Sawadjaan v CA GR no.

141735

Doctrine: A corporation who failed to submit its by-laws on time, may be considered
a de facto corporation whose right to exercise corporate powers may not be inquired
into collaterally in any private suit to which such corporations may be a party.

Facts: Petitioner Sawadjaan was an appraiser/investigator in the Philippine Amanah

Bank (PAB). He was assigned to inspect the properties consisted of two parcels of land
which was offered as collaterals by Compressed Air Machineries and Equipment
Corporation (CAMEC) for a credit line of Five Million Pesos (P5,000,000.00). On the
basis of his Inspection and Appraisal Report, the PAB granted the loan application.
When the loan matured, CAMEC requested an extension and was granted 120 days
extension.
Meanwhile, Congress passed a law which created Al-Amanah Investment Bank
of the Philippines (AIIBP) and repealed the law creating PAB, transferring all its assets,
liabilities and capital accounts to AIIBP, the existing personnel of the PAB were to
continue to discharge their functions unless discharged. In the ensuing reorganization,
Sawadjaan was among the personnel retained by the AIIBP.

Later, when CAMEC failed to pay despite the given extension, the bank, now
referred to as the AIIBP, discovered that the collateral was spurious, the property
described therein is non-existent, and that the other property had a prior existing
mortgage in favor of another person.

The Investigating Committee recommends that respondent SAPPARI

SAWADJAAN be meted the penalty of SIX (6) MONTHS and ONE (1) DAY
SUSPENSION for the administrative offense of CONDUCT PREJUDICIAL TO THE
BEST INTEREST OF THE SERVICE.

The Board of Directors of the Islamic Bank [AIIBP] adopted Resolution finding
petitioner guilty of Dishonesty in the Performance of Official Duties and/or Conduct
Prejudicial to the Best Interest of the Service and imposing the penalty of Dismissal
from the Service.

On reconsideration, the Board of Directors of the Islamic Bank [AIIBP] adopted

the Resolution reducing the penalty imposed on petitioner from dismissal to suspension
for a period of six (6) months and one (1) day.

The CSC adopted Resolution dismissing the appeal for lack of merit and
affirming Resolution of the Board of Directors of Islamic Bank.

The CSC adopted Resolution denying petitioner’s Motion for Reconsideration.

The Supreme Court affirmed the CSC’s resolution.

 Sawadjaan, by himself, filed a Motion for New Trial in the Court of Appeals based
on the following grounds: fraud, accident, mistake or excusable negligence and newly
discovered evidence. He claimed that he had recently discovered that at the time his
employment was terminated, the AIIBP had not yet adopted its corporate by-laws.
claiming he recently discovered that AIIBP had not yet adopted its corporate by-laws
and since it failed to file within 60 days from the passage of its law, it had forfeited its
franchise or charter and thus has no legal standing to initiate an administrative case.
Issue: Whether or not the failure of AIIBP to file its by-laws within the period prescribed
results to a nullity of all actions and proceedings it has initiated.
Ruling: NO.
The AIIBP was created by Rep. Act No. 6848. It has a main office where it conducts
business, has shareholders, corporate officers, a board of directors, assets, and
personnel. It is, in fact, here represented by the Office of the Government Corporate
Counsel, “the principal law office of government-owned corporations, one of which is
respondent bank.” At the very least, by its failure to submit its by-laws on time, the
AIIBP may be considered a de facto corporation whose right to exercise corporate
powers may not be inquired into collaterally in any private suit to which such
corporations may be a party.
Moreover, a corporation which has failed to file its by-laws within the prescribed period
does not ipso facto lose its powers as such. The SEC Rules on Suspension/Revocation
of the Certificate of Registration of Corporations, details the procedures and remedies
that may be availed of before an order of revocation can be issued. There is no showing
that such a procedure has been initiated in this case.

Note: A de facto corporation is one possessing the attributes of a de jure corporation. It has
the same rights, powers and liabilities. The only point of distinction is as to manner of
attacking its corporate existence which can only be by way of direct attack or in a quo
warranto under Rule 66 (Rules of Court)