THIRD DIVISION Accordingly, let the records of this case be REMANDED to the Arbitration Branch of origin in order that
Accordingly, let the records of this case be REMANDED to the Arbitration Branch of origin in order that the Labor
G.R. No. 157802 : October 13, 2010
MATLING INDUSTRIAL AND COMMERCIAL CORPORATION, RICHARD K. SPENCER, CATHERINE SPENCER,
AND ALEX MANCILLA, Petitioners, v. RICARDO R. COROS, Respondent.cralaw
DECISION
BERSAMIN, J.:
This case reprises the jurisdictional conundrum of whether a complaint for illegal dismissal is cognizable by the Labor
Arbiter (LA) or by the Regional Trial Court (RTC). The determination of whether the dismissed officer was a regular
employee or a corporate officer unravels the conundrum. In the case of the regular employee, the LA has jurisdiction;
otherwise, the RTC exercises the legal authority to adjudicate.
In this appeal via petition for review on certiorari, the petitioners challenge the decision dated September 13,
20021cra1aw and the resolution dated April 2, 2003,2cra1aw both promulgated in C.A.-G.R. SP No. 65714 entitled
Matling Industrial and Commercial Corporation, et al. v. Ricardo R. Coros and National Labor Relations Commission,
whereby by the Court of Appeals (CA) sustained the ruling of the National Labor Relations Commission (NLRC) to the
effect that the LA had jurisdiction because the respondent was not a corporate officer of petitioner Matling Industrial
and Commercial Corporation (Matling).
Antecedents
After his dismissal by Matling as its Vice President for Finance and Administration, the respondent filed on August 10,
2000 a complaint for illegal suspension and illegal dismissal against Matling and some of its corporate officers
(petitioners) in the NLRC, Sub-Regional Arbitration Branch XII, Iligan City.3chanroblesvirtuallawlibrary
The petitioners moved to dismiss the complaint,4cra1aw raising the ground, among others, that the complaint pertained
to the jurisdiction of the Securities and Exchange Commission (SEC) due to the controversy being intra-corporate
inasmuch as the respondent was a member of Matlings Board of Directors aside from being its Vice-President for
Finance and Administration prior to his termination.
The respondent opposed the petitioners motion to dismiss,5cra1aw insisting that his status as a member of Matlings
Board of Directors was doubtful, considering that he had not been formally elected as such; that he did not own a
single share of stock in Matling, considering that he had been made to sign in blank an undated indorsement of the
certificate of stock he had been given in 1992; that Matling had taken back and retained the certificate of stock in its
custody; and that even assuming that he had been a Director of Matling, he had been removed as the Vice President
for Finance and Administration, not as a Director, a fact that the notice of his termination dated April 10, 2000 showed.
On October 16, 2000, the LA granted the petitioners motion to dismiss,6cra1aw ruling that the respondent was a
corporate officer because he was occupying the position of Vice President for Finance and Administration and at the
same time was a Member of the Board of Directors of Matling; and that, consequently, his removal was a corporate act
of Matling and the controversy resulting from such removal was under the jurisdiction of the SEC, pursuant to Section
5, paragraph (c) of Presidential Decree No. 902.
Ruling of the NLRC
The respondent appealed to the NLRC,7cra1aw urging that:chanroblesvirtualawlibrary
I removed from, is not a corporate office despite its nomenclature, but an ordinary office in the corporation.
THE HONORABLE LABOR ARBITER COMMITTED GRAVE ABUSE OF DISCRETION GRANTING APPELLEES
MOTION TO DISMISS WITHOUT GIVING THE APPELLANT AN OPPORTUNITY TO FILE HIS OPPOSITION
THERETO THEREBY VIOLATING THE BASIC PRINCIPLE OF DUE PROCESS.
II
THE HONORABLE LABOR ARBITER COMMITTED AN ERROR IN DISMISSING THE CASE FOR LACK OF
JURISDICTION.
On March 13, 2001, the NLRC set aside the dismissal, concluding that the respondents complaint for illegal dismissal
was properly cognizable by the LA, not by the SEC, because he was not a corporate officer by virtue of his position in
Matling, albeit high ranking and managerial, not being among the positions listed in Matlings Constitution and By-
Laws.8cra1aw The NLRC disposed thuswise:chanroblesvirtualawlibrary
WHEREFORE, the Order appealed from is SET ASIDE. A new one is entered declaring and holding that the case at
bench does not involve any intracorporate matter. Hence, jurisdiction to hear and act on said case is vested with the
Labor Arbiter, not the SEC, considering that the position of Vice-President for Finance and Administration being held
by complainant-appellant is not listed as among respondent's corporate officers.
Arbiter below could act on the case at bench, hear both parties, receive their respective evidence and position papers
fully observing the requirements of due process, and resolve the same with reasonable dispatch.
SO ORDERED.
The petitioners sought reconsideration,9cra1aw reiterating that the respondent, being a member of the Board of
Directors, was a corporate officer whose removal was not within the LAs jurisdiction.
The petitioners later submitted to the NLRC in support of the motion for reconsideration the certified machine copies of
Matlings Amended Articles of Incorporation and By Laws to prove that the President of Matling was thereby granted
"full power to create new offices and appoint the officers thereto, and the minutes of special meeting held on June 7,
1999 by Matlings Board of Directors to prove that the respondent was, indeed, a Member of the Board of
Directors.10chanroblesvirtuallawlibrary
Nonetheless, on April 30, 2001, the NLRC denied the petitioners motion for
reconsideration.11chanroblesvirtuallawlibrary
Ruling of the CA
The petitioners elevated the issue to the CA by petition for certiorari, docketed as C.A.-G.R. No. SP 65714, contending
that the NLRC committed grave abuse of discretion amounting to lack of jurisdiction in reversing the correct decision of
the LA.
In its assailed decision promulgated on September 13, 2002,12cra1aw the CA dismissed the petition for certiorari,
explaining:chanroblesvirtualawlibrary
For a position to be considered as a corporate office, or, for that matter, for one to be considered as a corporate officer,
the position must, if not listed in the by-laws, have been created by the corporation's board of directors, and the
occupant thereof appointed or elected by the same board of directors or stockholders. This is the implication of the
ruling in Tabang v. National Labor Relations Commission, which reads:chanroblesvirtualawlibrary
"The president, vice president, secretary and treasurer are commonly regarded as the principal or executive officers of
a corporation, and modern corporation statutes usually designate them as the officers of the corporation.
However, other offices are sometimes created by the charter or by-laws of a corporation, or the board of directors may
be empowered under the by-laws of a corporation to create additional offices as may be necessary.
It has been held that an 'office' is created by the charter of the corporation and the officer is elected by the directors or
stockholders. On the other hand, an 'employee' usually occupies no office and generally is employed not by action of
the directors or stockholders but by the managing officer of the corporation who also determines the compensation to
be paid to such employee."
This ruling was reiterated in the subsequent cases of Ongkingco v. National Labor Relations Commission and De
Rossi v. National Labor Relations Commission.cralaw
The position of vice-president for administration and finance, which Coros used to hold in the corporation, was not
created by the corporations board of directors but only by its president or executive vice-president pursuant to the by-
laws of the corporation. Moreover, Coros appointment to said position was not made through any act of the board of
directors or stockholders of the corporation. Consequently, the position to which Coros was appointed and later on
Coros alleged illegal dismissal therefrom is, therefore, within the jurisdiction of the labor arbiter.
WHEREFORE, the petition for certiorari is hereby DISMISSED.
SO ORDERED.
The CA denied the petitioners motion for reconsideration on April 2, 2003.13chanroblesvirtuallawlibrary
Issue
Thus, the petitioners are now before the Court for a review on certiorari, positing that the respondent was a
stockholder/member of the Matlings Board of Directors as well as its Vice President for Finance and Administration;
and that the CA consequently erred in holding that the LA had jurisdiction.
The decisive issue is whether the respondent was a corporate officer of Matling or not. The resolution of the issue
determines whether the LA or the RTC had jurisdiction over his complaint for illegal dismissal.
Ruling
The appeal fails.
I
The Law on Jurisdiction in Dismissal Cases
As a rule, the illegal dismissal of an officer or other employee of a private employer is properly cognizable by the LA.
This is pursuant to Article 217 (a) 2 of the Labor Code, as amended, which provides as
follows:chanroblesvirtualawlibrary
Article 217. Jurisdiction of the Labor Arbiters and the Commission. - (a) Except as otherwise provided under this Code,
the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide, within thirty (30) calendar days after
the submission of the case by the parties for decision without extension, even in the absence of stenographic notes,
the following cases involving all workers, whether agricultural or non-agricultural:chanroblesvirtualawlibrary
1. Unfair labor practice cases;
2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases that workers may file involving wages, rates of pay,
hours of work and other terms and conditions of employment;
4. Claims for actual, moral, exemplary and other forms of damages arising from the employer-employee relations;
5. Cases arising from any violation of Article 264 of this Code, including questions involving the legality of strikes and
lockouts; and
6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other claims
arising from employer-employee relations, including those of persons in domestic or household service, involving an
amount exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement.
(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters.
(c) Cases arising from the interpretation or implementation of collective bargaining agreements and those arising from
the interpretation or enforcement of company personnel policies shall be disposed of by the Labor Arbiter by referring
the same to the grievance machinery and voluntary arbitration as may be provided in said agreements. (As amended
by Section 9, Republic Act No. 6715, March 21, 1989).
Where the complaint for illegal dismissal concerns a corporate officer, however, the controversy falls under the
jurisdiction of the Securities and Exchange Commission (SEC), because the controversy arises out of intra-corporate
or partnership relations between and among stockholders, members, or associates, or between any or all of them and
the corporation, partnership, or association of which they are stockholders, members, or associates, respectively; and
between such corporation, partnership, or association and the State insofar as the controversy concerns their
individual franchise or right to exist as such entity; or because the controversy involves the election or appointment of a
director, trustee, officer, or manager of such corporation, partnership, or association.14cra1aw Such controversy,
among others, is known as an intra-corporate dispute.
Effective on August 8, 2000, upon the passage of Republic Act No. 8799,15cra1aw otherwise known as The Securities
Regulation Code, the SECs jurisdiction over all intra-corporate disputes was transferred to the RTC, pursuant to
Section 5.2 of RA No. 8799, to wit:chanroblesvirtualawlibrary
5.2. The Commissions jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is
hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, that the
Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise
jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate
disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code.
The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June
2000 until finally disposed.
Considering that the respondents complaint for illegal dismissal was commenced on August 10, 2000, it might come
under the coverage of Section 5.2 of RA No. 8799, supra, should it turn out that the respondent was a corporate, not a
regular, officer of Matling.
II
Was the Respondents Position of Vice President
for Administration and Finance a Corporate Office?
We must first resolve whether or not the respondents position as Vice President for Finance and Administration was a
corporate office. If it was, his dismissal by the Board of Directors rendered the matter an intra-corporate dispute
cognizable by the RTC pursuant to RA No. 8799.
The petitioners contend that the position of Vice President for Finance and Administration was a corporate office,
having been created by Matlings President pursuant to By-Law No. V, as amended,16cra1aw to
wit:chanroblesvirtualawlibrary
BY LAW NO. V
Officers
The President shall be the executive head of the corporation; shall preside over the meetings of the stockholders and
directors; shall countersign all certificates, contracts and other instruments of the corporation as authorized by the
Board of Directors; shall have full power to hire and discharge any or all employees of the corporation; shall have full
power to create new offices and to appoint the officers thereto as he may deem proper and necessary in the
operations of the corporation and as the progress of the business and welfare of the corporation may demand; shall
make reports to the directors and stockholders and perform all such other duties and functions as are incident to his
office or are properly required of him by the Board of Directors. In case of the absence or disability of the President, the
Executive Vice President shall have the power to exercise his functions.
The petitioners argue that the power to create corporate offices and to appoint the individuals to assume the offices
was delegated by Matlings Board of Directors to its President through By-Law No. V, as amended; and that any office
the President created, like the position of the respondent, was as valid and effective a creation as that made by the
Board of Directors, making the office a corporate office. In justification, they cite Tabang v. National Labor Relations
Commission,17cra1aw which held that "other offices are sometimes created by the charter or by-laws of a corporation,
or the board of directors may be empowered under the by-laws of a corporation to create additional officers as may be
necessary."
The respondent counters that Matlings By-Laws did not list his position as Vice President for Finance and
Administration as one of the corporate offices; that Matlings By-Law No. III listed only four corporate officers, namely:
President, Executive Vice President, Secretary, and Treasurer; 18cra1aw that the corporate offices contemplated in the
phrase "and such other officers as may be provided for in the by-laws" found in Section 25 of the Corporation Code
should be clearly and expressly stated in the By-Laws; that the fact that Matlings By-Law No. III dealt with Directors &
Officers while its By-Law No. V dealt with Officers proved that there was a differentiation between the officers
mentioned in the two provisions, with those classified under By-Law No. V being ordinary or non-corporate officers;
and that the officer, to be considered as a corporate officer, must be elected by the Board of Directors or the
stockholders, for the President could only appoint an employee to a position pursuant to By-Law No. V.
We agree with respondent.
Section 25 of the Corporation Code provides:chanroblesvirtualawlibrary
Section 25. Corporate officers, quorum.--Immediately after their election, the directors of a corporation must formally
organize by the election of a president, who shall be a director, a treasurer who may or may not be a director, a
secretary who shall be a resident and citizen of the Philippines, and such other officers as may be provided for in
the by-laws. Any two (2) or more positions may be held concurrently by the same person, except that no one shall act
as president and secretary or as president and treasurer at the same time.
The directors or trustees and officers to be elected shall perform the duties enjoined on them by law and the by-laws of
the corporation. Unless the articles of incorporation or the by-laws provide for a greater majority, a majority of the
number of directors or trustees as fixed in the articles of incorporation shall constitute a quorum for the transaction of
corporate business, and every decision of at least a majority of the directors or trustees present at a meeting at which
there is a quorum shall be valid as a corporate act, except for the election of officers which shall require the vote of a
majority of all the members of the board.
Directors or trustees cannot attend or vote by proxy at board meetings.
Conformably with Section 25, a position must be expressly mentioned in the By-Laws in order to be considered as a
corporate office. Thus, the creation of an office pursuant to or under a By-Law enabling provision is not enough to
make a position a corporate office. Guerrea v. Lezama,19cra1aw the first ruling on the matter, held that the only officers
of a corporation were those given that character either by the Corporation Code or by the By-Laws; the rest of the
corporate officers could be considered only as employees or subordinate officials. Thus, it was held in Easycall
Communications Phils., Inc. v. King:20chanroblesvirtuallawlibrary
An "office" is created by the charter of the corporation and the officer is elected by the directors or stockholders. On the
other hand, an employee occupies no office and generally is employed not by the action of the directors or
stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such
employee.
In this case, respondent was appointed vice president for nationwide expansion by Malonzo, petitioner's general
manager, not by the board of directors of petitioner. It was also Malonzo who determined the compensation package of
respondent. Thus, respondent was an employee, not a "corporate officer." The CA was therefore correct in ruling that
jurisdiction over the case was properly with the NLRC, not the SEC (now the RTC).
This interpretation is the correct application of Section 25 of the Corporation Code, which plainly states that the
corporate officers are the President, Secretary, Treasurer and such other officers as may be provided for in the By-
Laws. Accordingly, the corporate officers in the context of PD No. 902-A are exclusively those who are given that
character either by the Corporation Code or by the corporations By-Laws.
A different interpretation can easily leave the way open for the Board of Directors to circumvent the constitutionally
guaranteed security of tenure of the employee by the expedient inclusion in the By-Laws of an enabling clause on the
creation of just any corporate officer position.
It is relevant to state in this connection that the SEC, the primary agency administering the Corporation Code, adopted
a similar interpretation of Section 25 of the Corporation Code in its Opinion dated November 25, 1993,21cra1aw to
wit:chanroblesvirtualawlibrary
Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are the corporate officers
enumerated in the by-laws are the exclusive Officers of the corporation and the Board has no power to create other
Offices without amending first the corporate By-laws. However, the Board may create appointive positions other
than the positions of corporate Officers, but the persons occupying such positions are not considered as
corporate officers within the meaning of Section 25 of the Corporation Code and are not empowered to exercise
the functions of the corporate Officers, except those functions lawfully delegated to them. Their functions and duties
are to be determined by the Board of Directors/Trustees.
Moreover, the Board of Directors of Matling could not validly delegate the power to create a corporate office to the
President, in light of Section 25 of the Corporation Code requiring the Board of Directors itself to elect the corporate
officers. Verily, the power to elect the corporate officers was a discretionary power that the law exclusively vested in
the Board of Directors, and could not be delegated to subordinate officers or agents.22cra1aw The office of Vice
President for Finance and Administration created by Matlings President pursuant to By Law No. V was an ordinary, not
a corporate, office.
To emphasize, the power to create new offices and the power to appoint the officers to occupy them vested by By-Law
No. V merely allowed Matlings President to create non-corporate offices to be occupied by ordinary employees of
Matling. Such powers were incidental to the Presidents duties as the executive head of Matling to assist him in the
daily operations of the business.
The petitioners reliance on Tabang, supra, is misplaced. The statement in Tabang, to the effect that offices not
expressly mentioned in the By-Laws but were created pursuant to a By-Law enabling provision were also considered
corporate offices, was plainly obiter dictum due to the position subject of the controversy being mentioned in the By-
Laws. Thus, the Court held therein that the position was a corporate office, and that the determination of the rights and
liabilities arising from the ouster from the position was an intra-corporate controversy within the SECs jurisdiction.
In Nacpil v. Intercontinental Broadcasting Corporation,23cra1aw which may be the more appropriate ruling, the position
subject of the controversy was not expressly mentioned in the By-Laws, but was created pursuant to a By-Law
enabling provision authorizing the Board of Directors to create other offices that the Board of Directors might see fit to
create. The Court held there that the position was a corporate office, relying on the obiter dictum in Tabang.
Considering that the observations earlier made herein show that the soundness of their dicta is not
unassailable, Tabang and Nacpil should no longer be controlling.
III
Did Respondents Status as Director and
Stockholder Automatically Convert his Dismissal
into an Intra-Corporate Dispute?
Yet, the petitioners insist that because the respondent was a Director/stockholder of Matling, and relying on Paguio v.
National Labor Relations Commission24cra1aw and Ongkingko v. National Labor Relations Commission,25cra1aw the
NLRC had no jurisdiction over his complaint, considering that any case for illegal dismissal brought by a
stockholder/officer against the corporation was an intra-corporate matter that must fall under the jurisdiction of the SEC
conformably with the context of PD No. 902-A.
The petitioners insistence is bereft of basis.
To begin with, the reliance on Paguio and Ongkingko is misplaced. In both rulings, the complainants were undeniably
corporate officers due to their positions being expressly mentioned in the By-Laws, aside from the fact that both of
them had been duly elected by the respective Boards of Directors. But the herein respondents position of Vice
President for Finance and Administration was not expressly mentioned in the By-Laws; neither was the position of Vice
President for Finance and Administration created by Matlings Board of Directors. Lastly, the President, not the Board of
Directors, appointed him.
True it is that the Court pronounced in Tabang as follows:chanroblesvirtualawlibrary
Also, an intra-corporate controversy is one which arises between a stockholder and the corporation. There is no
distinction, qualification or any exemption whatsoever. The provision is broad and covers all kinds of controversies
between stockholders and corporations.26chanroblesvirtuallawlibrary
However, the Tabang pronouncement is not controlling because it is too sweeping and does not accord with reason,
justice, and fair play. In order to determine whether a dispute constitutes an intra-corporate controversy or not, the
Court considers two elements instead, namely: (a) the status or relationship of the parties; and (b) the nature of the
question that is the subject of their controversy. This was our thrust in Viray v. Court of
Appeals:27chanroblesvirtuallawlibrary
The establishment of any of the relationships mentioned above will not necessarily always confer jurisdiction over the
dispute on the SEC to the exclusion of regular courts. The statement made in one case that the rule admits of no
exceptions or distinctions is not that absolute. The better policy in determining which body has jurisdiction over a case
would be to consider not only the status or relationship of the parties but also the nature of the question that is the
subject of their controversy.
Not every conflict between a corporation and its stockholders involves corporate matters that only the SEC can resolve
in the exercise of its adjudicatory or quasi-judicial powers. If, for example, a person leases an apartment owned by a
corporation of which he is a stockholder, there should be no question that a complaint for his ejectment for non-
payment of rentals would still come under the jurisdiction of the regular courts and not of the SEC. By the same token,
if one person injures another in a vehicular accident, the complaint for damages filed by the victim will not come under
the jurisdiction of the SEC simply because of the happenstance that both parties are stockholders of the same
corporation. A contrary interpretation would dissipate the powers of the regular courts and distort the meaning and
intent of PD No. 902-A.
In another case, Mainland Construction Co., Inc. v. Movilla,28cra1aw the Court reiterated these determinants
thuswise:chanroblesvirtualawlibrary
In order that the SEC (now the regular courts) can take cognizance of a case, the controversy must pertain to any of
the following relationships:chanroblesvirtualawlibrary
a) between the corporation, partnership or association and the public;
b) between the corporation, partnership or association and its stockholders, partners, members or officers;
c) between the corporation, partnership or association and the State as far as its franchise, permit or license to operate
is concerned; and
d) among the stockholders, partners or associates themselves.
The fact that the parties involved in the controversy are all stockholders or that the parties involved are the
stockholders and the corporation does not necessarily place the dispute within the ambit of the jurisdiction of SEC. The
better policy to be followed in determining jurisdiction over a case should be to consider concurrent factors such as the
status or relationship of the parties or the nature of the question that is the subject of their controversy. In the absence
of any one of these factors, the SEC will not have jurisdiction. Furthermore, it does not necessarily follow that every
conflict between the corporation and its stockholders would involve such corporate matters as only the SEC can
resolve in the exercise of its adjudicatory or quasi-judicial powers.29chanroblesvirtuallawlibrary
The criteria for distinguishing between corporate officers who may be ousted from office at will, on one hand, and
ordinary corporate employees who may only be terminated for just cause, on the other hand, do not depend on the
nature of the services performed, but on the manner of creation of the office. In the respondents case, he was
supposedly at once an employee, a stockholder, and a Director of Matling. The circumstances surrounding his
appointment to office must be fully considered to determine whether the dismissal constituted an intra-corporate
controversy or a labor termination dispute. We must also consider whether his status as Director and stockholder had
any relation at all to his appointment and subsequent dismissal as Vice President for Finance and Administration.
Obviously enough, the respondent was not appointed as Vice President for Finance and Administration because of his
being a stockholder or Director of Matling. He had started working for Matling on September 8, 1966, and had been
employed continuously for 33 years until his termination on April 17, 2000, first as a bookkeeper, and his climb in 1987
to his last position as Vice President for Finance and Administration had been gradual but steady, as the following
sequence indicates:chanroblesvirtualawlibrary
1966 Bookkeeper
1968 Senior Accountant
1969 Chief Accountant
1972 Office Supervisor
1973 Assistant Treasurer
1978 Special Assistant for Finance
1980 Assistant Comptroller
1983 Finance and Administrative Manager
1985 Asst. Vice President for Finance and Administration
1987 to April 17, 2000 Vice President for Finance and Administration
Even though he might have become a stockholder of Matling in 1992, his promotion to the position of Vice President
for Finance and Administration in 1987 was by virtue of the length of quality service he had rendered as an employee
of Matling. His subsequent acquisition of the status of Director/stockholder had no relation to his promotion. Besides,
his status of Director/stockholder was unaffected by his dismissal from employment as Vice President for Finance and
Administration.
In Prudential Bank and Trust Company v. Reyes,30cra1aw a case involving a lady bank manager who had risen from
the ranks but was dismissed, the Court held that her complaint for illegal dismissal was correctly brought to the NLRC,
because she was deemed a regular employee of the bank. The Court observed thus:chanroblesvirtualawlibrary
It appears that private respondent was appointed Accounting Clerk by the Bank on July 14, 1963. From that position
she rose to become supervisor. Then in 1982, she was appointed Assistant Vice-President which she occupied until
her illegal dismissal on July 19, 1991. The banks contention that she merely holds an elective position and that in
effect she is not a regular employee is belied by the nature of her work and her length of service with the
Bank. As earlier stated, she rose from the ranks and has been employed with the Bank since 1963 until the
termination of her employment in 1991. As Assistant Vice President of the Foreign Department of the Bank, she is
tasked, among others, to collect checks drawn against overseas banks payable in foreign currency and to ensure the
collection of foreign bills or checks purchased, including the signing of transmittal letters covering the same. It has
been stated that "the primary standard of determining regular employment is the reasonable connection between the
particular activity performed by the employee in relation to the usual trade or business of the employer. Additionally,
"an employee is regular because of the nature of work and the length of service, not because of the mode or even the
reason for hiring them." As Assistant Vice-President of the Foreign Department of the Bank she performs tasks integral
to the operations of the bank and her length of service with the bank totaling 28 years speaks volumes of her status as
a regular employee of the bank. In fine, as a regular employee, she is entitled to security of tenure; that is, her services
may be terminated only for a just or authorized cause. This being in truth a case of illegal dismissal, it is no wonder
then that the Bank endeavored to the very end to establish loss of trust and confidence and serious misconduct on the
part of private respondent but, as will be discussed later, to no avail.
WHEREFORE, we deny the petition for review on certiorari, and affirm the decision of the Court of Appeals.
Costs of suit to be paid by the petitioners.
SO ORDERED.
SECOND DIVISION
G.R. No. 167291 : January 12, 2011
PRINCE TRANSPORT, INC. and MR. RENATO CLAROS, Petitioners, v. DIOSDADO GARCIA, LUISITO GARCIA,
RODANTE ROMERO, REX BARTOLOME, FELICIANO GASCO, JR., DANILO ROJO, EDGAR SANFUEGO,
AMADO GALANTO, EUTIQUIO LUGTU, JOEL GRAMATICA, MIEL CERVANTES, TERESITA CABANES, ROE
DELA CRUZ, RICHELO BALIDOY, VILMA PORRAS, MIGUELITO SALCEDO, CRISTINA GARCIA, MARIO
NAZARENO, DINDO TORRES, ESMAEL RAMBOYONG, ROBETO* MANO, ROGELIO BAGAWISAN, ARIEL
SNACHEZ, ESTAQULO VILLAREAL, NELSON MONTERO, GLORIA ORANTE, HARRY TOCA, PABLITO
MACASAET and RONALD GARCITA, Respondents.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court praying for the annulment of
the Decision1cralaw and Resolution2cralaw of the Court of Appeals (CA) dated December 20, 2004 and February 24,
2005, respectively, in CA-G.R. SP No. 80953. The assailed Decision reversed and set aside the Resolutions dated
May 30, 20033cralaw and September 26, 20034cralaw of the National Labor Relations Commission (NLRC) in CA No.
029059-01,while the disputed Resolution denied petitioners' Motion for Reconsideration.
The present petition arose from various complaints filed by herein respondents charging petitioners with illegal
dismissal, unfair labor practice and illegal deductions and praying for the award of premium pay for holiday and rest
day, holiday pay, service leave pay, 13th month pay, moral and exemplary damages and attorney's fees.
Respondents alleged in their respective position papers and other related pleadings that they were employees of
Prince Transport, Inc. (PTI), a company engaged in the business of transporting passengers by land; respondents
were hired either as drivers, conductors, mechanics or inspectors, except for respondent Diosdado Garcia (Garcia),
who was assigned as Operations Manager; in addition to their regular monthly income, respondents also received
commissions equivalent to 8 to 10% of their wages; sometime in October 1997, the said commissions were reduced to
7 to 9%; this led respondents and other employees of PTI to hold a series of meetings to discuss the protection of their
interests as employees; these meetings led petitioner Renato Claros, who is the president of PTI, to suspect that
respondents are about to form a union; he made known to Garcia his objection to the formation of a union; in
December 1997, PTI employees requested for a cash advance, but the same was denied by management which
resulted in demoralization on the employees' ranks; later, PTI acceded to the request of some, but not all, of the
employees; the foregoing circumstances led respondents to form a union for their mutual aid and protection; in order to
block the continued formation of the union, PTI caused the transfer of all union members and sympathizers to one of
its sub-companies, Lubas Transport (Lubas); despite such transfer, the schedule of drivers and conductors, as well as
their company identification cards, were issued by PTI; the daily time records, tickets and reports of the respondents
were also filed at the PTI office; and, all claims for salaries were transacted at the same office; later, the business of
Lubas deteriorated because of the refusal of PTI to maintain and repair the units being used therein, which resulted in
the virtual stoppage of its operations and respondents' loss of employment.
Petitioners, on the other hand, denied the material allegations of the complaints contending that herein respondents
were no longer their employees, since they all transferred to Lubas at their own request; petitioners have nothing to do
with the management and operations of Lubas as well as the control and supervision of the latter's employees;
petitioners were not aware of the existence of any union in their company and came to know of the same only in June
1998 when they were served a copy of the summons in the petition for certification election filed by the union; that
before the union was registered on April 15, 1998, the complaint subject of the present petition was already filed; that
the real motive in the filing of the complaints was because PTI asked respondents to vacate the bunkhouse where they
(respondents) and their respective families were staying because PTI wanted to renovate the same.
Subsequently, the complaints filed by respondents were consolidated.
On October 25, 2000, the Labor Arbiter rendered a Decision,5cralaw the dispositive portion of which reads as
follows: chanrob1esvirtwallawlibrary
WHEREFORE, judgment is hereby rendered: chanrob1esvirtwallawlibrary
1. Dismissing the complaints for Unfair Labor Practice, non-payment of holiday pay and holiday premium, service
incentive leave pay and 13 th month pay; chanroblesvirtualawlibrary
Dismissing the complaint of Edgardo Belda for refund of boundary-hulog; chanroblesvirtualawlibrary
2. Dismissing the complaint for illegal dismissal against the respondents Prince Transport, Inc. and/or Prince Transport
Phils. Corporation, Roberto Buenaventura, Rory Bayona, Ailee Avenue, Nerissa Uy, Mario Feranil and Peter
Buentiempo; chanroblesvirtualawlibrary
3. Declaring that the complainants named below are illegally dismissed by Lubas Transport; ordering said Lubas
Transport to pay backwages and separation pay in lieu of reinstatement in the following
amount: chanrob1esvirtwallawlibrary
Complainants Backwages Separation Pay
Complainants Backwages Separation Pay
(1) Diosdado Garcia P222,348.70 P79,456.00
(2) Feliciano Gasco, Jr. 203,350.00 54,600.00
(3) Pablito Macasaet 145,250.00 13,000.00
(4) Esmael Ramboyong 221,500.00 30,000.00
(5) Joel Gramatica 221,500.00 60,000.00
 (6) Amado Galanto 130,725.00 29,250.00 41. Danilo Rojo P355,560.00 P48,000.00
(7) Miel Cervantes 265,800.00 60,000.00 42. Danilo Laurel P357,960.00 P72,000.00
(8) Roberto Mano 221,500.00 50,000.00 As regards all other aspects, the Decision appealed from is SUSTAINED.
(9) Roe dela Cruz 265,800.00 60,000.00 SO ORDERED.7cralawredlaw
(10) Richelo Balidoy 130,725.00 29,250.00 Respondents filed a Motion for Reconsideration, but the NLRC denied it in its Resolution8cralaw dated September 26,
(11) Vilma Porras 221,500.00 70,000.00 2003.
(12) Miguelito Salcedo 265,800.00 60,000.00 Respondents then filed a special civil action for certiorari with the CA assailing the Decision and Resolution of the
(13) Cristina Garcia 130,725.00 35,100.00 NLRC.
(14) Luisito Garcia 145,250.00 19,500.00 On December 20, 2004, the CA rendered the herein assailed Decision which granted respondents' petition. The CA
(15) Rogelio Bagawisan 265,800.00 60,000.00 ruled that petitioners are guilty of unfair labor practice; that Lubas is a mere instrumentality, agent conduit or adjunct of
(16) Rodante H. Romero 221,500.00 60,000.00 PTI; and that petitioners' act of transferring respondents' employment to Lubas is indicative of their intent to frustrate
(17) Dindo Torres 265,800.00 50,000.00 the efforts of respondents to organize themselves into a union. Accordingly, the CA disposed of the case as
(18) Edgar Sanfuego 221,500.00 40,000.00 follows: chanrob1esvirtwallawlibrary
(19) Ronald Gacita 221,500.00 40,000.00 WHEREFORE , the Petition for Certiorari is hereby GRANTED. Accordingly, the subject decision is hereby
(20) Harry Toca 174,300.00 23,400.00 REVERSED and SET ASIDE and another one ENTERED finding the respondents guilty of unfair labor practice and
(21) Amado Galanto 130,725.00 17,550.00 ordering them to reinstate the petitioners to their former positions without loss of seniority rights and with full
(22) Teresita Cabaes 130,725.00 17,550.00 backwages.
(23) Rex Bartolome 301,500.00 30,000.00 With respect to the portion ordering the inclusion of Danilo Rojo and Danilo Laurel in the computation of petitioner's
(24) Mario Nazareno 221,500.00 30,000.00 claim for backwages and with respect to the portion ordering the refund of Edgardo Belda's boundary-hulog in the
(25) Eustaquio Villareal 145,250.00 19,500.00 amount of P 446,862.00, the NLRC decision is affirmed and maintained.
(26) Ariel Sanchez 265,800.00 60,000.00 SO ORDERED.9cralawredlaw
(27) Gloria Orante 263,100.00 60,000.00 Petitioners filed a Motion for Reconsideration, but the CA denied it via its Resolution10cralaw dated February 24, 2005.
(28) Nelson Montero 264,600.00 60,000.00 Hence, the instant petition for review on certiorari based on the following grounds: chanrob1esvirtwallawlibrary
(29) Rizal Beato 295,000.00 40,000.00 A
(30) Eutiquio Lugtu 354,000.00 48,000.00 THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN GIVING DUE COURSE TO THE
(31) Warlito Dickensomn 295,000.00 40,000.00 RESPONDENTS' PETITION FOR CERTIORARI
(32) Edgardo Belda 354,000.00 84,000.00 1. THE COURT OF APPEALS SHOULD HAVE RESPECTED THE FINDINGS OF THE LABOR ARBITER AND
(33) Tita Go 295,000.00 70,000.00 AFFIRMED BY THE NLRC
(34) Alex Lodor 295,000.00 50,000.00 2. ONLY ONE PETITIONER EXECUTED AND VERIFIED THE PETITION
(35) Glenda Arguilles 295,000.00 40,000.00 3. THE COURT OF APPEALS SHOULD NOT HAVE GIVEN DUE COURSE TO THE PETITION WITH RESPECT TO
(36) Erwin Luces 354,000.00 48,000.00 RESPONDENTS REX BARTOLOME, FELICIANO GASCO, DANILO ROJO, EUTIQUIO LUGTU, AND NELSON
(37) Jesse Celle 354,000.00 48,000.00 MONTERO AS THEY FAILED TO FILE AN APPEAL TO THE NLRC
(38) Roy Adorable 295,000.00 40,000.00 B
(39) Marlon Bangcoro 295,000.00 40,000.00 THE COURT OF APPEALS SERIOUSLY ERRED IN DECLARING THAT PETITIONERS PRINCE TRANSPORT, INC.
(40)Edgardo Bangcoro 354,000.00 36,000.00 AND MR. RENATO CLAROS AND LUBAS TRANSPORT ARE ONE AND THE SAME CORPORATION AND THUS,
chanroblesvirtualawlibrary LIABLE IN SOLIDUM TO RESPONDENTS.
4. Ordering Lubas Transport to pay attorney's fees equivalent to ten (10%) of the total monetary award; and C
6. Ordering the dismissal of the claim for moral and exemplary damages for lack merit. THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN ORDERING THE REINSTATEMENT
SO ORDERED.6cralawredlaw OF RESPONDENTS TO THEIR PREVIOUS POSITION WHEN IT IS NOT ONE OF THE ISSUES RAISED IN
The Labor Arbiter ruled that petitioners are not guilty of unfair labor practice in the absence of evidence to show that RESPONDENTS' PETITION FOR CERTIORARI.11cralawredlaw
they violated respondents' right to self-organization. The Labor Arbiter also held that Lubas is the respondents' Petitioners assert that factual findings of agencies exercising quasi-judicial functions like the NLRC are accorded not
employer and that it (Lubas) is an entity which is separate, distinct and independent from PTI. Nonetheless, the Labor only respect but even finality; that the CA should have outrightly dismissed the petition filed before it because
Arbiter found that Lubas is guilty of illegally dismissing respondents from their employment. in certiorariproceedings under Rule 65 of the Rules of Court it is not within the province of the CA to evaluate the
Respondents filed a Partial Appeal with the NLRC praying, among others, that PTI should also be held equally liable sufficiency of evidence upon which the NLRC based its determination, the inquiry being limited essentially to whether
as Lubas. or not said tribunal has acted without or in excess of its jurisdiction or with grave abuse of discretion. Petitioners assert
In a Resolution dated May 30, 2003, the NLRC modified the Decision of the Labor Arbiter and disposed as that the CA can only pass upon the factual findings of the NLRC if they are not supported by evidence on record, or if
follows: chanrob1esvirtwallawlibrary the impugned judgment is based on misapprehension of facts - which circumstances are not present in this case.
WHEREFORE, premises considered, the appeal is hereby PARTIALLY GRANTED. Accordingly, the Decision Petitioners also emphasize that the NLRC and the Labor Arbiter concurred in their factual findings which were based
appealed from is SUSTAINED subject to the modification that Complainant-Appellant Edgardo Belda deserves refund on substantial evidence and, therefore, should have been accorded great weight and respect by the CA.
of his boundary-hulog in the amount of P 446,862.00; and that Complainants-Appellants Danilo Rojo and Danilo Laurel Respondents, on the other hand, aver that the CA neither exceeded its jurisdiction nor committed error in re-evaluating
should be included in the computation of Complainants-Appellants claim as follows: chanrob1esvirtwallawlibrary the NLRC's factual findings since such findings are not in accord with the evidence on record and the applicable law or
Complainants Backwages Separation Pay jurisprudence.
The Court agrees with respondents.
The power of the CA to review NLRC decisions via a petition for certiorari under Rule 65 of the Rules of Court has
been settled as early as this Court's decision in St. Martin Funeral Homes v. NLRC.12cralaw In said case, the Court
held that the proper vehicle for such review is a special civil action for certiorari under Rule 65 of the said Rules, and
that the case should be filed with the CA in strict observance of the doctrine of hierarchy of courts. Moreover, it is
already settled that under Section 9 of Batas Pambansa Blg. 129, as amended by Republic Act No. 7902, the CA -
pursuant to the exercise of its original jurisdiction over petitions forcertiorari - is specifically given the power to pass
upon the evidence, if and when necessary, to resolve factual issues.13cralaw Section 9 clearly
states: chanrob1esvirtwallawlibrary
xxx
The Court of Appeals shall have the power to try cases and conduct hearings, receive evidence and perform any and
all acts necessary to resolve factual issues raised in cases falling within its original and appellate jurisdiction, including
the power to grant and conduct new trials or further proceedings. x x x
However, equally settled is the rule that factual findings of labor officials, who are deemed to have acquired expertise
in matters within their jurisdiction, are generally accorded not only respect but even finality by the courts when
supported by substantial evidence, i.e., the amount of relevant evidence which a reasonable mind might accept as
adequate to justify a conclusion.14cralaw But these findings are not infallible. When there is a showing that they were
arrived at arbitrarily or in disregard of the evidence on record, they may be examined by the courts.15cralaw The CA
can grant the petition for certiorari if it finds that the NLRC, in its assailed decision or resolution, made a factual finding
not supported by substantial evidence.16cralaw It is within the jurisdiction of the CA, whose jurisdiction over labor cases
has been expanded to review the findings of the NLRC.17cralawredlaw
In this case, the NLRC sustained the factual findings of the Labor Arbiter. Thus, these findings are generally binding on
the appellate court, unless there was a showing that they were arrived at arbitrarily or in disregard of the evidence on
record. In respondents' petition for certiorari with the CA, these factual findings were reexamined and reversed by the
appellate court on the ground that they were not in accord with credible evidence presented in this case. To determine
if the CA's reexamination of factual findings and reversal of the NLRC decision are proper and with sufficient basis, it is
incumbent upon this Court to make its own evaluation of the evidence on record.18cralawredlaw
After a thorough review of the records at hand, the Court finds that the CA did not commit error in arriving at its own
findings and conclusions for reasons to be discussed hereunder.
Firstly, petitioners posit that the petition filed with the CA is fatally defective, because the attached verification and
certificate against forum shopping was signed only by respondent Garcia.
The Court does not agree.
While the general rule is that the certificate of non-forum shopping must be signed by all the plaintiffs in a case and the
signature of only one of them is insufficient, the Court has stressed that the rules on forum shopping, which were
designed to promote and facilitate the orderly administration of justice, should not be interpreted with such absolute
literalness as to subvert its own ultimate and legitimate objective.19cralaw Strict compliance with the provision
regarding the certificate of non-forum shopping underscores its mandatory nature in that the certification cannot be
altogether dispensed with or its requirements completely disregarded.20cralaw It does not, however, prohibit substantial
compliance therewith under justifiable circumstances, considering especially that although it is obligatory, it is not
jurisdictional.21cralawredlaw
In a number of cases, the Court has consistently held that when all the petitioners share a common interest and invoke
a common cause of action or defense, the signature of only one of them in the certification against forum shopping
substantially complies with the rules.22cralaw In the present case, there is no question that respondents share a
common interest and invoke a common cause of action. Hence, the signature of respondent Garcia is a sufficient
compliance with the rule governing certificates of non-forum shopping. In the first place, some of the respondents
actually executed a Special Power of Attorney authorizing Garcia as their attorney-in-fact in filing a petition
for certiorari with the CA.23cralawredlaw
The Court, likewise, does not agree with petitioners' argument that the CA should not have given due course to the
petition filed before it with respect to some of the respondents, considering that these respondents did not sign the
verification attached to the Memorandum of Partial Appeal earlier filed with the NLRC. Petitioners assert that the
decision of the Labor Arbiter has become final and executory with respect to these respondents and, as a
consequence, they are barred from filing a petition for certiorari with the CA.
With respect to the absence of some of the workers' signatures in the verification, the verification requirement is
deemed substantially complied with when some of the parties who undoubtedly have sufficient knowledge and belief to
swear to the truth of the allegations in the petition had signed the same. Such verification is deemed a sufficient
assurance that the matters alleged in the petition have been made in good faith or are true and correct, and not merely
speculative. Moreover, respondents' Partial Appeal shows that the appeal stipulated as complainants-appellants "Rizal
Beato, et al.", meaning that there were more than one appellant who were all workers of petitioners.
In any case, the settled rule is that a pleading which is required by the Rules of Court to be verified, may be given due
course even without a verification if the circumstances warrant the suspension of the rules in the interest of
justice.24cralawIndeed, the absence of a verification is not jurisdictional, but only a formal defect, which does not of
itself justify a court in refusing to allow and act on a case.25cralaw Hence, the failure of some of the respondents to sign
the verification attached to their Memorandum of Appeal filed with the NLRC is not fatal to their cause of action.
Petitioners also contend that the CA erred in applying the doctrine of piercing the corporate veil with respect to Lubas,
because the said doctrine is applicable only to corporations and Lubas is not a corporation but a single proprietorship;
that Lubas had been found by the Labor Arbiter and the NLRC to have a personality which is separate and distinct
from that of PTI; that PTI had no hand in the management and operation as well as control and supervision of the
employees of Lubas.
The Court is not persuaded.
On the contrary, the Court agrees with the CA that Lubas is a mere agent, conduit or adjunct of PTI. A settled
formulation of the doctrine of piercing the corporate veil is that when two business enterprises are owned, conducted
and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties,
disregard the legal fiction that these two entities are distinct and treat them as identical or as one and the
same.26cralaw In the present case, it may be true that Lubas is a single proprietorship and not a corporation. However,
petitioners' attempt to isolate themselves from and hide behind the supposed separate and distinct personality of
Lubas so as to evade their liabilities is precisely what the classical doctrine of piercing the veil of corporate entity seeks
to prevent and remedy.
Thus, the Court agrees with the observations of the CA, to wit: chanrob1esvirtwallawlibrary
As correctly pointed out by petitioners, if Lubas were truly a separate entity, how come that it was Prince Transport
who made the decision to transfer its employees to the former? Besides, Prince Transport never regarded Lubas
Transport as a separate entity. In the aforesaid letter, it referred to said entity as "Lubas operations." Moreover, in said
letter, it did not transfer the employees; it "assigned" them. Lastly, the existing funds and 201 file of the employees
were turned over not to a new company but a "new management."27cralawredlaw
The Court also agrees with respondents that if Lubas is indeed an entity separate and independent from PTI why is it
that the latter decides which employees shall work in the former?
What is telling is the fact that in a memorandum issued by PTI, dated January 22, 1998, petitioner company admitted
that Lubas is one of its sub-companies.28cralaw In addition, PTI, in its letters to its employees who were transferred to
Lubas, referred to the latter as its "New City Operations Bus."29cralawredlaw
Moreover, petitioners failed to refute the contention of respondents that despite the latter's transfer to Lubas of their
daily time records, reports, daily income remittances of conductors, schedule of drivers and conductors were all made,
performed, filed and kept at the office of PTI. In fact, respondents' identification cards bear the name of PTI.
It may not be amiss to point out at this juncture that in two separate illegal dismissal cases involving different groups of
employees transferred by PTI to other companies, the Labor Arbiter handling the cases found that these companies
and PTI are one and the same entity; thus, making them solidarily liable for the payment of backwages and other
money claims awarded to the complainants therein.30cralawredlaw
Petitioners likewise aver that the CA erred and committed grave abuse of discretion when it ordered petitioners to
reinstate respondents to their former positions, considering that the issue of reinstatement was never brought up
before it and respondents never questioned the award of separation pay to them.
The Court is not persuaded.
It is clear from the complaints filed by respondents that they are seeking reinstatement.31cralawredlaw
In any case, Section 2 (c), Rule 7 of the Rules of Court provides that a pleading shall specify the relief sought, but may
add a general prayer for such further or other reliefs as may be deemed just and equitable. Under this rule, a court can
grant the relief warranted by the allegation and the proof even if it is not specifically sought by the injured party; the
inclusion of a general prayer may justify the grant of a remedy different from or together with the specific remedy
sought, if the facts alleged in the complaint and the evidence introduced so warrant.32cralawredlaw
Moreover, in BPI Family Bank v. Buenaventura,33cralaw this Court ruled that the general prayer is broad enough "to
justify extension of a remedy different from or together with the specific remedy sought." Even without the prayer for a
specific remedy, proper relief may be granted by the court if the facts alleged in the complaint and the evidence
introduced so warrant. The court shall grant relief warranted by the allegations and the proof even if no such relief is
prayed for. The prayer in the complaint for other reliefs equitable and just in the premises justifies the grant of a relief
not otherwise specifically prayed for.34cralaw In the instant case, aside from their specific prayer for reinstatement,
respondents, in their separate complaints, prayed for such reliefs which are deemed just and equitable.
As to whether petitioners are guilty of unfair labor practice, the Court finds no cogent reason to depart from the findings
of the CA that respondents' transfer of work assignments to Lubas was designed by petitioners as a subterfuge to foil
the former's right to organize themselves into a union. Under Article 248 (a) and (e) of the Labor Code, an employer is
guilty of unfair labor practice if it interferes with, restrains or coerces its employees in the exercise of their right to self-
organization or if it discriminates in regard to wages, hours of work and other terms and conditions of employment in
order to encourage or discourage membership in any labor organization.
Indeed, evidence of petitioners' unfair labor practice is shown by the established fact that, after respondents' transfer to
Lubas, petitioners left them high and dry insofar as the operations of Lubas was concerned. The Court finds no error in
the findings and conclusion of the CA that petitioners "withheld the necessary financial and logistic support such as
spare parts, and repair and maintenance of the transferred buses until only two units remained in running condition."
This left respondents virtually jobless.
WHEREFORE , the instant petition is denied. The assailed Decision and Resolution of the Court of Appeals, dated
December 20, 2004 and February 24, 2005, respectively, in CA-G.R. SP No. 80953, are AFFIRMED.
SO ORDERED .
MARC II MARKETING, INC. and LUCILA V. JOSON, G.R. No. 171993
Petitioners, Present:
CARPIO, J.,
Chairperson,
BRION,
- versus - PEREZ,
SERENO, and
REYES, JJ.
ALFREDO M. JOSON, Promulgated:
Respondent.
December 12, 2011
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
PEREZ, J.:
In this Petition for Review on Certiorari under Rule 45 of the Rules of Court, herein petitioners Marc II Marketing, Inc.
and Lucila V. Joson assailed the Decision[1] dated 20 June 2005 of the Court of Appeals in CA-G.R. SP No. 76624 for
reversing and setting aside the Resolution[2] of the National Labor Relations Commission (NLRC) dated 15 October
2002, thereby affirming the Labor Arbiters Decision[3]dated 1 October 2001 finding herein respondent Alfredo M.
Josons dismissal from employment as illegal. In the questioned Decision, the Court of Appeals upheld the Labor
Arbiters jurisdiction over the case on the basis that respondent was not an officer but a mere employee of petitioner
Marc II Marketing, Inc., thus, totally disregarding the latters allegation of intra-corporate controversy. Nonetheless, the
Court of Appeals remanded the case to the NLRC for further proceedings to determine the proper amount of monetary
awards that should be given to respondent.
Assailed as well is the Court of Appeals Resolution[4] dated 7 March 2006 denying their Motion for Reconsideration.
Petitioner Marc II Marketing, Inc. (petitioner corporation) is a corporation duly organized and existing under and by
virtue of the laws of the Philippines. It is primarily engaged in buying, marketing, selling and distributing in retail or
wholesale for export or import household appliances and products and other items.[5] It took over the business
operations of Marc Marketing, Inc. which was made non-operational following its incorporation and registration with the
Securities and Exchange Commission (SEC). Petitioner Lucila V. Joson (Lucila) is the President and majority
stockholder of petitioner corporation. She was also the former President and majority stockholder of the defunct Marc
Marketing, Inc.
Respondent Alfredo M. Joson (Alfredo), on the other hand, was the General Manager, incorporator, director and
stockholder of petitioner corporation.
The controversy of this case arose from the following factual milieu:
Before petitioner corporation was officially incorporated,[6] respondent has already been engaged by petitioner Lucila,
in her capacity as President of Marc Marketing, Inc., to work as the General Manager of petitioner corporation. It was
formalized through the execution of a Management Contract[7] dated 16 January 1994 under the letterhead of Marc
Marketing, Inc.[8] as petitioner corporation is yet to be incorporated at the time of its execution. It was explicitly provided
therein that respondent shall be entitled to 30% of its net income for his work as General Manager. Respondent will
also be granted 30% of its net profit to compensate for the possible loss of opportunity to work overseas.[9]
Pending incorporation of petitioner corporation, respondent was designated as the General Manager of Marc
Marketing, Inc., which was then in the process of winding up its business. For occupying the said position, respondent
was among its corporate officers by the express provision of Section 1, Article IV[10] of its by-laws.[11]
On 15 August 1994, petitioner corporation was officially incorporated and registered with the SEC. Accordingly, Marc
Marketing, Inc. was made non-operational. Respondent continued to discharge his duties as General Manager but this
time under petitioner corporation.
Pursuant to Section 1, Article IV[12] of petitioner corporations by-laws,[13] its corporate officers are as follows: Chairman,
President, one or more Vice-President(s), Treasurer and Secretary. Its Board of Directors, however, may, from time to
time, appoint such other officers as it may determine to be necessary or proper.
Per an undated Secretarys Certificate,[14] petitioner corporations Board of Directors conducted a meeting on 29 August
1994 where respondent was appointed as one of its corporate officers with the designation or title of General Manager
to function as a managing director with other duties and responsibilities that the Board of Directors may provide and
authorized.[15]
Nevertheless, on 30 June 1997, petitioner corporation decided to stop and cease its operations, as evidenced by an
Affidavit of Non-Operation[16] dated 31 August 1998, due to poor sales collection aggravated by the inefficient
management of its affairs. On the same date, it formally informed respondent of the cessation of its business
operation. Concomitantly, respondent was apprised of the termination of his services as General Manager since his
services as such would no longer be necessary for the winding up of its affairs.[17]
Feeling aggrieved, respondent filed a Complaint for Reinstatement and Money Claim against petitioners before the
Labor Arbiter which was docketed as NLRC NCR Case No. 00-03-04102-99.
In his complaint, respondent averred that petitioner Lucila dismissed him from his employment with petitioner
corporation due to the feeling of hatred she harbored towards his family. The same was rooted in the filing by petitioner
Lucilas estranged husband, who happened to be respondents brother, of a Petition for Declaration of Nullity of their
Marriage.[18]
For the parties failure to settle the case amicably, the Labor Arbiter required them to submit their respective position
papers.Respondent complied but petitioners opted to file a Motion to Dismiss grounded on the Labor Arbiters lack of
jurisdiction as the case involved an intra-corporate controversy, which jurisdiction belongs to the SEC [now with the
Regional Trial Court (RTC)].[19] Petitioners similarly raised therein the ground of prescription of respondents monetary
claim.
On 5 September 2000, the Labor Arbiter issued an Order[20] deferring the resolution of petitioners Motion to Dismiss
until the final determination of the case. The Labor Arbiter also reiterated his directive for petitioners to submit position
paper. Still, petitioners did not comply. Insisting that the Labor Arbiter has no jurisdiction over the case, they instead
filed an Urgent Motion to Resolve the Motion to Dismiss and the Motion to Suspend Filing of Position Paper.
In an Order[21] dated 15 February 2001, the Labor Arbiter denied both motions and declared final the Order dated 5
September 2000.The Labor Arbiter then gave petitioners a period of five days from receipt thereof within which to file
position paper, otherwise, their Motion to Dismiss will be treated as their position paper and the case will be considered
submitted for decision.
Petitioners, through counsel, moved for extension of time to submit position paper. Despite the requested extension,
petitioners still failed to submit the same. Accordingly, the case was submitted for resolution.
On 1 October 2001, the Labor Arbiter rendered his Decision in favor of respondent. Its decretal portion reads as
follows:
WHEREFORE, premises considered, judgment is hereby rendered declaring [respondents] dismissal from
employment illegal.Accordingly, [petitioners] are hereby ordered:
1. To reinstate [respondent] to his former or equivalent position without loss of seniority rights, benefits, and
privileges;
2. Jointly and severally liable to pay [respondents] unpaid wages in the amount of P450,000.00 per month from [26
March 1996] up to time of dismissal in the total amount of P6,300,000.00;
3. Jointly and severally liable to pay [respondents] full backwages in the amount of P450,000.00 per month from
date of dismissal until actual reinstatement which at the time of promulgation amounted to P21,600,000.00;
4. Jointly and severally liable to pay moral damages in the amount of P100,000.00 and attorneys fees in the amount
of 5% of the total monetary award.[22] [Emphasis supplied.]
In the aforesaid Decision, the Labor Arbiter initially resolved petitioners Motion to Dismiss by finding the ground of lack
of jurisdiction to be without merit. The Labor Arbiter elucidated that petitioners failed to adduce evidence to prove that
the present case involved an intra-corporate controversy. Also, respondents money claim did not arise from his being a
director or stockholder of petitioner corporation but from his position as being its General Manager. The Labor Arbiter
likewise held that respondent was not a corporate officer under petitioner corporations by-laws. As such, respondents
complaint clearly arose from an employer-employee relationship, thus, subject to the Labor Arbiters jurisdiction.
The Labor Arbiter then declared respondents dismissal from employment as illegal. Respondent, being a regular
employee of petitioner corporation, may only be dismissed for a valid cause and upon proper compliance with the
requirements of due process. The records, though, revealed that petitioners failed to present any evidence to justify
respondents dismissal.
Aggrieved, petitioners appealed the aforesaid Labor Arbiters Decision to the NLRC.
In its Resolution dated 15 October 2002, the NLRC ruled in favor of petitioners by giving credence to the Secretarys
Certificate, which evidenced petitioner corporations Board of Directors meeting in which a resolution was approved
appointing respondent as its corporate officer with designation as General Manager. Therefrom, the NLRC reversed
and set aside the Labor Arbiters Decision dated 1 October 2001and dismissed respondents Complaint for want of
jurisdiction.[23]
The NLRC enunciated that the validity of respondents appointment and termination from the position of General
Manager was made subject to the approval of petitioner corporations Board of Directors. Had respondent been an
ordinary employee, such board action would not have been required. As such, it is clear that respondent was a
corporate officer whose dismissal involved a purely intra-corporate controversy. The NLRC went further by stating that
respondents claim for 30% of the net profit of the corporation can only emanate from his right of ownership therein as
stockholder, director and/or corporate officer. Dividends or profits are paid only to stockholders or directors of a
corporation and not to any ordinary employee in the absence of any profit sharing scheme. In addition, the question of
remuneration of a person who is not a mere employee but a stockholder and officer of a corporation is not a simple
labor problem. Such matter comes within the ambit of corporate affairs and management and is an intra-corporate
controversy in contemplation of the Corporation Code.[24]
When respondents Motion for Reconsideration was denied in another Resolution[25] dated 23 January 2003, he filed a
Petition for Certiorari with the Court of Appeals ascribing grave abuse of discretion on the part of the NLRC.
On 20 June 2005, the Court of Appeals rendered its now assailed Decision declaring that the Labor Arbiter has
jurisdiction over the present controversy. It upheld the finding of the Labor Arbiter that respondent was a mere
employee of petitioner corporation, who has been illegally dismissed from employment without valid cause and without
due process. Nevertheless, it ordered the records of the case remanded to the NLRC for the determination of the
appropriate amount of monetary awards to be given to respondent. The Court of Appeals, thus, decreed:
WHEREFORE, the petition is by us PARTIALLY GRANTED. The Labor Arbiter is DECLARED to have jurisdiction over
the controversy.The records are REMANDED to the NLRC for further proceedings to determine the appropriate
amount of monetary awards to be adjudged in favor of [respondent]. Costs against the [petitioners] in solidum.[26]
Petitioners moved for its reconsideration but to no avail.[27]
Petitioners are now before this Court with the following assignment of errors:
THE COURT OF APPEALS ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION IN DECIDING THAT THE
NLRC HAS THE JURISDICTION IN RESOLVING A PURELY INTRA-CORPORATE MATTER WHICH IS
COGNIZABLE BY THE SECURITIES AND EXCHANGE COMMISSION/REGIONAL TRIAL COURT.
ASSUMING, GRATIS ARGUENDO, THAT THE NLRC HAS JURISDICTION OVER THE CASE, STILL THE COURT
OF APPEALS SERIOUSLY ERRED IN NOT RULING THAT THERE IS NO EMPLOYER-EMPLOYEE RELATIONSHIP
BETWEEN [RESPONDENT] ALFREDO M. JOSON AND MARC II MARKETING, INC. [PETITIONER
CORPORATION].
ASSUMING GRATIS ARGUENDO THAT THE NLRC HAS JURISDICTION OVER THE CASE, THE COURT OF
APPEALS ERRED IN NOT RULING THAT THE LABOR ARBITER COMMITTED GRAVE ABUSE OF DISCRETION
IN AWARDING MULTI-MILLION PESOS IN COMPENSATION AND BACKWAGES BASED ON THE PURPORTED
GROSS INCOME OF [PETITIONER CORPORATION].
THE COURT OF APPEALS SERIOUSLY ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION IN NOT
MAKING ANY FINDINGS AND RULING THAT [PETITIONER LUCILA] SHOULD NOT BE HELD SOLIDARILY LIABLE
IN THE ABSENCE OF EVIDENCE OF MALICE AND BAD FAITH ON HER PART.[28]
Petitioners fault the Court of Appeals for having sustained the Labor Arbiters finding that respondent was not a
corporate officer under petitioner corporations by-laws. They insist that there is no need to amend the corporate by-
laws to specify who its corporate officers are. The resolution issued by petitioner corporations Board of Directors
appointing respondent as General Manager, coupled with his assumption of the said position, positively made him its
corporate officer. More so, respondents position, being a creation of petitioner corporations Board of Directors
pursuant to its by-laws, is a corporate office sanctioned by the Corporation Code and the doctrines previously laid
down by this Court. Thus, respondents removal as petitioner corporations General Manager involved a purely intra-
corporate controversy over which the RTC has jurisdiction.
Petitioners further contend that respondents claim for 30% of the net profit of petitioner corporation was anchored on
the purported Management Contract dated 16 January 1994. It should be noted, however, that said Management
Contract was executed at the time petitioner corporation was still nonexistent and had no juridical personality yet. Such
being the case, respondent cannot invoke any legal right therefrom as it has no legal and binding effect on petitioner
corporation. Moreover, it is clear from the Articles of Incorporation of petitioner corporation that respondent was its
director and stockholder. Indubitably, respondents claim for his share in the profit of petitioner corporation was based
on his capacity as such and not by virtue of any employer-employee relationship.
Petitioners further avow that even if the present case does not pose an intra-corporate controversy, still, the Labor
Arbiters multi-million peso awards in favor of respondent were erroneous. The same was merely based on the latters
self-serving computations without any supporting documents.
Finally, petitioners maintain that petitioner Lucila cannot be held solidarily liable with petitioner corporation. There was
neither allegation nor iota of evidence presented to show that she acted with malice and bad faith in her dealings with
respondent. Moreover, the Labor Arbiter, in his Decision, simply concluded that petitioner Lucila was jointly and
severally liable with petitioner corporation without making any findings thereon. It was, therefore, an error for the Court
of Appeals to hold petitioner Lucila solidarily liable with petitioner corporation.
From the foregoing arguments, the initial question is which between the Labor Arbiter or the RTC, has jurisdiction over
respondents dismissal as General Manager of petitioner corporation. Its resolution necessarily entails the
determination of whether respondent as General Manager of petitioner corporation is a corporate officer or a mere
employee of the latter.
While Article 217(a)2[29] of the Labor Code, as amended, provides that it is the Labor Arbiter who has the original and
exclusive jurisdiction over cases involving termination or dismissal of workers when the person dismissed or terminated
is a corporate officer, the case automatically falls within the province of the RTC. The dismissal of a corporate officer is
always regarded as a corporate act and/or an intra-corporate controversy.[30]
Under Section 5[31] of Presidential Decree No. 902-A, intra-corporate controversies are those controversies arising out
of intra-corporate or partnership relations, between and among stockholders, members or associates; between any or
all of them and the corporation, partnership or association of which they are stockholders, members or associates,
respectively; and between such corporation, partnership or association and the State insofar as it concerns their
individual franchise or right to exist as such entity. It also includes controversies in the election or appointments
of directors, trustees, officers or managers of such corporations, partnerships or associations.[32]
Accordingly, in determining whether the SEC (now the RTC) has jurisdiction over the controversy, the status or
relationship of the parties and the nature of the question that is the subject of their controversy must be taken into
consideration.[33]
In Easycall Communications Phils., Inc. v. King, this Court held that in the context of Presidential Decree No. 902-
A, corporate officers are those officers of a corporation who are given that character either by the Corporation
Code or by the corporations by-laws.Section 25[34] of the Corporation Code specifically enumerated who are these
corporate officers, to wit: (1) president; (2) secretary; (3) treasurer; and (4) such other officers as may be provided
for in the by-laws.[35]
The aforesaid Section 25 of the Corporation Code, particularly the phrase such other officers as may be provided for in
the by-laws, has been clarified and elaborated in this Courts recent pronouncement in Matling Industrial and
Commercial Corporation v. Coros, where it held, thus:
Conformably with Section 25, a position must be expressly mentioned in the [b]y-[l]aws in order to be
considered as a corporate office. Thus, the creation of an office pursuant to or under a [b]y-[l]aw enabling
provision is not enough to make a position a corporate office. [In] Guerrea v. Lezama [citation omitted] the first
ruling on the matter, held that the only officers of a corporation were those given that character either by the
Corporation Code or by the [b]y-[l]aws; the rest of the corporate officers could be considered only as
employees or subordinate officials. Thus, it was held in Easycall Communications Phils., Inc. v. King [citation
omitted]:
An "office" is created by the charter of the corporation and the officer is elected by the directors or stockholders.
On the other hand, an employee occupies no office and generally is employed not by the action of the directors or
stockholders but by the managing officer of the corporation who also determines the compensation to be paid
to such employee.
xxxx
This interpretation is the correct application of Section 25 of the Corporation Code, which plainly states that the
corporate officers are the President, Secretary, Treasurer and such other officers as may be provided for in the [b]y-
[l]aws. Accordingly, the corporate officers in the context of PD No. 902-A are exclusively those who are given
that character either by the Corporation Code or by the corporations [b]y[l]aws.
A different interpretation can easily leave the way open for the Board of Directors to circumvent the
constitutionally guaranteed security of tenure of the employee by the expedient inclusion in the [b]y-[l]aws of
an enabling clause on the creation of just any corporate officer position.
It is relevant to state in this connection that the SEC, the primary agency administering the Corporation Code,
adopted a similar interpretation of Section 25 of the Corporation Code in its Opinion dated November 25,
1993 [citation omitted], to wit:
Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are the corporate officers
enumerated in the by-laws are the exclusive Officers of the corporation and the Board has no power to create
other Offices without amending first the corporate [b]y-laws. However, the Board may create appointive
positions other than the positions of corporate Officers, but the persons occupying such positions are not
considered as corporate officers within the meaning of Section 25 of the Corporation Codeand are not
empowered to exercise the functions of the corporate Officers, except those functions lawfully delegated to them. Their
functions and duties are to be determined by the Board of Directors/Trustees.[36] [Emphasis supplied.]
A careful perusal of petitioner corporations by-laws, particularly paragraph 1, Section 1, Article IV,[37] would explicitly
reveal that its corporate officers are composed only of: (1) Chairman; (2) President; (3) one or more Vice-President; (4)
Treasurer; and (5) Secretary.[38]The position of General Manager was not among those enumerated.

Paragraph 2, Section 1, Article IV of petitioner corporations by-laws, empowered its Board of Directors to appoint such
other officers as it may determine necessary or proper.[39] It is by virtue of this enabling provision that petitioner
corporations Board of Directors allegedly approved a resolution to make the position of General Manager a corporate
office, and, thereafter, appointed respondent thereto making him one of its corporate officers. All of these acts were
done without first amending its by-laws so as to include the General Manager in its roster of corporate officers.
With the given circumstances and in conformity with Matling Industrial and Commercial Corporation v. Coros, this
Court rules that respondent was not a corporate officer of petitioner corporation because his position as General
Manager was not specifically mentioned in the roster of corporate officers in its corporate by-laws. The enabling clause
in petitioner corporations by-laws empowering its Board of Directors to create additional officers, i.e., General
Manager, and the alleged subsequent passage of a board resolution to that effect cannot make such position a
corporate office. Matling clearly enunciated that the board of directors has no power to create other corporate offices
without first amending the corporate by-laws so as to include therein the newly created corporate office. Though the
board of directors may create appointive positions other than the positions of corporate officers, the persons occupying
such positions cannot be viewed as corporate officers under Section 25 of the Corporation Code.[40] In view thereof,
this Court holds that unless and until petitioner corporations by-laws is amended for the inclusion of General Manager
in the list of its corporate officers, such position cannot be considered as a corporate office within the realm of Section
25 of the Corporation Code.
This Court considers that the interpretation of Section 25 of the Corporation Code laid down in Matling safeguards the
constitutionally enshrined right of every employee to security of tenure. To allow the creation of a corporate officer
position by a simple inclusion in the corporate by-laws of an enabling clause empowering the board of directors to do
so can result in the circumvention of that constitutionally well-protected right.[41]
It is also of no moment that respondent, being petitioner corporations General Manager, was given the functions of a
managing director by its Board of Directors. As held in Matling, the only officers of a corporation are those given that
character either by the Corporation Code or by the corporate by-laws. It follows then that the corporate officers
enumerated in the by-laws are the exclusive officers of the corporation while the rest could only be regarded as mere
employees or subordinate officials.[42] Respondent, in this case, though occupying a high ranking and vital position in
petitioner corporation but which position was not specifically enumerated or mentioned in the latters by-laws, can only
be regarded as its employee or subordinate official. Noticeably, respondents compensation as petitioner corporations
General Manager was set, fixed and determined not by the latters Board of Directors but simply by its President,
petitioner Lucila. The same was not subject to the approval of petitioner corporations Board of Directors. This is an
indication that respondent was an employee and not a corporate officer.
To prove that respondent was petitioner corporations corporate officer, petitioners presented before the NLRC an
undated Secretarys Certificate showing that corporations Board of Directors approved a resolution making respondents
position of General Manager a corporate office. The submission, however, of the said undated Secretarys Certificate
will not change the fact that respondent was an employee. The certification does not amount to an amendment of the
by-laws which is needed to make the position of General Manager a corporate office.
Moreover, as has been aptly observed by the Court of Appeals, the board resolution mentioned in that undated
Secretarys Certificate and the latter itself were obvious fabrications, a mere afterthought. Here we quote with
conformity the Court of Appeals findings on this matter stated in this wise:
The board resolution is an obvious fabrication. Firstly, if it had been in existence since [29 August 1994], why did not
[herein petitioners] attach it to their [M]otion to [D]ismiss filed on [26 August 1999], when it could have been the best
evidence that [herein respondent] was a corporate officer? Secondly, why did they report the [respondent] instead as
[herein petitioner corporations] employee to the Social Security System [(SSS)] on [11 October 1994] or a later date
than their [29 August 1994] board resolution? Thirdly, why is there no indication that the [respondent], the person
concerned himself, and the [SEC] were furnished with copies of said board resolution? And, lastly, why is the corporate
[S]ecretarys [C]ertificate not notarized in keeping with the customary procedure? That is why we called it manipulative
evidence as it was a shameless sham meant to be thrown in as a wild card to muddle up the [D]ecision of the Labor
Arbiter to the end that it be overturned as the latter had firmly pointed out that [respondent] is not a corporate officer
under [petitioner corporations by-laws]. Regrettably, the [NLRC] swallowed the bait hook-line-and sinker. It failed to see
through its nature as a belatedly manufactured evidence. And even on the assumption that it were an authentic
board resolution, it did not make [respondent] a corporate officer as the board did not first and properly create
the position of a [G]eneral [M]anager by amending its by-laws.
(2) The scope of the term officer in the phrase and such other officers as may be provided for in the by-laws[] (Sec. 25,
par. 1), would naturally depend much on the provisions of the by-laws of the corporation. (SEC Opinion, [4 December
1991.]) If the by-laws enumerate the officers to be elected by the board, the provision is conclusive, and the board is
without power to create new offices without amending the by-laws. (SEC Opinion, [19 October 1971.])
(3) If, for example, the general manager of a corporation is not listed as an officer, he is to be classified as an
employee although he has always been considered as one of the principal officers of a corporation [citing De Leon, H.
S., The Corporation Code of the Philippines Annotated, 1993 Ed., p. 215.][43] [Emphasis supplied.]
That respondent was also a director and a stockholder of petitioner corporation will not automatically make the case
fall within the ambit of intra-corporate controversy and be subjected to RTCs jurisdiction. To reiterate, not all conflicts
between the stockholders and the corporation are classified as intra-corporate. Other factors such as the status or relationship of the
parties and the nature of the question that is the subject of the controversy[44] must be considered in determining whether the
dispute involves corporate matters so as to regard them as intra-corporate controversies.[45] As previously discussed, respondent was
not a corporate officer of petitioner corporation but a mere employee thereof so there was no intra-corporate relationship between
them. With regard to the subject of the controversy or issue involved herein, i.e., respondents dismissal as petitioner corporations
General Manager, the same did not present or relate to an intra-corporate dispute. To note, there was no evidence submitted to
show that respondents removal as petitioner corporations General Manager carried with it his removal as its director
and stockholder. Also, petitioners allegation that respondents claim of 30% share of petitioner corporations net profit
was by reason of his being its director and stockholder was without basis, thus, self-serving. Such an allegation was
tantamount to a mere speculation for petitioners failure to substantiate the same.
In addition, it was not shown by petitioners that the position of General Manager was offered to respondent on account
of his being petitioner corporations director and stockholder. Also, in contrast to NLRCs findings, neither petitioner
corporations by-laws nor the Management Contract stated that respondents appointment and termination from the
position of General Manager was subject to the approval of petitioner corporations Board of Directors. If, indeed,
respondent was a corporate officer whose termination was subject to the approval of its Board of Directors, why is it
that his termination was effected only by petitioner Lucila, President of petitioner corporation? The records are bereft of
any evidence to show that respondents dismissal was done with the conformity of petitioner corporations Board of
Directors or that the latter had a hand on respondents dismissal. No board resolution whatsoever was ever presented
to that effect.
With all the foregoing, this Court is fully convinced that, indeed, respondent, though occupying the General Manager
position, was not a corporate officer of petitioner corporation rather he was merely its employee occupying a high-
ranking position.
Accordingly, respondents dismissal as petitioner corporations General Manager did not amount to an intra-corporate
controversy.Jurisdiction therefor properly belongs with the Labor Arbiter and not with the RTC.
Having established that respondent was not petitioner corporations corporate officer but merely its employee, and that,
consequently, jurisdiction belongs to the Labor Arbiter, this Court will now determine if respondents dismissal from
employment is illegal.
It was not disputed that respondent worked as petitioner corporations General Manager from its incorporation on 15
August 1994 until he was dismissed on 30 June 1997. The cause of his dismissal was petitioner corporations
cessation of business operations due to poor sales collection aggravated by the inefficient management of its affairs.
In termination cases, the burden of proving just and valid cause for dismissing an employee from his employment rests
upon the employer. The latter's failure to discharge that burden would necessarily result in a finding that the dismissal
is unjustified.[46]
Under Article 283 of the Labor Code, as amended, one of the authorized causes in terminating the employment of
an employee is the closing or cessation of operation of the establishment or undertaking. Article 283 of the
Labor Code, as amended, reads, thus:
ART. 283. Closure of establishment and reduction of personnel. The employer may also terminate the
employment of any employee due to the installation of labor saving-devices, redundancy, retrenchment to prevent
losses or the closing or cessation of operation of the establishment or undertakingunless the closing is for the
purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Department of
Labor and Employment at least one (1) month before the intended date thereof. x x x In case of retrenchment to
prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to
serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or
to at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6)
months shall be considered one (1) whole year. [Emphasis supplied.]
From the afore-quoted provision, the closure or cessation of operations of establishment or undertaking may
either be due to serious business losses or financial reverses or otherwise. If the closure or cessation was due to
serious business losses or financial reverses, it is incumbent upon the employer to sufficiently and convincingly prove
the same. If it is otherwise, the employer can lawfully close shop anytime as long as it was bona fide in character and
not impelled by a motive to defeat or circumvent the tenurial rights of employees and as long as the terminated
employees were paid in the amount corresponding to their length of service.[47]
Accordingly, under Article 283 of the Labor Code, as amended, there are three requisites for a valid cessation of
business operations: (a) service of a written notice to the employees and to the Department of Labor and
Employment (DOLE) at least one month before the intended date thereof; (b) the cessation of business must
be bona fide in character; and (c) payment to the employees of termination pay amounting to one month pay or at
least one-half month pay for every year of service, whichever is higher.
In this case, it is obvious that petitioner corporations cessation of business operations was not due to serious business
losses. Mere poor sales collection, coupled with mismanagement of its affairs does not amount to serious business
losses. Nonetheless, petitioner corporation can still validly cease or close its business operations because such right is
legally allowed, so long as it was not done for the purpose of circumventing the provisions on termination of
employment embodied in the Labor Code.[48] As has been stressed by this Court in Industrial Timber Corporation v.
Ababon, thus:
Just as no law forces anyone to go into business, no law can compel anybody to continue the same. It would be
stretching the intent and spirit of the law if a court interferes with management's prerogative to close or cease its
business operations just because the business is not suffering from any loss or because of the desire to provide the
workers continued employment.[49]
A careful perusal of the records revealed that, indeed, petitioner corporation has stopped and ceased business
operations beginning 30 June 1997. This was evidenced by a notarized Affidavit of Non-Operation dated 31 August
1998. There was also no showing that the cessation of its business operations was done in bad faith or to circumvent
the Labor Code. Nevertheless, in doing so, petitioner corporation failed to comply with the one-month prior written
notice rule. The records disclosed that respondent, being petitioner corporations employee, and the DOLE were not
given a written notice at least one month before petitioner corporation ceased its business operations. Moreover, the
records clearly show that respondents dismissal was effected on the same date that petitioner corporation decided to
stop and cease its operation.Similarly, respondent was not paid separation pay upon termination of his employment.
As respondents dismissal was not due to serious business losses, respondent is entitled to payment of separation pay
equivalent to one month pay or at least one-half month pay for every year of service, whichever is higher. The rationale
for this was laid down in Reahs Corporation v. National Labor Relations Commission,[50] thus:
The grant of separation pay, as an incidence of termination of employment under Article 283, is a statutory
obligation on the part of the employer and a demandable right on the part of the employee, except only where
the closure or cessation of operations was due to serious business losses or financial reverses and there is sufficient
proof of this fact or condition. In the absence of such proof of serious business losses or financial reverses, the
employer closing his business is obligated to pay his employees and workers their separation pay.
The rule, therefore, is that in all cases of business closure or cessation of operation or undertaking of the
employer, the affected employee is entitled to separation pay. This is consistent with the state policy of
treating labor as a primary social economic force, affording full protection to its rights as well as its
welfare. The exception is when the closure of business or cessation of operations is due to serious business losses or
financial reverses duly proved, in which case, the right of affected employees to separation pay is lost for obvious
reasons.[51] [Emphasis supplied.]
As previously discussed, respondents dismissal was due to an authorized cause, however, petitioner corporation failed
to observe procedural due process in effecting such dismissal. In Culili v. Eastern Telecommunications Philippines,
Inc.,[52] this Court made the following pronouncements, thus:
x x x there are two aspects which characterize the concept of due process under the Labor Code: one
is substantive whether the termination of employment was based on the provision of the Labor Code or in accordance
with the prevailing jurisprudence; the other is procedural the manner in which the dismissal was effected.
Section 2(d), Rule I, Book VI of the Rules Implementing the Labor Code provides:
(d) In all cases of termination of employment, the following standards of due process shall be substantially observed:
xxxx
For termination of employment as defined in Article 283 of the Labor Code, the requirement of due process shall be
deemed complied with upon service of a written notice to the employee and the appropriate Regional Office of
the Department of Labor and Employment at least thirty days before effectivity of the termination, specifying
the ground or grounds for termination.
In Mayon Hotel & Restaurant v. Adana, [citation omitted] we observed:
The requirement of law mandating the giving of notices was intended not only to enable the employees to look for
another employment and therefore ease the impact of the loss of their jobs and the corresponding income, but more
importantly, to give the Department of Labor and Employment (DOLE) the opportunity to ascertain the verity of the
alleged authorized cause of termination.[53] [Emphasis supplied].
The records of this case disclosed that there was absolutely no written notice given by petitioner corporation to the
respondent and to the DOLE prior to the cessation of its business operations. This is evident from the fact that
petitioner corporation effected respondents dismissal on the same date that it decided to stop and cease its business
operations. The necessary consequence of such failure to comply with the one-month prior written notice rule, which
constitutes a violation of an employees right to statutory due process, is the payment of indemnity in the form of
nominal damages.[54] In Culili v. Eastern Telecommunications Philippines, Inc., this Court further held:
In Serrano v. National Labor Relations Commission [citation omitted], we noted that a job is more than the salary that it
carries. There is a psychological effect or a stigma in immediately finding ones self laid off from work. This is exactly
why our labor laws have provided for mandating procedural due process clauses. Our laws, while recognizing the
right of employers to terminate employees it cannot sustain, also recognize the employees right to be properly
informed of the impending severance of his ties with the company he is working for. x x x.
x x x Over the years, this Court has had the opportunity to reexamine the sanctions imposed upon employers who fail
to comply with the procedural due process requirements in terminating its employees. In Agabon v. National Labor
Relations Commission [citation omitted], this Court reverted back to the doctrine in Wenphil Corporation v. National
Labor Relations Commission [citation omitted] and held that where the dismissal is due to a just or authorized
cause, but without observance of the due process requirements, the dismissal may be upheld but the
employer must pay an indemnity to the employee. The sanctions to be imposed however, must be stiffer than those
imposed in Wenphil to achieve a result fair to both the employers and the employees.
In Jaka Food Processing Corporation v. Pacot [citation omitted], this Court, taking a cue from Agabon, held that since
there is a clear-cut distinction between a dismissal due to a just cause and a dismissal due to an authorized cause, the
legal implications for employers who fail to comply with the notice requirements must also be treated differently:
Accordingly, it is wise to hold that: (1) if the dismissal is based on a just cause under Article 282 but the employer failed
to comply with the notice requirement, the sanction to be imposed upon him should be tempered because the
dismissal process was, in effect, initiated by an act imputable to the employee; and (2) if the dismissal is based on an
authorized cause under Article 283 but the employer failed to comply with the notice requirement, the sanction should
be stiffer because the dismissal process was initiated by the employer's exercise of his management
prerogative.[55] [Emphasis supplied.]
Thus, in addition to separation pay, respondent is also entitled to an award of nominal damages. In conformity with this
Courts ruling in Culili v. Eastern Telecommunications Philippines, Inc. and Shimizu Phils. Contractors, Inc. v. Callanta,
both citing Jaka Food Processing Corporation v. Pacot,[56] this Court fixed the amount of nominal damages
to P50,000.00.
With respect to petitioners contention that the Management Contract executed between respondent and petitioner
Lucila has no binding effect on petitioner corporation for having been executed way before its incorporation, this Court
finds the same meritorious.
Section 19 of the Corporation Code expressly provides:
Sec. 19. Commencement of corporate existence. - A private corporation formed or organized under this
Code commences to have corporate existence and juridical personality and is deemed incorporated from the
date the Securities and Exchange Commission issues a certificate of incorporation under its official seal; and
thereupon the incorporators, stockholders/members and their successors shall constitute a body politic and corporate
under the name stated in the articles of incorporation for the period of time mentioned therein, unless said period is
extended or the corporation is sooner dissolved in accordance with law. [Emphasis supplied.]
Logically, there is no corporation to speak of prior to an entitys incorporation. And no contract entered into before
incorporation can bind the corporation.
As can be gleaned from the records, the Management Contract dated 16 January 1994 was executed between
respondent and petitioner Lucila months before petitioner corporations incorporation on 15 August 1994. Similarly, it
was done when petitioner Lucila was still the President of Marc Marketing, Inc. Undeniably, it cannot have any binding
and legal effect on petitioner corporation. Also, there was no evidence presented to prove that petitioner corporation
adopted, ratified or confirmed the Management Contract. It is for the same reason that petitioner corporation cannot be
considered estopped from questioning its binding effect now that respondent was invoking the same against it. In no
way, then, can it be enforced against petitioner corporation, much less, its provisions fixing respondents compensation
as General Manager to 30% of petitioner corporations net profit. Consequently, such percentage cannot be the basis
for the computation of respondents separation pay. This finding, however, will not affect the undisputed fact that
respondent was, indeed, the General Manager of petitioner corporation from its incorporation up to the time of his
dismissal.
Accordingly, this Court finds it necessary to still remand the present case to the Labor Arbiter to conduct further
proceedings for the sole purpose of determining the compensation that respondent was actually receiving during the
period that he was the General Manager of petitioner corporation, this, for the proper computation of his separation
pay.
As regards petitioner Lucilas solidary liability, this Court affirms the same.
As a rule, corporation has a personality separate and distinct from its officers, stockholders and members such
that corporate officers are not personally liable for their official acts unless it is shown that they have
exceeded their authority. However, this corporate veil can be pierced when the notion of the legal entity is used as a
means to perpetrate fraud, an illegal act, as a vehicle for the evasion of an existing obligation, and to confuse
legitimate issues. Under the Labor Code, for instance, when a corporation violates a provision declared to be penal in
nature, the penalty shall be imposed upon the guilty officer or officers of the corporation.[57]
Based on the prevailing circumstances in this case, petitioner Lucila, being the President of petitioner corporation,
acted in bad faith and with malice in effecting respondents dismissal from employment. Although petitioner corporation
has a valid cause for dismissing respondent due to cessation of business operations, however, the latters dismissal
therefrom was done abruptly by its President, petitioner Lucila. Respondent was not given the required one-month prior
written notice that petitioner corporation will already cease its business operations. As can be gleaned from the
records, respondent was dismissed outright by petitioner Lucila on the same day that petitioner corporation decided to
stop and cease its business operations. Worse, respondent was not given separation pay considering that petitioner
corporations cessation of business was not due to business losses or financial reverses.
WHEREFORE, premises considered, the Decision and Resolution dated 20 June 2005 and 7 March 2006,
respectively, of the Court of Appeals in CA-G.R. SP No. 76624 are hereby AFFIRMED with
the MODIFICATION finding respondents dismissal from employment legal but without proper observance of due
process. Accordingly, petitioner corporation, jointly and solidarily liable with petitioner Lucila, is hereby ordered to pay
respondent the following; (1) separation pay equivalent to one month pay or at least one-half month pay for every year
of service, whichever is higher, to be computed from the commencement of employment until termination; and (2)
nominal damages in the amount of P50,000.00.
This Court, however, finds it proper to still remand the records to the Labor Arbiter to conduct further proceedings for
the sole purpose of determining the compensation that respondent was actually receiving during the period that he was
the General Manager of petitioner corporation for the proper computation of his separation pay.
Costs against petitioners.
SO ORDERED.
THIRD DIVISION
[G.R. No. 157549, May 30 : 2011]
DONNINA C. HALLEY, PETITIONER, VS. PRINTWELL, INC., RESPONDENT.
DECISION
BERSAMIN, J.:
Stockholders of a corporation are liable for the debts of the corporation up to the extent of their unpaid subscriptions. 220 May 13, 1988 Roberto V. Cabrera, Jr. P 135,000.00
They cannot invoke the veil of corporate identity as a shield from liability, because the veil may be lifted to avoid 221 November 5, 1987 Roberto V. Cabrera, Jr. P 45,000.00
defrauding corporate creditors.
222 November 5, 1987 Zenaida V. Yu P 5,000.00
We affirm with modification the decision promulgated on August 14, 2002,[1] whereby the Court of Appeals (CA) upheld 223 May 13, 1988 Zenaida V. Yu P 15,000.00
the decision of the Regional Trial Court, Branch 71, in Pasig City (RTC), [2] ordering the defendants (including the 227 May 13, 1988 Donnina C. Halley P 262,500.00
petitioner) to pay to Printwell, Inc. (Printwell) the principal sum of P291,342.76 plus interest.
Antecedents
In addition, the stockholders submitted other documents in evidence, namely:(a) an audit report dated March 30, 1989
The petitioner was an incorporator and original director of Business Media Philippines, Inc. (BMPI), which, at its prepared by Ilagan, Cepillo & Associates (submitted to the SEC and the BIR);[7](b) BMPI balance sheet[8] and income
incorporation on November 12, 1987,[3] had an authorized capital stock of P3,000,000.00 divided into 300,000 shares statement[9]as of December 31, 1988; (c) BMPI income tax return for the year 1988 (stamped "received" by the
each with a par value of P10.00,of which 75,000 were initially subscribed, to wit: BIR);[10](d) journal vouchers;[11](e) cash deposit slips;[12] and (f) Bank of the Philippine Islands (BPI) savings account
Subscriber No. of shares Total subscription Amount paid passbook in the name of BMPI.[13]
Donnina C. Halley 35,000 P 350,000.00 P87,500.00 Ruling of the RTC
Roberto V. Cabrera, Jr. 18,000 P 180,000.00 P45,000.00
On November 3, 1993, the RTC rendered a decision in favor of Printwell, rejecting the allegation of payment in full of
Albert T. Yu 18,000 P 180,000.00 P45,000.00 the subscriptions in view of an irregularity in the issuance of the ORs and observing that the defendants had used
Zenaida V. Yu 2,000 P 20,000.00 P5,000.00 BMPI's corporate personality to evade payment and create injustice, viz:
izalino C. Vineza 2,000 P 20,000.00 P5,000.00 The claim of individual defendants that they have fully paid their subscriptions to defend[a]nt corporation, is not worthy
TOTAL 75,000 P750,000.00 P187,500.00 of consideration, because: --
a) in the case of defendants-spouses Albert and Zenaida Yu, it will be noted that the alleged payment made on May
13, 1988 amounting to P135,000.00, is covered by Official Receipt No. 218 (Exh. "2"), whereas the alleged
Printwell engaged in commercial and industrial printing.BMPI commissioned Printwell for the printing of the payment made earlier on November 5, 1987, amounting to P5,000.00, is covered by Official Receipt No. 222
magazine Philippines, Inc. (together with wrappers and subscription cards) that BMPI published and sold. For that (Exh. "3"). This is cogent proof that said receipts were belatedly issued just to suit their theory since in the
purpose, Printwell extended 30-day credit accommodations to BMPI. ordinary course of business, a receipt issued earlier must have serial numbers lower than those issued on a later
date. But in the case at bar, the receipt issued on November 5, 1987 has serial numbers (222) higher than those
In the period from October 11, 1988 until July 12, 1989, BMPI placed with Printwell several orders on credit, evidenced issued on a later date (May 13, 1988).
by invoices and delivery receipts totaling P316,342.76.Considering that BMPI paid only P25,000.00, Printwell sued b) The claim that since there was no call by the Board of Directors of defendant corporation for the payment of
BMPI on January 26, 1990 for the collection of the unpaid balance of P291,342.76 in the RTC. [4] unpaid subscriptions will not be a valid excuse to free individual defendants from liability. Since the individual
defendants are members of the Board of Directors of defendant corporation, it was within their exclusive power
On February 8, 1990, Printwell amended the complaint in order to implead as defendants all the original stockholders to prevent the fulfillment of the condition, by simply not making a call for the payment of the unpaid subscriptions.
and incorporators to recover on their unpaid subscriptions, as follows:[5] Their inaction should not work to their benefit and unjust enrichment at the expense of plaintiff.
Name Unpaid Shares
Donnina C. Halley P 262,500.00 Assuming arguendo that the individual defendants have paid their unpaid subscriptions, still, it is very apparent that
Roberto V. Cabrera, Jr. P135,000.00 individual defendants merely used the corporate fiction as a cloak or cover to create an injustice; hence, the alleged
Albert T. Yu P135,000.00 separate personality of defendant corporation should be disregarded (Tan Boon Bee & Co., Inc. vs. Judge Jarencio,
Zenaida V. Yu P15,000.00 G.R. No. 41337, 30 June 1988).[14]
Rizalino C. Vieza P15,000.00
TOTAL P 562,500.00 Applying the trust fund doctrine, the RTC declared the defendant stockholders liable to Printwell pro rata, thusly:
Defendant Business Media, Inc. is a registered corporation (Exhibits "A", "A-1" to "A-9"), and, as appearing from the
Articles of Incorporation, individual defendants have the following unpaid subscriptions:
Names Unpaid Subscription
The defendants filed a consolidated answer,[6]averring that they all had paid their subscriptions in full; that BMPI had a
Donnina C. Halley P262,500.00
separate personality from those of its stockholders; that Rizalino C. Vieza had assigned his fully-paid up shares to a
Roberto V. Cabrera, Jr. 135.000.00
certain Gerardo R. Jacinto in 1989; and that the directors and stockholders of BMPI had resolved to dissolve BMPI
Albert T. Yu 135,000.00
during the annual meeting held on February 5, 1990.
Zenaida V. Yu 15,000.00
Rizalino V. Vineza 15,000.00
To prove payment of their subscriptions, the defendant stockholders submitted in evidence BMPI official receipt (OR)
--------------------
no. 217, OR no. 218, OR no. 220,OR no. 221, OR no. 222, OR no. 223, and OR no. 227, to wit:
Total P562,500.00
Receipt No. Date Name Amount
217 November 5, 1987 Albert T. Yu P 45,000.00
218 May 13, 1988 Albert T. Yu P 135,000.00 and it is an established doctrine that subscriptions to the capital stock of a corporation constitute a fund to which
creditors have a right to look for satisfaction of their claims (Philippine National Bank vs. Bitulok Sawmill, Inc., 23 SCRA
1366) and, in fact, a corporation has no legal capacity to release a subscriber to its capital stock from the obligation to Roberto V. Cabrera, Jr. argued:
pay for his shares, and any agreement to this effect is invalid (Velasco vs. Poizat, 37 Phil. 802). I.

The liability of the individual stockholders in the instant case shall be pro-rated as follows: IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO APPLY THE DOCTRINE OF PIERCING THE VEIL
Names Amount OF CORPORATE PERSONALITY IN ABSENCE OF ANY SHOWING OF EXTRA-ORDINARY CIRCUMSTANCES
Donnina C. Halley P149,955.65 THAT WOULD JUSTIFY RESORT THERETO.
Roberto V. Cabrera, Jr. 77,144.55 II.
Albert T. Yu 77,144.55
Zenaida V. Yu 8,579.00 IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO RULE THAT INDIVIDUAL DEFENDANTS ARE
Rizalino V. Vineza 8,579.00 LIABLE TO PAY THE PLAINTIFF-APPELLEE'S CLAIM BASED ON THEIR RESPECTIVE SUBSCRIPTION.
------------------ NOTWITHSTANDING OVERWHELMING EVIDENCE SHOWING FULL SETTLEMENT OF SUBSCRIBED CAPITAL
Total P321,342.75[15] BY THE INDIVIDUAL DEFENDANTS.

The RTC disposed as follows: On August 14, 2002, the CA affirmed the RTC, holding that the defendants' resort to the corporate personality would
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants, ordering defendants to pay to create an injustice because Printwell would thereby be at a loss against whom it would assert the right to collect, viz:
plaintiff the amount of P291,342.76, as principal, with interest thereon at 20% per annum, from date of default, until Settled is the rule that when the veil of corporate fiction is used as a means of perpetrating fraud or an illegal act or as
fully paid, plus P30,000.00 as attorney's fees, plus costs of suit. a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievements or perfection of
monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the
Defendants' counterclaims are ordered dismissed for lack of merit. corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an
aggregation of individuals (First Philippine International Bank vs. Court of Appeals, 252 SCRA 259). Moreover, under
SO ORDERED.[16] this doctrine, the corporate existence may be disregarded where the entity is formed or used for non-legitimate
purposes, such as to evade a just and due obligations or to justify wrong (Claparols vs. CIR, 65 SCRA 613).
Ruling of the CA
In the case at bench, it is undisputed that BMPI made several orders on credit from appellee PRINTWELL involving the
All the defendants, except BMPI, appealed. printing of business magazines, wrappers and subscription cards, in the total amount of P291,342.76 (Record pp. 3-5,
Annex "A") which facts were never denied by appellants' stockholders that they owe appellee the amount of
Spouses Donnina and Simon Halley, and RizalinoVieza defined the following errors committed by the RTC, as P291,342.76. The said goods were delivered to and received by BMPI but it failed to pay its overdue account to
follows: appellee as well as the interest thereon, at the rate of 20% per annum until fully paid. It was also during this time that
I. appellants stockholders were in charge of the operation of BMPI despite the fact that they were not able to pay their
unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view of the unpaid subscriptions, BMPI
THE TRIAL COURT ERRED IN HOLDING APPELLANTS-STOCKHOLDERS LIABLE FOR THE LIABILITIES OF THE failed to pay appellee of its liability, hence appellee in order to protect its right can collect from the appellants'
DEFENDANT CORPORATION. stockholders regarding their unpaid subscriptions. To deny appellee from recovering from appellants would place
II. appellee in a limbo on where to assert their right to collect from BMPI since the stockholders who are appellants herein
are availing the defense of corporate fiction to evade payment of its obligations.[17]
ASSUMING ARGUENDO THAT APPELLANTS MAY BE LIABLE TO THE EXTENT OF THEIR UNPAID
SUBSCRIPTION OF SHARES OF STOCK, IF ANY, THE TRIAL COURT NONETHELESS ERRED IN NOT FINDING Further, the CA concurred with the RTC on the applicability of thetrust fund doctrine, under which corporate debtors
THAT APPELLANTS-STOCKHOLDERS HAVE, AT THE TIME THE SUIT WAS FILED, NO SUCH UNPAID might look to the unpaid subscriptions for the satisfaction of unpaid corporate debts, stating thus:
SUBSCRIPTIONS. It is an established doctrine that subscription to the capital stock of a corporation constitute a fund to which creditors
have a right to look up to for satisfaction of their claims, and that the assignee in insolvency can maintain an action
On their part, Spouses Albert and Zenaida Yu averred: upon any unpaid stock subscription in order to realize assets for the payment of its debts (PNB vs. Bitulok Sawmill, 23
I. SCRA 1366).

THE RTC ERRED IN REFUSING TO GIVE CREDENCE AND WEIGHT TO DEFENDANTS-APPELLANTS SPOUSES
ALBERT AND ZENAIDA YU'S EXHIBITS 2 AND 3 DESPITE THE UNREBUTTED TESTIMONY THEREON BY
APPELLANT ALBERT YU AND THE ABSENCE OF PROOF CONTROVERTING THEM.
II.
THE RTC ERRED IN HOLDING DEFENDANTS-APPELLANTS SPOUSES ALBERT AND ZENAIDA YU
PERSONALLY LIABLE FOR THE CONTRACTUAL OBLIGATION OF BUSINESS MEDIA PHILS., INC. DESPITE
FULL PAYMENT BY SAID DEFENDANTS-APPELLANTS OF THEIR RESPECTIVE SUBSCRIPTIONS TO THE
CAPITAL STOCK OF BUSINESS MEDIA PHILS., INC.
Premised on the above-doctrine, an inference could be made that the funds, which consists of the payment of
subscriptions of the stockholders, is where the creditors can claim monetary considerations for the satisfaction of their
claims. If these funds which ought to be fully subscribed by the stockholders were not paid or remain an unpaid
subscription of the corporation then the creditors have no other recourse to collect from the corporation of its liability.
Such occurrence was evident in the case at bar wherein the appellants as stockholders failed to fully pay their unpaid
subscriptions, which left the creditors helpless in collecting their claim due to insufficiency of funds of the corporation.
Likewise, the claim of appellants that they already paid the unpaid subscriptions could not be given weight because
said payment did not reflect in the Articles of Incorporations of BMPI that the unpaid subscriptions were fully paid by
the appellants' stockholders. For it is a rule that a stockholder may be sued directly by creditors to the extent of their
unpaid subscriptions to the corporation (Keller vs. COB Marketing, 141 SCRA 86).
 II.
Moreover, a corporation has no power to release a subscription or its capital stock, without valuable consideration for
such releases, and as against creditors, a reduction of the capital stock can take place only in the manner and under THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE REGIONAL TRIAL COURT WHICH
the conditions prescribed by the statute or the charter or the Articles of Incorporation. (PNB vs. Bitulok Sawmill, 23 ESSENTIALLY ALLOWED THE PIERCING OF THE VEIL OF CORPORATE FICTION
SCRA 1366).[18] III.

The CA declared that the inconsistency in the issuance of the ORs rendered the claim of full payment of the THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE TRUST FUND DOCTRINE WHEN THE
subscriptions to the capital stock unworthy of consideration; and held that the veil of corporate fiction could be pierced GROUNDS THEREFOR HAVE NOT BEEN SATISFIED.
when it was used as a shield to perpetrate a fraud or to confuse legitimate issues, to wit:
Finally, appellants SPS YU, argued that the fact of full payment for the unpaid subscriptions was incontrovertibly On the first error, the petitioner contends that the RTC lifted verbatim from the memorandum of Printwell; and submits
established by competent testimonial and documentary evidence, namely - Exhibits "1", "2", "3" & "4", which were that the RTC thereby violated the requirement imposed in Section 14, Article VIII of the Constitution[20] as well as in
never disputed by appellee, clearly shows that they should not be held liable for payment of the said unpaid Section 1, Rule 36 of the Rules of Court,[21] to the effect that a judgment or final order of a court should state clearly
subscriptions of BMPI. and distinctly the facts and the law on which it is based. The petitioner claims that the RTC's violation indicated that the
RTC did not analyze the case before rendering its decision, thus denying her the opportunity to analyze the decision;
The reliance is misplaced. and that a suspicion of partiality arose from the fact that the RTC decision was but a replica of Printwell's
memorandum.She cites Francisco v. Permskul,[22] in which the Court has stated that the reason underlying the
We are hereby reproducing the contents of the above-mentioned exhibits, to wit: constitutional requirement, that every decision should clearly and distinctly state the facts and the law on which it is
based, is to inform the reader of how the court has reached its decision and thereby give the losing party an
Exh: "1" - YU - Official Receipt No. 217 dated November 5, 1987 amounting to P45,000.00 allegedly representing the opportunity to study and analyze the decision and enable such party to appropriately assign the errors committed
initial payment of subscriptions of stockholder Albert Yu. therein on appeal.

Exh: "2" - YU - Official Receipt No. 218 dated May 13, 1988 amounting to P135,000.00 allegedly representing full On the second and third errors, the petitioner maintains that the CA and the RTC erroneously pierced the veil of
payment of balance of subscriptions of stockholder Albert Yu. (Record p. 352). corporate fiction despite the absence of cogent proof showing that she, as stockholder of BMPI, had any hand in
transacting with Printwell; that the CA and the RTC failed to appreciate the evidence that she had fully paid her
Exh: "3" - YU - Official Receipt No. 222 dated November 5, 1987 amounting to P5,000.00 allegedly representing the subscriptions; and the CA and the RTC wrongly relied on the articles of incorporation in determining the current list of
initial payment of subscriptions of stockholder Zenaida Yu. unpaid subscriptions despite the articles of incorporation being at best reflective only of the pre-incorporation status of
BMPI.
Exh: "4" - YU - Official Receipt No. 223 dated May 13, 1988 amounting to P15,000.00 allegedly representing the full
payment of balance of subscriptions of stockholder Zenaida Yu. (Record p. 353). As her submissions indicate, the petitioner assails the decisions of the CA on: (a) the propriety of disregarding the
separate personalities of BMPI and its stockholders by piercing the thin veil that separated them; and (b) the
Based on the above exhibits, we are in accord with the lower court's findings that the claim of the individual appellants application of the trust fund doctrine.
that they fully paid their subscription to the defendant BMPI is not worthy of consideration, because, in the case of Ruling
appellants SPS. YU, there is an inconsistency regarding the issuance of the official receipt since the alleged payment
made on May 13, 1988 amounting to P135,000.00 was covered by Official Receipt No. 218 (Record, p. 352), whereas The petition for review fails.
the alleged payment made earlier on November 5, 1987 amounting to P5,000.00 is covered by Official Receipt No. 222 I
(Record, p. 353). Such issuance is a clear indication that said receipts were belatedly issued just to suit their claim that The RTC did not violate
they have fully paid the unpaid subscriptions since in the ordinary course of business, a receipt is issued earlier must the Constitution and the Rules of Court
have serial numbers lower than those issued on a later date. But in the case at bar, the receipt issued on November 5,
1987 had a serial number (222) higher than those issued on May 13, 1988 (218). And even assuming arguendo that The contention of the petitioner, that the RTC merely copied the memorandum of Printwell in writing its decision, and
the individual appellants have paid their unpaid subscriptions, still, it is very apparent that the veil of corporate fiction did not analyze the records on its own, thereby manifesting a bias in favor of Printwell, is unfounded.
may be pierced when made as a shield to perpetuate fraud and/or confuse legitimate issues. (Jacinto vs. Court of
Appeals, 198 SCRA 211).[19] It is noted that the petition for review merely generally alleges that starting from its page 5, the decision of the RTC
"copied verbatim the allegations of herein Respondents in its Memorandum before the said court," as if "the
Spouses Halley and Vieza moved for a reconsideration, but the CA denied their motion for reconsideration. Memorandum was the draft of the Decision of the Regional Trial Court of Pasig," [23] but fails to specify either the
Issues portions allegedly lifted verbatim from the memorandum, or why she regards the decision as copied. The omission
renders the petition for review insufficient to support her contention, considering that the mere similarity in language or
Only Donnina Halley has come to the Court to seek a further review, positing the following for our consideration and thought between Print well's memorandum and the trial court's decision did not necessarily justify the conclusion that
resolution, to wit: the RTC simply lifted verbatim or copied from the memorandum.
I.
It is to be observed in this connection that a trial or appellate judge may occasionally view a party's memorandum or
THE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE DECISION THAT DID NOT STATE THE FACTS brief as worthy of due consideration either entirely or partly. When he does so, the judge may adopt and incorporate in
AND THE LAW UPON WHICH THE JUDGMENT WAS BASED BUT MERELY COPIED THE CONTENTS OF his adjudication the memorandum or the parts of it he deems suitable, and yet not be guilty of the accusation of lifting
RESPONDENT'S MEMORANDUM ADOPTING THE SAME AS THE REASON FOR THE DECISION or copying from the memorandum.[24] This is because of the avowed objective of the memorandum to contribute in the
proper illumination and correct determination of the controversy. Nor is there anything untoward in the congruence of unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view of the unpaid subscriptions, BMPI
ideas and views about the legal issues between himself and the party drafting the memorandum. The frequency of failed to pay appellee of its liability, hence appellee in order to protect its right can collect from the appellants
similarities in argumentation, phraseology, expression, and citation of authorities between the decisions of the courts stockholders regarding their unpaid subscriptions. To deny appellee from recovering from appellants would place
and the memoranda of the parties, which may be great or small, can be fairly attributable to the adherence by our appellee in a limbo on where to assert their right to collect from BMPI since the stockholders who are appellants herein
courts of law and the legal profession to widely know nor universally accepted precedents set in earlier judicial actions are availing the defense of corporate fiction to evade payment of its obligations.[31]
with identical factual milieus or posing related judicial dilemmas.
It follows, therefore, that whether or not the petitioner persuaded BMPI to renege on its obligations to pay, and whether
We also do not agree with the petitioner that the RTC's manner of writing the decision deprived her of the opportunity or not she induced Printwell to transact with BMPI were not good defenses in the suit.
to analyze its decision as to be able to assign errors on appeal. The contrary appears, considering that she was able to III
impute and assign errors to the RTC that she extensively discussed in her appeal in the CA, indicating her thorough Unpaid creditor may satisfy its claim from
analysis of the decision of the RTC. unpaid subscriptions; stockholders must
prove full payment of their subscriptions
Our own reading of the trial court's decision persuasively shows that the RTC did comply with the requirements
regarding the content and the manner of writing a decision prescribed in the Constitution and the Rules of Court. The Both the RTC and the CA applied the trust fund doctrine against the defendant stockholders, including the petitioner.
decision of the RTC contained clear and distinct findings of facts, and stated the applicable law and jurisprudence, fully
explaining why the defendants were being held liable to the plaintiff. In short, the reader was at once informed of the The petitioner argues, however, that the trust fund doctrine was in applicable because she had already fully paid her
factual and legal reasons for the ultimate result. subscriptions to the capital stock of BMPI. She thus insists that both lower courts erred in disregarding the evidence on
II the complete payment of the subscription, like receipts, income tax returns, and relevant financial statements.
Corporate personality not to be used to foster injustice
The petitioner's argument is devoid of substance.
Printwell impleaded the petitioner and the other stockholders of BMPI for two reasons, namely: (a) to reach the unpaid
subscriptions because it appeared that such subscriptions were the remaining visible assets of BMPI; and (b) to avoid The trust fund doctrine enunciates a -
multiplicity of suits.[25] xxx rule that the property of a corporation is a trust fund for the payment of creditors, but such property can be called a
trust fund `only by way of analogy or metaphor.' As between the corporation itself and its creditors it is a simple debtor,
The petitioner submits that she had no participation in the transaction between BMPI and Printwell;that BMPI acted on and as between its creditors and stockholders its assets are in equity a fund for the payment of its debts.[32]
its own; and that she had no hand in persuading BMPI to renege on its obligation to pay. Hence, she should not be
personally liable. The trust fund doctrine, first enunciated in the American case of Wood v. Dummer,[33]was adopted in our jurisdiction
in Philippine Trust Co. v. Rivera,[34] where this Court declared that:
We rule against the petitioner's submission. It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors have a
right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid
Although a corporation has a personality separate and distinct from those of its stockholders, directors, or stock subscription in order to realize assets for the payment of its debts. (Velasco vs. Poizat, 37 Phil., 802) xxx[35]
officers,[26]such separate and distinct personality is merely a fiction created by law for the sake of convenience and to
promote the ends of justice.[27] The corporate personality may be disregarded, and the individuals composing the We clarify that the trust fund doctrine is not limited to reaching the stockholder's unpaid subscriptions. The scope of the
corporation will be treated as individuals, if the corporate entity is being used as a cloak or cover for fraud or illegality; doctrine when the corporation is insolvent encompasses not only the capital stock, but also other property and assets
as a justification for a wrong; as an alter ego, an adjunct, or a business conduit for the sole benefit of the generally regarded in equity as a trust fund for the payment of corporate debts.[36] All assets and property belonging to
stockholders.[28] As a general rule, a corporation is looked upon as a legal entity, unless and until sufficient reason to the corporation held in trust for the benefit of creditors that were distributed or in the possession of the stockholders,
the contrary appears. Thus, the courts always presume good faith, and for that reason accord prime importance to the regardless of full payment of their subscriptions, may be reached by the creditor in satisfaction of its claim.
separate personality of the corporation, disregarding the corporate personality only after the wrong doing is first clearly
and convincingly established.[29] It thus behooves the courts to be careful in assessing the milieu where the piercing of Also, under the trust fund doctrine,a corporation has no legal capacity to release an original subscriber to its capital
the corporate veil shall be done.[30] stock from the obligation of paying for his shares, in whole or in part,[37] without a valuable consideration,[38] or
fraudulently, to the prejudice of creditors.[39] The creditor is allowed to maintain an action upon any unpaid
Although nowhere in Printwell's amended complaint or in the testimonies Printwell offered can it be read or inferred subscriptions and thereby steps into the shoes of the corporation for the satisfaction of its debt. [40] To make out a prima
from that the petitioner was instrumental in persuading BMPI to renege on its obligation to pay; or that she induced facie case in a suit against stockholders of an insolvent corporation to compel them to contribute to the payment of its
Printwell to extend the credit accommodation by misrepresenting the solvency of BMPI to Printwell, her personal debts by making good unpaid balances upon their subscriptions, it is only necessary to establish that the stockholders
liability, together with that of her co-defendants, remained because the CA found her and the other defendant have not in good faith paid the par value of the stocks of the corporation.[41]
stockholders to be in charge of the operations of BMPI at the time the unpaid obligation was transacted and incurred,
to wit: The petitioner posits that the finding of irregularity attending the issuance of the receipts (ORs) issued to the other
In the case at bench, it is undisputed that BMPI made several orders on credit from appellee PRINTWELL involving the stockholders/subscribers should not affect her because her receipt did not suffer similar irregularity.
printing of business magazines, wrappers and subscription cards, in the total amount of P291,342.76 (Record pp. 3-5,
Annex "A") which facts were never denied by appellants' stockholders that they owe(d) appellee the amount of Notwithstanding that the RTC and the CA did not find any irregularity in the OR issued in her favor, we still cannot
P291,342.76. The said goods were delivered to and received by BMPI but it failed to pay its overdue account to sustain the petitioner's defense of full payment of her subscription.
appellee as well as the interest thereon, at the rate of 20% per annum until fully paid. It was also during this time that
appellants stockholders were in charge of the operation of BMPI despite the fact that they were not able to pay their In civil cases, the party who pleads payment has the burden of proving it, that even where the plaintiff must allege
nonpayment, the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to establishing the various corporate acts and transactions and of showing the ownership of stock and like matters.[52]That
prove nonpayment. In other words, the debtor bears the burden of showing with legal certainty that the obligation has she tendered no explanation why the stock and transfer book was not presented warrants the inference that the book
been discharged by payment.[42] did not reflect the actual payment of her subscription.

Apparently, the petitioner failed to discharge her burden. Nor did the petitioner present any certificate of stock issued by BMPI to her. Such a certificate covering her
subscription might have been a reliable evidence of full payment of the subscriptions, considering that under Section
A receipt is the written acknowledgment of the fact of payment in money or other settlement between the seller and the 65 of the Corporation Code a certificate of stock issues only to a subscriber who has fully paid his subscription. The
buyer of goods, the debtor or the creditor, or the person rendering services, and the client or the customer.[43] Although lack of any explanation for the absence of a stock certificate in her favor likewise warrants an unfavorable inference on
a receipt is the best evidence of the fact of payment, it isnot conclusive, but merely presumptive; nor is it exclusive the issue of payment.
evidence, considering that parole evidence may also establish the fact of payment.[44]
Lastly, the petitioner maintains that both lower courts erred in relying on the articles of incorporation as proof of the
The petitioner's OR No. 227, presented to prove the payment of the balance of her subscription, indicated that her liabilities of the stockholders subscribing to BMPI's stocks, averring that the articles of incorporation did not reflect the
supposed payment had been made by means of a check. Thus, to discharge the burden to prove payment of her latest subscription status of BMPI.
subscription, she had to adduce evidence satisfactorily proving that her payment by check was regarded as payment
under the law. Although the articles of incorporation may possibly reflect only the pre-incorporation status of a corporation, the lower
courts' reliance on that document to determine whether the original subscribers already fully paid their subscriptions or
Payment is defined as the delivery of money.[45] Yet, because a check is not money and only substitutes for money, the not was neither unwarranted nor erroneous. As earlier explained, the burden of establishing the fact of full payment
delivery of a check does not operate as payment and does not discharge the obligation under a judgment.[46] The belonged not to Printwell even if it was the plaintiff, but to the stockholders like the petitioner who, as the defendants,
delivery of a bill of exchange only produces the fact of payment when the bill has been encashed.[47] The following averred full payment of their subscriptions as a defense. Their failure to substantiate their averment of full payment, as
passage from Bank of Philippine Islands v. Royeca[48] is enlightening: well as their failure to counter the reliance on the recitals found in the articles of incorporation simply meant their failure
Settled is the rule that payment must be made in legal tender. A check is not legal tender and, therefore, cannot or inability to satisfactorily prove their defense of full payment of the subscriptions.
constitute a valid tender of payment. Since a negotiable instrument is only a substitute for money and not
money, the delivery of such an instrument does not, by itself, operate as payment. Mere delivery of checks To reiterate, the petitioner was liable pursuant to the trust fund doctrine for the corporate obligation of BMPI by virtue of
does not discharge the obligation under a judgment. The obligation is not extinguished and remains her subscription being still unpaid. Printwell, as BMPI's creditor, had a right to reach her unpaid subscription in
suspended until the payment by commercial document is actually realized. satisfaction of its claim.
IV
To establish their defense, the respondents therefore had to present proof, not only that they delivered the Liability of stockholders for corporate debts is up
checks to the petitioner, but also that the checks were encashed. The respondents failed to do so. Had the to the extent of their unpaid subscription
checks been actually encashed, the respondents could have easily produced the cancelled checks as
evidence to prove the same. Instead, they merely averred that they believed in good faith that the checks were The RTC declared the stockholders pro rata liable for the debt(based on the proportion to their shares in the capital
encashed because they were not notified of the dishonor of the checks and three years had already lapsed stock of BMPI); and held the petitioner personally liable only in the amount of P149,955.65.
since they issued the checks.
We do not agree. The RTC lacked the legal and factual support for its prorating the liability. Hence, we need to modify
Because of this failure of the respondents to present sufficient proof of payment, it was no longer necessary for the the extent of the petitioner's personal liability to Printwell. The prevailing rule is that a stockholder is personally liable
petitioner to prove non-payment, particularly proof that the checks were dishonored. The burden of evidence is shifted for the financial obligations of the corporation to the extent of his unpaid subscription.[53] In view of the petitioner's
only if the party upon whom it is lodged was able to adduce preponderant evidence to prove its claim. unpaid subscription being worth P262,500.00, she was liable up to that amount.

Ostensibly, therefore, the petitioner's mere submission of the receipt issued in exchange of the check did not Interest is also imposable on the unpaid obligation. Absent any stipulation, interest is fixed at 12% per annum from the
satisfactorily establish her allegation of full payment of her subscription. Indeed, she could not even inform the trial date the amended complaint was filed on February 8, 1990 until the obligation (i.e., to the extent of the petitioner's
court about the identity of her drawee bank,[49] and about whether the check was cleared and its amount paid to personal liability of P262,500.00) is fully paid.[54]
BMPI.[50] In fact, she did not present the check itself.
Lastly, we find no basis to grant attorney's fees, the award for which must be supported by findings of fact and of law
The income tax return (ITR) and statement of assets and liabilities of BMPI, albeit presented, had no bearing on the as provided under Article 2208 of the Civil Code[55] incorporated in the body of decision of the trial court. The absence
issue of payment of the subscription because they did not by themselves prove payment. ITRs establish a taxpayer's of the requisite findings from the RTC decision warrants the deletion of the attorney's fees.
liability for taxes or a taxpayer's claim for refund. In the same manner, the deposit slips and entries in the passbook
issued in the name of BMPI were hardly relevant due to their not reflecting the alleged payments. ACCORDINGLY, we deny the petition for review on certiorari; and affirm with modification the decision promulgated on
August 14, 2002by ordering the petitioner to pay to Printwell, Inc. the sum of P262,500.00, plus interest of 12% per
It is notable, too, that the petitioner and her co-stockholders did not support their allegation of complete payment of annum to be computed from February 8, 1990 until full payment.
their respective subscriptions with the stock and transfer book of BMPI. Indeed, books and records of a corporation
(including the stock and transfer book) are admissible in evidence in favor of or against the corporation and its The petitioner shall pay cost of suit in this appeal.
members to prove the corporate acts, its financial status and other matters (like the status of the stockholders), and are
ordinarily the best evidence of corporate acts and proceedings.[51] Specifically, a stock and transfer book is necessary SO ORDERED.
as a measure of precaution, expediency, and convenience because it provides the only certain and accurate method of
SECOND DIVISION Aggrieved, petitioners appealed the decision to the NLRC claiming that the Labor Arbiter erred in deciding a re-filed
case when it was filed in violation of the prohibitions against litis pendencia and forum shopping. Further, petitioners
[G.R. No. 182397 : September 14, 2011] argued that complainants were not illegally dismissed but were only transferred. They claimed that it was the
respondents who refused to report for work in their new assignment.
ALERT SECURITY AND INVESTIGATION AGENCY, INC. AND/OR MANUEL D. DASIG, PETITIONERS, VS.
SAIDALI PASAWILAN, WILFREDO VERCELES AND MELCHOR BULUSAN, RESPONDENTS. On January 31, 2007, the NLRC rendered a Decision[10] ruling that Labor Arbiter Del Rosario did not err in taking
cognizance of respondents' complaint for illegal dismissal because the July 14, 1999 Decision of Labor Arbiter Santos
DECISION on the complaint for money claims did not at all pass upon the issue of illegal dismissal. The NLRC, however,
dismissed the complaint for illegal dismissal after ruling that the fact of dismissal or termination of employment was not
VILLARAMA, JR., J.: sufficiently established. According to the NLRC, "[the] sweeping generalization that the complainants were
constructively dismissed is not sufficient to establish the existence of illegal dismissal."[11] The dispositive portion of the
This petition for review on certiorari assails the Decision[1] dated February 1, 2008 of the Court of Appeals (CA) in CA- NLRC decision reads:
G.R. SP No. 99861. The appellate court reversed and set aside the January 31, 2007 Decision[2] and March 15, 2007 WHEREFORE, premises considered, the respondents' appeal is hereby given due course and the decision dated July
Resolution[3] of the National Labor Relations Commission (NLRC) and reinstated the Labor Arbiter's Decision [4] finding 28, 2000 is hereby REVERSED and SET-ASIDE and a new one entered DISMISSING the complaint for illegal
petitioners guilty of illegal dismissal. dismissal for lack of merit.

The facts follow. SO ORDERED.[12]

Respondents Saidali Pasawilan, Wilfredo Verceles and Melchor Bulusan were all employed by petitioner Alert Security Unfazed, respondents filed a petition for certiorari with the CA questioning the NLRC decision and alleging grave
and Investigation Agency, Inc. (Alert Security) as security guards beginning March 31, 1996, January 14, 1997, and abuse of discretion.
January 24, 1997, respectively. They were paid 165.00 pesos a day as regular employees, and assigned at the
Department of Science and Technology (DOST) pursuant to a security service contract between the DOST and Alert On February 1, 2008, the CA rendered the assailed Decision[13] reversing and setting aside the NLRC decision and
Security. reinstating the July 28, 2000 Decision of Labor Arbiter Del Rosario. The CA ruled that Alert Security, as an employer,
failed to discharge its burden to show that the employee's separation from employment was not motivated by
Respondents aver that because they were underpaid, they filed a complaint for money claims against Alert Security discrimination, made in bad faith, or effected as a form of punishment or demotion without sufficient cause. The CA
and its president and general manager, petitioner Manuel D. Dasig, before Labor Arbiter Ariel C. Santos. As a result of also found that respondents were never informed of the "Duty Detail Orders" transferring them to a new post, thereby
their complaint, they were relieved from their posts in the DOST and were not given new assignments despite the making the alleged transfer ineffective. The dispositive portion of the CA decision states:
lapse of six months. On January 26, 1999, they filed a joint complaint for illegal dismissal against petitioners. WHEREFORE, premises considered, the January 31, 2007 decision of the NLRC is hereby REVERSED and SET
ASIDE and the July 28, 2000 decision of the Labor Arbiter is hereby REVIVED.
Petitioners, on the other hand, deny that they dismissed the respondents. They claimed that from the DOST,
respondents were merely detailed at the Metro Rail Transit, Inc. at the Light Rail Transit Authority (LRTA) Compound in SO ORDERED.[14]
Aurora Blvd. because the wages therein were already adjusted to the latest minimum wage. Petitioners presented
"Duty Detail Orders"[5] that Alert Security issued to show that respondents were in fact assigned to Petitioners filed a motion for reconsideration, but the motion was denied in a Resolution[15] dated March 31, 2008.
LRTA. Respondents, however, failed to report at the LRTA and instead kept loitering at the DOST and tried to
convince other security guards to file complaints against Alert Security. Thus, on August 3, 1998, Alert Security filed a Petitioners are now before this Court to seek relief by way of a petition for review on certiorari under Rule 45 of
"termination report"[6] with the Department of Labor and Employment relative to the termination of the respondents. the 1997 Rules of Civil Procedure, as amended.

Upon motion of the respondents, the joint complaint for illegal dismissal was ordered consolidated with respondents' Petitioners argue that the CA erred when it held that the NLRC committed grave abuse of discretion. According to
earlier complaint for money claims. The records of the illegal dismissal case were sent to Labor Arbiter Ariel C. petitioners, the NLRC was correct when it ruled that there was no sufficient basis to rule that respondents were
Santos, but later returned to the Office of the Labor Arbiter hearing the illegal dismissal complaint because a terminated from their employment while there was proof that they were merely transferred from DOST to LRTA as
Decision[7] has already been rendered in the complaint for money claims on July 14, 1999. In that decision, the shown in the "Duty Detail Orders". Verily, petitioners claim that there was no termination at all; instead, respondents
complaint for money claims was dismissed for lack of merit but petitioners were ordered to pay respondents their latest abandoned their employment by refusing to report for duty at the LRTA Compound.
salary differentials.
Further, petitioners argue that the CA erred when it reinstated the July 28, 2000 Decision of Labor Arbiter Del Rosario
On July 28, 2000, Labor Arbiter Melquiades Sol D. Del Rosario rendered a Decision[8] on the complaint for illegal in its entirety. The dispositive portion of said decision ruled that respondents should be paid their monetary awards
dismissal. The Labor Arbiter ruled: in solidum by Alert Security and Manuel D. Dasig, its President and General Manager. They argue that Alert Security
CONFORMABLY WITH THE FOREGOING, judgment is hereby rendered finding complainants to have been illegally is a duly organized domestic corporation which has a legal personality separate and distinct from its members or
dismissed. Consequently, each complainant should be paid in solidum by the respondents the individual awards owners. Hence, liability for whatever compensation or money claims owed to employees must be borne solely by Alert
computed in the body of the decision, which is hereto adopted as part of this disposition. Security and not by any of its individual stockholders or officers.

SO ORDERED.[9] On the other hand, respondents claim that the NLRC committed a serious error in ruling that they failed to provide
factual substantiation of their claim of constructive dismissal. Respondents aver that their Complaint
Form[16] sufficiently constitutes the basis of their claim of illegal dismissal. Also, respondents aver that Alert Security
itself admitted that respondents were relieved from their posts as security guards in DOST, albeit raising the defense As regards the second element of intent to sever the employer-employee relationship, the CA correctly ruled that:
that it was a mere transfer as shown by "Duty Detail Orders", which, however, were never received by respondents, as x x x the fact that petitioners filed a complaint for illegal dismissal is indicative of their intention to remain employed with
observed by the Labor Arbiter. private respondent considering that one of their prayers in the complaint is for re-instatement. As declared by the
Supreme Court, a complaint for illegal dismissal is inconsistent with the charge of abandonment, because when an
Essentially, the issue for resolution is whether respondents were illegally dismissed. employee takes steps to protect himself against a dismissal, this cannot, by logic, be said to be abandonment by him
of his right to be able to work.[23]
We rule in the affirmative.
Further, according to Alert Security itself, respondents continued to report for work and loiter in the DOST after the
As a rule, employment cannot be terminated by an employer without any just or authorized cause. No less than alleged transfer order was issued. Such circumstance makes it unlikely that respondents have clear intention of leaving
the 1987 Constitution in Section 3, Article 13 guarantees security of tenure for workers and because of this, an their respective jobs. In any case, there is no dispute that in cases of abandonment of work, notice shall be served at
employee may only be terminated for just[17]or authorized[18]causes that the worker's last known address.[24] This petitioners failed to do.

must comply with the due process requirementsmandated[19] by law. Hence, employers are barred from arbitrarily On the element of the failure of the employee to report for work, we also cannot accept the allegations of petitioners
removing their workers whenever and however they want. The law sets the valid grounds for termination as well as the that respondents unjustifiably refused to report for duty in their new posts. A careful review of the records reveals that
proper procedure to take when terminating the services of an employee. there is no showing that respondents were notified of their new assignments. Granting that the "Duty Detail Orders"
were indeed issued, they served no purpose unless the intended recipients of the orders are informed of such.
In De Guzman, Jr. v. Commission on Elections,[20] the Court, speaking of the Constitutional guarantee of security of
tenure to all workers, ruled: The employer cannot simply conclude that an employee is ipso facto notified of a transfer when there is no evidence to
x x x It only means that an employee cannot be dismissed (or transferred) from the service for causes other than those indicate that the employee had knowledge of the transfer order. Hence, the failure of an employee to report for work at
provided by law and after due process is accorded the employee. What it seeks to prevent is capricious exercise of the new location cannot be taken against him as an element of abandonment.
the power to dismiss. x x x (Emphasis supplied.)
We acknowledge and recognize the right of an employer to transfer employees in the interest of the service. This
Although we recognize the right of employers to shape their own work force, this management prerogative must not exercise is a management prerogative which is a lawful right of an employer. However, like all rights, there are
curtail the basic right of employees to security of tenure. There must be a valid and lawful reason for terminating the limitations to the right to transfer employees. As ruled in the case of Blue Dairy Corporation v. NLRC:[25]
employment of a worker. Otherwise, it is illegal and would be dealt with by the courts accordingly. x x x The managerial prerogative to transfer personnel must be exercised without grave abuse of discretion, bearing in
mind the basic elements of justice and fair play. Having the right should not be confused with the manner in which that
As stated in Bascon v. Court of Appeals:[21] right is exercised. Thus, it cannot be used as a subterfuge by the employer to rid himself of an undesirable worker. In
x x x The employer's power to dismiss must be tempered with the employee's right to security of tenure. Time and particular, the employer must be able to show that the transfer is not unreasonable, inconvenient or prejudicial to the
again we have said that the preservation of the lifeblood of the toiling laborer comes before concern for business employee; nor does it involve a demotion in rank or a diminution of his salaries, privileges and other benefits. x x x
profits. Employers must be reminded to exercise the power to dismiss with great caution, for the State will not hesitate
to come to the succor of workers wrongly dismissed by capricious employers. In addition to these tests for a valid transfer, there should be proper and effective notice to the employee concerned. It
is the employer's burden to show that the employee was duly notified of the transfer. Verily, an employer cannot
In the case at bar, respondents were relieved from their posts because they filed with the Labor Arbiter a complaint reasonably expect an employee to report for work in a new location without first informing said employee of the
against their employer for money claims due to underpayment of wages. This reason is unacceptable and illegal. transfer. Petitioners' insistence on the sufficiency of mere issuance of the transfer order is indicative of bad faith on
Nowhere in the law providing for the just and authorized causes of termination of employment is there any direct or their part.
indirect reference to filing a legitimate complaint for money claims against the employer as a valid ground for
termination. Besides, according to petitioners, the reason for the transfer to LRTA of the respondents was that the wages in LRTA
were already adjusted to comply with the minimum wage rates. Now it is hard to believe that after being ordered to
The Labor Code, as amended, enumerates several just and authorized causes for a valid termination of employment. transfer to LRTA where the wages are better, the respondents would still refuse the transfer. That would mean that the
An employee asserting his right and asking for minimum wage is not among those causes. Dismissing an employee on respondents refused better wages and instead chose to remain in DOST, underpaid, and go through the lengthy
this ground amounts to retaliation by management for an employee's legitimate grievance without due process. Such process of claiming and asking for minimum wage. This proposed scenario of petitioners simply does not jibe with
stroke of retribution has no place in Philippine Labor Laws. human logic and experience.

Petitioners aver that respondents were merely transferred to a new post wherein the wages are adjusted to the current On the question of the propriety of holding petitioner Manuel D. Dasig, president and general manager of Alert
minimum wage standards. They maintain that the respondents voluntarily abandoned their jobs when they failed to Security, solidarily liable with Alert Security for the payment of the money awards in favor of respondents, we find
report for duty in the new location. petitioners' arguments meritorious.

Assuming this is true, we still cannot hold that the respondents abandoned their posts. For abandonment of work to
fall under Article 282 (b) of the Labor Code, as amended, as gross and habitual neglect of duties there must be the
concurrence of two elements. First, there should be a failure of the employee to report for work without a valid or
justifiable reason, and second, there should be a showing that the employee intended to sever the employer-employee
relationship, the second element being the more determinative factor as manifested by overt acts.[22]
Basic is the rule that a corporation has a separate and distinct personality apart from its directors, officers, or
owners. In exceptional cases, courts find it proper to breach this corporate personality in order to make directors,
officers, or owners solidarily liable for the companies' acts. Section 31, Paragraph 1 of the Corporation
Code[26] provides:
Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote for or assent
to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of
the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors, or trustees
shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or
members and other persons.
xxxx
Jurisprudence has been consistent in defining the instances when the separate and distinct personality of a
corporation may be disregarded in order to hold the directors, officers, or owners of the corporation liable for corporate
debts. In McLeod v. National Labor Relations Commission,[27] the Court ruled:
Thus, the rule is still that the doctrine of piercing the corporate veil applies only when the corporate fiction is used to
defeat public convenience, justify wrong, protect fraud, or defend crime. In the absence of malice, bad faith, or a
specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for
corporate liabilities. x x x
Further, in Carag v. National Labor Relations Commission,[28] the Court clarified the McLeod doctrine as regards labor
laws, to wit:
We have already ruled in McLeod v. NLRC[29] and Spouses Santos v. NLRC[30] that Article 212(e)[31] of the Labor
Code, by itself, does not make a corporate officer personally liable for the debts of the corporation. The
governing law on personal liability of directors for debts of the corporation is still Section 31 of the Corporation Code. x
xx
In the present case, there is no evidence to indicate that Manuel D. Dasig, as president and general manager of Alert
Security, is using the veil of corporate fiction to defeat public convenience, justify wrong, protect fraud, or defend crime.
Further, there is no showing that Alert Security has folded up its business or is reneging in its obligations. In the final
analysis, it is Alert Security that respondents are after and it is also Alert Security who should take responsibility for
their illegal dismissal.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No.
99861 and the Decision dated July 28, 2000 of the Labor Arbiter are MODIFIED.Petitioner Manuel D. Dasig is held not
solidarily liable with petitioner Alert Security and Investigation, Inc. for the payment of the monetary awards in favor of
respondents. Said Decision of the Court of Appeals in all other aspects is AFFIRMED.
With costs against the petitioners.
SO ORDERED.
FIRST DIVISION
[G.R. NO. 141994 - January 17, 2005]
FILIPINAS BROADCASTING NETWORK, INC., Petitioner, v.AGO MEDICAL AND EDUCATIONAL CENTER-BICOL
CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO, Respondents.
DECISION
CARPIO, J.:
The Case
This Petition for Review 1 assails the 4 January 1999 Decision2and 26 January 2000 Resolution of the Court of
Appeals in CA-G.R. CV No. 40151. The Court of Appeals affirmed with modification the 14 December 1992
Decision3 of the Regional Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of Appeals held
Filipinas Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre and Carmelo Rima liable for libel and
ordered them to solidarily pay Ago Medical and Educational Center-Bicol Christian College of Medicine moral
damages, attorney's fees and costs of suit.
The Antecedents
"Expos" is a radio documentary4 program hosted by Carmelo 'Mel' Rima ("Rima") and Hermogenes 'Jun' Alegre
("Alegre").5Expos is aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc.
("FBNI"). "Expos" is heard over Legazpi City, the Albay municipalities and other Bicol areas.6
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from students,
teachers and parents against Ago Medical and Educational Center-Bicol Christian College of Medicine ("AMEC") and
its administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita Ago ("Ago"), as Dean of AMEC's
College of Medicine, filed a complaint for damages7 against FBNI, Rima and Alegre on 27 February 1990. Quoted are
portions of the allegedly libelous broadcasts:
JUN ALEGRE:
Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM, advise them
to pass all subjects because if they fail in any subject they will repeat their year level, taking up all subjects
including those they have passed already. Several students had approached me stating that they had consulted
with the DECS which told them that there is no such regulation. If [there] is no such regulation why is AMEC doing the
same?
xxx
Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized by
DECS. xxx
Third: Students are required to take and pay for the subject even if the subject does not have an instructor -
such greed for money on the part of AMEC's administration. Take the subject Anatomy: students would pay for
the subject upon enrolment because it is offered by the school. However there would be no instructor for such subject.
Students would be informed that course would be moved to a later date because the school is still searching for the
appropriate instructor.
xxx
It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving for the past
few years since its inception because of funds support from foreign foundations. If you will take a look at the AMEC
premises you ll find out that the names of the buildings there are foreign soundings. There is a McDonald Hall. Why not
Jose Rizal or Bonifacio Hall? That is a very concrete and undeniable evidence that the support of foreign foundations
for AMEC is substantial, isn't it? With the report which is the basis of the expose in DZRC today, it would be very easy
for detractors and enemies of the Ago family to stop the flow of support of foreign foundations who assist the medical
school on the basis of the latter's purpose. But if the purpose of the institution (AMEC) is to deceive students at cross
purpose with its reason for being it is possible for these foreign foundations to lift or suspend their donations
temporarily.8
xxx
On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-Institute of
Mass Communication in their effort to minimize expenses in terms of salary are absorbing or continues to
accept "rejects". For example how many teachers in AMEC are former teachers of Aquinas University but were
removed because of immorality? Does it mean that the present administration of AMEC have the total definite moral
foundation from catholic administrator of Aquinas University. I will prove to you my friends, that AMEC is a dumping
ground, garbage, not merely of moral and physical misfits. Probably they only qualify in terms of intellect. The
Dean of Student Affairs of AMEC is Justita Lola, as the family name implies. She is too old to work, being an old
woman. Is the AMEC administration exploiting the very [e]nterprising or compromising and undemanding Lola? Could it
be that AMEC is just patiently making use of Dean Justita Lola were if she is very old. As in atmospheric situation -
zero visibility - the plane cannot land, meaning she is very old, low pay follows. By the way, Dean Justita Lola is also
the chairman of the committee on scholarship in AMEC. She had retired from Bicol University a long time ago but
AMEC has patiently made use of her.
xxx
MEL RIMA:
xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people. What does this
mean? Immoral and physically misfits as teachers.
May I say I m sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to teach. You
are too old. As an aviation, your case is zero visibility. Don't insist.
xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that. The
reason is practical cost saving in salaries, because an old person is not fastidious, so long as she has money to buy
the ingredient of beetle juice. The elderly can get by - that's why she (Lola) was taken in as Dean.
xxx
xxx On our end our task is to attend to the interests of students. It is likely that the students would be influenced by
evil. When they become members of society outside of campus will be liabilities rather than assets. What do
you expect from a doctor who while studying at AMEC is so much burdened with unreasonable imposition? What do
you expect from a student who aside from peculiar problems - because not all students are rich - in their struggle to
improve their social status are even more burdened with false regulations. xxx9 (Emphasis supplied)rllbrr social duty to inform the public about the students' gripes."
The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposs, FBNI, Rima
and Alegre "transmitted malicious imputations, and as such, destroyed plaintiffs' (AMEC and Ago) reputation." AMEC
and Ago included FBNI as defendant for allegedly failing to exercise due diligence in the selection and supervision of
its employees, particularly Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer10 alleging that the broadcasts
against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly impelled by a sense of public
duty to report the "goings-on in AMEC, [which is] an institution imbued with public interest."
Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea, collaborating
counsel of Atty. Lozares, filed a Motion to Dismiss11 on FBNI's behalf. The trial court denied the motion to dismiss.
Consequently, FBNI filed a separate Answer claiming that it exercised due diligence in the selection and supervision of
Rima and Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster should (1) file an application; (2) be
interviewed; and (3) undergo an apprenticeship and training program after passing the interview. FBNI likewise claimed
that it always reminds its broadcasters to "observe truth, fairness and objectivity in their broadcasts and to refrain from
using libelous and indecent language." Moreover, FBNI requires all broadcasters to pass the Kapisanan ng mga
Brodkaster sa Pilipinas ("KBP") accreditation test and to secure a KBP permit.
On 14 December 1992, the trial court rendered a Decision12finding FBNI and Alegre liable for libel except Rima. The
trial court held that the broadcasts are libelous per se. The trial court rejected the broadcasters' claim that their
utterances were the result of straight reporting because it had no factual basis. The broadcasters did not even verify
their reports before airing them to show good faith. In holding FBNI liable for libel, the trial court found that FBNI failed
to exercise diligence in the selection and supervision of its employees.
In absolving Rima from the charge, the trial court ruled that Rima's only participation was when he agreed with Alegre's
expos. The trial court found Rima's statement within the "bounds of freedom of speech, expression, and of the press."
The dispositive portion of the decision reads:
WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of damages caused by
the controversial utterances, which are not found by this court to be really very serious and damaging, and
there being no showing that indeed the enrollment of plaintiff school dropped, defendants Hermogenes "Jun"
Alegre, Jr. and Filipinas Broadcasting Network (owner of the radio station DZRC), are hereby jointly and severally
ordered to pay plaintiff Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM) the
amount of P300,000.00 moral damages, plus P30,000.00 reimbursement of attorney's fees, and to pay the costs of
suit.
SO ORDERED.13 (Emphasis supplied)rllbrr cause it dishonor, discredit and contempt. Rima and Alegre's remarks such as "greed for money on the part of AMEC's
Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the decision
to the Court of Appeals. The Court of Appeals affirmed the trial court's judgment with modification. The appellate court
made Rima solidarily liable with FBNI and Alegre. The appellate court denied Ago's claim for damages and attorney's
fees because the broadcasts were directed against AMEC, and not against her. The dispositive portion of the Court of
Appeals' decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that broadcaster Mel
Rima is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre.
SO ORDERED.14
FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January 2000
Resolution.
Hence, FBNI filed this petition.15
The Ruling of the Court of Appeals
The Court of Appeals upheld the trial court's ruling that the questioned broadcasts are libelous per se and that FBNI,
Rima and Alegre failed to overcome the legal presumption of malice. The Court of Appeals found Rima and Alegre's
claim that they were actuated by their moral and social duty to inform the public of the students' gripes as insufficient to
justify the utterance of the defamatory remarks.
Finding no factual basis for the imputations against AMEC's administrators, the Court of Appeals ruled that the
broadcasts were made "with reckless disregard as to whether they were true or false." The appellate court pointed out
that FBNI, Rima and Alegre failed to present in court any of the students who allegedly complained against AMEC.
Rima and Alegre merely gave a single name when asked to identify the students. According to the Court of Appeals,
these circumstances cast doubt on the veracity of the broadcasters' claim that they were "impelled by their moral and
The Court of Appeals found Rima also liable for libel since he remarked that "(1) AMEC-BCCM is a dumping ground for
morally and physically misfit teachers; (2) AMEC obtained the services of Dean Justita Lola to minimize expenses on
its employees' salaries; and (3) AMEC burdened the students with unreasonable imposition and false regulations."16
The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of its employees
for allowing Rima and Alegre to make the radio broadcasts without the proper KBP accreditation. The Court of Appeals
denied Ago's claim for damages and attorney's fees because the libelous remarks were directed against AMEC, and
not against her. The Court of Appeals adjudged FBNI, Rima and Alegre solidarily liable to pay AMEC moral damages,
attorney's fees and costs of suit.rbl rl l lbrr
Issues
FBNI raises the following issues for resolution:
I. WHETHER THE BROADCASTS ARE LIBELOUS;
II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;
III. WHETHER THE AWARD OF ATTORNEY'S FEES IS PROPER; andcralawlibrary
IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL DAMAGES,
ATTORNEY'S FEES AND COSTS OF SUIT.
The Court's Ruling
We deny the petition.
This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre against
AMEC.17 While AMEC did not point out clearly the legal basis for its complaint, a reading of the complaint reveals that
AMEC's cause of action is based on Articles 30 and 33 of the Civil Code. Article 3018authorizes a separate civil action
to recover civil liability arising from a criminal offense. On the other hand, Article 3319particularly provides that the
injured party may bring a separate civil action for damages in cases of defamation, fraud, and physical injuries. AMEC
also invokes Article 1920 of the Civil Code to justify its claim for damages. AMEC cites Articles 217621 and 218022 of the
Civil Code to hold FBNI solidarily liable with Rima and Alegre.
I.
Whether the broadcasts are libelous
A libel23 is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or omission,
condition, status, or circumstance tending to cause the dishonor, discredit, or contempt of a natural or juridical person,
or to blacken the memory of one who is dead.24
There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances tending to
administrators"; "AMEC is a dumping ground, garbage of xxx moral and physical misfits"; and AMEC students who
graduate "will be liabilities rather than assets" of the society are libelous per se. Taken as a whole, the broadcasts
suggest that AMEC is a money-making institution where physically and morally unfit teachers abound.
However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were plainly
impelled by their civic duty to air the students' gripes. FBNI alleges that there is no evidence that ill will or spite
motivated Rima and Alegre in making the broadcasts. FBNI further points out that Rima and Alegre exerted efforts to
obtain AMEC's side and gave Ago the opportunity to defend AMEC and its administrators. FBNI concludes that since
there is no malice, there is no libel.
FBNI's contentions are untenable.
Every defamatory imputation is presumed malicious.25 Rima and Alegre failed to show adequately their good intention
and justifiable motive in airing the supposed gripes of the students. As hosts of a documentary or public affairs
program, Rima and Alegre should have presented the public issues "free from inaccurate and misleading
information."26 Hearing the students' alleged complaints a month before the expos,27 they had sufficient time to verify
their sources and information. However, Rima and Alegre hardly made a thorough investigation of the students' alleged
gripes. Neither did they inquire about nor confirm the purported irregularities in AMEC from the Department of
Education, Culture and Sports. Alegre testified that he merely went to AMEC to verify his report from an alleged AMEC
official who refused to disclose any information. Alegre simply relied on the words of the students "because they were
many and not because there is proof that what they are saying is true." 28 This plainly shows Rima and Alegre's
reckless disregard of whether their report was true or not.
Contrary to FBNI's claim, the broadcasts were not "the result of straight reporting." Significantly, some courts in the
United States apply the privilege of "neutral reportage" in libel cases involving matters of public interest or public
figures. Under this privilege, a republisher who accurately and disinterestedly reports certain defamatory statements
made against public figures is shielded from liability, regardless of the republisher's subjective awareness of the truth
or falsity of the accusation.29 Rima and Alegre cannot invoke the privilege of neutral reportage because unfounded
comments abound in the broadcasts. Moreover, there is no existing controversy involving AMEC when the broadcasts
were made. The privilege of neutral reportage applies where the defamed person is a public figure who is involved in
an existing controversy, and a party to that controversy makes the defamatory statement.30
However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court of
Appeals,31 FBNI contends that the broadcasts "fall within the coverage of qualifiedly privileged communications" for
being commentaries on matters of public interest. Such being the case, AMEC should prove malice in fact or actual
malice. Since AMEC allegedly failed to prove actual malice, there is no libel.
FBNI's reliance on Borjal is misplaced. In Borjal, the Court elucidated on the "doctrine of fair comment," thus:
[F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action for libel or
slander. The doctrine of fair comment means that while in general every discreditable imputation publicly made is
deemed false, because every man is presumed innocent until his guilt is judicially proved, and every false imputation is
deemed malicious, nevertheless, when the discreditable imputation is directed against a public person in his public
capacity, it is not necessarily actionable. In order that such discreditable imputation to a public official may be
actionable, it must either be a false allegation of fact or a comment based on a false supposition. If the
comment is an expression of opinion, based on established facts, then it is immaterial that the opinion happens to
be mistaken, as long as it might reasonably be inferred from the facts.32 (Emphasis supplied)rllbrr 8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect public interest, general
True, AMEC is a private learning institution whose business of educating students is "genuinely imbued with public
interest." The welfare of the youth in general and AMEC's students in particular is a matter which the public has the
right to know. Thus, similar to the newspaper articles in Borjal, the subject broadcasts dealt with matters of public
interest. However, unlike in Borjal, the questioned broadcasts are not based on established facts. The record
supports the following findings of the trial court:
xxx Although defendants claim that they were motivated by consistent reports of students and parents against plaintiff,
yet, defendants have not presented in court, nor even gave name of a single student who made the complaint to them,
much less present written complaint or petition to that effect. To accept this defense of defendants is too dangerous
because it could easily give license to the media to malign people and establishments based on flimsy excuses that
there were reports to them although they could not satisfactorily establish it. Such laxity would encourage careless and
irresponsible broadcasting which is inimical to public interests.
Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their duties, did not
verify and analyze the truth of the reports before they aired it, in order to prove that they are in good faith.
Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy courses. Yet,
plaintiff produced a certificate coming from DECS that as of Sept. 22, 1987 or more than 2 years before the
controversial broadcast, accreditation to offer Physical Therapy course had already been given the plaintiff, which
certificate is signed by no less than the Secretary of Education and Culture herself, Lourdes R. Quisumbing (Exh. C-
rebuttal). Defendants could have easily known this were they careful enough to verify. And yet, defendants were very
categorical and sounded too positive when they made the erroneous report that plaintiff had no permit to offer Physical
Therapy courses which they were offering.
The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald Foundation prove not
to be true also. The truth is there is no Mcdonald Foundation existing. Although a big building of plaintiff school was
given the name Mcdonald building, that was only in order to honor the first missionary in Bicol of plaintiffs' religion, as
explained by Dr. Lita Ago. Contrary to the claim of defendants over the air, not a single centavo appears to be received
by plaintiff school from the aforementioned McDonald Foundation which does not exist.
Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical students fail in
one subject, they are made to repeat all the other subject[s], even those they have already passed, nor their claim that
the school charges laboratory fees even if there are no laboratories in the school. No evidence was presented to prove
the bases for these claims, at least in order to give semblance of good faith.
As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s] singled out
Dean Justita Lola who is said to be so old, with zero visibility already. Dean Lola testified in court last Jan. 21, 1991,
and was found to be 75 years old. xxx Even older people prove to be effective teachers like Supreme Court Justices
who are still very much in demand as law professors in their late years. Counsel for defendants is past 75 but is found
by this court to be still very sharp and effective.rbl rl l lbrr
So is plaintiffs' counsel.
Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert and docile.
The contention that plaintiffs' graduates become liabilities rather than assets of our society is a mere conclusion. Being
from the place himself, this court is aware that majority of the medical graduates of plaintiffs pass the board
examination easily and become prosperous and responsible professionals.33
Had the comments been an expression of opinion based on established facts, it is immaterial that the opinion happens
to be mistaken, as long as it might reasonably be inferred from the facts.34 However, the comments of Rima and Alegre
were not backed up by facts. Therefore, the broadcasts are not privileged and remain libelous per se.
The broadcasts also violate the Radio Code35 of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink. ("Radio Code").
Item I(B) of the Radio Code provides:
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
1. x x x
4. Public affairs program shall present public issues free from personal bias, prejudice and inaccurate and
misleading information. x x x Furthermore, the station shall strive to present balanced discussion of issues. x x x.
xxx
7. The station shall be responsible at all times in the supervision of public affairs, public issues and commentary
programs so that they conform to the provisions and standards of this code.
welfare and good order in the presentation of public affairs and public issues.36(Emphasis supplied)rllbrr
The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of ethical conduct
governing practitioners in the radio broadcast industry. The Radio Code is a voluntary code of conduct imposed by the
radio broadcast industry on its own members. The Radio Code is a public warranty by the radio broadcast industry that
radio broadcast practitioners are subject to a code by which their conduct are measured for lapses, liability and
sanctions.
The public has a right to expect and demand that radio broadcast practitioners live up to the code of conduct of their
profession, just like other professionals. A professional code of conduct provides the standards for determining
whether a person has acted justly, honestly and with good faith in the exercise of his rights and performance of his
duties as required by Article 1937of the Civil Code. A professional code of conduct also provides the standards for
determining whether a person who willfully causes loss or injury to another has acted in a manner contrary to morals or
good customs under Article 2138 of the Civil Code.
II.
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral damages because it is a corporation.39
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience
physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.40 The
Court of Appeals cites Mambulao Lumber Co. v. PNB, et al.41 to justify the award of moral damages. However, the
Court's statement in Mambulao that "a corporation may have a good reputation which, if besmirched, may also be a
ground for the award of moral damages" is an obiter dictum.42
Nevertheless, AMEC's claim for moral damages falls under item 7 of Article 221943 of the Civil Code. This provision
expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Article
2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a
corporation can validly complain for libel or any other form of defamation and claim for moral damages.44
Moreover, where the broadcast is libelous per se, the law implies damages.45 In such a case, evidence of an honest
mistake or the want of character or reputation of the party libeled goes only in mitigation of damages. 46 Neither in such
a case is the plaintiff required to introduce evidence of actual damages as a condition precedent to the recovery of
some damages.47 In this case, the broadcasts are libelous per se. Thus, AMEC is entitled to moral damages.
However, we find the award of P300,000 moral damages unreasonable. The record shows that even though the
broadcasts were libelous per se, AMEC has not suffered any substantial or material damage to its reputation.
Therefore, we reduce the award of moral damages from P300,000 to P150,000.
III.
Whether the award of attorney's fees is proper
FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of attorney's fees.
FBNI adds that the instant case does not fall under the enumeration in Article 220848 of the Civil Code.
The award of attorney's fees is not proper because AMEC failed to justify satisfactorily its claim for attorney's fees.
AMEC did not adduce evidence to warrant the award of attorney's fees. Moreover, both the trial and appellate courts
failed to explicitly state in their respective decisions the rationale for the award of attorney's fees.49 In Inter-Asia
Investment Industries, Inc. v. Court of Appeals ,50 we held that:
[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule, and
counsel's fees are not to be awarded every time a party wins a suit. The power of the court to award attorney's fees
under Article 2208 of the Civil Code demands factual, legal and equitable justification, without which the award
is a conclusion without a premise, its basis being improperly left to speculation and conjecture. In all events,
the court must explicitly state in the text of the decision, and not only in the decretal portion thereof, the legal reason for
the award of attorney's fees.51 (Emphasis supplied)rllbrr
While it mentioned about the award of attorney's fees by stating that it "lies within the discretion of the court and
depends upon the circumstances of each case," the Court of Appeals failed to point out any circumstance to justify the
award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre for moral damages, attorney's fees and costs of suit
FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and attorney's fees
because it exercised due diligence in the selection and supervision of its employees, particularly Rima and Alegre.
FBNI maintains that its broadcasters, including Rima and Alegre, undergo a "very regimented process" before they are
allowed to go on air. "Those who apply for broadcaster are subjected to interviews, examinations and an
apprenticeship program."
FBNI further argues that Alegre's age and lack of training are irrelevant to his competence as a broadcaster. FBNI
points out that the "minor deficiencies in the KBP accreditation of Rima and Alegre do not in any way prove that FBNI
did not exercise the diligence of a good father of a family in selecting and supervising them." Rima's accreditation
lapsed due to his non-payment of the KBP annual fees while Alegre's accreditation card was delayed allegedly for
reasons attributable to the KBP Manila Office. FBNI claims that membership in the KBP is merely voluntary and not
required by any law or government regulation.
FBNI's arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they
commit.52 Joint tort feasors are all the persons who command, instigate, promote, encourage, advise, countenance,
cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for their benefit.53 Thus,
AMEC correctly anchored its cause of action against FBNI on Articles 2176 and 2180 of the Civil
Code.rbl rl l lbrr We deny the motions for reconsideration.
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages arising from
the libelous broadcasts. As stated by the Court of Appeals, "recovery for defamatory statements published by radio or
television may be had from the owner of the station, a licensee, the operator of the station, or a person who
procures, or participates in, the making of the defamatory statements."54 An employer and employee are solidarily
liable for a defamatory statement by the employee within the course and scope of his or her employment, at least when
the employer authorizes or ratifies the defamation.55 In this case, Rima and Alegre were clearly performing their official
duties as hosts of FBNI's radio program Expos when they aired the broadcasts. FBNI neither alleged nor proved that
Rima and Alegre went beyond the scope of their work at that time. There was likewise no showing that FBNI did not
authorize and ratify the defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due diligence in
the selection and supervision of its employees, particularly Rima and Alegre. FBNI merely showed that it exercised
diligence in the selection of its broadcasters without introducing any evidence to prove that it observed the same
diligence in the supervision of Rima and Alegre. FBNI did not show how it exercised diligence in supervising its
broadcasters. FBNI's alleged constant reminder to its broadcasters to "observe truth, fairness and objectivity and to
refrain from using libelous and indecent language" is not enough to prove due diligence in the supervision of its
broadcasters. Adequate training of the broadcasters on the industry's code of conduct, sufficient information on libel
laws, and continuous evaluation of the broadcasters' performance are but a few of the many ways of showing diligence
in the supervision of broadcasters.
FBNI claims that it "has taken all the precaution in the selectionof Rima and Alegre as broadcasters, bearing in mind
their qualifications." However, no clear and convincing evidence shows that Rima and Alegre underwent FBNI's
"regimented process" of application. Furthermore, FBNI admits that Rima and Alegre had deficiencies in their KBP
accreditation,56 which is one of FBNI's requirements before it hires a broadcaster. Significantly, membership in the
KBP, while voluntary, indicates the broadcaster's strong commitment to observe the broadcast industry's rules and
regulations. Clearly, these circumstances show FBNI's lack of diligence in selecting and supervising Rima and Alegre.
Hence, FBNI is solidarily liable to pay damages together with Rima and Alegre.
WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and Resolution of 26
January 2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the MODIFICATION that the award of moral
damages is reduced from P300,000 to P150,000 and the award of attorney's fees is deleted. Costs against petitioner.
SO ORDERED.
EN BANC
G.R. No. 176579 : October 9, 2012
HEIRS OF WILSON P. GAMBOA,* Petitioners, v. FINANCE SECRETARYMARGARITO B. TEVES, FINANCE
UNDERSECRETARYJOHN P. SEVILLA, AND COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL
COMMISSION ON GOOD GOVERNMENT(PCGG) IN THEIR CAPACITIES AS CHAIR AND MEMBERS,
RESPECTIVELY, OF THE PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO.,
LTD. IN HIS CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET HOLDINGS INC., CHAIRMAN MANUEL V.
PANGILINAN OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS
MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L. NAZARENO OF PHILIPPINE
LONG DISTANCE TELEPHONE COMPANY, CHAIR FE BARIN OF THE SECURITIES AND EXCHANGE
COMMISSION, and PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioner-in-Intervention.
RESOLUTION
CARPIO, J.:
This resolves the motions for reconsideration of the 28 June 2011 Decision filed by (1) the Philippine Stock Exchange's
(PSE) President, 1rll (2) Manuel V. Pangilinan (Pangilinan),2rll (3) Napoleon L. Nazareno (Nazareno
),3rll and ( 4) the Securities and Exchange Commission (SEC)4rll (collectively, movants ).
The Office of the Solicitor General (OSG) initially filed a motion for reconsideration on behalfofthe SEC,5rll assailing
the 28 June 2011 Decision. However, it subsequently filed a Consolidated Comment on behalf of the
State,6rll declaring expressly that it agrees with the Court's definition of the term "capital" in Section 11, Article XII of
the Constitution. During the Oral Arguments on 26 June 2012, the OSG reiterated its position consistent with the
Court's 28 June 2011 Decision.
I.
Far-reaching implications of the legal issue justify
treatment of petition for declaratory relief as one for mandamus.
As we emphatically stated in the 28 June 2011 Decision, the interpretation of the term "capital" in Section 11, Article XII
of the Constitution has far-reaching implications to the national economy. In fact, a resolution of this issue will
determine whether Filipinos are masters, or second-class citizens, in their own country. What is at stake here is
whether Filipinos or foreigners will have effective control of the Philippine national economy. Indeed, if ever there is a
legal issue that has far-reaching implications to the entire nation, and to future generations of Filipinos, it is the
threshold legal issue presented in this case.
Contrary to Pangilinans narrow view, the serious economic consequences resulting in the interpretation of the term
"capital" in Section 11, Article XII of the Constitution undoubtedly demand an immediate adjudication of this
issue. Simply put, the far-reaching implications of this issue justify the treatment of the petition as one for
mandamus.7rll
In Luzon Stevedoring Corp. v. Anti-Dummy Board,8rll the Court deemed it wise and expedient to resolve the case
although the petition for declaratory relief could be outrightly dismissed for being procedurally defective. There,
appellant admittedly had already committed a breach of the Public Service Act in relation to the Anti-Dummy Law since
it had been employing non- American aliens long before the decision in a prior similar case. However, the main issue
in Luzon Stevedoring was of transcendental importance, involving the exercise or enjoyment of rights, franchises,
privileges, properties and businesses which only Filipinos and qualified corporations could exercise or enjoy under the
Constitution and the statutes. Moreover, the same issue could be raised by appellant in an appropriate action. Thus,
in Luzon Stevedoring the Court deemed it necessary to finally dispose of the case for the guidance of all concerned,
despite the apparent procedural flaw in the petition.
The circumstances surrounding the present case, such as the supposed procedural defect of the petition and the
pivotal legal issue involved, resemble those in Luzon Stevedoring. Consequently, in the interest of substantial justice
and faithful adherence to the Constitution, we opted to resolve this case for the guidance of the public and all
concerned parties.
II.
No change of any long-standing rule;
thus, no redefinition of the term "capital."
Movants contend that the term "capital" in Section 11, Article XII of the Constitution has long been settled and defined
to refer to the total outstanding shares of stock, whether voting or non-voting. In fact, movants claim that the SEC,
which is the administrative agency tasked to enforce the 60-40 ownership requirement in favor of Filipino citizens in the
Constitution and various statutes, has consistently adopted this particular definition in its numerous opinions. Movants
point out that with the 28 June 2011 Decision, the Court in effect introduced a "new" definition or "midstream
redefinition"9rll of the term "capital" in Section 11, Article XII of the Constitution.
This is egregious error.
For more than 75 years since the 1935 Constitution, the Court has not interpreted or defined the term "capital" found in
various economic provisions of the 1935, 1973 and 1987 Constitutions. There has never been a judicial precedent
interpreting the term "capital" in the 1935, 1973 and 1987 Constitutions, until now. Hence, it is patently wrong and
utterly baseless to claim that the Court in defining the term "capital" in its 28 June 2011 Decision modified, reversed, or
set aside the purported long-standing definition of the term "capital," which supposedly refers to the total outstanding
shares of stock, whether voting or non-voting. To repeat, until the present case there has never been a Court ruling
categorically defining the term "capital" found in the various economic provisions of the 1935, 1973 and 1987 Philippine
Constitutions.
The opinions of the SEC, as well as of the Department of Justice (DOJ), on the definition of the term "capital" as
referring to both voting and non-voting shares (combined total of common and preferred shares) are, in the first place,
conflicting and inconsistent. There is no basis whatsoever to the claim that the SEC and the DOJ have consistently
and uniformly adopted a definition of the term "capital" contrary to the definition that this Court adopted in its 28 June
2011 Decision.
In DOJ Opinion No. 130, s. 1985,10rll dated 7 October 1985, the scope of the term "capital" in Section 9, Article XIV
of the 1973 Constitution was raised, that is, whether the term "capital" includes "both preferred and common stocks."
The issue was raised in relation to a stock-swap transaction between a Filipino and a Japanese corporation, both
stockholders of a domestic corporation that owned lands in the Philippines. Then Minister of Justice Estelito P.
Mendoza ruled that the resulting ownership structure of the corporation would be unconstitutional because 60% of
the voting stock would be owned by Japanese while Filipinos would own only 40% of the voting stock, although when
the non-voting stock is added, Filipinos would own 60% of the combined voting and non-voting stock. This ownership
structure is remarkably similar to the current ownership structure of PLDT. Minister Mendoza ruled:
xxxx
Thus, the Filipino group still owns sixty (60%) of the entire subscribed capital stock (common and preferred) while the
Japanese investors control sixty percent (60%) of the common (voting) shares.
It is your position that x x x since Section 9, Article XIV of the Constitution uses the word "capital," which is
construed "to include both preferred and common shares" and "that where the law does not distinguish, the
courts shall not distinguish."
xxxx
In light of the foregoing jurisprudence, it is my opinion that the stock-swap transaction in question may not be
constitutionally upheld. While it may be ordinary corporate practice to classify corporate shares into common voting
shares and preferred non-voting shares, any arrangement which attempts to defeat the constitutional purpose should
be eschewed. Thus, the resultant equity arrangement which would place ownership of 60% 11rllof the
common (voting) shares in the Japanese group, while retaining 60% of the total percentage of common and
preferred shares in Filipino hands would amount to circumvention of the principle of control by Philippine
stockholders that is implicit in the 60% Philippine nationality requirement in the Constitution. (Emphasis
supplied)
In short, Minister Mendoza categorically rejected the theory that the term "capital" in Section 9, Article XIV of the
1973 Constitution includes "both preferred and common stocks" treated as the same class of shares regardless of
differences in voting rights and privileges. Minister Mendoza stressed that the 60-40 ownership requirement in favor of
Filipino citizens in the Constitution is not complied with unless the corporation "satisfies the criterion of beneficial
ownership" and that in applying the same "the primordial consideration is situs of control."
On the other hand, in Opinion No. 23-10 dated 18 August 2010, addressed to Castillo Laman Tan Pantaleon & San
Jose, then SEC General Counsel Vernette G. Umali-Paco applied the Voting Control Test, that is, using only the
voting stock to determine whether a corporation is a Philippine national. The Opinion states:
Applying the foregoing, particularly the Control Test, MLRC is deemed as a Philippine national because: (1) sixty
percent (60%) of its outstanding capital stock entitled to vote is owned by a Philippine national, the Trustee; and (2)
at least sixty percent (60%) of the ERF will accrue to the benefit of Philippine nationals. Still pursuant to the Control
Test, MLRCs investment in 60% of BFDCs outstanding capital stock entitled to vote shall be deemed as of
Philippine nationality, thereby qualifying BFDC to own private land.
Further, under, and for purposes of, the FIA, MLRC and BFDC are both Philippine nationals, considering that: (1) sixty
percent (60%) of their respective outstanding capital stock entitled to vote is owned by a Philippine national (i.e., by
the Trustee, in the case of MLRC; and by MLRC, in the case of BFDC); and (2) at least 60% of their respective board
of directors are Filipino citizens. (Boldfacing and italicization supplied)
Clearly, these DOJ and SEC opinions are compatible with the Courts interpretation of the 60-40 ownership requirement
in favor of Filipino citizens mandated by the Constitution for certain economic activities. At the same time, these
opinions highlight the conflicting, contradictory, and inconsistent positions taken by the DOJ and the SEC on the
definition of the term "capital" found in the economic provisions of the Constitution.
The opinions issued by SEC legal officers do not have the force and effect of SEC rules and regulations because only
the SEC en banc can adopt rules and regulations. As expressly provided in Section 4.6 of the Securities Regulation
Code,12rllthe SEC cannot delegate to any of its individual Commissioner or staff the power to adopt any rule or
regulation. Further, under Section 5.1 of the same Code, it is the SEC as a collegial body, and not any of its legal
officers, that is empowered to issue opinions and approve rules and regulations. Thus:
4.6. The Commission may, for purposes of efficiency, delegate any of its functions to any department or office of the
Commission, an individual Commissioner or staff member of the Commission except its review or appellate authority
and its power to adopt, alter and supplement any rule or regulation.
The Commission may review upon its own initiative or upon the petition of any interested party any action of any
department or office, individual Commissioner, or staff member of the Commission.
SEC. 5. Powers and Functions of the Commission.- 5.1. The Commission shall act with transparency and shall have
the powers and functions provided by this Code, Presidential Decree No. 902-A, the Corporation Code, the Investment
Houses Law, the Financing Company Act and other existing laws. Pursuant thereto the Commission shall have, among
others, the following powers and functions:chanroblesvirtuallawlibrary
xxxx
(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance
on and supervise compliance with such rules, regulations and orders;
x x x x (Emphasis supplied)
Thus, the act of the individual Commissioners or legal officers of the SEC in issuing opinions that have the effect of
SEC rules or regulations is ultra vires. Under Sections 4.6 and 5.1(g) of the Code, only the SEC en banc can "issue
opinions" that have the force and effect of rules or regulations. Section 4.6 of the Code bars the SEC en banc from
delegating to any individual Commissioner or staff the power to adopt rules or regulations. In short, any opinion of
individual Commissioners or SEC legal officers does not constitute a rule or regulation of the SEC.
The SEC admits during the Oral Arguments that only the SEC en banc, and not any of its individual commissioners or
legal staff, is empowered to issue opinions which have the same binding effect as SEC rules and regulations, thus:
JUSTICE CARPIO:
So, under the law, it is the Commission En Banc that can issue an
SEC Opinion, correct?
COMMISSIONER GAITE:13rll it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock of a corporation? Will
Thats correct, Your Honor.
JUSTICE CARPIO:
Can the Commission En Banc delegate this function to an SEC officer?
COMMISSIONER GAITE:
Yes, Your Honor, we have delegated it to the General Counsel.
JUSTICE CARPIO:
It can be delegated. What cannot be delegated by the Commission En Banc to a commissioner or an individual
employee of the Commission?
COMMISSIONER GAITE:
Novel opinions that [have] to be decided by the En Banc...
JUSTICE CARPIO:
What cannot be delegated, among others, is the power to adopt or amend rules and regulations, correct?
COMMISSIONER GAITE:
Thats correct, Your Honor.
JUSTICE CARPIO:
So, you combine the two (2), the SEC officer, if delegated that power, can issue an opinion but that opinion does not
constitute a rule or regulation, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
So, all of these opinions that you mentioned they are not rules and regulations, correct?
COMMISSIONER GAITE:
They are not rules and regulations.
JUSTICE CARPIO:
If they are not rules and regulations, they apply only to that particular situation and will not constitute a precedent,
correct?
COMMISSIONER GAITE:
Yes, Your Honor.14rll (Emphasis supplied) therein and shall not be used in the nature of a standing rule binding upon the Commission in other cases
Significantly, the SEC en banc, which is the collegial body statutorily empowered to issue rules and opinions on behalf
of the SEC, has adopted even the Grandfather Rule in determining compliance with the 60-40 ownership requirement
in favor of Filipino citizens mandated by the Constitution for certain economic activities. This prevailing SEC ruling,
which the SEC correctly adopted to thwart any circumvention of the required Filipino "ownership and control," is laid
down in the 25 March 2010 SEC en banc ruling in Redmont Consolidated Mines, Corp. v. McArthur Mining, Inc., et
al.,15rll to wit: interpretation of the law, in this case the term "capital" in Section 11, Article XII of the 1987 Constitution, lies with this
The avowed purpose of the Constitution is to place in the hands of Filipinos the exploitation of our natural
resources. Necessarily, therefore, the Rule interpreting the constitutional provision should not diminish that
right through the legal fiction of corporate ownership and control. But the constitutional provision, as interpreted
and practiced via the 1967 SEC Rules, has favored foreigners contrary to the command of the Constitution. Hence,
the Grandfather Rule must be applied to accurately determine the actual participation, both direct and indirect,
of foreigners in a corporation engaged in a nationalized activity or business.
Compliance with the constitutional limitation(s) on engaging in nationalized activities must be determined by
ascertaining if 60% of the investing corporations outstanding capital stock is owned by "Filipino citizens", or as
interpreted, by natural or individual Filipino citizens. If such investing corporation is in turn owned to some extent by
another investing corporation, the same process must be observed. One must not stop until the citizenships of the
individual or natural stockholders of layer after layer of investing corporations have been established, the very essence
of the Grandfather Rule.
Lastly, it was the intent of the framers of the 1987 Constitution to adopt the Grandfather Rule. In one of the
discussions on what is now Article XII of the present Constitution, the framers made the following exchange:
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-
40 in Section 3, 60-40 in Section 9, and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with the question: Where do we base the equity requirement, is
the Committee please enlighten me on this?
MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center who
provided us a draft. The phrase that is contained here which we adopted from the UP draft is 60 percent of voting
stock.
MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent, unpaid
capital stock shall be entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you. With respect to an investment by one corporation in another corporation, say, a
corporation with 60-40 percent equity invests in another corporation which is permitted by the Corporation Code, does
the Committee adopt the grandfather rule?
MR. VILLEGAS. Yes, that is the understanding of the Committee.
MR. NOLLEDO. Therefore, we need additional Filipino capital?
MR. VILLEGAS. Yes. (Boldfacing and underscoring supplied; italicization in the original)
This SEC en banc ruling conforms to our 28 June 2011 Decision that the 60-40 ownership requirement in favor of
Filipino citizens in the Constitution to engage in certain economic activities applies not only to voting control of the
corporation, but also to the beneficial ownership of the corporation. Thus, in our 28 June 2011 Decision we stated:
Mere legal title is insufficient to meet the 60 percent Filipinoowned "capital" required in the Constitution. Full beneficial
ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is
required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of
Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is "considered as non-
Philippine national[s]." (Emphasis supplied)
Both the Voting Control Test and the Beneficial Ownership Test must be applied to determine whether a corporation is
a "Philippine national."
The interpretation by legal officers of the SEC of the term "capital," embodied in various opinions which respondents
relied upon, is merely preliminary and an opinion only of such officers. To repeat, any such opinion does not constitute
an SEC rule or regulation. In fact, many of these opinions contain a disclaimer which expressly states: "x x x the
foregoing opinion is based solely on facts disclosed in your query and relevant only to the particular issue raised
whether of similar or dissimilar circumstances."16rll Thus, the opinions clearly make a caveat that they do not
constitute binding precedents on any one, not even on the SEC itself.
Likewise, the opinions of the SEC en banc, as well as of the DOJ, interpreting the law are neither conclusive nor
controlling and thus, do not bind the Court. It is hornbook doctrine that any interpretation of the law that administrative
or quasi-judicial agencies make is only preliminary, never conclusive on the Court. The power to make a final
Court, not with any other government entity.
In his motion for reconsideration, the PSE President cites the cases of National Telecommunications Commission v.
Court of Appeals17rll and Philippine Long Distance Telephone Company v. National Telecommunications
Commission18rll in arguing that the Court has already defined the term "capital" in Section 11, Article XII of the 1987
Constitution.19rll
The PSE President is grossly mistaken. In both cases of National Telecommunications v. Court of
Appeals20rll and Philippine Long Distance Telephone Company v. National Telecommunications
Commission,21rll the Court did not define the term "capital" as found in Section 11, Article XII of the 1987
Constitution. In fact, these two cases never mentioned, discussed or cited Section 11, Article XII of the
Constitution or any of its economic provisions, and thus cannot serve as precedent in the interpretation of
Section 11, Article XII of the Constitution. These two cases dealt solely with the determination of the correct
regulatory fees under Section 40(e) and (f) of the Public Service Act, to wit:
(e) For annual reimbursement of the expenses incurred by the Commission in the supervision of other public services
and/or in the regulation or fixing of their rates, twenty centavos for each one hundred pesos or fraction thereof, of
the capital stock subscribed or paid, or if no shares have been issued, of the capital invested, or of the property and
equipment whichever is higher.
(f) For the issue or increase of capital stock, twenty centavos for each one hundred pesos or fraction thereof, of the
increased capital. (Emphasis supplied)
The Courts interpretation in these two cases of the terms "capital stock subscribed or paid," "capital stock" and
"capital" does not pertain to, and cannot control, the definition of the term "capital" as used in Section 11, Article XII of
the Constitution, or any of the economic provisions of the Constitution where the term "capital" is found. The definition
of the term "capital" found in the Constitution must not be taken out of context. A careful reading of these two cases
reveals that the terms "capital stock subscribed or paid," "capital stock" and "capital" were defined solely to determine
the basis for computing the supervision and regulation fees under Section 40(e) and (f) of the Public Service Act.
III.
Filipinization of Public Utilities
The Preamble of the 1987 Constitution, as the prologue of the supreme law of the land, embodies the ideals that the
Constitution intends to achieve.22rll The Preamble reads:
We, the sovereign Filipino people, imploring the aid of Almighty God, in order to build a just and humane society, and
establish a Government that shall embody our ideals and aspirations, promote the common good, conserve and
develop our patrimony, and secure to ourselves and our posterity, the blessings of independence and democracy
under the rule of law and a regime of truth, justice, freedom, love, equality, and peace, do ordain and promulgate this
Constitution. (Emphasis supplied)
Consistent with these ideals, Section 19, Article II of the 1987 Constitution declares as State policy the development of
a national economy "effectively controlled" by Filipinos:
Section 19. The State shall develop a self-reliant and independent national economy effectively controlled by
Filipinos.
Fortifying the State policy of a Filipino-controlled economy, the Constitution decrees:
Section 10. The Congress shall, upon recommendation of the economic and planning agency, when the national
interest dictates, reserve to citizens of the Philippines or to corporations or associations at least sixty per centum of
whose capital is owned by such citizens, or such higher percentage as Congress may prescribe, certain areas of
investments. The Congress shall enact measures that will encourage the formation and operation of enterprises whose
capital is wholly owned by Filipinos.
In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shall give
preference to qualified Filipinos.
The State shall regulate and exercise authority over foreign investments within its national jurisdiction and in
accordance with its national goals and priorities.23rll
Under Section 10, Article XII of the 1987 Constitution, Congress may "reserve to citizens of the Philippines or to
corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher
percentage as Congress may prescribe, certain areas of investments." Thus, in numerous laws Congress has reserved
certain areas of investments to Filipino citizens or to corporations at least sixty percent of the "capital" of which is
owned by Filipino citizens. Some of these laws are: (1) Regulation of Award of Government Contracts or R.A. No.
5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and Medium
Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5) Domestic
Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No.
10055; and (7) Ship Mortgage Decree or P.D. No. 1521.
With respect to public utilities, the 1987 Constitution specifically ordains:
Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall
be granted except to citizens of the Philippines or to corporations or associations organized under the laws of
the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise,
certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such
franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by
the Congress when the common good so requires. The State shall encourage equity participation in public utilities by
the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be
limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or
association must be citizens of the Philippines. (Emphasis supplied)
This provision, which mandates the Filipinization of public utilities, requires that any form of authorization for the
operation of public utilities shall be granted only to "citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens." "The
provision is [an express] recognition of the sensitive and vital position of public utilities both in the national
economy and for national security."24rll
The 1987 Constitution reserves the ownership and operation of public utilities exclusively to (1) Filipino citizens, or (2)
corporations or associations at least 60 percent of whose "capital" is owned by Filipino citizens. Hence, in the case of
individuals, only Filipino citizens can validly own and operate a public utility. In the case of corporations or
associations, at least 60 percent of their "capital" must be owned by Filipino citizens. In other words, under Section
11, Article XII of the 1987 Constitution, to own and operate a public utility a corporations capital must at least
be 60 percent owned by Philippine nationals.
IV.
Definition of "Philippine National"
Pursuant to the express mandate of Section 11, Article XII of the 1987 Constitution, Congress enacted Republic Act
No. 7042 or the Foreign Investments Act of 1991 (FIA), as amended, which defined a "Philippine national" as follows:
SEC. 3. Definitions. - As used in this Act:chanroblesvirtuallawlibrary
a. The term "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or association wholly
owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at
least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of
the Philippines; or a corporation organized abroad and registered as doing business in the Philippines under the
Corporation Code of which one hundred percent (100%) of the capital stock outstanding and entitled to vote is wholly
owned by Filipinos or a trustee of funds for pension or other employee retirement or separation benefits, where the
trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine
nationals: Provided, That where a corporation and its non-Filipino stockholders own stocks in a Securities and
Exchange Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock outstanding and
entitled to vote of each of both corporations must be owned and held by citizens of the Philippines and at least sixty
percent (60%) of the members of the Board of Directors of each of both corporations must be citizens of the
Philippines, in order that the corporation, shall be considered a "Philippine national." (Boldfacing, italicization and
underscoring supplied)
Thus, the FIA clearly and unequivocally defines a "Philippine national" as a Philippine citizen, or a domestic
corporation at least "60% of the capital stock outstanding and entitled to vote" is owned by Philippine citizens.
The definition of a "Philippine national" in the FIA reiterated the meaning of such term as provided in its predecessor
statute, Executive Order No. 226 or the Omnibus Investments Code of 1987,25rll which was issued by then
President Corazon C. Aquino. Article 15 of this Code states:
Article 15. "Philippine national" shall mean a citizen of the Philippines or a diplomatic partnership or association wholly-
owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at
least sixty per cent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of
the Philippines; or a trustee of funds for pension or other employee retirement or separation benefits, where the
trustee is a Philippine national and at least sixty per cent (60%) of the fund will accrue to the benefit of Philippine
nationals: Provided, That where a corporation and its non-Filipino stockholders own stock in a registered enterprise, at
least sixty per cent (60%) of the capital stock outstanding and entitled to vote of both corporations must be owned and
held by the citizens of the Philippines and at least sixty per cent (60%) of the members of the Board of Directors of
both corporations must be citizens of the Philippines in order that the corporation shall be considered a Philippine
national. (Boldfacing, italicization and underscoring supplied)
Under Article 48(3)26rll of the Omnibus Investments Code of 1987, "no corporation x x x which is not a Philippine
national x x x shall do business
x x x in the Philippines x x x without first securing from the Board of Investments a written certificate to the effect that
such business or economic activity x x x would not conflict with the Constitution or laws of the
Philippines."27rll Thus, a "non-Philippine national" cannot own and operate a reserved economic activity like a
public utility. This means, of course, that only a "Philippine national" can own and operate a public utility.
In turn, the definition of a "Philippine national" under Article 15 of the Omnibus Investments Code of 1987 was a
reiteration of the meaning of such term as provided in Article 14 of the Omnibus Investments Code of 1981,28rll to
wit:
Article 14. "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or association wholly
owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at
least sixty per cent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of
the Philippines; or a trustee of funds for pension or other employee retirement or separation benefits, where the
trustee is a Philippine national and at least sixty per cent (60%) of the fund will accrue to the benefit of Philippine
nationals: Provided, That where a corporation and its non-Filipino stockholders own stock in a registered enterprise, at
least sixty per cent (60%) of the capital stock outstanding and entitled to vote of both corporations must be owned and
held by the citizens of the Philippines and at least sixty per cent (60%) of the members of the Board of Directors of
both corporations must be citizens of the Philippines in order that the corporation shall be considered a Philippine
national. (Boldfacing, italicization and underscoring supplied)
Under Article 69(3) of the Omnibus Investments Code of 1981, "no corporation x x x which is not a Philippine national x
x x shall do business x x x in the Philippines x x x without first securing a written certificate from the Board of
Investments to the effect that such business or economic activity x x x would not conflict with the Constitution or laws
of the Philippines."29rll Thus, a "non-Philippine national" cannot own and operate a reserved economic activity like a
public utility. Again, this means that only a "Philippine national" can own and operate a public utility.
Prior to the Omnibus Investments Code of 1981, Republic Act No. 518630rll or the Investment Incentives Act, which
took effect on 16 September 1967, contained a similar definition of a "Philippine national," to wit:
(f) "Philippine National" shall mean a citizen of the Philippines; or a partnership or association wholly owned by citizens
of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty per cent of
the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a trustee
of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine National and
at least sixty per cent of the fund will accrue to the benefit of Philippine Nationals: Provided, That where a corporation
and its non-Filipino stockholders own stock in a registered enterprise, at least sixty per cent of the capital stock
outstanding and entitled to vote of both corporations must be owned and held by the citizens of the Philippines and at
least sixty per cent of the members of the Board of Directors of both corporations must be citizens of the Philippines in
order that the corporation shall be considered a Philippine National. (Boldfacing, italicization and underscoring
supplied)
Under Section 3 of Republic Act No. 5455 or the Foreign Business Regulations Act, which took effect on 30 September
1968, if the investment in a domestic enterprise by non-Philippine nationals exceeds 30% of its outstanding capital
stock, such enterprise must obtain prior approval from the Board of Investments before accepting such investment.
Such approval shall not be granted if the investment "would conflict with existing constitutional provisions and laws
regulating the degree of required ownership by Philippine nationals in the enterprise."31rll A "non-Philippine
national" cannot own and operate a reserved economic activity like a public utility. Again, this means that only a
"Philippine national" can own and operate a public utility.
The FIA, like all its predecessor statutes, clearly defines a "Philippine national" as a Filipino citizen, or a domestic
corporation "at least sixty percent (60%) of the capital stock outstanding and entitled to vote" is owned by
Filipino citizens. A domestic corporation is a "Philippine national" only if at least 60% of its voting stock is owned by
Filipino citizens. This definition of a "Philippine national" is crucial in the present case because the FIA reiterates and
clarifies Section 11, Article XII of the 1987 Constitution, which limits the ownership and operation of public utilities to
Filipino citizens or to corporations or associations at least 60% Filipino-owned.
The FIA is the basic law governing foreign investments in the Philippines, irrespective of the nature of business and
area of investment. The FIA spells out the procedures by which non-Philippine nationals can invest in the Philippines.
Among the key features of this law is the concept of a negative list or the Foreign Investments Negative
List.32rll Section 8 of the law states:
SEC. 8. List of Investment Areas Reserved to Philippine Nationals [Foreign Investment Negative List]. - The
Foreign Investment Negative List shall have two 2rll component lists: A and B:chanroblesvirtuallawlibrary
a. List A shall enumerate the areas of activities reserved to Philippine nationals by mandate of the
Constitution and specific laws.
b. List B shall contain the areas of activities and enterprises regulated pursuant to law:chanroblesvirtuallawlibrary
1. which are defense-related activities, requiring prior clearance and authorization from the Department of National
Defense [DND] to engage in such activity, such as the manufacture, repair, storage and/or distribution of firearms,
ammunition, lethal weapons, military ordinance, explosives, pyrotechnics and similar materials; unless such
manufacturing or repair activity is specifically authorized, with a substantial export component, to a non-Philippine
national by the Secretary of National Defense; or
2. which have implications on public health and morals, such as the manufacture and distribution of dangerous drugs;
all forms of gambling; nightclubs, bars, beer houses, dance halls, sauna and steam bathhouses and massage clinics.
(Boldfacing, underscoring and italicization supplied)
Section 8 of the FIA enumerates the investment areas "reserved to Philippine nationals." Foreign Investment
Negative List A consists of "areas of activities reserved to Philippine nationals by mandate of the Constitution
and specific laws," where foreign equity participation in any enterprise shall be limited to the maximum
percentage expressly prescribed by the Constitution and other specific laws. In short, to own and operate a
public utility in the Philippines one must be a "Philippine national" as defined in the FIA. The FIA is abundant
notice to foreign investors to what extent they can invest in public utilities in the Philippines.
To repeat, among the areas of investment covered by the Foreign Investment Negative List A is the ownership and
operation of public utilities, which the Constitution expressly reserves to Filipino citizens and to corporations at least
60% owned by Filipino citizens. In other words, Negative List A of the FIA reserves the ownership and operation
of public utilities only to "Philippine nationals," defined in Section 3(a) of the FIA as "(1) a citizen of the
Philippines; x x x or (3) a corporation organized under the laws of the Philippines of which at least sixty percent
(60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or
(4) a corporation organized abroad and registered as doing business in the Philippines under the Corporation Code of
which one hundred percent (100%) of the capital stock outstanding and entitled to vote is wholly owned by Filipinos or
a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine
national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals."
Clearly, from the effectivity of the Investment Incentives Act of 1967 to the adoption of the Omnibus Investments Code
of 1981, to the enactment of the Omnibus Investments Code of 1987, and to the passage of the present Foreign
Investments Act of 1991, or for more than four decades, the statutory definition of the term "Philippine national"
has been uniform and consistent: it means a Filipino citizen, or a domestic corporation at least 60% of
the voting stock is owned by Filipinos. Likewise, these same statutes have uniformly and consistently
required that only "Philippine nationals" could own and operate public utilities in the Philippines. The following
exchange during the Oral Arguments is revealing:
JUSTICE CARPIO:
Counsel, I have some questions. You are aware of the Foreign Investments Act of 1991, x x x? And the FIA of 1991
took effect in 1991, correct? Thats over twenty (20) years ago, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And Section 8 of the Foreign Investments Act of 1991 states that []only Philippine nationals can own and operate
public utilities[], correct?
COMMISSIONER GAITE:
Yes, Your Honor.
JUSTICE CARPIO:
And the same Foreign Investments Act of 1991 defines a "Philippine national" either as a citizen of the Philippines, or if
it is a corporation at least sixty percent (60%) of the voting stock is owned by citizens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And, you are also aware that under the predecessor law of the Foreign Investments Act of 1991, the Omnibus
Investments Act of 1987, the same provisions apply: x x x only Philippine nationals can own and operate a public utility
and the Philippine national, if it is a corporation, x x x sixty percent (60%) of the capital stock of that corporation must
be owned by citizens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And even prior to the Omnibus Investments Act of 1987, under the Omnibus Investments Act of 1981, the same rules
apply: x x x only a Philippine national can own and operate a public utility and a Philippine national, if it is a
corporation, sixty percent (60%) of its x x x voting stock, must be owned by citizens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And even prior to that, under [the]1967 Investments Incentives Act and the Foreign Company Act of 1968, the same
rules applied, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
So, for the last four (4) decades, x x x, the law has been very consistent only a Philippine national can own and
operate a public utility, and a Philippine national, if it is a corporation, x x x at least sixty percent (60%) of the voting
stock must be owned by citizens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.33rll (Emphasis supplied)
Government agencies like the SEC cannot simply ignore Sections 3(a) and 8 of the FIA which categorically prescribe
that certain economic activities, like the ownership and operation of public utilities, are reserved to corporations "at
least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the
Philippines." Foreign Investment Negative List A refers to "activities reserved to Philippine nationals by mandate of the
Constitution and specific laws." The FIA is the basic statute regulating foreign investments in the Philippines.
Government agencies tasked with regulating or monitoring foreign investments, as well as counsels of foreign
investors, should start with the FIA in determining to what extent a particular foreign investment is allowed in the
Philippines. Foreign investors and their counsels who ignore the FIA do so at their own peril. Foreign investors and
their counsels who rely on opinions of SEC legal officers that obviously contradict the FIA do so also at their own peril.
Occasional opinions of SEC legal officers that obviously contradict the FIA should immediately raise a red flag. There
are already numerous opinions of SEC legal officers that cite the definition of a "Philippine national" in Section 3(a) of
the FIA in determining whether a particular corporation is qualified to own and operate a nationalized or partially
nationalized business in the Philippines. This shows that SEC legal officers are not only aware of, but also rely on and
invoke, the provisions of the FIA in ascertaining the eligibility of a corporation to engage in partially nationalized
industries. The following are some of such opinions:
1. Opinion of 23 March 1993, addressed to Mr. Francis F. How;
2. Opinion of 14 April 1993, addressed to Director Angeles T. Wong of the Philippine Overseas Employment
Administration;
3. Opinion of 23 November 1993, addressed to Messrs. Dominador Almeda and Renato S. Calma;
4. Opinion of 7 December 1993, addressed to Roco Bunag Kapunan Migallos & Jardeleza;
5. SEC Opinion No. 49-04, addressed to Romulo Mabanta Buenaventura Sayoc & De Los Angeles;
6. SEC-OGC Opinion No. 17-07, addressed to Mr. Reynaldo G. David; and
7. SEC-OGC Opinion No. 03-08, addressed to Attys. Ruby Rose J. Yusi and Rudyard S. Arbolado.
The SEC legal officers occasional but blatant disregard of the definition of the term "Philippine national" in the FIA
signifies their lack of integrity and competence in resolving issues on the 60-40 ownership requirement in favor of
Filipino citizens in Section 11, Article XII of the Constitution.
The PSE President argues that the term "Philippine national" defined in the FIA should be limited and interpreted to
refer to corporations seeking to avail of tax and fiscal incentives under investment incentives laws and cannot be
equated with the term "capital" in Section 11, Article XII of the 1987 Constitution. Pangilinan similarly contends that the
FIA and its predecessor statutes do not apply to "companies which have not registered and obtained special incentives
under the schemes established by those laws."
Both are desperately grasping at straws. The FIA does not grant tax or fiscal incentives to any enterprise. Tax and
fiscal incentives to investments are granted separately under the Omnibus Investments Code of 1987, not under the
FIA. In fact, the FIA expressly repealed Articles 44 to 56 of Book II of the Omnibus Investments Code of 1987, which
articles previously regulated foreign investments in nationalized or partially nationalized industries.
The FIA is the applicable law regulating foreign investments in nationalized or partially nationalized industries. There is
nothing in the FIA, or even in the Omnibus Investments Code of 1987 or its predecessor statutes, that states,
expressly or impliedly, that the FIA or its predecessor statutes do not apply to enterprises not availing of tax and fiscal
incentives under the Code. The FIA and its predecessor statutes apply to investments in all domestic enterprises,
whether or not such enterprises enjoy tax and fiscal incentives under the Omnibus Investments Code of 1987 or its
predecessor statutes. The reason is quite obvious mere non-availment of tax and fiscal incentives by a non-
Philippine national cannot exempt it from Section 11, Article XII of the Constitution regulating foreign
investments in public utilities. In fact, the Board of Investments Primer on Investment Policies in the
Philippines,34rll which is given out to foreign investors, provides:
PART III. FOREIGN INVESTMENTS WITHOUT INCENTIVES
Investors who do not seek incentives and/or whose chosen activities do not qualify for incentives, (i.e., the activity is
not listed in the IPP, and they are not exporting at least 70% of their production) may go ahead and make the
investments without seeking incentives. They only have to be guided by the Foreign Investments Negative List
(FINL).
The FINL clearly defines investment areas requiring at least 60% Filipino ownership. All other areas outside of this list
are fully open to foreign investors. (Emphasis supplied)
V.
Right to elect directors, coupled with beneficial ownership,
translates to effective control.
The 28 June 2011 Decision declares that the 60 percent Filipino ownership required by the Constitution to engage in
certain economic activities applies not only to voting control of the corporation, but also to the beneficial ownership
of the corporation. To repeat, we held:
Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in the Constitution. Full
beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting
rights, is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the
hands of Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is "considered as
non-Philippine national[s]." (Emphasis supplied)
This is consistent with Section 3 of the FIA which provides that where 100% of the capital stock is held by "a trustee of
funds for pension or other employee retirement or separation benefits," the trustee is a Philippine national if "at least
sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals." Likewise, Section 1(b) of the
Implementing Rules of the FIA provides that "for stocks to be deemed owned and held by Philippine citizens or
Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial ownership of
the stocks, coupled with appropriate voting rights, is essential."
Since the constitutional requirement of at least 60 percent Filipino ownership applies not only to voting control of the
corporation but also to the beneficial ownership of the corporation, it is therefore imperative that such requirement
apply uniformly and across the board to all classes of shares, regardless of nomenclature and category, comprising the
capital of a corporation. Under the Corporation Code, capital stock35rll consists of all classes of shares issued to
stockholders, that is, common shares as well as preferred shares, which may have different rights, privileges or
restrictions as stated in the articles of incorporation.36rll
The Corporation Code allows denial of the right to vote to preferred and redeemable shares, but disallows denial of the
right to vote in specific corporate matters. Thus, common shares have the right to vote in the election of directors, while
preferred shares may be denied such right. Nonetheless, preferred shares, even if denied the right to vote in the
election of directors, are entitled to vote on the following corporate matters: (1) amendment of articles of incorporation;
(2) increase and decrease of capital stock; (3) incurring, creating or increasing bonded indebtedness; (4) sale, lease,
mortgage or other disposition of substantially all corporate assets; (5) investment of funds in another business or
corporation or for a purpose other than the primary purpose for which the corporation was organized; (6) adoption,
amendment and repeal of by-laws; (7) merger and consolidation; and (8) dissolution of corporation.37rll
Since a specific class of shares may have rights and privileges or restrictions different from the rest of the shares in a
corporation, the 60-40 ownership requirement in favor of Filipino citizens in Section 11, Article XII of the Constitution
must apply not only to shares with voting rights but also to shares without voting rights. Preferred shares, denied the
right to vote in the election of directors, are anyway still entitled to vote on the eight specific corporate matters
mentioned above. Thus, if a corporation, engaged in a partially nationalized industry, issues a mixture of
common and preferred non-voting shares, at least 60 percent of the common shares and at least 60 percent of
the preferred non-voting shares must be owned by Filipinos. Of course, if a corporation issues only a single class
of shares, at least 60 percent of such shares must necessarily be owned by Filipinos. In short, the 60-40 ownership
requirement in favor of Filipino citizens must apply separately to each class of shares, whether common,
preferred non-voting, preferred voting or any other class of shares. This uniform application of the 60-40
ownership requirement in favor of Filipino citizens clearly breathes life to the constitutional command that the
ownership and operation of public utilities shall be reserved exclusively to corporations at least 60 percent of whose
capital is Filipino-owned. Applying uniformly the 60-40 ownership requirement in favor of Filipino citizens to each class
of shares, regardless of differences in voting rights, privileges and restrictions, guarantees effective Filipino control of
public utilities, as mandated by the Constitution.
Moreover, such uniform application to each class of shares insures that the "controlling interest" in public utilities
always lies in the hands of Filipino citizens. This addresses and extinguishes Pangilinans worry that foreigners, owning
most of the non-voting shares, will exercise greater control over fundamental corporate matters requiring two-thirds or
majority vote of all shareholders.
VI.
Intent of the framers of the Constitution
While Justice Velasco quoted in his Dissenting Opinion38rll a portion of the deliberations of the Constitutional
Commission to support his claim that the term "capital" refers to the total outstanding shares of stock, whether voting or
non-voting, the following excerpts of the deliberations reveal otherwise. It is clear from the following exchange that the
term "capital" refers to controlling interest of a corporation, thus:
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-
40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with this question: "Where do we base the equity requirement, is
it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock of a corporation"? Will
the Committee please enlighten me on this?
MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center who
provided us a draft. The phrase that is contained here which we adopted from the UP draft is "60 percent of
voting stock."
MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent, unpaid
capital stock shall be entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you.
With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent equity
invests in another corporation which is permitted by the Corporation Code, does the Committee adopt the grandfather
rule?
MR. VILLEGAS. Yes, that is the understanding of the Committee.
MR. NOLLEDO. Therefore, we need additional Filipino capital?
MR. VILLEGAS. Yes.39rll
xxxx
MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.
MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase "voting stock or controlling
interest."
MR. AZCUNA. Hence, without the Davide amendment, the committee report would read: "corporations or associations
at least sixty percent of whose CAPITAL is owned by such citizens."
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned by citizens.
MR. VILLEGAS. That is right.
MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us say 40 percent of
the capital is owned by them, but it is the voting capital, whereas, the Filipinos own the nonvoting shares. So
we can have a situation where the corporation is controlled by foreigners despite being the minority because
they have the voting capital. That is the anomaly that would result here.
MR. BENGZON. No, the reason we eliminated the word "stock" as stated in the 1973 and 1935 Constitutions is that
according to Commissioner Rodrigo, there are associations that do not have stocks. That is why we say "CAPITAL."
MR. AZCUNA. We should not eliminate the phrase "controlling interest."
MR. BENGZON. In the case of stock corporations, it is assumed.40rll (Boldfacing and underscoring supplied)
Thus, 60 percent of the "capital" assumes, or should result in, a "controlling interest" in the corporation.
The use of the term "capital" was intended to replace the word "stock" because associations without stocks can
operate public utilities as long as they meet the 60-40 ownership requirement in favor of Filipino citizens prescribed in
Section 11, Article XII of the Constitution. However, this did not change the intent of the framers of the Constitution to
reserve exclusively to Philippine nationals the "controlling interest" in public utilities.
During the drafting of the 1935 Constitution, economic protectionism was "the battle-cry of the nationalists in the
Convention."41rll The same battle-cry resulted in the nationalization of the public utilities.42rll This is also the
same intent of the framers of the 1987 Constitution who adopted the exact formulation embodied in the 1935 and 1973
Constitutions on foreign equity limitations in partially nationalized industries.
The OSG, in its own behalf and as counsel for the State,43rll agrees fully with the Courts interpretation of the term
"capital." In its Consolidated Comment, the OSG explains that the deletion of the phrase "controlling interest" and
replacement of the word "stock" with the term "capital" were intended specifically to extend the scope of the entities
qualified to operate public utilities to include associations without stocks. The framers omission of the phrase
"controlling interest" did not mean the inclusion of all shares of stock, whether voting or non-voting. The OSG reiterated
essentially the Courts declaration that the Constitution reserved exclusively to Philippine nationals the ownership and
operation of public utilities consistent with the States policy to "develop a self-reliant and independent national
economy effectively controlled by Filipinos."
As we held in our 28 June 2011 Decision, to construe broadly the term "capital" as the total outstanding capital stock,
treated as a single class regardless of the actual classification of shares, grossly contravenes the intent and letter of
the Constitution that the "State shall develop a self-reliant and independent national economy effectively
controlled by Filipinos." We illustrated the glaring anomaly which would result in defining the term "capital" as the total
outstanding capital stock of a corporation, treated as a single class of shares regardless of the actual classification of
shares, to wit:
Let us assume that a corporation has 100 common shares owned by foreigners and 1,000,000 non-voting preferred
shares owned by Filipinos, with both classes of share having a par value of one peso (P 1.00) per share. Under the
broad definition of the term "capital," such corporation would be considered compliant with the 40 percent constitutional
limit on foreign equity of public utilities since the overwhelming majority, or more than 99.999 percent, of the total
outstanding capital stock is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common shares have voting rights in the election of directors,
even if they hold only 100 shares. The foreigners, with a minuscule equity of less than 0.001 percent, exercise control
over the public utility. On the other hand, the Filipinos, holding more than 99.999 percent of the equity, cannot vote in
the election of directors and hence, have no control over the public utility. This starkly circumvents the intent of the
framers of the Constitution, as well as the clear language of the Constitution, to place the control of public utilities in the
hands of Filipinos. x x x
Further, even if foreigners who own more than forty percent of the voting shares elect an all-Filipino board of directors,
this situation does not guarantee Filipino control and does not in any way cure the violation of the Constitution. The
independence of the Filipino board members so elected by such foreign shareholders is highly doubtful. As the OSG
pointed out, quoting Justice George Sutherlands words in Humphreys Executor v. US,44rll "x x x it is quite evident
that one who holds his office only during the pleasure of another cannot be depended upon to maintain an attitude of
independence against the latters will." Allowing foreign shareholders to elect a controlling majority of the board, even if
all the directors are Filipinos, grossly circumvents the letter and intent of the Constitution and defeats the very purpose
of our nationalization laws.
VII.
Last sentence of Section 11, Article XII of the Constitution
The last sentence of Section 11, Article XII of the 1987 Constitution reads:
The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their
proportionate share in its capital, and all the executive and managing officers of such corporation or association must
be citizens of the Philippines.
During the Oral Arguments, the OSG emphasized that there was never a question on the intent of the framers of the
Constitution to limit foreign ownership, and assure majority Filipino ownership and control of public utilities. The OSG
argued, "while the delegates disagreed as to the percentage threshold to adopt, x x x the records show they clearly
understood that Filipino control of the public utility corporation can only be and is obtained only through the election of
a majority of the members of the board."
Indeed, the only point of contention during the deliberations of the Constitutional Commission on 23 August 1986 was
the extent of majority Filipino control of public utilities. This is evident from the following exchange:
THE PRESIDENT. Commissioner Jamir is recognized.
MR. JAMIR. Madam President, my proposed amendment on lines 20 and 21 is to delete the phrase "two thirds of
whose voting stock or controlling interest," and instead substitute the words "SIXTY PERCENT OF WHOSE CAPITAL"
so that the sentence will read: "No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws
of the Philippines at least SIXTY PERCENT OF WHOSE CAPITAL is owned by such citizens."
xxxx
THE PRESIDENT: Will Commissioner Jamir first explain?
MR. JAMIR. Yes, in this Article on National Economy and Patrimony, there were two previous sections in which we
fixed the Filipino equity to 60 percent as against 40 percent for foreigners. It is only in this Section 15 with respect to
public utilities that the committee proposal was increased to two-thirds. I think it would be better to harmonize this
provision by providing that even in the case of public utilities, the minimum equity for Filipino citizens should be 60
percent.
MR. ROMULO. Madam President.
THE PRESIDENT. Commissioner Romulo is recognized.
MR. ROMULO. My reason for supporting the amendment is based on the discussions I have had with representatives
of the Filipino majority owners of the international record carriers, and the subsequent memoranda they submitted to
me. x x x
Their second point is that under the Corporation Code, the management and control of a corporation is vested in the
board of directors, not in the officers but in the board of directors. The officers are only agents of the board. And they
believe that with 60 percent of the equity, the Filipino majority stockholders undeniably control the board. Only on
important corporate acts can the 40-percent foreign equity exercise a veto, x x x.
x x x x45rll THE PRESIDENT. Commissioner Bernas is recognized.
MS. ROSARIO BRAID. Madam President.
THE PRESIDENT. Commissioner Rosario Braid is recognized.
MS. ROSARIO BRAID. Yes, in the interest of equal time, may I also read from a memorandum by the spokesman of
the Philippine Chamber of Communications on why they would like to maintain the present equity, I am referring to the
66 2/3. They would prefer to have a 75-25 ratio but would settle for 66 2/3. x x x
xxxx
THE PRESIDENT. Just to clarify, would Commissioner Rosario Braid support the proposal of two-thirds rather than the
60 percent?
MS. ROSARIO BRAID. I have added a clause that will put management in the hands of Filipino citizens.
x x x x46rll UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN THE CAPITAL THEREOF..." I
While they had differing views on the percentage of Filipino ownership of capital, it is clear that the framers of the
Constitution intended public utilities to be majority Filipino-owned and controlled. To ensure that Filipinos control
public utilities, the framers of the Constitution approved, as additional safeguard, the inclusion of the last sentence of
Section 11, Article XII of the Constitution commanding that "[t]he participation of foreign investors in the governing
body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and
managing officers of such corporation or association must be citizens of the Philippines." In other words, the last
sentence of Section 11, Article XII of the Constitution mandates that (1) the participation of foreign investors in the
governing body of the corporation or association shall be limited to their proportionate share in the capital of such
entity; and (2) all officers of the corporation or association must be Filipino citizens.
Commissioner Rosario Braid proposed the inclusion of the phrase requiring the managing officers of the corporation or
association to be Filipino citizens specifically to prevent management contracts, which were designed primarily to
circumvent the Filipinization of public utilities, and to assure Filipino control of public utilities, thus:
MS. ROSARIO BRAID. x x x They also like to suggest that we amend this provision by adding a phrase which states:
"THE MANAGEMENT BODY OF EVERY CORPORATION OR ASSOCIATION SHALL IN ALL CASES BE
CONTROLLED BY CITIZENS OF THE PHILIPPINES." I have with me their position paper.
THE PRESIDENT. The Commissioner may proceed.
MS. ROSARIO BRAID. The three major international record carriers in the Philippines, which Commissioner Romulo
mentioned Philippine Global Communications, Eastern Telecommunications, Globe Mackay Cable are 40-percent
owned by foreign multinational companies and 60-percent owned by their respective Filipino partners. All three,
however, also have management contracts with these foreign companies Philcom with RCA, ETPI with Cable and
Wireless PLC, and GMCR with ITT. Up to the present time, the general managers of these carriers are foreigners.
While the foreigners in these common carriers are only minority owners, the foreign multinationals are the ones
managing and controlling their operations by virtue of their management contracts and by virtue of their strength in the
governing bodies of these carriers.47rll
xxxx
MR. OPLE. I think a number of us have agreed to ask Commissioner Rosario Braid to propose an amendment with
respect to the operating management of public utilities, and in this amendment, we are associated with Fr. Bernas,
Commissioners Nieva and Rodrigo. Commissioner Rosario Braid will state this amendment now.
Thank you.
MS. ROSARIO BRAID. Madam President.
THE PRESIDENT. This is still on Section 15.
MS. ROSARIO BRAID. Yes.
MR. VILLEGAS. Yes, Madam President.
xxxx
MS. ROSARIO BRAID. Madam President, I propose a new section to read: THE MANAGEMENT BODY OF EVERY
CORPORATION OR ASSOCIATION SHALL IN ALL CASES BE CONTROLLED BY CITIZENS OF THE
PHILIPPINES."
This will prevent management contracts and assure control by Filipino citizens. Will the committee assure us
that this amendment will insure that past activities such as management contracts will no longer be possible under this
amendment?
xxxx
FR. BERNAS. Madam President.
FR. BERNAS. Will the committee accept a reformulation of the first part?
MR. BENGZON. Let us hear it.
FR. BERNAS. The reformulation will be essentially the formula of the 1973 Constitution which reads: "THE
PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF ANY PUBLIC UTILITY ENTERPRISE
SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN THE CAPITAL THEREOF AND..."
MR. VILLEGAS. "ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS AND
ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES."
MR. BENGZON. Will Commissioner Bernas read the whole thing again?
FR. BERNAS. "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF ANY PUBLIC
do not have the rest of the copy.
MR. BENGZON. "AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS OR
ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES." Is that correct?
MR. VILLEGAS. Yes.
MR. BENGZON. Madam President, I think that was said in a more elegant language. We accept the amendment. Is
that all right with Commissioner Rosario Braid?
MS. ROSARIO BRAID. Yes.
xxxx
MR. DE LOS REYES. The governing body refers to the board of directors and trustees.
MR. VILLEGAS. That is right.
MR. BENGZON. Yes, the governing body refers to the board of directors.
MR. REGALADO. It is accepted.
MR. RAMA. The body is now ready to vote, Madam President.
VOTING
xxxx
The results show 29 votes in favor and none against; so the proposed amendment is approved.
xxxx
THE PRESIDENT. All right. Can we proceed now to vote on Section 15?
MR. RAMA. Yes, Madam President.
THE PRESIDENT. Will the chairman of the committee please read Section 15?
MR. VILLEGAS. The entire Section 15, as amended, reads: "No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations
or associations organized under the laws of the Philippines at least 60 PERCENT OF WHOSE CAPITAL is owned by
such citizens." May I request Commissioner Bengzon to please continue reading.
MR. BENGZON. "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF ANY PUBLIC
UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN THE CAPITAL THEREOF
AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS OR ASSOCIATIONS MUST
BE CITIZENS OF THE PHILIPPINES."
MR. VILLEGAS. "NOR SHALL SUCH FRANCHISE, CERTIFICATE OR AUTHORIZATION BE EXCLUSIVE IN
CHARACTER OR FOR A PERIOD LONGER THAN TWENTY-FIVE YEARS RENEWABLE FOR NOT MORE THAN
TWENTY-FIVE YEARS. Neither shall any such franchise or right be granted except under the condition that it shall be
subject to amendment, alteration, or repeal by Congress when the common good so requires. The State shall
encourage equity participation in public utilities by the general public."
VOTING
xxxx
The results show 29 votes in favor and 4 against; Section 15, as amended, is approved.48rll (Emphasis supplied) this case, involving as it does an issue of public interest. After all, the Office of the Solicitor General has
The last sentence of Section 11, Article XII of the 1987 Constitution, particularly the provision on the limited
participation of foreign investors in the governing body of public utilities, is a reiteration of the last sentence of Section
5, Article XIV of the 1973 Constitution,49rll signifying its importance in reserving ownership and control of public not afforded its day in court, simply because only the petitioner, the Chairperson of the BOC, was the respondent in the
utilities to Filipino citizens.
VIII.
The undisputed facts
There is no dispute, and respondents do not claim the contrary, that (1) foreigners own 64.27% of the common shares
of PLDT, which class of shares exercises the sole right to vote in the election of directors, and thus foreigners control
PLDT; (2) Filipinos own only 35.73% of PLDTs common shares, constituting a minority of the voting stock, and thus
Filipinos do not control PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred
shares earn only 1/70 of the dividends that common shares earn;50rll (5) preferred shares have twice the par value supplied)
of common shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and common
shares only 22.15%.
Despite the foregoing facts, the Court did not decide, and in fact refrained from ruling on the question of whether PLDT
violated the 60-40 ownership requirement in favor of Filipino citizens in Section 11, Article XII of the 1987 Constitution.
Such question indisputably calls for a presentation and determination of evidence through a hearing, which is generally
outside the province of the Courts jurisdiction, but well within the SECs statutory powers. Thus, for obvious reasons,
the Court limited its decision on the purely legal and threshold issue on the definition of the term "capital" in Section 11,
Article XII of the Constitution and directed the SEC to apply such definition in determining the exact percentage of
foreign ownership in PLDT.
IX.
PLDT is not an indispensable party;
SEC is impleaded in this case.
In his petition, Gamboa prays, among others:chanroblesvirtuallawlibrary
xxxx
5. For the Honorable Court to issue a declaratory relief that ownership of common or voting shares is the sole basis in
determining foreign equity in a public utility and that any other government rulings, opinions, and regulations
inconsistent with this declaratory relief be declared unconstitutional and a violation of the intent and spirit of the 1987
Constitution;
6. For the Honorable Court to declare null and void all sales of common stocks to foreigners in excess of 40 percent of
the total subscribed common shareholdings; and
7. For the Honorable Court to direct the Securities and Exchange Commission and Philippine Stock Exchange to
require PLDT to make a public disclosure of all of its foreign shareholdings and their actual and real beneficial
owners.
Other relief(s) just and equitable are likewise prayed for. (Emphasis supplied)
As can be gleaned from his prayer, Gamboa clearly asks this Court to compel the SEC to perform its statutory duty to
investigate whether "the required percentage of ownership of the capital stock to be owned by citizens of the
Philippines has been complied with [by PLDT] as required by x x x the Constitution."51rll Such plea clearly negates
SECs argument that it was not impleaded.
Granting that only the SEC Chairman was impleaded in this case, the Court has ample powers to order the SECs
compliance with its directive contained in the 28 June 2011 Decision in view of the far-reaching implications of this
case. In Domingo v. Scheer,52rll the Court dispensed with the amendment of the pleadings to implead the Bureau
of Customs considering (1) the unique backdrop of the case; (2) the utmost need to avoid further delays; and (3) the
issue of public interest involved. The Court held:
The Court may be curing the defect in this case by adding the BOC as party-petitioner. The petition should not be
dismissed because the second action would only be a repetition of the first. In Salvador, et al., v. Court of Appeals, et
al., we held that this Court has full powers, apart from that power and authority which is inherent, to amend the
processes, pleadings, proceedings and decisions by substituting as party-plaintiff the real party-in-interest. The Court
has the power to avoid delay in the disposition of this case, to order its amendment as to implead the BOC as
party-respondent. Indeed, it may no longer be necessary to do so taking into account the unique backdrop in
represented the petitioner in the instant proceedings, as well as in the appellate court, and maintained the validity of
the deportation order and of the BOCs Omnibus Resolution. It cannot, thus, be claimed by the State that the BOC was
CA, and the petitioner in the instant recourse. In Alonso v. Villamor, we had the occasion to state:
There is nothing sacred about processes or pleadings, their forms or contents. Their sole purpose is to
facilitate the application of justice to the rival claims of contending parties. They were created, not to hinder and
delay, but to facilitate and promote, the administration of justice. They do not constitute the thing itself, which courts
are always striving to secure to litigants. They are designed as the means best adapted to obtain that thing. In other
words, they are a means to an end. When they lose the character of the one and become the other, the administration
of justice is at fault and courts are correspondingly remiss in the performance of their obvious duty.53rll (Emphasis
In any event, the SEC has expressly manifested54rllthat it will abide by the Courts decision and defer to the
Courts definition of the term "capital" in Section 11, Article XII of the Constitution. Further, the SEC entered its
special appearance in this case and argued during the Oral Arguments, indicating its submission to the
Courts jurisdiction. It is clear, therefore, that there exists no legal impediment against the proper and
immediate implementation of the Courts directive to the SEC.
PLDT is an indispensable party only insofar as the other issues, particularly the factual questions, are concerned. In
other words, PLDT must be impleaded in order to fully resolve the issues on (1) whether the sale of 111,415 PTIC
shares to First Pacific violates the constitutional limit on foreign ownership of PLDT; (2) whether the sale of common
shares to foreigners exceeded the 40 percent limit on foreign equity in PLDT; and (3) whether the total percentage of
the PLDT common shares with voting rights complies with the 60-40 ownership requirement in favor of Filipino citizens
under the Constitution for the ownership and operation of PLDT. These issues indisputably call for an examination of
the parties respective evidence, and thus are clearly within the jurisdiction of the SEC. In short, PLDT must be
impleaded, and must necessarily be heard, in the proceedings before the SEC where the factual issues will be
thoroughly threshed out and resolved.
Notably, the foregoing issues were left untouched by the Court. The Court did not rule on the factual issues raised
by Gamboa, except the single and purely legal issue on the definition of the term "capital" in Section 11, Article XII of
the Constitution. The Court confined the resolution of the instant case to this threshold legal issue in deference to the
fact-finding power of the SEC.
Needless to state, the Court can validly, properly, and fully dispose of the fundamental legal issue in this case even
without the participation of PLDT since defining the term "capital" in Section 11, Article XII of the Constitution does not,
in any way, depend on whether PLDT was impleaded. Simply put, PLDT is not indispensable for a complete resolution
of the purely legal question in this case.55rll In fact, the Court, by treating the petition as one for
mandamus,56rll merely directed the SEC to apply the Courts definition of the term "capital" in Section 11, Article XII
of the Constitution in determining whether PLDT committed any violation of the said constitutional provision. The
dispositive portion of the Courts ruling is addressed not to PLDT but solely to the SEC, which is the
administrative agency tasked to enforce the 60-40 ownership requirement in favor of Filipino citizens in
Section 11, Article XII of the Constitution.
Since the Court limited its resolution on the purely legal issue on the definition of the term "capital" in Section 11,
Article XII of the 1987 Constitution, and directed the SEC to investigate any violation by PLDT of the 60-40 ownership
requirement in favor of Filipino citizens under the Constitution,57rll there is no deprivation of PLDTs property or
denial of PLDTs right to due process, contrary to Pangilinan and Nazarenos misimpression. Due process will be
afforded to PLDT when it presents proof to the SEC that it complies, as it claims here, with Section 11, Article XII of the
Constitution.
X.
Foreign Investments in the Philippines
Movants fear that the 28 June 2011 Decision would spell disaster to our economy, as it may result in a sudden flight of
existing foreign investors to "friendlier" countries and simultaneously deterring new foreign investors to our country. In
particular, the PSE claims that the 28 June 2011 Decision may result in the following: (1) loss of more than P 630
billion in foreign investments in PSE-listed shares; (2) massive decrease in foreign trading transactions; (3) lower PSE
Composite Index; and (4) local investors not investing in PSE-listed shares.58rll
Dr. Bernardo M. Villegas, one of the amici curiae in the Oral Arguments, shared movants apprehension. Without
providing specific details, he pointed out the depressing state of the Philippine economy compared to our neighboring
countries which boast of growing economies. Further, Dr. Villegas explained that the solution to our economic woes is
for the government to "take-over" strategic industries, such as the public utilities sector, thus:
JUSTICE CARPIO:chanroblesvirtuallawlibrary
I would like also to get from you Dr. Villegas if you have additional information on whether this high FDI59rllcountries
in East Asia have allowed foreigners x x x control [of] their public utilities, so that we can compare apples with apples.
DR. VILLEGAS:chanroblesvirtuallawlibrary
Correct, but let me just make a comment. When these neighbors of ours find an industry strategic, their solution is not
to "Filipinize" or "Vietnamize" or "Singaporize." Their solution is to make sure that those industries are in the
hands of state enterprises. So, in these countries, nationalization means the government takes over. And
because their governments are competent and honest enough to the public, that is the solution. x x
x 60rll (Emphasis supplied)
If government ownership of public utilities is the solution, then foreign investments in our public utilities serve no
purpose. Obviously, there can never be foreign investments in public utilities if, as Dr. Villegas claims, the "solution is
to make sure that those industries are in the hands of state enterprises." Dr. Villegass argument that foreign
investments in telecommunication companies like PLDT are badly needed to save our ailing economy contradicts his
own theory that the solution is for government to take over these companies. Dr. Villegas is barking up the wrong tree
since State ownership of public utilities and foreign investments in such industries are diametrically opposed concepts,
which cannot possibly be reconciled.
In any event, the experience of our neighboring countries cannot be used as argument to decide the present case
differently for two reasons. First, the governments of our neighboring countries have, as claimed by Dr. Villegas, taken
over ownership and control of their strategic public utilities like the telecommunications industry. Second, our
Constitution has specific provisions limiting foreign ownership in public utilities which the Court is sworn to uphold
regardless of the experience of our neighboring countries.
In our jurisdiction, the Constitution expressly reserves the ownership and operation of public utilities to Filipino citizens,
or corporations or associations at least 60 percent of whose capital belongs to Filipinos. Following Dr. Villegass claim,
the Philippines appears to be more liberal in allowing foreign investors to own 40 percent of public utilities, unlike in
other Asian countries whose governments own and operate such industries.
XI.
Prospective Application of Sanctions
In its Motion for Partial Reconsideration, the SEC sought to clarify the reckoning period of the application and
imposition of appropriate sanctions against PLDT if found violating Section 11, Article XII of the Constitution.
As discussed, the Court has directed the SEC to investigate and determine whether PLDT violated Section 11, Article
XII of the Constitution. Thus, there is no dispute that it is only after the SEC has determined PLDTs violation, if any
exists at the time of the commencement of the administrative case or investigation, that the SEC may impose the
statutory sanctions against PLDT. In other words, once the 28 June 2011 Decision becomes final, the SEC shall
impose the appropriate sanctions only if it finds after due hearing that, at the start of the administrative case or
investigation, there is an existing violation of Section 11, Article XII of the Constitution. Under prevailing jurisprudence,
public utilities that fail to comply with the nationality requirement under Section 11, Article XII and the FIA can cure their
deficiencies prior to the start of the administrative case or investigation.61rll
XII.
Final Word
The Constitution expressly declares as State policy the development of an economy "effectively controlled" by
Filipinos. Consistent with such State policy, the Constitution explicitly reserves the ownership and operation of public
utilities to Philippine nationals, who are defined in the Foreign Investments Act of 1991 as Filipino citizens, or
corporations or associations at least 60 percent of whose capital with voting rights belongs to Filipinos. The FIAs
implementing rules explain that "[f]or stocks to be deemed owned and held by Philippine citizens or Philippine
nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks,
coupled with appropriate voting rights is essential." In effect, the FIA clarifies, reiterates and confirms the
interpretation that the term "capital" in Section 11, Article XII of the 1987 Constitution refers to shares with voting
rights, as well as with full beneficial ownership. This is precisely because the right to vote in the election of
directors, coupled with full beneficial ownership of stocks, translates to effective control of a corporation.
Any other construction of the term "capital" in Section 11, Article XII of the Constitution contravenes the letter and
intent of the Constitution. Any other meaning of the term "capital" openly invites alien domination of economic activities
reserved exclusively to Philippine nationals. Therefore, respondents interpretation will ultimately result in handing over
effective control of our national economy to foreigners in patent violation of the Constitution, making Filipinos second-
class citizens in their own country.
Filipinos have only to remind themselves of how this country was exploited under the Parity Amendment, which gave
Americans the same rights as Filipinos in the exploitation of natural resources, and in the ownership and control of
public utilities, in the Philippines. To do this the 1935 Constitution, which contained the same 60 percent Filipino
ownership and control requirement as the present 1987 Constitution, had to be amended to give Americans parity
rights with Filipinos. There was bitter opposition to the Parity Amendment62rll and many Filipinos eagerly awaited its
expiration. In late 1968, PLDT was one of the American-controlled public utilities that became Filipino-controlled when
the controlling American stockholders divested in anticipation of the expiration of the Parity Amendment on 3 July
1974.63rll No economic suicide happened when control of public utilities and mining corporations passed to Filipinos
hands upon expiration of the Parity Amendment.
Movants interpretation of the term "capital" would bring us back to the same evils spawned by the Parity
Amendment, effectively giving foreigners parity rights with Filipinos, but this time even without any
amendment to the present Constitution. Worse, movants interpretation opens up our national economy to effective
control not only by Americans but also by all foreigners, be they Indonesians, Malaysians or Chinese, even in the
absence of reciprocal treaty arrangements. At least the Parity Amendment, as implemented by the Laurel-Langley
Agreement, gave the capital-starved Filipinos theoretical parity the same rights as Americans to exploit natural
resources, and to own and control public utilities, in the United States of America. Here, movants interpretation would
effectively mean a unilateral opening up of our national economy to all foreigners, without any reciprocal
arrangements. That would mean that Indonesians, Malaysians and Chinese nationals could effectively control our
mining companies and public utilities while Filipinos, even if they have the capital, could not control similar corporations
in these countries.
The 1935, 1973 and 1987 Constitutions have the same 60 percent Filipino ownership and control requirement for
public utilities like PLOT. Any deviation from this requirement necessitates an amendment to the Constitution as
exemplified by the Parity Amendment. This Court has no power to amend the Constitution for its power and duty is only
to faithfully apply and interpret the Constitution.
WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No further pleadings shall be
entertained.rllbrr
SO ORDERED.
Republic of the Philippines The Parties
SUPREME COURT Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines; petitioner Bank, for brevity) is
Manila a banking institution organized and existing under the laws of the Republic of the Philippines. Petitioner Mercurio
THIRD DIVISION Rivera (petitioner Rivera, for brevity) is of legal age and was, at all times material to this case, Head-Manager of the
G.R. No. 115849 January 24, 1996 Property Management Department of the petitioner Bank.
FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and MERCURIO Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the assignee of original plaintiffs-
RIVERA, petitioners, appellees Demetrio Demetria and Jose Janolo.
vs. Respondent Court of Appeals is the court which issued the Decision and Resolution sought to be set aside through this
COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and JOSE petition.
JANOLO,respondents. The Facts
DECISION The facts of this case are summarized in the respondent Court's Decision3 as follows:
PANGANIBAN, J.: (1) In the course of its banking operations, the defendant Producer Bank of the Philippines acquired six parcels of land
In the absence of a formal deed of sale, may commitments given by bank officers in an exchange of letters and/or in a with a total area of 101 hectares located at Don Jose, Sta. Rose, Laguna, and covered by Transfer Certificates of Title
meeting with the buyers constitute a perfected and enforceable contract of sale over 101 hectares of land in Sta. Rosa, Nos. T-106932 to T-106937. The property used to be owned by BYME Investment and Development Corporation
Laguna? Does the doctrine of "apparent authority" apply in this case? If so, may the Central Bank-appointed which had them mortgaged with the bank as collateral for a loan. The original plaintiffs, Demetrio Demetria and Jose O.
conservator of Producers Bank (now First Philippine International Bank) repudiate such "apparent authority" after said Janolo, wanted to purchase the property and thus initiated negotiations for that purpose.
contract has been deemed perfected? During the pendency of a suit for specific performance, does the filing of a (2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME investment's legal counsel, Jose
"derivative suit" by the majority shareholders and directors of the distressed bank to prevent the enforcement or Fajardo, met with defendant Mercurio Rivera, Manager of the Property Management Department of the defendant
implementation of the sale violate the ban against forum-shopping? bank. The meeting was held pursuant to plaintiffs' plan to buy the property (TSN of Jan. 16, 1990, pp. 7-10). After the
Simply stated, these are the major questions brought before this Court in the instant Petition for review meeting, plaintiff Janolo, following the advice of defendant Rivera, made a formal purchase offer to the bank through a
on certiorariunder Rule 45 of the Rules of Court, to set aside the Decision promulgated January 14, 1994 of the letter dated August 30, 1987 (Exh. "B"), as follows:
respondent Court of Appeals1 in CA-G.R CV No. 35756 and the Resolution promulgated June 14, 1994 denying the August 30, 1987
motion for reconsideration. The dispositive portion of the said Decision reads: The Producers Bank of the Philippines
WHEREFORE, the decision of the lower court is MODIFIED by the elimination of the damages awarded under Makati, Metro Manila
paragraphs 3, 4 and 6 of its dispositive portion and the reduction of the award in paragraph 5 thereof to P75,000.00, to Attn. Mr. Mercurio Q. Rivera
be assessed against defendant bank. In all other aspects, said decision is hereby AFFIRMED. Manager, Property Management Dept.
All references to the original plaintiffs in the decision and its dispositive portion are deemed, herein and hereafter, to Gentleman:
legally refer to the plaintiff-appellee Carlos C. Ejercito. I have the honor to submit my formal offer to purchase your properties covered by titles listed hereunder located at Sta.
Costs against appellant bank. Rosa, Laguna, with a total area of 101 hectares, more or less.
The dispositive portion of the trial court's2 decision dated July 10, 1991, on the other hand, is as follows:
TCT NO. AREA
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the defendants
as follows: T-106932 113,580 sq. m.
1. Declaring the existence of a perfected contract to buy and sell over the six (6) parcels of land situated at Don Jose, T-106933 70,899 sq. m.
Sta. Rosa, Laguna with an area of 101 hectares, more or less, covered by and embraced in Transfer Certificates of
Title Nos. T-106932 to T-106937, inclusive, of the Land Records of Laguna, between the plaintiffs as buyers and the T-106934 52,246 sq. m.
defendant Producers Bank for an agreed price of Five and One Half Million (P5,500,000.00) Pesos; T-106935 96,768 sq. m.
2. Ordering defendant Producers Bank of the Philippines, upon finality of this decision and receipt from the plaintiffs the T-106936 187,114 sq. m.
amount of P5.5 Million, to execute in favor of said plaintiffs a deed of absolute sale over the aforementioned six (6)
parcels of land, and to immediately deliver to the plaintiffs the owner's copies of T.C.T. Nos. T-106932 to T- 106937, T-106937 481,481 sq. m.
inclusive, for purposes of registration of the same deed and transfer of the six (6) titles in the names of the plaintiffs; My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00) PESOS, in cash.
3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and Demetrio Demetria the sums of Kindly contact me at Telephone Number 921-1344.
P200,000.00 each in moral damages; (3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal reply by letter which is hereunder
4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P100,000.00 as exemplary damages ; quoted (Exh. "C"):
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of P400,000.00 for and by way of September 1, 1987
attorney's fees; JP M-P GUTIERREZ ENTERPRISES
6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and moderate damages in the amount of 142 Charisma St., Doa Andres II
P20,000.00; Rosario, Pasig, Metro Manila
With costs against the defendants. Attention: JOSE O. JANOLO
After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply to sur-rejoinder, the petition was given due Dear Sir:
course in a Resolution dated January 18, 1995. Thence, the parties filed their respective memoranda and reply Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa, Laguna (formerly owned by
memoranda. The First Division transferred this case to the Third Division per resolution dated October 23, 1995. After Byme Industrial Corp.). Please be informed however that the bank's counter-offer is at P5.5 million for more than 101
carefully deliberating on the aforesaid submissions, the Court assigned the case to the undersigned ponentefor the hectares on lot basis.
writing of this Decision. We shall be very glad to hear your position on the on the matter.
Best regards. In view of the above circumstances, we believe that an agreement has been perfected. We were also informed that
(4) On September 17, 1987, plaintiff Janolo, responding to Rivera's aforequoted reply, wrote (Exh. "D"): despite repeated follow-up to consummate the purchase, you now refuse to honor your commitment. Instead, you have
September 17, 1987 advertised for sale the same lot to others.
Producers Bank In behalf of our client, therefore, we are making this formal demand upon you to consummate and execute the
Paseo de Roxas necessary actions/documentation within three (3) days from your receipt hereof. We are ready to remit the agreed
Makati, Metro Manila amount of P5.5 million at your advice. Otherwise, we shall be constrained to file the necessary court action to protect
Attention: Mr. Mercurio Rivera the interest of our client.
Gentlemen: We trust that you will be guided accordingly.
In reply to your letter regarding my proposal to purchase your 101-hectare lot located at Sta. Rosa, Laguna, I would (8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing letter and stated, in its
like to amend my previous offer and I now propose to buy the said lot at P4.250 million in CASH.. communication of December 2, 1987 (Exh. "I"), that said letter has been "referred . . . to the office of our Conservator
Hoping that this proposal meets your satisfaction. for proper disposition" However, no response came from the Acting Conservator. On December 14, 1987, the plaintiffs
(5) There was no reply to Janolo's foregoing letter of September 17, 1987. What took place was a meeting on made a second tender of payment (Exh. "L" and "L-1"), this time through the Acting Conservator, defendant
September 28, 1987 between the plaintiffs and Luis Co, the Senior Vice-President of defendant bank. Rivera as well Encarnacion. Plaintiffs' letter reads:
as Fajardo, the BYME lawyer, attended the meeting. Two days later, or on September 30, 1987, plaintiff Janolo sent to PRODUCERS BANK OF
the bank, through Rivera, the following letter (Exh. "E"): THE PHILIPPINES
The Producers Bank of the Philippines Paseo de Roxas,
Paseo de Roxas, Makati Makati, Metro Manila
Metro Manila Attn.: Atty. NIDA ENCARNACION
Attention: Mr. Mercurio Rivera Central Bank Conservator
Re: 101 Hectares of Land We are sending you herewith, in - behalf of our client, Mr. JOSE O. JANOLO, MBTC Check No. 258387 in the amount
in Sta. Rosa, Laguna of P5.5 million as our agreed purchase price of the 101-hectare lot covered by TCT Nos. 106932, 106933, 106934,
Gentlemen: 106935, 106936 and 106937 and registered under Producers Bank.
Pursuant to our discussion last 28 September 1987, we are pleased to inform you that we are accepting your offer for This is in connection with the perfected agreement consequent from your offer of P5.5 Million as the purchase price of
us to purchase the property at Sta. Rosa, Laguna, formerly owned by Byme Investment, for a total price of PESOS: the said lots. Please inform us of the date of documentation of the sale immediately.
FIVE MILLION FIVE HUNDRED THOUSAND (P5,500,000.00). Kindly acknowledge receipt of our payment.
Thank you. (9) The foregoing letter drew no response for more than four months. Then, on May 3, 1988, plaintiff, through counsel,
(6) On October 12, 1987, the conservator of the bank (which has been placed under conservatorship by the Central made a final demand for compliance by the bank with its obligations under the considered perfected contract of sale
Bank since 1984) was replaced by an Acting Conservator in the person of defendant Leonida T. Encarnacion. On (Exhibit "N"). As recounted by the trial court (Original Record, p. 656), in a reply letter dated May 12, 1988 (Annex "4"
November 4, 1987, defendant Rivera wrote plaintiff Demetria the following letter (Exh. "F"): of defendant's answer to amended complaint), the defendants through Acting Conservator Encarnacion repudiated the
Attention: Atty. Demetrio Demetria authority of defendant Rivera and claimed that his dealings with the plaintiffs, particularly his counter-offer of P5.5
Dear Sir: Million are unauthorized or illegal. On that basis, the defendants justified the refusal of the tenders of payment and the
Your proposal to buy the properties the bank foreclosed from Byme investment Corp. located at Sta. Rosa, Laguna is non-compliance with the obligations under what the plaintiffs considered to be a perfected contract of sale.
under study yet as of this time by the newly created committee for submission to the newly designated Acting (10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages against the bank, its Manager Rivers
Conservator of the bank. and Acting Conservator Encarnacion. The basis of the suit was that the transaction had with the bank resulted in a
For your information. perfected contract of sale, The defendants took the position that there was no such perfected sale because the
(7) What thereafter transpired was a series of demands by the plaintiffs for compliance by the bank with what plaintiff defendant Rivera is not authorized to sell the property, and that there was no meeting of the minds as to the price.
considered as a perfected contract of sale, which demands were in one form or another refused by the bank. As On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar Hernandez and Gatmaitan,
detailed by the trial court in its decision, on November 17, 1987, plaintiffs through a letter to defendant Rivera (Exhibit filed a motion to intervene in the trial court, alleging that as owner of 80% of the Bank's outstanding shares of stock, he
"G") tendered payment of the amount of P5.5 million "pursuant to (our) perfected sale agreement." Defendants refused had a substantial interest in resisting the complaint. On July 8, 1991, the trial court issued an order denying the motion
to receive both the payment and the letter. Instead, the parcels of land involved in the transaction were advertised by to intervene on the ground that it was filed after trial had already been concluded. It also denied a motion for
the bank for sale to any interested buyer (Exh, "H" and "H-1"). Plaintiffs demanded the execution by the bank of the reconsideration filed thereafter. From the trial court's decision, the Bank, petitioner Rivera and conservator
documents on what was considered as a "perfected agreement." Thus: Encarnacion appealed to the Court of Appeals which subsequently affirmed with modification the said judgment. Henry
Mr. Mercurio Rivera Co did not appeal the denial of his motion for intervention.
Manager, Producers Bank In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted in place of Demetria and
Paseo de Roxas, Makati Janolo, in view of the assignment of the latters' rights in the matter in litigation to said private respondent.
Metro Manila On July 11, 1992, during the pendency of the proceedings in the Court of Appeals, Henry Co and several other
Dear Mr. Rivera: stockholders of the Bank, through counsel Angara Abello Concepcion Regala and Cruz, filed an action (hereafter, the
This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your 101-hectare lot located in Sta. "Second Case") purportedly a "derivative suit" with the Regional Trial Court of Makati, Branch 134, docketed as
Rosa, Laguna, and which are covered by TCT No. T-106932 to 106937. Civil Case No. 92-1606, against Encarnacion, Demetria and Janolo "to declare any perfected sale of the property as
From the documents at hand, it appears that your counter-offer dated September 1, 1987 of this same lot in the unenforceable and to stop Ejercito from enforcing or implementing the sale"4 In his answer, Janolo argued that the
amount of P5.5 million was accepted by our client thru a letter dated September 30, 1987 and was received by you on Second Case was barred by litis pendentia by virtue of the case then pending in the Court of Appeals. During the pre-
October 5, 1987. trial conference in the Second Case, plaintiffs filed a Motion for Leave of Court to Dismiss the Case Without Prejudice.
"Private respondent opposed this motion on the ground, among others, that plaintiff's act of forum shopping justifies the
dismissal of both cases, with prejudice."5 Private respondent, in his memorandum, averred that this motion is still
pending in the Makati RTC.
In their Petition6 and Memorandum7 , petitioners summarized their position as follows:
I.
The Court of Appeals erred in declaring that a contract of sale was perfected between Ejercito (in substitution of
Demetria and Janolo) and the bank.
II.
The Court of Appeals erred in declaring the existence of an enforceable contract of sale between the parties.
III.
The Court of Appeals erred in declaring that the conservator does not have the power to overrule or revoke acts of
previous management.
IV.
The findings and conclusions of the Court of Appeals do not conform to the evidence on record.
On the other hand, petitioners prayed for dismissal of the instant suit on the ground8 that:
I.
Petitioners have engaged in forum shopping.
II.
The factual findings and conclusions of the Court of Appeals are supported by the evidence on record and may no
longer be questioned in this case.
III.
The Court of Appeals correctly held that there was a perfected contract between Demetria and Janolo (substituted by;
respondent Ejercito) and the bank.
IV.
The Court of Appeals has correctly held that the conservator, apart from being estopped from repudiating the agency
and the contract, has no authority to revoke the contract of sale.
The Issues
From the foregoing positions of the parties, the issues in this case may be summed up as follows:
1) Was there forum-shopping on the part of petitioner Bank?
2) Was there a perfected contract of sale between the parties?
3) Assuming there was, was the said contract enforceable under the statute of frauds?
4) Did the bank conservator have the unilateral power to repudiate the authority of the bank officers and/or to revoke
the said contract?
5) Did the respondent Court commit any reversible error in its findings of facts?
The First Issue: Was There Forum-Shopping?
In order to prevent the vexations of multiple petitions and actions, the Supreme Court promulgated Revised Circular
No. 28-91 requiring that a party "must certify under oath . . . [that] (a) he has not (t)heretofore commenced any other
action or proceeding involving the same issues in the Supreme Court, the Court of Appeals, or any other tribunal or
agency; (b) to the best of his knowledge, no such action or proceeding is pending" in said courts or agencies. A
violation of the said circular entails sanctions that include the summary dismissal of the multiple petitions or complaints.
To be sure, petitioners have included a VERIFICATION/CERTIFICATION in their Petition stating "for the record(,) the
pendency of Civil Case No. 92-1606 before the Regional Trial Court of Makati, Branch 134, involving a derivative suit
filed by stockholders of petitioner Bank against the conservator and other defendants but which is the subject of a
pending Motion to Dismiss Without Prejudice.9
Private respondent Ejercito vigorously argues that in spite of this verification, petitioners are guilty of actual forum
shopping because the instant petition pending before this Court involves "identical parties or interests represented,
rights asserted and reliefs sought (as that) currently pending before the Regional Trial Court, Makati Branch 134 in the
Second Case. In fact, the issues in the two cases are so interwined that a judgement or resolution in either case will
constitute res judicata in the other." 10
On the other hand, petitioners explain 11 that there is no forum-shopping because:
1) In the earlier or "First Case" from which this proceeding arose, the Bank was impleaded as a defendant, whereas in
the "Second Case" (assuming the Bank is the real party in interest in a derivative suit), it wasplaintiff;
2) "The derivative suit is not properly a suit for and in behalf of the corporation under the circumstances";
3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president and attached to the Petition
identifies the action as a "derivative suit," it "does not mean that it is one" and "(t)hat is a legal question for the courts to
decide";
4) Petitioners did not hide the Second Case at they mentioned it in the said VERIFICATION/CERTIFICATION.
We rule for private respondent.
To begin with, forum-shopping originated as a concept in private international law.12 , where non-resident litigants are
given the option to choose the forum or place wherein to bring their suit for various reasons or excuses, including to
secure procedural advantages, to annoy and harass the defendant, to avoid overcrowded dockets, or to select a more
friendly venue. To combat these less than honorable excuses, the principle of forum non conveniens was developed
whereby a court, in conflicts of law cases, may refuse impositions on its jurisdiction where it is not the most
"convenient" or available forum and the parties are not precluded from seeking remedies elsewhere.
In this light, Black's Law Dictionary 13 says that forum shopping "occurs when a party attempts to have his action tried
in a particular court or jurisdiction where he feels he will receive the most favorable judgment or verdict." Hence,
according to Words and Phrases14 , "a litigant is open to the charge of "forum shopping" whenever he chooses a forum
with slight connection to factual circumstances surrounding his suit, and litigants should be encouraged to attempt to
settle their differences without imposing undue expenses and vexatious situations on the courts".
In the Philippines, forum shopping has acquired a connotation encompassing not only a choice of venues, as it was
originally understood in conflicts of laws, but also to a choice of remedies. As to the first (choice of venues), the Rules
of Court, for example, allow a plaintiff to commence personal actions "where the defendant or any of the defendants
resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff" (Rule 4,
Sec, 2 [b]). As to remedies, aggrieved parties, for example, are given a choice of pursuing civil liabilities independently
of the criminal, arising from the same set of facts. A passenger of a public utility vehicle involved in a vehicular accident
may sue on culpa contractual, culpa aquiliana or culpa criminal each remedy being available independently of the
others although he cannot recover more than once.
In either of these situations (choice of venue or choice of remedy), the litigant actually shops for a forum of his action,
This was the original concept of the term forum shopping.
Eventually, however, instead of actually making a choice of the forum of their actions, litigants, through the
encouragement of their lawyers, file their actions in all available courts, or invoke all relevant remedies simultaneously.
This practice had not only resulted to (sic) conflicting adjudications among different courts and consequent confusion
enimical (sic) to an orderly administration of justice. It had created extreme inconvenience to some of the parties to the
action.
Thus, "forum shopping" had acquired a different concept which is unethical professional legal practice. And this
necessitated or had given rise to the formulation of rules and canons discouraging or altogether prohibiting the
practice. 15
What therefore originally started both in conflicts of laws and in our domestic law as a legitimate device for solving
problems has been abused and mis-used to assure scheming litigants of dubious reliefs.
To avoid or minimize this unethical practice of subverting justice, the Supreme Court, as already mentioned,
promulgated Circular 28-91. And even before that, the Court had prescribed it in the Interim Rules and Guidelines
issued on January 11, 1983 and had struck down in several cases 16 the inveterate use of this insidious malpractice.
Forum shopping as "the filing of repetitious suits in different courts" has been condemned by Justice Andres R.
Narvasa (now Chief Justice) in Minister of Natural Resources, et al., vs. Heirs of Orval Hughes, et al., "as a
reprehensible manipulation of court processes and proceedings . . ." 17 when does forum shopping take place?
There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable opinion
(other than by appeal or certiorari) in another. The principle applies not only with respect to suits filed in the courts but
also in connection with litigations commenced in the courts while an administrative proceeding is pending, as in this
case, in order to defeat administrative processes and in anticipation of an unfavorable administrative ruling and a
favorable court ruling. This is specially so, as in this case, where the court in which the second suit was brought, has
no jurisdiction.18
The test for determining whether a party violated the rule against forum shopping has been laid dawn in the 1986 case
of Buan vs. Lopez 19 , also by Chief Justice Narvasa, and that is, forum shopping exists where the elements of litis
pendentia are present or where a final judgment in one case will amount to res judicata in the other, as follows:
There thus exists between the action before this Court and RTC Case No. 86-36563 identity of parties, or at least such
parties as represent the same interests in both actions, as well as identity of rights asserted and relief prayed for, the
relief being founded on the same facts, and the identity on the two preceding particulars is such that any judgment
rendered in the other action, will, regardless of which party is successful, amount to res adjudicata in the action under
consideration: all the requisites, in fine, of auter action pendant.
xxx xxx xxx
As already observed, there is between the action at bar and RTC Case No. 86-36563, an identity as regards parties, or
interests represented, rights asserted and relief sought, as well as basis thereof, to a degree sufficient to give rise to
the ground for dismissal known as auter action pendant or lis pendens. That same identity puts into operation the
sanction of twin dismissals just mentioned. The application of this sanction will prevent any further delay in the
settlement of the controversy which might ensue from attempts to seek reconsideration of or to appeal from the Order
of the Regional Trial Court in Civil Case No. 86-36563 promulgated on July 15, 1986, which dismissed the petition
upon grounds which appear persuasive.
Consequently, where a litigant (or one representing the same interest or person) sues the same party against whom
another action or actions for the alleged violation of the same right and the enforcement of the same relief is/are still
pending, the defense of litis pendencia in one case is bar to the others; and, a final judgment in one would
constitute res judicata and thus would cause the dismissal of the rest. In either case, forum shopping could be cited by
the other party as a ground to ask for summary dismissal of the two 20 (or more) complaints or petitions, and for
imposition of the other sanctions, which are direct contempt of court, criminal prosecution, and disciplinary action
against the erring lawyer.
Applying the foregoing principles in the case before us and comparing it with the Second Case, it is obvious that there
exist identity of parties or interests represented, identity of rights or causes and identity of reliefs sought.
Very simply stated, the original complaint in the court a quo which gave rise to the instant petition was filed by the
buyer (herein private respondent and his predecessors-in-interest) against the seller (herein petitioners) to enforce the
alleged perfected sale of real estate. On the other hand, the complaint 21 in the Second Case seeks to declare such
purported sale involving the same real property "as unenforceable as against the Bank", which is the petitioner herein.
In other words, in the Second Case, the majority stockholders, in representation of the Bank, are seeking to
accomplish what the Bank itself failed to do in the original case in the trial court. In brief, the objective or the relief
being sought, though worded differently, is the same, namely, to enable the petitioner Bank to escape from the
obligation to sell the property to respondent. In Danville Maritime, Inc. vs. Commission on Audit. 22 , this Court ruled
that the filing by a party of two apparently different actions, but with the same objective, constituted forum shopping:
In the attempt to make the two actions appear to be different, petitioner impleaded different respondents therein
PNOC in the case before the lower court and the COA in the case before this Court and sought what seems to be
different reliefs. Petitioner asks this Court to set aside the questioned letter-directive of the COA dated October 10,
1988 and to direct said body to approve the Memorandum of Agreement entered into by and between the PNOC and
petitioner, while in the complaint before the lower court petitioner seeks to enjoin the PNOC from conducting a
rebidding and from selling to other parties the vessel "T/T Andres Bonifacio", and for an extension of time for it to
comply with the paragraph 1 of the memorandum of agreement and damages. One can see that although the relief
prayed for in the two (2) actions are ostensibly different, the ultimate objective in both actions is the same, that is,
approval of the sale of vessel in favor of petitioner and to overturn the letter-directive of the COA of October 10, 1988
disapproving the sale. (emphasis supplied).
In an earlier case 23 but with the same logic and vigor, we held:
In other words, the filing by the petitioners of the instant special civil action for certiorari and prohibition in this Court
despite the pendency of their action in the Makati Regional Trial Court, is a species of forum-shopping. Both actions
unquestionably involve the same transactions, the same essential facts and circumstances. The petitioners' claim of
absence of identity simply because the PCGG had not been impleaded in the RTC suit, and the suit did not involve
certain acts which transpired after its commencement, is specious. In the RTC action, as in the action before this
Court, the validity of the contract to purchase and sell of September 1, 1986, i.e., whether or not it had been
efficaciously rescinded, and the propriety of implementing the same (by paying the pledgee banks the amount of their
loans, obtaining the release of the pledged shares, etc.) were the basic issues. So, too, the relief was the same: the
prevention of such implementation and/or the restoration of the status quo ante. When the acts sought to be restrained
took place anyway despite the issuance by the Trial Court of a temporary restraining order, the RTC suit did not
become functus oficio. It remained an effective vehicle for obtention of relief; and petitioners' remedy in the premises
was plain and patent: the filing of an amended and supplemental pleading in the RTC suit, so as to include the PCGG
as defendant and seek nullification of the acts sought to be enjoined but nonetheless done. The remedy was certainly
not the institution of another action in another forum based on essentially the same facts, The adoption of this latter
recourse renders the petitioners amenable to disciplinary action and both their actions, in this Court as well as in the
Court a quo, dismissible.
In the instant case before us, there is also identity of parties, or at least, of interests represented. Although the plaintiffs
in the Second Case (Henry L. Co. et al.) are not name parties in the First Case, they represent the same interest and
entity, namely, petitioner Bank, because:
Firstly, they are not suing in their personal capacities, for they have no direct personal interest in the matter in
controversy. They are not principally or even subsidiarily liable; much less are they direct parties in the assailed
contract of sale; and
Secondly, the allegations of the complaint in the Second Case show that the stockholders are bringing a "derivative
suit". In the caption itself, petitioners claim to have brought suit "for and in behalf of the Producers Bank of the
Philippines" 24 . Indeed, this is the very essence of a derivative suit:
An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holdsstock in
order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to
be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal
party, with the corporation as the real party in interest. (Gamboa v. Victoriano, 90 SCRA 40, 47 [1979]; emphasis
supplied).
In the face of the damaging admissions taken from the complaint in the Second Case, petitioners, quite strangely,
sought to deny that the Second Case was a derivative suit, reasoning that it was brought, not by the minority
shareholders, but by Henry Co et al., who not only own, hold or control over 80% of the outstanding capital stock, but
also constitute the majority in the Board of Directors of petitioner Bank. That being so, then they really represent the
Bank. So, whether they sued "derivatively" or directly, there is undeniably an identity of interests/entity represented.
Petitioner also tried to seek refuge in the corporate fiction that the personality Of the Bank is separate and distinct from
its shareholders. But the rulings of this Court are consistent: "When the fiction is urged as a means of perpetrating a
fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the
achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law
covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals." 25
In addition to the many cases 26 where the corporate fiction has been disregarded, we now add the instant case, and
declare herewith that the corporate veil cannot be used to shield an otherwise blatant violation of the prohibition
against forum-shopping. Shareholders, whether suing as the majority in direct actions or as the minority in a derivative
suit, cannot be allowed to trifle with court processes, particularly where, as in this case, the corporation itself has not
been remiss in vigorously prosecuting or defending corporate causes and in using and applying remedies available to
it. To rule otherwise would be to encourage corporate litigants to use their shareholders as fronts to circumvent the
stringent rules against forum shopping.
Finally, petitioner Bank argued that there cannot be any forum shopping, even assuming arguendo that there is identity
of parties, causes of action and reliefs sought, "because it (the Bank) was the defendant in the (first) case while it was
the plaintiff in the other (Second Case)",citing as authority Victronics Computers, Inc., vs. Regional Trial Court, Branch
63, Makati, etc. et al., 27 where Court held:
The rule has not been extended to a defendant who, for reasons known only to him, commences a new action against
the plaintiff instead of filing a responsive pleading in the other case setting forth therein, as causes of action,
specific denials, special and affirmative defenses or even counterclaims, Thus, Velhagen's and King's motion to
dismiss Civil Case No. 91-2069 by no means negates the charge of forum-shopping as such did not exist in the first
place. (emphasis supplied)
Petitioner pointed out that since it was merely the defendant in the original case, it could not have chosen the forum in
said case.
Respondent, on the other hand, replied that there is a difference in factual setting between Victronics and the present
suit. In the former, as underscored in the above-quoted Court ruling, the defendants did not file any responsive
pleading in the first case. In other words, they did not make any denial or raise any defense or counter-claim therein In
the case before us however, petitioners filed a responsive pleading to the complaint as a result of which, the issues
were joined.
Indeed, by praying for affirmative reliefs and interposing counterclaims in their responsive pleadings, the petitioners
became plaintiffs themselves in the original case, giving unto themselves the very remedies they repeated in the
Second Case.
Ultimately, what is truly important to consider in determining whether forum-shopping exists or not is the vexation
caused the courts and parties-litigant by a party who asks different courts and/or administrative agencies to rule on the
same or related causes and/or to grant the same or substantially the same reliefs, in the process creating the
possibility of conflicting decisions being rendered by the different fora upon the same issue. In this case, this is exactly
the problem: a decision recognizing the perfection and directing the enforcement of the contract of sale will directly
conflict with a possible decision in the Second Case barring the parties front enforcing or implementing the said sale.
Indeed, a final decision in one would constitute res judicata in the other 28 .
The foregoing conclusion finding the existence of forum-shopping notwithstanding, the only sanction possible now is
the dismissal of both cases with prejudice, as the other sanctions cannot be imposed because petitioners' present
counsel entered their appearance only during the proceedings in this Court, and the Petition's
VERIFICATION/CERTIFICATION contained sufficient allegations as to the pendency of the Second Case to show
good faith in observing Circular 28-91. The Lawyers who filed the Second Case are not before us; thus the rudiments
of due process prevent us from motu propio imposing disciplinary measures against them in this Decision. However,
petitioners themselves (and particularly Henry Co, et al.) as litigants are admonished to strictly follow the rules against
forum-shopping and not to trifle with court proceedings and processes They are warned that a repetition of the same
will be dealt with more severely.
Having said that, let it be emphasized that this petition should be dismissed not merely because of forum-shopping but
also because of the substantive issues raised, as will be discussed shortly.
The Second Issue: Was The Contract Perfected?
The respondent Court correctly treated the question of whether or not there was, on the basis of the facts established,
a perfected contract of sale as the ultimate issue. Holding that a valid contract has been established, respondent Court
stated:
There is no dispute that the object of the transaction is that property owned by the defendant bank as acquired assets
consisting of six (6) parcels of land specifically identified under Transfer Certificates of Title Nos. T-106932 to T-
106937. It is likewise beyond cavil that the bank intended to sell the property. As testified to by the Bank's Deputy
Conservator, Jose Entereso, the bank was looking for buyers of the property. It is definite that the plaintiffs wanted to
purchase the property and it was precisely for this purpose that they met with defendant Rivera, Manager of the
Property Management Department of the defendant bank, in early August 1987. The procedure in the sale of acquired
assets as well as the nature and scope of the authority of Rivera on the matter is clearly delineated in the testimony of
Rivera himself, which testimony was relied upon by both the bank and by Rivera in their appeal briefs. Thus (TSN of
July 30, 1990. pp. 19-20):
A: The procedure runs this way: Acquired assets was turned over to me and then I published it in the form of an inter-
office memorandum distributed to all branches that these are acquired assets for sale. I was instructed to advertise
acquired assets for sale so on that basis, I have to entertain offer; to accept offer, formal offer and upon having been
offered, I present it to the Committee. I provide the Committee with necessary information about the property such as
original loan of the borrower, bid price during the foreclosure, total claim of the bank, the appraised value at the time
the property is being offered for sale and then the information which are relative to the evaluation of the bank to buy
which the Committee considers and it is the Committee that evaluate as against the exposure of the bank and it is also
the Committee that submit to the Conservator for final approval and once approved, we have to execute the deed of
sale and it is the Conservator that sign the deed of sale, sir.
The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of buying the property, dealt with and
talked to the right person. Necessarily, the agenda was the price of the property, and plaintiffs were dealing with the
bank official authorized to entertain offers, to accept offers and to present the offer to the Committee before which the
said official is authorized to discuss information relative to price determination. Necessarily, too, it being inherent in his
authority, Rivera is the officer from whom official information regarding the price, as determined by the Committee and
approved by the Conservator, can be had. And Rivera confirmed his authority when he talked with the plaintiff in
August 1987. The testimony of plaintiff Demetria is clear on this point (TSN of May 31,1990, pp. 27-28):
Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did you ask him point-blank his
authority to sell any property?
A: No, sir. Not point blank although it came from him, (W)hen I asked him how long it would take because he was
saying that the matter of pricing will be passed upon by the committee. And when I asked him how long it will take for
the committee to decide and he said the committee meets every week. If I am not mistaken Wednesday and in about
two week's (sic) time, in effect what he was saying he was not the one who was to decide. But he would refer it to the
committee and he would relay the decision of the committee to me.
Q Please answer the question.
A He did not say that he had the authority (.) But he said he would refer the matter to the committee and he would
relay the decision to me and he did just like that.
"Parenthetically, the Committee referred to was the Past Due Committee of which Luis Co was the Head, with Jose
Entereso as one of the members.
What transpired after the meeting of early August 1987 are consistent with the authority and the duties of Rivera and
the bank's internal procedure in the matter of the sale of bank's assets. As advised by Rivera, the plaintiffs made a
formal offer by a letter dated August 20, 1987 stating that they would buy at the price of P3.5 Million in cash. The letter
was for the attention of Mercurio Rivera who was tasked to convey and accept such offers. Considering an aspect of
the official duty of Rivera as some sort of intermediary between the plaintiffs-buyers with their proposed buying price on
one hand, and the bank Committee, the Conservator and ultimately the bank itself with the set price on the other, and
considering further the discussion of price at the meeting of August resulting in a formal offer of P3.5 Million in cash,
there can be no other logical conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by letter that
"the bank's counter-offer is at P5.5 Million for more than 101 hectares on lot basis," such counter-offer price had been
determined by the Past Due Committee and approved by the Conservator after Rivera had duly presented plaintiffs'
offer for discussion by the Committee of such matters as original loan of borrower, bid price during foreclosure, total
claim of the bank, and market value. Tersely put, under the established facts, the price of P5.5 Million was, as clearly
worded in Rivera's letter (Exh. "E"), the official and definitive price at which the bank was selling the property.
There were averments by defendants below, as well as before this Court, that the P5.5 Million price was not discussed
by the Committee and that price. As correctly characterized by the trial court, this is not credible. The testimonies of
Luis Co and Jose Entereso on this point are at best equivocal and considering the gratuitous and self-serving
character of these declarations, the bank's submission on this point does not inspire belief. Both Co ad Entereso, as
members of the Past Due Committee of the bank, claim that the offer of the plaintiff was never discussed by the
Committee. In the same vein, both Co and Entereso openly admit that they seldom attend the meetings of the
Committee. It is important to note that negotiations on the price had started in early August and the plaintiffs had
already offered an amount as purchase price, having been made to understand by Rivera, the official in charge of the
negotiation, that the price will be submitted for approval by the bank and that the bank's decision will be relayed to
plaintiffs. From the facts, the official bank price. At any rate, the bank placed its official, Rivera, in a position of authority
to accept offers to buy and negotiate the sale by having the offer officially acted upon by the bank. The bank cannot
turn around and later say, as it now does, that what Rivera states as the bank's action on the matter is not in fact so. It
is a familiar doctrine, the doctrine of ostensible authority, 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, he estopped from denying his authority (Francisco v. GSIS, 7 SCRA 577, 583-584;
PNB v. Court of Appeals, 94 SCRA 357, 369-370; Prudential Bank v. Court of Appeals, G.R. No. 103957, June 14,
1993). 29
Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as follows: "(1) Consent of
the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which
is established."
There is no dispute on requisite no. 2. The object of the questioned contract consists of the six (6) parcels of land in
Sta. Rosa, Laguna with an aggregate area of about 101 hectares, more or less, and covered by Transfer Certificates of
Title Nos. T-106932 to T-106937. There is, however, a dispute on the first and third requisites.
Petitioners allege that "there is no counter-offer made by the Bank, and any supposed counter-offer which Rivera (or
Co) may have made is unauthorized. Since there was no counter-offer by the Bank, there was nothing for Ejercito (in
substitution of Demetria and Janolo) to accept." 30 They disputed the factual basis of the respondent Court's findings
that there was an offer made by Janolo for P3.5 million, to which the Bank counter-offered P5.5 million. We have
perused the evidence but cannot find fault with the said Court's findings of fact. Verily, in a petition under Rule 45 such
as this, errors of fact if there be any - are, as a rule, not reviewable. The mere fact that respondent Court (and the
trial court as well) chose to believe the evidence presented by respondent more than that presented by petitioners is
not by itself a reversible error. In fact, such findings merit serious consideration by this Court, particularly where, as in
this case, said courts carefully and meticulously discussed their findings. This is basic.
Be that as it may, and in addition to the foregoing disquisitions by the Court of Appeals, let us review the question of
Rivera's authority to act and petitioner's allegations that the P5.5 million counter-offer was extinguished by the P4.25
million revised offer of Janolo. Here, there are questions of law which could be drawn from the factual findings of the
respondent Court. They also delve into the contractual elements of consent and cause.
The authority of a corporate officer in dealing with third persons may be actual or apparent. The doctrine of "apparent
authority", with special reference to banks, was laid out in Prudential Bank vs. Court of Appeals31 , where it was held
that:
Conformably, we have declared in countless decisions that the principal is liable for obligations contracted by the
agent. The agent's apparent representation yields to the principal's true representation and the contract is considered
as entered into between the principal and the third person (citing National Food Authority vs. Intermediate Appellate
Court, 184 SCRA 166).
A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings of the
officers in their representative capacity but not for acts outside the scape of their authority (9 C.J.S., p. 417). A bank
holding out its officers and agents 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 (10 Am Jur 2d, p. 114). 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, in the particular case, 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
(McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021).
Application of these principles is especially necessary because banks have a fiduciary relationship with the public and
their stability depends on the confidence of the people in their honesty and efficiency. Such faith will be eroded where
banks do not exercise strict care in the selection and supervision of its employees, resulting in prejudice to their
depositors.
From the evidence found by respondent Court, it is obvious that petitioner Rivera has apparent or implied authority to
act for the Bank in the matter of selling its acquired assets. This evidence includes the following:
(a) The petition itself in par. II-i (p. 3) states that Rivera was "at all times material to this case, Manager of the Property
Management Department of the Bank". By his own admission, Rivera was already the person in charge of the Bank's
acquired assets (TSN, August 6, 1990, pp. 8-9);
(b) As observed by respondent Court, the land was definitely being sold by the Bank. And during the initial meeting
between the buyers and Rivera, the latter suggested that the buyers' offer should be no less than P3.3 million (TSN,
April 26, 1990, pp. 16-17);
(c) Rivera received the buyers' letter dated August 30, 1987 offering P3.5 million (TSN, 30 July 1990, p.11);
(d) Rivera signed the letter dated September 1, 1987 offering to sell the property for P5.5 million (TSN, July 30, p. 11);
(e) Rivera received the letter dated September 17, 1987 containing the buyers' proposal to buy the property for P4.25
million (TSN, July 30, 1990, p. 12);
(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final price of the Bank (TSN, January
16, 1990, p. 18);
(g) Rivera arranged the meeting between the buyers and Luis Co on September 28, 1994, during which the Bank's
offer of P5.5 million was confirmed by Rivera (TSN, April 26, 1990, pp. 34-35). At said meeting, Co, a major
shareholder and officer of the Bank, confirmed Rivera's statement as to the finality of the Bank's counter-offer of P5.5
million (TSN, January 16, 1990, p. 21; TSN, April 26, 1990, p. 35);
(h) In its newspaper advertisements and announcements, the Bank referred to Rivera as the officer acting for the Bank
in relation to parties interested in buying assets owned/acquired by the Bank. In fact, Rivera was the officer mentioned
in the Bank's advertisements offering for sale the property in question (cf. Exhs. "S" and "S-1").
In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et. al.32 , the Court, through Justice Jose A.
R. Melo, affirmed the doctrine of apparent authority as it held that the apparent authority of the officer of the Bank of
P.I. in charge of acquired assets is borne out by similar circumstances surrounding his dealings with buyers.
To be sure, petitioners attempted to repudiate Rivera's apparent authority through documents and testimony which
seek to establish Rivera's actual authority. These pieces of evidence, however, are inherently weak as they consist of
Rivera's self-serving testimony and various inter-office memoranda that purport to show his limited actual authority, of
which private respondent cannot be charged with knowledge. In any event, since the issue is apparent authority, the
existence of which is borne out by the respondent Court's findings, the evidence of actual authority is immaterial
insofar as the liability of a corporation is concerned 33 .
Petitioners also argued that since Demetria and Janolo were experienced lawyers and their "law firm" had once acted
for the Bank in three criminal cases, they should be charged with actual knowledge of Rivera's limited authority. But the
Court of Appeals in its Decision (p. 12) had already made a factual finding that the buyers had no notice of Rivera's
actual authority prior to the sale. In fact, the Bank has not shown that they acted as its counsel in respect to any
acquired assets; on the other hand, respondent has proven that Demetria and Janolo merely associated with a loose
aggrupation of lawyers (not a professional partnership), one of whose members (Atty. Susana Parker) acted in said
criminal cases.
Petitioners also alleged that Demetria's and Janolo's P4.25 million counter-offer in the letter dated September 17,
1987 extinguished the Bank's offer of P5.5 million 34 .They disputed the respondent Court's finding that "there was a
meeting of minds when on 30 September 1987 Demetria and Janolo through Annex "L" (letter dated September 30,
1987) "accepted" Rivera's counter offer of P5.5 million under Annex "J" (letter dated September 17, 1987)", citingthe
late Justice Paras35 , Art. 1319 of the Civil Code 36 and related Supreme Court rulings starting with Beaumont vs.
Prieto 37 .
However, the above-cited authorities and precedents cannot apply in the instant case because, as found by the
respondent Court which reviewed the testimonies on this point, what was "accepted" by Janolo in his letter dated
September 30, 1987 was the Bank's offer of P5.5 million as confirmed and reiterated to Demetria and Atty. Jose
Fajardo by Rivera and Co during their meeting on September 28, 1987. Note that the said letter of September 30, 1987
begins with"(p)ursuant to our discussion last 28 September 1987 . . .
Petitioners insist that the respondent Court should have believed the testimonies of Rivera and Co that the September
28, 1987 meeting "was meant to have the offerors improve on their position of P5.5. million."38 However, both the trial
court and the Court of Appeals found petitioners' testimonial evidence "not credible", and we find no basis for changing
this finding of fact.
Indeed, we see no reason to disturb the lower courts' (both the RTC and the CA) common finding that private
respondents' evidence is more in keeping with truth and logic that during the meeting on September 28, 1987, Luis
Co and Rivera "confirmed that the P5.5 million price has been passed upon by the Committee and could no longer be
lowered (TSN of April 27, 1990, pp. 34-35)"39 . Hence, assuming arguendo that the counter-offer of P4.25 million
extinguished the offer of P5.5 million, Luis Co's reiteration of the said P5.5 million price during the September 28, 1987
meeting revived the said offer. And by virtue of the September 30, 1987 letter accepting this revived offer, there was a
meeting of the minds, as the acceptance in said letter was absolute and unqualified.
We note that the Bank's repudiation, through Conservator Encarnacion, of Rivera's authority and action, particularly the
latter's counter-offer of P5.5 million, as being "unauthorized and illegal" came only on May 12, 1988 or more than
seven (7) months after Janolo' acceptance. Such delay, and the absence of any circumstance which might have
justifiably prevented the Bank from acting earlier, clearly characterizes the repudiation as nothing more than a last-
minute attempt on the Bank's part to get out of a binding contractual obligation.
Taken together, the factual findings of the respondent Court point to an implied admission on the part of the petitioners
that the written offer made on September 1, 1987 was carried through during the meeting of September 28, 1987. This
is the conclusion consistent with human experience, truth and good faith.
It also bears noting that this issue of extinguishment of the Bank's offer of P5.5 million was raised for the first time on
appeal and should thus be disregarded.
This Court in several decisions has repeatedly adhered to the principle that points of law, theories, issues of fact and
arguments not adequately brought to the attention of the trial court need not be, and ordinarily will not be, considered
by a reviewing court, as they cannot be raised for the first time on appeal (Santos vs. IAC, No. 74243, November 14,
1986, 145 SCRA 592).40
. . . It is settled jurisprudence that an issue which was neither averred in the complaint nor raised during the trial in the
court below cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice
and due process (Dihiansan vs. CA, 153 SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA 434 [1987]; Dulos Realty &
Development Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs. IAC, 175 SCRA 70 [1989]; Gevero vs. IAC, G.R. 77029,
August 30, 1990).41
Since the issue was not raised in the pleadings as an affirmative defense, private respondent was not given an
opportunity in the trial court to controvert the same through opposing evidence. Indeed, this is a matter of due process.
But we passed upon the issue anyway, if only to avoid deciding the case on purely procedural grounds, and we repeat
that, on the basis of the evidence already in the record and as appreciated by the lower courts, the inevitable
conclusion is simply that there was a perfected contract of sale.
The Third Issue: Is the Contract Enforceable?
The petition alleged42 :
Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million during the meeting of 28 September
1987, and it was this verbal offer that Demetria and Janolo accepted with their letter of 30 September 1987, the
contract produced thereby would be unenforceable by action there being no note, memorandum or writing
subscribed by the Bank to evidence such contract. (Please see article 1403[2], Civil Code.)
Upon the other hand, the respondent Court in its Decision (p, 14) stated:
. . . Of course, the bank's letter of September 1, 1987 on the official price and the plaintiffs' acceptance of the price on
September 30, 1987, are not, in themselves, formal contracts of sale. They are however clear embodiments of the fact
that a contract of sale was perfected between the parties, such contract being binding in whatever form it may have
been entered into (case citations omitted). Stated simply, the banks' letter of September 1, 1987, taken together with
plaintiffs' letter dated September 30, 1987, constitute in law a sufficient memorandum of a perfected contract of sale.
The respondent Court could have added that the written communications commenced not only from September 1,
1987 but from Janolo's August 20, 1987 letter. We agree that, taken together, these letters constitute sufficient
memoranda since they include the names of the parties, the terms and conditions of the contract, the price and a
description of the property as the object of the contract.
But let it be assumed arguendo that the counter-offer during the meeting on September 28, 1987 did constitute a "new"
offer which was accepted by Janolo on September 30, 1987. Still, the statute of frauds will not apply by reason of the
failure of petitioners to object to oral testimony proving petitioner Bank's counter-offer of P5.5 million. Hence,
petitioners by such utter failure to object are deemed to have waived any defects of the contract under the statute
of frauds, pursuant to Article 1405 of the Civil Code:
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are ratified by the failure to
object to the presentation of oral evidence to prove the same, or by the acceptance of benefits under them.
As private respondent pointed out in his Memorandum, oral testimony on the reaffirmation of the counter-offer of P5.5
million is a plenty and the silence of petitioners all throughout the presentation makes the evidence binding on them
thus;
A Yes, sir, I think it was September 28, 1987 and I was again present because Atty. Demetria told me to accompany
him we were able to meet Luis Co at the Bank.
xxx xxx xxx
Q Now, what transpired during this meeting with Luis Co of the Producers Bank?
A Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.
Q What price?
A The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio Rivera is the final price and that is
the price they intends (sic) to have, sir.
Q What do you mean?.
A That is the amount they want, sir.
Q What is the reaction of the plaintiff Demetria to Luis Co's statement (sic) that the defendant Rivera's counter-offer of
5.5 million was the defendant's bank (sic) final offer?
A He said in a day or two, he will make final acceptance, sir.
Q What is the response of Mr. Luis Co?.
A He said he will wait for the position of Atty. Demetria, sir.
[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]
Q What transpired during that meeting between you and Mr. Luis Co of the defendant Bank?
A We went straight to the point because he being a busy person, I told him if the amount of P5.5 million could still be
reduced and he said that was already passed upon by the committee. What the bank expects which was contrary to
what Mr. Rivera stated. And he told me that is the final offer of the bank P5.5 million and we should indicate our
position as soon as possible.
Q What was your response to the answer of Mr. Luis Co?
A I said that we are going to give him our answer in a few days and he said that was it. Atty. Fajardo and I and Mr.
Mercurio [Rivera] was with us at the time at his office.
Q For the record, your Honor please, will you tell this Court who was with Mr. Co in his Office in Producers Bank
Building during this meeting?
A Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.
Q By Mr. Co you are referring to?
A Mr. Luis Co.
Q After this meeting with Mr. Luis Co, did you and your partner accede on (sic) the counter offer by the bank?
A Yes, sir, we did.? Two days thereafter we sent our acceptance to the bank which offer we accepted, the offer of the
bank which is P5.5 million.
[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]
Q According to Atty. Demetrio Demetria, the amount of P5.5 million was reached by the Committee and it is not within
his power to reduce this amount. What can you say to that statement that the amount of P5.5 million was reached by
the Committee?
A It was not discussed by the Committee but it was discussed initially by Luis Co and the group of Atty. Demetrio
Demetria and Atty. Pajardo (sic) in that September 28, 1987 meeting, sir.
[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]
The Fourth Issue: May the Conservator Revoke
the Perfected and Enforceable Contract.
It is not disputed that the petitioner Bank was under a conservator placed by the Central Bank of the Philippines during
the time that the negotiation and perfection of the contract of sale took place. Petitioners energetically contended that
the conservator has the power to revoke or overrule actions of the management or the board of directors of a bank,
under Section 28-A of Republic Act No. 265 (otherwise known as the Central Bank Act) as follows:
Whenever, on the basis of a report submitted by the appropriate supervising or examining department, the Monetary
Board finds that a bank or a non-bank financial intermediary performing quasi-banking functions is in a state of
continuing inability or unwillingness to maintain a state of liquidity deemed adequate to protect the interest of
depositors and creditors, the Monetary Board may appoint a conservator to take charge of the assets, liabilities, and
the management of that institution, collect all monies and debts due said institution and exercise all powers necessary
to preserve the assets of the institution, reorganize the management thereof, and restore its viability. He shall have the
power to overrule or revoke the actions of the previous management and board of directors of the bank or non-bank
financial intermediary performing quasi-banking functions, any provision of law to the contrary notwithstanding, and
such other powers as the Monetary Board shall deem necessary.
In the first place, this issue of the Conservator's alleged authority to revoke or repudiate the perfected contract of sale
was raised for the first time in this Petition as this was not litigated in the trial court or Court of Appeals. As already
stated earlier, issues not raised and/or ventilated in the trial court, let alone in the Court of Appeals, "cannot be raised
for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process."43
In the second place, there is absolutely no evidence that the Conservator, at the time the contract was perfected,
actually repudiated or overruled said contract of sale. The Bank's acting conservator at the time, Rodolfo Romey, never
objected to the sale of the property to Demetria and Janolo. What petitioners are really referring to is the letter of
Conservator Encarnacion, who took over from Romey after the sale was perfected on September 30, 1987 (Annex V,
petition) which unilaterally repudiated not the contract but the authority of Rivera to make a binding offer and
which unarguably came months after the perfection of the contract. Said letter dated May 12, 1988 is reproduced
hereunder:
May 12, 1988
Atty. Noe C. Zarate
Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building
Ayala Avenue, Makati, Metro-Manila
Dear Atty. Zarate:
This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and Demetria regarding the six (6) parcels of
land located at Sta. Rosa, Laguna.
We deny that Producers Bank has ever made a legal counter-offer to any of your clients nor perfected a "contract to
sell and buy" with any of them for the following reasons.
In the "Inter-Office Memorandum" dated April 25, 1986 addressed to and approved by former Acting Conservator Mr.
Andres I. Rustia, Producers Bank Senior Manager Perfecto M. Pascua detailed the functions of Property Management
Department (PMD) staff and officers (Annex A.), you will immediately read that Manager Mr. Mercurio Rivera or any of
his subordinates has no authority, power or right to make any alleged counter-offer. In short, your lawyer-clients did not
deal with the authorized officers of the bank.
Moreover, under Sec. 23 and 36 of the Corporation Code of the Philippines (Bates Pambansa Blg. 68.) and Sec. 28-A
of the Central Bank Act (Rep. Act No. 265, as amended), only the Board of Directors/Conservator may authorize the
sale of any property of the corportion/bank..
Our records do not show that Mr. Rivera was authorized by the old board or by any of the bank conservators (starting
January, 1984) to sell the aforesaid property to any of your clients. Apparently, what took place were just preliminary
discussions/consultations between him and your clients, which everyone knows cannot bind the Bank's Board or
Conservator.
We are, therefore, constrained to refuse any tender of payment by your clients, as the same is patently violative of
corporate and banking laws. We believe that this is more than sufficient legal justification for refusing said alleged
tender.
Rest assured that we have nothing personal against your clients. All our acts are official, legal and in accordance with
law. We also have no personal interest in any of the properties of the Bank.
Please be advised accordingly.
Very truly yours,
(Sgd.) Leonida T. Encarnacion
LEONIDA T. EDCARNACION
Acting Conservator
In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers to the conservator of a
bank, it must be pointed out that such powers must be related to the "(preservation of) the assets of the bank, (the
reorganization of) the management thereof and (the restoration of) its viability." Such powers, enormous and extensive
as they are, cannot extend to the post-facto repudiation of perfected transactions, otherwise they would infringe
against the non-impairment clause of the Constitution 44 . If the legislature itself cannot revoke an existing valid
contract, how can it delegate such non-existent powers to the conservator under Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are, under existing law,
deemed to be defective i.e., void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the
place of a bank's board of directors. What the said board cannot do such as repudiating a contract validly entered
into under the doctrine of implied authority the conservator cannot do either. Ineluctably, his power is not unilateral
and he cannot simply repudiate valid obligations of the Bank. His authority would be only to bring court actions to
assail such contracts as he has already done so in the instant case. A contrary understanding of the law would
simply not be permitted by the Constitution. Neither by common sense. To rule otherwise would be to enable a failing
bank to become solvent, at the expense of third parties, by simply getting the conservator to unilaterally revoke all
previous dealings which had one way or another or come to be considered unfavorable to the Bank, yielding nothing to
perfected contractual rights nor vested interests of the third parties who had dealt with the Bank.
The Fifth Issue: Were There Reversible Errors of Facts?
Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court, findings of fact by the Court of
Appeals are not reviewable by the Supreme Court. In Andres vs. Manufacturers Hanover & Trust Corporation, 45 , we
held:
. . . The rule regarding questions of fact being raised with this Court in a petition for certiorari under Rule 45 of the
Revised Rules of Court has been stated in Remalante vs. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138,
thus:
The rule in this jurisdiction is that only questions of law may be raised in a petition for certiorari under Rule 45 of the
Revised Rules of Court. "The jurisdiction of the Supreme Court in cases brought to it from the Court of Appeals is
limited to reviewing and revising the errors of law imputed to it, its findings of the fact being conclusive " [Chan vs.
Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating a long line of decisions]. This Court has
emphatically declared that "it is not the function of the Supreme Court to analyze or weigh such evidence all over
again, its jurisdiction being limited to reviewing errors of law that might have been committed by the lower court"
(Tiongco v. De la Merced, G. R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona vs. Court of Appeals, G.R. No. L-
62482, April 28, 1983, 121 SCRA 865; Baniqued vs. Court of Appeals, G. R. No. L-47531, February 20, 1984, 127
SCRA 596). "Barring, therefore, a showing that the findings complained of are totally devoid of support in the record, or
that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings must stand, for this
Court is not expected or required to examine or contrast the oral and documentary evidence submitted by the parties"
[Santa Ana, Jr. vs. Hernandez, G. R. No. L-16394, December 17, 1966, 18 SCRA 973] [at pp. 144-145.]
Likewise, in Bernardo vs. Court of Appeals 46 , we held:
The resolution of this petition invites us to closely scrutinize the facts of the case, relating to the sufficiency of evidence
and the credibility of witnesses presented. This Court so held that it is not the function of the Supreme Court to analyze
or weigh such evidence all over again. The Supreme Court's jurisdiction is limited to reviewing errors of law that may
have been committed by the lower court. The Supreme Court is not a trier of facts. . . .
As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock Construction and Development
Corp. 47 :
The Court has consistently held that the factual findings of the trial court, as well as the Court of Appeals, are final and
conclusive and may not be reviewed on appeal. Among the exceptional circumstances where a reassessment of facts
found by the lower courts is allowed are when the conclusion is a finding grounded entirely on speculation, surmises or
conjectures; when the inference made is manifestly absurd, mistaken or impossible; when there is grave abuse of
discretion in the appreciation of facts; when the judgment is premised on a misapprehension of facts; when the findings
went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee. After
a careful study of the case at bench, we find none of the above grounds present to justify the re-evaluation of the
findings of fact made by the courts below.
In the same vein, the ruling of this Court in the recent case of South Sea Surety and Insurance Company
Inc. vs. Hon. Court of Appeals, et al. 48 is equally applicable to the present case:
We see no valid reason to discard the factual conclusions of the appellate court, . . . (I)t is not the function of this Court
to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties, particularly
where, such as here, the findings of both the trial court and the appellate court on the matter coincide. (emphasis
supplied)
Petitioners, however, assailed the respondent Court's Decision as "fraught with findings and conclusions which were
not only contrary to the evidence on record but have no bases at all," specifically the findings that (1) the "Bank's
counter-offer price of P5.5 million had been determined by the past due committee and approved by conservator
Romey, after Rivera presented the same for discussion" and (2) "the meeting with Co was not to scale down the price
and start negotiations anew, but a meeting on the already determined price of P5.5 million" Hence, citingPhilippine
National Bank vs. Court of Appeals 49 , petitioners are asking us to review and reverse such factual findings.
The first point was clearly passed upon by the Court of Appeals 50 , thus:
There can be no other logical conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by letter that
"the bank's counter-offer is at P5.5 Million for more than 101 hectares on lot basis, "such counter-offer price had been
determined by the Past Due Committee and approved by the Conservator after Rivera had duly presented plaintiffs'
offer for discussion by the Committee . . . Tersely put, under the established fact, the price of P5.5 Million was, as
clearly worded in Rivera's letter (Exh. "E"), the official and definitive price at which the bank was selling the property.
(p. 11, CA Decision)
xxx xxx xxx
. . . The argument deserves scant consideration. As pointed out by plaintiff, during the meeting of September 28, 1987
between the plaintiffs, Rivera and Luis Co, the senior vice-president of the bank, where the topic was the possible
lowering of the price, the bank official refused it and confirmed that the P5.5 Million price had been passed upon by the
Committee and could no longer be lowered (TSN of April 27, 1990, pp. 34-35) (p. 15, CA Decision).
The respondent Court did not believe the evidence of the petitioners on this point, characterizing it as "not credible"
and "at best equivocal and considering the gratuitous and self-serving character of these declarations, the bank's
submissions on this point do not inspire belief."
To become credible and unequivocal, petitioners should have presented then Conservator Rodolfo Romey to testify on
their behalf, as he would have been in the best position to establish their thesis. Under the rules on evidence 51 , such
suppression gives rise to the presumption that his testimony would have been adverse, if produced.
The second point was squarely raised in the Court of Appeals, but petitioners' evidence was deemed insufficient by
both the trial court and the respondent Court, and instead, it was respondent's submissions that were believed and
became bases of the conclusions arrived at.
In fine, it is quite evident that the legal conclusions arrived at from the findings of fact by the lower courts are valid and
correct. But the petitioners are now asking this Court to disturb these findings to fit the conclusion they are espousing,
This we cannot do.
To be sure, there are settled exceptions where the Supreme Court may disregard findings of fact by the Court of
Appeals 52 . We have studied both the records and the CA Decision and we find no such exceptions in this case. On
the contrary, the findings of the said Court are supported by a preponderance of competent and credible evidence. The
inferences and conclusions are seasonably based on evidence duly identified in the Decision. Indeed, the appellate
court patiently traversed and dissected the issues presented before it, lending credibility and dependability to its
findings. The best that can be said in favor of petitioners on this point is that the factual findings of respondent Court
did not correspond to petitioners' claims, but were closer to the evidence as presented in the trial court by private
respondent. But this alone is no reason to reverse or ignore such factual findings, particularly where, as in this case,
the trial court and the appellate court were in common agreement thereon. Indeed, conclusions of fact of a trial judge
as affirmed by the Court of Appeals are conclusive upon this Court, absent any serious abuse or evident lack of
basis or capriciousness of any kind, because the trial court is in a better position to observe the demeanor of the
witnesses and their courtroom manner as well as to examine the real evidence presented.
Epilogue.
In summary, there are two procedural issues involved forum-shopping and the raising of issues for the first time on
appeal [viz., the extinguishment of the Bank's offer of P5.5 million and the conservator's powers to repudiate contracts
entered into by the Bank's officers] which per se could justify the dismissal of the present case. We did not limit
ourselves thereto, but delved as well into the substantive issues the perfection of the contract of sale and its
enforceability, which required the determination of questions of fact. While the Supreme Court is not a trier of facts and
as a rule we are not required to look into the factual bases of respondent Court's decisions and resolutions, we did so
just the same, if only to find out whether there is reason to disturb any of its factual findings, for we are only too aware
of the depth, magnitude and vigor by which the parties through their respective eloquent counsel, argued their
positions before this Court.
We are not unmindful of the tenacious plea that the petitioner Bank is operating abnormally under a government-
appointed conservator and "there is need to rehabilitate the Bank in order to get it back on its feet . . . as many people
depend on (it) for investments, deposits and well as employment. As of June 1987, the Bank's overdraft with the
Central Bank had already reached P1.023 billion . . . and there were (other) offers to buy the subject properties for a
substantial amount of money." 53
While we do not deny our sympathy for this distressed bank, at the same time, the Court cannot emotionally close its
eyes to overriding considerations of substantive and procedural law, like respect for perfected contracts, non-
impairment of obligations and sanctions against forum-shopping, which must be upheld under the rule of law and blind
justice.
This Court cannot just gloss over private respondent's submission that, while the subject properties may currently
command a much higher price, it is equally true that at the time of the transaction in 1987, the price agreed upon of
P5.5 million was reasonable, considering that the Bank acquired these properties at a foreclosure sale for no more
than P3.5 million 54 . That the Bank procrastinated and refused to honor its commitment to sell cannot now be used by
it to promote its own advantage, to enable it to escape its binding obligation and to reap the benefits of the increase in
land values. To rule in favor of the Bank simply because the property in question has algebraically accelerated in price
during the long period of litigation is to reward lawlessness and delays in the fulfillment of binding contracts. Certainly,
the Court cannot stamp its imprimatur on such outrageous proposition.
WHEREFORE, finding no reversible error in the questioned Decision and Resolution, the Court hereby DENIES the
petition. The assailed Decision is AFFIRMED. Moreover, petitioner Bank is REPRIMANDED for engaging in forum-
shopping and WARNED that a repetition of the same or similar acts will be dealt with more severely. Costs against
petitioners.
SO ORDERED.