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MATLING INDUSTRIAL AND COMMERCIAL CORPORATION, RICHARD K.

SPENCER, CATHERINE for Finance and Administration being held by complainant-appellant is not listed as among
SPENCER, AND ALEX MANCILLA, Petitioners, vs. RICARDO R. COROS, Respondent. respondent's corporate officers.
G.R. No. 157802 October 13, 2010 Accordingly, let the records of this case be REMANDED to the Arbitration Branch of origin in order that
DECISION the Labor Arbiter below could act on the case at bench, hear both parties, receive their respective
BERSAMIN, J.: evidence and position papers fully observing the requirements of due process, and resolve the same
This case reprises the jurisdictional conundrum of whether a complaint for illegal dismissal is with reasonable dispatch.
cognizable by the Labor Arbiter (LA) or by the Regional Trial Court (RTC). The determination of whether SO ORDERED.
the dismissed officer was a regular employee or a corporate officer unravels the conundrum. In the The petitioners sought reconsideration,9 reiterating that the respondent, being a member of the Board
case of the regular employee, the LA has jurisdiction; otherwise, the RTC exercises the legal authority of Directors, was a corporate officer whose removal was not within the LA’s jurisdiction.
to adjudicate. The petitioners later submitted to the NLRC in support of the motion for reconsideration the certified
In this appeal via petition for review on certiorari, the petitioners challenge the decision dated machine copies of Matling’s Amended Articles of Incorporation and By Laws to prove that the President
September 13, 20021and the resolution dated April 2, 2003,2 both promulgated in C.A.-G.R. SP No. 65714 of Matling was thereby granted "full power to create new offices and appoint the officers thereto, and
entitled Matling Industrial and Commercial Corporation, et al. v. Ricardo R. Coros and National Labor the minutes of special meeting held on June 7, 1999 by Matling’s Board of Directors to prove that the
Relations Commission, whereby by the Court of Appeals (CA) sustained the ruling of the National Labor respondent was, indeed, a Member of the Board of Directors.10
Relations Commission (NLRC) to the effect that the LA had jurisdiction because the respondent was not Nonetheless, on April 30, 2001, the NLRC denied the petitioners’ motion for reconsideration. 11
a corporate officer of petitioner Matling Industrial and Commercial Corporation (Matling). Ruling of the CA
Antecedents The petitioners elevated the issue to the CA by petition for certiorari, docketed as C.A.-G.R. No. SP
After his dismissal by Matling as its Vice President for Finance and Administration, the respondent filed 65714, contending that the NLRC committed grave abuse of discretion amounting to lack of jurisdiction
on August 10, 2000 a complaint for illegal suspension and illegal dismissal against Matling and some of in reversing the correct decision of the LA.
its corporate officers (petitioners) in the NLRC, Sub-Regional Arbitration Branch XII, Iligan City.3 In its assailed decision promulgated on September 13, 2002, 12 the CA dismissed the petition for
The petitioners moved to dismiss the complaint,4 raising the ground, among others, that the complaint certiorari, explaining:
pertained to the jurisdiction of the Securities and Exchange Commission (SEC) due to the controversy For a position to be considered as a corporate office, or, for that matter, for one to be considered as a
being intra-corporate inasmuch as the respondent was a member of Matling’s Board of Directors aside corporate officer, the position must, if not listed in the by-laws, have been created by the corporation's
from being its Vice-President for Finance and Administration prior to his termination. board of directors, and the occupant thereof appointed or elected by the same board of directors or
The respondent opposed the petitioners’ motion to dismiss,5 insisting that his status as a member of stockholders. This is the implication of the ruling in Tabang v. National Labor Relations Commission,
Matling’s Board of Directors was doubtful, considering that he had not been formally elected as such; which reads:
that he did not own a single share of stock in Matling, considering that he had been made to sign in "The president, vice president, secretary and treasurer are commonly regarded as the principal or
blank an undated indorsement of the certificate of stock he had been given in 1992; that Matling had executive officers of a corporation, and modern corporation statutes usually designate them as the
taken back and retained the certificate of stock in its custody; and that even assuming that he had been officers of the corporation. However, other offices are sometimes created by the charter or by-laws of a
a Director of Matling, he had been removed as the Vice President for Finance and Administration, not as corporation, or the board of directors may be empowered under the by-laws of a corporation to create
a Director, a fact that the notice of his termination dated April 10, 2000 showed. additional offices as may be necessary.
On October 16, 2000, the LA granted the petitioners’ motion to dismiss,6 ruling that the respondent was It has been held that an 'office' is created by the charter of the corporation and the officer is elected by
a corporate officer because he was occupying the position of Vice President for Finance and the directors or stockholders. On the other hand, an 'employee' usually occupies no office and
Administration and at the same time was a Member of the Board of Directors of Matling; and that, generally is employed not by action of the directors or stockholders but by the managing officer of the
consequently, his removal was a corporate act of Matling and the controversy resulting from such corporation who also determines the compensation to be paid to such employee."
removal was under the jurisdiction of the SEC, pursuant to Section 5, paragraph (c) of Presidential This ruling was reiterated in the subsequent cases of Ongkingco v. National Labor Relations
Decree No. 902. Commission and De Rossi v. National Labor Relations Commission.
Ruling of the NLRC The position of vice-president for administration and finance, which Coros used to hold in the
The respondent appealed to the NLRC,7 urging that: corporation, was not created by the corporation’s board of directors but only by its president or
I executive vice-president pursuant to the by-laws of the corporation. Moreover, Coros’ appointment to
THE HONORABLE LABOR ARBITER COMMITTED GRAVE ABUSE OF DISCRETION GRANTING said position was not made through any act of the board of directors or stockholders of the
APPELLEE’S MOTION TO DISMISS WITHOUT GIVING THE APPELLANT AN OPPORTUNITY TO FILE HIS corporation. Consequently, the position to which Coros was appointed and later on removed from, is
OPPOSITION THERETO THEREBY VIOLATING THE BASIC PRINCIPLE OF DUE PROCESS. not a corporate office despite its nomenclature, but an ordinary office in the corporation.
II Coros’ alleged illegal dismissal therefrom is, therefore, within the jurisdiction of the labor arbiter.
THE HONORABLE LABOR ARBITER COMMITTED AN ERROR IN DISMISSING THE CASE FOR LACK OF WHEREFORE, the petition for certiorari is hereby DISMISSED.
JURISDICTION. SO ORDERED.
On March 13, 2001, the NLRC set aside the dismissal, concluding that the respondent’s complaint for The CA denied the petitioners’ motion for reconsideration on April 2, 2003. 13
illegal dismissal was properly cognizable by the LA, not by the SEC, because he was not a corporate Issue
officer by virtue of his position in Matling, albeit high ranking and managerial, not being among the Thus, the petitioners are now before the Court for a review on certiorari, positing that the respondent
positions listed in Matling’s Constitution and By-Laws.8 The NLRC disposed thuswise: was a stockholder/member of the Matling’s Board of Directors as well as its Vice President for Finance
WHEREFORE, the Order appealed from is SET ASIDE. A new one is entered declaring and holding that and Administration; and that the CA consequently erred in holding that the LA had jurisdiction.
the case at bench does not involve any intracorporate matter. Hence, jurisdiction to hear and act on The decisive issue is whether the respondent was a corporate officer of Matling or not. The resolution
said case is vested with the Labor Arbiter, not the SEC, considering that the position of Vice-President of the issue determines whether the LA or the RTC had jurisdiction over his complaint for illegal
dismissal.
1
Ruling Considering that the respondent’s complaint for illegal dismissal was commenced on August 10, 2000,
The appeal fails. it might come under the coverage of Section 5.2 of RA No. 8799, supra, should it turn out that the
I respondent was a corporate, not a regular, officer of Matling.
The Law on Jurisdiction in Dismissal Cases II
As a rule, the illegal dismissal of an officer or other employee of a private employer is properly Was the Respondent’s Position of Vice President for Administration and Finance a Corporate Office?
cognizable by the LA. This is pursuant to Article 217 (a) 2 of the Labor Code, as amended, which We must first resolve whether or not the respondent’s position as Vice President for Finance and
provides as follows: Administration was a corporate office. If it was, his dismissal by the Board of Directors rendered the
Article 217. Jurisdiction of the Labor Arbiters and the Commission. - (a) Except as otherwise provided matter an intra-corporate dispute cognizable by the RTC pursuant to RA No. 8799.
under this Code, the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide, The petitioners contend that the position of Vice President for Finance and Administration was a
within thirty (30) calendar days after the submission of the case by the parties for decision without corporate office, having been created by Matling’s President pursuant to By-Law No. V, as
extension, even in the absence of stenographic notes, the following cases involving all workers, amended,16 to wit:
whether agricultural or non-agricultural: BY LAW NO. V
1. Unfair labor practice cases;
2. Termination disputes; Officers
3. If accompanied with a claim for reinstatement, those cases that workers may file The President shall be the executive head of the corporation; shall preside over the meetings of the
involving wages, rates of pay, hours of work and other terms and conditions of stockholders and directors; shall countersign all certificates, contracts and other instruments of the
employment; corporation as authorized by the Board of Directors; shall have full power to hire and discharge any or
4. Claims for actual, moral, exemplary and other forms of damages arising from the all employees of the corporation; shall have full power to create new offices and to appoint the officers
employer-employee relations; thereto as he may deem proper and necessary in the operations of the corporation and as the progress
5. Cases arising from any violation of Article 264 of this Code, including questions of the business and welfare of the corporation may demand; shall make reports to the directors and
involving the legality of strikes and lockouts; and stockholders and perform all such other duties and functions as are incident to his office or are
6. Except claims for Employees Compensation, Social Security, Medicare and properly required of him by the Board of Directors. In case of the absence or disability of the President,
maternity benefits, all other claims arising from employer-employee relations, the Executive Vice President shall have the power to exercise his functions.
including those of persons in domestic or household service, involving an amount The petitioners argue that the power to create corporate offices and to appoint the individuals to
exceeding five thousand pesos (₱5,000.00) regardless of whether accompanied with a assume the offices was delegated by Matling’s Board of Directors to its President through By-Law No.
claim for reinstatement. V, as amended; and that any office the President created, like the position of the respondent, was as
(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor valid and effective a creation as that made by the Board of Directors, making the office a corporate
Arbiters. office. In justification, they cite Tabang v. National Labor Relations Commission,17 which held that
(c) Cases arising from the interpretation or implementation of collective bargaining "other offices are sometimes created by the charter or by-laws of a corporation, or the board of
agreements and those arising from the interpretation or enforcement of company personnel directors may be empowered under the by-laws of a corporation to create additional officers as may be
policies shall be disposed of by the Labor Arbiter by referring the same to the grievance necessary."
machinery and voluntary arbitration as may be provided in said agreements. (As amended by The respondent counters that Matling’s By-Laws did not list his position as Vice President for Finance
Section 9, Republic Act No. 6715, March 21, 1989). and Administration as one of the corporate offices; that Matling’s By-Law No. III listed only four
Where the complaint for illegal dismissal concerns a corporate officer, however, the controversy falls corporate officers, namely: President, Executive Vice President, Secretary, and Treasurer; 18 that the
under the jurisdiction of the Securities and Exchange Commission (SEC), because the controversy corporate offices contemplated in the phrase "and such other officers as may be provided for in the by-
arises out of intra-corporate or partnership relations between and among stockholders, members, or laws" found in Section 25 of the Corporation Code should be clearly and expressly stated in the By-
associates, or between any or all of them and the corporation, partnership, or association of which they Laws; that the fact that Matling’s By-Law No. III dealt with Directors & Officers while its By-Law No. V
are stockholders, members, or associates, respectively; and between such corporation, partnership, or dealt with Officers proved that there was a differentiation between the officers mentioned in the two
association and the State insofar as the controversy concerns their individual franchise or right to exist provisions, with those classified under By-Law No. V being ordinary or non-corporate officers; and that
as such entity; or because the controversy involves the election or appointment of a director, trustee, the officer, to be considered as a corporate officer, must be elected by the Board of Directors or the
officer, or manager of such corporation, partnership, or association. 14 Such controversy, among others, stockholders, for the President could only appoint an employee to a position pursuant to By-Law No. V.
is known as an intra-corporate dispute. We agree with respondent.
Effective on August 8, 2000, upon the passage of Republic Act No. 8799, 15 otherwise known as The Section 25 of the Corporation Code provides:
Securities Regulation Code, the SEC’s jurisdiction over all intra-corporate disputes was transferred to Section 25. Corporate officers, quorum.--Immediately after their election, the directors of a corporation
the RTC, pursuant to Section 5.2 of RA No. 8799, to wit: must formally organize by the election of a president, who shall be a director, a treasurer who may or
5.2. The Commission’s jurisdiction over all cases enumerated under Section 5 of Presidential Decree may not be a director, a secretary who shall be a resident and citizen of the Philippines, and such other
No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial officers as may be provided for in the by-laws. Any two (2) or more positions may be held concurrently
Court: Provided, that the Supreme Court in the exercise of its authority may designate the Regional by the same person, except that no one shall act as president and secretary or as president and
Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain treasurer at the same time.
jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which The directors or trustees and officers to be elected shall perform the duties enjoined on them by law
should be resolved within one (1) year from the enactment of this Code. The Commission shall retain and the by-laws of the corporation. Unless the articles of incorporation or the by-laws provide for a
jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until greater majority, a majority of the number of directors or trustees as fixed in the articles of
finally disposed. 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
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valid as a corporate act, except for the election of officers which shall require the vote of a majority of In Nacpil v. Intercontinental Broadcasting Corporation,23 which may be the more appropriate ruling, the
all the members of the board. position subject of the controversy was not expressly mentioned in the By-Laws, but was created
Directors or trustees cannot attend or vote by proxy at board meetings. pursuant to a By-Law enabling provision authorizing the Board of Directors to create other offices that
Conformably with Section 25, a position must be expressly mentioned in the By-Laws in order to be the Board of Directors might see fit to create. The Court held there that the position was a corporate
considered as a corporate office. Thus, the creation of an office pursuant to or under a By-Law enabling office, relying on the obiter dictum in Tabang.
provision is not enough to make a position a corporate office. Guerrea v. Lezama, 19 the first ruling on Considering that the observations earlier made herein show that the soundness of their dicta is not
the matter, held that the only officers of a corporation were those given that character either by the unassailable, Tabang and Nacpil should no longer be controlling.
Corporation Code or by the By-Laws; the rest of the corporate officers could be considered only as III
employees or subordinate officials. Thus, it was held in Easycall Communications Phils., Inc. v. King:20 Did Respondent’s Status as Director and Stockholder Automatically Convert his Dismissal into an Intra-
An "office" is created by the charter of the corporation and the officer is elected by the directors or Corporate Dispute?
stockholders. On the other hand, an employee occupies no office and generally is employed not by the Yet, the petitioners insist that because the respondent was a Director/stockholder of Matling, and
action of the directors or stockholders but by the managing officer of the corporation who also relying on Paguio v. National Labor Relations Commission24 and Ongkingko v. National Labor Relations
determines the compensation to be paid to such employee. Commission,25 the NLRC had no jurisdiction over his complaint, considering that any case for illegal
In this case, respondent was appointed vice president for nationwide expansion by Malonzo, dismissal brought by a stockholder/officer against the corporation was an intra-corporate matter that
petitioner’'s general manager, not by the board of directors of petitioner. It was also Malonzo who must fall under the jurisdiction of the SEC conformably with the context of PD No. 902-A.
determined the compensation package of respondent. Thus, respondent was an employee, not a The petitioners’ insistence is bereft of basis.
"corporate officer." The CA was therefore correct in ruling that jurisdiction over the case was properly To begin with, the reliance on Paguio and Ongkingko is misplaced. In both rulings, the complainants
with the NLRC, not the SEC (now the RTC). were undeniably corporate officers due to their positions being expressly mentioned in the By-Laws,
This interpretation is the correct application of Section 25 of the Corporation Code, which plainly states aside from the fact that both of them had been duly elected by the respective Boards of Directors. But
that the corporate officers are the President, Secretary, Treasurer and such other officers as may be the herein respondent’s position of Vice President for Finance and Administration was not expressly
provided for in the By-Laws. Accordingly, the corporate officers in the context of PD No. 902-A are mentioned in the By-Laws; neither was the position of Vice President for Finance and Administration
exclusively those who are given that character either by the Corporation Code or by the corporation’s created by Matling’s Board of Directors. Lastly, the President, not the Board of Directors, appointed
By-Laws. him.
A different interpretation can easily leave the way open for the Board of Directors to circumvent the True it is that the Court pronounced in Tabang as follows:
constitutionally guaranteed security of tenure of the employee by the expedient inclusion in the By- Also, an intra-corporate controversy is one which arises between a stockholder and the corporation.
Laws of an enabling clause on the creation of just any corporate officer position. There is no distinction, qualification or any exemption whatsoever. The provision is broad and covers
It is relevant to state in this connection that the SEC, the primary agency administering the Corporation all kinds of controversies between stockholders and corporations.26
Code, adopted a similar interpretation of Section 25 of the Corporation Code in its Opinion dated However, the Tabang pronouncement is not controlling because it is too sweeping and does not accord
November 25, 1993,21 to wit: with reason, justice, and fair play. In order to determine whether a dispute constitutes an intra-
Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are the corporate corporate controversy or not, the Court considers two elements instead, namely: (a) the status or
officers enumerated in the by-laws are the exclusive Officers of the corporation and the Board has no relationship of the parties; and (b) the nature of the question that is the subject of their controversy.
power to create other Offices without amending first the corporate By-laws. However, the Board may This was our thrust in Viray v. Court of Appeals:27
create appointive positions other than the positions of corporate Officers, but the persons occupying The establishment of any of the relationships mentioned above will not necessarily always confer
such positions are not considered as corporate officers within the meaning of Section 25 of the jurisdiction over the dispute on the SEC to the exclusion of regular courts. The statement made in one
Corporation Code and are not empowered to exercise the functions of the corporate Officers, except case that the rule admits of no exceptions or distinctions is not that absolute. The better policy in
those functions lawfully delegated to them. Their functions and duties are to be determined by the determining which body has jurisdiction over a case would be to consider not only the status or
Board of Directors/Trustees. relationship of the parties but also the nature of the question that is the subject of their controversy.
Moreover, the Board of Directors of Matling could not validly delegate the power to create a corporate Not every conflict between a corporation and its stockholders involves corporate matters that only the
office to the President, in light of Section 25 of the Corporation Code requiring the Board of Directors SEC can resolve in the exercise of its adjudicatory or quasi-judicial powers. If, for example, a person
itself to elect the corporate officers. Verily, the power to elect the corporate officers was a discretionary leases an apartment owned by a corporation of which he is a stockholder, there should be no question
power that the law exclusively vested in the Board of Directors, and could not be delegated to that a complaint for his ejectment for non-payment of rentals would still come under the jurisdiction of
subordinate officers or agents.22 The office of Vice President for Finance and Administration created by the regular courts and not of the SEC. By the same token, if one person injures another in a vehicular
Matling’s President pursuant to By Law No. V was an ordinary, not a corporate, office. accident, the complaint for damages filed by the victim will not come under the jurisdiction of the SEC
To emphasize, the power to create new offices and the power to appoint the officers to occupy them simply because of the happenstance that both parties are stockholders of the same corporation. A
vested by By-Law No. V merely allowed Matling’s President to create non-corporate offices to be contrary interpretation would dissipate the powers of the regular courts and distort the meaning and
occupied by ordinary employees of Matling. Such powers were incidental to the President’s duties as intent of PD No. 902-A.
the executive head of Matling to assist him in the daily operations of the business. In another case, Mainland Construction Co., Inc. v. Movilla,28 the Court reiterated these determinants
The petitioners’ reliance on Tabang, supra, is misplaced. The statement in Tabang, to the effect that thuswise:
offices not expressly mentioned in the By-Laws but were created pursuant to a By-Law enabling In order that the SEC (now the regular courts) can take cognizance of a case, the controversy must
provision were also considered corporate offices, was plainly obiter dictum due to the position subject pertain to any of the following relationships:
of the controversy being mentioned in the By-Laws. Thus, the Court held therein that the position was a a) between the corporation, partnership or association and the public;
corporate office, and that the determination of the rights and liabilities arising from the ouster from the b) between the corporation, partnership or association and its stockholders, partners,
position was an intra-corporate controversy within the SEC’s jurisdiction. members or officers;

3
c) between the corporation, partnership or association and the State as far as its franchise, particular activity performed by the employee in relation to the usual trade or business of the employer.
permit or license to operate is concerned; and Additionally, "an employee is regular because of the nature of work and the length of service, not
d) among the stockholders, partners or associates themselves. because of the mode or even the reason for hiring them." As Assistant Vice-President of the Foreign
The fact that the parties involved in the controversy are all stockholders or that the parties involved are Department of the Bank she performs tasks integral to the operations of the bank and her length of
the stockholders and the corporation does not necessarily place the dispute within the ambit of the service with the bank totaling 28 years speaks volumes of her status as a regular employee of the bank.
jurisdiction of SEC. The better policy to be followed in determining jurisdiction over a case should be to In fine, as a regular employee, she is entitled to security of tenure; that is, her services may be
consider concurrent factors such as the status or relationship of the parties or the nature of the terminated only for a just or authorized cause. This being in truth a case of illegal dismissal, it is no
question that is the subject of their controversy. In the absence of any one of these factors, the SEC will wonder then that the Bank endeavored to the very end to establish loss of trust and confidence and
not have jurisdiction. Furthermore, it does not necessarily follow that every conflict between the serious misconduct on the part of private respondent but, as will be discussed later, to no avail.
corporation and its stockholders would involve such corporate matters as only the SEC can resolve in WHEREFORE, we deny the petition for review on certiorari, and affirm the decision of the Court of
the exercise of its adjudicatory or quasi-judicial powers.29 Appeals.
The criteria for distinguishing between corporate officers who may be ousted from office at will, on one Costs of suit to be paid by the petitioners.
hand, and ordinary corporate employees who may only be terminated for just cause, on the other hand, SO ORDERED.
do not depend on the nature of the services performed, but on the manner of creation of the office. In
the respondent’s 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 QUEENSLAND-TOKYO COMMODITIES, INC., ROMEO Y. LAU, and CHARLIE
determine whether the dismissal constituted an intra-corporate controversy or a labor termination COLLADO, Petitioners, vs. THOMAS GEORGE, Respondent.
dispute. We must also consider whether his status as Director and stockholder had any relation at all to G.R. No. 172727 September 8, 2010
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 RESOLUTION
because of his being a stockholder or Director of Matling. He had started working for Matling on NACHURA, J.:
September 8, 1966, and had been employed continuously for 33 years until his termination on April 17, At bar is a petition for review on certiorari under Rule 45 of the Rules of Court filed by Queensland-
2000, first as a bookkeeper, and his climb in 1987 to his last position as Vice President for Finance and Tokyo Commodities, Inc. (QTCI), Romeo Y. Lau (Lau), and Charlie Collado (Collado), challenging the
Administration had been gradual but steady, as the following sequence indicates: September 30, 2005 Decision1 and the January 20, 2006 Resolution2 of the Court of Appeals (CA) in CA-
1966 – Bookkeeper G.R. SP No. 58741.
1968 – Senior Accountant QTCI is a duly licensed broker engaged in the trading of commodity futures. In 1995, Guillermo
1969 – Chief Accountant Mendoza, Jr. (Mendoza) and Oniler Lontoc (Lontoc) of QTCI met with respondent Thomas George
1972 – Office Supervisor (respondent), encouraging the latter to invest with QTCI. On July 7, 1995, upon Mendoza’s prodding,
1973 – Assistant Treasurer respondent finally invested with QTCI. On the same day, Collado, in behalf of QTCI, and respondent
1978 – Special Assistant for Finance signed the Customer’s Agreement.3 Forming part of the agreement was the Special Power of
1980 – Assistant Comptroller Attorney4 executed by respondent, appointing Mendoza as his attorney-in-fact with full authority to
1983 – Finance and Administrative Manager trade and manage his account.
1985 – Asst. Vice President for Finance and Administration On June 20, 1996, the Securities and Exchange Commission (SEC) issued a Cease-and-Desist Order
1987 to April 17, 2000 – Vice President for Finance and Administration (CDO) against QTCI. Alarmed by the issuance of the CDO, respondent demanded from QTCI the return
Even though he might have become a stockholder of Matling in 1992, his promotion to the position of of his investment, but it was not heeded. He then sought legal assistance, and discovered that Mendoza
Vice President for Finance and Administration in 1987 was by virtue of the length of quality service he and Lontoc were not licensed commodity futures salesmen.
had rendered as an employee of Matling. His subsequent acquisition of the status of On February 4, 1998, respondent filed a complaint for Recovery of Investment with Damages 5 with the
Director/stockholder had no relation to his promotion. Besides, his status of Director/stockholder was SEC against QTCI, Lau, and Collado (petitioners), and against the unlicensed salesmen, Mendoza and
unaffected by his dismissal from employment as Vice President for Finance and Lontoc. The case was docketed as SEC Case No. 02-98-5886, and was raffled to SEC Hearing Officer
Administration.1avvphi1 Julieto F. Fabrero.
In Prudential Bank and Trust Company v. Reyes,30 a case involving a lady bank manager who had risen Only petitioners answered the complaint, as Mendoza and Lontoc had since vanished into thin air.
from the ranks but was dismissed, the Court held that her complaint for illegal dismissal was correctly Traversing the complaint, petitioners denied the material allegations in the complaint and alleged lack
brought to the NLRC, because she was deemed a regular employee of the bank. The Court observed of cause of action, as a defense. Petitioners averred that QTCI only assigned duly qualified persons to
thus: handle the accounts of its clients; and denied allowing unlicensed brokers or agents to handle
It appears that private respondent was appointed Accounting Clerk by the Bank on July 14, 1963. From respondent’s account. They claimed that they were not aware of, nor were they privy to, any
that position she rose to become supervisor. Then in 1982, she was appointed Assistant Vice-President arrangement which resulted in the account of respondent being handled by unlicensed brokers. They
which she occupied until her illegal dismissal on July 19, 1991. The bank’s contention that she merely added that even assuming that the subject account was handled by an unlicensed broker, respondent
holds an elective position and that in effect she is not a regular employee is belied by the nature of her is now estopped from raising it as a ground for the return of his investment. They pointed out that
work and her length of service with the Bank. As earlier stated, she rose from the ranks and has been respondent transacted business with QTCI for almost a year, without questioning the license or the
employed with the Bank since 1963 until the termination of her employment in 1991. As Assistant Vice authority of the traders handling his account. It was only after it became apparent that QTCI could no
President of the Foreign Department of the Bank, she is tasked, among others, to collect checks drawn longer resume its business transactions by reason of the CDO that respondent raised the alleged lack
against overseas banks payable in foreign currency and to ensure the collection of foreign bills or of authority of the brokers or traders handling his account. The losses suffered by respondent were due
checks purchased, including the signing of transmittal letters covering the same. It has been stated that to circumstances beyond petitioners’ control and could not be attributed to them. Respondent’s
"the primary standard of determining regular employment is the reasonable connection between the
4
remedy, they added, should be against the unlicensed brokers who handled the account. Thus, are generally held to be binding and final so long as they are supported by substantial evidence in the
petitioners prayed for the dismissal of the complaint.6 records of the case. It is not the function of this Court to analyze or weigh all over again the evidence
After due proceedings, the SEC Hearing Officer rendered a decision7 in favor of respondent, decreeing and the credibility of witnesses presented before the lower court, tribunal, or office, as we are not a trier
that: of facts. Our jurisdiction is limited to reviewing and revising errors of law imputed to the lower court,
WHEREFORE, premises considered, [petitioners] Queensland Tokyo [C]ommodities, Inc., Romeo Y. Lau the latter’s findings of fact being conclusive and not reviewable by this Court. 16
(aka "Lau Ching Yee") and Charlie F. Collado are hereby ordered to jointly and severally pay the We sustain the finding of the SEC Hearing Officer and the CA that petitioners allowed unlicensed
[respondent] the following: individuals to engage in, solicit or accept orders in futures contracts, and thus, transgressed the
1. The amount of ₱138,164.00, Philippine currency, representing the x x x return of his Revised Rules and Regulations on Commodity Futures Trading.17
[respondent’s] peso investment, plus legal rate of interest from February 1998 until fully paid; We are not persuaded by petitioners’ assertion that they had no hand in Mendoza’s designation as
2. The amount of $19,820.00, American dollars, or its peso equivalent at the time of payment respondent’s attorney-in-fact. As pointed out by the CA, the Special Power of Attorney formed part of
representing the [respondent’s] return of his dollar investments, plus legal rate of interest from respondent’s agreement with QTCI, and under the Customer’s Agreement,18 only a licensed or
February 1998 until fully paid; registered dealer or investment consultant may be appointed as attorney-in-fact. Thus:
3. The amount of ₱100,000.00 as (sic) by way of moral damages; 2. If I so desire, I shall appoint you as my agent pursuant to a Special Power of Attorney which I shall
4. The amount of ₱50,000.00 as and (sic) by way of exemplary damages; execute for this purpose and which form part of this Agreement.
5. The amount of ₱10,000.00 as and for attorney’s fees; and xxxx
6. The amount of ₱2,877.00 as cost of suit. 18. I hereby confer, pursuant to the Special Power of Attorney herewith attached, full authority to your
SO ORDERED.8 licensed/registered dealer/investment in charge of my account/s and your Senior Officer, who must also
Petitioners appealed to the Commission en banc, but the appeal was dismissed because the Notice of be a licensed/registered dealer/investment consultant, to sign all order slips on futures trading. 19
Appeal and the Memorandum on Appeal were not verified.9 Inexplicably, petitioners did not object to, and in fact recognized, Mendoza’s appointment as
Petitioners then went to the CA via a petition for review10 under Rule 43, faulting the Commission en respondent’s attorney-in-fact. Collado, in behalf of QTCI, concluded the Customer’s Agreement despite
banc for dismissing their appeal on purely technical ground. They insisted that they did not violate the the fact that the appointed attorney-in-fact was not a licensed dealer. Worse, petitioners permitted
rules on commodity futures trading. Thus, they faulted the SEC Hearing Officer for nullifying the Mendoza to handle respondent’s account.
Customer’s Agreement and for holding them liable for respondent’s claims. Indubitably, petitioners violated the Revised Rules and Regulations on Commodity Futures Trading
On September 30, 2005, the CA rendered the now challenged Decision.11 It declared the dismissal of prohibiting any unlicensed person to engage in, solicit or accept orders in futures contract.
petitioners’ appeal by the Commission en banc improper. Nevertheless, it did not order a remand of the Consequently, the SEC Hearing Officer and the CA cannot be faulted for declaring the contract between
case to the Commission en banc because jurisdiction over petitioners’ appeal had already been QTCI and respondent void.
transferred to the Regional Trial Court (RTC) by virtue of Republic Act No. 8799 or the Securities Batas Pambansa Bilang (B.P. Blg.) 178 or the Revised Securities Act explicitly provided:
Regulation Code. The CA thus proceeded to decide the merits of the case, affirming in toto the decision SEC. 53. Validity of Contracts. x x x.
of the SEC Hearing Officer. The appellate court failed to see any reason to disturb the SEC Hearing (b) Every contract executed in violation of any provision of this Act, or any rule or regulation
Officer’s finding of liability on the part of petitioners. It sustained the finding that petitioners violated thereunder, and every contract, including any contract for listing a security on an exchange heretofore
the Revised Rules and Regulations on Commodity Futures Trading when they allowed or hereafter made, the performance of which involves the violation of, or the continuance of any
an unlicensed salesman, like Mendoza, to handle respondent’s account. The CA also upheld the relationship or practice in violation of, any provision of this Act, or any rule and regulation thereunder,
nullification of the Customer’s Agreement, and the award of moral and exemplary damages, as well shall be void.
attorney’s fees, in favor of respondent. The CA disposed, thus: Likewise, Paragraph 2920 of the Customer’s Agreement provides:
WHEREFORE, premises considered, the petition is DISMISSED for lack of merit. The assailed decision 29.
dated February 7, 2000 is hereby AFFIRMED in toto. Contracts entered into by unlicensed Account Executives (A/E) or Investment consultants are deemed
SO ORDERED.12 void and of no legal effect.
Petitioners filed a motion for reconsideration,13 but the CA denied it on January 20, 2006.14 Clearly, the CA merely adhered to the clear provision of B.P. Blg. 178 and to the stipulation in the
Hence, this recourse by petitioners arguing that: parties’ agreement when it declared as void the Customer’s Agreement between QTCI and respondent.
A. It is settled that a void contract is equivalent to nothing; it produces no civil effect. It does not create,
THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONERS KNOWINGLY modify, or extinguish a juridical relation. Parties to a void agreement cannot expect the aid of the law;
PERMITTED AN UNLICENSED TRADER TO SOLICIT AND HANDLE REPONDENT’S ACCOUNT, AND the courts leave them as they are, because they are deemed in pari delicto or in equal fault.21 This rule,
THAT PETITIONERS ARE GUILTY OF FRAUD AND MISREPRESENTATION. however, is not absolute. Article 1412 of the Civil Code provides an exception, and permits the return of
B. that which may have been given under a void contract. Thus:
THE HONORABLE COURT OF APPEALS ERRED IN FINDING INDIVIDUAL PETITIONERS SOLIDARILY Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal
LIABLE FOR THE DAMAGES AND AWARDS DUE [THE] RESPONDENT.15 offense, the following rules shall be observed:
Petitioners insist that they did not violate the Revised Rules and Regulations on Commodity Futures (1) When the fault is on the part of both contracting parties, neither may recover what he has
Trading. They claim that it has been QTCI’s policy and practice to appoint only licensed traders to trade given by virtue of the contract, or demand the performance of the other's undertaking;
the client’s account. They denied any participation in the designation of Mendoza as respondent’s (2) When only one of the contracting parties is at fault, he cannot recover what he has given by
attorney-in-fact; taking exception to the findings that they permitted Mendoza to trade respondent’s reason of the contract, or ask for the fulfillment of what has been promised him. The other,
account. Petitioners also assailed the weight given by the SEC Hearing Officer and by the CA to who is not at fault, may demand the return of what he has given without any obligation to
respondent’s evidence. comply with his promise.
It is evident that the issue raised in this petition is the correctness of the factual findings of the SEC The evidence on record established that petitioners indeed permitted an unlicensed trader and
Hearing Officer, as affirmed by the CA. It is well-settled that factual findings of administrative agencies salesman, like Mendoza, to handle respondent’s account. On the other hand, the record is bereft of
5
proof that respondent had knowledge that the person handling his account was not a licensed trader. Finally we sustain the awards for moral and exemplary damages in favor of respondent. Moral damages
Respondent can, therefore, recover the amount he had given under the contract. The SEC Hearing are meant to compensate the claimant for any physical suffering, mental anguish, fright, serious
Officer and the CA, therefore, committed no reversible error in holding that respondent is entitled to a anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injuries
full recovery of his investments. unjustly caused. Although incapable of pecuniary estimation, the amount must somehow be
Petitioners Collado and Lau next fault the CA in making them solidarily liable for the payment of proportional to and in approximation of the suffering inflicted. Moral damages are not punitive in nature
respondent’s claim. and were never intended to enrich the claimant at the expense of the defendant. 24
Doctrine dictates that a corporation is invested by law with a personality separate and distinct from Likewise, exemplary damages are properly exigible of QTCI. Article 2229 25 of the Civil Code provides
those of the persons composing it, such that, save for certain exceptions, corporate officers who that such damages may be imposed by way of example or correction for the public good. While
entered into contracts in behalf of the corporation cannot be held personally liable for the liabilities of exemplary damages cannot be recovered as a matter of right, they need not be proved, although
the latter. Personal liability of a corporate director, trustee, or officer, along (although not necessarily) plaintiff must show that he is entitled to moral, temperate, or compensatory damages before the court
with the corporation, may validly attach, as a rule, only when – (1) he assents to a patently unlawful act may consider the question of whether or not exemplary damages should be awarded. Exemplary
of the corporation, or when he is guilty of bad faith or gross negligence in directing its affairs, or when damages are imposed not to enrich one party or impoverish another, but to serve as a deterrent against
there is a conflict of interest resulting in damages to the corporation, its stockholders, or other or as a negative incentive to curb socially deleterious actions. 26
persons; (2) he consents to the issuance of watered down stocks or who, having knowledge thereof, However, the same statutory and jurisprudential standards dictate reduction of the amounts of moral
does not forthwith file with the corporate secretary his written objection thereto; (3) he agrees to hold and exemplary damages fixed by the SEC. Certainly, there is no hard-and-fast rule in determining what
himself personally and solidarily liable with the corporation; or (4) he is made by a specific provision of would be a fair and reasonable amount of moral and exemplary damages, since each case must be
law personally answerable for his corporate action.221avvphi1 governed by its own peculiar facts.27 Courts are given discretion in determining the amount, with the
In holding Lau and Collado jointly and severally liable with QTCI for respondent’s claim, the SEC limitation that it should not be palpably and scandalously excessive. Indeed, it must be commensurate
Hearing Officer explained in this wise: to the loss or injury suffered.28
Anent the issue of who among the individual [petitioners] are jointly liable with QTCI in the payment of In this case, we find a need to modify, by reducing the awards for moral damages from ₱100,000.00 to
the awards, the Commission took into consideration, among others, that audit report on the trading ₱50,000.00; and for exemplary damages from ₱50,000.00 to ₱30,000.00.
activities submitted by the Brokers and Exchange Department (BED) of this Commission (Exhibit "J"). In fine, except for the modification of the awards for moral and exemplary damages, there is no
The findings contained in the report include the presence of seven (7) unlicensed investment justification to overturn the findings of the SEC Hearing Officer, as affirmed by the CA.
consultants in QTCI, and the company practice of changing deeds of Special Power of Attorney bearing We reiterate that the findings of facts and conclusions of law of the SEC are controlling on the
those who are licensed (exhibits "J-1" and "J-2"). reviewing authority. Indeed, the rule is that the findings of fact of administrative bodies, if based on
The Commission also took into consideration the fact that [petitioner] Collado, who is not a licensed substantial evidence, are controlling on the reviewing authority. It has been held that it is not for the
commodity salesman, himself violated the aforequoted provisions of the Revised Rules and appellate court to substitute its own judgment for that of the administrative agency on the sufficiency of
Regulations on Commodity Futures Trading when he admitted having participated in the execution of the evidence and the credibility of the witnesses. The Hearing Officer had the optimum opportunity to
the customers orders (p. 7, TSN dated January 21, 1999) without giving any exception thereto, which review the pieces of evidence presented before him and to observe the demeanor of the witnesses.
presumably includes his participation in the execution of customers orders of the [respondent]. Administrative decisions on matters within his jurisdiction are entitled to respect and can only be set
Such being the case, [Mendoza’s] participation in the trading of [respondent’s] account is within the aside on proof of grave abuse of discretion, fraud, or error of law, 29 which has not been shown by
knowledge of [petitioner] Collado. petitioner in this case.
The presence of seven (7) unlicensed investment consultants within QTCI apart from x x x Mendoza, WHEREFORE, the challenged Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 58741
and [petitioner] Collado’s participation in the unlawful execution of orders under the [respondent’s] are AFFIRMED with MODIFICATION that the awards for moral and exemplary damages are reduced to
account clearly established the fact that the management of QTCI failed to implement the rules and ₱50,000.00 and ₱30,000.00, respectively.
regulations against the hiring of, and associating with, unlicensed consultants or traders. How these SO ORDERED.
unlicensed personnel been able to pursue their unlawful activities is a reflection of how negligent [the]
management was.
[Petitioner] Romeo Lau, as president of [petitioner] QTCI, cannot feign innocence on the existence of EASYCALL COMMUNICATIONS PHILS., INC., Petitioner, vs. EDWARD KING, Respondent.
these unlawful activities within the company, especially so that Collado, himself a ranking officer of G.R. No. 145901 December 15, 2005
QTCI, is involved in the unlawful execution of customers orders. [Petitioner] Lau, being the chief
DECISION
operating officer, cannot escape the fact that had he exercised a modicum of care and discretion in
CORONA, J.:
supervising the operations of QTCI, he could have detected and prevented the unlawful acts of
[petitioner] Collado and Mendoza. This petition for review on certiorari under Rule 45 of the Rules of Court assails the February 10, 2000
It is therefore safe to conclude that although Lau may not have participated nor been aware of the decision1 and November 8, 2000 resolution of the Court of Appeals (CA) in CA-G.R. SP No. 53510. The
unlawful acts, he is however deemed to have been grossly negligence in directing the affairs of QTCI. assailed decision nullified the November 27, 1998 decision and April 29, 1999 resolution of the National
In all, it having been established by substantial evidence that [petitioner] Collado assented to the Labor Relations Commission (NLRC) and entered a new one declaring that the respondent Edward King
unlawful act of QTCI, and that [petitioner] Lau is grossly negligent in directing the affairs of QTCI, and was illegally dismissed and awarding him backwages, separation pay and attorney’s fees.
pursuant to Section 31 of the Corporation Code, they are therefore, jointly and severally liable with QTCI
for all the damages and awards due to the [respondent].23 Petitioner Easycall Communications Phils., Inc. was a domestic corporation primarily engaged in the
We find no compelling reason to depart from the conclusion of the SEC Hearing Officer, which was business of message handling. On May 20, 1992, petitioner, through its general manager, Roberto B.
affirmed by the CA. We are in full accord with his reasons for holding Lau and Collado jointly and Malonzo, hired the services of respondent as assistant to the general manager. He was given the
severally liable with QTCI for the payment of respondent’s claim.

6
responsibility of ensuring that the expansion plans outside Metro Manila and Metro Cebu were achieved The NLRC, however, denied the motion for lack of merit in a April 29, 1999 resolution. The NLRC also
at the soonest possible time. dismissed the complaint for lack of jurisdiction.

In an August 14, 1992 memorandum, Mr. R.T. Casas, respondent’s immediate superior, recommended Respondent filed a petition for certiorari with the CA. The CA granted the petition and ruled that the
his promotion to assistant vice president for nationwide expansion. On December 22, 1992, respondent NLRC erred in holding that it lacked jurisdiction over the case. The CA also ruled that the dismissal of
was appointed to the even higher position of vice president for nationwide expansion. Respondent’s respondent was illegal for having been done without cause and in violation of his right to due process.
promotion was based on his performance during the six months preceding his appointment. As vice
president for nationwide expansion, he became responsible for the sales and rentals of pager units in Petitioner moved for a reconsideration of the CA decision but the motion was denied in the CA’s
petitioner’s expansion areas. He was also in charge of coordinating with the dealers in these areas. November 8, 2000 resolution. Hence, this petition.

Sometime in March 1993, Malonzo reviewed the sales performance of respondent. He also scrutinized Petitioner now raises the following errors:
the status of petitioner’s Nationwide Expansion Program (NEP) which was under respondent’s I.
responsibility. He found that respondent’s actual sales for the period October 1992–March 1993 was THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT
78% of his sales commitment and 70% of his sales target. SUBSTITUTED ITS OWN FINDINGS TO THAT OF THE NLRC IN VIOLATION OF THE RULE THAT
REGULAR COURTS SHOULD ACCORD GREAT RESPECT TO FINDINGS OF ADMINISTRATIVE
Malonzo also checked the frequency and duration of the provincial sales development visits made by AGENCIES CONSIDERING THAT THERE IS SUBSTANTIAL EVIDENCE TO SUPPORT THE SIMILAR
respondent for the same period to expansion areas under his jurisdiction. He discovered that the latter FINDINGS OF BOTH THE LABOR ARBITER AND THE COMMISSIONERS OF NLRC.
spent around 40% of the total number of working days for that period in the field. II.
FURTHERMORE, GLARING IS THE FACT THAT THE HONORABLE COURT OF APPEALS SIMPLY
The management then confronted respondent regarding his sales performance and provincial sales DISREGARDED THE SUBSTANTIAL EVIDENCE ON RECORD WHICH INDISPUTABLY SHOWED THAT
development visits. A series of dialogues between petitioner’s management and respondent ensued. RESPONDENT WAS TOTALLY REMISS IN HIS DUTIES AS VICE PRESIDENT FOR NATIONWIDE
EXPANSION.
On April 16, 1993, Rockwell Gohu, petitioner’s deputy general manager, talked to respondent to discuss III.
his sales performance. In the course of the conversation, Gohu informed respondent that Malonzo THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT FAILED TO CONSIDER THAT
wanted his resignation. This prompted respondent to write a memorandum to Malonzo. In his BEING A CORPORATE OFFICER, THE NLRC HAS NO JURISDICTION OVER THE SUBJECT UNDER PD
memorandum, he inquired whether Malonzo really wanted him to resign. He emphasized that his work 902-A.3
performance had yet to be evaluated. He also stated that, based on the approved budget for fiscal year
ending in June 1993, he was within the budget and targets set forth by petitioner. He further declared We shall rule first on the issue of jurisdiction as it is decisive. If the NLRC had no jurisdiction, then it
that he had no intention of resigning from his position. would be unnecessary to consider the validity of respondent’s dismissal.

On April 19, 1993, respondent received a notice of termination signed by Malonzo. The notice informed Petitioner argues that since respondent was a "corporate officer," the NLRC had no jurisdiction over
him of the termination of his employment with petitioner effective April 30, 1993. In particular, the the subject matter under PD 902-A. In support of its contention, petitioner invokes Paguio v. NLRC 4
relevant portion of the notice read: where we held that the removal of a corporate officer, whether elected or appointed, is an intra-
corporate controversy over which the NLRC has no jurisdiction. The petitioner also cites our ruling in
This is to inform you that management is no longer confident that you are the right manager for the de Rossi v. NLRC 5 to the effect that the SEC, not the NLRC, has original and exclusive jurisdiction over
position you are occupying. Our series of discussions on the various aspects of your functions with cases involving the removal of corporate officers.
you did not convince us that it is to the best interest of Easy Call to retain your services. xxx 2
(Emphasis supplied) Under Section 5 of PD 902-A, the law applicable at the time this controversy arose,6 the SEC, not the
NLRC, had original and exclusive jurisdiction over cases involving the removal of corporate officers.
Aggrieved, the respondent filed a complaint for illegal dismissal with the NLRC. It was docketed as Section 5(c) of PD 902-A applied to a corporate officer’s dismissal for his dismissal was a corporate act
NLRC Case No. 00-04-02913-93. and/or an intra-corporate controversy.7

In his June 24, 1997 decision, the labor arbiter found that the termination of respondent’s employment However, it had to be first established that the person removed or dismissed was a corporate officer
on the ground of loss of confidence was valid. Consequently, the labor arbiter dismissed the complaint before the removal or dismissal could properly fall within the jurisdiction of the SEC and not the NLRC.
for lack of merit. Here, aside from its bare allegation, petitioner failed to show that respondent was in fact a corporate
officer.
On appeal, the NLRC affirmed the decision of the labor arbiter in its November 27, 1998 decision, with
the modification that petitioner was ordered to indemnify respondent in the amount of ₱10,000 for "Corporate officers" in the context of PD 902-A are those officers of a corporation who are given that
violating respondent’s right to due process. Respondent filed a partial motion for reconsideration character either by the Corporation Code or by the corporation’s by-laws.8 Under Section 25 of the
praying that the NLRC reverse its ruling insofar as it declared that he was validly dismissed for cause.
7
Corporation Code, the "corporate officers" are the president, secretary, treasurer and such other "was not merely satisfactory" but "more than extra-ordinary that it merited his promotion not only to the
officers as may be provided for in the by-laws. position of assistant vice president, to which he was recommended by his supervisor, but to the even
higher position of vice president."21 This self-contradictory position of petitioner negates its claim of
A careful look at de Rossi (as well as the line of cases involving the removal of corporate officers where loss of confidence in respondent.
we held that it was the SEC and not the NLRC which had jurisdiction9 ) will show that the person whose
removal was the subject of the controversy was a corporate officer whose position was provided for in Moreover, the promotion of an employee negates the employer’s claim that it has lost its trust and
the by-laws. That is not by any means the case here. confidence in the employee.22 Hence, petitioner’s claim of loss of confidence crumbles in the light of
respondent’s promotion not only to assistant vice-president but to the even higher position of vice-
The burden of proof is on the party who makes the allegation.10 Here, petitioner merely alleged that president.
respondent was a corporate officer. However, it failed to prove that its by-laws provided for the office of
"vice president for nationwide expansion." Since petitioner failed to satisfy the burden of proof that was Second, the sales record of respondent for the period October 1992–December 1992 was recognized as
required of it, we cannot sanction its claim that respondent was a "corporate officer" whose removal so exemplary that it merited his promotion. Later, however, this very same record was suddenly
was cognizable by the SEC under PD 902-A and not by the NLRC under the Labor Code. deemed poor and dismal to justify loss of confidence. Thus, petitioner interpreted one and the same
sales record as proof of respondent’s simultaneous efficiency and inefficiency. This could only mean
An "office" is created by the charter of the corporation and the officer is elected by the directors or that there was no sufficient standard with which to measure the performance of respondent, an
stockholders.11 On the other hand, an employee occupies no office and generally is employed not by indication of the arbitrariness of petitioner.
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.12 Finally, during the hearing of this case before the labor arbiter, Malonzo stated that the percentage of
the time spent by respondent in his sales area was actually "not below par."23 This admission of
In this case, respondent was appointed vice president for nationwide expansion by Malonzo, petitioner’s general manager only proves all the more the lack of sufficient standard for determining
petitioner’s general manager, not by the board of directors of petitioner. It was also Malonzo who respondent’s performance.
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 The lack of just cause in respondent’s dismissal was aggravated by the absence of due process.
with the NLRC, not the SEC.
The twin requirements of notice and hearing constitute the essential elements of due process. The law
We now proceed to the substantive issue of the validity of the dismissal of respondent. requires the employer to furnish the employee sought to be dismissed with two written notices before
termination of employment can be legally effected: (1) a written notice apprising the employee of the
While loss of confidence is a valid ground for dismissing an employee, it should not be simulated.13 It particular acts or omissions for which his dismissal is sought in order to afford him an opportunity to
must not be indiscriminately used as a shield by the employer against a claim that the dismissal of an be heard and to defend himself with the assistance of counsel, if he desires, and (2) a subsequent
employee was arbitrary.14 notice informing the employee of the employer’s decision to dismiss him.24 This procedure is
mandatory and its absence taints the dismissal with illegality.25
To be a valid ground for an employee’s dismissal, loss of trust and confidence must be based on a
willful breach and founded on clearly established facts.15 A breach is willful if it is done intentionally, In this case, respondent was served with one notice only ― the notice of his termination. The series of
knowingly and purposely, without justifiable excuse, as distinguished from an act done carelessly, dialogues between petitioner’s management and respondent was not enough as it failed to show that
thoughtlessly, heedlessly or inadvertently.16 Thus, a willful breach cannot be a breach resulting from the latter was apprised of the cause of his dismissal.26 These dialogues or consultations could not
mere carelessness. validly substitute for the actual observance of notice and hearing.27

In this case, the labor arbiter’s finding, affirmed by the NLRC, was that the sales record of respondent WHEREFORE, the petition is hereby DENIED. The February 10, 2000 decision and November 8, 2000
and the time he spent in the field were "clear indications of complainant’s inefficiency and/or resolution of the Court of Appeals in CA-G.R. SP No. 53510 are AFFIRMED.
negligence."17 Inefficiency implies negligence, incompetence, ignorance and carelessness.18
Negligence is the want or lack of care required by the circumstances.19 Costs against the petitioner.

The grounds cited by petitioner, i.e., respondent’s alleged poor sales performance and the allegedly SO ORDERED.
excessive time he spent in the field, were not sufficient to support a claim of loss of confidence as a
ground for dismissal.

Furthermore, the alleged loss of confidence was not founded on clearly established facts.20 First,
petitioner included the sales performance of respondent for the period covering October 1992 to
December 1992 in arriving at the conclusion that his sales record was dismal. However, as the CA
correctly pointed out, petitioner previously recognized that respondent’s performance for that period
8
MAMITUA SABER, substituted by his HEIRS, represented by ORFIA ALICER SABER, petitioners, P5,300,000 cash, the amount budgeted8 by the PAB. The parties executed a Rider to Charter Party in
vs. COURT OF APPEALS, PHILIPPINE AMANAH BANK and ASGARI ARADJI, respondents. which the PAB was allowed to load cargoes in the cargo hold of the vessel up to 500 metric tons free of
G.R. No. 132981 August 31, 2004 freight.9 The vessel was scheduled to leave on November 28, 1974. There was no time to lose; the PAB
DECISION conducted a massive information drive to inform the Muslims of the arrangements, including the
CALLEJO, SR., J.: accommodations on board the vessel and urged them to join the Hajj through the bank. Prospective
This is a petition for review on certiorari filed by the heirs of Dr. Mamitua Saber of the Decision1 of the pilgrims, including PAB depositors, made reservations for the voyage and made partial payments for
Court of Appeals in CA-G.R. CV No. 22626 reversing the Decision2 of the Regional Trial Court of Marawi their tickets thereon.
City, Branch 9, in Civil Case No. 2323 (84-R), as well as the Resolution of the appellate court denying the
motion for reconsideration thereof. On October 25, 1974, Saber wrote then President Marcos requesting that other parties not be allowed to
charter any ship or aircraft bringing pilgrims to Jeddah, to avoid unfair competition with the PAB.10
The Antecedents However, President Marcos granted Congressman Ali Dimaporo and some politicians from Lanao del
On April 8, 1974 then President Ferdinand E. Marcos appointed Dr. Mamitua Saber, then Dean of Sur permission to charter a plane to transport the pilgrims. Worse, Sacar Basman, the General Manager
Research at the Mindanao State University and Acting Director, National Science Museum, as Executive of the Arabian Gulf Export Agency Corporation (AGEAC) had been representing to the public that he
Vice-President of the Philippine Amanah Bank (PAB).3 He was also designated as the Officer-in-Charge was one of the Pilgrimage Directors, that he had been allotted 25 passengers for the voyage on board
of the bank pending the election of its president by the Board of Directors. Saber was surprised the M/V Sweet Homes and solicited fare payments from interested pilgrims.11
because he did not apply for appointment to the position. He inquired from Executive Secretary
Alejandro Melchor why he was appointed thereto, considering that he had no experience whatsoever in On November 8, 1974, Indar Tampi, the Marawi Branch Manager of the PAB, wrote Saber expressing his
the field of business and banking. He was told that he was chosen by the President from among forty disappointment over the turn of events – politicians being allowed to charter a private plane which was
applicants because of his proven personal integrity. Saber took a year-long leave of absence from the in direct competition with the PAB. He stated that this could derail the success of the pilgrimage and
university and assumed office at the PAB. From the serenity of the academe, he plunged head-on into cause great financial loss to the bank. He also expressed his apprehensions about the representations
the turbulent and intricate world of business. of Sacar Basman that he was one of pilgrimage directors, and that he was allotted 25 accommodations
on the M/V Sweet Homes.12 Tampi sent a telegram to Saber on November 14, 1974 informing the latter
One of the members of the Board of Directors of the bank was Asgari Aradji who was also the Acting that many prospective passengers, including 120 depositors of the PAB who were booked for the
Chairman of the Screening Committee for Personnel. Martin Saludo, then Senior Vice-President of the voyage on board the M/V Sweet Homes, had withdrawn their reservations. Furthermore, about 200 1st
Philippine National Bank (PNB), was a management consultant of the PAB. and 2nd class cabin accommodations were rendered vacant.13 When he learned of the foregoing
developments, President Marcos was alarmed and ordered that pilgrims going to Mecca by plane be
Saber was sent to Malaysia to study how its Malaysian government prepared and managed the annual limited to 100 passengers.14
Muslim pilgrimage (Hajj) to Mecca, and thus, avoid the fiascos that plagued previous such pilgrimages
of Filipino Muslims in the past. After his stint in Malaysia, Saber resumed his duties at the PAB. In November 1974, Saber formed a three-man panel called the "Troika," composed of Atty. Lanang Ali,
Dialel Basman and Ibrahim Mamao, to coordinate the arrangements for the pilgrimage. Rather than
In a Letter dated September 19, 1974, Executive Secretary Alejandro Melchor informed Chairman of the allow the vessel to leave for Mecca with many vacant cabins, Saber decided to sell tickets to Basman
PAB Board of Directors Dr. Cesar A. Majul, that the bank had been designated to make appropriate on credit. He issued a Memorandum15 on November 21, 1974, informing the Troika that he had reached
preparations and arrangements for the annual pilgrimage of Filipino Muslims to Mecca.4 The next day, an agreement with Basman that the latter would purchase forty (40) first class (ordinary) cabin
Majul forwarded the letter to Saber, directing the latter to undertake the appropriate arrangements for accommodations and thirty (30) second class (dormitory) accommodations on board the M/V Sweet
the pilgrimage.5 Saber was concerned because he had only two months to prepare; the pilgrims had to Homes, and that Basman would pay via a postdated check. Saber directed the Troika to implement the
be in Mecca in time for the one-day ceremony at Mt. Arafat on December 23, 1974. Considering that agreement. Saber issued a supplemental memorandum to the Secretariat ordering it as follows:
Saber had no experience thereon, the PAB Board of Directors designated Saludo as the head of the
one-man oversight committee to oversee the preparations. … [T]o give and issue on credit purchase basis additional One Hundred Twenty (120) fare tickets all of
first class accommodations at P6,500.00 each under the following terms and conditions, tax FREE;
Saber issued Office Memorandum No. 92 forming a Pilgrimage Secretariat with the following officers: 1. The said fare tickets all first class accommodations at P6,500.00 each in the total sum of SEVEN
Atty. Lanang S. Ali, as Chairman and Pilgrimage Administrator; Dialel Basman, as Finance Officer; and HUNDRED FIFTY-SIX THOUSAND (P756,000.00) PESOS, Philippine Currency, shall consist of the unsold
Kuisan Go, as Trade and Investment Officer. Saber later issued Office Order No. 95, designating ten (10) tickets and the same shall be given and issued to Datu Sacar Basman on credit purchase basis.
members of the Secretariat who would join the pilgrimage and coordinate the same. This included 2. The said sum of P756,000.00 shall be paid by means of post-dated check issued by Datu Sacar
Lugum Uka, as Vice-Chairman, and Alexander Lucman, as member.6 On October 4, 1974, Saber issued Basman in favor of the Philippine Amanah Bank.
another Memorandum delineating the specific duties of the Secretariat members who were joining the In a parallel development, Atty. Mangawan Toro, the Legal Counsel of the PAB, prepared a Freight
trip.7 Contract which the PAB, through Saber, and the AGEAC, through Basman, its General Manager,
executed without the approval of the PAB Board of Directors. Under the contract, AGEAC was allowed
Saber decided to charter the M/V Sweet Homes, owned by the Sweet Lines, Inc., for the trip. In behalf of to load on the M/V Sweet Homes chartered by the PAB, exportable/importable goods and other cargoes
the PAB, as charter, Saber executed a Uniform Time-Charter on October 15, 1974 under which the PAB on its trip to Saudi Arabia and return, in consideration of P178,000 to be paid by AGEAC via a postdated
chartered the M/V Sweet Homes to transport the pilgrims to Mecca and back to the Philippines for check, under the following terms and conditions:
9
7. That the PARTY OF THE SECOND PART will pay, and hand in and deliver the payment of the During the meeting of the PAB Board of Directors, Saber was present. The Board, after exhaustive
consideration referred to above within a period of ten (10) days from and after arrival in the Philippines deliberations, approved Resolution No. 67, Series of 1975, without any objection, declaring Saber liable
in its return home trip. for the receivables on the ground that the Board did not authorize him to sell tickets on credit payable
8. That as a security for the payment of the freight agreed upon, the PARTY OF THE SECOND PART via postdated checks, and to execute the Freight Contract with AGEAC. The Board directed Saber to
hereby agrees that the PARTY OF THE FIRST PART shall have a superior lien in the proceeds on the collect the receivables himself, because of its perception that if the PAB endeavored to collect the
sale of the goods evidenced by the bill of lading, invoices and other documents and/or on the goods in receivables, it would, thereby, be ratifying the unauthorized acts of Saber.
case no sale is made.17
On the other hand, Saber stated in his Memo-Directives in the Secretariat that in connection with the PAB Director Asgari A. Aradji, who was also Acting Chairman of the Personnel Screening Committee of
Freight Contract with AGEAC – the PAB, made verbal representations to the PAB Board of Directors to grant PAB Management
4. The proceeds of the exported goods sold shall be placed in the possession of the PAB Treasurer or Consultant and PAB Senior Vice-President Martin L. Saludo the power to perform the duties and
his authorized representative which shall be made available to Datu Sacar Basman for use in payment exercise the powers of PAB President, in lieu of Saber who was only the Officer-in-Charge. He issued a
for goods to be imported; likewise, the proceeds derived from the sale of the imported goods shall be Memorandum to the Board of Directors, through the Chairman of the Board, on February 21, 1975
kept by the said Treasurer or his authorized representative and all sums indicated in the postdated reiterating his proposal. He explained the following therein:
check/s issued by Datu Sacar Basman be deducted therefrom and/or whatever amount or sums of
money due to the bank as embodied in the memo-directive of November 21, 1974 and in this addendum, Specifically, I refer to the mishandling of the 1974 MECCA Pilgrimage. The Board set a budget of P5.53
likewise, in other contracts signed by the parties herein.18 million but the incumbent OIC authorized a total disbursement of P9.157 million or an excess of P3.62
million.
Although they believed that the agreements of Saber with Basman/AGEAC were against the policies of
the PAB, the Troika/Secretariat had to implement the Memoranda, and because of Saber’s insistence, As Chairman of the Personnel Screening Committee, I have discovered, much to my surprise, that a
gave the tickets to Basman. In payment thereof, Basman drew and issued PAB Check Nos. 00377 and number of employees have been retained in spite their not having the necessary qualifications for the
00378, both postdated February 4, 1975 against his account No. 10000008 payable to PAB with no positions; other[s] were terminated despite the fact that they are more deserving than those who were
amounts written thereon.19 Basman loaded exportable goods on board the vessel. When the vessel retained.
arrived in Saudi Arabia, the authorities did not allow the M/V Sweet Homes to dock. Its passengers were
boarded on boats and transported to the pier. Basman failed to unload and sell the exportable goods, These instances clearly indicate the apparent lack of exercise of effective leadership which is so vital
much less purchase importable goods. When the postdated checks were deposited on the due dates and essential at this crucial stage if we are to make the Amanah Bank truly responsive to the needs of
thereof in the account of the PAB, they were dishonored.20 Basman, likewise, failed to pay for the our Muslim brothers. Moreover, the purpose for which Dr. Namitua Saber has been designated as OIC
freight charge for the exportable cargo of AGEAC to Saudi Arabia. Consequently, the PAB sustained a have already been accomplished and such designation has become academic with the constitution of
huge financial loss. the PAB Board of Directors.22

PAB Auditor Aramis Aguilar submitted his Report of the Accounts Receivables in connection with the Meanwhile, Saber’s leave of absence at the Mindanao State University expired and he had to report
pilgrimage in the total amount of P1,033,700, thus: back to the university. He applied for a clearance from the PAB. Assistant Auditor Rodolfo Ocampo
signed the said clearance for and in behalf of Auditor Aramis Aguilar, subject to Resolution No. 67,
SCHEDULE OF RECEIVABLES Series of 1975 of the PAB Board of Directors. Because of the conditional clearance issued by the PAB,
I. For Tickets Sold: Saber was reinstated to his position as professor at the university with the salary of P34,000.00 per
1. Sacar Basman P654,000.00 annum, but not to his former position as Dean for Research.
2. 78 Passengers (Surrenderees) sponsored by PC Authorities 296,400.00
3. Eight (8) persons guaranteed by Ambassador L. Pangandaman 49,600.00 On May 6, 1975, the PAB Board of Directors approved Resolution No. 92 confirming the
4. Nascuin Dakinangcob 1,700.00 recommendation of the management of the bank for the creation of an Investigating Committee of five
5. Acmad Buat 2,700.00 (5) members, chaired by Aradji, to look into the administrative and/or criminal liabilities of the persons
6. Ali Usman 3,800.00 involved in the Pilgrimage Project.23 It also resolved that pending the outcome of the investigation,
7. Ali Laguindab 3,800.00 Saber be given only a conditional clearance.24
Sub-total P1,012,000.00
II. For Mutawiff: During the formal investigation, Saber testified and submitted documentary evidence. Aradji submitted
1. Cosain Ali Usman 900.00 his Report to the PAB Board of Directors that there was basis for Saber to be charged with violation of
2. Surrenderees assessed by the PC Authorities 13,600.00 Republic Act No. 3019, otherwise known as the Anti-Graft and Corrupt Practices Act, and recommended
3. Eight (8) Passengers guaranteed by Ambassador L. Pangandaman 7,200.00 that the proper criminal complaint be filed against him. The management approved the recommendation
Sub-total P 21,700.00 of Aradji.
TOTAL RECEIVABLES P 1,033,700.0021
On July 10, 1975, the Board of Directors of the PAB approved Resolution No. 155 confirming the
recommendation of the PAB Management based on the Report of the Investigating Committee headed
10
by Aradji. The resolution authorized the filing of a criminal complaint against Saber for violation of Rep. 3. The amount of no less than P100,000.00 as nominal damages;
Act No. 3019, and for Aradji to sign the said complaint and testify against Saber: 4. A reasonable amount to be determined by the Honorable Court, as and for exemplary damages;
5. Attorney’s fees in the amount equivalent to 25% of whatever amount is awarded by the Honorable
1. That a criminal case for violation of the provisions of the Anti-Graft and Corrupt Practices Act Court in favor of the plaintiff.
(Republic Act 3019) be filed against Dr. Mamitua Saber and that Director Asgari A. Aradji, Chairman,
Investigation Committee, 1974 Mecca Pilgrimage Project be authorized, as he is hereby authorized to Plaintiff further prays for such other and further relief as this Honorable Court may deem just and
sign for and in behalf of the Bank the complaint against Dr. Mamitua Saber and thereafter to testify and equitable in the premises.28
represent the Bank. Should sufficient evidence be found later to prove conspiracy in the preparation
and execution of the Freight Contract, the memorandum and the addendum thereto mentioned above, On motion of Saber, the complaint was dismissed as against the chairman and members of the PAB
that Messrs. Lanang Ali, Mañgawan Doro, Dialel Basman and other persons involved be included as Board of Directors.29
respondents;25
The remaining defendants therein, the PAB and Aradji, alleged the following in their Answer: Saber sold
Pursuant thereto, Aradji signed the criminal complaint filed with the Office of the City Fiscal of tickets on credit to Basman payable via postdated checks without authority from the PAB Board of
Zamboanga City against Saber for violation of Rep. Act No. 3019. The case was docketed as Slip No. Directors; defendant Martin Saludo approved in principle the lease of the cargo spaces in the M/V Sweet
527-75. The complaint, as well as the report on the investigation of Saber, was the subject of a news Home, but subject to the approval of the PAB Board of Directors; the said lease contract, including the
item in the Times Journal, a newspaper of general circulation under the by-line of reporter Emilio Freight Contract with AGEAC, was never approved by the PAB Board of Directors; the PAB had no
Macaspac.26 obligation to issue a clearance to Saber, and it would have been injudicious it to have done so on
account of Saber’s unpaid personal obligations to the bank; contrary to Saber’s claim, there were
On October 6, 1975, Saber filed a civil complaint for damages in the RTC of Marawi City, Branch 9, factual and legal bases for the approval of Resolution No. 67 and the filing of the graft charges against
against the PAB,27 the Chairman and the members of its Board of Directors, its Managing Director him; Saber made no allegations in the complaint that they (the defendants therein) caused or in any way
Martin Saludo, Auditor Aramis Aguilar, and Assistant Auditor Rodolfo Ocampo. Saber alleged therein participated in the publication of the charges filed by the PAB against him; and, the defendants acted in
that the PAB was authorized to make the appropriate arrangements for the pilgrimage; he had the good faith, in the performance of their duties in the filing of the complaint in violation of Section 3, Rep.
implied authority to enter into transactions, including the authority to sell the tickets to Basman on Act No. 3019.
credit and to execute the Freight Contract with AGEAC. He pointed out that Martin Saludo, who was
appointed by the Board of Directors to oversee the preparation of the pilgrimage, approved the said On December 9, 1975, the Board of Trustees of the MSU approved Resolution No. 969, Series of 1975,
transactions; hence, he is not personally liable for the receivables of P1,033,700. He alleged that the approving the reinstatement of Saber to his former position as Dean of Research, with the
defendants therein acted arbitrarily, oppressively and unfairly in considering the receivables in corresponding salary effective from the date he would report for work.30
connection with the pilgrimage as his personal obligation and in approving Resolution No. 67. He
further averred that the conditional clearance made by Ocampo and Aguilar caused him great damage After a preliminary investigation, Special Counsel Genaro T. Lorena, Jr. of the Office of the City Fiscal
and prejudice, and that the filing of the anti-graft charges against him by the PAB and its Board of issued a Resolution dismissing the complaint in Slip No. 527-75.31 The petition for review thereon filed
Directors was devoid of any factual and legal basis. He claimed that the filing of the charges, the by the PAB was dismissed on August 2, 1978.32 However, upon review by the Tanodbayan, the
nationwide publication thereof at the behest of the PAB, and the press release of the Investigating resolution of the Special Counsel was reversed with the following recommendation:
Committee’s report and the complaint caused him dishonor, shame, discredit and contempt, shock,
besmirched reputation, and wounded feelings, for which the defendants were liable for moral, The undersigned finds and so holds that there exists a prima facie case for violation of Sec. 3, par. (e)
exemplary and actual damages. He also alleged that because of his preventive suspension, he failed to on three (3) counts (on the basis of the memoranda of November 21 and 28, 1974, and that of the freight
receive his salary from the Mindanao State University, causing him and his family severe economic contract, respectively) of the Anti-Graft Law against respondents MAMITUA SABER, LANANG ALI,
losses. He further claimed that Aradji and Saludo conspired to oust him from the PAB. DIALEL BASMAN, IBRAHIM MAMAO, TINDUG MACARAMBON, IBRAHIM MACADATAR and SACAR
BASMAN, and that they are probably guilty thereof. Accordingly, it is recommended that the
Saber, thereafter, prayed that, after due proceedings, judgment be rendered in his favor: corresponding informations for Violation of the Anti-Graft Law be filed against respondents.33
WHEREFORE, it is respectfully prayed that judgment be rendered in favor of plaintiff and against
defendants, as follows: Three Informations were filed against Saber, Sacar Basman, Lanang Ali, Dialel Basman, Ibrahim Mamao,
1. Declaring PAB Board’s Resolution No. 67, Series of 1975 (Annex ‘D’) null and void; Tindug Macarambon and Ibrahim Macadatar in the Sandiganbayan for violation of Section 3(e) of Rep.
2. Ordering the deletion of the questioned notation ‘Subject to Board Resolution No. 67, Series of 1975’ Act No. 3019. The cases were docketed as Criminal Cases Nos. 1835 to 1837.34 Saber was preventively
contained in the Certificate of Clearance (Annex ‘E’); suspended by the Sandiganbayan as required by law.
3. Ordering defendant, jointly and severally in their official and/or personal capacity, to pay plaintiff, the
following: After trial, the Sandiganbayan rendered a Decision on January 6, 1982 acquitting all the accused.35 In
acquitting Saber of the charge, the Sandiganbayan ruled:
1. The amount of no less than P1,000,000.00 as and for moral damages;
2. The amount of no less than P3,650.00 monthly from July 1975, until plaintiff shall have resumed his It is of no legal consequence that both the MEMORANDUM and the ADDENDUM were not approved by
position in the Mindanao State University; the Board of Directors of the BANK. For one thing, it is not the absence of such approval that made the
11
transactions subject of both documents criminal under the penalizing Act but whether they caused The decision was appealed to the Court of Appeals, which rendered a judgment reversing the decision
undue injury to the BANK or gave unwarranted benefits, advantage or preference to Sacar Basman of the trial court. The CA ruled that Saber failed to prove bad faith and malice against the PAB and
through manifest partiality, evident bad faith or gross inexcusable negligence of the accused BANK Aradji in the performance of their duties, and in exercising the powers of their office. It also held that
officials, which the court believes did not. For another thing, the time element and the fact that the the latter acted out of duty to protect the interests of the PAB. The CA further ratiocinated that –
members of the Board were themselves responsible officials of different government offices precluded
convening them to a meeting for that purpose. And still for another thing, Dr. Saber, who was then the Defendants could not be blamed for acting the way they did for they were charged with the duty to act
Executive Vice President and Officer-in-Charge of the BANK and entrusted with the management of the for the bank with loyalty and dedication, and according to their best judgment. It is a well-known rule of
Pilgrimage Project must be deemed to have been impliedly clothed with authority to enter into any law that questions of policy or of management are left solely to the honest decisions of officers and
contract related to the Project. A corporate officer, entrusted with the general management and control directors of a corporation, and so long as they act in good faith, their orders are not reviewable by the
of its business, has implied authority to make any contract or do any other act which is necessary or courts.
appropriate to the conduct of the ordinary business of the corporation. (Board of Liquidators vs. Kalaw,
supra, citing 2 Fletcher Cyclopedia Corporations, p. 607.)36 It is, thus, evident that defendants PAB and Aradji were not in the least motivated by any malicious
intent or by a sinister design to unduly harass plaintiff Saber, but only by a well-founded anxiety to
On February 11, 1989, the RTC rendered a Decision in Civil Case No. 2323 in favor of Saber, and against protect the interests of the bank when they caused the filing of a criminal complaint against the latter.
the PAB and Aradji, thus: The facts which presented themselves were such as would excite the belief in a reasonable mind that
WHEREFORE, for all the foregoing findings, judgment is hereby rendered in favor of plaintiff and the person charged was guilty of the crimes for which he was prosecuted. This is the essence of
against defendants, as follows: probable cause which eliminates the element of malice essential in making out a case of malicious
1. Ordering defendant Philippine Amanah Bank jointly and severally with defendant Asgari Aradji, to prosecution. (Almendra v. Alvero, 50 SCRA 62 [1965]).
pay plaintiff the amounts of:
a. Nine Hundred Thousand (P900,000.00) Pesos as moral damages; But whether or not defendants’ perception of the facts and circumstances is actually correct is
b. One Hundred Thousand (P100,000.00) Pesos as nominal damages; irrelevant, the only issue being whether or not there was probable cause in the filing of the criminal
c. Seventy Thousand (P70,000.00) Pesos as and for Attorney’s fee; and complaint.40
d. The costs of suit.
SO ORDERED. The appellate court disagreed with the trial court’s finding of the existence of conspiracy between
Saludo and Aradji, thus:
The trial court ruled that the PAB and Aradji were liable for damages based on the following:
...(1) Malicious Prosecution of the criminal cases against plaintiff; (2) Libel arising from derogatory and Nor can we see any "conspiracy" to pressure Saber into giving up his position by the reduction of his
malicious publications against plaintiff; and (3) willful injury against plaintiff under the provisions of the salary. As explained by defendants, PAB’s salary structure could not be made at par with that of the
New Civil Code on Human Relations, arising from Resolution No. 67, Series of 1975 and the conditional Philippine National Bank, for instance, since it was just a small bank with a paid-up capital of only P50
clearance in question.38 Million and moreover, it had only eight branches. It was therefore deemed necessary to rationalize the
salary level of the bank’s officers and staff to make the operations of the bank more economically
The trial court based its ruling partly on the decision of the Sandiganbayan in Criminal Cases Nos. 1836 sound and viable.41
to 1837, on the finding that the PAB and Aradji caused the publication of the filing of the criminal
charges against Saber in the Office of the City Fiscal in the Times Journal, and that the ouster of the The Present Petition
plaintiff from the PAB was instigated by Aradji. Thus: In the meantime, Saber died intestate. His heirs, represented by Orfia Alicer Saber, filed the instant
petition for review on certiorari of the decision of the CA, alleging that the appellate court erred in
… It is unrebutted that plaintiff’s ouster was conspired in as demonstrated by the fact that when Saludo reversing the decision of the trial court:
and other members of the Task Force prepared the budget for Amanah Bank, the salary of the President
of the Bank was P67,000.00 per annum and the salary of the Executive Vice-President which the plaintiff Petitioners herein respectfully submit that the Court a quo committed error in concluding that under the
assumed was P48,000.00 but to pressure plaintiff from giving up his position, the Board was moved by environmental circumstances, the award of damages to plaintiff may not be sustained whether based
Saludo to reduce his salary to only P30,000.00 per annum. When plaintiff left the Bank, Saludo took over on the principle of abuse of rights or for malicious prosecution.42
the position which plaintiff held. After Saludo, defendant Aradji assumed the position of Executive Vice-
President, the same position which plaintiff held before he left the Bank. (pp. 4, 26, Deposition of The petitioners aver that Saber was able to prove his claims for damages against the respondent, based
Aradji).39 on the principles of abuse of rights and malicious prosecution.

The trial court also ruled that the sales of the tickets to Basman on credit and the execution of the The petitioners contend that the respondents acted with malice and/or in bad faith. They allege that
Freight Contract were with the prior approval of Martin Saludo, the head of the One-Man Oversight Saber was deprived of his right to be investigated by the impartial investigator. They pointed out that
Committee, as well as Nestor Kalaw, who was the PNB Legal Counsel. respondent Aradji, who was the Chairman of the Investigating Committee, was biased against Saber,
considering that the respondent made strong representations to the Board of Directors of the
respondent bank that he (Saber) be replaced by Saludo. The petitioners stress that respondent Aradji, a
12
non-lawyer, was designated to head the Investigating Committee to investigate the pilgrimage fiasco. But then Saber did not oppose the designation by the Board of Directors for respondent Aradji to be the
The petitioners also allege that Saber was denied due process, as he was never furnished with a copy Chairman of the Investigating Committee, or even asked for the latter’s inhibition. Saber must have
of the Report of the Investigating Committee. They claim that Saludo and respondent Aradji pressed believed that he could still prove that he acted in good faith, and was not guilty of any wrongdoing
Saber into resigning by proposing for the reduction of his salary as PAB Executive Vice-President from regardless of any misconception of respondent Aradji. Besides, respondent Aradji was only the
P48,000 per annum to P24,000 per annum, and conspired to oust him from the said position and as chairman of the committee, and there were four (4) other members who could rule in Saber’s favor. As it
officer-in-charge of the petitioner bank because of their ambitions: Saludo aspired to become the was, Saber even appeared before the committee and adduced testimonial and documentary evidence in
president of the respondent bank, while respondent Aradji wanted to be the Managing Director. his behalf. Thus, Saber testified:

The petitioners claim that Saber acted in good faith in entering into agreements with Basman/AGEAC as Q Now, what was your rule in the investigation when you were invited to appear?
confirmed by the Sandiganbayan in its decision; yet, respondent PAB still approved Resolution No. 67, A As I have stated, they wanted me to shed light or give information about the behavior or what had
Series of 1975, holding Saber personally liable for P1,012,000.00 even before the PAB tried to collect the happened in that pilgrimage.
amount from the debtors; by its acts, the respondent bank merely made Saber as a scapegoat. Q Did you actually appear and testified?
A Yes, I testified. I even gave the committee some documentary reports, a copy of the report which had
Finally, the petitioners aver that the respondents are liable for damages for malicious prosecution been submitted to the chairman of the bank, Dr. Majul.
because (a) Saber alone was charged for violation of Rep. Act No. 3019, although there were others who Q You said that Mr. Aradji headed the investigation committee created by the bank. Is that Mr. Aradji the
were involved in the pilgrimage fiasco; and (b) despite the dismissal of the criminal complaint by the same defendant in this case?
Special Counsel, the respondents, nevertheless, pursued their appeal in the Tanodbayan who found A Yes, sir.50
probable cause against Saber which finding was barren of factual basis as confirmed by the decision of It was only after the Report and Recommendation of the Investigating Committee was approved by the
the Sandiganbayan acquitting him of the charges. Board of Directors of the respondent PAB, and the subsequent publication of the said report in the
Times Journal that Saber complained, for the first time, of the impropriety of the designation of
The Ruling of the Court respondent Aradji as Chairman of the committee.
The petition has no merit.
Abuse of right under Article 19 of the New Civil Code on which Saber anchored his claim for damages In any event, it cannot be concluded that the Board of Directors of the PAB acted in bad faith or with
and attorney’s fees, provides: malice in designating the respondent Aradji as chairman of the committee, and that the latter acted in
Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with bad faith or with malice in accepting the position and in not inhibiting himself from the said
justice, give everyone his due, and observe honesty and good faith. investigation.
The elements of abuse of rights are the following: (a) the existence of a legal right or duty which is
exercised in bad faith; and (b) for the sole intent of prejudicing or injuring another. Malice or bad faith is Respondent Aradji was the Acting Chairman of the Personnel Servicing Committee. There were four (4)
at the core of said provision.43 Good faith is presumed and he who alleges bad faith has the duty to other members of the Investigating Committee, one of whom was a lawyer, Atty. Arasad Alpad, Jr.; the
prove the same.44 Good faith refers to the state of the mind which is manifested by the acts of the other members were Executive Vice-President Berua Ibrahim and Assistant Vice-President Alexander
individual concerned. It consists of the intention to abstain from taking an unconscionable and Lacman,51 all of whom could rule for Saber based on the evidence on record. Moreover, the report and
unscrupulous advantage of another.45 A public officer is presumed to have acted in good faith in the recommendations of the committee were still subject to the review of the Board of Directors of the
performance of his duties. Unless there is a clear showing of malice, bad faith or gross negligence, respondent bank, which included then Minister Cesar Virata. Respondent Aradji, for his part, could also
such public officer is not liable for moral and exemplary damages for acts done in the performance of still rule for Saber, based on the evidence on record.
his official duties.46 Mistakes committed by a public officer are not actionable absent any clear
showing that they were motivated by malice or gross negligence amounting to bad faith.47 Bad faith, on It is true that in his Memorandum dated February 21, 1975 respondent Aradji proposed to the Board of
the other hand, does not simply connote bad judgment to simple negligence, dishonest purpose or Directors of the respondent PAB that Saludo, a Senior Vice-President of the PNB and PAB management
some moral obloquy and conscious doing of a wrong, a breach of known duty due to some motives or consultant, to exercise the powers and perform the duties of the president of the respondent bank, in
interest or ill-will that partakes of the nature of fraud.48 Malice connotes ill-will or spite and speaks not effect terminating the designation of Saber as Officer-in-Charge. However, he did so not to spite Saber,
in response to duty. It implies an intention to do ulterior and unjustifiable harm. Malice is bad faith or but for good and justifiable reasons, thus:
bad motive.49
Mr. Saludo has behind him more than 35 years of solid banking experience and expertise in the Bank.
We agree with the petitioners that a person other than respondent Aradji should have been designated He is acceptable to both Christians and Muslims. I strongly believe that he is imminently qualified to
as Chairperson of the Investigating Committee to investigate the pilgrimage fiasco. This is so because exercise the duties and powers of the President of the Bank.
in his Memorandum to the Board of Directors of the PAB on February 21, 1975, respondent Aradji had
declared that the 1974 Mecca pilgrimage under the supervision of Saber was mishandled and there For the record, I wish to emphasize that Mr. Saludo was never sought much less intimated to me his
were indications then that there was an apparent lack of exercise of effective leadership which was so desire to exercise such duties and powers. On the contrary, his being connected with our Bank is an
vital and essential to make the bank truly responsive to the needs of the Filipino Muslims. Respondent additional burden to him but which he has graciously accepted as [a] challenge to place the Bank on a
Aradji then proposed that Saludo exercise the powers of the president of the respondent bank in place competitive level with the other commercial banks in the country.
of Saber. In fine, respondent Aradji attributed the problems attendant to the pilgrimage fiasco to Saber.
13
In submitting this proposal, I am only motivated by my desire to improve the stature of the Bank, which AUD. AGUILAR : Excuse me, there is a possibility to collect because they have issued a communication
gesture could only be accomplished if we grant the men that executive freedom to act, and to exercise ordering the people to ride in the boat.
strong, positive and assertive leadership in our organization.52 DIR. CRUZ : We will get good Legal Advisers here. It must be the Solicitor General.

Saber failed to adduce convincing evidence that Saludo and respondent Aradji conspired to oust him CHAIRMAN : This was what I was suggesting.
from his position as Assistant Vice-President of the respondent bank. MR. SALUDO : Atty. Sadac here is willing to assist the Legal Counsel of the Amanah Bank.
DIR. CRUZ : Can we not engage the services of the government counsel?
Neither may bad faith nor malice be imputed on the respondents in holding Saber personally liable for CHAIRMAN : If you think you find this necessary. (MR. SALUDO)
the receivables of P1,033,700. The evidence of Saber, no less, shows that he was present during the DIR. CRUZ : I don’t know the lawyer involved but basing in (sic) our experience, unless you hire a
16th Meeting of the Board of Directors of the PAB. So were Ministers Cesar Virata and Leonides Virata. super-duper lawyer at least you can easily win the case. We could ask for the assistance of the Office of
After an intensive and exhaustive discussion, the Board resolved that Saber had no authority to enter the Solicitor General.
into any agreement with Basman for the sale of the tickets on credit payable by postdated checks, and DR. SABER : Mr. Chairman and gentlemen, let me comment. Will you please look on this affair of the
to execute a Freight Contract with AGEAC over the cargo hold in the M/V Sweet Homes. The Board pilgrimage not in terms of loss but in terms of other things, what are the various outcome[s] of the
unanimously resolved not to ratify the agreements executed by Basman and Saber in behalf of the PAB pilgrimage.
and with AGEAC, and for Saber to take full responsibility for the collection of receivables. This is shown CHAIRMAN : With all respect to your views, Dr. Saber, there are 2 points here. The Bank is incurring
by the Minutes of the stenographic notes taken during the Board Meeting: losses, the other one is, there are people owing money. These are 2 different things. The way I look at it,
the Bank is already incurring a loss of P900,000. We are only talking on (sic) the Accounts Receivables,
MR. SALUDO : Atty. Sadac is a lawyer, there are problems but we have to concentrate on this. it can only serve to explain why we are losing. I think every effort should be made because it involved
ATTY. ABBAS : Does the Board ratify such act? not only you but also other people like Ambassador Pangandaman. Even these people, you have to
DIR. C. VIRATA : No. have the legal counseling to help, and we will work hand in hand with other lawyers with their advice. If
ATTY. ABBAS : Is it against Dr. Saber in his individual capacity? this is difficult, we have government lawyers, this is a government bank. We can seek their advice. The
DR. SABER : I have not been acting as an individual person. I have always acted on that because it is problem is how do we collect money? We are not talking (sic) that the charter of the boat is exorbitant,
part of my position as an officer of the Bank. There is not a single act that have not think (sic) to save if it is high. The question is how can the Bank recover? Shall the people owing the Bank pay? Even the
the predicament of the boat in the tense moments. When the boat was about to leave, my Troika Charter rate, it is very big, that is something else. I think, that is the problem. I don’t know if we
recommended to me that this is the recourse, even my Legal Officer advised me, even the Auditor understand the Board here, whether we like it or not, we have to collect.
himself who is (sic) there in Zamboanga. If (sic) it was really very urgent that I have to act on the spot. I DIR. CRUZ : We have reached a consensus, why don’t we give Dr. Saber 30 days to liquidate? He is
have to take (sic) a decision because it is going to affect the entire boat if the result was negative but accountable, then we will decide later what course of action shall we take.
the real intention is (sic) to help. We thought that we will make good for the Bank. DIR. TEODORO : Until the money is returned here as the Board has found it necessary and it is
DIR. C. VIRATA : I think, we have to clarify, Dr. Saber, as between the responsibility of the officers and reflected in the report, and efforts should be made on the Accounts Receivables. He is responsible to
that of the Board. While it is true that you have certain discretionary powers but that is either affirmed go after the people involved. This is the only official action of the Board.
or reviewed by the Board. In this case, you have no authority on this very important matter so you have MR. SALUDO : Sir, do you think the case will drag on if we can not liquidate within 30 days?
to take on your individual capacity because the Board refuses to share the responsibility. DIR. TEODORO : We can not close our eyes that the money of the Bank is lacking in amount.
DIR. DOMINGO : Which we will review or affirm. DIR. CRUZ : The idea here is that, such Legal action on those people responsible, so these people have
DIR. C. VIRATA : That is the responsibility as being the head of the institution and all of us are subject to liquidate the account within 30 days, failure on your part, then we resort on (sic) the other course[s]
to this restriction. of action.
CHAIRMAN : So, I think, better muster all the legal minds in the Bank, Mr. Saludo and the staff. CHAIRMAN : Any objections[?]
DIR. DOMINGO : And finish this once and for all. BOARD MEMBERS : None.
MR. SALUDO : We could file an action against Sacar Basman. The question is, can we recommend? CHAIRMAN : APPROVED[53]
DIR. CRUZ : That is ratifying an act.
MR. SALUDO : We declared that Troika is short. Indeed, the Sandiganbayan ruled in its decision in Criminal Cases Nos. 1835-1837 that Saber had the
DR. SABER : The Troika is here. implied authority as Executive Vice-President to sell tickets on credit via postdated checks and to allow
DIR. C. VIRATA : It is useless. The Troika will say that Dr. Saber was the one. Basman to load his cargoes in the cargo section of the M/V Sweet Homes; that Saber acted in good
CHAIRMAN : You run after them individually. faith; hence, was not criminally liable therefor; that the respondent bank resorted to the dubious
DIR. DOMINGO : Who are the members of the Troika? expedience of charging the receivables against the account of Saber, instead of availing itself of legal
DR. SABER : They are: Atty. Lanang Ali, Administrator, Dialel Basman, the Treasurer, Tindug remedies for their collection. However, it cannot thereby be concluded that the Board of Directors of
Macarambon, Project Accountant and Ibrahim Mamao. Anything they recommended that these are their respondent PAB acted in bad faith or with malice.
needs I issued them because they are the ones implementing. They implemented even in the Branches
and I thought it is for the good of the Bank. There is no evidence on record that as claimed by the petitioners, Saludo and respondent Aradji
DIR. TEODORO : The problem here is they are funds due to the Bank. This boat was chartered even conspired to oust Saber as Executive Vice-President of the PAB and Officer-in-Charge. Saludo merely
without the approval of the Board.
14
told Saber intimately that it was his ambition to become President of the bank had not President Marcos The budget was approved by the Board of Directors of the PAB and Central Bank of the Philippines
appointed Saber. Moreover, Saludo and Saber even became intimate friends: Governor Gregorio Licaros.56
ATTY. FABIE:
Cross-examination to elucidate not because he does not understand. It is not that, Your Honor. A Saber failed to adduce evidence that respondent Aradji issued any press release covering his Report to
practitioner should be fair. If he cross-examines, the purpose is to elicit the truth, not to distort. Here, in the Board of Directors of the PAB or his formal investigation and the criminal complaint he filed against
this case, we want the truth. Saber for violation of Rep. Act No. 3019. The news report of Emil Macaspac of the Times Journal does
ATTY. SADAC: That is the purpose of my cross-examination. not attribute the source of the facts contained therein. When pressed to adduce evidence to prove that
COURT: LET US PROCEED. the news report was based on the press release issued by the respondent Aradji, Saber hedged and
ATTY. SADAC: (to witness) surmised that the source of the news report could have been Atty. Roberto Sadac, the Legal Officer of
Q Again, Dr. Saber, on page 213 of the transcript of stenographic notes, dated January 16, 1980, you the PAB:
testified that Mr. Saludo allegedly manifested to you his desire to be president of the Philippine Amanah
Bank. For the information of this Honorable Court, will you tell us when was this made or relayed to Q Do you know personally Emil Macaspac, the reporter of the Times Journal?
you? ATTY. R. SADAC: I just want to remind the witness that he is testifying under oath.
A During my incumbency in the Philippine Amanah Bank. He did not tell me that he desires to replace ATTY. B. FABIE: The witness, Your Honor, is an intelligent man. Dr. Saber is an educator.
me, only his desire to become president of the Bank. He told me intimately, he said: "Brod, if President COURT:
Marcos did not get you I would have been made president of the Philippine Amanah Bank because I am GO AHEAD ANSWER THE QUESTION.
also a Muslim." He told that to me intimately. It was intimate, the same as I was intimate with you. WITNESS:
Q When was that within your incumbency, when was that made? A I do not know him personally nor intimately associated with him. I cannot remember his face but he
A In fact, he said this to me several times, and again I cannot count how many times I am not keeping was among the newspaper men frequenting your office and my office.
statistics of statements. Q To be specific Dr. Saber, will you tell this Honorable Court the day or the time or the period when
COURT: these newspaper men especially Emil Macaspac frequenting my office or your office?
Q AND THAT WAS SAID TO YOU DURING YOUR INCUMBENCY? A I am getting the evidence from the dateline of the news of July 28, 1975. So, I presumed that before
A Yes, Your Honor. the news report was printed, he was frequenting your office, otherwise, where is the source of the
ATTY. SADAC: news? He cannot get it from outside.57
Q Will you tell us, Dr. Saber, because we want to be specific, in what occasion did Mr. Saludo tell you, The respondent PAB cannot be faulted, nor can it be ordered to pay damages and attorney’s fees for
what particular occasion? issuing a conditional clearance to Saber after his resignation from respondent PAB. Saber had not yet
A Well, under the roof of the Philippine Amanah Bank and some other occasions, but I cannot recall liquidated his accountability of P1,012,000 when his leave of absence from the university had expired.
again as I said I did not put this in my diary. The Investigating Committee had yet to commence and terminate its investigation of Saber’s
Q You cannot again remember, Dr. Saber? accountability, administrative or civil, for the pilgrimage fiasco. The respondent PAB had no discretion
A Yes, Sir. to issue a clearance to Saber. It bears stressing that a public officer, in the discharge of his duties has
Q And when he made this alleged manifestation of his desire to become president of the Philippine to use prudence, caution and attention in the management of his affairs. In fact, the respondent PAB
Amanah Bank, were there other people around you in these alleged several occasions? was duty bound to withhold such clearance to Saber pending final determination of his monetary
A I cannot remember if there were people around. If there were I will bring them to court to testify accountabilities. Even assuming that Saber and/or the petitioners sustained economic difficulties on
because, as I said, this is between friends. Mr. Saludo confirmed his friendship to me and we became account of the conditional clearance issued by the respondent PAB, the petitioners are not entitled to
friends when we were in the Philippine Amanah Bank. moral and exemplary damages. The act of the respondent PAB was not wrongful. It is a case of
damnum absque injuria and not of damnum et injuria.58
Neither is there evidence that respondent Aradji had any involvement at all in the reduction of Saber’s
salary from P48,000 to P24,000 per annum. The budget of the bank was modified upon the advice of To constitute malicious prosecution, there must be proof that the prosecutor was prompted by a
PNB President Panfilo Domingo and Saludo. This is gleaned from the transcript of stenographic notes sinister or devious design to vex and humiliate a person, and that it was initiated deliberately, knowing
of Saber’s testimony: that the charges are false and groundless.59 Malice with probable cause must both be clearly
established to justify an award of damages based on malicious prosecution.60 Lack of probable cause
Q Do you know, Mr. Saber, for the information of this Honorable Court, how much does the president of is an element separate and distinct from that of malice. One cannot be held liable for damages for
the Philippine Amanah Bank received? malicious prosecution where he acted with probable cause.61 We also held that a determination that
A The budget was P48,000.00 per annum, but I received that for a few months the Board of Directors there is no probable cause cannot be made to rest solely on the fact that the trial court after trial
with the advise of President Domingo of the Philippine National Bank and Vice-President Saludo decided to acquit the accused. Neither can lack of probable cause be made to rest on the fact that the
reduced it to 50% and I was paid only P24,000.00 per annum. That discourage me staying with the Bank. finding of probable cause of the Special Counsel was reversed by the Secretary of Justice or the
Q In other words, the President of the Philippine Amanah Bank under that new budget that you have Ombudsman as the case may be.62 The mere act of submitting the case to the authorities for
mentioned is receiving about P24,000.00 per annum? prosecution does not make one liable for malicious prosecution.63 Moreover, the adverse result of an
A The last salary was P24,000.00 instead of P48,000.00.55 action does not per se make the action wrongful and subject the action to damages, for the law could

15
not have meant to impose a penalty on the right to litigate. If damages result from a person’s exercise MARIA CLARA PIROVANA ET AL., plaintiffs-appellees, vs. THE DE LA RAMA STEAMSHIP CO.,
of a right, it is damnum absque injuria.64 defendant-appellant.
G.R. No. L-5377 December 29, 1954
Probable cause is that which engenders a well-founded belief that a crime has been committed and that Del Rosario and Garcia for appellant.
the respondent is probably guilty thereof and should be held for trial. A finding for probable cause Vicente J. Francisco for appellees.
needs only to rest on evidence showing that in all probability, a crime has been committed by the
respondent. Probable cause need not be based on clear and convincing evidence beyond reasonable BAUTISTA ANGELO, J.:
doubt. While probable cause demands more than mere suspicion, it does not require that the evidence This is an appeal from a decision of the Court of First Instance of Rizal declaring the donation made by
would justify conviction.65 the defendant in favor of the minor children of the late Enrico Pirovano of the proceeds of the insurance
policies taken on his life valid and binding, and ordering said defendant to pay to said minor children
Saber failed to prove that the respondents filed the criminal complaints against him with malice and the sum of P583,813.59, with interest thereon at the rate of per cent from the date of filing of the
despite lack of probable cause therefor. complaint, plus an additional amount equivalent to 20 per cent of said sum of P538,813.59 as damages
by way of attorney's fees and the costs of action.
The respondent PAB, through respondent Aradji, filed a criminal complaint against Saber for violations
of Section 3(e) of Rep. Act No. 3019, which has the following enumerated elements: Plaintiffs herein are the minor children of the late Enrico Pirovano represented by their mother and
(1) The accused is a public officer or a private person charged in conspiracy with the former; judicial guardian Estefania R. Pirovano. They seek to enforce certain resolutions adopted by the Board
(2) The said public officer commits the prohibited acts during the performance of his or her official of Directors and stockholders of the defendant company giving to said minor children of the proceeds
duties or in relation to his or her public functions; of the insurance policies taken on the life of their deceased father Enrico Pirovano with the company as
(3) That he or she causes undue injury to any party, whether the government or a private party; beneficiary. Defendant's main defense is: that said resolutions and the contract executed pursuant
(4) Such undue injury is caused by giving unwarranted benefits, advantage or preference to such thereto are ultra vires, and, if valid, the obligation to pay the amount given is not yet due and
parties; and demandable.
(5) That the public officer has acted with manifest partiality, evident bad faith or gross inexcusable
neglect.66 The trial court resolved all the issues raised by the parties in favor of the plaintiffs and, after
In this case, the Tanodbayan found probable cause for three (3) counts of violations of Section 3(e) of considering the evidence, both oral and documentary, arrived at the following conclusions:
Republic Act No. 3019.67 Indeed, the evidence on record shows the following:
First. — That the contract executed between the plaintiffs and the defendant is a renumerative donation.
First. Saber allowed Basman to buy tickets worth P756,000 payable on credit via postdated checks over Second. — That said contract or donation is not ultra vires, but an act executed within the powers of the
the objection of the Troika-Secretariat. The postdated checks were blank as to the amounts. As found defendant corporation in accordance with its articles of incorporation and by laws, sanctioned and
by the Sandiganbayan: approved by its Board of Directors and stockholders; and subsequently ratified by other subsequent
acts of the defendant company.
Pursuant to the MEMORANDUM (Exh."G"), accused Dialel Basman as Finance Officer of the Secretariat Third. — That the said donation is in accordance with the trend of modern and more enlightened
issued to Sacar Basman the seventy (70) tickets therein specified worth P392,000 (t.s.n., p. 23, August legislation in its treatment of questions between labor and capital.
11, 1981), for which Sacar Basman issued Philippine Amanah Bank Check No. 00377 payable to the Fourth. — That the condition mentioned in the donation is null and void because it depends on the
BANK, postdated February 4, 1975, drawn against Sacar Basman’s account No. 10000008 but blank as provisions of Article 1115 of the old Civil Code.
to the amount (Exh. "I"). Under the ADDENDUM (Exh. "G-1"), Dialel Basman issued one hundred twenty Fifth. — That if the condition is valid, its non-fulfillment is due to the desistance of the defendant
(120) first class tickets to Sacar Basman for which Sacar Basman issued PAB Check No. 00378 payable company from obeying and doing the wishes and mandates of the majority of the stockholders.
to the BANK, similarly postdated February 4, 1975, drawn against the same account, and also blank as Sixth. — That the non-payment of the debt in favor of the National Development Company is not due to
to the amount. (Exh. "I-1".). …68 the lack of funds, nor to lack of authority, but the desire of the President of the corporation to preserve
and continue the Government participation in the company.
Saber failed to ascertain whether Basman issued the said checks against sufficient funds in his Seventh. — That due demands were made by the plaintiffs and their attorneys and these demands were
account with the respondent bank. When the checks were deposited by respondent PAB in its account, rejected for no justifiable or legal grounds.
the said checks were dishonored.
The important facts which need to be considered for purposes of this appeal may be briefly stated as
Second. Saber allowed the AGEAC to pay freight charges of P178,000 via Check Nos. 00377 and 00378 follows: Defendant is a corporation duly organized in accordance with law with an authorized capital of
postdated February 4, 1975, although the balance of the account of Basman in the respondent bank was P500,000, divided into 5,000 shares, with a par value of P100 each share. The stockholders were:
only P1,834.55. AGEAC/Basman failed to pay the amount to the respondent PAB after the pilgrimage. Esteban de la Rama, 1,800 shares, Leonor de la Rama, 100 shares, Estefania de la Rama, 100 shares,
and Eliseo Hervas, Tomas Concepcion, Antonio G. Juanco, and Gaudencio Volasote with 5 shares
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED DUE COURSE. No costs. each. Leonor and Estefania are daughters of Don Esteban, while the rest his employees. Estefania de la
SO ORDERED. Rama was married to the late Enrico Pirovano and to them four children were born who are the plaintiffs
in this case.
16
Enrico Pirovano became the president of the defendant company and under his management the SPECIAL PAYMENT TO MINORS HEIRS OF THE LATE ENRICO PIROVANO
company grew and progressed until it became a multi-million corporation by the time Pirovano was The President stated that the principal purpose for which the meeting had been called was to discuss
executed by the Japanese during the occupation. On May 13, 1941, the capital stock of the corporation the advisability of making some form of compensation to the minor heirs of the late Enrico Pirovano,
was increased to P2,000,000, after which a 100 per cent stock dividend was declared. Subsequently, or former President and General Manager of the Company. As every member of the Board knows, said the
before the outbreak of the war , new stock dividends of 200 per cent and 33 1/3 per cent were again President, the late Enrico Pirovano who was largely responsible for the very successful development of
declared. On December 4, 1941, the capital stock was once more increased to P5,000,000. Under the activities of the Company prior to war was killed by the Japanese in Manila sometime in 1944
Pirovano's management, the assets of the company grew and increased from an original paid up capital leaving as his only heirs four minor children, Maria Carla, Esteban, Enrico and John Albert. Early in
of around P240,000 to P15,538,024.37 by September 30, 1941 (Exhibit HH). 1941, explained the President, the Company had insured the life of Mr. Pirovano for a million pesos.
Following the occupation of the Philippines by Japanese forces the Company was unable to pay the
In the meantime, Don Esteban de la Rama, who practically owned and controlled the stock of the premiums on those policies issued by Filipino companies and these policies had lapsed. But with
defendant corporation, distributed his shareholding among his five daughters, namely, Leonor, regards to the York Office of the De la Rama Steamship Co., Inc. had kept up payment of the premiums
Estefania, Lourdes, Lolita and Conchita and his wife Natividad Aguilar so that, at that time, or on July from year to year. The payments made on account of these premiums, however, are very small
10, 1946, the stockholding of the corporation stood as follows: Esteban de la Rama, 869 shares, Leonor compared to the amount which the Company will now receive as a result of Mr. Pirovano's death. The
de la Rama, 3,375 shares, Estefania de la Rama, 3,368 shares, Lourdes de la Rama, 3,368 shares, Lolita President proposed therefore that out of the proceeds of these policies the sum of P400,000 be set
de la Rama, 3,368 shares, Conchita de la Rama, 3,376 shares, and Natividad Aguilar, 2,136 shares. The aside for the minor children of the deceased, said sum of money to be convertible into 4,000 shares of
other stockholders , namely, Eliseo Hervas, Tomas Concepcion, Antonio Juanco, and Jose Aguilar, who the stock of the Company, at par, or 1,000 shares for each child. This proposal, explained the President
were merely employees of Don Esteban, were given 40 shares each, while Pio Pedrosa, Marcial P. as being made by him upon suggestion of President Roxas, but, he added, that he himself was very
Lichauco and Rafael Roces, one share each, because they merely represented the National much in favor of it also. On motion of Miss Leonor de la Rama duly seconded by Mrs. Lourdes de la
Development Company. This Company was given representation in the Board Of Directors of the Rama de Osmeña, the following resolution was, thereupon, unanimously approved:
corporation because at that time the latter had an outstanding bonded indebtedness to the National
Development Company. Whereas, the late Enrico Pirovano, President and General Manager of the De la Rama Steamship
Company, died in Manila sometime in November, 1944:
This bonded indebtedness was incurred on February 26, 1940 and was in the amount of P7,500.00. The Whereas, the said Enrico Pirovano was largely responsible for the rapid and very successful
bond held by the National Development Company was redeemable within a period of 20 years from development of the activities of thus company;
March 1, 1940,. bearing interest at the rate of 5 per cent per annum. To secure said bonded Whereas, early in 1941 this company insured the life of said Enrico Pirovano in various Philippine and
indebtedness, all the assets of the De la Rama Steamship Co., Inc., and properties of Don Esteban de la American Life Insurance companies for the total sum of P1,000,000;
Rama, as well as those of the Hijos de I. de la Rama and Co., Inc., a sister corporation owned by Don Whereas, the said Enrico Pirovano is survived by his widow, Estefania Pirovano and four minor
Esteban and his family, were mortgaged to the National Development Company (Annexes A, B, C, D of children, to wit: Esteban, Maria Carla, Enrico and John Albert, all surnamed Pirovano;lawphil.net
Exhibit 3, Deed of Trust). Payments made by the corporation under the management of Pirovano Whereas, said Enrico Pirovano left practically nothing to his heirs and it is but fit proper that this
reduced this bonded indebtedness to P3,260,855.77. company which owes so much to the deceased should make some provision for his children;
Whereas, this company paid premium on Mr. Pirovano's life insurance policies for a period of only 4
Upon arrangement made with the National Development Company, the outstanding bonded years so that it will receive from the insurance companies sums of money greatly in excess of the
indebtedness was converted into non-voting preferred shares of stock of the De la Rama company premiums paid by this company.
under the express condition that they would bear affixed cumulative dividend of 6 per cent per annum
and would be redeemable within 15 years (Exhibits 5 and 7). This conversion was carried out on Be it resolved, That out of the proceeds to be collected from the life insurance policies on the life of the
September 23, 1949, when the National Development Company executed a "Deed of Termination of late Enrico Pirovano, the sum of P400,000 be set aside for equal division among the 4 minor children of
Trust and Release of Mortgage" in favor of the De la Rama company (Exhibit 6.) The immediate effect of the deceased, to wit: Esteban, Maria Carla, Enrico and John Albert, all surnamed Pirovano, which sum
this conversion was the released from incumbrance of all the properties Of Don Esteban and of the of money shall be convertible into shares of stock of the De la Rama Steamship Company, at par and,
Hijos de I. de la Rama and Co., Inc., which was apparently favorable to the interests of the De la Rama for that purpose, that the present registered stockholders of the corporation be requested to waive their
company, but, on the other hand, it resulted in the inconvenience that, as holder of the preferred stock, preemptive right to 4,000 shares of the unissued stock of the company in order to enable each of the 4
the National Development Company, was given to the right to 40 per cent of the membership of the minor heirs of the deceased, to wit: Esteban, Maria Carla, Enrico and John Albert, all surnamed
Board of Directors of the De la Rama company, which meant an increase in the representation of the Pirovano, to obtain 1,000 shares at par;
National Development Company from 2 to 4 of the 9 members of said Board of Directors.
Resolved, further, that in view of the fact that under the provisions of the indenture with the National
The first resolution granting to the Pirovano children the proceeds of the insurance policies taken on Development Company, it is necessary that action herein proposed to be confirmed by the Board of
his life by the defendant company was adopted by the Board of Directors at a meeting held on July 10, Directors of that company, the Secretary is hereby instructed to send a copy of this resolution to the
1946, (Exhibit B). This grant was called in the resolution as "Special Payment to Minor Heirs of the late proper officers of the National Development Company for appropriate action. (Exhibit B)
Enrico Pirovano". Because of its direct hearing on the issues involved in this case, said resolution is
hereunder reproduced in toto:
17
The above resolution, which was adopted on July 10, 1946, was submitted to the stockholders of the De That all amounts received from the above-mentioned policies shall be divided equally among the
la Rama company at a meeting properly convened, and on that same date, July 10, 1946, the same was minors heirs of said Enrico Pirovano;
duly approved.
That the company shall proceed to pay the proceeds of said insurance policies plus interests that may
It appears that, although Don Esteban and the Members of his family were agreeable to giving to the have accrued to each of the heirs of the said Enrico Pirovano or their duly appointed representatives
Pirovano children the amount of P400,000 out of the proceeds of the insurance policies taken on the life after the Company shall have first settled in full the balance of its present remaining bonded
of Enrico Pirovano, they did not realize that when they provided in the above referred two resolutions indebtedness in the sum of the approximately P5,000,000.
that said Amount should be paid in the form of shares of stock, they would be actually giving to the
Pirovano children more than what they intended to give. This came about when Lourdes de la Rama, The above resolution was carried out by the company and Mrs. Estefania R. Pirovano, the latter acting
wife of Sergio Osmeña, Jr., showed to the latter copies of said resolutions and asked him to explain as guardian of her children, by executing a Memorandum Agreement on January 10, 1947 and June 17,
their import and meaning, and it was value then that Osmeña explained that because the value then of 1947, respectively, stating therein that the De la Rama Steamship Co., Inc., shall enter in its books as a
the shares of stock was actually 3.6 times their par value, the donation their value, the donation, loan the proceeds of the life insurance policies taken on the life of Pirovano totalling S321,500, which
although purporting to be only P400,00, would actually amount to a total of P1,440,000. He further loan would earn interest at the rate of 5 per cent per annum. Mrs. Pirovano, in executing the agreement,
explained that if the Pirovano children would given shares of stock in lieu of the amount to be donated, acted with the express authority granted to her by the court in an order dated March 26, 1947.
the voting strength of the five daughters of Don Esteban in the company would be adversely affected in
the sense that Mrs. Pirovano would be adversely affected in the sense that Mrs. Pirovano would have a On June 24, 1947, the Board of Directors approved a resolution providing therein that instead of the
voting power twice as much as that of her sisters. This caused Lourdes de la Rama to write to the interest on the loan being payable, together with the principal, only after the company shall have first
secretary of the corporation, Atty. Marcial Lichauco, asking him to cancel the waiver she supposedly settled in full its bonded indebtedness, said interest may be paid to the Pirovano children "whenever
gave of her pre-emptive rights. Osmeña elaborated on this matter at the annual meeting of the the company is in a position to met said obligation" (Exhibit D), and on February 26, 1948, Mrs.
stockholders held on December 12, 1946 but at said meeting it was decided to leave the matter in Pirovano executed a public document in which she formally accepted the donation (Exhibit H). The Dela
abeyance pending further action on the part of the members of the De la Rama family. Rama company took "official notice" of this formal acceptance at a meeting held by its Board of
Directors on February 26, 1948.
Osmeña, in the meantime, took up the matter with Don Esteban and, as consequence, the latter, on
December 30, 1946, addressed to Marcial Lichauco a letter stating, among other things, that "in view of In connection with the above negotiations, the Board of Directors took up at its meeting on July 25,
the total lack of understanding by me and my daughters of the two Resolutions abovementioned, 1949, the proposition of Mrs. Pirovano to buy the house at New Rochelle, New York, owned by the
namely, Directors' and Stockholders' dated July 10, 1946, as finally resolved by the majority of the Demwood Realty, a subsidiary of the De la Rama company at its original costs of $75,000, which would
Stockholders and Directors present yesterday, that you consider the abovementioned resolutions be paid from the funds held in trust belonging to her minor children. After a brief discussion relative to
nullified." (Exhibit CC). the matter, the proposition was approved in a resolution adopted on the same date.

On January 6, 1947, the Board of Directors of the De la Rama company, as a consequence of the The formal transfer was made in an agreement signed on September 5, 1949 by Mrs. Pirovano, as
change of attitude of Don Esteban, adopted a resolution changing the form of the donation to the guardian of her children, and by the De la Rama company, represented by its new General Manager,
Pirovano children from a donation of 4,000 shares of stock as originally planned into a renunciation in Sergio Osmeña, Jr. The transfer of this property was approved by the court in its order of September
favor of the children of all the company's "right, title, and interest as beneficiary in and to the proceeds 20, 1949.lawphil.net
of the abovementioned life insurance policies", subject to the express condition that said proceeds
should be retained by the company as a loan drawing interest at the rate of 5 per cent per annum and On September 13, 1949, or two years and 3 months after the donation had been approved in the various
payable to the Pirovano children after the company "shall have first settled in full the balance of its resolutions herein above mentioned, the stockholders of the De la Rama company formally ratified the
present remaining bonded indebtedness in the sum of approximately P5,000,000" (Exhibit C). This donation (Exhibit E), with certain clarifying modifications, including the resolution approving the
resolution was concurred in by the representatives of the National Development Company. The transfer of the Demwood property to the Pirovano children. The clarifying modifications are quoted
pertinent portion of the resolution reads as follows: hereunder:
1. That the payment of the above-mentioned donation shall not be affected until such time as the
Be resolved, that out of gratitude to the late Enrico Pirovano this Company renounce as it hereby Company shall have first duly liquidated its present bonded indebtedness in the amount of
renounces, all of his right, title, and interest as beneficiary in and to the proceeds of the P3,260,855.77 with The National Development Company, or fully redeemed the preferred shares of stock
abovementioned life insurance policies in favor of Esteban, Maria Carla, Enrico and John Albert, all in the amount which shall be issued to the National Development Company in lieu thereof;
surnamed Pirovano, subject to the terms and conditions herein after provided; 2. That any and all taxes, legal fees, and expenses in any way connected with the above
transaction shall be chargeable and deducted from the proceeds of the life insurance policies
That the proceeds of said insurance policies shall be retained by the Company in the nature of a loan mentioned in the resolutions of the Board of Directors. (Exhibit E)
drawing interest at the rate of 5 per cent annum from the date of receipt of payment by the Company
from the various insurance companies above-mentioned until the time the time the same amounts are Sometime in March 1950, the President of the corporation, Sergio Osmeña, Jr., addressed an inquiry to
paid to the minor heirs of Enrico Pirovano previously mentioned; the Securities and Exchange Commission asking for opinion regarding the validity of the donation of
the proceeds of the insurance policies to the Pirovano children. On June 20, 1950 that office rendered
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its opinion that the donation was void because the corporation could not dispose of its assets by gift 1. To determine the nature of the grant made by the defendant corporation to the minor children
and therefore the corporation acted beyond the scope of its corporate powers. This opinion was of the late Enrico Pirovano, we do not need to go far nor dig into the voluminous record that lies at the
submitted to the Board of Directors at its meting on July 12, 1950, on which occasion the president bottom of this case. We do not even need to inquire into the interest which has allegedly been shown
recommend that other legal ways be studied whereby the donation could be carried out. On September by President Roxas in the welfare of the children of his good friend Enrico Pirovano. Whether President
14, 1950, another meeting was held to discuss the propriety of the donation. At this meeting the Roxas has taken the initiative in the move to give something to said children which later culminated in
president expressed the view that, since the corporation was not authorized by its charter to make the the donation now in dispute, is of no moment for the fact is that, from the mass of evidence on hand,
donation to the Pirovano children and the majority of the stockholders was in favor of making provision such a donation has been given the full indorsement and encouraging support by Don Esteban de la
for said children, the manner he believed this could be done would be to declare a cash dividend in Rama who was practically the owner of the corporation. We only need to fall back to accomplish this
favor of the stockholders in the exact amount of the insurance proceeds and thereafter have the purpose on the several resolutions of the Board of Directors of the corporations containing said grant
stockholders make the donation to the children in their individual capacity. Notwithstanding this for they clearly state the reasons and purposes why the donation has been given.
proposal of the president, the board took no action on the matter, and on March 8, 1951, at a
stockholders' meeting convened on that date the majority of the stockholders' voted to revoke the Before we proceed further, it is convenient to state here in passing that, before the Board of Directors
resolution approving the donation to the Pirovano children. The pertinent portion of the resolution had approved its resolution of January 6, 1947, as later amended by another resolution adopted on
reads as follows: June 24, 1947, the corporation had already decided to give to the minor children of the late Enrico
Pirovano the sum of P400,000 out of the proceeds of the insurance policies taken on his life in the form
Be it resolved, as it is hereby resolved, that in view of the failure of compliance with the above of shares, and that when this form was considered objectionable because its result and effect would be
conditions to which the above donation was made subject, and in view of the opinion of the Securities to give to said children a much greater amount considering the value then of the stock of the
and Exchange Commissioner, the stockholders revoke, rescind and annul, as they do thereby revoke, corporation, the Board of Directors decided to amend the donation in the form and under the terms
rescind and annul, its ratification and approval on September 13, 1949 of the aforementioned resolution stated in the aforesaid resolutions. Thus, in the original resolution approved by the Board of Directors
of the Board of Directors of January 6, 1947, as amended on June 24, 1947. (Exhibit T) on July 10, 1946, wherein the reasons for granting the donation to the minor children of the late Enrico
Pirovano were clearly, we find out the following revealing statements:
In view of the resolution declaring that the corporation failed to comply with the condition set for the
effectivity of the donation and revoking at the same time the approval given to it by the corporation, and Whereas, the late Enrico Pirovano President and General Manager of the De la Rama Steamship
considering that the corporation can no longer set aside said donation because it had no longer set Company, died in Manila sometime in November, 1944;
aside said donation because it had long been perfected and consummated, the minor children of the Whereas, the said Enrico Pirovano was largely responsible for the rapid and very successful
late Enrico Pirovano, represented by their mother and guardian, Estefania R. de Pirovano, demanded development of the activities of this company;
the payment of the credit due them as of December 31, 1951, amounting to P564,980.89, and this Whereas, early in 1941 this company insured the life of said Enrico Pirovano in various Philippine and
payment having been refused, they instituted the present action in the Court of First Instance of Rizal American Life Insurance companies for the total sum of P1,000,000;
wherein they prayed that the be granted an alternative relief of the following tenor: (1) sentencing Whereas, the said Enrico Pirovano is survived by his widow, Estefania Pirovano and 4 minor children,
defendant to pay to the plaintiff the sum of P564,980.89 as of December 31, 1951, with the to wit: Esteban, Maria Carla, Enrico and John Albert, all surnamed Pirovano;
corresponding interest thereon; (2) as an alternative relief, sentencing defendant to pay to the plaintiffs Whereas, the said Enrico Pirovano left practically nothing to his heirs and it is but fit and proper that
the interests on said sum of P564,980.89 at the rate of 5 per cent per annum, and the sum of this company which owes so much to the deceased should make some provisions for his children;
P564,980.89 after the redemption of the preferred shares of the corporation held by the National Whereas, this company paid premiums on Mr. Pirovano's life insurance policies for a period of only 4
Development Company; and (3) in any event, sentencing defendant to pay the plaintiffs damages in the years so that it will receive from the insurance companies sums of money greatly in excess of the
amount of not less than 20 per cent of the sum that may be adjudged to the plaintiffs, and the costs of premiums paid by the company,
action. Again, in the resolution approved by the Board of Directors on January 6, 1947, we also find the
following expressive statements which are but a reiteration of those already expressed in the original
The only issues which in the opinion of the court need to be determined in order to reach a decision in resolution:
this appeal are: (1) Is the grant of the proceeds of the insurance policies taken on the life of the late Whereas, the late Enrico Pirovano, President and General Manager of the De la Rama Steamship Co.,
Enrico Pirovano as embodied in the resolution of the Board of Directors of defendant corporation Inc., died in Manila sometime during the latter part of the year 1944;
adopted on January 6, 1947 and June 24, 1947 a remunerative donation as found by the lower court?; Whereas, the said Enrico Pirovano was to a large extent responsible for the rapid and very successful
(2) IN the affirmative case, has that donation been perfected before its rescission or nullification by the development and expansion of the activities of this company;
stockholders of the corporation on March 8, 1951?; (3) Can defendant corporation give by way of Whereas, early in 1941, the life of the said Enrico Pirovano was insured in various life companies, to
donation the proceeds of said insurance policies to the minor children of the late Enrico Pirovano under wit:
the law or its articles of corporation, or is that donation an ultra vires act?; and (4) has the defendant Whereas, the said Enrico Pirovano is survived by 4 minor children, to wit: Esteban, Maria Carla, Enrico
corporation, by the acts it performed subsequent to the granting of the donation, deliberately prevented and John Albert, all surnamed Pirovano; and
the fulfillment of the condition precedent to the payment of said donation such that it can be said it has Whereas, the said Enrico Pirovano left practically nothing to his heirs and it is but fit and proper that
forfeited its right to demand its fulfillment and has made the donation entirely due and demandable? this Company which owes so much to the deceased should make some provision for his children;

We will discuss these issues separately.


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Be it resolved, that out of gratitude to the late Enrico Pirovano this Company renounce as it hereby recorded by the corporation when on the same date its Board of Directors approved a resolution taking
renounces, . . . . "official notice" of said acceptance.
(d) On July 25, 1949, the Board of Directors approved the proposal of Mrs. Pirovano to buy the
From the above it clearly appears that the corporation thought of giving the donation to the children of house at New Rochelle, New York, owned by a subsidiary of the corporation at the costs of S75,000
the late Enrico Pirovano because he "was to a large extent responsible for the rapid and very which would be paid from the sum held in trust belonging to her minor children. And this agreement
successful development and expansion of the activities of this company"; and also because he "left was actually carried out in a document signed by the general manager of the corporation and by Mrs.
practically nothing to his heirs and it is but fit and proper that this company which owes so much to the Pirovano, who acted on the matter with the express authority of the court.
deceased should make some provision to his children", and so, the donation was given "out of (e) And on September 30, 1949, or two years and 3 months after the donation had been executed,
gratitude to the late Enrico Pirovano." We do not need to stretch our imagination to see that a grant or the stockholders of the defendant corporation formally ratified and gave approval to the donation as
donation given under these circumstances is remunerative in nature in contemplation of law. embodied in the resolutions above referred to, subject to certain modifications which did not materially
affect the nature of the donation.
That which is made to a person in consideration of his merits or for services rendered to the donor,
provided they do not constitute recoverable debts, or that in which a burden less than the value of the There can be no doubt from the foregoing relation of facts the donation was a corporate act carried out
thing given is imposed upon the donee, is also a donation." (Art. 619, old Civil Code.) by the corporation not only with the sanction of its Board of Directors but also of its stockholders. It is
evident that the donation has reached the stage of perfection which is valid and binding upon the
In donations made to a person for services rendered to the donor, the donor's will is moved by acts corporation and as such cannot be rescinded unless there is exists legal grounds for doing so. In this
which directly benefit him. The motivating cause is gratitude, acknowledgment of a favor, a desire to case, we see none. The two reasons given for the rescission of said donation in the resolution of the
compensate. A donation made to one who saved the donor's life, or a lawyer who renounced his fees corporation adopted on March 8, 1951, to wit: that the corporation failed to comply with the conditions
for services rendered to the donor, would fall under this class of donations. These donations are called to which the above donation was made subject, and that in the opinion of the Securities and Exchange
remunerative donations . (Sinco and Capistrano, The Civil Code, Vol. 1, p. 676; Manresa, 5th ed., pp. 72- Commission said donation is ultra vires, are not, in our opinion, valid and legal as to justify the
73.) rescission of a perfected donation. These reasons, as we will discuss in the latter part of this decision,
cannot be invoked by the corporation to rescind or set at naught the donation, and the only way by
2. The next question to be determined is whether the donation has been perfected such that the which this can be done is to show that the donee has been in default, or that the donation has not been
corporation can no longer rescind it even if it wanted to. The answer to this question cannot but be in validly executed, or is illegal or ultra vires, and such is not the case as we will see hereafter. We
the affirmative considering that the same has not only been granted in several resolutions duly adopted therefore declare that the resolution approved by the stockholders of the defendant corporation on
by the Board of Directors of the defendant corporation, and in all these corporate acts the concurrence March 8, 1951 did not and cannot have the effect of nullifying the donation in question.
of the representatives of the National Development Company, the only creditor whose interest may be 3. The third question to be determined is: Can defendant corporation give by way of donation the
affected by the donation, has been expressly given. The corporation has even gone further. It actually proceeds of said insurance policies to the minor children of the late Enrico Pirovano under the law or
transferred the ownership of the credit subject of donation to the Pirovano children with the express its articles of corporation, or is that donation an ultra vires act? To answer this question it is important
understanding that the money would be retained by the corporation subject to the condition that the for us to examine the articles of incorporation of the De la Rama company to see this question it is
latter would pay interest thereon at the rate of 5 per cent per annum payable whenever said corporation important for us to examine the articles of incorporation of the De la Rama company to see if the act or
may be in a financial position to do so. Thus, the following acts of the corporation as reflected from the donation is outside of their scope. Paragraph second of said articles provides:
evidence bear this out: Second.— The purposes for which said corporation is formed are:
(a) The donation was embodied in a resolution duly approved by the Board of Directors on (a) To purchase, charter, hire, build, or otherwise acquire steam or other ships or vessels,
January 6, 19437. In this resolution, the representatives of the National Development Company, have together with equipments and furniture therefor, and to employ the same in conveyance and carriage of
given their concurrence. This is the only creditor which can be considered as being adversely affected goods, wares and merchandise of every description, and of passengers upon the high seas.
by the donation. The resolution of June 24, 1947 did not modify the substance of the former resolution (b) To sell, let, charter, or otherwise dispose of the said vessels or other property of the company.
for it merely provided that instead of the interest on the loan being payable, together with the principal, (c) To carry on the business of carriers by water.
only after the corporation had first settled in full its bonded indebtedness, said interest would be paid (d) To carry on the business of shipowners in all of its branches.
"whenever the company is in a position to meet said obligation." (e) To purchase or take on lease, lands, wharves, stores, lighters, barges and other things which
(b) The resolution of January 6, 1947 was actually carried out when the company and Mrs. the company may deem necessary or advisable to be purchased or leased for the necessary and proper
Estefania R. Pirovano, executed a memorandum agreement stating therein hat the proceeds of the purposes of the business of the company, and from time to time to sell the dispose of the same.
insurance policies would be entered in the books of the corporation as a loan which would bear an
interest at the rate of 5 per cent per annum, and said agreement was signed by Mrs. Pirovano as judicial (f) To promote any company or companies for the purposes of acquiring all or any of the property
guardian of her children after she had been expressly authorized by the court to accept the donation in or liabilities of this company, or both, or for any other purpose which may seem directly or indirectly
behalf of her children. calculated to benefit the company.
(c) While the donation can be considered as duly executed by the execution of the document (g) To invest and deal with the moneys of the company and immediately required, in such manner
stated in the preceding paragraph, and by the entry in the books of the corporation of the donation as a as from time to time may be determined.
loan, a further record of said execution was made when Mrs. Pirovano executed a public document on (h) To borrow, or raise, or secure the payment of money in such manner as the company shall
February 26, 1948 making similar acceptance of the donation. And this acceptance was officially think fit.
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(i) Generally, to do all such other thing and to transact all business as may be directly or conserving its cordial relations with that party it might continue to retain the patronage of the
indirectly incidental or conducive to the attainment of the above object, or any of them respectively. administration. All these acts executed before and after the donation in question have never been
(j) Without in any particular limiting or restricting any of the objects and powers of the questioned and were willingly and actually carried out.
corporation, it is hereby expressly declared and provided that the corporation shall have power to issue
bonds and provided that the corporation shall have power to issue bonds and other obligations, to We don't see much distinction between these acts of generosity or benevolence extended to some
mortgage or pledge any stocks, bonds or other obligations or any property which may be required by employees of the corporation, and even to some in whom the corporation was merely interested
said corporations; to secure any bonds, guarantees or other obligations by it issued or incurred; to because of certain moral or political considerations, and the donation which the corporation has seen
lend money or credit to and to aid in any other manner any person, association, or corporation of which fit to give to the children of the late Enrico Pirovano from the point of view of the power of the
any obligation or in which any interest is held by this corporation or in the affairs or prosperity of which corporation as expressed in its articles of incorporation. And if the former had been sanctioned and had
this corporation or in the affairs or prosperity of which this corporation has a lawful interest, and to do been considered valid and intra vires, we see no plausible reasons why the latter should now be
such acts and things as may be necessary to protect, preserve, improve, or enhance the value of any deemed ultra vires. It may perhaps be argued that the donation given to the children of the late Enrico
such obligation or interest; and, in general, to do such other acts in connection with the purposes for Pirovano is so large and disproportionate that it can hardly be considered a pension of gratuity that can
which this corporation has been formed which is calculated to promote the interest of the corporation be placed on a par with the instances above mentioned, but this argument overlooks one consideration:
or to enhance the value of its property and to exercise all the rights, powers and privileges which are the gratuity here given was not merely motivated by pure liberality or act of generosity, but by a deep
now or may hereafter be conferred by the laws of the Philippines upon corporations formed under the sense of recognition of the valuable services rendered by the late Enrico Pirovano which had
Philippine Corporation Act; to execute from time to time general or special powers of attorney to immensely contributed to the growth of the corporation to the extent that from its humble capitalization
persons, firms, associations or corporations either in the Philippines, in the United States, or in any it blossomed into a multi-million corporation that it is today. In other words of the very resolutions
other country and to revoke the same as and when the Directors may determine and to do any and or all granting the donation or gratuity, said donation was given not only because the company was so
of the things hereinafter set forth and to the same extent as natural persons might or could do. indebted to him that it saw fit and proper to make provisions for his children, but it did so out of a sense
of gratitude. Another factor that we should bear in mind is that Enrico Pirovano was not only a high
After a careful perusal of the provisions above quoted we find that the corporation was given broad and official of the company but was at the same time a member of the De la Rama family, and the recipient
almost unlimited powers to carry out the purposes for which it was organized among them, (1) "To of the donation are the grandchildren of Don Esteban de la Rama. This we, may say, is the motivating
invest and deal with the moneys of the company not immediately required, in such manner as from time root cause behind the grant of this bounty.
to time may be determined" and, (2) "to aid in any other manner any person, association, or corporation
of which any obligation or in which any interest is held by this corporation or in the affairs or prosperity It may be contended that a donation is different from a gratuity. While technically this may be so in
of which this corporation has a lawful interest." The world deal is broad enough to include any manner substance they are the same. They are even similar to a pension. Thus, it was granted for services
of disposition, and refers to moneys not immediately required by the corporation, and such disposition previously rendered, and which at the time they were rendered gave rise to no legal obligation. " (Words
may be made in such manner as from time to time may be determined by the corporations. The and Phrases, Permanent Edition, p. 675; O'Dea vs. Cook,, 169 Pac., 306, 176 Cal., 659.) Or stated in
donation in question undoubtedly comes within the scope of this broad power for it is a fact appearing another way, a "Gratuity is mere bounty given by the Government in consideration or recognition or
in the evidence that the insurance proceeds were not immediately required when they were given away. meritorious services and springs from the appreciation an d graciousness of the Government", (Ilagan
In fact, the evidence shows that the corporation declared a 100 per cent cash dividend, or P2,000,000, vs. Ilaya, G.R. No. 33507, Dec. 20 1930) or "A gratuity is something given freely, or without recompense,
and later on another 30 per cent cash dividend. This is clear proof of the solvency of the corporation. It a gift, something voluntarily given in return for a favor or services; a bounty; a tip." Wood Mercantile
may be that, as insinuated, Don Esteban wanted to make use of the insurance money to rehabilitate the Co. vs. Cole, 209 S.W. 2d. 290; Mendoza vs. Dizon, 77 Phil., 533, 43 Off. Gaz. p. 4633. We do not see
central owned by a sister corporation, known as Hijos de I. de la Rama and Co., Inc., situated in Bago, much difference between this definition of gratuity and a remunerative donation contemplated in the
Negros Occidental, but this, far from reflecting against the solvency of the De la Rama company, only Civil Code. In essence they are the same. Such being the case, it may be said that this donation is
shows that the funds were not needed by the corporation. gratuity in a large sense for it was given for valuable services rendered an ultra vires act in the light of
the following authorities:
Under the second broad power we have the above stated, that is, to aid in any other manner any person
in the affairs and prosperity of whom the corporation has a lawful interest, the record of this case is Indeed, some cases seem to hold that the giving of a pure gratuity to directors is ultra vires of
replete with instances which clearly show that the corporation knew well its scope and meaning so corporation, so that it could not be legalized even if the approval of the shareholders; but this position
much so that, with the exception of the instant case, no one has lifted a finger to dispute their validity. has no sound reason to support it, and is opposed to the weight of authority (Suffaker vs. Kierger's
Thus, under this broad grant of power, this corporation paid to the heirs of one Florentino Nonato, an Assignee, 53 S.W. Rep. 288; !07 Ky. 200; 46 L.R.A. 384).
engineer of one of the ships of the company who died in Japan, a gratuity of P7,000, equivalent to one
month salary for each year of service. It also gave to Ramon Pons, a captain of one of its ships , a But although business corporations cannot contribute to charity or benevolence, yet they are not
retirement gratuity equivalent to one month salary for every year of service, the same to be based upon required always to insist on the full extent of their legal rights. They are not forbidden for the
his highest salary. And it contributed P2,000 to the fund raised by the Associated Steamship Lines for recognizing moral obligation of which strict law takes no cognizance. They are not prohibited from
the widow of the late Francis Gispert, secretary of said Association, of which the De la Rama Steamship establishing a reputation for board, liberal, equitable dealing which may stand them in good stead in
Co., Inc., was a member along with about 30 other steamship companies. In this instance, Gispert was competition with less fair rivals. Thus, an incorporated fire insurance company which policies except
not even an employee of the corporation. And invoking this vast power, the corporation even went to losses from explosions may nevertheless pay a loss from that cause when other companies are
the extent of contributing P100,000 to the Liberal Party campaign funds, apparently in the hope that by
21
accustomed to do so, such liberal dealing being deemed conducive to the prosperity of the particular class or specifying the consequences of violation may not preclude enforcement of the
corporation." (Modern Law of Corporations, Machen, Vol. 1, p. 81). transaction and an action may be had for the part unaffected by the illegality or for equitable restitution.
(19 C.J.S. 421.)
So, a bank may grant a five years pension to the family at one of its officers. In all cases in this sorts,
the amount of the gratuity rests entirely within the discretion of the company, unless indeed it be all Generally, a transaction within corporate powers but executed in an irregular or unauthorized manner is
together out of the reason and fitness. But where the company has ceased to be going concerned, this voidable only, and may become enforceable by reason of ratification or express or implied assent by
power to make gifts or present it at the end. (Modern Law of Corporations, Machen, Vol. 1, p. 82.). the stockholders or by reason of estoppel of the corporation or the other party to the transaction to
raise the objection, particularly where the benefits are retained
Payment of Gratitude out of Capital.— There seems on principle no reason to doubt that gifts or
gratuities wherever they are lawful may be paid out of capital as well as out of profits. (Modern Law of As appears in paragraphs 960-964 supra, the general rule is that a corporation must act in the manner
corporations, Machen, Vol. 1 p. 83.). and with the formalities, if any, prescribed by its character or by the general law. However, a
corporation transaction or contract which is within the corporation powers, which is neither wrong in
Whether desirable to supplement implied powers of this kind by express provisions.— Enough has itself nor against public policy, but which is defective from a failure to observe in its execution a
been said to show that the implied powers of a corporation to give gratuities to its servants and requirement of law enacted for the benefit or protection of a certain class, is voidable and is valid until
officers, as well as to strangers, are ample, so that there is therefore no need to supplement them by avoided, not void until validated; the parties for whose benefit the requirement was enacted may ratify it
express provisions." (modern Law of Corporations, Machen, Vol. 1, p. 83.) 1 or be estoppel to assert its invalidity, and third persons acting in good faith are not usually affected by
an irregularity on the part of the corporation in the exercise of its granted powers. (19 C.J.S., 423-24.)
Granting arguendo that the donation given by Pirovano children is outside the scope of the powers of
the defendant corporation, or the scope of the powers that it may exercise under the law, or it is an ultra It is true that there are authorities which told that ultra vires acts, or those performed beyond the
vires act, still it may said that the same can not be invalidated, or declared legally ineffective for the powers conferred upon the corporation either by law or by its articles of incorporation, are not only
reason alone, it appearing that the donation represents not only the act of the Board of Directors but of voidable, but wholly void and of no legal effect, and that such acts cannot be validated by ratification or
the stockholders themselves as shown by the fact that the same has been expressly ratified in a be the basis of any action in court; but such ruling does not constitute the weight of authority, the
resolution duly approved by the latter. By this ratification, the infirmity of the corporate act, it may has reason being that they fail to make the important distinction we have above adverted to. Because rule
been obliterated thereby making the cat perfectly valid and enforceable. This is specially so if the has been rejected by most of the state courts and even by the modern treaties or corporations (7
donation is not merely executory but executed and consummated and no creditors are prejudice, or if Flethcer, Cyc. Corps., 563-564). And now it can be said that the majority of the cases hold that acts
there are creditors affected, the latter has expressly given their confirmity. which are merely ultra vires, or acts which are not illegal, may be ratified by the stockholders of a
corporation (Brooklyn Heights R. Co. vs. Brooklyn City R. Co., 135 N.Y. Supp. 1001).
In making this pronouncement, advertence should made of the nature of the ultra vires act that is in
question. A little digression needs be made on this matter to show the different legal effect that may Strictly speaking, an act of a corporation outside of its character powers is just as such ultra vires
result consequent upon the performance of a particular ultra vires act on the part of the corporation. where all the stockholders consent thereto as in a case where none of the stockholders expressly or
may authorities may be cited interpreting or defining, extent, and scope of an ultra vires act, but all of cannot be ratified so as to make it valid, even though all the stockholders consent thereto; but
them are uniform and unanimous that the same may be either an act performed merely outside the inasmuch as the stockholders in reality constitute the corporation, it should , it would seem, be
scope of the powers granted to it by it articles of incorporation, or one which is contrary to law or estopped to allege ultra vires, and it is generally so held where there are no creditors, or the creditors
violative of any principle which will void any contract whether done individually or collectively. In other are not injured thereby, and where the rights of the state or the public are not involved, unless the act is
words, a distinction should be made between corporate acts or contracts which are illegal and those not only ultra vires but in addition illegal and void. of course, such consent of all the stockholders
which are merely ultra vires. The former contemplates the doing of an act which is contrary to law, cannot adversely affect creditors of the corporation nor preclude a proper attack by the state because
morals, or public policy or public duty, and are, like similar transactions between the individuals void. of such ultra vires act. (7 Fletcher Corp., Sec. 3432, p. 585)
They cannot serve as basis of a court action, nor require validity ultra vires acts on the other hand, or
those which are not illegal and void ab initio, but are merely within are not illegal and void ab initio, but Since it is not contended that the donation under consideration is illegal, or contrary to any of the
are not merely within the scope of the articles of incorporation, are merely voidable and may become express provision of the articles of incorporation, nor prejudicial to the creditors of the defendant
binding and enforceable when ratified by the stockholders. corporation, we cannot but logically conclude, on the strength of the authorities we have quoted above,
that said donation, even if ultra vires in the supposition we have adverted to, is not void, and if voidable
Strictly speaking, an ultra vires act is one outside the scope of the power conferred by the legislature, its infirmity has been cured by ratification and subsequent acts of the defendant corporation. The
and although the term has been used indiscriminately, it is properly distinguishable from acts which are defendant corporation, therefore, is now prevented or estopped from contesting the validity of the
illegal, in excess or abuse of power, or executed in an unauthorized manner, or acts within corporate donation. This is specially so in this case when the very directors who conceived the idea of granting
powers but outside the authority of particular officers or agents (19 C. J. S. 419). said donation are practically the stockholders themselves, with few nominal exception. This applies to
the new stockholder Jose Cojuangco who acquired his interest after the donation has been made
Corporate transactions which are illegal because prohibited by statute or against public policy are because of the rule that a "purchaser of shares of stock cannot avoid ultra vires acts of the corporation
ordinarily void and unenforceable regardless of the part performance, ratification, or estoppel; but authorized by its vendor, except those done after the purchase" (7 Fletcher, Cyc. Corps. section 3456, p.
general prohibitions against exceeding corporate powers and prohibitions intended to protect a 603; Pascual vs. Del Saz Orozco, 19 Phil., 82.) Indeed, how can the stockholders now pretend to revoke
22
the donation which has been partly consummated? How can the corporation now set at naught the company, said shares to bear a fixed dividend of 6 percent per annum which shall be cumulative and
transfer made to Mrs. Pirovano of the property in New York, U.S.A., the price of which was paid by her redeemable within 15 years. Said shares shall be preferred as to assets in the event of liquidation or
but of the proceeds of the insurance policies given as donation. To allow the corporation to undo what dissolution of said company but shall be non-participating.
it has done would only be most unfair but would contravene the well-settled doctrine that the defense of
ultra vires cannot be set up or availed of in completed transactions (7 Fletcher, Cyc. Corps. Section It is plain from the text of the above resolution that the defendant corporation had 15 years from
3497, p. 652; 19 C.J.S., 431). February 18, 1949, or until 1964, within which to effect the redemption of the preferred shares issued to
4. We now come to the fourth and last question that the defendant corporation, by the acts it has the National Development Company. This condition cannot but be binding and obligatory upon the
performed subsequent to the granting of the donation, deliberately prevented the fulfillment of the donees, if they desire to maintain the validity of the donation, for it is not only the basis upon which the
condition precedent to the payment of said donation such that it can be said it has forfeited entirely due stockholders of the defendant corporation expressed their willingness to ratify the donation, but it is
and demandable. also by way which its creditor, the National Development Company, would want it to be. If the defendant
corporation is given 15 years within which to redeem the preferred shares, and that period would expire
It should be recalled that the original resolution of the Board of Directors adopted on July 10, 1946 in 1964, one cannot blame the corporation for availing itself of this period if in its opinion it would
which provided for the donation of P400,000 out of the proceeds which the De la Rama company would redound to its best interest. It cannot therefore be said that the fulfillment of the condition for the
collect on the insurance policies taken on the life of the late Enrico Pirovano was, as already stated payment of the donation is one that wholly depends on the exclusive will of the donor, as the lower
above, amended on January 6, 1947 to include, among the conditions therein provided, that the court has concluded, simply because it failed to meet the redemption of said shares in her manner
corporation shall proceed to pay said amount, as well as the interest due thereon, after it shall have desired by the donees. While it may be admitted that because of the disposition of the assets of the
settled in full balance of its bonded indebtedness in the sum of P5,000,000. It should be recalled that on corporation upon the suggestion of its general manager more than enough funds had been raised to
September 13, 1949, or more than 2 years after the last amendment referred too above, the stockholders effect the immediate redemption of the above shares, it is not correct to say that the management has
adopted another resolution whereby they formally ratified said donation but subject to the following completely failed in its duty to pay its obligations for, according to the evidence, a substantial portion
clarifications: (1) that the amount of the donation shall not be effected until such time as the company of the indebtedness has been paid and only a balance of about P1,805,169.98 was outstanding when the
shall have first duly liquidated its present bonded indebtedness in the amount of P3,260,855.77 to the stockholders of the corporation decided to revoke or cancel the donation. (Exhibit P.)
National Development Company, or shall have first fully redeemed the preferred shares of stock in the
amount to be issued to said company in lieu thereof, and (2) that any and all taxes, legal fees, and But there are other good reasons why all the available funds have not been actually applied to the
expenses connected with the transaction shall be chargeable from the proceeds of said insurance redemption of the preferred shares, one of them being the "desire of the president of the corporation to
policies. preserve and continue the government participation in the company" which even the lower court found
it to be meritorious, which is one way by which it could continue receiving the patronage and protection
The trial court, in considering these conditions in the light of the acts subsequently performed by the of the government. Another reason is that the redemption of the shares does not depend on the will of
corporation in connection with the proceeds of the insurance policies, considered said conditions null the corporation alone but to a great extent on the will of a third party, the National Development
and void, or at most not written because in its pinion their non-fulfillment was due to a deliberate Company. In fact, as the evidence shows, this Company had pledged these shares to the Philippine
desistance of the corporation and not to lack of funds to redeem the preferred shares of the National National Bank and the Rehabilitation Finance Corporation as a security to obtain certain loans to
Development Company. The conclusions arrived at by the trial court on this point are as follows: finance the purchase of certain ships to be built for the use of the company under management
Fourth. — that the condition mentioned in the donation is null and void because it depends on the contract entered into between the corporation and the National Development Company, and this was
exclusive will of the donor, in accordance with the provisions of Article 1115 of the Old Civil Code. what prevented the corporation from carrying out its offer to pay the sum P1,956,513.07 on April 5,
Fifth. — That if the condition is valid, its non-fulfillment is due to the desistance of the defendant 1951. Had this offer been accepted, or favorably acted upon by the National Development Company, the
company from obeying and doing the wishes and mandate of the majority of the stockholders. indebtedness would have been practically liquidated, leaving outstanding only one certificate worth
Sixth. — That the non-payment of the debt in favor of the National Development Company is due to the P217,390.45. Of course, the corporation could have insisted in redeeming the shares if it wanted to even
lack of funds, nor to lack of authority, but to the desire of the President of the corporation to preserve to the extent of taking a court action if necessary to force its creditor to relinquish the shares that may
and continue the Government participation in the company. be necessary to accomplish the redemption, but such would be a drastic step which would have not
been advisable considering the policy right along maintained by the corporation to preserve its cordial
To this views of the trial court, we fail to agree. There are many factors we can consider why the failure and smooth relation with the government. At any rate, whether such attitude be considered as a mere
to immediately redeem the preferred shares issued to the National Development Company as desired excuse to justify the delay in effecting the redemption of the shares, or a mere desire on the part of the
by the minor children of the late Enrico Pirovano cannot or should not be attributed to a mere desire on corporation to retain in its possession more funds available to attend to other pressing need as
the part of the corporation to delay the redemption, or to prejudice the interest of the minors, but rather demanded by the interest of the corporation, we fail to see in such an attitude an improper motive to
to protect the interest of the corporation itself. One of them is the text of the very resolution approved circumvent the early realization of the desire of the minors to obtain the immediate payment of the
by the National Development Company on February 18, 1949 which prescribed the terms and conditions donation which was made dependent upon the redemption of said shares there being no clear evidence
under which it expressed its conformity to the conversion of the bonded indebtedness into preferred that may justify such design. Anyway, a great portion of the funds went to the stockholders themselves
shares of stock. The text of the resolution above mentioned reads: by way of dividends to offset, so it appears, the huge advances that the corporation had made to them
which were entered in the books of the corporation as loans and, therefore, they were invested for their
Resolved: That the outstanding bonded indebtedness of the Dela Rama Steamship Co., Inc., in the own benefit. As General Manager Osmeña said, "we were first confronted with the problem of the
approximate amount of P3,260,855.77 be converted into non-voting preferred shares of stock of said withdrawals of the family which had to be repaid back to the National Development Company and one
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of the most practical solutions to that was to declare dividends and reduce the amounts of their
withdrawals", which then totalled about P3,000,000.

All things considered, we are of the opinion that the finding of the lower court that the failure of the
defendant corporation to comply with the condition of the donation is merely due to its desistance from
obeying the mandate of the majority of the stockholders and not to lack of funds, or to lack of authority,
has no foundation in law or in fact, and, therefore, its conclusion that because of such desistance that
condition should be deemed as fulfilled and the payment of the donation due and demandable, is not
justified. In this respect, the decision of the lower court should be reversed.

Having reached the foregoing conclusion, we deem it unnecessary to discuss the other issues raised
by the parties in their briefs.

The lower court adjudicated to plaintiff an additional amount equivalent to 20 per cent of the amount
claimed as damages by way of attorney's fees, and in our opinion, this award can be justified under
Article 2208, paragraph 2, of the new Civil Code, which provides: "When the defendant's act or omission
has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest",
attorney's fees nay be awarded as damages. However, the majority believes that this award should be
reduced to 10 per cent.

Wherefore, the decision appealed from should be modified as follows: (a) that the donation made in
favor of the children of the late Enrico Pirovano of the proceeds of the insurance policies taken on his
life is valid and binding on the defendant corporation, (b) that said donation, which amounts to a total of
P583,813.59, including interest, as it appears in the books of the corporation as of August 31, 1951, plus
interest thereon at the rate of 5 per cent per annum from the filing of the complaint, should be paid to
the plaintiffs after the defendant corporation shall have fully redeemed the preferred shares issued to
the National Development Company under the terms and conditions stated in the resolutions of the
Board of Directors of January 6, 1947 and June 24, 1947, as amended by the resolution of the
stockholders adopted on September 13,1949; and (c) defendant shall pay to plaintiffs an additional
amount equivalent to 10 per cent of said amount of P583,813.59 as damages by way of attorney's fees,
and to pay the costs of action.

Paras, C. J., Pablo Bengzon, Padilla, Montemayor, Jugo, Concepcion, and Reyes, J. B. L., concur.
Reyes, A., concurs in the result.

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