of preliminary attachment was irregularly
issued inasmuch as there was no evidence of fraud in incurring the obligations sued
upon.

In support of their stand, petitioners alleged that private respondent's principal witness
admitted that it was the Department of Public Works and Highways (DPWH) that
induced it to deliver materials and cash for the Tandang Sora Commonwealth Flyover
project, to wit COURT: Now . . . as of January 5, 1993 you delivered to him (referring
to defendant FCY corporation) in cash and in kind amounting to Fifteen
Million Pesos (P15,000,000.00), now why did you keep on delivering
cash and materials to him if you were not paid a single centavo?
A
Because of every need for the project, and the Public Works
official assured me that I will be given a new project after the Tandang
Sora will be finished.
Q

Who is this public official that promised you?

A
Director Pendosa, Teodoro Encarnacion and Secretary de Jesus
your Honor. (TSN, 6 July 1993, pp. 47-48)
xxx

xxx

xxx

Q
What about these officials of the Department of Public
Highways, what would they do to project their sub alleged project?
A

Secretary de Jesus is no longer connected there, your Honor.

At the time?

At that time, he resigned.

Before he resigned.

A
He gave me assurance that they will soon give assurance, they
will soon give me another project . . . (TSN, 6 July 1993, p. 55)
[8]

A cursory reading of the above-cited testimony, however, readily shows that said
reassurance from the DPWH officials came, not at the inception of the obligation or
contract, but during its performance. On the other hand, the fraud of which petitioners
are accused of and which was the basis for the issuance of the questioned attachment,
is fraud alleged to have been committed upon contracting the obligation sued upon.
Thus, petitioners argument that "the inducement was the mouth-watering temptation
of a DPWH promise of a 'new project after the Tandang Sora Flyover project will be

finished"' is clearly off-tangent as such inducement, if any, came not at the inception
of the obligation.
Similarly, petitioners' arguments that it was private respondent who admittedly
prepared the letter embodying the alleged joint venture agreement and had petitioner
Francis Yu sign it must fail. The written agreement referred to was signed by
petitioner Francis Yu only on January 5, 1993, long after the project had commenced.
Thus, It was only a written confirmation of an arrangement that had already been
existing and operational. Similarly then, such written confirmation did not occur at the
inception of the obligation sued upon.
[9]

In Liberty Insurance Corporation vs. Court of Appeals, this Court,

discussing Section 1(d), Rule 57, cautioned as follows -[10]

To sustain an attachment on this ground, it must be shown that the debtor

in contracting the debt or incurring the obligation intended to defraud the
creditor. The fraud must relate to the execution of the agreement and
must have been the reason which induced the other party into giving
consent which he would not have otherwise given. To constitute a
ground for attachment in Section 1 (d), Rule 57 of the Rules of Court,
fraud should be committed upon contracting the obligation sued upon. A
debt is fraudulently contracted if at the time of contracting it the debtor
has a preconceived plan or intention not to pay, as it is in this case. Fraud
is a state of mind and need not be proved by direct evidence but may be
inferred from the circumstances attendant in each case. (Republic
v. Gonzales, 13 SCRA 633).
From the foregoing, therefore, the alleged inducement by the DPWH officials upon
private respondent as well as the circumstances surrounding the execution of the joint
venture agreement, both appear immaterial as they were not committed upon
contracting the obligation sued upon but occurred long after the obligation has been
established.
The fact that petitioners have paid a substantial amount of money to private
respondent cannot save the day for them either. As per their own accounting, such
payments were for accounts payable for labor supplied, construction materials and
cash advances. It is not denied that no payment of profits has been given to private
respondent, which is precisely what it is suing for.
[11]

Finally, considering that the writ of preliminary attachment has been issued on
account of allegations of fraud in contracting the obligation upon which the action is
brought petitioners' efforts to have the writ of preliminary attachment dissolved on the

ground that it was improperly or irregularly issued is in vain. Indeed, in Liberty

Insurance Corporation, supra, which cited Mindanao Savings and Loan Assoc. vs.
Court of Appeals (172 SCRA 480), we ruled "x x x, when the preliminary attachment is issued upon a ground which
is at the same time the applicant's cause of action: e.g., x x x an action
against a party who has been guilty of fraud in contracting the debt or
incurring the obligation upon which the action is brought, the defendant
is not allowed to file a motion to dissolve the attachment under Section
13 of Rule 57 by offering to show the falsity of the factual averments in
the plaintiffs application and affidavits on which the writ was based and
consequently that the writ based therein had been improperly or
irregularly issued - the reason being that the hearing on such motion for
dissolution of the writ would be tantamount to a trial on the merits. In
other words, the merits of the action would be ventilated at a mere
hearing of a motion; instead of the regular trial. Therefore, when the writ
of attachment is of this nature, the only way it can be dissolved is by a
counterbond."
We now come to the issue of whether or not petitioner Francis Yu should remain as
party-defendant. Petitioners argue that since the transactions were corporation to
corporation only, petitioner Francis Yu should be dropped as party-defendant
considering the hornbook law that corporate personality is a shield against personal
liability of its officers. We agree that petitioner Francis Yu cannot be made liable in his
individual capacity if he indeed entered into and signed the contract in his official
capacity as President, in the absence of stipulation to that effect, due to the personality
of the corporation being separate and distinct from the persons composing it.
However, while we agree that petitioner Francis Yu cannot be held solidarily liable
with petitioner corporation merely because he is the President thereof and was
involved in the transactions with private corporation, we also note that there exists
instances when corporate officers may be held personally liable for corporate acts.
Such exceptions were outlined in Tramat Mercantile, Inc. vs. Court of Appeals, as
follows -[12]

[13]

"Personal liability of a corporate director, trustee or officer along

(although not necessarily) with the corporation may so validly attach, as
a rule, only when 1. He assents (a) to a patently unlawful act of the corporation, or (b) for
bad faith or gross negligence in directing its affairs, or (c) for conflict of
interest, resulting in damages to the corporation, its stockholders or other
persons;

2. He consents to the issuance of watered down stocks or who, having

knowledge thereof, does not forthwith file with the corporate secretary
his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the
corporation; or
4. He is made, by a specific provision of law, to personally answer for
his corporate action."
The attendance of these circumstances, however, cannot be determined at this stage
and should properly be threshed out during the trial on the merits. Stated differently,
whether or not petitioner Francis Yu should be held personally and solidarily liable
with petitioner corporation is a matter that should be left to the trial court's discretion,
dependent as it is on evidence during trial.
WHEREFORE, in view of the foregoing, the instant Petition is hereby DISMISSED.
No pronouncement as to costs.
SO ORDERED.

FIRST DIVISION

[G.R. No. 150978. April 3, 2003]

POWTON CONGLOMERATE , INC., and PHILIP C. CHIEN, petitioners,

vs. JOHNNY AGCOLICOL, respondent.
[1]

DECISION
YNARES-SANTIAGO, J.:

In a contract to build a structure or any other work for a stipulated price,

the contractor cannot demand an increase in the contract price on account of
higher cost of labor or materials, unless there has been a change in the plan
and specification which was authorized in writing by the other party and the
price has been agreed upon in writing by both parties.
[2]

This is a petition for review on certiorari assailing the September 3, 2001

Decision of the Court of Appeals in CA-G.R. CV No. 65100, and its
December 5, 2001 Resolution denying petitioners motion for reconsideration.
[3]

[4]

Sometime in November 1990, respondent Johnny Agcolicol, proprietor of

Japerson Engineering, entered into an Electrical Installation Contract with
Powton Conglomerate, Inc. (Powton), thru its President and Chairman of the
Board, Philip C. Chien. For a contract price of P5,300,000.00, respondent
undertook to provide electrical works as well as the necessary labor and
materials for the installation of electrical facilities at the Ciano Plaza Building
owned by Powton, located along M. Reyes Street, corner G. Mascardo Street,
Bangkal, Makati, Metro Manila. In August 1992, the City Engineers Office of
Makati inspected the electrical installations at the Ciano Plaza Building and
certified that the same were in good condition. Hence, it issued the
corresponding certificate of electrical inspection.
[5]

On December 16, 1994, respondent filed with the Regional Trial Court of
Pasay City, Branch 115, the instant complaint for sum of money against the
petitioners. He alleged that despite the completion of the electrical works at
Ciano Plaza Building, the latter only paid the amount of P5,031,860.40, which
is equivalent to more than 95% of the total contract price, thereby leaving a
balance of P268,139.80. Respondent likewise claimed the amount of
[6]

P722,730.38 as additional electrical works which were necessitated by the

alleged revisions in the structural design of the building.
[7]

In their answer, petitioners contended that they cannot be obliged to pay

the balance of the contract price because the electrical installations were
defective and were completed beyond the agreed period. During the trial,
petitioner Chien testified that they should not be held liable for the additional
electrical works allegedly performed by the petitioner because they never
authorized the same.
[8]

[9]

At the pre-trial conference, the parties stipulated, inter alia, that the unpaid
balance claimed by the respondent is P268,139.60 and the cost of additional
work is P722,730.38.
[10]

On August 16, 1999, a decision was rendered awarding the respondent

the total award of P990,867.38 representing the unpaid balance and the costs
of additional works. The dispositive portion thereof reads:
Wherefore, this Court renders its judgment in favor of the plaintiff and orders the
defendants Powton Congolmerate and Philip C. Chien to pay the plaintiff, jointly and
severally, the amount of P990,867.38 representing their total unpaid obligations plus
legal interest from the time of the filing of this complaint. No pronouncement as to
costs.
SO ORDERED.

[11]

Aggrieved, petitioners appealed to the Court of Appeals which, however,

affirmed the decision of the trial court. The motion for reconsideration was
likewise denied.
[12]

[13]

Hence, the instant petition.

Is the petitioner liable to pay the balance of the contract price and the
increase in costs brought about by the revision of the structural design of the
Ciano Plaza Building?
The petition is partly meritorious.
We agree with the findings of both the trial court and the Court of Appeals
that petitioners failed to show that the installations made by respondent were
defective and completed beyond the agreed period. The justification cited by
petitioners for not paying the balance of the contract price is the self-serving
allegation of petitioner Chien. Pertinent portion of his testimony, reads:
COURT:

Q: You are telling the Court that you did not accept the job because it is not yet
complete. That is [a] general statement.
ATTY. FLORENCIO:
Q: Why did you say that the job was not yet complete?
COURT: Specify.
WITNESS:
A:

I am not an electrical engineer but my menwe also get independent engineer to

certify that the job was not complete, your Honor.

COURT:
Q: You mean to say you hired an independent electrical engineer and he certified that
the job is not yet complete and there is danger?
WITNESS:
A:

Yes, your Honor.

COURT:
Q: You have to present that engineer.
ATTY. FLORENCIO:
A:

Yes, your Honor.[14]

Notwithstanding the above promise, petitioners never presented the

engineer or any other competent witness to testify on the matter of delay and
defects. Having failed to present sufficient proof, petitioners bare assertion of
unsatisfactory and delayed installation will not justify their non-payment of the
balance of the contract price. Hence, we affirm the ruling of the trial court and
the Court of Appeals ordering petitioners to pay the balance of P268,139.80.
In awarding additional costs to respondent, both the trial court and the
Court of Appeals sweepingly applied the principle of unjust enrichment without
discussing the relevance in the instant case of Article 1724 of the Civil Code,
which provides:
Art. 1724.
The contractor who undertakes to build a structure or any other work for
a stipulated price, in conformity with plans and specifications agreed upon with the
landowner, can neither withdraw from the contract nor demand an increase in the
price on account of the higher cost of labor or materials, save when there has been a
change in the plans and specifications, provided:
(1)

Such change has been authorized by the proprietor in writing; and

(2) The additional price to be paid to the contractor has been determined in writing
by both parties.

Article 1724 of the Civil Code was copied from Article 1593 of the Spanish
Civil Code, which provided as follows:
[15]

No architect or contractor who, for a lump sum, undertakes the construction of a

building, or any other work to be done in accordance with a plan agreed upon with the
owner of the ground, may demand an increase of the price, even if the costs of the
materials or labor has increased; but he may do so when any change increasing the
work is made in the plans, provided the owner has given his consent thereto.
[16]

The present Civil Code added substantive requisites before recovery of

the contractor may be validly had. It will be noted that while under the
precursor provision, recovery for additional costs may be allowed if consent to
make such additions can be proved, the present provision clearly requires that
the changes should be authorized, such authorization by the proprietor in
writing. The evident purpose of the amendment is to prevent litigation for
additional costs incurred by reason of additions or changes in the original
plan. Undoubtedly, it was adopted to serve as a safeguard or a substantive
condition precedent to recovery.
[17]

In Weldon Construction Corporation v. Court of Appeals, involving a

contract of supervision of construction of a theater, we denied the contractors
claim to recover costs for additional works. It was held that the contract
entered into by the parties was one for a piece of work for a stipulated price,
wherein the right of the contractor to recover the cost of additional works is
governed by Article 1724 of the Civil Code. Thus
[18]

In addition to the owner's authorization for any change in the plans and specifications,
Article 1724 requires that the additional price to be paid for the contractor be likewise
reduced in writing. Compliance with the two requisites in Article 1724, a specific
provision governing additional works, is a condition precedent to recovery (San Diego
v. Sayson, supra.). The absence of one or the other bars the recovery of additional
costs. Neither the authority for the changes made nor the additional price to be paid
therefor may be proved by any other evidence for purposes of recovery.
In the case before this Court, the records do not yield any written authority for the
changes made on the plans and specifications of the Gay Theater building. Neither can
there be found any written agreement on the additional price to be paid for said "extra
works." While the trial court may have found in the instant case that the private
respondent admitted his having requested the "extra works" done by the contractor
(Record on Appeal, p. 66 [C.F.I. Decision]), this does not save the day for the
petitioner. The private respondent claims that the contractor agreed to make the
additions without additional cost. Expectedly, the petitioner vigorously denies said

claim of the private respondent. This is precisely a misunderstanding between parties

to a construction agreement which the lawmakers sought to avoid in prescribing the
two requisites under Article 1724 (Report of the Code Commission, p. 148). And this
case is a perfect example of a tedious litigation which had ensued between the parties
as a result of such misunderstanding. Again, this is what the law endeavors to prevent
(San Diego v. Sayson, supra.)
In the absence of a written authority by the owner for the changes in the plans and
specifications of the building and of a written agreement between the parties on the
additional price to be paid to the contractor, as required by Article 1724, the claim for
the cost of additional works on the Gay Theater building must be denied.
[19]

In the instant case, the parties entered into a contract for the execution of
all the electrical works at the Ciano Plaza as shown and described in the
plans and specification prepared by RCG Consult (hereinafter referred to as
the ARCHITECT/ENGINEER). The contract was for a fixed price of
P5,300,000, with the stipulation that any addition or reduction in the cost of
work shall be mutually agreed in writing by both the OWNER and [the]
CONTRACTOR
upon
recommendation/advisement
of
the
ARCHITEC/ENGINEERS before execution. As admitted by both parties,
several revisions and deviations from the original plan and specification of the
building were introduced during the construction thereof. It appears,
however, that though respondent was aware of such revisions and of the
consequent increase in the cost of the electrical works, he nevertheless
completed the installation of electrical facilities in the constructed building
without first entering into a written agreement with the petitioners for the
increase in costs. The fact that petitioner Chien testified that his
Engineer/Architect, the R.C. Gaite & Associates, recommended payment of
the increase in costs, does not prove that he was informed of such increase
before the job was completed. The records reveal that the demand letter
which in effect notified the petitioners of the increase in the costs of electrical
installations was sent by the respondent to petitioners after the completion of
the project. This was clearly not in accord with the express stipulation of the
parties requiring a prior written agreement authorizing the increased costs, as
well as with the provisions of Article 1724.
[20]

[21]

[22]

[23]

[24]

[25]

It must be stressed that the change in the plans and specifications

referred to in Article 1724 pertains to the very contract entered into by the
owner of the building and the contractor. While there is a revision of plan and
specification in the instant case, the same pertains to the structural design of
the building and not to the electrical installation contract of the parties. The
consent given by the petitioners to the revision of the former will not

necessarily extend to the latter. As emphasized in Weldon Construction

Corporation, the issue of consent to the higher cost could have been
determined with facility had the respondent complied with the requirement of a
written agreement for additional costs as mandated not only by their contract
but also by Article 1724 of the Civil Code. The written consent of the owner to
the increased costs sought by the respondent is not a mere formal requisite,
but a vital precondition to the validity of a subsequent contract authorizing a
higher or additional contract price. Moreover, the safeguards enshrined in the
provisions of Article 1724 are not only intended to obviate future
misunderstandings but also to give the parties a chance to decide whether to
bind ones self to or withdraw from a contract. Had the increase in costs of the
electrical installations been disclosed before completion of the project,
petitioners could have opted to bargain with the respondent or hire another
contractor for a cheaper price. Respondent, on the other hand, could have
gladly accepted the bargain or simply backed out from the contract instead of
gambling on the consequences of assuming the increased costs without the
prior written authorization of the petitioners. Indeed, the principle of unjust
enrichment cannot be validly invoked by the respondent who, through his own
act or omission, took the risk of being denied payment for additional costs by
not giving the petitioners prior notice of such costs and/or by not securing their
written consent thereto, as required by law and their contract.
Finally, we note that the trial court held petitioner Chien solidarily liable
with petitioner Powton. The settled rule is that, a corporation is invested by
law with a personality separate and distinct from those of the persons
composing it, such that, save for certain exceptions, corporate officers who
entered into contracts in behalf of the corporation cannot be held personally
liable for the liabilities of the latter. Personal liability of a corporate director,
trustee or officer along (although not necessarily) with the corporation may so
validly attach, as a rule, only when (1) he assents to a patently unlawful act
of the corporation, or when he is guilty of bad faith or gross negligence in
directing its affairs, or when there is a conflict of interest resulting in damages
to the corporation, its stockholders or other persons; (2) he consents to the
issuance of watered down stocks or who, having knowledge thereof, does not
forthwith file with the corporate secretary his written objection thereto; (3) he
agrees to hold himself personally and solidarily liable with the corporation; or
(4) he is made by a specific provision of law personally answerable for his
corporate action. Considering that none of the foregoing exceptions was
established in the case at bar, petitioner Chien, who entered into a contract
with respondent in his capacity as President and Chairman of the Board of
Powton, cannot be held solidarily liable with the latter.
[26]

WHEREFORE, in view of all the foregoing, the instant petition is

PARTIALLY GRANTED. The Decision of the Court of Appeals in CA-G.R. CV
No. 65100 is MODIFIED. Petitioner Powton Conglomerate, Inc. is ordered to
pay respondent Johnny Agcolicol the sum of P268,139.60 representing the
unpaid balance in the Electrical Installation Contract between
them. Petitioner Philip C. Chien, President and Chairman of the Board of
Powton Conglomerate, Inc. is absolved from personal liability.
SO ORDERED.

FIRST DIVISION

[G.R. No. 126200. August 16, 2001]

DEVELOPMENT
BANK
OF
THE
PHILIPPINES, petitioner,
vs. HONORABLE COURT OF APPEALS and REMINGTON
INDUSTRIAL SALES CORPORATION, respondents.
DECISION
KAPUNAN, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court,
seeking a review of the Decision of the Court of Appeals dated October 6, 1995 and the
Resolution of the same court dated August 29, 1996.
The facts are as follows:
Marinduque Mining Industrial Corporation (Marinduque Mining), a corporation engaged in
the manufacture of pure and refined nickel, nickel and cobalt in mixed sulfides, copper
ore/concentrates, cement and pyrite conc., obtained from the Philippine National Bank (PNB)
various loan accommodations. To secure the loans, Marinduque Mining executed on October 9,
1978 a Deed of Real Estate Mortgage and Chattel Mortgage in favor of PNB. The mortgage
covered all of Marinduque Minings real properties, located at Surigao del Norte, Sipalay,
Negros Occidental, and at Antipolo, Rizal, including the improvements thereon. As of November
20, 1980, the loans extended by PNB amounted to P4 Billion, exclusive of interest and charges.
[1]

On July 13, 1981, Marinduque Mining executed in favor of PNB and the Development Bank
of the Philippines (DBP) a second Mortgage Trust Agreement. In said agreement, Marinduque
Mining mortgaged to PNB and DBP all its real properties located at Surigao del Norte, Sipalay,
Negros Occidental, and Antipolo, Rizal, including the improvements thereon. The mortgage also
covered all of Marinduque Minings chattels, as well as assets of whatever kind, nature and
description which Marinduque Mining may subsequently acquire in substitution or
replenishment or in addition to the properties covered by the previous Deed of Real and Chattel
Mortgage dated October 7, 1978. Apparently, Marinduque Mining had also obtained loans
totaling P2 Billion from DBP, exclusive of interest and charges.
[2]

On April 27, 1984, Marinduque Mining executed in favor of PNB and DBP an Amendment
to Mortgage Trust Agreement by virtue of which Marinduque Mining mortgaged in favor of PNB
and DBP all other real and personal properties and other real rights subsequently acquired by
Marinduque Mining.
[3]

For failure of Marinduque Mining to settle its loan obligations, PNB and DBP instituted
sometime on July and August 1984 extrajudicial foreclosure proceedings over the mortgaged
properties.
The events following the foreclosure are narrated by DBP in its petition, as follows:

In the ensuing public auction sale conducted on August 31, 1984, PNB and DBP
emerged and were declared the highest bidders over the foreclosed real properties,
buildings, mining claims, leasehold rights together with the improvements thereon as
well as machineries [sic] and equipments [sic] of MMIC located at Nonoc Nickel
Refinery Plant at Surigao del Norte for a bid price of P14,238,048,150.00
[and] [o]ver the foreclosed chattels of MMIC located at Nonoc Refinery Plant at
Surigao del Norte, PNB and DBP as highest bidders, bidded for P170,577,610.00
(Exhs. 5 to 5-A, 6, 7 to 7-AA- PNB/DBP). For the foreclosed real
properties together with all the buildings, major machineries & equipment and other
improvements of MMIC located at Antipolo, Rizal, likewise held on August 31, 1984,
were sold to PNB and DBP as highest bidders in the sum
of P1,107,167,950.00 (Exhs. 10 to 10-X- PNB/ DBP).
At the auction sale conducted on September 7, 1984[,] over the foreclosed real
properties, buildings, & machineries/equipment of MMIC located at Sipalay, Negros
Occidental were sold to PNB and DBP, as highest bidders, in the amount of
P2,383,534,000.00 and P543,040,000.00 respectively (Exhs. 8 to 8-BB, 9 to
90-GGGGGGPNB/DBP).
Finally, at the public auction sale conducted on September 18, 1984 on the foreclosed
personal properties of MMIC, the same were sold to PNB and DBP as the highest
bidder in the sum of P678,772,000.00 (Exhs. 11 and12-QQQQQPNB).
PNB and DBP thereafter thru a Deed of Transfer dated August 31, 1984, purposely, in
order to ensure the continued operation of the Nickel refinery plant and to prevent the
deterioration of the assets foreclosed, assigned and transferred to Nonoc Mining and
Industrial Corporation all their rights, interest and participation over the foreclosed
properties of MMIC located at Nonoc Island, Surigao del Norte for an initial
consideration of P14,361,000,000.00 (Exh. 13-PNB).
Likewise, thru [sic] a Deed of Transfer dated June 6, 1984, PNB and DBP assigned
and transferred in favor of Maricalum Mining Corp. all its rights, interest and
participation over the foreclosed properties of MMIC at Sipalay, Negros Occidental
for an initial consideration of P325,800,000.00 (Exh. 14PNB/DBP).
On February 27, 1987, PNB and DBP, pursuant to Proclamation No. 50 as amended,
again assigned, transferred and conveyed to the National Government thru [sic] the

Asset Privatization Trust (APT) all its existing rights and interest over the assets of
MMIC, earlier assigned to Nonoc Mining and Industrial Corporation, Maricalum
Mining Corporation and Island Cement Corporation (Exh. 15 & 15-A
PNB/DBP).
[4]

In the meantime, between July 16, 1982 to October 4, 1983, Marinduque Mining purchased
and caused to be delivered construction materials and other merchandise from Remington
Industrial Sales Corporation (Remington) worth P921,755.95. The purchases remained unpaid
as of August 1, 1984 when Remington filed a complaint for a sum of money and damages against
Marinduque Mining for the value of the unpaid construction materials and other merchandise
purchased by Marinduque Mining, as well as interest, attorneys fees and the costs of suit.
On September 7, 1984, Remingtons original complaint was amended to include PNB and
DBP as co-defendants in view of the foreclosure by the latter of the real and chattel mortgages on
the real and personal properties, chattels, mining claims, machinery, equipment and other assets
of Marinduque Mining.
[5]

On September 13, 1984, Remington filed a second amended complaint to include as

additional defendant, the Nonoc Mining and Industrial Corporation (Nonoc Mining). Nonoc
Mining is the assignee of all real and personal properties, chattels, machinery, equipment and all
other assets of Marinduque Mining at its Nonoc Nickel Factory in Surigao del Norte.
[6]

On March 26, 1986, Remington filed a third amended complaint including the Maricalum
Mining Corporation (Maricalum Mining) and Island Cement Corporation (Island Cement) as codefendants. Remington asserted that Marinduque Mining, PNB, DBP, Nonoc Mining,
Maricalum Mining and Island Cement must be treated in law as one and the same entity by
disregarding the veil of corporate fiction since:

1. Co-defendants NMIC, Maricalum and Island Cement which are newly created
entities are practically owned wholly by defendants PNB and DBP, and managed by
their officers, aside from the fact that the aforesaid co-defendants NMIC, Maricalum
and Island Cement were organized in such a hurry and in such suspicious
circumstances by co-defendants PNB and DBP after the supposed extra-judicial
foreclosure of MMICs assets as to make their supposed projects assets, machineries
and equipment which were originally owned by co-defendant MMIC beyond the
reach of creditors of the latter.
2. The personnel, key officers and rank-and-file workers and employees of codefendants NMIC, Maricalum and Island Cement creations of co-defendants PNB and
DBP were the personnel of co-defendant MMIC such that x x x practically there has
only been a change of name for all legal purpose and intents.
3. The places of business not to mention the mining claims and project premises of
co-defendants NMIC, Maricalum and Island Cement likewise used to be the places of
business, mining claims and project premises of co-defendant MMIC as to make the

aforesaid co-defendants NMIC, Maricalum and Island Cement mere adjuncts and
subsidiaries of co-defendants PNB and DBP, and subject to their control and
management.
On top of everything, co-defendants PNB, DBP NMIC, Maricalum and Island Cement
being all corporations created by the government in the pursuit of business ventures
should not be allowed to ignore, x x x or obliterate with impunity nay illegally, the
financial obligations of x x x MMIC whose operations co-defendants PNB and DBP
had highly financed before the alleged extrajudicial foreclosure of defendant MMICs
assets, machineries and equipment to the extent that major policies of co-defendant
MMIC were being decided upon by co-defendants PNB and DBP as major financiers
who were represented in its board of directors forming part of the majority thereof
which through the alleged extrajudicial foreclosure culminated in a complete takeover by co-defendants PNB and DBP bringing about the organization of their codefendants NMIC, Maricalum and Island Cement to which were transferred all the
assets, machineries and pieces of equipment of co-defendant MMIC used in its nickel
mining project in Surigao del Norte, copper mining operation in Sipalay, Negros
Occidental and cement factory in Antipolo, Rizal to the prejudice of creditors of codefendant MMIC such as plaintiff Remington Industrial Sales Corporation whose
stockholders, officers and rank-and-file workers in the legitimate pursuit of its
business activities, invested considerable time, sweat and private money to supply,
among others, co-defendant MMIC with some of its vital needs for its operation,
which co-defendant MMIC during the time of the transactions material to this case
became x x x co-defendants PNB and DBPs instrumentality, business conduit, alter
ego, agency (sic), subsidiary or auxiliary corporation, by virtue of which it becomes
doubly necessary to disregard the corporation fiction that co-defendants PNB, DBP,
MMIC, NMIC, Maricalum and Island Cement, six (6) distinct and separate entities,
when in fact and in law, they should be treated as one and the same at least as far as
plaintiffs transactions with co-defendant MMIC are concerned, so as not to defeat
public convenience, justify wrong, subvert justice, protect fraud or confuse legitimate
issues involving creditors such as plaintiff, a fact which all defendants were as (sic)
still are aware of during all the time material to the transactions subject of this case.
[7]

On April 3, 1989, Remington filed a motion for leave to file a fourth amended complaint
impleading the Asset Privatization Trust (APT) as co-defendant. Said fourth amended complaint
was admitted by the lower court in its Order dated April 29, 1989.
On April 10, 1990, the Regional Trial Court (RTC) rendered a decision in favor of
Remington, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering the

defendants Marinduque Mining & Industrial Corporation, Philippine National Bank,
Development Bank of the Philippines, Nonoc Mining and Industrial Corporation,

Maricalum Mining Corporation, Island Cement Corporation and Asset Privatization

Trust to pay, jointly and severally, the sum of P920,755.95, representing the principal
obligation, including the stipulated interest as of June 22, 1984, plus ten percent
(10%) surcharge per annum by way of penalty, until the amount is fully paid; the sum
equivalent to 10% of the amount due as and for attorneys fees; and to pay the costs.
[8]

Upon appeal by PNB, DBP, Nonoc Mining, Maricalum Mining, Island Cement and APT, the
Court of Appeals, in its Decision dated October 6, 1995, affirmed the decision of the
RTC. Petitioner filed a Motion for Reconsideration, which was denied in the Resolution dated
August 29, 1996.
Hence, this petition, DBP maintaining that Remington has no cause of action against it or
PNB, nor against their transferees, Nonoc Mining, Island Cement, Maricalum Mining, and the
APT.
On the other hand, private respondent Remington submits that the transfer of the properties
was made in fraud of creditors. The presence of fraud, according to Remington, warrants the
piercing of the corporate veil such that Marinduque Mining and its transferees could be
considered as one and the same corporation. The transferees, therefore, are also liable for the
value of Marinduque Minings purchases.
In Yutivo Sons Hardware vs. Court of Tax Appeals, cited by the Court of Appeals in its
decision, this Court declared:
[9]

[10]

It is an elementary and fundamental principle of corporation law that a corporation is

an entity separate and distinct from its stockholders and from other corporations to
which it may be connected. However, when the notion of legal entity is used to defeat
public convenience, justify wrong, protect fraud, or defend crime, the law will regard
the corporation as an association of persons or in case of two corporations, merge
them into one. (Koppel [Phils.], Inc., vs. Yatco, 71 Phil. 496, citing 1 Fletcher
Encyclopedia of Corporation, Permanent Ed., pp. 135-136; U.S. vs. Milwaukee
Refrigeration Transit Co., 142 Fed., 247, 255 per Sanborn, J.) xxx
In accordance with the foregoing rule, this Court has disregarded the separate personality of
the corporation where the corporate entity was used to escape liability to third parties. In this
case, however, we do not find any fraud on the part of Marinduque Mining and its transferees to
warrant the piercing of the corporate veil.
[11]

It bears stressing that PNB and DBP are mandated to foreclose on the mortgage when the
past due account had incurred arrearages of more than 20% of the total outstanding obligation.
Section 1 of Presidential Decree No. 385 (The Law on Mandatory Foreclosure) provides:

It shall be mandatory for government financial institutions, after the lapse of sixty (60)
days from the issuance of this decree, to foreclose the collateral and/or securities for
any loan, credit accommodation, and/or guarantees granted by them whenever the
arrearages on such account, including accrued interest and other charges, amount to at

least twenty percent (20%) of the total outstanding obligations, including interest and
other charges, as appearing in the books of account and/or related records of the
financial institution concerned. This shall be without prejudice to the exercise by the
government financial institution of such rights and/or remedies available to them
under their respective contracts with their debtors, including the right to foreclose on
loans, credits, accomodations and/or guarantees on which the arrearages are less than
twenty (20%) percent.
Thus, PNB and DBP did not only have a right, but the duty under said law, to foreclose
upon the subject properties. The banks had no choice but to obey the statutory command.
The import of this mandate was lost on the Court of Appeals, which reasoned that under
Article 19 of the Civil Code, Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty and good
faith. The appellate court, however, did not point to any fact evidencing bad faith on the part of
the Marinduque Mining and its transferees. Indeed, it skirted the issue entirely by holding that
the question of actual fraudulent intent on the part of the interlocking directors of DBP and
Marinduque Mining was irrelevant because:

As aptly stated by the appellee in its brief, x x x where the corporations have
directors and officers in common, there may be circumstances under which their
interest as officers in one company may disqualify them in equity from representing
both corporations in transactions between the two. Thus, where one corporation was
insolvent and indebted to another, it has been held that the directors of the creditor
corporation were disqualified, by reason of self-interest, from acting as directors of
the debtor corporation in the authorization of a mortgage or deed of trust to the former
to secure such indebtedness x x x (page 105 of the Appellees Brief). In the same
manner that x x x when the corporation is insolvent, its directors who are its creditors
can not secure to themselves any advantage or preference over other creditors. They
can not thus take advantage of their fiduciary relation and deal directly with
themselves, to the injury of others in equal right. If they do, equity will set aside the
transaction at the suit of creditors of the corporation or their representatives, without
reference to the question of any actual fraudulent intent on the part of the
directors, for the right of the creditors does not depend upon fraud in fact, but upon
the violation of the fiduciary relation to the directors. xxx. (page 106 of the
Appellees Brief.)
We also concede that x x x directors of insolvent corporation, who are creditors of
the company, can not secure to themselves any preference or advantage over other
creditors in the payment of their claims. It is not good morals or good law. The
governing body of officers thereof are charged with the duty of conducting its affairs
strictly in the interest of its existing creditors, and it would be a breach of such trust
for them to undertake to give any one of its members any advantage over any other

creditors in securing the payment of his debts in preference to all others. When
validity of these mortgages, to secure debts upon which the directors were indorsers,
was questioned by other creditors of the corporation, they should have been classed as
instruments rendered void by the legal principle which prevents directors of an
insolvent corporation from giving themselves a preference over outside creditors. x x
x (page 106-107 of the Appellees Brief.)
[12]

The Court of Appeals made reference to two principles in corporation law. The first pertains
to transactions between corporations with interlocking directors resulting in the prejudice to one
of the corporations. This rule does not apply in this case, however, since the corporation
allegedly prejudiced (Remington) is a third party, not one of the corporations with interlocking
directors (Marinduque Mining and DBP).
The second principle invoked by respondent court involves directors who are creditors
which is also inapplicable herein. Here, the creditor of Marinduque Mining is DBP, not the
directors of Marinduque Mining.
Neither do we discern any bad faith on the part of DBP by its creation of Nonoc Mining,
Maricalum and Island Cement. As Remington itself concedes, DBP is not authorized by its
charter to engage in the mining business. The creation of the three corporations was necessary
to manage and operate the assets acquired in the foreclosure sale lest they deteriorate from nonuse and lose their value. In the absence of any entity willing to purchase these assets from the
bank, what else would it do with these properties in the meantime? Sound business practice
required that they be utilized for the purposes for which they were intended.
[13]

Remington also asserted in its third amended complaint that the use of Nonoc Mining,
Maricalum and Island Cement of the premises of Marinduque Mining and the hiring of the
latters officers and personnel also constitute badges of bad faith.
Assuming that the premises of Marinduque Mining were not among those acquired by DBP
in the foreclosure sale, convenience and practicality dictated that the corporations so created
occupy the premises where these assets were found instead of relocating them. No doubt, many
of these assets are heavy equipment and it may have been impossible to move them. The same
reasons of convenience and practicality, not to mention efficiency, justified the hiring by Nonoc
Mining, Maricalum and Island Cement of Marinduque Minings personnel to manage and
operate the properties and to maintain the continuity of the mining operations.
To reiterate, the doctrine of piercing the veil of corporate fiction applies only when such
corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend
crime. To disregard the separate juridical personality of a corporation, the wrongdoing must be
clearly and convincingly established. It cannot be presumed. In this case, the Court finds that
Remington failed to discharge its burden of proving bad faith on the part of Marinduque Mining
and its transferees in the mortgage and foreclosure of the subject properties to justify the piercing
of the corporate veil.
[14]

[15]

The Court of Appeals also held that there exists in Remingtons favor a lien on the unpaid
purchases of Marinduque Mining, and as transferee of these purchases, DBP should be held
liable for the value thereof.

In the absence of liquidation proceedings, however, the claim of Remington cannot be

enforced against DBP. Article 2241 of the Civil Code provides:

Article 2241. With reference to specific movable property of the debtor, the following
claims or liens shall be preferred:
xxx

(3) Claims for the unpaid price of movables sold, on said movables, so long as they
are in the possession of the debtor, up to the value of the same; and if the movable has
been resold by the debtor and the price is still unpaid, the lien may be enforced on the
price; this right is not lost by the immobilization of the thing by destination, provided
it has not lost its form, substance and identity, neither is the right lost by the sale of the
thing together with other property for a lump sum, when the price thereof can be
determined proportionally;
(4) Credits guaranteed with a pledge so long as the things pledged are in the hands of
the creditor, or those guaranteed by a chattel mortgage, upon the things pledged or
mortgaged, up to the value thereof;
xxx
In Barretto vs. Villanueva, the Court had occasion to construe Article 2242, governing
claims or liens over specific immovable property. The facts that gave rise to the case were
summarized by this Court in its resolution as follows:
[16]

x x x Rosario Cruzado sold all her right, title, and interest and that of her children in
the house and lot herein involved to Pura L. Villanueva for P19,000.00. The
purchaser paid P1,500 in advance, and executed a promissory note for the balance of
P17,500.00. However, the buyer could only pay P5,500 on account of the note, for
which reason the vendor obtained judgment for the unpaid balance. In the meantime,
the buyer Villanueva was able to secure a clean certificate of title (No. 32626), and
mortgaged the property to appellant Magdalena C. Barretto, married to Jose C.
Baretto, to secure a loan of P30,000.03, said mortgage having been duly recorded.
Pura Villanueva defaulted on the mortgage loan in favor of Barretto. The latter
foreclosed the mortgage in her favor, obtained judgment, and upon its becoming final
asked for execution on 31 July 1958. On 14 August 1958, Cruzado filed a motion for
recognition for her "vendor's lien" in the amount of P12,000.00, plus legal interest,
invoking Articles 2242, 2243, and 2249 of the new Civil Code. After hearing, the
court below ordered the "lien" annotated on the back of Certificate of Title No. 32526,
with the proviso that in case of sale under the foreclousre decree the vendor's lien and
the mortgage credit of appellant Barretto should be paid pro rata from the

proceeds. Our original decision affirmed this order of the Court of First Instance of
Manila.
In its decision upholding the order of the lower court, the Court ratiocinated thus:

Article 2242 of the new Civil Code enumerates the claims, mortgages and liens that
constitute an encumbrance on specific immovable property, and among them are:
"(2) For the unpaid price of real property sold, upon the immovable sold"; and
"(5) Mortgage credits recorded in the Registry of Property."
Article 2249 of the same Code provides that "if there are two or more credits with
respect to the same specific real property or real rights, they shall be satisfied prorata, after the payment of the taxes and assessments upon the immovable property or
real rights."
Application of the above-quoted provisions to the case at bar would mean that the
herein appellee Rosario Cruzado as an unpaid vendor of the property in question has
the right to share pro-rata with the appellants the proceeds of the foreclosure sale.
xxx

As to the point made that the articles of the Civil Code on concurrence and preference
of credits are applicable only to the insolvent debtor, suffice it to say that nothing in
the law shows any such limitation. If we are to interpret this portion of the Code as
intended only for insolvency cases, then other creditor-debtor relationships where
there are concurrence of credits would be left without any rules to govern them, and it
would render purposeless the special laws on insolvency.
[17]

Upon motion by appellants, however, the Court reconsidered its decision. Justice J.B.L.
Reyes, speaking for the Court, explained the reasons for the reversal:

A. The previous decision failed to take fully into account the radical changes
introduced by the Civil Code of the Philippines into the system of priorities among
creditors ordained by the Civil Code of 1889.
Pursuant to the former Code, conflicts among creditors entitled to preference as to
specific real property under Article 1923 were to be resolved according to an order of
priorities established by Article 1927, whereby one class of creditors could exclude
the creditors of lower order until the claims of the former were fully satisfied out of
the proceeds of the sale of the real property subject of the preference, and could even
exhaust proceeds if necessary.

Under the system of the Civil Code of the Philippines, however, only taxes enjoy a
similar absolute preference. All the remaining thirteen classes of preferred creditors
under Article 2242 enjoy no priority among themselves, but must be paid pro rata,
i.e., in proportion to the amount of the respective credits. Thus, Article 2249
provides:
"If there are two or more credits with respect to the same specific real property or real
rights, they shall be satisfied pro rata, after the payment of the taxes and assessments
upon the immovable property or real rights."
But in order to make this prorating fully effective, the preferred creditors enumerated
in Nos. 2 to 14 of Article 2242 (or such of them as have credits outstanding) must
necessarily be convened, and the import of their claims ascertained. It is thus
apparent that the full application of Articles 2249 and 2242 demands that there must
be first some proceeding where the claims of all the preferred creditors may be
bindingly adjudicated, such as insolvency, the settlement of decedent's estate under
Rule 87 of the Rules of Court, or other liquidation proceedings of similar import.
This explains the rule of Article 2243 of the new Civil Code that "The claims or credits enumerated in the two preceding articles shall be considered as
mortgages or pledges of real or personal property, or liens within the purview of legal
provisions governing insolvency xxx (Italics supplied).
And the rule is further clarified in the Report of the Code Commission, as follows:
"The question as to whether the Civil Code and the Insolvency Law can be
harmonized is settled by this Article (2243). The preferences named in Articles 2261
and 2262 (now 2241 and 2242) are to be enforced in accordance with the Insolvency
Law." (Italics supplied)
Thus, it becomes evident that one preferred creditor's third-party claim to the proceeds
of a foreclosure sale (as in the case now before us) is not the proceeding contemplated
by law for the enforcement of preferences under Article 2242, unless the claimant
were enforcing a credit for taxes that enjoy absolute priority. If none of the claims is
for taxes, a dispute between two creditors will not enable the Court to ascertain
the pro rata dividend corresponding to each, because the rights of the other creditors
likewise enjoying preference under Article 2242 can not be ascertained. Wherefore,
the order of the Court of First Instance of Manila now appealed from, decreeing that
the proceeds of the foreclosure sale be apportioned only between appellant and
appellee, is incorrect, and must be reversed. [Underscoring supplied]

[18]

The ruling in Barretto was reiterated in Phil. Savings Bank vs. Hon. Lantin, Jr., etc., et al.,
and in two cases both entitled Development Bank of the Philippines vs. NLRC.
[19]

Although Barretto involved specific immovable property, the ruling therein should apply
equally in this case where specific movable property is involved. As the extra-judicial
foreclosure instituted by PNB and DBP is not the liquidation proceeding contemplated by the
Civil Code, Remington cannot claim its pro rata share from DBP.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated
October 6, 1995 and its Resolution promulgated on August 29, 1996 is REVERSED and SET
ASIDE. The original complaint filed in the Regional Trial Court in CV Case No. 84-25858 is
hereby DISMISSED.
SO ORDERED.

SECOND DIVISION

[G.R. No. 127181. September 4, 2001]

LAND BANK OF THE PHILIPPINES, petitioner, vs. THE COURT OF

APPEALS,
ECO
MANAGEMENT
CORPORATION
and
EMMANUEL C. OATE, respondents.
DECISION
QUISUMBING, J.:

This petition for review on certiorari seeks to reverse and set aside the
decision promulgated on June 17, 1996 in CA-GR No. CV-43239 of public respondent and its
resolution dated November 29, 1996 denying petitioners motion for reconsideration.
[1]

[2]

[3]

The facts of this case as found by the Court of Appeals and which we find supported by the
records are as follows:

On various dates in September, October, and November, 1980, appellant Land Bank
of the Philippines (LBP) extended a series of credit accommodations to appellee ECO,
using the trust funds of the Philippine Virginia Tobacco Administration (PVTA) in the
aggregate amount of P26,109,000.00. The proceeds of the credit accommodations
were received on behalf of ECO by appellee Oate.
On the respective maturity dates of the loans, ECO failed to pay the same. Oral and
written demands were made, but ECO was unable to pay. ECO claims that the
company was in financial difficulty for it was unable to collect its investments with

companies which were affected by the financial crisis brought about by the Dewey
Dee scandal.
xxx
On October 20, 1981, ECO proposed and submitted to LBP a Plan of Payment
whereby the former would set up a financing company which would absorb the loan
obligations. It was proposed that LBP would participate in the scheme through the
conversion of P9,000,000.00 which was part of the total loan, into equity.
On March 4, 1982, LBP informed ECO of the action taken by the formers Trust
Committee concerning the Plan of Payment which reads in part, as follows:
xxx
Please be informed that the Banks Trust Committee has deliberated on the plan of
payment during its meetings on November 6, 1981 and February 23, 1982. The
Committee arrived at a decision that you may proceed with your Plan of Payment
provided Land Bank shall not participate in the undertaking in any manner
whatsoever.
In view thereof, may we advise you to make necessary revision in the proposed Plan
of Payment and submit the same to us as soon as possible. (Records, p. 428)
On May 5, 1982, ECO submitted to LBP a Revised Plan of Payment deleting the
latters participation in the proposed financing company. The Trust Committee
deliberated on the Revised Plan of Payment and resolved to reject it. LBP then sent
a letter to the PVTA for the latters comments. The letter stated that if LBP did not
hear from PVTA within five (5) days from the latters receipt of the letter, such silence
would be construed to be an approval of LBPs intention to file suit against ECO and
its corporate officers. PVTA did not respond to the letter.
On June 28, 1982, Landbank filed a complaint for Collection of Sum of Money
against ECO and Emmanuel C. Oate before the Regional Trial Court of Manila,
Branch 50.
After trial on the merits, a judgment was rendered in favor of LBP; however, appellee
Oate was absolved from personal liability for insufficiency of evidence.
Dissatisfied, both parties filed their respective Motions for Reconsideration. LBP
claimed that there was an error in computation in the amounts to be paid. LBP also
questioned the dismissal of the case with regard to Oate.

On the other hand, ECO questioned its being held liable for the amount of the
loan. Upon order of the court, both parties submitted Supplemental Motions for
Reconsideration and their respective Oppositions to each others Motions.
On February 3, 1993, the trial court rendered an Amended Decision, the dispositive
portion of which reads as follows:
ACCORDINGLY, the Decision, dated December 3, 1990, is hereby modified to read
as follows:
WHEREFORE, judgment is rendered ordering defendant Eco Management
Corporation to pay plaintiff Land Bank of the Philippines:
A. The sum of P26,109,000.00 representing the total amount of the ten (10) loan
accommodations plus 16% interest per annum computed from the dates of their
respective maturities until fully paid, broken down as follows:
1. the principal amount of P4,000,000.00 with interest at 16% computed from
September 18, 1981;
2. the principal amount of P5,000,000.00 with interest at 16% computed from
September 21, 1981;
3. the principal amount of P1,000,000.00 with interest rate at 16% computed from
September 28, 1981;
4. the principal amount of P1,000,000.00 with interest at 15% computed from October
5, 1981;
5. the principal amount of P2,000,000.00 with interest rate at of 16% computed from
October 8, 1981;
6. the principal amount of P2,000,000.00 with interest rate at of 16% from October
23, 1981;
7. the principal amount of P814,000.00 with interest rate at of 16% computed from
November 1, 1981;
8. the principal amount of P2,295,000.00 with interest rate at of 16% computed from
November 6, 1981;
9. the principal amount of P3,000,000.00 with interest rate at of 16% computed from
November 7, 1981;

10. the principal amount of P5,000,000.00 with interest rate at 16% computed from
November 9, 1981;
B. The sum of P260,000.00 as attorneys fees; and
C. The costs of the suit.
The case as against defendant Emmanuel Oate is dismissed for insufficiency of
evidence.
SO ORDERED. (Records, p. 608)

[4]

The Court of Appeals affirmed in toto the amended decision of the trial court.

[5]

On June 9, 1996, petitioner filed a motion for reconsideration, which was denied in a
resolution dated November 29, 1996. Hence, this present petition, assigning the following errors
allegedly committed by the Court of Appeals:
A

THE COURT OF APPEALS GRAVELY ERRED IN NOT RULING THAT BASED

ON THE FACTS AS ESTABLISHED BY EVIDENCE, THERE EXISTS A
SUBSTANTIAL AND JUSTIFIABLE GROUND UPON WHICH THE LEGAL
NOTION OF THE CORPORATE FICTION OF RESPONDENT ECO
MANAGEMENT CORPORATION MAY BE PIERCED.
B

THE COURT OF APPEALS GRAVELY ERRED IN NOT A[T]TACHING

LIABILITY TO RESPONDENT EMMANUEL C. OATE JOINTLY AND
SEVERALLY WITH RESPONDENT ECO MANAGEMENT CORPORATION FOR
THE PRINCIPAL SUM OF P26 M PLUS INTEREST THEREON.
C

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING OF

THE LOWER COURT THE SAME NOT BEING SUPPORTED BY THE
EVIDENCE AND APPLICABLE LAWS AND JURISPRUDENCE.
[6]

The primary issues for resolution here are (1) whether or not the corporate veil of ECO
Management Corporation should be pierced; and (2) whether or not Emmanuel C. Oate should
be held jointly and severally liable with ECO Management Corporation for the loans incurred
from Land Bank.
Petitioner contends that the personalities of Emmanuel Oate and of ECO Management
Corporation should be treated as one, for the particular purpose of holding respondent Oate

liable for the loans incurred by corporate respondent ECO from Land Bank. According to
petitioner, the said corporation was formed ostensibly to allow Oate to acquire loans from Land
Bank which he used for his personal advantage.
Petitioner submits the following arguments to support its stand: (1) Respondent Oate owns
the majority of the interest holdings in respondent corporation, specifically during the crucial
time when appellees applied for and obtained the loan from LANDBANK, sometime in
September to November, 1980. (2) The acronym ECO stands for the initials of Emmanuel C.
Oate, which is the logical, sensible and concrete explanation for the name ECO, in the absence
of evidence to the contrary. (3) Respondent Oate has always referred to himself as the debtor,
not merely as an officer or a representative of respondent corporation. (4) Respondent Oate
personally paid P1 Million taken from trust accounts in his name. (5) Respondent Oate made a
personal offering to pay his personal obligation. (6) Respondent Oate controlled respondent
corporation by simultaneously holding two (2) corporate positions, viz., as Chairman and as
treasurer, beginning from the time of respondent corporations incorporation and continuously
thereafter without benefit of election. (7) Respondent corporation had not held any meeting of
the stockholders or of the Board of Directors, as shown by the fact that no proceeding of such
corporate activities was filed with or borne by the record of the Securities and Exchange
Commission (SEC). The only corporate records respondent corporation filed with the SEC were
the following: Articles of Incorporation, Treasurers Affidavit, Undertaking to Change Corporate
Name, Statement of Assets and Liabilities.
[7]

Private respondents, in turn, contend that Oates only participation in the transaction
between petitioner and respondent ECO was his execution of the loan agreements and
promissory notes as Chairman of the corporations Board of Directors. There was nothing in the
loan agreement nor in the promissory notes which would indicate that Oate was binding himself
jointly and severally with ECO. Respondents likewise deny that ECO stands for Emmanuel C.
Oate. Respondents also note that Oate is no longer a majority stockholder of ECO and that the
payment by a third person of the debt of another is allowed under the Civil Code. They also
alleged that there was no fraud and/or bad faith in the transactions between them and Land
Bank. Hence, private respondents conclude, there is no legal ground to pierce the veil of
respondent corporations personality.
[8]

At the outset, we find the matters raised by petitioner in his argumentation are mainly
questions of fact which are not proper in a petition of this nature. Petitioner is basically
questioning the evaluation made by the Court of Appeals of the evidence submitted at the
trial. The Court of Appeals had found that petitioners evidence was not sufficient to justify the
piercing of ECOs corporate personality. Petitioner contended otherwise. It is basic that where
what is being questioned is the sufficiency of evidence, it is a question of fact. Nevertheless,
even if we regard these matters as tendering an issue of law, we still find no reason to reverse the
findings of the Court of Appeals.
[9]

[10]

[11]

A corporation, upon coming into existence, is invested by law with a personality separate
and distinct from those persons composing it as well as from any other legal entity to which it
may be related. By this attribute, a stockholder may not, generally, be made to answer for acts
or liabilities of the said corporation, and vice versa. This separate and distinct personality is,
however, merely a fiction created by law for convenience and to promote the ends of justice.
For this reason, it may not be used or invoked for ends subversive to the policy and purpose
[12]

[13]

[14]

behind its creation or which could not have been intended by law to which it owes its being.
This is particularly true when the fiction is used to defeat public convenience, justify wrong,
protect fraud, defend crime, confuse legitimate legal or judicial issues, perpetrate deception or
otherwise circumvent the law. This is likewise true where the corporate entity is being used as
an alter ego, adjunct, or business conduit for the sole benefit of the stockholders or of another
corporate entity. In all these cases, the notion of corporate entity will be pierced or disregarded
with reference to the particular transaction involved.
[15]

[16]

[17]

[18]

[19]

[20]

[21]

The burden is on petitioner to prove that the corporation and its stockholders are, in fact,
using the personality of the corporation as a means to perpetrate fraud and/or escape a liability
and responsibility demanded by law. In order to disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and convincingly established. In the absence of
any malice or bad faith, a stockholder or an officer of a corporation cannot be made personally
liable for corporate liabilities.
[22]

[23]

The mere fact that Oate owned the majority of the shares of ECO is not a ground to
conclude that Oate and ECO is one and the same. Mere ownership by a single stockholder of
all or nearly all of the capital stock of a corporation is not by itself sufficient reason for
disregarding the fiction of separate corporate personalities. Neither is the fact that the name
ECO represents the first three letters of Oates name sufficient reason to pierce the veil. Even
if it did, it does not mean that the said corporation is merely a dummy of Oate. A corporation
may assume any name provided it is lawful. There is nothing illegal in a corporation acquiring
the name or as in this case, the initials of one of its shareholders.
[24]

That respondent corporation in this case was being used as a mere alter ego of Oate to
obtain the loans had not been shown. Bad faith or fraud on the part of ECO and Oate was not
also shown. As the Court of Appeals observed, if shareholders of ECO meant to defraud
petitioner, then they could have just easily absconded instead of going out of their way to
propose Plans of Payment. Likewise, Oate volunteered to pay a portion of the corporations
debt. This offer demonstrated good faith on his part to ease the debt of the corporation of which
he was a part. It is understandable that a shareholder would want to help his corporation and in
the process, assure that his stakes in the said corporation are secured. In this case, it was
established that the P1 Million did not come solely from Oate. It was taken from a trust
account which was owned by Oate and other investors. It was likewise proved that the P1
Million was a loan granted by Oate and his co-depositors to alleviate the plight of ECO. This
circumstance should not be construed as an admission that he was really the debtor and not ECO.
[25]

[26]

[27]

[28]

In sum, we agree with the Court of Appeals conclusion that the evidence presented by the
petitioner does not suffice to hold respondent Oate personally liable for the debt of corespondent ECO. No reversible error could be attributed to respondent courts decision and
resolution which petitioner assails.
WHEREFORE, the petition is DENIED for lack of merit. The decision and resolution of
the Court of Appeals in CA-G.R. CV No. 43239 are AFFIRMED. Costs against petitioner.
SO ORDERED.