CommRev Cases

G.R. No.
195580 April 21, 2014 In their Answers, petitioners averred that they were qualified persons under Section 3(aq) of Republic Act No. (RA)
7942 or the Philippine Mining Act of 1995 which provided:
NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT, INC., and
MCARTHUR MINING, INC., Petitioners, Sec. 3 Definition of Terms. As used in and for purposes of this Act, the following terms, whether in singular or plural,
vs. shall mean:
REDMONT CONSOLIDATED MINES CORP., Respondent. (aq) "Qualified person" means any citizen of the Philippines with capacity to contract, or a corporation, partnership,
association, or cooperative organized or authorized for the purpose of engaging in mining, with technical and
Before this Court is a Petition for Review on Certiorari under Rule 45 filed by Narra Nickel and Mining Development financial capability to undertake mineral resources development and duly registered in accordance with law at least
Corp. (Narra), Tesoro Mining and Development, Inc. (Tesoro), and McArthur Mining Inc. (McArthur), which seeks to sixty per cent (60%) of the capital of which is owned by citizens of the Philippines: Provided, That a legally
reverse the October 1, 2010 Decision1 and the February 15, 2011 Resolution of the Court of Appeals (CA). organized foreign-owned corporation shall be deemed a qualified person for purposes of granting an exploration
permit, financial or technical assistance agreement or mineral processing permit.
Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a domestic corporation
organized and existing under Philippine laws, took interest in mining and exploring certain areas of the province of Additionally, they stated that their nationality as applicants is immaterial because they also applied for Financial or
Palawan. After inquiring with the Department of Environment and Natural Resources (DENR), it learned that the Technical Assistance Agreements (FTAA) denominated as AFTA-IVB-09 for McArthur, AFTA-IVB-08 for Tesoro and
areas where it wanted to undertake exploration and mining activities where already covered by Mineral Production AFTA-IVB-07 for Narra, which are granted to foreign-owned corporations. Nevertheless, they claimed that the issue
Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur. on nationality should not be raised since McArthur, Tesoro and Narra are in fact Philippine Nationals as 60% of their
capital is owned by citizens of the Philippines. They asserted that though MBMI owns 40% of the shares of PLMC
(which owns 5,997 shares of Narra),3 40% of the shares of MMC (which owns 5,997 shares of McArthur)4 and 40% of
Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed an application for an the shares of SLMC (which, in turn, owns 5,997 shares of Tesoro),5 the shares of MBMI will not make it the owner of
MPSA and Exploration Permit (EP) with the Mines and Geo-Sciences Bureau (MGB), Region IV-B, Office of the at least 60% of the capital stock of each of petitioners. They added that the best tool used in determining the
Department of Environment and Natural Resources (DENR). nationality of a corporation is the "control test," embodied in Sec. 3 of RA 7042 or the Foreign Investments Act of
1991. They also claimed that the POA of DENR did not have jurisdiction over the issues in Redmont’s petition since
Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782 hectares in Barangay Sumbiling, they are not enumerated in Sec. 77 of RA 7942. Finally, they stressed that Redmont has no personality to sue them
Municipality of Bataraza, Province of Palawan and EPA-IVB-44 which includes an area of 3,720 hectares in Barangay because it has no pending claim or application over the areas applied for by petitioners.
Malatagao, Bataraza, Palawan. The MPSA and EP were then transferred to Madridejos Mining Corporation (MMC) and,
on November 6, 2006, assigned to petitioner McArthur.2 On December 14, 2007, the POA issued a Resolution disqualifying petitioners from gaining MPSAs. It held:
[I]t is clearly established that respondents are not qualified applicants to engage in mining activities. On the other
Petitioner Narra acquired its MPSA from Alpha Resources and Development Corporation and Patricia Louise Mining & hand, [Redmont] having filed its own applications for an EPA over the areas earlier covered by the MPSA
Development Corporation (PLMDC) which previously filed an application for an MPSA with the MGB, Region IV-B, application of respondents may be considered if and when they are qualified under the law. The violation of the
DENR on January 6, 1992. Through the said application, the DENR issued MPSA-IV-1-12 covering an area of 3.277 requirements for the issuance and/or grant of permits over mining areas is clearly established thus, there is reason
hectares in barangays Calategas and San Isidro, Municipality of Narra, Palawan. Subsequently, PLMDC conveyed, to believe that the cancellation and/or revocation of permits already issued under the premises is in order and open
transferred and/or assigned its rights and interests over the MPSA application in favor of Narra. the areas covered to other qualified applicants.
xxxx
WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur Mining Inc., Tesoro Mining and
Another MPSA application of SMMI was filed with the DENR Region IV-B, labeled as MPSA-AMA-IVB-154 (formerly
EPA-IVB-47) over 3,402 hectares in Barangays Malinao and Princesa Urduja, Municipality of Narra, Province of Development, Inc., and Narra Nickel Mining and Development Corp. as, DISQUALIFIED for being considered as
Foreign Corporations. Their Mineral Production Sharing Agreement (MPSA) are hereby x x x DECLARED NULL AND
Palawan. SMMI subsequently conveyed, transferred and assigned its rights and interest over the said MPSA
application to Tesoro. VOID.6
The POA considered petitioners as foreign corporations being "effectively controlled" by MBMI, a 100% Canadian
On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3) separate petitions for
the denial of petitioners’ applications for MPSA designated as AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12. company and declared their MPSAs null and void. In the same Resolution, it gave due course to Redmont’s EPAs.
Thereafter, on February 7, 2008, the POA issued an Order 7 denying the Motion for Reconsideration filed by
petitioners.
In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned and
controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since MBMI is a
Aggrieved by the Resolution and Order of the POA, McArthur and Tesoro filed a joint Notice of Appeal 8 and
considerable stockholder of petitioners, it was the driving force behind petitioners’ filing of the MPSAs over the areas
covered by applications since it knows that it can only participate in mining activities through corporations which are Memorandum of Appeal9 with the Mines Adjudication Board (MAB) while Narra separately filed its Notice of
Appeal10 and Memorandum of Appeal.11
deemed Filipino citizens. Redmont argued that given that petitioners’ capital stocks were mostly owned by MBMI,
they were likewise disqualified from engaging in mining activities through MPSAs, which are reserved only for Filipino
citizens. In their respective memorandum, petitioners emphasized that they are qualified persons under the law. Also, through
a letter, they informed the MAB that they had their individual MPSA applications converted to FTAAs. McArthur’s FTAA
1
was denominated as AFTA-IVB-0912 on May 2007, while Tesoro’s MPSA application was converted to AFTA-IVB- In a Resolution dated February 15, 2011, the CA denied the Motion for Reconsideration filed by petitioners.
0813 on May 28, 2007, and Narra’s FTAA was converted to AFTA-IVB-0714 on March 30, 2006.
After a careful review of the records, the CA found that there was doubt as to the nationality of petitioners when it
Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed a Complaint15 with the Securities realized that petitioners had a common major investor, MBMI, a corporation composed of 100% Canadians. Pursuant
and Exchange Commission (SEC), seeking the revocation of the certificates for registration of petitioners on the to the first sentence of paragraph 7 of Department of Justice (DOJ) Opinion No. 020, Series of 2005, adopting the
ground that they are foreign-owned or controlled corporations engaged in mining in violation of Philippine laws. 1967 SEC Rules which implemented the requirement of the Constitution and other laws pertaining to the exploitation
Thereafter, Redmont filed on September 1, 2008 a Manifestation and Motion to Suspend Proceeding before the MAB of natural resources, the CA used the "grandfather rule" to determine the nationality of petitioners. It provided:
praying for the suspension of the proceedings on the appeals filed by McArthur, Tesoro and Narra. Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens
shall be considered as of Philippine nationality, but if the percentage of Filipino ownership in the corporation or
Subsequently, on September 8, 2008, Redmont filed before the Regional Trial Court of Quezon City, Branch 92 (RTC) partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of
a Complaint16 for injunction with application for issuance of a temporary restraining order (TRO) and/or writ of Philippine nationality. Thus, if 100,000 shares are registered in the name of a corporation or partnership at least
preliminary injunction, docketed as Civil Case No. 08-63379. Redmont prayed for the deferral of the MAB 60% of the capital stock or capital, respectively, of which belong to Filipino citizens, all of the shares shall be
proceedings pending the resolution of the Complaint before the SEC. recorded as owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the corporation
or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be recorded as belonging to
aliens.24 (emphasis supplied)
But before the RTC can resolve Redmont’s Complaint and applications for injunctive reliefs, the MAB issued an Order
on September 10, 2008, finding the appeal meritorious. It held:
WHEREFORE, in view of the foregoing, the Mines Adjudication Board hereby REVERSES and SETS ASIDE the In determining the nationality of petitioners, the CA looked into their corporate structures and their corresponding
Resolution dated 14 December 2007 of the Panel of Arbitrators of Region IV-B (MIMAROPA) in POA-DENR Case common shareholders. Using the grandfather rule, the CA discovered that MBMI in effect owned majority of the
Nos. 2001-01, 2007-02 and 2007-03, and its Order dated 07 February 2008 denying the Motions for common stocks of the petitioners as well as at least 60% equity interest of other majority shareholders of petitioners
Reconsideration of the Appellants. The Petition filed by Redmont Consolidated Mines Corporation on 02 January through joint venture agreements. The CA found that through a "web of corporate layering, it is clear that one
2007 is hereby ordered DISMISSED.17 common controlling investor in all mining corporations involved x x x is MBMI." 25 Thus, it concluded that petitioners
McArthur, Tesoro and Narra are also in partnership with, or privies-in-interest of, MBMI.
Belatedly, on September 16, 2008, the RTC issued an Order18 granting Redmont’s application for a TRO and setting
the case for hearing the prayer for the issuance of a writ of preliminary injunction on September 19, 2008. Furthermore, the CA viewed the conversion of the MPSA applications of petitioners into FTAA applications suspicious
in nature and, as a consequence, it recommended the rejection of petitioners’ MPSA applications by the Secretary of
the DENR.
Meanwhile, on September 22, 2008, Redmont filed a Motion for Reconsideration 19 of the September 10, 2008 Order
of the MAB. Subsequently, it filed a Supplemental Motion for Reconsideration20 on September 29, 2008.
With regard to the settlement of disputes over rights to mining areas, the CA pointed out that the POA has
jurisdiction over them and that it also has the power to determine the of nationality of petitioners as a prerequisite of
Before the MAB could resolve Redmont’s Motion for Reconsideration and Supplemental Motion for Reconsideration, the Constitution prior the conferring of rights to "co-production, joint venture or production-sharing agreements" of
Redmont filed before the RTC a Supplemental Complaint21 in Civil Case No. 08-63379. the state to mining rights. However, it also stated that the POA’s jurisdiction is limited only to the resolution of the
dispute and not on the approval or rejection of the MPSAs. It stipulated that only the Secretary of the DENR is vested
On October 6, 2008, the RTC issued an Order22 granting the issuance of a writ of preliminary injunction enjoining the with the power to approve or reject applications for MPSA.
MAB from finally disposing of the appeals of petitioners and from resolving Redmont’s Motion for Reconsideration and
Supplement Motion for Reconsideration of the MAB’s September 10, 2008 Resolution. Finally, the CA upheld the findings of the POA in its December 14, 2007 Resolution which considered petitioners
McArthur, Tesoro and Narra as foreign corporations. Nevertheless, the CA determined that the POA’s declaration that
On July 1, 2009, however, the MAB issued a second Order denying Redmont’s Motion for Reconsideration and the MPSAs of McArthur, Tesoro and Narra are void is highly improper.
Supplemental Motion for Reconsideration and resolving the appeals filed by petitioners.
While the petition was pending with the CA, Redmont filed with the Office of the President (OP) a petition dated May
Hence, the petition for review filed by Redmont before the CA, assailing the Orders issued by the MAB. On October 1, 7, 2010 seeking the cancellation of petitioners’ FTAAs. The OP rendered a Decision 26 on April 6, 2011, wherein it
2010, the CA rendered a Decision, the dispositive of which reads: canceled and revoked petitioners’ FTAAs for violating and circumventing the "Constitution x x x[,] the Small Scale
WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed Orders, dated September 10, 2008 and July 1, Mining Law and Environmental Compliance Certificate as well as Sections 3 and 8 of the Foreign Investment Act and
2009 of the Mining Adjudication Board are reversed and set aside. The findings of the Panel of Arbitrators of the E.O. 584."27 The OP, in affirming the cancellation of the issued FTAAs, agreed with Redmont stating that petitioners
Department of Environment and Natural Resources that respondents McArthur, Tesoro and Narra are foreign committed violations against the abovementioned laws and failed to submit evidence to negate them. The Decision
corporations is upheld and, therefore, the rejection of their applications for Mineral Product Sharing Agreement further quoted the December 14, 2007 Order of the POA focusing on the alleged misrepresentation and claims made
should be recommended to the Secretary of the DENR. by petitioners of being domestic or Filipino corporations and the admitted continued mining operation of PMDC using
With respect to the applications of respondents McArthur, Tesoro and Narra for Financial or Technical Assistance their locally secured Small Scale Mining Permit inside the area earlier applied for an MPSA application which was
Agreement (FTAA) or conversion of their MPSA applications to FTAA, the matter for its rejection or approval is left eventually transferred to Narra. It also agreed with the POA’s estimation that the filing of the FTAA applications by
for determination by the Secretary of the DENR and the President of the Republic of the Philippines. petitioners is a clear admission that they are "not capable of conducting a large scale mining operation and that they
2
need the financial and technical assistance of a foreign entity in their operation, that is why they sought the All of the exceptions stated above are present in the instant case. We of this Court note that a grave violation of the
participation of MBMI Resources, Inc."28 The Decision further quoted: Constitution, specifically Section 2 of Article XII, is being committed by a foreign corporation right under our
The filing of the FTAA application on June 15, 2007, during the pendency of the case only demonstrate the country’s nose through a myriad of corporate layering under different, allegedly, Filipino corporations. The intricate
violations and lack of qualification of the respondent corporations to engage in mining. The filing of the FTAA corporate layering utilized by the Canadian company, MBMI, is of exceptional character and involves paramount
application conversion which is allowed foreign corporation of the earlier MPSA is an admission that indeed the public interest since it undeniably affects the exploitation of our Country’s natural resources. The corresponding
respondent is not Filipino but rather of foreign nationality who is disqualified under the laws. Corporate documents actions of petitioners during the lifetime and existence of the instant case raise questions as what principle is to be
of MBMI Resources, Inc. furnished its stockholders in their head office in Canada suggest that they are conducting applied to cases with similar issues. No definite ruling on such principle has been pronounced by the Court; hence,
operation only through their local counterparts.29 the disposition of the issues or errors in the instant case will serve as a guide "to the bench, the bar and the
public."35 Finally, the instant case is capable of repetition yet evading review, since the Canadian company, MBMI,
The Motion for Reconsideration of the Decision was further denied by the OP in a Resolution 30 dated July 6, 2011. can keep on utilizing dummy Filipino corporations through various schemes of corporate layering and conversion of
Petitioners then filed a Petition for Review on Certiorari of the OP’s Decision and Resolution with the CA, docketed as applications to skirt the constitutional prohibition against foreign mining in Philippine soil.
CA-G.R. SP No. 120409. In the CA Decision dated February 29, 2012, the CA affirmed the Decision and Resolution of
the OP. Thereafter, petitioners appealed the same CA decision to this Court which is now pending with a different Conversion of MPSA applications to FTAA applications
division.
We shall discuss the first error in conjunction with the sixth error presented by petitioners since both involve the
Thus, the instant petition for review against the October 1, 2010 Decision of the CA. Petitioners put forth the conversion of MPSA applications to FTAA applications. Petitioners propound that the CA erred in ruling against them
following errors of the CA: since the questioned MPSA applications were already converted into FTAA applications; thus, the issue on the
I. The Court of Appeals erred when it did not dismiss the case for mootness despite the fact that the subject matter prohibition relating to MPSA applications of foreign mining corporations is academic. Also, petitioners would want us
of the controversy, the MPSA Applications, have already been converted into FTAA applications and that the same to correct the CA’s finding which deemed the aforementioned conversions of applications as suspicious in nature,
have already been granted. since it is based on mere conjectures and surmises and not supported with evidence.
II. The Court of Appeals erred when it did not dismiss the case for lack of jurisdiction considering that the Panel of
Arbitrators has no jurisdiction to determine the nationality of Narra, Tesoro and McArthur. We disagree.
III. The Court of Appeals erred when it did not dismiss the case on account of Redmont’s willful forum shopping.
IV. The Court of Appeals’ ruling that Narra, Tesoro and McArthur are foreign corporations based on the
"Grandfather Rule" is contrary to law, particularly the express mandate of the Foreign Investments Act of 1991, as The CA’s analysis of the actions of petitioners after the case was filed against them by respondent is on point. The
amended, and the FIA Rules. changing of applications by petitioners from one type to another just because a case was filed against them, in truth,
V. The Court of Appeals erred when it applied the exceptions to the res inter alios acta rule. would raise not a few sceptics’ eyebrows. What is the reason for such conversion? Did the said conversion not stem
VI. The Court of Appeals erred when it concluded that the conversion of the MPSA Applications into FTAA from the case challenging their citizenship and to have the case dismissed against them for being "moot"? It is quite
Applications were of "suspicious nature" as the same is based on mere conjectures and surmises without any shred obvious that it is petitioners’ strategy to have the case dismissed against them for being "moot."
of evidence to show the same.31
Consider the history of this case and how petitioners responded to every action done by the court or appropriate
We find the petition to be without merit. government agency: on January 2, 2007, Redmont filed three separate petitions for denial of the MPSA applications
of petitioners before the POA. On June 15, 2007, petitioners filed a conversion of their MPSA applications to FTAAs.
The POA, in its December 14, 2007 Resolution, observed this suspect change of applications while the case was
This case not moot and academic pending before it and held:
The filing of the Financial or Technical Assistance Agreement application is a clear admission that the respondents
The claim of petitioners that the CA erred in not rendering the instant case as moot is without merit. are not capable of conducting a large scale mining operation and that they need the financial and technical
assistance of a foreign entity in their operation that is why they sought the participation of MBMI Resources, Inc.
Basically, a case is said to be moot and/or academic when it "ceases to present a justiciable controversy by virtue of The participation of MBMI in the corporation only proves the fact that it is the Canadian company that will provide
supervening events, so that a declaration thereon would be of no practical use or value." 32 Thus, the courts the finances and the resources to operate the mining areas for the greater benefit and interest of the same and not
"generally decline jurisdiction over the case or dismiss it on the ground of mootness."33 the Filipino stockholders who only have a less substantial financial stake in the corporation.
xxxx
x x x The filing of the FTAA application on June 15, 2007, during the pendency of the case only demonstrate the
The "mootness" principle, however, does accept certain exceptions and the mere raising of an issue of "mootness" violations and lack of qualification of the respondent corporations to engage in mining. The filing of the FTAA
will not deter the courts from trying a case when there is a valid reason to do so. In David v. Macapagal-Arroyo application conversion which is allowed foreign corporation of the earlier MPSA is an admission that indeed the
(David), the Court provided four instances where courts can decide an otherwise moot case, thus: respondent is not Filipino but rather of foreign nationality who is disqualified under the laws. Corporate documents
1.) There is a grave violation of the Constitution; of MBMI Resources, Inc. furnished its stockholders in their head office in Canada suggest that they are conducting
2.) The exceptional character of the situation and paramount public interest is involved; operation only through their local counterparts.36
3.) When constitutional issue raised requires formulation of controlling principles to guide the bench, the bar, and
the public; and
4.) The case is capable of repetition yet evading review.34
3
On October 1, 2010, the CA rendered a Decision which partially granted the petition, reversing and setting aside the implemented the requirement of the Constitution and other laws pertaining to the controlling interests in enterprises
September 10, 2008 and July 1, 2009 Orders of the MAB. In the said Decision, the CA upheld the findings of the POA engaged in the exploitation of natural resources owned by Filipino citizens, provides:
of the DENR that the herein petitioners are in fact foreign corporations thus a recommendation of the rejection of Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens
their MPSA applications were recommended to the Secretary of the DENR. With respect to the FTAA applications or shall be considered as of Philippine nationality, but if the percentage of Filipino ownership in the corporation or
conversion of the MPSA applications to FTAAs, the CA deferred the matter for the determination of the Secretary of partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of
the DENR and the President of the Republic of the Philippines.37 Philippine nationality. Thus, if 100,000 shares are registered in the name of a corporation or partnership at least
60% of the capital stock or capital, respectively, of which belong to Filipino citizens, all of the shares shall be
In their Motion for Reconsideration dated October 26, 2010, petitioners prayed for the dismissal of the petition recorded as owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the corporation
asserting that on April 5, 2010, then President Gloria Macapagal-Arroyo signed and issued in their favor FTAA No. 05- or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be counted as owned by Filipinos
2010-IVB, which rendered the petition moot and academic. However, the CA, in a Resolution dated February 15, and the other 50,000 shall be recorded as belonging to aliens.
2011 denied their motion for being a mere "rehash of their claims and defenses." 38 Standing firm on its Decision, the
CA affirmed the ruling that petitioners are, in fact, foreign corporations. On April 5, 2011, petitioners elevated the The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to corporations or partnerships at least
case to us via a Petition for Review on Certiorari under Rule 45, questioning the Decision of the CA. Interestingly, the 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality," pertains to
OP rendered a Decision dated April 6, 2011, a day after this petition for review was filed, cancelling and revoking the the control test or the liberal rule. On the other hand, the second part of the DOJ Opinion which provides, "if the
FTAAs, quoting the Order of the POA and stating that petitioners are foreign corporations since they needed the percentage of the Filipino ownership in the corporation or partnership is less than 60%, only the number of shares
financial strength of MBMI, Inc. in order to conduct large scale mining operations. The OP Decision also based the corresponding to such percentage shall be counted as Philippine nationality," pertains to the stricter, more stringent
cancellation on the misrepresentation of facts and the violation of the "Small Scale Mining Law and Environmental grandfather rule.
Compliance Certificate as well as Sections 3 and 8 of the Foreign Investment Act and E.O. 584." 39 On July 6, 2011,
the OP issued a Resolution, denying the Motion for Reconsideration filed by the petitioners. Prior to this recent change of events, petitioners were constant in advocating the application of the "control test"
under RA 7042, as amended by RA 8179, otherwise known as the Foreign Investments Act (FIA), rather than using
Respondent Redmont, in its Comment dated October 10, 2011, made known to the Court the fact of the OP’s the stricter grandfather rule. The pertinent provision under Sec. 3 of the FIA provides:
Decision and Resolution. In their Reply, petitioners chose to ignore the OP Decision and continued to reuse their old SECTION 3. Definitions. - As used in this Act:
arguments claiming that they were granted FTAAs and, thus, the case was moot. Petitioners filed a Manifestation and a.) The term Philippine national shall mean a citizen of the Philippines; or a domestic partnership or association
Submission dated October 19, 2012,40 wherein they asserted that the present petition is moot since, in a remarkable wholly owned by the citizens of the Philippines; a corporation organized under the laws of the Philippines of which
turn of events, MBMI was able to sell/assign all its shares/interest in the "holding companies" to DMCI Mining at least sixty percent (60%) of the capital stock outstanding and entitled to vote is wholly owned by Filipinos or a
Corporation (DMCI), a Filipino corporation and, in effect, making their respective corporations fully-Filipino owned. trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine
national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided,
Again, it is quite evident that petitioners have been trying to have this case dismissed for being "moot." Their final That were a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange Commission
act, wherein MBMI was able to allegedly sell/assign all its shares and interest in the petitioner "holding companies" to (SEC) registered enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of
DMCI, only proves that they were in fact not Filipino corporations from the start. The recent divesting of interest by each of both corporations must be owned and held by citizens of the Philippines and at least sixty percent (60%)
MBMI will not change the stand of this Court with respect to the nationality of petitioners prior the suspicious change of the members of the Board of Directors, in order that the corporation shall be considered a Philippine national.
in their corporate structures. The new documents filed by petitioners are factual evidence that this Court has no
power to verify. The grandfather rule, petitioners reasoned, has no leg to stand on in the instant case since the definition of a
"Philippine National" under Sec. 3 of the FIA does not provide for it. They further claim that the grandfather rule "has
The only thing clear and proved in this Court is the fact that the OP declared that petitioner corporations have been abandoned and is no longer the applicable rule."41 They also opined that the last portion of Sec. 3 of the FIA
violated several mining laws and made misrepresentations and falsehood in their applications for FTAA which lead to admits the application of a "corporate layering" scheme of corporations. Petitioners claim that the clear and
the revocation of the said FTAAs, demonstrating that petitioners are not beyond going against or around the law unambiguous wordings of the statute preclude the court from construing it and prevent the court’s use of discretion
using shifty actions and strategies. Thus, in this instance, we can say that their claim of mootness is moot in itself in applying the law. They said that the plain, literal meaning of the statute meant the application of the control test is
because their defense of conversion of MPSAs to FTAAs has been discredited by the OP Decision. obligatory.
Grandfather test We disagree. "Corporate layering" is admittedly allowed by the FIA; but if it is used to circumvent the Constitution
and pertinent laws, then it becomes illegal. Further, the pronouncement of petitioners that the grandfather rule has
already been abandoned must be discredited for lack of basis.
The main issue in this case is centered on the issue of petitioners’ nationality, whether Filipino or foreign. In their
previous petitions, they had been adamant in insisting that they were Filipino corporations, until they submitted their
Manifestation and Submission dated October 19, 2012 where they stated the alleged change of corporate ownership Art. XII, Sec. 2 of the Constitution provides:
to reflect their Filipino ownership. Thus, there is a need to determine the nationality of petitioner corporations. Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of
potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by
the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The
Basically, there are two acknowledged tests in determining the nationality of a corporation: the control test and the exploration, development, and utilization of natural resources shall be under the full control and supervision of the
grandfather rule. Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which State. The State may directly undertake such activities, or it may enter into co-production, joint venture or
4
production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of It is apparent that it is the intention of the framers of the Constitution to apply the grandfather rule in cases where
whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, corporate layering is present.
renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law.
xxxx Elementary in statutory construction is when there is conflict between the Constitution and a statute, the Constitution
The President may enter into agreements with Foreign-owned corporations involving either technical or financial will prevail. In this instance, specifically pertaining to the provisions under Art. XII of the Constitution on National
assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils Economy and Patrimony, Sec. 3 of the FIA will have no place of application. As decreed by the honorable framers of
according to the general terms and conditions provided by law, based on real contributions to the economic growth our Constitution, the grandfather rule prevails and must be applied.
and general welfare of the country. In such agreements, the State shall promote the development and use of local
scientific and technical resources. (emphasis supplied)
Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:
The above-quoted SEC Rules provide for the manner of calculating the Filipino interest in a corporation for
The emphasized portion of Sec. 2 which focuses on the State entering into different types of agreements for the purposes, among others, of determining compliance with nationality requirements (the ‘Investee Corporation’).
exploration, development, and utilization of natural resources with entities who are deemed Filipino due to 60 Such manner of computation is necessary since the shares in the Investee Corporation may be owned both by
percent ownership of capital is pertinent to this case, since the issues are centered on the utilization of our country’s individual stockholders (‘Investing Individuals’) and by corporations and partnerships (‘Investing Corporation’). The
natural resources or specifically, mining. Thus, there is a need to ascertain the nationality of petitioners since, as the said rules thus provide for the determination of nationality depending on the ownership of the Investee Corporation
Constitution so provides, such agreements are only allowed corporations or associations "at least 60 percent of such and, in certain instances, the Investing Corporation.
capital is owned by such citizens." The deliberations in the Records of the 1986 Constitutional Commission shed light
on how a citizenship of a corporation will be determined:
Mr. BENNAGEN: Did I hear right that the Chairman’s interpretation of an independent national economy is freedom Under the above-quoted SEC Rules, there are two cases in determining the nationality of the Investee Corporation.
from undue foreign control? What is the meaning of undue foreign control? The first case is the ‘liberal rule’, later coined by the SEC as the Control Test in its 30 May 1990 Opinion, and pertains
MR. VILLEGAS: Undue foreign control is foreign control which sacrifices national sovereignty and the welfare of the to the portion in said Paragraph 7 of the 1967 SEC Rules which states, ‘(s)hares belonging to corporations or
Filipino in the economic sphere. partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine
MR. BENNAGEN: Why does it have to be qualified still with the word "undue"? Why not simply freedom from foreign nationality.’ Under the liberal Control Test, there is no need to further trace the ownership of the 60% (or more)
control? I think that is the meaning of independence, because as phrased, it still allows for foreign control. Filipino stockholdings of the Investing Corporation since a corporation which is at least 60% Filipino-owned is
MR. VILLEGAS: It will now depend on the interpretation because if, for example, we retain the 60/40 possibility in considered as Filipino.
the cultivation of natural resources, 40 percent involves some control; not total control, but some control.
MR. BENNAGEN: In any case, I think in due time we will propose some amendments. The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in said Paragraph 7 of
MR. VILLEGAS: Yes. But we will be open to improvement of the phraseology. the 1967 SEC Rules which states, "but if the percentage of Filipino ownership in the corporation or partnership is less
Mr. BENNAGEN: Yes. than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality."
Thank you, Mr. Vice-President. Under the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing Corporation and the Investee
xxxx Corporation must be traced (i.e., "grandfathered") to determine the total percentage of Filipino ownership.
MR. NOLLEDO: In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely,
60-40 in Section 3, 60-40 in Section 9, and 2/3-1/3 in Section 15.
Moreover, the ultimate Filipino ownership of the shares must first be traced to the level of the Investing Corporation
MR. VILLEGAS: That is right. and added to the shares directly owned in the Investee Corporation x x x.
MR. NOLLEDO: In teaching law, we are always faced with the question: ‘Where do we base the equity requirement,
is it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock of a
corporation’? Will the Committee please enlighten me on this? xxxx
MR. VILLEGAS: We have just had a long discussion with the members of the team from the UP Law Center who
provided us with a draft. The phrase that is contained here which we adopted from the UP draft is ‘60 percent of In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second part of the SEC
the voting stock.’ Rule applies only when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the joint venture
MR. NOLLEDO: That must be based on the subscribed capital stock, because unless declared delinquent, unpaid corporation with Filipino and foreign stockholders with less than 60% Filipino stockholdings [or 59%] invests in other
capital stock shall be entitled to vote. joint venture corporation which is either 60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the
MR. VILLEGAS: That is right. 60-40 Filipino- foreign equity ownership is not in doubt, the Grandfather Rule will not apply. (emphasis supplied)
MR. NOLLEDO: Thank you.
With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent
After a scrutiny of the evidence extant on record, the Court finds that this case calls for the application of the
equity invests in another corporation which is permitted by the Corporation Code, does the Committee adopt the
grandfather rule since, as ruled by the POA and affirmed by the OP, doubt prevails and persists in the corporate
grandfather rule?
ownership of petitioners. Also, as found by the CA, doubt is present in the 60-40 Filipino equity ownership of
MR. VILLEGAS: Yes, that is the understanding of the Committee.
petitioners Narra, McArthur and Tesoro, since their common investor, the 100% Canadian corporation––MBMI,
MR. NOLLEDO: Therefore, we need additional Filipino capital?
funded them. However, petitioners also claim that there is "doubt" only when the stockholdings of Filipinos are less
MR. VILLEGAS: Yes.42 (emphasis supplied)
than 60%.43
5
The assertion of petitioners that "doubt" only exists when the stockholdings are less than 60% fails to convince this Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00
Court. DOJ Opinion No. 20, which petitioners quoted in their petition, only made an example of an instance where
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00
"doubt" as to the ownership of the corporation exists. It would be ludicrous to limit the application of the said word Esguerra
only to the instances where the stockholdings of non-Filipino stockholders are more than 40% of the total
stockholdings in a corporation. The corporations interested in circumventing our laws would clearly strive to have Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
"60% Filipino Ownership" at face value. It would be senseless for these applying corporations to state in their Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00
respective articles of incorporation that they have less than 60% Filipino stockholders since the applications will be Hernando
denied instantly. Thus, various corporate schemes and layerings are utilized to circumvent the application of the Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
Constitution.
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00

Obviously, the instant case presents a situation which exhibits a scheme employed by stockholders to circumvent the
(emphasis supplied)
law, creating a cloud of doubt in the Court’s mind. To determine, therefore, the actual participation, direct or indirect,
of MBMI, the grandfather rule must be used.
Noticeably, Olympic Mines & Development Corporation (Olympic) did not pay any amount with respect to the number
of shares they subscribed to in the corporation, which is quite absurd since Olympic is the major stockholder in MMC.
McArthur Mining, Inc.
MBMI’s 2006 Annual Report sheds light on why Olympic failed to pay any amount with respect to the number of
shares it subscribed to. It states that Olympic entered into joint venture agreements with several Philippine
To establish the actual ownership, interest or participation of MBMI in each of petitioners’ corporate structure, they companies, wherein it holds directly and indirectly a 60% effective equity interest in the Olympic
have to be "grandfathered." Properties.46 Quoting the said Annual report:
On September 9, 2004, the Company and Olympic Mines & Development Corporation ("Olympic") entered into a
As previously discussed, McArthur acquired its MPSA application from MMC, which acquired its application from SMMI. series of agreements including a Property Purchase and Development Agreement (the Transaction Documents) with
McArthur has a capital stock of ten million pesos (PhP 10,000,000) divided into 10,000 common shares at one respect to three nickel laterite properties in Palawan, Philippines (the "Olympic Properties"). The Transaction
thousand pesos (PhP 1,000) per share, subscribed to by the following:44 Documents effectively establish a joint venture between the Company and Olympic for purposes of developing the
Olympic Properties. The Company holds directly and indirectly an initial 60% interest in the joint venture. Under
Name Nationality Number of Shares Amount Subscribed Amount Paid
certain circumstances and upon achieving certain milestones, the Company may earn up to a 100% interest,
Madridejos Mining Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00 subject to a 2.5% net revenue royalty.47 (emphasis supplied)
Corporation
MBMI Resources, Inc. Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60

Thus, as demonstrated in this first corporation, McArthur, when it is "grandfathered," company layering was utilized
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00 by MBMI to gain control over McArthur. It is apparent that MBMI has more than 60% or more equity interest in
Fernando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00 McArthur, making the latter a foreign corporation.
Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00

Tesoro Mining and Development, Inc.
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00

Tesoro, which acquired its MPSA application from SMMI, has a capital stock of ten million pesos (PhP 10,000,000)
Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60 divided into ten thousand (10,000) common shares at PhP 1,000 per share, as demonstrated below:
(emphasis supplied)
Name Nationality Number of Amount Amount Paid
Interestingly, looking at the corporate structure of MMC, we take note that it has a similar structure and composition Shares Subscribed
as McArthur. In fact, it would seem that MBMI is also a major investor and "controls" 45 MBMI and also, similar
Sara Marie Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00
nominal shareholders were present, i.e. Fernando B. Esguerra (Esguerra), Lauro L. Salazar (Salazar), Michael T.
Mining, Inc.
Mason (Mason) and Kenneth Cawkell (Cawkell):
MBMI Canadian 3,998 PhP 3,998,000.00 PhP 1,878,174.60
Resources, Inc.
Madridejos Mining Corporation
Name Nationality Number of Amount Subscribed Amount Paid Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Shares
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00
Olympic Mines & Filipino 6,663 PhP 6,663,000.00 PhP 0 Esguerra
Development
Corp. Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00
Agcaoili
MBMI Resources, Canadian 3,331 PhP 3,331,000.00 PhP 2,803,900.00
Inc. Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
6
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00 Moving on to the last petitioner, Narra, which is the transferee and assignee of PLMDC’s MPSA application, whose
corporate structure’s arrangement is similar to that of the first two petitioners discussed. The capital stock of Narra is
Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60 ten million pesos (PhP 10,000,000), which is divided into ten thousand common shares (10,000) at one thousand
(emphasis supplied)
pesos (PhP 1,000) per share, shown as follows:
Except for the name "Sara Marie Mining, Inc.," the table above shows exactly the same figures as the corporate Shares Subscribed
structure of petitioner McArthur, down to the last centavo. All the other shareholders are the same: MBMI, Salazar,
Patricia Louise Filipino 5,997 PhP 5,997,000.00 PhP 1,677,000.00
Esguerra, Agcaoili, Mason and Cawkell. The figures under "Nationality," "Number of Shares," "Amount Subscribed,"
Mining &
and "Amount Paid" are exactly the same. Delving deeper, we scrutinize SMMI’s corporate structure: Development
Corp.
Sara Marie Mining, Inc. MBMI Canadian 3,998 PhP 3,996,000.00 PhP 1,116,000.00
Name Nationality Number of Amount Amount Paid Resources, Inc.
Shares Subscribed
Higinio C. Filipino 1 PhP 1,000.00 PhP 1,000.00
Olympic Mines & Filipino 6,663 PhP 6,663,000.00 PhP 0 Mendoza, Jr.
Development
Corp. Henry E. Filipino 1 PhP 1,000.00 PhP 1,000.00
Fernandez
Inc. Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00
Agcaoili
Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00
Ma. Elena A. Filipino 1 PhP 1,000.00 PhP 1,000.00
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00 Bocalan
Esguerra
Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00
Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Robert L. American 1 PhP 1,000.00 PhP 1,000.00
Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00 McCurdy
Hernando
Total 10,000 PhP 10,000,000.00 PhP 2,800,000.00
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00 (emphasis supplied)
Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00

(emphasis supplied) Again, MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili and Esguerra, is present in this corporate
structure.
After subsequently studying SMMI’s corporate structure, it is not farfetched for us to spot the glaring similarity
between SMMI and MMC’s corporate structure. Again, the presence of identical stockholders, namely: Olympic, Patricia Louise Mining & Development Corporation
MBMI, Amanti Limson (Limson), Esguerra, Salazar, Hernando, Mason and Cawkell. The figures under the headings
"Nationality," "Number of Shares," "Amount Subscribed," and "Amount Paid" are exactly the same except for the Using the grandfather method, we further look and examine PLMDC’s corporate structure:
amount paid by MBMI which now reflects the amount of two million seven hundred ninety four thousand pesos (PhP
2,794,000). Oddly, the total value of the amount paid is two million eight hundred nine thousand nine hundred pesos Shares Subscribed
(PhP 2,809,900).
Palawan Alpha South Resources Development Filipino 6,596 PhP 6,596,000.00 PhP 0
Corporation
Accordingly, after "grandfathering" petitioner Tesoro and factoring in Olympic’s participation in SMMI’s corporate
structure, it is clear that MBMI is in control of Tesoro and owns 60% or more equity interest in Tesoro. This makes Inc.
petitioner Tesoro a non-Filipino corporation and, thus, disqualifies it to participate in the exploitation, utilization and
Higinio C. Mendoza, Jr. Filipino 1 PhP 1,000.00 PhP 1,000.00
development of our natural resources.
Fernando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00
Narra Nickel Mining and Development Corporation Henry E. Fernandez Filipino 1 PhP 1,000.00 PhP 1,000.00
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00
7
Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00 Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:
Sec. 29. Admission by co-partner or agent.- The act or declaration of a partner or agent of the party within the
scope of his authority and during the existence of the partnership or agency, may be given in evidence against
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00 such party after the partnership or agency is shown by evidence other than such act or declaration itself. The same
Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60 rule applies to the act or declaration of a joint owner, joint debtor, or other person jointly interested with the party.
(emphasis Sec. 31. Admission by privies.- Where one derives title to property from another, the act, declaration, or omission
supplied) of the latter, while holding the title, in relation to the property, is evidence against the former.
Yet again, the usual players in petitioners’ corporate structures are present. Similarly, the amount of money paid by Petitioners claim that before the above-mentioned Rule can be applied to a case, "the partnership relation must be
the 2nd tier majority stock holder, in this case, Palawan Alpha South Resources and Development Corp. (PASRDC), is shown, and that proof of the fact must be made by evidence other than the admission itself."49 Thus, petitioners
zero. assert that the CA erred in finding that a partnership relationship exists between them and MBMI because, in fact, no
such partnership exists.
Studying MBMI’s Summary of Significant Accounting Policies dated October 31, 2005 explains the reason behind the
intricate corporate layering that MBMI immersed itself in: Partnerships vs. joint venture agreements
JOINT VENTURES The Company’s ownership interests in various mining ventures engaged in the acquisition,
exploration and development of mineral properties in the Philippines is described as follows:
Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of the Rules by stating that "by entering into a joint
(a) Olympic Group
venture, MBMI have a joint interest" with Narra, Tesoro and McArthur. They challenged the conclusion of the CA
The Philippine companies holding the Olympic Property, and the ownership and interests therein, are as follows:
which pertains to the close characteristics of "partnerships" and "joint venture agreements." Further, they asserted
Olympic- Philippines (the "Olympic Group")
that before this particular partnership can be formed, it should have been formally reduced into writing since the
Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3%
capital involved is more than three thousand pesos (PhP 3,000). Being that there is no evidence of written agreement
Tesoro Mining & Development, Inc. (Tesoro) 60.0%
to form a partnership between petitioners and MBMI, no partnership was created.
Pursuant to the Olympic joint venture agreement the Company holds directly and indirectly an effective equity
interest in the Olympic Property of 60.0%. Pursuant to a shareholders’ agreement, the Company exercises joint
control over the companies in the Olympic Group. We disagree.
(b) Alpha Group
The Philippine companies holding the Alpha Property, and the ownership interests therein, are as follows: A partnership is defined as two or more persons who bind themselves to contribute money, property, or industry to a
Alpha- Philippines (the "Alpha Group") common fund with the intention of dividing the profits among themselves. 50 On the other hand, joint ventures have
Patricia Louise Mining Development Inc. ("Patricia") 34.0% been deemed to be "akin" to partnerships since it is difficult to distinguish between joint ventures and partnerships.
Narra Nickel Mining & Development Corporation (Narra) 60.4% Thus:
Under a joint venture agreement the Company holds directly and indirectly an effective equity interest in the Alpha [T]he relations of the parties to a joint venture and the nature of their association are so similar and closely akin to
Property of 60.4%. Pursuant to a shareholders’ agreement, the Company exercises joint control over the a partnership that it is ordinarily held that their rights, duties, and liabilities are to be tested by rules which are
companies in the Alpha Group.48 (emphasis supplied) closely analogous to and substantially the same, if not exactly the same, as those which govern partnership. In
fact, it has been said that the trend in the law has been to blur the distinctions between a partnership and a joint
Concluding from the above-stated facts, it is quite safe to say that petitioners McArthur, Tesoro and Narra are not venture, very little law being found applicable to one that does not apply to the other.51
Filipino since MBMI, a 100% Canadian corporation, owns 60% or more of their equity interests. Such conclusion is
derived from grandfathering petitioners’ corporate owners, namely: MMI, SMMI and PLMDC. Going further and adding Though some claim that partnerships and joint ventures are totally different animals, there are very few rules that
to the picture, MBMI’s Summary of Significant Accounting Policies statement– –regarding the "joint venture" differentiate one from the other; thus, joint ventures are deemed "akin" or similar to a partnership. In fact, in joint
agreements that it entered into with the "Olympic" and "Alpha" groups––involves SMMI, Tesoro, PLMDC and Narra. venture agreements, rules and legal incidents governing partnerships are applied.52
Noticeably, the ownership of the "layered" corporations boils down to MBMI, Olympic or corporations under the
"Alpha" group wherein MBMI has joint venture agreements with, practically exercising majority control over the
Accordingly, culled from the incidents and records of this case, it can be assumed that the relationships entered
corporations mentioned. In effect, whether looking at the capital structure or the underlying relationships between
between and among petitioners and MBMI are no simple "joint venture agreements." As a rule, corporations are
and among the corporations, petitioners are NOT Filipino nationals and must be considered foreign since 60% or
prohibited from entering into partnership agreements; consequently, corporations enter into joint venture
more of their capital stocks or equity interests are owned by MBMI.
agreements with other corporations or partnerships for certain transactions in order to form "pseudo partnerships."
Application of the res inter alios acta rule

Obviously, as the intricate web of "ventures" entered into by and among petitioners and MBMI was executed to
circumvent the legal prohibition against corporations entering into partnerships, then the relationship created should
Petitioners question the CA’s use of the exception of the res inter alios acta or the "admission by co-partner or agent" be deemed as "partnerships," and the laws on partnership should be applied. Thus, a joint venture agreement
rule and "admission by privies" under the Rules of Court in the instant case, by pointing out that statements made by between and among corporations may be seen as similar to partnerships since the elements of partnership are
MBMI should not be admitted in this case since it is not a party to the case and that it is not a "partner" of present.
petitioners.
8
Considering that the relationships found between petitioners and MBMI are considered to be partnerships, then the It has been made clear from the aforecited provisions that the "disputes involving rights to mining areas" under Sec.
CA is justified in applying Sec. 29, Rule 130 of the Rules by stating that "by entering into a joint venture, MBMI have 77(a) specifically refer only to those disputes relative to the applications for a mineral agreement or conferment of
a joint interest" with Narra, Tesoro and McArthur. mining rights.
Panel of Arbitrators’ jurisdiction The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right application is further
elucidated by Secs. 219 and 43 of DENR AO 95-936, which read:
We affirm the ruling of the CA in declaring that the POA has jurisdiction over the instant case. The POA has Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of Sections 28, 43 and 57
jurisdiction to settle disputes over rights to mining areas which definitely involve the petitions filed by Redmont above, any adverse claim, protest or opposition specified in said sections may also be filed directly with the Panel
against petitioners Narra, McArthur and Tesoro. Redmont, by filing its petition against petitioners, is asserting the of Arbitrators within the concerned periods for filing such claim, protest or opposition as specified in said Sections.
right of Filipinos over mining areas in the Philippines against alleged foreign-owned mining corporations. Such claim
constitutes a "dispute" found in Sec. 77 of RA 7942: Sec. 43. Publication/Posting of Mineral Agreement.-
Within thirty (30) days, after the submission of the case by the parties for the decision, the panel shall have xxxx
exclusive and original jurisdiction to hear and decide the following: The Regional Director or concerned Regional Director shall also cause the posting of the application on the
(a) Disputes involving rights to mining areas bulletin boards of the Bureau, concerned Regional office(s) and in the concerned province(s) and
(b) Disputes involving mineral agreements or permits municipality(ies), copy furnished the barangays where the proposed contract area is located once a week for two
(2) consecutive weeks in a language generally understood in the locality. After forty-five (45) days from the last
We held in Celestial Nickel Mining Exploration Corporation v. Macroasia Corp.:53 date of publication/posting has been made and no adverse claim, protest or opposition was filed within the said
The phrase "disputes involving rights to mining areas" refers to any adverse claim, protest, or opposition to an forty-five (45) days, the concerned offices shall issue a certification that publication/posting has been made and
application for mineral agreement. The POA therefore has the jurisdiction to resolve any adverse claim, protest, or that no adverse claim, protest or opposition of whatever nature has been filed. On the other hand, if there be any
opposition to a pending application for a mineral agreement filed with the concerned Regional Office of the MGB. adverse claim, protest or opposition, the same shall be filed within forty-five (45) days from the last date of
This is clear from Secs. 38 and 41 of the DENR AO 96-40, which provide: publication/posting, with the Regional Offices concerned, or through the Department’s Community Environment
Sec. 38. and Natural Resources Officers (CENRO) or Provincial Environment and Natural Resources Officers (PENRO), to be
xxxx filed at the Regional Office for resolution of the Panel of Arbitrators. However previously published valid and
Within thirty (30) calendar days from the last date of publication/posting/radio announcements, the authorized subsisting mining claims are exempted from posted/posting required under this Section.
officer(s) of the concerned office(s) shall issue a certification(s) that the publication/posting/radio No mineral agreement shall be approved unless the requirements under this section are fully complied with and
announcement have been complied with. Any adverse claim, protest, opposition shall be filed directly, within any opposition/adverse claim is dealt with in writing by the Director and resolved by the Panel of Arbitrators.
thirty (30) calendar days from the last date of publication/posting/radio announcement, with the concerned (Emphasis supplied.)
Regional Office or through any concerned PENRO or CENRO for filing in the concerned Regional Office for
purposes of its resolution by the Panel of Arbitrators pursuant to the provisions of this Act and these It has been made clear from the aforecited provisions that the "disputes involving rights to mining areas" under Sec.
implementing rules and regulations. Upon final resolution of any adverse claim, protest or opposition, the Panel 77(a) specifically refer only to those disputes relative to the applications for a mineral agreement or conferment of
of Arbitrators shall likewise issue a certification to that effect within five (5) working days from the date of mining rights.
finality of resolution thereof. Where there is no adverse claim, protest or opposition, the Panel of Arbitrators
shall likewise issue a Certification to that effect within five working days therefrom. The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right application is further
No Mineral Agreement shall be approved unless the requirements under this Section are fully complied with and elucidated by Secs. 219 and 43 of DENRO AO 95-936, which reads:
any adverse claim/protest/opposition is finally resolved by the Panel of Arbitrators. Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of Sections 28, 43 and 57
Sec. 41. above, any adverse claim, protest or opposition specified in said sections may also be filed directly with the Panel
xxxx of Arbitrators within the concerned periods for filing such claim, protest or opposition as specified in said Sections.
Within fifteen (15) working days form the receipt of the Certification issued by the Panel of Arbitrators as
provided in Section 38 hereof, the concerned Regional Director shall initially evaluate the Mineral Agreement
applications in areas outside Mineral reservations. He/She shall thereafter endorse his/her findings to the Sec. 43. Publication/Posting of Mineral Agreement Application.-
Bureau for further evaluation by the Director within fifteen (15) working days from receipt of forwarded xxxx
documents. Thereafter, the Director shall endorse the same to the secretary for consideration/approval within The Regional Director or concerned Regional Director shall also cause the posting of the application on the
fifteen working days from receipt of such endorsement. bulletin boards of the Bureau, concerned Regional office(s) and in the concerned province(s) and
In case of Mineral Agreement applications in areas with Mineral Reservations, within fifteen (15) working days municipality(ies), copy furnished the barangays where the proposed contract area is located once a week for two
from receipt of the Certification issued by the Panel of Arbitrators as provided for in Section 38 hereof, the (2) consecutive weeks in a language generally understood in the locality. After forty-five (45) days from the last
same shall be evaluated and endorsed by the Director to the Secretary for consideration/approval within fifteen date of publication/posting has been made and no adverse claim, protest or opposition was filed within the said
days from receipt of such endorsement. (emphasis supplied) forty-five (45) days, the concerned offices shall issue a certification that publication/posting has been made and
that no adverse claim, protest or opposition of whatever nature has been filed. On the other hand, if there be any
adverse claim, protest or opposition, the same shall be filed within forty-five (45) days from the last date of
publication/posting, with the Regional offices concerned, or through the Department’s Community Environment
and Natural Resources Officers (CENRO) or Provincial Environment and Natural Resources Officers (PENRO), to be
9
filed at the Regional Office for resolution of the Panel of Arbitrators. However, previously published valid and Furthermore, the POA has jurisdiction over the MPSA applications under the doctrine of primary jurisdiction. Euro-
subsisting mining claims are exempted from posted/posting required under this Section. med Laboratories v. Province of Batangas55 elucidates:
No mineral agreement shall be approved unless the requirements under this section are fully complied with and The doctrine of primary jurisdiction holds that if a case is such that its determination requires the expertise,
any opposition/adverse claim is dealt with in writing by the Director and resolved by the Panel of Arbitrators. specialized training and knowledge of an administrative body, relief must first be obtained in an administrative
(Emphasis supplied.) proceeding before resort to the courts is had even if the matter may well be within their proper jurisdiction.
These provisions lead us to conclude that the power of the POA to resolve any adverse claim, opposition, or protest Whatever may be the decision of the POA will eventually reach the court system via a resort to the CA and to this
relative to mining rights under Sec. 77(a) of RA 7942 is confined only to adverse claims, conflicts and oppositions Court as a last recourse.
relating to applications for the grant of mineral rights.
Selling of MBMI’s shares to DMCI
POA’s jurisdiction is confined only to resolutions of such adverse claims, conflicts and oppositions and it has no
authority to approve or reject said applications. Such power is vested in the DENR Secretary upon recommendation As stated before, petitioners’ Manifestation and Submission dated October 19, 2012 would want us to declare the
of the MGB Director. Clearly, POA’s jurisdiction over "disputes involving rights to mining areas" has nothing to do instant petition moot and academic due to the transfer and conveyance of all the shareholdings and interests of
with the cancellation of existing mineral agreements. (emphasis ours) MBMI to DMCI, a corporation duly organized and existing under Philippine laws and is at least 60% Philippine-
owned.56 Petitioners reasoned that they now cannot be considered as foreign-owned; the transfer of their shares
Accordingly, as we enunciated in Celestial, the POA unquestionably has jurisdiction to resolve disputes over MPSA supposedly cured the "defect" of their previous nationality. They claimed that their current FTAA contract with the
applications subject of Redmont’s petitions. However, said jurisdiction does not include either the approval or State should stand since "even wholly-owned foreign corporations can enter into an FTAA with the
rejection of the MPSA applications, which is vested only upon the Secretary of the DENR. Thus, the finding of the State."57 Petitioners stress that there should no longer be any issue left as regards their qualification to enter into
POA, with respect to the rejection of petitioners’ MPSA applications being that they are foreign corporation, is valid. FTAA contracts since they are qualified to engage in mining activities in the Philippines. Thus, whether the
"grandfather rule" or the "control test" is used, the nationalities of petitioners cannot be doubted since it would pass
Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts that it is the regular courts, not the POA, that has both tests.
jurisdiction over the MPSA applications of petitioners.
The sale of the MBMI shareholdings to DMCI does not have any bearing in the instant case and said fact should be
This postulation is incorrect. disregarded. The manifestation can no longer be considered by us since it is being tackled in G.R. No. 202877
pending before this Court.1âwphi1 Thus, the question of whether petitioners, allegedly a Philippine-owned
corporation due to the sale of MBMI's shareholdings to DMCI, are allowed to enter into FTAAs with the State is a non-
It is basic that the jurisdiction of the court is determined by the statute in force at the time of the commencement of issue in this case.
the action.54
In ending, the "control test" is still the prevailing mode of determining whether or not a corporation is a Filipino
Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary Reorganization Act of 1980" reads: corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled to undertake the exploration,
Sec. 19. Jurisdiction in Civil Cases.—Regional Trial Courts shall exercise exclusive original jurisdiction: development and utilization of the natural resources of the Philippines. When in the mind of the Court there is doubt,
1. In all civil actions in which the subject of the litigation is incapable of pecuniary estimation. based on the attendant facts and circumstances of the case, in the 60-40 Filipino-equity ownership in the
corporation, then it may apply the "grandfather rule."
On the other hand, the jurisdiction of POA is unequivocal from Sec. 77 of RA 7942:
Section 77. Panel of Arbitrators.— WHEREFORE, premises considered, the instant petition is DENIED. The assailed Court of Appeals Decision dated
x x x Within thirty (30) days, after the submission of the case by the parties for the decision, the panel shall have October 1, 2010 and Resolution dated February 15, 2011 are hereby AFFIRMED.
exclusive and original jurisdiction to hear and decide the following:
(c) Disputes involving rights to mining areas
(d) Disputes involving mineral agreements or permits
It is clear that POA has exclusive and original jurisdiction over any and all disputes involving rights to mining areas.
One such dispute is an MPSA application to which an adverse claim, protest or opposition is filed by another
interested applicant.1âwphi1 In the case at bar, the dispute arose or originated from MPSA applications where
petitioners are asserting their rights to mining areas subject of their respective MPSA applications. Since respondent
filed 3 separate petitions for the denial of said applications, then a controversy has developed between the parties
and it is POA’s jurisdiction to resolve said disputes.
Moreover, the jurisdiction of the RTC involves civil actions while what petitioners filed with the DENR Regional Office
or any concerned DENRE or CENRO are MPSA applications. Thus POA has jurisdiction.
10
Parente then went to the Department of Labor and Employment, where she was advised to first accept her
separation pay before filing a complaint.11 Thus, on June 8, 2009, after she had been required to process her
clearance and sign several documents, Parente received her separation pay.12
On July 9, 2009, Parente lodged her Complaint for illegal dismissal.13
A copy of the Complaint and summons were served on Team Pacific, Garcia, and the company president,14 Federico
M. Fernandez (Fernandez). These were returned to the Labor Arbitration Office with the notation "Refused to
Receive."15
G.R. No. 206789, July 15, 2020
Thus, a Notice of Hearing was sent to Team Pacific, Fernandez, and Garcia, informing them of the conference on
TEAM PACIFIC CORPORATION, FEDERICO M. FERNANDEZ, AND AURORA Q. GARCIA, PETITIONERS, V. September 8, 2009. None of them attended the hearing. The Labor Arbiter noted further that they did not even verify
LAYLA M. PARENTE, RESPONDENT. the charges against them and tried to hold the Labor Arbitration Office accountable for their failure to attend.16
Thus, the Labor Arbiter rendered a decision only based on Parente's evidence.17
All the requisites for a valid retrenchment must be present in order for a dismissal to be lawful. The employer must
not only show that it incurred substantial and serious business losses, but must also prove that the retrenchment In a January 29, 2010 Decision,18 the Labor Arbiter dismissed Parente's Complaint. It found her dismissal valid,19
was done in good faith and the retrenched employees were selected through fair and reasonable criteria.1 noting that the Termination Letter clearly stated that the retrenchment was to prevent losses amid the global
economic crisis,20 which had led to establishment closures and layoffs.21
This Court resolves a Petition for Review on Certiorari2 assailing the Decision3 and Resolution4 of the Court of
Appeals, which reversed the National Labor Relations Commission's and Labor Arbiter's rulings and found that Layla The Labor Arbiter ruled that Team Pacific complied with the Labor Code's requirements for retrenchment, as there
M. Parente (Parente) was illegally dismissed by Team Pacific Corporation (Team Pacific). was no showing of bad faith or malice, and Parente was duly notified one month prior to the date of her dismissal.22
Parente was also held to be bound by the clearance certificate she signed and the separation pay she received, which
In February 1999, Team Pacific hired Parente as a production operator in its Hermetic Department.5 Later, Parente was more than the amount required under the Labor Code.23
was promoted to being a quality assurance calibration technician.6
In its May 28, 2010 Resolution,24 the National Labor Relations Commission affirmed the Labor Arbiter's Decision. It
On April 23, 2009, Parente filed for and commenced her 60-day maternity leave, which would end on June 21, 2009. found that Parente's documents contradicted her claim of illegal dismissal.25 It ruled that Parente's acts of receiving
She gave birth on April 27, 2009.7 the notice of termination, processing her clearance, accepting her separation pay, and receiving her employment
certificate were conclusive on her. It ruled that Parente had been estopped from suing Team Pacific, which believed
On May 8, 2009, while on her maternity leave, Parente was asked to see Team Pacific's human resource and that she voluntarily accepted her dismissal.26
administrative manager, Aurora Q. Garcia (Garcia). Parente protested, saying that she was still on maternity leave
and experiencing post-natal weakness, dizziness, and shakiness. However, when she was told that there were On July 30, 2010, the National Labor Relations Commission also denied Parente's Motion for Reconsideration. Thus,
reports circulating within the plant that she would be terminated from employment, Parente acceded.8 Parente filed a Petition for Certiorari before the Court of Appeals.27
During their meeting on May 21, 2009, Garcia handed Parente a letter and informed her of her dismissal, effective on In its October 30, 2012 Decision,28 the Court of Appeals reversed the ruling of the National Labor Relations
June 22, 2009, the day after the end of her maternity leave. She was told that she would receive her separation pay Commission. It held that Parente was illegally dismissed.29
on the same date. Parente was about to ask why she was being dismissed, but Garcia interrupted her and asked her
to just affix her name and signature on the space provided in the letter.9 The Court of Appeals noted that Team Pacific did not submit to the Labor Arbiter's jurisdiction when it refused to
receive summons and file its position paper and other documents. Thus, no evidence was found to support Team
The Termination Letter dated May 21, 2009 states: Pacific's claim of business losses to justify the dismissal.30
In view of the global economic crisis that started last year, management implemented survival measures such as
energy saving program, forced leaves, and a compressed workweek arrangement. Starting December 2008, there Moreover, the Court of Appeals held that Parente was not estopped from questioning her dismissal just because she
has been a 30% reduction in business volume resulting to substantial losses which cannot be allowed to continue accepted her separation pay.31 It ruled that waivers and quitclaims are frowned upon, especially as to employees
as it threatens the organization's survival. who may have been pressured by employers seeking to evade legal responsibilities.32 It also noted how Parente was
To minimize continuing losses and to ensure survival of the company, management has no alternative but to in no position to resist the money offered as she had just given birth, as well as the Department of Labor and
implement a retrenchment program. As such, Management, in accordance with the 30-day notice required by law, Employment's advice that she accept her separation pay before filing a complaint.33 It found that by proceeding with
is constrained to advise that your services will be terminated effective close of business hours of June 22, 2009. the illegal dismissal case, Parente showed that she did not sleep on her rights.34 The Court of Appeals disposed:
You shall be paid separation pay equivalent of not just ½ month's pay as required by law, but one month's pay for WHEREFORE, premises considered, the Resolution dated May 28, 2010 issued by the National Labor Relations
every year of service, plus payment of earned but unpaid vacation and sick leave credits and pro-rated 13th Month Commission as well as the Decision dated January 29, 2010 rendered by the Labor Arbiter are hereby REVERSED
Pay. and SET ASIDE. In lieu thereof, a judgment adjudging private respondents liable for illegally dismissing Layla M.
You will receive your separation pay and other earned benefits as above-mentioned on June 22, 2009 upon Parente as follows:
execution of the necessary quit claims. 1. Ordering private respondents to REINSTATE Parente to her former position without loss of seniority rights and
We would like to thank you for your services and we wish you the best in your future endeavors.10 other privileges; and
11
2. Holding private respondents JOINTLY and SEVERALLY liable to PAY Parente full backwages, inclusive of In their Reply,61 petitioners argue that the submission of documents on appeal should be allowed to afford this Court
allowances, and other benefits or their monetary equivalent to be computed and determined by the Labor Arbiter the fullest opportunity to determine the truth behind the legal and factual issues raised.62 They also point out that
from the time her compensation was withheld from her up to the time of her actual reinstatement. this Court reviews factual findings when they are conflicting or when the Court of Appeals manifestly overlooked
Let a copy of this Decision be furnished the Labor Arbiter who is directed to conduct with dispatch the computation relevant facts, which if properly considered, would lead to a different conclusion.63
and determination of the backwages, allowances and other benefits which are due to Parente.
In any case, petitioners maintain that the labor tribunals' findings that the company complied with the requirements
Team Pacific, Fernandez, and Garcia moved for reconsideration, but the Court of Appeals denied this in its March 27, for retrenchment.64
2013 Resolution.36 Thus, they filed this Petition37 against Parente.
Petitioners add that they have submitted the following documents to this Court: (a) Audited Financial Statements for
Maintaining that the dismissal was valid, petitioners assert that the labor tribunals' findings were substantiated.38 the years 2006 to 2009, showing millions in losses; (b) its April 29, 2008 Letter advising the Department of Labor
They claim that respondent herself made admissions and submitted documents that estopped her from suing the and Employment of the compressed work week arrangement it would be implementing; (c) its Notice of
company.39 She allegedly admitted that the company had religiously observed the required process.40 They add Retrenchment dated May 8, 2009; (d) its duly accomplished Establishment Employment Report; and (e) its list of
that she even obtained her clearances, received her separation pay, and executed a waiver and quitclaim without affected workers by displacements.65
being forced to do so.41 They also note that respondent is not a feebleminded, gullible person who could be put at a
disadvantage.42 They insist that respondent voluntarily accepted her dismissal.43 Petitioners also point out that the Regional Trial Court of Pasig City had granted the company's Petition for Corporate
Rehabilitation, stating that the financial distress was not of its own doing and no clear evidence of mismanagement
Petitioners further argue that respondent's dismissal was justified.44 They maintain that the requirements of or any attempt to escape its inherited liabilities was shown.66
procedural and substantive due process were observed.45
Finally, petitioners again insist that petitioners Garcia and Fernando should not be made solidarity liable with
Petitioners further assert that the company had been suffering from severe financial losses that it had to retrench petitioner Team Pacific.67
employees to stay afloat.46 The company's Audited Financial Statements from 2006 to 2009 allegedly show net
losses and aggregate deficits amounting to millions of pesos.47 They claim that its financial condition had been so The issues in this case are as follows:
distressed that it had to file a Petition for Corporate Rehabilitation.48 Petitioners maintain that the retrenchment was First, whether or not petitioners Team Pacific Corporation, Federico M. Fernandez, and Aurora Q. Garcia may
done in good faith and as a last option, after trying various cost-cutting measures, including revised work schedules, submit new documents and evidence in a Petition for Certiorari in the Court of Appeals;
forced leaves, and compressed workweek schemes, among others.49 Second, whether or not petitioners complied with the standards and requirements for a valid retrenchment;
Third, whether or not respondent is estopped by her acceptance of separation pay and execution of a waiver and
Petitioners also claim that they served the written notices on the Department of Labor and Employment and all the quitclaim; and
affected employees one month prior to the retrenchment's effectivity, and paid their separation pay.50 Finally, whether or not petitioners Garcia and Fernando should be solidarity liable with petitioner Team Pacific.
Petitioners maintain that the retrenchment was within the company's management prerogative, and the wisdom and This Court denies the Petition.
soundness of its authority may not be questioned.51
I
Moreover, petitioners contend that petitioners Garcia and Fernandez should not have been made solidarity liable with
petitioner Team Pacific as they showed no bad faith. Likewise, they insist that the company has a separate Respondent alleges that petitioners had waived their right to present evidence, and thus the documents it presented
personality from its directors, officers, and stockholders.52 to the Court of Appeals showing its business losses should not be considered for being abusive of the right to due
process.68
In her Comment,53 respondent maintains that she was illegally dismissed. She claims that petitioners failed to show
substantial evidence to support the validity of the company's retrenchment program, including its compliance with The Court of Appeals is not precluded from considering the new evidence presented by petitioner Team Pacific.
the 30-day prior notice rule with the Department of Labor and Employment.54 Section 9 of Batas Pambansa Blg. 129, as amended by Republic Act No. 7902,69 states:
SECTION 9. Jurisdiction. — The Court of Appeals shall exercise:
Respondent points out that since petitioners did not submit to the Labor Arbiter's jurisdiction, and did not file any ....
pleadings or evidence to support their claims, they waived their right to prove their case.55 She contends that The Court of Appeals shall have the power to try cases and conduct hearings, receive evidence and perform any
petitioners only presented documents before the Court of Appeals, violating due process.56 She also argues that only and all acts necessary to resolve factual issues raised in cases falling within its original and appellate jurisdiction,
questions of law may be raised in a petition for review on certiorari.57 including the power to grant and conduct new trials or further proceedings. Trials or hearings in the Court of
Appeals must be continuous and must be completed within three (3) months, unless extended by the Chief
Respondent further asserts that it is inequitable to bar her by estoppel. She points out that employees are usually in Justice. (Emphasis supplied)
no position to resist money, especially in her case where she found herself out of work just after giving birth. She
asserts that her filing of complaint proves that she did not waive her rights to question her dismissal.58 In Spouses Marcelo v. LBC Bank,70 this Court held that the Court of Appeals has the authority to consider new
evidence and perform what is necessary to resolve factual issues:
Respondent also maintains that her dismissal was in bad faith. She notes how this was oppressively earned out while Spouses Marcelo fault the Court of Appeals for admitting and considering the Affidavit of Ma. Tara O. Aznar, dated
she was still on maternity leave, made effective on the date she was supposed to return to work.59 Thus, she asserts 10 July 2006, and the Secretary's Certificates dated 27 June 2006 and 1 July 2005 in resolving LBC Bank's motion
that petitioners Fernandez and Garcia should be solidarity liable as her dismissal would not have been carried out for reconsideration of the Court of Appeals' 16 June 2006 Decision. Spouses Marcelo contend that in a special civil
without their participation.60 action for certiorari, the Court of Appeals cannot admit new evidence. Spouses Marcelo further submit that the sole
12
office of the writ of certiorari is the correction of errors of jurisdiction, and thus, the Court of Appeals erred in Under Article 298 of the Labor Code, retrenchment is one of the authorized causes to dismiss an employee. It
admitting the "additional evidence." involves a reduction in the workforce, resorted to when the employer encounters business reverses, losses, or
economic difficulties, such as "recessions, industrial depressions, or seasonal fluctuations."75 This is usually done as
The Court is not convinced. a last recourse when other methods are found inadequate.76
In Maralit v. Philippine National Bank, where petitioner Maralit questioned the appellate court's admission and A valid retrenchment may only be exercised after the employer has proved compliance with the procedural and
appreciation of a belatedly submitted documentary evidence, the Court held that "[i]n a special civil action for substantive requisites of valid retrenchment. Absent any of these, then the dismissal is illegal.77
certiorari, the Court of Appeals has ample authority to receive new evidence and perform any act necessary to
resolve factual issues." . . . The procedural requisites for a valid retrenchment are provided for in the Labor Code:
ARTICLE 298. [283] Closure of Establishment and Reduction of Personnel. — The employer may also terminate the
Clearly, the Court of Appeals did not err in admitting the evidence showing LBC Bank's express ratification of employment of any employee due to the installation of labor-saving devices, redundancy, retrenchment to prevent
Milan's consolidation of the title over the subject property. Further, the Court of Appeals did not err in admitting losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the
such evidence in resolving LBC Bank's motion for reconsideration in a special civil action for certiorari. To rule purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Ministry of
otherwise will certainly defeat the ends of substantial justice.71 (Citations omitted) Labor and Employment at least one (1) month before the intended date thereof. . . . In case of retrenchment to
prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to
Thus, the Court of Appeals may consider the new evidence presented by a party in a petition for certiorari.
serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at
However, here, the Court of Appeals ruled that petitioners waived their right to present evidence, and thus, reversed least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months
the labor tribunals' rulings and found that Parente was illegally dismissed.72 Hence, petitioners came to this Court shall be considered one (1) whole year. (Emphasis supplied)
through a Petition for Review under Rule 45 of the Rules of Court.
Thus, the employer must serve a written notice on the employee and the Department of Labor and Employment one
It is well established that a Rule 45 petition should raise only questions of law. This Court is not a trier of facts and it month before the date of the dismissal, and pay the required amount of separation pay.
is not its function to weigh the evidence all over again. In Fuji Television Network, Inc. v. Espiritu:73
Meanwhile, in La Consolacion College of Manila v. Pascua,78 this Court enumerated three substantive requisites for a
When a decision of the Court of Appeals under a Rule 65 petition is brought to this court by way of a petition for valid retrenchment:
review under Rule 45, only questions of law may be decided upon. As held in Meralco Industrial v. National Labor While a legitimate business option, retrenchment may only be exercised in compliance with substantive and
Relations Commission: procedural requisites.
This Court is not a trier of facts. Well-settled is the rule that the jurisdiction of this Court in a petition for review on As to the substantive requisites, an employer must first show "that the retrenchment is reasonably necessary and
certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not of fact, unless likely to prevent business losses which, if already incurred, are not merely de minimis, but substantial, serious,
the factual findings complained of are completely devoid of support from the evidence on record, or the assailed actual and real, or if only expected, are reasonably imminent as perceived objectively and in good faith by the
judgment is based on a gross misapprehension of facts. Besides, factual findings of quasi-judicial agencies like the employer." Second, an employer must also show "that [it] exercises its prerogative to retrench employees in good
NLRC, when affirmed by the Court of Appeals, are conclusive upon the parties and binding on this Court. faith for the advancement of its interest and not to defeat or circumvent the employees' right to security of tenure."
Third, an employer must demonstrate "that [it] used fair and reasonable criteria in ascertaining who would be
Career Philippines v. Serna, citing Montoya v. Trammed, is instructive on the parameters of judicial review under dismissed and who would be retained among the employees, such as status (i.e., whether they are temporary,
Rule 45: casual, regular or managerial employees), efficiency, seniority, physical fitness, age, and financial hardship for
As a rule, only questions of law may be raised in a Rule 45 petition. In one case, we discussed the particular certain workers."79 (Emphasis supplied, citations omitted)
parameters of a Rule 45 appeal from the CA's Rule 65 decision on a labor case, as follows:
In a Rule 45 review, we consider the correctness of the assailed CA decision, in contrast with the review for Thus, for a valid retrenchment, the employer must show that: (a) retrenchment was a necessary measure to prevent
jurisdictional error that we undertake under Rule 65. Furthermore, Rule 45 limits us to the review of questions of substantial and serious business losses; (b) it was done in good faith and not to defeat employees' rights; and (c) the
law raised against the assailed CA decision. In ruling for legal correctness, we have to view the CA decision in the employer was fair and reasonable in selecting the employees who will be retrenched.
same context that the petition for certiorari it ruled upon was presented to it; we have to examine the CA
For the first requirement, the employer must prove the "existence or imminence of substantial losses" that would
decision from the prism of whether it correctly determined the presence or absence of grave abuse of discretion
warrant the retrenchment.80 In Lopez Sugar Corporation v. Federation of Free Workers:81
in the NLRC decision before it, not on the basis of whether the NLRC decision on the merits of the case was
Firstly, the losses expected should be substantial and not merely de minimis in extent. If the loss purportedly
correct. In other words, we have to be keenly aware that the CA undertook a Rule 65 review, not a review on
sought to be forestalled by retrenchment is clearly shown to be insubstantial and inconsequential in character, the
appeal, of the NLRC decision challenged before it.74 (Emphasis in the original, citations omitted)
bonafide nature of the retrenchment would appear to be seriously in question. Secondly, the substantial loss
Thus, when this Court reviews a decision of the Court of Appeals on a Rule 65 petition, what it determines is whether apprehended must be reasonably imminent, as such imminence can be perceived objectively and in good faith by
the Court of Appeals correctly ruled on whether grave abuse of discretion exists. the employer. There should, in other words, be a certain degree of urgency for the retrenchment, which is after all
a drastic recourse with serious consequences for the livelihood of the employees retired or otherwise laid-off.
In this case, we find that the Court of Appeals correctly ruled that the National Labor Relations Commission and the Because of the consequential nature of retrenchment, it must, thirdly, be reasonably necessary and likely to
Labor Arbiter gravely abused their discretion in finding that the retrenchment was valid. effectively prevent the expected losses. The employer should have taken other measures prior or parallel to
retrenchment to forestall losses, i.e., cut other costs than labor costs. An employer who, for instance, lays off
II substantial numbers of workers while continuing to dispense fat executive bonuses and perquisites or so-called
"golden parachutes," can scarcely claim to be retrenching in good faith to avoid losses. To impart operational
13
meaning to the constitutional policy of providing "full protection" to labor, the employer's prerogative to bring down 1998 and 1997, and the results of its operations and its cash flows for the years ended, in conformity with the
labor costs by retrenching must be exercised essentially as a measure of last resort, after less drastic means — generally accepted accounting principles.88 (Citations omitted)
e.g., reduction of both management and rank-and-file bonuses and salaries, going on reduced time, improving
manufacturing efficiencies, trimming of marketing and advertising costs, etc. — have been tried and found wanting. This Court has likewise ruled that presenting the audited financial statement for the year of retrenchment may not be
sufficient. The employer must prove that the losses increased or have been increasing for a period of time and the
Lastly, but certainly not the least important, alleged losses if already realized, and the expected imminent losses company's condition will not improve in the near future:
sought to be forestalled, must be proved by sufficient and convincing evidence. The reason for requiring this Jurisprudence requires that the necessity of retrenchment to stave off genuine and significant business losses or
quantum of proof is readily apparent: any less exacting standard of proof would render too easy the abuse of this reverses be demonstrated by an employer's independently audited financial statements. Documents that have not
ground for termination of services of employees.82 (Emphasis supplied) been the subject of an independent audit may very well be self-serving. Moreover, it is not enough that it presents
its audited financial statement for the year that retrenchment was undertaken for even as it may be incurring
In this case, the Labor Arbiter based its ruling only on the documents respondents submitted, after petitioners had losses for that year, its overall financial status may already be improving. Thus, it must "also show that its losses
refused to receive summons, attend hearings, or file pleadings.83 Nonetheless, the Labor Arbiter found that the increased through a period of time and that the condition of the company is not likely to improve in the near
retrenchment was valid because the Termination Letter, citing the global economic crisis as its reason, was served future."89
one month prior to respondent's dismissal.84 The Labor Arbiter also declared that respondent was bound by her
acceptance of separation pay and her execution of a waiver and quitclaim.85 There may be instances when presenting audited financial statements is not necessary,90 but this does not dispense
with the employer's burden of providing a basis for alleging that it has incurred serious business losses.
The National Labor Relations Commission merely affirmed this ruling, saying that respondent was estopped from
questioning her dismissal.86 Here, the Labor Arbiter did not consider any audited financial statement or any other evidence in determining
whether there were business losses. He only referred to the Termination Letter, as if its bare allegations are enough
The labor tribunals' factual findings are not sufficient to rule that the retrenchment is valid. Petitioners did not prove to be given full faith and credence. He merely assumed that the global economic crisis affected petitioners, and thus
in any way that the company incurred or is about to incur substantial business losses that would warrant concluded that respondent was rightfully dismissed.
retrenchment.
Mere allegations of a global economic crisis are not sufficient. In Me-Shurn Corporation v. Me-Shurn Workers Union-
Independently audited financial statements are of high evidentiary value in terms of proving the employer's serious FSM:91
business losses. In Manatad v. Philippine Telegraph and Telephone Corporation:87 The reason invoked by petitioners to justify the cessation of corporate operations was alleged business losses. Yet,
The financial statements audited by independent external auditors constitute the normal method of proving the other than generally referring to the financial crisis in 1998 and to their supposed difficulty in obtaining an export
profit and loss performance of a company as enunciated in San Miguel Corporation v. Abella: quota, interestingly, they never presented any report on the financial operations of the corporation during the
Normally, the condition of business losses is shown by audited financial documents like yearly balance sheets, period before its shutdown. Neither did they submit any credible evidence to substantiate their allegation of
profit and loss statements and annual income tax returns. The financial statements must be prepared and signed business losses.
by independent auditors failing which they can be assailed as self-serving documents. Basic is the rule in termination cases that the employer bears the burden of showing that the dismissal was for a
just or authorized cause. Otherwise, the dismissal is deemed unjustified. Apropos this responsibility, petitioner
No evidence can best attest to a company's economic status other than its financial statement. We defined the
corporation should have presented clear and convincing evidence of imminent economic or business reversals as a
evidentiary weight accorded to audited financial statements in Asian Alcohol Corporation v. National Labor Relations
form of affirmative defense in the proceedings before the labor arbiter or, under justifiable circumstances, even on
Commission:
appeal with the NLRC.
The condition of business losses is normally shown by audited financial documents like yearly balance sheets and
However, as previously stated, in all the proceedings before the two quasi-judicial bodies and even before the CA,
profit and loss statements as well as annual income tax returns. It is our ruling that financial statements must be
no evidence was submitted to show the corporation's alleged business losses. It is only now that petitioners have
prepared and signed by independent auditors. Unless duly audited, they can be assailed as self-serving documents.
belatedly submitted the corporation's income tax returns from 1996 to 1999 as proof of alleged continued losses
But it is not enough that only the financial statements for the year during which retrenchment was undertaken, are
during those years.
presented in evidence. For it may happen that while the company has indeed been losing, its losses may be on a
Again, elementary is the principle barring a party from introducing fresh defenses and facts at the appellate stage.
downward trend, indicating that business is picking up and retrenchment, being a drastic move, should no longer
This Court has ruled that matters regarding the financial condition of a company — those that justify the closing of
be resorted to. Thus, the failure of the employer to show its income or loss for the immediately preceding year or
its business and show the losses in its operations — are questions of fact that must be proven below. Petitioners
to prove that it expected no abatement of such losses in the coming years, may bespeak the weakness of its cause.
must bear the consequence of their neglect. Indeed, their unexplained failure to present convincing evidence of
It is necessary that the employer also show that its losses increased through a period of time and that the condition
losses at the early stages of the case clearly belies the credibility of their present claim.92 (Citations omitted)
of the company is not likely to improve in the near future.
Furthermore, in the proceedings before the Labor Arbiter and the National Labor Relations Commission, petitioners
....
submitted no evidence that the retrenchment notice was served on the Department of Labor and Employment one
That the financial statements are audited by independent auditors safeguards the same from the manipulation of month prior to the retrenchment. Thus, the labor tribunals' findings were unsupported by substantial evidence. They
the figures therein to suit the company's needs. The auditing of financial reports by independent external auditors failed to consider the law's requirements in determining whether the retrenchment was valid.
are strictly governed by national and international standards and regulations for the accounting profession. . . .
Even if this Court were to consider the evidence now presented by petitioners, we still find it insufficient to render the
In addition, the fact that the financial statements were audited by independent auditors settles any doubt on the retrenchment valid.
authenticity of these documents for lack of signature of the person who prepared it. As reported by SGV & Co., the
Petitioners submitted the following documents to prove it incurred substantial and serious business losses:
financial statements presented fairly, in all material aspects, the financial position of the respondent as of 30 June
14
(a) Audited Financial Statements for the years 200693 to 2009,94 showing the company's net losses and deficits Neither accepting separation pay nor signing a waiver and quitclaim bars the employee from contesting the legality of
amounting to millions;95 the dismissal. Such acts are generally taken with a grain of salt, considering that employees are usually at an
(b) Letter dated April 29, 2008 advising the Department of Labor and Employment of the compressed work week economic disadvantage and are often left with no choice, since they are suddenly faced with the pressure to meet
arrangement it will be implementing;96 financial burdens. In American Home Assurance Company v. National Labor Relations Commission:103
(c) Notice of Retrenchment dated May 8, 2009, served on the Department of Labor and Employment;97 The fact that private respondent signed a document of waiver and quitclaim does not bar him from pursuing the
(d) Duly accomplished Establishment Employment Report received by the Department of Labor and Employment on P50,000.00 bonus under the SERP. His receipt of the separation pay and the execution of the release documents
May 8, 2009;98 cannot militate against him. That acceptance of separation pay does not amount to estoppel, and the satisfaction
(e) List of Affected Workers by Displacements received by the Department of Labor and Employment on May 8, receipt does not result in a waiver. The law does not consider as valid any agreement to receive less compensation
2009;99 and than what a worker is entitled to recover nor prevent him from demanding benefits to which he is entitled.
(f) The Decision granting petitioners' Petition for Corporate Rehabilitation.100 Quitclaims executed by employees are thus commonly frowned upon as contrary to public policy and ineffective to
bar claims for the full measure of the workers' legal rights, considering the economic disadvantage of the employee
While these documents may suffice to show the company's business losses and compliance with notice requirements, and the inevitable pressure upon him by financial necessity.104 (Emphasis supplied, citation omitted)
petitioners still failed to show that the employees chosen for retrenchment were selected through fair and reasonable
criteria. In La Consolacion College of Manila:101 Filing a complaint for illegal dismissal likewise negates any claim that the dismissal was voluntarily accepted. In
As early as 1987, this Court in Asia World Publishing House, Inc. v. Ople considered seniority, along with efficiency Molave Tours Corporation v. National Labor Relations Commission:105
rating and less-preferred status, as a crucial facet of a fair and reasonable criterion for effecting retrenchment. The fact that private respondent immediately filed a complaint for illegal dismissal against petitioner and repudiated
Emcor, Inc. v. Sienes was categorical, a "[retrenchment scheme without taking seniority into account rendered the his alleged resignation completely negated petitioner's claim that respondent Bolocon voluntarily resigned. By
retrenchment invalid": vigorously pursuing the litigation of his action against petitioner, private respondent clearly manifested that he has
Records do not show any criterion adopted or used by petitioner in dismissing respondent. Respondent was no intention of relinquishing his employment, which act is wholly incompatible to petitioner's assertion that he
terminated without considering her seniority. Retrenchment scheme without taking seniority into account voluntarily resigned.106 (Emphasis supplied)
rendered the retrenchment invalid... .
In this case, the Department of Labor and Employment had advised respondent to first accept her separation pay
In Philippine Tuberculosis Society, Inc. v. National Labor Union, this Court quoted with approval the following before filing her complaint. To accept her separation pay, she had to process her clearance and sign the waivers and
discussion by the National Labor Relations Commission: quitclaims. Not long after, she filed the case.
We noted with concern that the criteria used by the Society failed to consider the seniority factor in choosing those
to be retrenched, a failure which, to our mind, should invalidate the retrenchment, as the omission immediately Notably, respondent was dismissed when she had just given birth. Her dismissal's effectivity was set on the date she
makes the selection process unfair and unreasonable. . . . In Villena vs. NLRC, 193 SCRA 686. February 7, 1991, was supposed to return from her maternity leave. She was at a clear disadvantage, having found herself without a
the Supreme Court considered the seniority factor an important ingredient for the validity of a retrenchment job and a source of income right at a time when finances were crucial.
program. According to the Court, the following legal procedure should be observed for a retrenchment to be valid:
Thus, her acceptance of her separation pay and the execution of her waiver and quitclaim cannot be deemed as her
(a) one-month prior notice to the employee as prescribed by Article 282 of the Labor Code; and b) use of a fair and
waiving her right to file a complaint. She was not estopped from contesting the legality of her dismissal.
reasonable criteria in carrying out the retrenchment program, such as 1) less preferred status (as in the case of
temporary employees), 2) efficiency rating, 3) seniority and 4) proof of claimed financial losses. IV
....
Indeed, it may have made mathematical sense to dismiss the highest paid employee first. However, appraising the Nonetheless, we find that petitioners Garcia and Fernandez should not be solidarily liable with petitioner Team Pacific
propriety of retrenchment is not merely a matter of enabling an employer to augment financial prospects. It is as Corporation.
much a matter of giving employees their just due. Employees who have earned their keep by demonstrating
exemplary performance and securing roles in their respective organizations cannot be summarily disregarded by In case of dismissals, directors and officers of corporations may only be held solidarily liable with the corporation if
nakedly pecuniary considerations. The Labor Code's permissiveness towards retrenchments aims to strike a balance they acted in bad faith or with malice. In Mandaue Dinghow Dimsum House, Co., Inc. v. National Labor Relations
between legitimate management prerogatives and the demands of social justice. Concern for the employer cannot Commission:107
mean a disregard for employees who have shown not only their capacity, but even loyalty. La Consolacion's It must be emphasized that a corporation is invested by law with a personality separate and distinct from those of
pressing financial condition may invite commiseration, but its flawed standard for retrenchment constrains this the persons composing it as well as from that of any other legal entity to which it may be related. Because of this,
Court to maintain that respondent was illegally dismissed.102 (Emphasis supplied) the doctrine of piercing the veil of corporate fiction must be exercised with caution.
In Malayang Samahan ng mga Manggagawa sa M. Greenfield v. Ramos, this Court reiterated the rule that
As stated, the use of fair and reasonable criteria is necessary in a retrenchment program. Failure to do so affects the corporate directors and officers are solidarily liable with the corporation for the termination of employees done with
employees' substantive rights to get what is their due. malice or bad faith. It has been held that bad faith does not connote bad judgment or negligence; it imports a
dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of a known duty through
Petitioners failed to prove that it used fair and reasonable criteria in carrying out the retrenchment program. They some motive or interest or ill will; it partakes of the nature of fraud.108 (Citations omitted)
likewise failed to explain why it included respondent, who had already been employed for 10 years. Clearly,
petitioners did not comply with the requirements of retrenchment under law and jurisprudence. In MAM Realty Development Corporation v. National Labor Relations Commission:109
A corporation, being a juridical entity, may act only through its directors, officers and employees. Obligations
III incurred by them, acting as such corporate agents, are not theirs but the direct accountabilities of the corporation
This Court likewise holds that respondent was not barred by estoppel.
15
they represent. True, solidary liabilities may at times be incurred but only when exceptional circumstances warrant
such as, generally, in the following cases:
1. When directors and trustees or, in appropriate cases, the officers of a corporation —
(a) vote for or assent to patently unlawful acts of the corporation;
(b) act in bad faith or with gross negligence in directing the corporate affairs;
(c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other
persons.
2. When a director or officer has consented to the issuance of watered stock or who, having knowledge thereof,
did not forthwith file with the corporate secretary his written objection thereto.
3. When the director, trustee or officer has contractually agreed or stipulated to hold himself personally and
solidarity liable with the Corporation.
4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate
action.
[ G.R. No. 210741, October 14, 2020 ]
In labor cases, for instance, the Court has held corporate directors and officers solidarily liable with the corporation
for the termination of employment of employees done with malice or in bad faith.110 (Emphasis in the original,
citations omitted) MARIA LEA JANE I. GESOLGON AND MARIE STEPHANIE N. SANTOS, PETITIONERS, VS. CYBERONE PH.,
INC., MACIEJ MIKRUT, AND BENJAMIN JUSON, RESPONDENTS.
Here, respondent's dismissal was not shown to have been done in bad faith or with malice. The documents submitted
by petitioners reveal that the company may have indeed been suffering business losses. The Regional Trial Court has Challenged in this petition1 is the September 2, 2013 Decision2 and January 10, 2014 Resolution3 of the Court of
even granted its Petition for Corporate Rehabilitation.111 Appeals (CA) in CA-G.R. SP No. 128807 which set aside the November 26, 2012 Decision4 and January 21, 2013
Resolution5 of the National Labor Relations Commission (NLRC) and dismissed the complaint for illegal dismissal filed
While petitioners failed to show that they applied fair and reasonable criteria in selecting the employees to be
by petitioners Maria Lea Jane I. Gesolgon (Gesolgon) and Marie Stephanie N. Santos (Santos) against respondents
entrenched, it does not mean that the dismissals were automatically done in bad faith or with malice. They may have
CyberOne PH., Inc. (CyberOne PH), Maciej Mikrut (Mikrut) and Benjamin Juson (Juson).
simply failed to strictly comply or to sufficiently prove compliance with the stringent rules for a valid retrenchment.
As such, bad faith or malice must still be proved.
In their Complaint dated May 5, 20116, Gesolgon and Santos alleged that they were hired on March 3, 2008 and
Respondent failed to present clear and convincing evidence that petitioners Garcia or Fernandez acted in bad faith or April 5, 2008, respectively, by Mikrut as part-time home-based remote Customer Service Representatives of
with malice. They did not breach any duty or were motivated by ill will. Absent proof, the corporation's separate and CyberOne Pty. Ltd. (CyberOne AU), an Australian company.7 Thereafter, they became full time and permanent
distinct personality must be respected. employees of CyberOne AU and were eventually promoted as Supervisors.
WHEREFORE, the Petition is DENIED. The Court of Appeals' October 30, 2012 Decision and March 27, 2013
Resolution are AFFIRMED with MODIFICATION. Sometime in October 2009, Mikrut, the Chief Executive Officer (CEO) of both CyberOne AU and CyberOne PH, asked
petitioners, together with Juson, to become dummy directors and/or incorporators of CyberOne PH to which
Respondent Layla M. Parente was illegally dismissed. Petitioner Team Pacific Corporation is ordered to REINSTATE petitioners agreed. As a result, petitioners were promoted as Managers and were given increases in their salaries.
her to her former position without loss of seniority rights and other privileges, and to PAY HER FULL BACKWAGES, The salary increases were made to appear as paid for by CyberOne PH.
inclusive of allowances and other benefits or their monetary equivalent. The Labor Arbiter is directed to compute
these amounts, from the time compensation was withheld up to her actual reinstatement. However, in the payroll for November 16 to 30, 2010, Mikrut reduced petitioners' salaries from P50,000.00 to
P36,000.00, of which P26,000.00 was paid by CyberOne AU while the remaining P10,000.00 was paid by CyberOne
The Complaint against petitioners Federico M. Fernandez and Aurora Q. Garcia is DISMISSED.
PH. Aside from the decrease in their salaries, petitioners were only given P20,000.00 each as 13th month pay for the
year 2010.
Sometime in March 2011, Mikrut made petitioners choose one from three options: (a) to take an indefinite furlough
and be placed in a manpower pool to be recalled in case there is an available position; (b) to stay with CyberOne AU
but with an entry level position as home-based Customer Service Representative; or (c) to tender their irrevocable
resignation. Petitioners alleged that they were constrained to pick the first option in order to save their jobs. In April
2011, petitioners received P13,000.00 each as their last salary.
Hence, petitioners filed a case against respondents and CyberOne AU for illegal dismissal. They likewise claimed for
non-payment or underpayment of their salaries and 13th month pay; moral and exemplary damages; and attorney's
fees.
16
On the other hand, CyberOne PH, Mikrut and Juson denied that any employer-employee relationship existed between pay complainant (1) their backwages from the time of their dismissal up to the time of their reinstatement, and (2)
petitioners and CyberOne PH. They insisted that petitioners were incorporators or directors and not regular their respective 13th month and service incentive leave pays in the sums P1,175,113.64 (Maria Lea Jane Gesolgon)
employees of CyberOne PH. They claimed that petitioners were employees of CyberOne AU and that the NLRC had no and P1,175,113.64 (Marie Stephanie N. Santos) or P2,350,227.28 as of October 30, 2012.
jurisdiction over CyberOne AU because it is a foreign corporation not doing business in the Philippines. The computation of this Commission's Computation and Examination Unit (CEU) forms part of this Decision.
Ruling of the Labot Arbiter (LA): Respondents moved for reconsideration of the NLRC's November 26, 2012 Decision but this was denied by the NLRC
in its January 21, 2013 Resolution11 for lack of merit.
In his March 30, 2012 Decision,8 the LA held that petitioners are not employees of CyberOne PH as the latter did not
exercise control over them. Also, since there was no evidence showing that CyberOne PH and CyberOne AU are one Ruling of the Court of Appeals:
and the same entity, the presumption that they have personalities separate and distinct from one another stands.
The LA ruled that petitioners are merely shareholders or directors of CyberOne PH and not its regular employees. In its assailed September 2, 2013 Decision,12 the appellate court reversed the findings of the NLRC and ruled that no
employer-employee relationship existed between petitioners, on one hand, and respondent CyberOne PH, on the
Also, since CyberOne AU is a foreign corporation not doing business in the Philippines, then the LA has no jurisdiction other hand. First, the appellate court found no evidence that CyberOne PH hired petitioners as its employees. It held
over it. Hence, petitioners' complaint had to be dismissed for lack of merit. that the NLRC's reliance on the pay slips presented by petitioners as proof that they were employees of respondent
CyberOne PH was flawed.
Ruling of the National Labor Relations Commission:
In its November 26, 2012 Decision,9 the NLRC ruled that petitioners are employees of CyberOne AU and CyberOne On the contrary, the CA found no substantial evidence that petitioners were under the payroll account of CyberOne
PH. The fact that petitioners are nominal shareholders of CyberOne PH does not preclude them from being PH. The CA noted that the pay slips presented by petitioners were mere photocopies and not the original duplicates
employees of CyberOne PH. of computerized pay slips. In particular, the pay slips for the period October 1, 2009 to March 16, 2011, the period
within which petitioners were allegedly hired by CyberOne PH, indicated that the salaries were paid in Australian
Moreover, the NLRC noted that for January 2010 to April 2011, CyberOne PH paid petitioners their P20,000.00 dollars. The CA pointed out that it was unusual for a Philippine corporation to pay its employees' wages in foreign
monthly salary and P1,000.00 monthly allowance net of withholding tax and other mandatory government currency. For the CA, this only served to highlight the fact that petitioners were employees of CyberOne AU and not
deductions. Respondents did not present any proof of payment of director's fee to petitioners. Similarly CyberOne CyberOne PH.
AU was shown to have previously paid petitioners' salaries for services actually rendered including allowance and
phone CSR allowance as per the terms of employment and pay slips presented by petitioners. The appellate court also stressed that the Furlough Notifications were issued by CyberOne AU and not by CyberOne
PH. This means that CyberOne PH did not have the power of termination over the petitioners. The Resignation Letters
The NLRC also found that petitioners were illegally dismissed from service. It ratiocinated that due to respondents' of petitioners also showed that they resigned as directors of CyberOne PH and not as employees.
allegations that petitioners had not made enough progress on their leadership skills and failed to follow the
directives of the management which resulted in the issuance of several warnings by CyberOne AU, they effectively Lastly, there was no evidence that CyberOne PH exercised control over the means and method by which petitioners
admitted they indeed terminated or eventually dismissed petitioners, although on unsubstantiated grounds as it performed their job. Petitioners also failed to present evidence as regards their duties and responsibilities as
turned out. Also, the NLRC held that respondents' claim that they received a number of complaints and non- employees of CyberOne PH.
compliance repmis from call center customers which prompted them to terminate petitioners' services but later on
decided to give them furlough status, is additional proof that they had indeed terminated petitioners. The appellate court also held that the NLRC misapplied the doctrine of piercing the corporate veil. It ruled that
although it was established that Mikrut and CyberOne AU owned majority of the shares of CyberOne PH, such fact
The NLRC noted that the Furlough Notifications dated March 30, 2011 issued by CyberOne AU to petitioners were, may not be a basis for disregarding the independent corporate status of CyberOne PH. Mere ownership by a single
in fact, notices of dismissal. Petitioners were informed that respondent CyberOne AU was unable to provide them stocld1older or by another corporation of all or nearly all of the capital stock of a corporation is not in itself sufficient
with work but that it may engage their services again in the future. The NLRC concluded that petitioners were reason for disregarding the fiction of separate corporate personalities. There was no evidence on record to show that
dismissed without valid cause and due process. the polices, corporate finances, and business practices of CyberOne PH were completely controlled by CyberOne AU.
Also, no evidence was presented to show that CyberOne PH was organized and controlled, and its affairs conducted,
Lastly, the NLRC noted that CyberOne AU is doing business in the Philippines due to its participation in the in a manner that made it merely an instrumentality, agency, conduit or adjunct of CyberOne AU or that it was
management, supervision or control of CyberOne PH which is indicative of a continuity of commercial dealings or established to defraud third persons, including herein petitioners. Hence, the appellate court concluded that
arrangements. Thus, the doctrine of piercing the corporate veil must be applied as to it. CyberOne AU and CyberOne PH are two distinct and separate entities.
The NLRC thus reversed and set aside the LA's March 30, 2012 Decision, to wit: The fallo of the CA's Decision dated September 2, 2013 reads:
WHEREFORE, all of the foregoing premises considered, judgment is hereby rendered finding merit in the instant WHEREFORE, the petition is GRANTED. The assailed Decision dated November 26, 2012 and Resolution dated
appeal; the appealed Decision is hereby VACATED and SET ASIDE, and a new one rendered declaring January 21, 2013 of the public respondent National Labor Relations Commission (NLRC), Second Division, in NLRC
complainants to have been ILLEGALLY DISMISSED by Respondents who are hereby ordered to reinstate LAC No. 05-001446-12 (NLRC NCR No. 05-07138-11), are hereby SET ASIDE. Accordingly, the Complaint for
complainants to their previous or equivalent position without loss of seniority rights and privileges, and to solidarily Illegal Dismissal against petitioners in NLRC-NCR Case No. 05-07138-11 is hereby DISMISSED.
17
Petitioners moved for reconsideration of the CA's September 2, 2013 Decision but it was consequently denied by the AU. In order to disregard the separate corporate personality of a corporation, the wrongdoing must be clearly and
appellate court in its January 10, 2014 Resolution.14 convincingly established.
Hence, petitioners filed this Petition for Review on Certiorari under Rule 45. Moreover, petitioners failed to prove that CyberOne AU and Mikrut, acting as the Managing Director of both
corporations, had absolute control over CyberOne PH. Even granting that CyberOne AU and Mikrut exercised a
Issue certain degree of control over the finances, policies and practices of CyberOne PH, such control does not necessarily
warrant piercing the veil of corporate fiction since there was not a single proof that CyberOne PH was formed to
defraud petitioners or that CyberOne PH was guilty of bad faith or fraud.
The issues to be resolved in this case are the following:
1. Whether or not petitioners were employees of CyberOne PH and CyberOne AU.
2. Whether or not petitioners were illegally dismissed. Hence, the doctrine of piercing the corporate veil cannot be applied in the instant case. This means that CyberOne AU
cannot be considered as doing business in the Philippines through its local subsidiary CyberOne PH. This means as
well that CyberOne AU is to be classified as a non-resident corporation not doing business in the Philippines.
Our Ruling
Considering the foregoing, We now go back to the issue of whether this Court has acquired jurisdiction over
We find the Petition without merit. CyberOne AU.
A perusal of the records reveals that Gesolgon and Santos were hired on March 3, 2008 and April 5, 2008, Sections 12 and 15, Rule 14, of the Rules of Court suppletorily apply:
respectively, as home-based Customer Service Representatives of CyberOne AU, a corporation organized and Sec. 12. Service upon foreign private juridical entity. - When the defendant is a foreign private juridical entity
existing under the laws of Australia.15 However, on March 30, 2011 petitioners were notified by CyberOne AU of which has transacted business in the Philippines, service may be made on its resident agent designated in
their dismissal through Furlough Notifications16 placing their employment on hold in view of the company's cost- accordance with law for that purpose, or, if there be no such agent, on the government official designated by law to
cutting measure. The Furlough Notifications showed that CyberOne AU was actually terminating the services of that effect, or on any of its officers or agents within the Philippines.
petitioners effective April 15, 2011. Petitioners were required to return, on or before April 1, 2011, any company xxxx
assets, documents, laptop computers, VPN router, office keys and identification tags that were in their possession. Sec. 15. Extraterritorial service. - When the defendant does not reside and is not found in the Philippines, and the
action affects the personal status of the plaintiff or relates to, or the subject of which is, property within the
At the outset, since there is an issue involving the piercing of the corporate veils of CyberOne PH and CyberOne AU, Philippines, in which the defendant has or claims a lien or interest, actual or contingent, or in which the relief
it must be emphasized that the records are bereft of any showing that this Court has acquired jurisdiction over demanded consists, wholly or in part, in excluding the defendant from any interest therein, or the property of the
CyberOne AU, a foreign corporation, through a valid service of summons, although respondent CyberOne PH, Mikrut defendant has been attached within the Philippines, service may, by leave of court, be effected out of the
and Juson were validly served with summons. Philippines by personal service as under section 6; or by publication in a newspaper of general circulation in such
places and for such time as the court may order, in which case a copy of the summons and order of the court shall
Notably, CyberOne AU is a foreign corporation organized and existing under the laws of Australia and is not licensed be sent by registered mail to the last known address of the defendant, or in any other manner the court may deem
sufficient. Any order granting such leave shall specify a reasonable time, which shall not be less than sixty (60)
to do business in the Philippines. CyberOne AU did not appoint and authorize respondents CyberOne PH, a domestic
corporation, and Mikrut, the Managing Director of CyberOne AU and a stockholder of CyberOne PH, as its agents in days after notice, within which the defendant must answer.
the Philippines to act in its behalf. Also, it was not shown that CyberOne AU is doing business in the Philippines.
Applying the foregoing, CyberOne AU, as a non-resident foreign corporation which is not doing business in the
While it is true that CyberOne AU owns majority of the shares of CyberOne PH, this, nonetheless, does not warrant Philippines, may be served with summons by extraterritorial service, to wit: (1) when the action affects the personal
status of the plaintiffs; (2) when the action relates to, or the subject of which is property, within the Philippines, in
the conclusion that CyberOne PH is a mere conduit of CyberOne AU. The doctrine of piercing the corporate veil
applies only in three basic instances, namely: (a) when the separate distinct corporate personality defeats public which the defendant claims a lien or an interest, actual or contingent; (3) when the relief demanded in such action
consists, wholly or in part, in excluding the defendant from any interest in property located in the Philippines; and (4)
convenience, as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; (b) in fraud
cases, or when the corporate entity is used to justify a wrong, protect a fraud, or defend a crime; or (c) is used in when the defendant non residents property has been attached within the Philippines. In these instances, service of
summons may be effected by (a) personal service out of the country, with leave of court; (b) publication, also with
alter ego cases, i.e., where a corporation is essentially a farce, since it is a mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and its affairs conducted as to make it merely an leave of court; or (c) any other manner the court may deem sufficient.18
instrumentality, agency, conduit or adjunct of another corporation.17
Extraterritorial service of summons applies only where the action is in rem or quasi in rem but not if an action is in
We find that the application of the doctrine of piercing the corporate veil is unwarranted in the present case. First, no personam19 as in this case; hence, jurisdiction over CyberOne AU cannot be acquired unless it voluntarily appears in
court.20 Consequently, without a valid service of summons and without CyberOne AU voluntarily appearing in court,
evidence was presented to prove that CyberOne PH was organized for the purpose of defeating public convenience or
evading an existing obligation. Second, petitioners failed to allege any fraudulent acts committed by CyberOne PH in jurisdiction over CyberOne AU was not validly acquired. Consequently, no judgment can be issued against it, if any.
Any such judgment will only bind respondents CyberOne PH, Mikrut, and Juson.
order to justify a wrong, protect a fraud, or defend a crime. Lastly, the mere fact that CyberOne PH's major
stockholders are CyberOne AU and respondent Mikrut does not prove that CyberOne PH was organized and controlled
and its affairs conducted in a manner that made it merely an instrumentality, agency, conduit or adjunct of CyberOne
18
In any event, the determination of whether there exists an employer-employee relationship between petitioners and
CyberOne PH is ultimately a question of fact.Ꮮαwρhi ৷ Generally, only errors of law are reviewed by this Court. Factual
findings of administrative and quasi-judicial agencies specializing in their respective fields, especially when affirmed
by the appellate court, are accorded high respect, if not finality.21 However, in this case, the findings of the NLRC
are in conflict with that of the LA and CA. Thus, as an exception to the rule, We now look into the factual issues
involved in this case.
The four-fold test used in determining the existence of employer employee relationship involves an inquiry into: (a)
the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the
employer's power to control the employee with respect to the means and method by which the work is to be
accomplished.22
Based on record, petitioners were requested by respondent Mikrut to become stockholders and directors of CyberOne
PH with each one of them subscribing to one share of stock. However, petitioners contend that they were hired as
employees of CyberOne PH as shown by the pay slips indicating that CyberOne PH paid them P10,000.00 monthly
net of mandatory deductions. Other than the pay slips presented by petitioners, no other evidence was submitted to [ G.R. No. 204782, September 18, 2019 ]
prove their employment by CyberOne PH. Petitioners failed to present any evidence that they rendered services to
CyberOne PH as employees thereof. As correctly observed by the appellate court:23
GENUINO AGRO-INDUSTRIAL DEVELOPMENT CORPORATION, PETITIONER, VS. ARMANDO G. ROMANO,
JAY A. CABRERA AND MOISES V. SARMIENTO, RESPONDENTS.
But as pointed out earlier, other than the payslips mentioned, no other documents tending to prove their
employment with CyberOne PH., Inc., were submitted by the private respondents. It bears stressing that no
Before this Court is a Petition for Review on Certiorari1 filed by petitioner Genuino Agro-Industrial Development
employment contracts, or at least a job offer, was presented by the private respondents to bolster their claim. True,
Corporation, seeking to annul and set aside the May 31, 2012 Decision2 and December 12, 2012 Resolution3 of the
there is no requirement under the law that the contract of employment of the kind entered into by an employer and
Court of Appeals (CA) in CA-G.R. SP No. 103337 which found no grave abuse of discretion on the part of the National
an employee should be in any particular form. Nevertheless, We emphasize the fact that the private respondents
Labor Relations Commission (NLRC) in affirming the ruling of the Labor Arbiter finding the respondents to be the
initially presented as evidence a copy of the Job Offer dated March 3, 2008, which showed that respondent Gesolgon
regular employees of the petitioner whom it had illegally dismissed; and ordering the petitioner to reinstate them and
was hired as Remote Customer Service Representative of CyberOne AU, and not CyberOne PH., Inc.
Respondents Armando G. Romano (Romano), Jay A. Cabrera (Cabrera) and Moises V. Sarmiento (Sarmiento) claimed
that they work as brine men at Genuino Ice Company Inc.'s (Genuino Ice) ice plant in Turbina, Calamba, Laguna
As to the power of dismissal, the records reveal that petitioners submitted letters of resignation as directors of branch. Romano was hired through the man power agency, Vicar General Contractor and Management Services
CyberOne PH and not as employees thereof. This fact negates their contention that they were dismissed by CyberOne (Vicar), while Sarmiento and Cabrera were hired through L.C. Moreno General Contractor and Management Services
PH as its employees. Lastly, the power of control of CyberOne PH over petitioners is not supported by evidence on (L.C. Moreno). Vicar was the last agency that supplied all the employees to Genuino Ice.4
record. To reiterate, petitioners failed to prove the manner by which CyberOne PH alledgedly supervised and
controlled their work. In fact, petitioners failed to mention their functions and duties as employees of CyberOne PH.
Respondents averred that sometime in September 2004, the workers were given a work schedule where one worker
They merely relied on their allegations that they were hired and paid by CyberOne PH without specifying the terms of
was not made to report for work for 15 consecutive days while the six other workers report for work on their regular
their employment as well as the degree of control CyberOne PH had over the means and method by which their work
schedules. In other words, each worker does not work for 15 days for a period of 90 days. When Romano reported
would be accomplished.
back to work on June 25, 2005 after his 15 days forced leave, he was told then and there that his employment was
already terminated. Sarmiento and Cabrera also suffered the same fate. They were dismissed from work on July 10,
As it is established that petitioners are not employees of CyberOne PH, there is no need for this Court to delve into 2005.5 Thus, on August 3, 2005, respondents filed a complaint for illegal dismissal with prayer for separation pay
the issues of petitioners' illegal dismissal, their monetary claims and the probative value of the pay slips presented by against Genuino Ice and Vicar before the Department of Labor and Employment (DOLE).6
petitioners. Based on the foregoing, this Court is convinced that petitioners are not employees of CyberOne PH, but
stockholders thereof.
Genuino Ice, for its part, claimed that respondents charged the wrong party as they were never its employees but of
petitioner, its affiliate company. They were contractual employees of Vicar and L.C. Moreno which deployed them to
To summarize, the Court did not acquire jurisdiction over CyberOne AU. CyberOne PH is neither the resident agent work at petitioner's ice plant at Turbina, Calamba City. Due to the continuous and tremendous decline in the demand
nor the conduit of CyberOne AU upon which summons may be served. Also, there existed no employer employee for ice products being produced by the petitioner, it shut down its block ice production plant facilities. Its six workers
relationship between petitioners and CyberOne PH. Hence, there is no dismissal to speak of, much more illegal were reduced to two. Among those affected were the respondents who were relieved from their posts by Vicar and
dismissal. L.C Moreno.7
WHEREFORE, the Petition is DENIED. The assailed September 2, 2013 Decision and January 10, 2014 Resolution of By reason of Genuino Ice's contention that respondents charged the wrong party, they amended their complaint by
the Court of Appeals in CA-G.R. SP No. 128807 are hereby AFFIRMED. No cost. impleading the petitioner, including the relief of reinstatement, and asking for attorney's fees.8
19
In his Decision9 dated December 29, 2006, the Labor Arbiter held that respondents were regular employees of the execution. Petitioner appealed the said September 28, 2007 Order and prayed that the same be lifted and set aside
petitioner since they were performing functions that were necessary and desirable to the operations of the ice plant. pending resolution of the main case on appeal.17
The continuous work of the respondents as brine men in the plant for several years (since 1988 in the case of
Romano and Sarmiento, and since 1992 in Cabrera's case) rendered dubious the proposition that their respective On November 29, 2007, the NLRC rendered its Decision18 finding that the Labor Arbiter did not err in holding the
employments were fixed for a specific period or that they were seasonal employees. The contention that petitioner petitioner and Vicar guilty of illegal dismissal, and ordering respondents' reinstatement with full backwages. The
did not exercise any form of control over the work performance of the respondents was found by the Labor Arbiter NLRC held that they could not justify respondents' dismissal on the ground of retrenchment considering that
hard to believe considering that they were suffered to work at the ice plant. The Labor Arbiter also found Vicar to be petitioner and Vicar totally disregarded the requirements laid down in Article 298 of the Labor Code and failed to
without substantial capital and equipment to qualify as an independent contractor, and thus treated it as a labor-only adduce documentary proof, like an audited financial statement, to substantiate their claim.
contractor, and held accountable as such.
Not accepting defeat, petitioner moved for the reconsideration of the NLRC Decision. Petitioner stressed that as it had
While the Labor Arbiter recognized that the company has the prerogative to close its department, the Labor Arbiter explained in its Notice of Compliance, respondents could no longer be reinstated to their former positions due to the
still found respondents' dismissal from employment as illegal inasmuch as the petitioner failed to adduce any closure of its block ice production facilities. There were also no equivalent positions available at its other branch
evidence showing that the closure of its block ice production facility had some basis and that their dismissal was for where the respondents may be placed. As such, petitioner reiterated that in view of the situation, it could not be
an authorized cause. The Labor Arbiter disposed the case in this wise: forced to reinstate the respondents to their former positions or even in the payroll. The closure of its ice plants one
WHEREFORE, judgment is hereby rendered: after the other must be treated as a supervening event that warrants the modification of the order of reinstatement
1. Declaring that [respondents] were regular employees of [petitioner]; with payment of full backwages, to the payment of separation pay.19
2. Declaring that [respondents] were illegally dismissed by [petitioner]; and as such should be immediately
reinstated to their former positions without loss of seniority rights. [Petitioner] should report compliance with this
directive within ten (10) days from receipt hereof; Finding the motion for reconsideration filed by the petitioner to have raised no new matters of substance, the NLRC
3. Adjudging [petitioner] and [Vicar] jointly and severally liable to pay [respondents] the amount of [P] denied the same in a Resolution20 dated February 26, 2008.
133,395.51 each as backwages, as of the date of this decision for a total amount of [P]400,186.53. This is only
partial payment, full satisfaction of which shall be reckoned to the date of the actual reinstatement of Undaunted, the petitioner sought recourse before the CA via a Petition for Certiorari alleging grave abuse of
[respondents]. discretion on the part of the NLRC in: (1) not finding that respondents were retrenched from employment and that
they are not entitled to reinstatement and backwages, but only to nominal damages; (2) not modifying the Labor
On appeal before the NLRC, petitioner stressed that respondents never questioned its prerogative to retrench them Arbiter's Decision which ordered respondents' reinstatement and payment of full backwages to the payment of
due to partial closure of its plant and reduction of its personnel, but only questioned the propriety of their termination separation pay.21
for non-compliance with the notice requirement laid down in Article 283 (now Article 298) of the Labor Code.
Considering that respondents were laid-off for an authorized cause (the partial shut-down of its ice plant), only that In the interim, or on September 26, 2011, the Labor Arbiter issued a Writ of Execution commanding the sheriff to
they were not properly notified thereof, petitioner contended that respondents are not entitled to reinstatement, proceed to the premises of the petitioner and Vicar, and collect from them the amount of P1,392,579.93 representing
backwages and separation pay, but only to nominal damages.11 respondents' backwages, inclusive of 13th month pay and service incentive leave pay, for the period of July 10, 2005
to April 30, 2010, among others.22
Meanwhile, in compliance with the reinstatement aspect of the Labor Arbiter's Decision, the petitioner served upon
the respondents a Notice of Compliance informing them that they could no longer be reinstated to their former posts In a Decision23 dated May 31, 2012, the CA found no grave abuse of discretion on the part of the NLRC in deciding
at its ice plant in Turbina, Calamba City, due to the closure of its block ice production facilities. Thus, they were the case as it did and denied the petition. It held that while retrenchment is one of the recognized authorized causes
directed to report at petitioner's main office within five days from receipt of the said notice of compliance for their for the dismissal of an employee, petitioner failed to discharge its burden of proving that respondents' retrenchment
reinstatement/placement at petitioner's other branches or affiliate companies, particularly at its ice plant in was valid for the reason that petitioner not only failed to notify them and the DOLE of the retrenchment, it also failed
Navotas.12 By virtue of the said directive, respondents reported at petitioner's main office on March 6, 2007. to prove that it was losing financially. Thus, respondents' dismissal was clearly illegal. Petitioner cannot also claim
However, they were simply made to wait the whole day and were not given any job assignments. When respondents that it is liable only for nominal damages considering that retrenchment was shown not to be justified. The CA also
inquired on their work assignments on March 8 and 12, 2007, they were told that there were still no available work found no reason to modify the award of reinstatement and full backwages for failure of the petitioner to sufficiently
assignments for them, prompting them to file a motion for the issuance of a writ of partial execution ordering their prove that the department where respondents' used to work had indeed closed, or that there were no other similar
reinstatement in the payroll effective March 6, 2007.13 unfilled posts available at its other branch.
Petitioner opposed the motion for partial execution. It argued that it could not be forced to reinstate the respondents Its motion for reconsideration having been denied,24 petitioner is now before this Court via the present petition.
whether in their previous positions or in the payroll because the department where they used to work had already Respondents filed their Comment with Motion25 thereto, praying that Genuino Ice be declared solidarity liable with
closed and there were no other equivalent positions available in petitioner's only branch in Navotas.14 the petitioner to pay respondents the monetary awards granted to them by the Labor Arbiter, to which the petitioner
has filed its Opposition.26 In a Resolution27 dated January 14, 2015, the Court required the parties to submit their
In an Order dated July 5, 2007, the Labor Arbiter granted the motion and issued a writ of partial execution. Since the respective memoranda.28
writ of partial execution was returned unsatisfied,15 petitioner moved for the issuance of an alias writ of partial
execution reiterating their prayer to be reinstated in the payroll.16 After the petitioner filed its opposition to the The Issues Presented
motion, the Labor Arbiter issued an Order on September 28, 2007 granting the issuance of an alias writ of partial
20
Petitioner raised the following issues for this Court's consideration: the amount of P401,000.00 by virtue of the writ of partial execution and notice of garnishment that were issued, they
1. THE HONORABLE COURT OF APPEALS ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION IN AFFIRMING failed to get a single centavo as the same was opposed by Carriaga, claiming that the amount was intended as a
THE NLRC'S DECISION IN NOT RULING FOR THE RETRENCHMENT OF THE RESPONDENTS WITHOUT PROPER collateral security for Genuino Ice and not for the petitioner (despite the latter's representation that it had duly
NOTICE AND DUE PROCESS, THAT THEY ARE NOT ENTITLED TO REINSTATEMENT AND PAYMENT OF perfected its appeal before the NLRC).35
BACKAWAGES, BUT TO NOMINAL DAMAGES PURSUANT TO RULING HELD IN "JAKA FOOD PROCESSING CORP.
VERSUS PACOT," GR. No. 151378, March 28, 2005." The Ruling of the Court
2. THE HONORABLE COURT OF APPEALS ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION IN NOT
MODIFYING THE NLRC'S DECISION AFFIRMING THE LABOR ARBITER'S DECISION ORDERING REINSTATEMENT
AND PAYMENT OF FULL BACKWAGES TO THE RESPONDENTS, TO PAYMENT OF SEPARATION PAY RECKONED FROM Limits of review under Rule 45 from the CA's Decision in a labor case
DATE OF THEIR INITIAL EMPLOYMENT, UP TO DECEMBER 29, 2006, THE DATE OF THE LABOR ARBITER'S
DECISION. A perusal of the present petition inevitably shows that the petitioner reiterated substantially the same arguments and
3. [RESPONDENTS'] MOTION PRAYING THAT GENUINO ICE COMPANY, INC. BE HELD SOLIDARILY LIABLE WITH assailed congruent factual findings of the Labor Arbiter, the NLRC and the CA. A petition for review
PETITIONER GENUINO AGRO DEVELOPMENT CORPORATION FOR THE PAYMENT OF MONETARY AWARDS OF THE on certiorari under Rule 45 is a mode of appeal where the issue is limited only to questions of law.36 In labor cases,
LABOR ARBITER IS OUT OF CONTEXT, AND HAS NO FACTUAL AND LEGAL BASIS.29 a Rule 45 petition is limited to reviewing whether the CA correctly determined the presence or absence of grave
abuse of discretion and deciding other jurisdictional errors of the NLRC,37 and not on the basis of whether the
The Arguments of the Parties latter's decision on the merits of the case was strictly correct.38
Echoing substantially the same arguments put forward before the Labor Arbiter, the NLRC and the CA, petitioner By grave abuse of discretion is meant such capricious and whimsical exercise of judgment as is equivalent to lack of
avers that the respondents do not question its right to lay off its workers on account of serious business losses, but jurisdiction.39 The abuse of discretion must be grave, as when the power is exercised in an arbitrary or despotic
only questions the propriety of their termination for non-compliance with the notice requirement and non-payment of manner by reason of passion or personal hostility. The abuse must also be so patent and gross as would amount to
separation pay under Article 298 of the Labor Code. Respondents also bewail that their termination was an evasion of a positive duty or to a virtual refusal to perform the duty required, or to act at all in contemplation of
discriminatory since they were not informed why their services were terminated instead of the other workers. Since law, as to be equivalent to having acted without jurisdiction.40
respondents admitted that the closure of petitioner's business was brought about by serious business losses,
respondents are considered to have been terminated for cause, but without according them due process, entitling In Career Philippines Shipmanagement, Inc. v. Serna,41 this Court laid down the parameters of an appeal taken
them to the payment of nominal damages.30 under Rule 45 from the CA's Rule 65 Decision in a labor case, viz:
Petitioner reiterates that the closure of its ice plants was a supervening event which rendered it impossible for it to In a Rule 45 review, we consider the correctness of the assailed CA decision, in contrast with the review for
reinstate the respondents to their former positions or even in the payroll, since their former positions are no longer jurisdictional error that we undertake under Rule 65. Furthermore, Rule 45 limits us to the review of questions of law
existing and no equivalent positions are also available in its other branch. Thus, instead of directing it to reinstate the raised against the assailed CA decision. In ruling for legal correctness, we have to view the CA decision in the same
respondents and pay them their full backwages, petitioner must instead be ordered to pay respondents their context that the petition for certiorari it ruled upon was presented to it; we have to examine the CA decision from the
separation pay.31 prism of whether it correctly determined the presence or absence of grave abuse of discretion in the NLRC decision
before it, not on the basis of whether the NLRC decision on the merits of the case was correct. In other words, we
Anent the motion of the respondents to declare Genuino Ice solidarity liable with it, petitioner avers that the same have to be keenly aware that the CA undertook a Rule 65 review, not a review on appeal, of the NLRC decision
has no factual and legal basis because Genuino Ice is not a party in this case. Moreover, the Decision of the Labor challenged before it. x x x
Arbiter which held only the petitioner liable to the respondents, had already become final and immutable as to the
respondents, they having not appealed the same. Thus, they cannot at this stage of the proceedings seek to alter the Accordingly, we do not re-examine conflicting evidence, re-evaluate the credibility of witnesses, or substitute the
Decision to make Genuino Ice solidarity liable.32 findings of fact of the NLRC, an administrative body that has expertise in its specialized field. Nor do we substitute
our "own judgment for that of the tribunal in determining where the weight of evidence lies or what evidence is
Respondents counter that the petitioner is raising the very same grounds it raised before the CA, and this Court credible." The factual findings of the NLRC, when affirmed by the CA, are generally conclusive on this Court.
in Genuino Ice Company, Inc. v. Lava33 has resolved exactly the same issues and exactly the same facts involving
co-employees of the respondents against Genuino Ice, where the latter was found guilty of illegal dismissal. There are, however, recognized exceptions to this general rule where the Court, in the exercise of its discretionary
Consistent with the Court's ruling in the said case, the Court must likewise affirm the ruling of the CA finding the appellate jurisdiction, may look into factual issues raised in Rule 45 petition. These exceptions are enumerated in Sia
petitioner guilty of illegal dismissal and liable for the monetary awards prayed for by the respondents.34 Tio v. Abayata42 To wit:
(1) when the findings are grounded entirely on speculation, surmises or conjectures;
Respondents contend further that they could not be precluded from asking the Court to pierce the veil of corporate (2) when the inference made is manifestly mistaken, absurd or impossible;
fiction of Genuino Ice to make it solidarity liable with the petitioner given that their actuations would lead one to (3) when there is grave abuse of discretion;
believe that they are one and the same company inasmuch as the verification portion of the Memorandum of Appeal (4) when the judgment is based on a misapprehension of facts;
filed by the petitioner was signed by Edgar A. Carriaga (Carriaga), Genuino Ice's authorized representative, and it (5) when the findings of fact are conflicting;
was Genuino Ice that posted the appeal bond on its behalf. When respondents tried to collect from the surety bond (6) when in making its findings the Court of Appeals went beyond the issues of the case, or its findings are contrary
to the admissions of both the appellant and the appellee;
21
(7) when the findings are contrary to the trial court; dire financial state by submitting its financial statements duly audited by independent external auditors, but it did
(8) when the findings are conclusions without citation of specific evidence on which they are based; not.45 Its failure to prove these reverses or losses necessarily means that respondents' dismissal was not
(9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by justified.46 In addition, records would bear out, as in fact petitioner never denied, that it failed to satisfy the notice
the respondent; requirement under Article 298 of the Labor Code. Neither was the required separation pay to effect a valid
(10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence retrenchment given to the respondents. For these reasons, the Court must uphold the ruling of the CA that there was
on record; and absence of grave abuse of discretion on the part of the NLRC when it upheld the ruling of Labor Arbiter finding the
(11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if respondents to have been illegally dismissed by the petitioner inasmuch as retrenchment was not duly proven by the
properly considered, would justify a different conclusion. latter.
None of the exceptions enumerated above are obtaining in this case. Respondents are entitled to backwages and separation pay
Respondents were illegally dismissed from employment, retrenchment not being duly proved Article 294 of the Labor Code provides for the reliefs of an illegally dismissed employee. The provision states:
ART. 294. Security of Tenure. – In cases of regular employment, the employer shall not terminate the services of
Article 298 of the Labor Code laid down the authorized causes where the employer may validly terminate the an employee except for a just cause or when authorized by this Title. An employee who is unjustly dismissed from
employment of its employees. It provides: work shall be entitled to reinstatement without loss of seniority rights and other privileges and to his full
ART. 298. Closure of Establishment and Reduction of Personnel. – The employer may also terminate the backwages, inclusive of allowances, and to his other benefits or their monetary equivalent computed from the time
employment of any employee due to the installation of labor-saving devices, redundancy, retrenchment to prevent his compensation was withheld from him up to the time of his actual reinstatement.
losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the
purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Ministry of In Advan Motor, Inc. v. Veneration,47 the Court explained the reliefs of reinstatement and backwages. Thus:
Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to the The two reliefs of reinstatement and backwages have been discussed in Reyes v. RP Guardians Security Agency,
installation of labor-saving devices or redundancy, the worker affected thereby shall be entitled to separation pay Inc. in the following manner:
equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is Backwages and reinstatement are separate and distinct reliefs given to an illegally dismissed employee in order
higher. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of to alleviate the economic damage brought about by the employee's dismissal. "Reinstatement is a restoration to
establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be a state from which one has been removed or separated" while "the payment of backwages is a form of relief that
equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is restores the income that was lost by reason of the unlawful dismissal." Therefore, the award of one does not bar
higher. A fraction of at least six (6) months shall be considered one (1) whole year. the other.
Petitioner is correct in saying that retrenchment is a management prerogative to downsize its work force to avert In the case of Aliling v. Feliciano, citing Golden Ace Builders v. Talde, the Court explained:
business losses, which could either be already incurred or impending. Where appropriate and where conditions are in Thus, an illegally dismissed employee is entitled to two reliefs: backwages and reinstatement. The two reliefs
accord with law and jurisprudence, the Court has authorized valid reductions in the work force to forestall business provided are separate and distinct. In instances where reinstatement is no longer feasible because of strained
losses, the hemorrhaging of capital, or even to recognize an obvious reduction in the volume of business which has relations between the employee and the employer, separation pay is granted. In effect, an illegally dismissed
rendered certain employees redundant.43 However, for retrenchment to be valid, certain requisites must first be employee is entitled to either reinstatement, if viable, or separation pay if reinstatement is no longer viable, and
satisfied. In Perez v. Comparts Industries, Inc.44 this Court held: backwages.
The complete designation of this authorized cause is retrenchment to prevent losses precisely to save a financially
ailing business establishment from eventually collapsing. Without the purpose to prevent losses, the termination The normal consequences of respondents' illegal dismissal, then, are reinstatement without loss of seniority rights,
becomes illegal. However, the employer or the company need not be incurring losses already; the requirement is and payment of backwages computed from the time compensation was withheld up to the date of actual
that there may be impending losses hence the resort to retrenchment: reinstatement. Where reinstatement is no longer viable as an option, separation pay equivalent to one (1) month
[T]he three (3) basic requirements are: (a) proof that the retrenchment is necessary to prevent losses or salary for every year of service should be awarded as an alternative. The payment of separation pay is in addition
impending losses; (b) service of written notices to the employees and to the Department of Labor and to payment of backwages.
Employment at least one (1) month prior to the intended date of retrenchment; and (c) payment of separation
pay equivalent to one (1) month pay, or at least one-half (1/2) month pay for every year of service, whichever is
higher. In addition, jurisprudence has set the standards for losses which may justify retrenchment, thus: (1) the Since respondents' termination was illegal, they are entitled to reinstatement without loss of seniority rights and to
losses incurred are substantial and not de minimis; (2) the losses are actual or reasonably imminent; (3) the their full backwages pursuant to the said article.
retrenchment is reasonably necessary and is likely to be effective in preventing the expected losses; and (4) the
alleged losses, if already incurred, or the expected imminent losses sought to be forestalled, are proven by However, reinstatement presupposes that the previous position from which the employee has been removed is still
sufficient and convincing evidence. in existence or there is an unfilled position of a nature, more or less, similar to the one previously occupied by said
employee.48 While the CA was correct in its assessment that the NLRC did not abuse its discretion when it ordered
To justify retrenchment, petitioner claims serious business losses leading to the shutdown of its block ice plant respondents' reinstatement, the Court, in the exercise of its equity jurisdiction may still modify the affirmed
facilities to which respondents belong. There is, however, dearth of evidence showing that the petitioner was indeed judgment in order to conform to law and justice.
suffering from business losses or financial reverses as it staunchly claimed. Petitioner could have easily proved its
22
Equity jurisdiction aims to do complete justice in cases where a court of law is unable to adapt its judgments to the Furthermore, once the veil of corporate fiction is pierced, the separate but related corporation becomes solidarity
special circumstances of a case because of the inflexibility of its statutory or legal jurisdiction.49 Since it has been liable in labor cases. Thus, the Court in Symex Security Services, Inc. v. Rivera, Jr.,64 pronounced:
14 years since the time respondents were removed from work, it is unlikely that the former positions held by them
or their equivalent are still existing or are presently unoccupied; thus, making their reinstatement no longer viable. The common thread running among the aforementioned cases, however, is that the veil of corporate fiction can be
On this score, the CA decision must accordingly be modified in this respect. In lieu of reinstatement and full pierced, and responsible corporate directors and officers or even a separate but related corporation, may be
backwages, an award of separation pay, equivalent to one (1) month salary for every year of service, and full impleaded and held answerable solidarily in a labor case, even after final judgment and on execution, so long as it is
backwages is ordered instead.50 established that such persons have deliberately used the corporate vehicle to unjustly evade the judgment obligation,
or have resorted to fraud, bad faith or malice in doing so. When the shield of a separate corporate identity is used to
Bases for computation of backwages and separation pay commit wrongdoing and opprobriously elude responsibility, the courts and the legal authorities in a labor case have
not hesitated to step in and shatter the said shield and deny the usual protections to the offending party, even after
The basis for computing separation pay is usually the length of the employee's past service, while that for backwages final judgment. The key element is the presence of fraud, malice or bad faith. Bad faith, in this instance, does not
is the actual period when the employee was unlawfully prevented from working.51 Backwages represent connote bad judgment or negligence but imparts a dishonest purpose or some moral obliquity and conscious doing of
compensation that should have been earned but were not collected because of the unjust dismissal.52 Separation wrong; it means breach of a known duty through some motive or interest or ill will; it partakes of the nature of fraud.
pay, on the other hand, is that amount which an employee receives at the time of his severance from employment,
designed to provide the employee with the wherewithal during the period that he is looking for another Thus, for purposes of determining whether to pierce Genuino Ice's separate corporate personality and hold it
employment,53 and is a proper substitute for reinstatement.54 solidarily liable with the petitioner to pay the monetary claims due to the respondents, the following factual
circumstances have to be considered:
Under Article 279 (now Article 294) of the Labor Code, backwages is computed from the time of dismissal until the (1) Petitioner and its supposed affiliate Genuino Ice have the same address, sets of officers, and representative to
employee's reinstatement. However, when separation pay is ordered in lieu of reinstatement, backwages is computed this suit.65
from the time of dismissal until the finality of the decision ordering separation pay.55 Anent the computation of (2) The Calamba City ice plant where respondents used to work appears to be owned and operated by both the
separation pay, the same shall be equivalent to one month salary for every year of service56 and should not go petitioner and Genuino Ice.66
beyond the date an employee was deemed to have been actually separated from employment, or beyond the date (3) Genuino Ice, after being sued for illegal dismissal before the Labor Arbiter, claimed that the respondents were
when reinstatement was rendered impossible.57 In the present case, in allowing separation pay, the final decision actually employees of its affiliate company, which is the petitioner.67
effectively declares that the employment relationship ended so that separation pay and backwages are to be (4) Genuino Ice, despite claiming that employer, manifested during the proceedings that it is willing to re-hire the
computed up to that point.58 respondents.68
(5) Respondents impleaded petitioner in the proceedings before the Labor Arbiter.69
(6) Genuino Ice filed all the pleadings in the proceedings before the Labor Arbiter while the petitioner stood idly by
Applied here, Romano's backwages shall be computed from June 25, 2005, while the backwages of Sarmiento and despite having been already impleaded by the respondents.70
Cabrera shall be reckoned from July 10, 2005, the time they were illegally dismissed until finality of this Decision. As (7) The Labor Arbiter found the petitioner jointly liable with Vicar for illegally dismissing the respondents.
regards their separation pay, the same shall be computed from their first day of employment until the finality of this (8) Petitioner, after the Labor Arbiter handed its verdict, filed the appeal before the NLRC with Genuino Ice posting
decision, at the rate of one month pay per year of service. its appeal bond.71
(9) Genuino Ice, by virtue of the surety bond it posted, acknowledged its obligation to pay the monetary claims
Genuino Ice should be held solidarity liable with petitioner Genuino Agro awarded to the respondents on account of the December 29, 2006 Decision of the Labor Arbiter, should the same
not be reversed on appeal, despite the fact that the one adjudged liable therein was not Genuino Ice but the
petitioner.72
It is an elementary and fundamental principle of corporation law that a corporation is an artificial being invested by
law with a personality separate and distinct from its stockholders and from other corporations to which it may be (10) Respondents tried to collect from the appeal bond that was posted by Genuino Ice (and which the petitioner
had previously assured was sufficient) but failed to do so due to the opposition of Genuino Ice where it invoked its
connected.59 However, the corporate mask may be lifted and the corporate veil may be pierced when a corporation
is just but the alter ego of a person or of another corporation.60 Moreover, piercing the corporate veil may also be separate corporate personality.73
(11) Petitioner insists before this Court that, since the Labor Arbiter's Decision adjudged it liable to pay the
resorted to by the courts or quasi-judicial bodies when "[the separate personality of a corporation] is used as a
means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation, the circumvention respondents' monetary claims, its affiliate, Genuino Ice, cannot be declared as solidarily liable to pay the same
claims for lack of factual and legal basis.74
of statutes, or to confuse legitimate issues."61 Furthermore, the veil of corporate fiction may also be pierced as when
the same is made as a shield to confuse legitimate issues.62 As such, in Zambrano v. Philippine Carpet
Manufacturing Corporation,63 the Court held: A deep scrutiny of the aforementioned circumstances necessitates the application of the doctrine of piercing the veil
of corporate fiction. The circumstances indubitably establish that both Genuino Ice and the petitioner are using their
The doctrine of piercing the corporate veil applies in three (3) basic areas, namely: (1) defeat of public convenience respective distinct corporate personalities in bad faith and to confuse legitimate issues in the hope of evading its
obligation to the respondents.
as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; (2) fraud cases or when
the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or (3) alter ego cases, where a
corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is The aforementioned circumstances show that both Genuino Ice and the petitioner have taken turns in representing
so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit each other's common cause and in pursuing remedies to protect its common interest in repelling the respondents'
or adjunct of another corporation. monetary claims. Whenever a claim is directed against one of them, the other admits the monetary liability so that
23
the former may be shielded and vice versa. This was demonstrated, for example, when Genuino Ice posted a bond
for the appeal filed by the petitioner with the NLRC. In the said surety bond, Genuino Ice acknowledged its obligation
to satisfy the monetary awards granted to the respondents notwithstanding the fact that it was not the one found
liable for illegal dismissal, but the petitioner. Petitioner, for its part, assured the respondents that the bond it posted
was sufficient to answer for their monetary claims in the event that the decision rendered in their favor becomes final
and executory. However, despite their assurances, when the respondents went for the appeal bond to satisfy their
claims, Genuino Ice opposed the move and through Carriaga, its manager and who also happened to be the
personnel manager of the petitioner, argued that the funds cannot be pursued for it belongs to Genuino Ice. Such
evasive maneuver clearly demonstrates bad faith on the part of the petitioner and Genuino Ice, and is clearly
indicative of using the veil of corporate fiction to unjustly elude the monetary obligation due to respondents as
adjudged.
As observed, when an "affiliate company" takes the cudgels for another, it means that both have a common interest.
If indeed there was no commonality or intertwining of an interest in frustrating the respondents' monetary claims,
the petitioner and not Genuino Ice would have posted a bond for its own appeal. The Court cannot allow its
intelligence to be insulted by Genuino Ice's representation that it has a corporate personality which is separate and
distinct from the petitioner because both companies have pursued legal remedies and measures for the benefit of
each other, and made representations that clearly defrauded the respondents. Hence, for purposes of this litigation
and for the satisfaction of the respondents' monetary claims, both Genuino Ice and the petitioner shall be treated as
one and the same entity, and held liable solidarity for the same. [ G.R. No. 194995. November 18, 2021 ]
WHEREFORE, premises considered, the petition is partially GRANTED. The assailed May 31, 2012 Decision and EMILIO D. MONTILLA, JR., PETITIONER, VS. G HOLDINGS, INC., RESPONDENT.
December 12, 2012 Resolution of the Court of Appeals in CA-G.R. SP No. 103337
are AFFIRMED with MODIFICATION in that, Genuino Ice Company, Inc. is adjudged solidarity liable with petitioner
Through this Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, Emilio D. Montilla, Jr. (petitioner)
Genuino Agro-Industrial Development Corporation and Vicar General Contractor and Management Services to pay the
assails the July 30, 2010 Decision2 and December 8, 2010 Resolution3 of the Court of Appeals (CA) in CA-G.R. SP
monetary claims due to the respondents as follows:
No. 88261, which affirmed the July 9, 2004 Amended Order4 of the Regional Trial Court (RTC) of Kabankalan City,
(1) Backwages computed from June 25, 2005 with respect to respondent Armando G. Romano, and July 10, 2005
Branch 61, Negros Occidental, in Civil Case No. 142 (96-5488) that denied his motion for the issuance of an
with respect to respondents Moises V. Sarmiento and Jay A. Cabrera, the time they were illegally dismissed, until
amended writ of execution.
the finality of this Decision; and
(2) In lieu of reinstatement, separation pay computed from respondents' first day of employment until the finality
of this Decision, at the rate of one month pay per year of service. Factual and Procedural Antecedents
The monetary awards granted shall earn legal interest at the rate of six percent per annum from the date of the On April 12, 2002, RTC of Kabankalan City, Branch 61, issued a Decision5 granting Emilio D. Montilla, Jr.'s Demanda
finality of this Decision until fully paid. for Complimiento de Contrator, Rendecion de Cuentas con Daños y Perjuicios6 (Compliance for Contracts,
Submission of Accounts with Damages)7 docketed as Civil Case No. 142 (96-5488), and ordered San Remigio Mines
Inc., Ricardo Genora, and Jesus Domingo to do certain acts, the dispositive portion of which reads:
The case is REMANDED to the Labor Arbiter for the proper computation of the monetary benefits awarded.
WHEREFORE, premises considered, judgement is hereby rendered as follows:
1. Declaring as rescinded the "1938 Contract" entered into by and between San Remigio
and Real Copper, on the one hand, and Don Emilio Montilla Sr., on the other hand, on 4
November 1938.
2. Ordering San Remigio and Real Copper and Marinduque to render an accounting of all
payments made by Marinduque in favor of San Remigio and Real Copper for the exploitation of
the "Binulig", "Manghal", "Negros", Cartagena", and "Cauayan" groups of claims.
3. Ordering San Remigio and Real Copper to deliver to plaintiff Emilio Montilla, Jr., by
himself and in his capacity as sole heir of his mother, Catalina Domingo, and legatee and
administrator of the estate of his father, Don Emilio Montilla, Sr., 30% of all the amount already
received by San Remigio and Real Copper from Marinduque, particularly in "Binulig 1, 2, 9, and
24
10", as well as 30% of the P50,000.00 already paid by Sipalay Mines in favor of San Remigio and on site were already acquired by respondent "G" Holdings, Inc. (GHI) from Maricalum Mining Corporation (Maricalum)
Real Copper; pursuant to a foreclosure sale in December 2001.
4. Ordering San Remigio and Real Copper to deliver to Emilio Montilla, Jr. the 30% of all
amounts received by them as well as future receipts of payments from Marinduque as regards On June 12, 2003, Montilla, Jr. moved for the issuance of an amended writ of execution, praying, among others, for
the exploitation of the "Lolong", "Herminia" and "Doming" claims which are within the "Binulig the court issue a writ to direct the court sheriff to take properties belonging to San Remigio Mines Inc. and its
Group". assigns/successors, including, but not limited to, GHI, to satisfy the judgment provided in the April 12, 2002 RTC
5. Ordering San Remigio, Real Copper and Marinduque to return in favor of plaintiff Emilio Decision.11
Montilla, Jr., all mining rights fraudulently acquired by San Remigio and Real Copper, mover the
mining claims "Binulig 1, 2, 9, and 10", "Lolong", "Luri", "Herminia" and "Doming", without
prejudice to the 10% to be delivered to Wenceslao Endencia, Jose Domingo and Mansuela Nala. After due hearing on the motion, the RTC issued an Amended Order12 dated July 9, 2004, the pertinent portion of
6. Declaring as null and void the contracts marked as Annexes "E", "G", and "H" of the which reads:
Complaint of Emilio Montilla, Jr., for having been fraudulently obtained from Jose Domingo and "G" Holdings, Inc. does not appear to be a privy of defendant Marinduque for the decision
Mansuela Nala. to be enforced against the former. It got hold of the subject properties and mining claims under a
7. Declaring as null and void Annex "F" of the Complaint for being fraudulently obtained badge of regularity by way of foreclosure sale and mortgagee and highest bidder from Maricalum
from Wenceslao Endencia. Mining Corporation, an entity owned and controlled by the government organized by PNP and
8. Declaring as null and void Annexes "A" and "J", executed by Ricardo Genora in favor of DBP after the latter had earlier acquired said properties and mining claims as mortgagees and
San Remigio. highest bidders from defendant Maricalum in a foreclosure sale. "G" Holdings, Inc. did not derive
9. Declaring as null and void Annexes "K", "L", and "M", executed by San Remigio, Real its rights and interest over said properties and mining claims directly from defendant Maricalum
Copper, Sipalay Mines and Marinduque to the extent that said contracts affect the 50 mining nor was its immediate successor in interest. To enforce the subject decision which is already final
claims over the "Binulig Group", particularly "Binulig 1, 2, 9, and 10" and "Loleng", "Luri", and executory against "G" Holdings, Inc. which is not a party to the case and which was not
"Herminia", and "Doming". heard would be in violation of due process of law. It would also materially and substantially alter
10. Ordering Marinduque to cease and desist from further exploiting the claims and to the decision which the Court is bereft of jurisdiction to do. As held by the Supreme Court, any
return the possession thereof to plaintiff Emilio Montilla, Jr. amendment made which substantially affects the final and executory decision in the case is null
11. Declaring as valid and subsisting the contract marked Annex "N" which refers to the and void for lack of jurisdiction, including the entire proceedings held for that purpose. The
"Cansibit" and "Panlubongan" groups. liability of "G" Holdings, Inc. should be ventilated in a separate and independent civil action.
12. Ordering defendants San Remigio, Real Copper and Marinduque to render an
accounting of all payments by Marinduque in favor of San Remigio and Real Copper in relation to Montilla, Jr. filed a Motion for Reconsideration13 but the same was denied in an Order14 dated November 8, 2004.
the exploitation of the claims included in the "Cansibit" and "Panlubongan" groups of mining
claims.
Aggrieved, Montilla, Jr. elevated the case to the CA by way of a petition for certiorari,15 which was denied in a
13. Ordering defendants San Remigio, Real Copper and Marinduque to pay directly to Emilio Decision16 dated July 30, 2010 based on the following:
Montilla, Jr. 15% of all payments to be made by Marinduque in favor of San Remigio and Real
GHI was not a party to the case where the assets of MMC are disputed; as a consequence,
Copper in relation to the exploitation of the claims Cebu City, Bacolod City, Salvador, Palma, the lower court cannot enforce its judgment against GHI. To enforce the subject decision which
Yakal, Magdo, Ipil, Baolao, Pili-pili, Alomic, Lucky, Souvenir Security and Courage, all within the
has become final and executory against GHI, that is not a party to the case, and was not heard
"Cansibit" and "Panlubongan" groups of mining claims. thereon, would be a violation of due process of law. As the lower court succinctly put, such
14. Ordering Marinduque to pay royalty in favor of Emilio Montilla, Jr. for the exploitation
amended writ of execution would materially and substantially alter the decision which the court is
and development of all claims included in the "Cansibit" and "Panlubongan" groups, equivalent to bereft of jurisdiction.17
23% of the gross of all gold molidbinum and other minerals which have already been extracted
and which may be extracted in the future from the said claims.
15. Ordering defendants San Remigio and Real Copper to pay, jointly and severally, to The CA disregarded Montilla, Jr.'s assertion that GHI and the defunct MMIC are one and the same person as the mere
plaintiffs a sum equivalent to 10% of the whole amount already received and which may be presence of interlocking directors is not by itself a ground to pierce the corporate fiction. The CA said that the
received in the future from Marinduque as moral and exemplary damages. mortgage deed transaction made as a basis to pierce the corporate veil was a transaction that was a derivative of the
16. Ordering defendants to pay, jointly and severally, to plaintiffs 35% of the amounts mortgages earlier constituted by GHI with Asset Privatization Trust (APT) in the name of MMIC, in a full privatization
already received and which may be received in the future, for attorney's fees. process. The CA concluded that if there was any control exercised over MMIC, it was APT, not GHI, that wielded it.18
17. Ordering defendants to pay the expenses and costs of the suit.
In the end,19 the CA reminded the parties of the finality of the issue of the validity of the mortgage and foreclosure
The aforementioned Decision attained finality, which prompted Montilla, Jr. to move for its execution.8 Accordingly, sale as well as the issue on the separate and distinct personalities of GHI and MMIC by citing Our ruling in the case
the RTC ordered the issuance of a writ of execution.9 of "G" Holdings Inc. v. National Mines and Allied Workers Union.20
In a Sheriff's Report10 dated April 30, 2003, Sheriff Roberto O. Repique informed the court that Marinduque Mining In time, Montilla, Jr. moved for reconsideration21 essentially arguing that GHI, as transferee of interest pendente
and Industrial Corporation (MMIC) had no more properties at Sipalay City, Negros Occidental, as the properties found lite, is bound by the judgment rendered by the trial court against the transferor, regardless of whether GHI was
substituted in the case or joined with the original party. He added that GHI had actual and constructive knowledge of
25
his claims, therefore, it is not an innocent purchaser or mortgagee in good faith. According to Montilla, Jr., GHI, as a In addition, the court's authority to enforce a writ extends only to properties unquestionably belonging to the
purchaser at public auction of a foreclosed property, acquired not only the right, title, interest and claim of the judgment debtor alone. An execution can be issued only against a party and not against one who did not have
judgment debtor or mortgagor to the property under the principle of caveat emptor, but also assumed the risks his/her day in court.31 This is evident under Section 10, Rule 39 of the Rules of Court which provides:
involved when it agreed to become a transferee pendente lite. He also insisted that GHI is a mere alter ego of SECTION 10. Execution of Judgments for Specific Act. -
Maricalum and therefore the veil of corporate fiction between GHI and Maricalum must be pierced. xxxx
(c) Delivery or Restitution of Real Property. - The officer shall demand of the person against
In a Resolution.22 dated December 8, 2010, the CA denied Montilla, Jr.'s motion. whom the judgment for the delivery or restitution of real property is rendered and all persons
claiming rights under him to peaceably vacate the property within three (3) working days, and
restore possession thereof to the judgment obligee; otherwise, the officer shall oust all such
Undaunted, Montilla, Jr. went to this Court via a petition for review on certiorari.23 In seeking this Court's persons therefrom with the assistance, if necessary, of appropriate peace officers, and employing
discretionary appellate jurisdiction, petitioner reiterates his arguments below and additionally argues that respondent such means as may be reasonably necessary to retake possession, and place the judgment
is a mere transferee pendente lite whose title is subject to the incidents and results of the pending case, and the obligee in possession of such property. Any costs, damages, rents or profits awarded by the
transfer of title affords it no special protection.24 Briefly, petitioner recalls that the Development Bank of the judgment shall be satisfied in the same manner as a judgment for money.
Philippines (DBP) and Philippine National Bank (PNB) acquired the mining claims from MMIC, one of the original
parties in Civil Case No. 142 (96-5488) when it foreclosed the latter's mortgage. In turn, DBP and PNB incorporated
Maricalum purposely to own, manage, and operate the foreclosed properties. Later on, respondent acquired the Truly, it is doctrinal that the execution of any judgment for a specific act cannot extend to persons who were never
mining claims from Maricalum.25 By its acquisition of Maricalum's mining rights, respondent stepped into the shoes parties to the main proceeding.32 To enforce the effects of a judgment to persons who are strangers to the case
of its transferor which clearly binds it to the judgment against its predecessor.26 certainly offends the constitutional guarantee as enshrined in Section 1, Article III of the 1987 Constitution that no
person shall be deprived of life, liberty, or property without due process of law. As explained in Muñoz v. Yabut,
Jr.:33
Petitioner emphasizes that even if respondent was not a party to the case, law and jurisprudence dictate that a The rule is that: (1) a judgment in rem is binding upon the whole world, such as a
transferee pendente lite is bound by the proceedings involved before the property was transferred to it, and judgment in a land registration case or probate of a will; and (2) a judgment in personam is
respondent, as a transferee pendente lite, cannot evade its liability.27 binding upon the parties and their successors-in-interest but not upon strangers. A judgment
directing a party to deliver possession of a property to another is in personam; it is binding only
Issue against the parties and their successors-in-interest by title subsequent to the commencement of
the action. An action for declaration of nullity of title and recovery of ownership of real property,
or re-conveyance, is a real action but it is an action in personam, for it binds a particular
The primordial issue for resolution in this case is whether the CA committed a reversible error in dismissing the
petition for certiorari filed by the petitioner to assail the Amended Order dated July 9, 2004 and Order dated individual only although it concerns the right to a tangible thing. Any judgment therein is binding
only upon the parties properly impleaded.34
November 8, 2004, rendered by the RTC.
Our Ruling Here, an amendment of the writ of execution by including respondent, a party not impleaded in the original case, will
effectively expand the coverage of the said writ and necessarily modify the RTC's April 12, 2002 Decision that has
already attained finality. Also, being a non-party, respondent cannot be bound by the judgment rendered in the
In praying for the reversal of the assailed CA rulings, petitioner seeks the amendment of the dispositive portion of original case even with the amendment of the writ of execution. To emphasize, no man shall be affected by any
the April 12, 2002 RTC Decision that rendered judgment only against San Remigio, Real Copper, and MMIC, for it to proceeding to which he is a stranger, and strangers to a case are not bound by any judgment rendered by the court.
include respondent, which is a party not impleaded in the original case. In the same manner, a writ of execution can be only issued only against a party and not against one who did not
have his day in court. Only real parties in interest in an action are bound by the judgment therein and by writs of
By law, once a judgment becomes final, the prevailing party is entitled as a matter of right to a writ of execution as execution issued pursuant thereto.35
mandated by Section 1, Rule 39 of the 1997 Rules of Civil Procedure, to wit:
Section 1. Execution upon judgments or final orders. - Execution shall issue as a matter of Petitioner, however, insists that respondent is a successor-in-interest of Maricalum. According to petitioner, with
right, on motion, upon a judgment or order that disposes of the action or proceeding upon the respondents's purchase of Maricalum's mining claims and properties, the former has effectively acquired not only the
expiration of the period to appeal therefrom if no appeal has been duly perfected. (Emphasis rights to the properties but likewise assumed the risks involved pursuant to the principle of caveat emptor.
supplied)28
The rule is clear that when a decision attains finality, it is the ministerial duty of the court
In Maricalum Mining Corp. v. Florentino,36 We had the occasion to explain that the transfer of all assets of one
to issue a writ to enforce a judgment which has become executory.
corporation to another does not make the transferee liable for the debts and liabilities of the transferor except when
there is an express or implied assumption of obligation, corporate merger or consolidation, where the transfer is
However, the power of the court in executing judgments covers only that which has been settled29 and courts are merely a continuation of the existence of the transferor, and fraud is employed to escape liability.37
barred from modifying the rights and obligations of the parties, which had been adjudicated upon,30 save in cases
where there is a need to correct clerical errors, nunc pro tunc entries which cause no prejudice to any party, void
By way of background, the transfer of some of Maricalum's assets in favor of respondent was by virtue of a purchase
judgments, or whenever circumstances transpire after the finality of the decision rendering its execution unjust and
inequitable. service agreement (PSA) as part of an official measure to dispose the government's non-performing assets. Thereat,
respondent bought 90% of Maricalum's mining shares and financial claims in the form of company notes. In
26
exchange, the PSA obliged respondent to pay APT a certain amount. Concomitantly, respondent also assumed determine established liability. However, piercing of the veil of corporate fiction is frowned upon
Maricalum's liabilities in the form of promissory notes, which were secured by mortgages over some of Maricalum's and must be done with caution. This is because a corporation is invested by law with a
properties. These notes obliged Maricalum to pay respondent a stipulated amount.38 However, in July 2001, the personality separate and distinct from those of the persons composing it as well as from that of
properties of Maricalum, which had been mortgaged to secure the notes, were extrajudicially foreclosed and any other legal entity to which it may be related.
eventually sold to respondent as the highest bidder.39 Since then, respondent had been the controlling stockholder
of Maricalum. A parent or holding company is a corporation which owns or is organized to own a
substantial portion of another company's voting shares of stock enough to control or influence the
Settled is the rule that where one corporation sells or otherwise transfers all its assets to another corporation for latter's management, policies or affairs thru election of the latter's board of directors or
value, the latter is not, by that fact alone, liable for the debts and liabilities of the transferor.40 otherwise. However, the term "holding company" is customarily used interchangeably with the
term "investment company" which, in turn, is defined by Section 4 (a) of Republic Act (R.A.) No.
Here, when respondent purchased Maricalum's shares from the APT, it did so not for the purpose of continuing 2629 as "any issuer (corporation) which is or holds itself out as being engaged primarily, or
Maricalum's existence/operations or evading liability to creditors, but for the purpose of investing in the mining proposes to engage primarily, in the business of investing, reinvesting, or trading in securities."
industry without having to directly engage in the management and operation of mining. As a holding company,
respondent's acquisition of Maricalum's properties was merely to invest in the equity of another corporation for the In other words, a "holding company" is organized and is basically conducting its business
purpose of earning from the latter's endeavors.41 Hence, in the absence of clear and convincing evidence that GHI by investing substantially in the equity securities of another company for the purposes of
committed fraud in taking over the assets of Maricalum, the former cannot be held automatically liable for the controlling their policies (as opposed to directly engaging in operating activities) and "holding"
satisfaction of claims against Maricalum. them in a conglomerate or umbrella structure along with other subsidiaries. Significantly, the
holding company itself-being a separate entity-does not own the assets of and does not answer
At this point, We deem it necessary to point out that the transfer of Maricalum's mining claims and properties to GHI for the liabilities of the subsidiary or affiliate. The management of the subsidiary or affiliate still
does not automatically shift the former's liabilities to the latter. To restate, where one corporation sells or otherwise rests in the hands of its own board of directors and corporate officers. It is in keeping with the
transfers all its assets to another corporation for value, the latter is not, by that fact alone, liable for the debts and basic rule a corporation is a juridical entity which is vested with a legal personality separate and
liabilities of the transferor.42 distinct from those acting for and in its behalf and, in general, from the people comprising it. The
corporate form was created to allow shareholders to invest without incurring personal liability for
the acts of the corporation.
Neither can We find for petitioner's argument that respondent is a mere alter ego of Maricalurn to support the
piercing of corporate veil between these two entities and ultimately enforce the judgment award against respondent.
While the veil of corporate fiction may be pierced under certain instances, mere ownership
of a subsidiary does not justify the imposition of liability on the parent company. It must further
The matter of separate corporate personality between respondent and Maricalum has already been resolved as early appear that to recognize a parent and a subsidiary as separate entities would aid in the
as the case of "G" Holdings, Inc. v. National Mines and Allied Workers Union43 where We explained that: consummation of a wrong. Thus, a holding corporation has a separate corporate
[t]he mere interlocking of directors and officers does not warrant piercing the separate existence and is to be treated as a separate entity; unless the facts show that such
corporate personalities of MMC and GHI. Not only must there be a showing that there was separate corporate existence is a mere sham, or has been used as an instrument for
majority or complete control, but complete domination, not only of finances but of policy and concealing the truth.
business practice in respect to the transaction attacked, so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own. The mortgage deed
transaction attacked as a basis for piercing the corporate veil was a transaction that was an In the case at bench, complainants mainly harp their cause on the alter ego theory. Under
offshoot, a derivative, of the mortgages earlier constituted in the Promissory Notes dated October this theory, piercing the veil of corporate fiction may be allowed only if the following elements
2, 1992. But these Promissory Notes with mortgage were executed by GHI with APT in the name concur:
of MMC, in a full privatization process. It appears that if there was any control or domination 1) Control - not mere stock control, but complete domination - not only of
exercised over MMC, it was APT, not GHI, that wielded it.44 finances, but of policy and business practice in respect to the transaction attacked, must
have been such that the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own;
The above-mentioned ruling was reinforced in the more recent case of Maricalum45 where We discussed the 2) Such control must have been used by the defendant to commit a fraud or a
parameters, guidelines and indicators for proper piercing of the corporate veil. Therein, We said: wrong, to perpetuate the violation of a statutory or other positive legal duty, or a
dishonest and an unjust act in contravention of plaintiffs legal right; and
The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: (a) 3) The said control and breach of duty must have proximately caused the injury
defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of or unjust loss complained of.
an existing obligation; (b) fraud cases or when the corporate entity is used to justify a wrong,
protect fraud, or defend a crime; or (c) alter ego cases, where a corporation is merely a farce In the instant case, there is no doubt that G Holdings - being the majority and controlling stockholder - had been
since it is a mere alter ego or business conduit of a person, or where the corporation is so exercising significant control over Maricalum Mining. This is because this Court had already upheld the validity and
organized and controlled and its affairs are so conducted as to make it merely an instrumentality, enforceability of the PSA between the APT and G Holdings. It was stipulated in the PSA that APT shall transfer 90% of
agency, conduit or adjunct of another corporation. This principle is basically applied only to Maricalum Mining's equity securities to G Holdings and it establishes the presence of absolute control of a subsidiary's
27
corporate affairs. Moreover, the Court evinces its observation that Maricalum Mining's corporate name appearing on The facts giving rise to the instant controversy follow:
the heading of the cash vouchers issued in payment of the services rendered by the manpower cooperatives is being
superimposed with G Holding's corporate name. Due to this observation, it can be reasonably inferred that G Purificacion, a spinster, is the registered owner of parcels of land covered by Transfer Certificate of Title (TCT) Nos.
Holdings is paying for Maricalum Mining's salary expenses. Hence, the presence of both circumstances of dominant T-57820* and T-162375; and a co-owner of another property covered by TCT No. T-162380, all of which are located
equity ownership and provision for salary expenses may adequately establish that Maricalum Mining is an in Calamba City, Laguna.6
instrumentality of G Holdings.
In 1996, Purificacion, impelled by her unmaterialized desire to be nun, decided to devote the rest of her life in
However, mere presence of control and full ownership of a parent over a subsidiary is not enough to pierce the veil of helping others. In the same year, she then became a benefactor of the petitioner by giving support to the community
corporate fiction. It has been reiterated by this Court time and again that mere ownership by a single stockholder or and its works.7
by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality.46
In 1997, during a doctor's appointment, Purificacion then accompanied by Mother Concepcion, discovered that she
has been suffering from lung cancer. Considering the restrictions in her movement, Purificacion requested Mother
Indeed, in the absence of proof necessary to puncture respondent's corporate cover, its separate corporate Concepcion to take care of her in her house, to which the latter agreed.8
personality must be respected.
In October 1999, Purificacion called Mother Concepcion and handed her a handwritten letter dated October 1999.
The foregoing considered, We see no reversible error committed by the CA in issuing the assailed decision and Therein, Purificacion stated that she is donating her house and lot at F. Mercado Street and Riceland at Banlic, both
resolution, which found no grave abuse of discretion in the legal conclusions reached by the RTC. at Calamba, Laguna, to the petitioner through Mother Concepcion. On the same occasion, Purificacion introduced
Mother Concepcion to her nephew, Francisco Del Mundo (Francisco), and niece, Ma. Lourdes Alzona Aguto-Africa
WHEREFORE, the instant petition is DENIED. The Court AFFIRMS in toto the July 30, (Lourdes). Purificacion, instructed Francisco to give a share of the harvest to Mother Concepcion, and informed
2010 Decision and December 8, 2010 Resolution of the Court of Appeals in CA-G.R. SP No. Lourdes that she had given her house to Mother Concepcion.9
88261.
Sometime in August 2001, at the rt:quest of Purificacion, Mother Concepcion went to see Atty. Nonato Arcillas (Atty.
Arcillas) in Los Banos, Laguna. During their meeting, Atty. Arcillas asked Mother Concepcion whether their group is
registered with the SEC, to which the latter replied in the negative. Acting on the advice given by Atty. Arcillas,
Mother Concepcion went to SEC and filed the corresponding registration application on August 28, 2001.10
G.R. No. 224307

On August 29, 2001, Purificacion executed a Deed of Donation Inter Vivas (Deed) in favor of the petitioner,
conveying her properties covered by TCT Nos. T-67820 and T-162375, and her undivided share in the property
THE MISSIONARY SISTERS OF OUR LADY OF FATIMA (PEACH SISTERS OF LAGUNA), represented by Rev.
covered by TCT No. T-162380. The Deed was notarized by Atty. Arcillas and witnessed by Purificacion's nephews
Mother Ma. Concepcion R. Realon, et al., Petitioners
Francisco and Diosdado Alzona, and grandnephew, Atty. F emando M. Alonzo. The donation was accepted on even
vs.
date by Mother Concepcion for and in behalf of the petitioner.11
AMANDO V. ALZONA, et al., Respondents
Thereafter, Mother Concepcion filed an application before the Bureau of Internal Revenue (BIR) that the petitioner be
Before this Court is a petition for review on certiorari1 under Rule 45 of the Rules of Court seeking to annul and set
exempted from donor's tax as a religious organization. The application was granted by the BIR through a letter dated
aside the Decision2 dated January 7, 2016 of the Court of Appeals (CA) in CA-G.R. CV No. 101944, and its
January 14, 2002 of Acting Assistant Commissioner, Legal Service, Milagros Regalado.12
Resolution3 dated April 19, 2016, denying the motion for reconsideration thereof. The assailed decision partly granted
the respondents' appeal and set aside the Decision4 dated August 14, 2013 of the Regional Trial Court (RTC) of
Calamba City, Branch 92 in Civil Case No. 3250-02-C. Subsequently, the Deed, together with the owner's duplicate copies of TCT Nos. T-57820, T-162375, and T-162380,
and the exemption letter from the BIR was presented for registration. The Register of Deeds, however, denied the
registration on account of the Affidavit of Adverse Claim dated September 26, 2001 filed by the brother of
The Antecedent Facts
Purificacion, respondent Amando Y. Alzona (Amando).13
The Missionary Sisters of Our Lady of Fatima (petitioner), otherwise known as the Peach Sisters of Laguna, is a
On October 30, 2001, Purificacion died without any issue, and survived only by her brother of full blood, Amando,
religious and charitable group established under the patronage of the Roman Catholic Bishop of San Pablo on May 30,
who nonetheless died during the pendency of this case and is now represented and substituted by his legal heirs,
1989. Its primary mission is to take care of the abandoned and neglected elderly persons. The petitioner came into
joined as herein respondents.14
being as a corporation by virtue of a Certificate issued by the Securities and Exchange Commission (SEC) on August
31, 2001.5 Mother Ma. Concepcion R. Real on (Mother Concepcion) is the petitioner's Superior General.
On April 9, 2002, Amando filed a Complaint before the RTC, seeking to annul the Deed executed between Purificacion
and the petitioner, on the ground that at the time the donation was made, the latter was not registered with the SEC
The respondents, on the other hand, are the legal heirs of the late Purificacion Y. Alzona (Purificacion).
and therefore has no juridical personality and cannot legally accept the donation.15
28
After trial, on August 14, 2013, the RTC rendered its Decision16 finding no merit in the complaint, thus ruling: 4.) The intestate estate of Purificacion is estopped from questioning the legal personality of [the petitioner].
WHEREFORE, the instant case is hereby DISMISSED with costs against the [respondents]. The Compulsory b. The Respondents lack the requisite legal capacity t0 question the legality of the deed of donation.29
counterclaim of the [petitioner] is likewise dismissed for lack of evidence.
In sum, the issue to be resolved by this Court in the instant case is whether or not the Deed executed by Purificacion
In its decision, the RTC held that all the essential elements of a donation are present. The RTC set aside the in favor of the petitioner is valid and binding. In relation to this, the Court is called upon to determine the legal
allegation by the respondents relating to the incapacity of the parties to enter into a donation.18 capacity of the petitioner, as donee, to accept the donation, and the authority Mother Concepcion to act on behalf of
the petitioner in accepting the donation.
In the case of Purificacion, the RTC held that apart from the self-serving allegations by the respondents, the records
are bereft of evidence to prove that she did not possess the proper mental faculty in making the donation; as such Ruling of the Court
the presumption that every person is of sound mind stands.19
The petition is meritorious.
On the capacity of the donee, the RTC held that at the time of the execution of the Deed, the petitioner was a de
facto corporation and as such has the personality to be a beneficiary and has the power to acquire and possess The petitioner argues that it has the requisite legal personality to accept the donation as a religious institution
property. Further then, the petitioner's incapacity cannot be questioned or assailed in the instant case as it organized under the Roman Catholic Bishop of San Pablo, a corporation sole.30
constitutes a collateral attack which is prohibited by the Corporation Code of the Philippines.20 In this regard, the RTC
found that the recognition by the petitioner of Mother Concepcion's authority is sufficient to vest the latter of the
capacity to accept the donation.21 Regardless, the petitioner contends that it is a de facto corporation and therefore possessed of the requisite
personality to enter into a contract of donation.
Acting on the appeal filed by the respondents, the CA rendered the herein assailed Decision 22 on January 7, 2016, the
dispositive portion of which reads: Assuming further that it cannot be considered as a de facto corporation, the petitioner submits that the acceptance
WHEREFORE, the appeal is PARTLY GRANTED. The assailed August 14, 2013 Decision of the RTC, Branch 92, by Mother Concepcion while the religious organization is still in the process of incorporation is valid as it then takes
Calamba City in Civil Case No. 3250-02 is SET ASIDE by declaring as VOID the deed of Donation dated August 14, the form of a pre-incorporation contract governed by the rules on agency. The petitioner argues that their
2013. [The respondents'] prayer for the award of moral and exemplary damages as well as attorney's fees is subsequent incorporation and acceptance perfected the subject contract of donation.31
nevertheless DENIED.
Ultimately, the petitioner argues that the intestate estate of Purificacion is estopped from questioning its legal
In so ruling, the CA, citing the case of Seventh Day Adventist Conference Church of Southern Phils., Inc. v. personality considering the record is replete of evidence to prove that Purificacion at the time of the donation is fully
Northeastern Mindanao Mission of Seventh Day Adventist, Inc., 24 held that the petitioner cannot be considered as aware of its status and yet was still resolved into giving her property.32
a de facto corporation considering that at the time of the donation, there was no bona fide attempt on its part to
incorporate.25 As an unregistered corporation, the CA concluded that the petitioner cannot exercise the powers, In response, the respondents submit that juridical personality to enter into a contract of donation is vested only upon
rights, and privileges expressly granted by the Corporation Code. Ultimately, bereft of juridical personality, the CA the issuance of a Certificate of Incorporation from SEC. 33 Further, the respondents posit that the petitioner cannot
ruled that the petitioner cannot enter into a contract of Donation with Purificacion.26 even be considered as a de facto corporation considering that for more than 20 years, there was never any attempt
on its part to incorporate, which decision came only after Atty. Arcillas' suggestion.34
Finally, the CA denied the respondents' claim for actual damages and attorney's fees for failure to substantiate the
same.27 In order that a donation of an immovable property be valid, the following elements must be present: (a) the
essential reduction of the patrimony of the donor; (b) the increase in the patrimony of the donee; (c) the intent to do
The petitioner sought a reconsideration of the Decision dated January 7, 2016, but the CA denied it in its an act of liberality or animus donandi; (d) the donation must be contained in a public document; and e) that the
Resolution28 dated April 19, 2016. acceptance thereof be made in the same deed or in a separate public instrument; if acceptance is made in a separate
instrument, the donor must be notified thereof in an authentic form, to be noted in both instruments.35
In the instant petition, the petitioner submits the following arguments in support of its position:
a. The Donation Inter Vivas is valid and binding against the parties therein [Purificacion] and the [petitioner] and There is no question that the true intent of Purificacion, the donor and the owner of the properties in question, was to
their respective successors in interest: give, out of liberality the subject house and lot, which she owned, to the petitioner. This act, was then contained in a
1.) The [petitioner] has the requisite legal personality to accept donations as a religious institution under the public document, the deed having been acknowledged before Atty. Arcillas, a Notary Public.36 The acceptance of the
Roman Catholic Bishop of San Pablo authorized to receive donations; donation is made on the same date that the donation was made and contained in the same instrument as manifested
2.) The [petitioner] has the requisite legal capacity to accept the donation as it may be considered a de by Mother Concepcion's signature.37 In fine, the remaining issue to be resolved is the capacity of the petitioner as
facto corporation. donee to accept the donation, and the authority of Mother Concepcion to act on its behalf for this purpose.
3.) Regardless of the absence of the Certificate of Registration of [petitioner] at the time of the execution of the
Deed of Donation, the same is still valid and binding having been accepted by a representative of the [petitioner] Under Article 737 of the Civil Code, "[t]he donor's capacity shall be determined as of the time of the making of the
while the latter was still waiting for the issuance of the Certificate of Registration and which acceptance of the donation." By analogy, the legal capacity or the personality of the donee, or the authority of the latter's
donation was duly ratified by the corporation. representative, in certain cases, is determined at the time of acceptance of the donation.
29
Article 738, in relation to Article 745, of the Civil Code provides that all those who are not specifically disqualified by 1999 via handwritten letter, and second, on August 29, 2001 through a Deed; the latter having been executed the
law may accept donations either personally or through an authorized representative with a special power of attorney day after the petitioner filed its application for registration with the SEC.44
for the purpose or with a general and sufficient power.
The doctrine of corporation by estoppel rests on the idea that if the Court were to disregard the existence of an entity
The Court finds that for the purpose of accepting the donation, the petitioner is deemed vested with personality to which entered into a transaction with a third party, unjust enrichment would result as some form of benefit have
accept, and Mother Concepcion is clothed with authority to act on the latter's behalf. already accrued on the part of one of the parties. Thus, in that instance, the Court affords upon the unorganized
entity corporate fiction and juridical personality for the sole purpose of upholding the contract or transaction.
At the outset, it must be stated that as correctly pointed out by the CA, the RTC erred in holding that the petitioner is
a de facto corporation. In this case, while the underlying contract which is sought to be enforced is that of a donation, and thus rooted on
liberality, it cannot be said that Purificacion, as the donor failed to acquire any benefit therefrom so as to prevent the
Jurisprudence settled that "[t]he filing of articles of incorporation and the issuance of the certificate of incorporation application of the doctrine of corporation by estoppel.45 To recall, the subject properties were given by Purificacion, as
are essential for the existence of a de facto corporation."38 In fine, it is the act of registration with SEC through the a token of appreciation for the services rendered to her during her illness. 46 In fine, the subject deed partakes of the
issuance of a certificate of incorporation that marks the beginning of an entity's corporate existence.39 nature of a remuneratory or compensatory donation, having been made "for the purpose of rewarding the donee for
past services, which services do not amount to a demandable debt."47
Petitioner filed its Articles of Incorporation and by-laws on August 28, 2001. However, the SEC issued the
corresponding Certificate of Incorporation only on August 31, 2001, two (2) days after Purificacion executed a Deed As elucidated by the Court in Pirovano, et al. v. De La Rama Steamship Co.:48
of Donation on August 29, 2001. Clearly, at the time the donation was made, the Petitioner cannot be considered a In donations made to a person for services rendered to the donor, the donor's will is moved by acts which directly
corporation de facto.40 benefit him. The motivating cause is gratitude, acknowledgment of a favor, a desire to compensate. A donation
made to one who saved the donor's life, or a lawyer who renounced his fees for services rendered to the donor,
would fall under this class of donations.49

Therefore, under the premises, past services constitutes consideration, which in turn can be regarded as "benefit" on
Rather, a review of the attendant circumstances reveals that it calls for the application of the doctrine of corporation the part of the donor, consequently, there exists no obstacle to the application of the doctrine of corporation by
by estoppel as provided for under Section 21 of the Corporation Code, viz.: estoppel; although strictly speaking, the petitioner did not perform these services on the expectation of something in
Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be without return.
authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a
result thereof: Provided, however, That when any such ostensible corporation is sued on any transaction entered
by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of Precisely, the existence of the petitioner as a corporate entity is upheld in this case for the purpose of validating the
corporate personality. Deed to ensure that the primary objective for which the donation was intended is achieved, that is, to convey the
One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof property for the purpose of aiding the petitioner in the pursuit of its charitable objectives.
on the ground that there was in fact no corporation. (Emphasis Ours)
Further, apart from the foregoing, the subsequent act by Purificacion of re-conveying the property in favor of the
The doctrine of corporation by estoppel is founded on principles of equity and is designed to prevent injustice and petitioner is a ratification by conduct of the otherwise defective donation.50
unfairness.1a\^/phi1 It applies when a non-existent corporation enters into contracts or dealings with third
persons.41 In which case, the person who has contracted or otherwise dealt with the non-existent corporation is Express or implied ratification is recognized by law as a means to validate a defective contract. 51 Ratification cleanses
estopped to deny the latter's legal existence in any action leading out of or involving such contract or dealing. While or purges the contract from its defects from constitution or establishment, retroactive to the day of its creation. By
the doctrine is generally applied to protect the sanctity of dealings with the public, 42 nothing prevents its application ratification, the infirmity of the act is obliterated thereby making it perfectly valid and enforceable.52
in the reverse, in fact the very wording of the law which sets forth the doctrine of corporation by estoppel permits
such interpretation. Such that a person who has assumed an obligation in favor of a non-existent corporation, having The principle and essence of implied ratification require that the principal has full knowledge at the time of ratification
transacted with the latter as if it was duly incorporated, is prevented from denying the existence of the latter to avoid of all the material facts and circumstances relating to the act sought to be ratified or validated. 53 Also, it is important
the enforcement of the contract. that the act constituting the ratification is unequivocal in that it is performed without the slightest hint of objection or
protest from the donor or the donee, thus producing the inevitable conclusion that the donation and its acceptance
Jurisprudence dictates that the doctrine of corporation by estoppel applies for as long as there is no fraud and when were in fact confirmed and ratified by the donor and the donee.54
the existence of the association is attacked for causes attendant at the time the contract or dealing sought to be
enforced was entered into, and not thereafter.43 In this controversy, while the initial conveyance is defective, the genuine intent of Purificacion to donate the subject
properties in favor of the petitioner is indubitable. Also, while the petitioner is yet to be incorporated, it cannot be
In this controversy, Purificacion dealt with the petitioner as if it were a corporation. This is evident from the fact that said that the initial conveyance was tainted with fraud or misrepresentation. Contrarily, Purificacion acted with full
Purificacion executed two (2) documents conveying her properties in favor of the petitioner - first, on October 11, knowledge of circumstances of the Petitioner. This is evident from Purificacion's act of referring Mother Concepcion to
Atty. Arcillas, who, in turn, advised the petitioner to apply for registration. Further, with the execution of two (2)
30
documents of conveyance in favor of the petitioner, it is clear that what Purificacion intended was for the sisters
comprising the petitioner to have ownership of her properties to aid them in the pursuit of their charitable activities,
as a token of appreciation for the services they rendered to her during her illness. 55 To put it differently, the
reference to the petitioner was merely a descriptive term used to refer to the sisters comprising the congregation
collectively. Accordingly, the acceptance of Mother Concepcion for the sisters comprising the congregation is
sufficient to perfect the donation and transfer title to the property to the petitioner. Ultimately, the subsequent
incorporation of the petitioner and its affirmation of Mother Concepcion's authority to accept on its behalf cured
whatever defect that may have attended the acceptance of the donation.
The Deed sought to be enforced having been validly entered into by Purificacion, the respondents' predecessor-in-
interest, binds the respondents who succeed the latter as heirs.56 Simply, as they claim interest in their capacity as
Purificacion's heirs, the respondents are considered as "privies" to the subject Deed; or are "those between whom an
action is binding although they are not literally parties to the said action."57 As discussed in Constantino, et al. v.
Heirs of Pedro Constantino, Jr.:58
[p]rivity in estate denotes the privity between assignor and assignee, donor and donee, grantor and grantee, joint
tenant for life and remainderman or reversioner and their respective assignees, vendor by deed of warranty and a
remote vendee or assignee. A privy in estate is one, it has been said, who derives his title to the property in
question by purchase; one who takes by conveyance. In fine, respondents, as successors-in-interest, derive their
right from and are in the same position as their predecessor in whose shoes they now stand.59 (Citation omitted)
Anent the authority of Mother Concepcion to act as representative for and in behalf of the petitioner, the Court
similarly upholds the same. Foremost, the authority of Mother Concepcion was never questioned by the petitioner. In
fact, the latter affirms and supports the authority of Mother Concepcion to accept the donation on their behalf; as she
is, after all the congregation's Superior General.60 Furthermore, the petitioner's avowal of Mother Concepcion's
authority after their SEC registration is a ratification of the latter's authority to accept the subject donation as the G.R. No. 185664 April 8, 2015
petitioner's representative.61
ANGELES P. BALINGHASAY, RENATO M. BERNABE, ALODIA L. DEL ROSARIO, CATALINA T. FUNTILA,
In closing, it must be emphasized that the Court is both of law and of justice. Thus, the Court's mission and purpose TERESITA L. GAYANILO, RUSTICO A. JIMENEZ, ARCELI P. JO, ESMERALDA D. MEDINA, CECILIA S.
is to apply the law with justice.62 MONTALBAN, VIRGILIO R. OBLEPIAS, CARMENCITA R. PARRENO, EMMA L. REYES, REYNALDO L. SAVET,
SERAPIO P. TACCAD, VICENTE I. VALDEZ, SALVACION F. VILLAMORA, and DIONISIA M.
Donation is an expression of our social conscience, an act rooted purely on the goodness of one's heart and intent to VILLAREAL, Petitioners,
contribute.1âwphi1 vs.
CECILIA CASTILLO, OSCAR DEL ROSARIO, ARTURO S. FLORES, XERXES NAVARRO, MARIAANTONIAA.
TEMPLO and MEDICAL CENTER PARAÑAQUE, INC., Respondents.
Purificacion, the donor is worthy of praise for her works of charity. Likewise, the petitioner is worthy of admiration for
with or without the promise of reward or consideration, the Court is certain that it is impelled by sincere desire to
help the petitioner in overcoming her illness. The instant Petition for Review on Certiorari1 assails the Decision2 dated May 23, 2008 and Resolution3 dated
December 12, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. 89279. The CA reversed and set aside the
Decision dated March 22, 2005 of the Regional Trial Court (RTC) of Parañaque City, Branch 258, in Civil Case No. 01-
It is unfortunate that the will of a person moved by the desire to reciprocate the goodness shown to her during the 0140, which dismissed the amended complaint for injunction, accounting and damages filed by Cecilia Castillo
lowest and culminating points of her life is questioned and herein sought to be nullified on strict legality, when the
(Castillo), Oscar del Rosario (Oscar), Arturo Flores (Flores), Xerxes Navarro (Navarro), Maria Antonia Templo
intent of the donor to give is beyond question. (Templo) and Medical Center Parañaque, Inc. (MCPI) (respondents) against Angeles Balinghasay (Balinghasay),
Renato Bernabe (Bernabe), Alodia Del Rosario (Alodia), Catalina Funtila, Teresita Gayanilo, Rustico Jimenez
The promotion of charitable works is a laudable objective. While not mentioned in the Constitution, the Court (Jimenez), Arceli Jo, Esmeralda Medina, Cecilia Montalban, Virgilio Oblepias (Oblepias), Carmencita Parreño, Emma
recognizes benevolent giving as an important social fabric that eliminates inequality. As such, charitable giving must Reyes, Reynaldo Savet (Savet), Commodore Serapio Taccad, Vicente Valdez (Valdez), Salvacion Villamora
be encouraged through support from society and the Court. (Villamora) and Dionisia Villareal4 (Villareal) (petitioners).
WHEREFORE, in consideration of the foregoing disquisitions, the instant petition for review The MCPI, a domestic corporation organized in 1977, operates the Medical Center Parañaque (MCP) locatedin Dr. A.
on certiorari is GRANTED. Accordingly, the Decision dated January 7, 2016 and Resolution dated April 19, 2016 of Santos Avenue, Sucat, Parañaque City. Castillo, Oscar, Flores, Navarro, and Templo are minority stockholders of
the Court of Appeals in CA-G.R. CV No. 101944, are hereby REVERSED and SET ASIDE. MCPI. Each of them holds 25 Class B shares. On the other hand, nine of the herein petitioners, namely, Balinghasay,
Bernabe, Alodia, Jimenez, Oblepias, Savet, Villamora,Valdez and Villareal, are holders of Class A shares and were
31
Board Directors of MCPI. The other eight petitioners are holders of Class B shares. The petitioners are part of a group On March 22, 2005, the RTC rendered a Decision dismissing the respondents’ amended complaint. The RTC found
who invested in the purchase of ultrasound equipment, the operation of and earnings from which gave rise to the that MCPI had, in effect, impliedly ratified the MOA by accepting or retaining benefits flowing therefrom. Moreover,
instant controversy. the elected MCPI’s Board Directors for the years 1998 to 2000 did not institute legal actions against the petitioners.
MCPI slept on its rights for almost four years, and estoppel had already set in before the derivative suit was filed in
Before 1997, the laboratory, physical therapy, pulmonary and ultrasound services in MCP were provided to patients 2001. The RTC likewise stressed that the sharing agreement, per MOA provisions, was fair, just and reasonable.
by way of concessions granted to independent entities. When the concessions expired in 1997, MCPI decided that it From the ultrasound unit’s operations for the years 1997 to 1999, MCPI received a net share of ₱1,567,699.78, while
would provide on its own the said services, except ultrasound.5 the ultrasound investors only got ₱803,723.00. Further, under the "business judgment rule," the trial court cannot
undertake to control the discretion of the corporation’s board as long as good faith attends its exercise.16
In 1997, the MCPI’s Board of Directors awarded the operation of the ultrasound unit to a group of investors
(ultrasound investors) composed mostly of Obstetrics-Gynecology (Ob-gyne) doctors. The ultrasound investors held The petitioners challenged the RTC’s judgment before the CA.
either Class A or Class B shares of MCPI. Among them were nine of the herein petitioners, who were then, likewise,
MCPI Board Directors. The group purchased a Hitachi model EUB-200 C ultrasound equipment costing ₱850,000.00 On May 23, 2008, the CA rendered the herein assailed decision, the dispositive portion of which reads:
and operated the same. Albeit awarded by the Board of Directors, the operation was not yet covered by a written WHEREFORE, premises considered, the Petition for Review is GRANTED. The Decision dated 22 March 2005 of the
contract.6 [RTC] of Parañaque City, Branch 258 in Civil Case No. 01-0140is REVERSED and SET ASIDEand a new one entered
declaring the [MOA] (ultrasound contract) as invalid. Further, [petitioners] Angeles Balinghasay, Dr. Renato
In the meeting of the MCPI’s Board of Directors held on August 14, 1998, seven (7) of the twelve (12) Directors Bernabe, Dr. Alodia del Rosario, Dr. Rustico Jimenez, Dr. Virgilio Oblepias, Dr. Reynaldo Savet, Dr. Salvacion
present were part of the ultrasound investors. The Board Directors made a counter offer anent the operation of the Villamoraand Dr. Humberto Villarealare hereby ordered to fully account to [respondent MCPI] all the profits from
ultrasound unit. Hence, essentially then, the award of the ultrasound operation still bore no formal stamp of said ultrasound contract which otherwise would have accrued to [MCPI]and to jointly and severally pay the amount
approval.7 of ₱200,000.00 as attorney’s fees in favor of the [respondents]. Costs against said named [petitioners].
On February 5, 1999, twelve (12) Board Directors attended the Board meeting and eight (8) of them were among the The CA, however, denied the respondents’ claims for moral and exemplary damages. The appellate court explained
ultrasound investors. A Memorandum of Agreement (MOA) was entered into by and between MCPI, represented by that moral damages cannot be awarded in favor of a corporation, which in this case is MCPI, the real party-in-
its President then, Bernabe, and the ultrasound investors, represented by Oblepias. Per MOA, the gross income to be interest. Further, there is no ample evidence to prove that the petitioners acted wantonly, recklessly and
derived from the operation of the ultrasound unit, minus the sonologists’ professional fees, shall be divided between oppressively.18
the ultrasound investors and MCPI, in the proportion of 60% and 40%, respectively. Come April 1, 1999, MCPI’s
share would be 45%, while the ultrasound investors would receive 55%. Further, the ownership of the ultrasound In declaring the invalidity of the MOA, the CA explained that:
machine would eventually be transferred to MCPI.8 "Quorum" is defined as that number of members of a body which, when legally assembled in their proper places,
will enable the body to transact its proper business. "Majority," when required to constitute a quorum, means the
On October 6, 1999, Flores wrote MCPI’s counsel a letter challenging the Board of Directors’ approval of the MOA for greater number than half or more than half of any total.
being prejudicial to MCPI’s interest. Thereafter, on February 7, 2000, Flores manifested to MCPI’s Board of Directors
and President his view regarding the illegality of the MOA, which, therefore, cannot be validly ratified.9 In the case at bar, the majority of the number of directors, if it is indeed thirteen (13), is seven (7), while if it is
eleven (11), the majority is six (6). During the meetings held by the MCPI Board of Directors i.e.1) 14 August 1998
On March 22, 2001, the herein respondents filed with the RTC a derivative suit 10 against the petitioners for violation meeting x x x, twelve (12)directors were present, and of said number, seven (7) of them belong to the ultrasound
of Section 3111 of the Corporation Code. Among the prayers in the Complaint were: (a) the annulment of the MOA investors x x x, and at which meeting, the Board decided to make a counter-offer x x x to the ultrasound group
and the accounting of and refund by the petitioners of all profits, income and benefits derived from the said and; 2) 05 February 1999 meeting x x x, twelve (12) directors were present, and of said number, eight (8) of them
agreement; and (b) payment of damages and attorney’s fees.12 belong to the ultrasound investors x x x, and at which meeting, the Board decided to proceed with the signing of
the [MOA] x x x. As can be gleaned from the Minutes of said Board meetings, without the presence of the
[petitioners] directors/ultrasound investors, there can be no quorum. At any rate, during the Board meeting on 14
In their Answer with Counterclaim, the petitioners argued that the derivative suit must be dismissed for non-joinder August 1998, the [MOA] was not approved as only a counter-offer was agreed upon. As to the 05 February 1999
of MCPI, an indispensable party. The petitioners likewise claimed that under Section 3213 of the Corporation Code, the Board meeting, without considering the votes of the [petitioners] directors/ultrasound investors, in connection with
MOA was merely voidable. Since there was no proof that the subsequent Board of Directors of MCPI moved to annul the signing of the [MOA], no valid decision can be made. It further appears that x x x [Oblepias], who signed the
the MOA, the same should be considered as having been ratified. Further, in the Annual Stockholders Meeting held [MOA] on behalf of the ultrasound/Ob-Gyne group as OWNER of the ultrasound equipment, and x x x President Dr.
on February 11, 2000, the MOA had already been discussed and passed upon.14 Bernabe, who signed the same on behalf of MCPI x x x, are both ultrasound investors. Thus, We find that the
[MOA] was not validly approved by the MCPI Board. Plainly, [the petitioners/directors] x x x, in acquiring an
To implead MCPI as a party-plaintiff, the individual respondents filed an Amended Complaint dated September 11, interest adverse to the corporation, are liable as trustees for the corporation and must account for the profits under
2001.15 The RTC admitted the said amended complaint on October 12, 2001. the [MOA] which otherwise would have accrued to MCPI.
Rulings of the RTC and the CA x x x [T]he presence of the [petitioners] directors/ultrasound investors who approved the signing of the [MOA] was
necessary to constitute a quorum for such meeting on 05 February 1999 and the votes of [the petitioners]
32
directors/ultrasound investors were necessary in connection with the decision to proceed with the signing of the of law in not applying the "business judgment rule"; and (4) committed an error of law in assessing attorney’s fees of
[MOA]. Further, there is no clear and convincing evidence that the [MOA] was ratified by the vote of 2/3 of the ₱200,000.00against the directors-contributors.21
outstanding capital stock of MCPI in a meeting called for the purpose and that a full disclosure of the interest of the
[petitioners] directors/ultrasound investors, was made at such meeting. At any rate, if the ultrasound contract has The petitioners allege that the ultrasound equipment was purchased for its transvaginal probe capacity. Prior to its
indeed been impliedly ratified[,] there would have been no need to submit the matter repeatedly to the purchase, the Philippine Board of Obstetrics and Gynecology of the Philippine Obstetrical and Gynecology Society
stockholders of MCPI in a vain attempt to have the same ratified. adopted a policy enjoining the Ob-gyne departments of hospitals to have their own ultrasound equipment for the
purpose of being able to pinpoint responsibility for their use.22
The [RTC’s] observation that [the respondents’] silence and acquiescence to the [MOA] impliedly ratified the same
is also belied by the fact that [the respondents] did not stop questioning the validity of the [MOA]. x x x. Further, the MCP’s Ob-gyne doctors observed that the absence of ultrasound equipment within MCP may compel the
patients to go instead to other hospitals, thus, resulting to both loss of income and an unpleasant reputation of being
Further, under the Corporation Code, where a corporation is an injured party, its power to sue is lodged with its ill-equipped. The MCP’s Ob-gyne doctors were, hence, moved to pass around the hat to raise the amount of
board of directors or trustees. But an individual stockholder may be permitted to institute a derivative suit in behalf ₱850,000.00 for the equipment’s purchase. However, not all of the Board Directors and holders of Class A shares
of the corporation in order to protect or vindicate corporate rights whenever the officials of the corporation refuse contributed as there was no guaranteed return of investments to speak of. Several holders of Class B shares
to sue, or when a demand upon them to file the necessary action would be futile because they are the ones to be participated though. As for MCPI, it was then interested to acquire a lot adjacent to the hospital and was, therefore,
sued, or because they hold control of the corporation. In such actions, the corporation is the real party-in-interest not in the financial position to buy the ultrasound equipment.23
while the suing stockholder, in behalf of the corporation, is only a nominal party.
Admittedly, little formality was observed by the MCP’s Ob-gyne doctors in raising the funds for and purchasing the
In the instant case, [the respondents] filed an Amended Complaint dated 11 September 2001. Paragraphs 1a, 3 ultrasound equipment, but the endeavor was motivated by good faith.24 At the outset, the antecedents leading to the
and 17-24 thereof sufficiently allege their derivative action. There was compliance with Section 1, Rule 8 of the purchase and operation of the ultrasound equipment were not introduced into the records, but the respondents
Interim Rules of Procedure for Intra-Corporate Controversies. x x x It is undisputed that [the respondents] are themselves acknowledged these circumstances in the petition they filed before the CA.25
stockholders of MCPI x x x; [the respondents] exerted all reasonable efforts to exhaust all remedies available to
them x x x; there are no appraisal rights available to [the respondents] for the act complained of; and the case is The petitioners likewise reiterate the RTC’s declaration that "[q]uestions of policy or of management are left solely to
clearly not a nuisance or harassment suit. x x x the honest decision of the board as the business manager of the corporation, and the court is without authority to
substitute its judgment for that of the board, and as long as its acts in good faith and in the exercise of honest
It is clear that under the "business judgment rule", the courts are barred from intruding into the business judgment in the interest of the corporation, its orders are not reviewable by the courts."26
judgments of the corporation, when the same are made in good faith.
As regards the award of attorney’s fees, the petitioners claim the same to be erroneous as their acts were all
[The petitioners] MCPI directors, who are ultrasound investors, in violation of their duty as such directors, acquired performed in good faith and profit was not their consideration.27
an interest adverse to the corporation when they entered into the ultrasound contract. By doing so, they have
unjustly profited from the transaction which otherwise would have accrued to MCPI. In fact, as reflected in the In their Motion to Dismiss28 filed on January 19, 2009 and Comment29 filed on April 30, 2009, the respondents argue
ultrasound income x x x for the year 1997 to 2001, the ultrasound investors earned a net share of ₱4,417,573.81. that the instant petition should be outrightly dismissed as the material portions of the records, to wit, copies of the
[The petitioners] directors/ultrasound investors failed to inhibit themselves from participating in the meeting and MOA, complaint, answer and RTC decision, are not attached.30
from voting with respect to the decision to proceed with the signing of the [MOA]. Certainly, said [petitioners]
directors/ultrasound investors have dealt in their behalf and took an interest adverse to MCPI.
Moreover, the issues raised herein are essentially all factual in nature, requiring a recalibration of the evidence
offered by the parties. Specifically, the instant petition prays for the Court to determine the existence of: (a)
Moreover, based on the audited financial statements of MCPI x x x for the year 1996-2000, it appears that the circumstances surrounding the purchase and operation of the ultrasound equipment; (b) an urgent hospital necessity
corporation has available cash to purchase its own ultrasound unit. It was testified to by Dr. Villamora that the cost justifying the MOA’s approval; (c) conditions precedent to the application of the business judgment rule; and (d) or
of the ultrasound unit is ₱850,000.00, while the cash and cash equivalents of MCPI for the year 1996 is absence of justifications for the award of attorney’s fees, which the CA had supposedly all ignored.31
₱5,479,242.00; for the year 1997, ₱5,509,058.51; and for the year 1998, ₱8,662,909.00.19 (Citations omitted)
In the case at bar, to the petitioners’ own detriment, they admit that the antecedents and circumstances surrounding
In the now assailed Resolution20 issued on December 12, 2008, the CA denied the Motion for Reconsideration filed by the operation of the ultrasound unit, which they invoke to prove good faith on their part, were not introduced into the
the herein petitioners. records during the trial.32
Issues The respondents once again stress that MCPI’s Balance Sheets for the years 1996 up to 2000 unequivocally show
that the corporation had more than enough cash and cash equivalents to purchase and operate the ultrasound
Undaunted, the petitioners are before this Court raising the issues of whether or not the CA: (1) committed an error equipment.33 Hence, the petitioners were either impelled by bad faith or were grossly negligent when they failed to
of law in ignoring the circumstances under which the MOA was conceived and implemented; (2) failed to consider conduct a simple examination of MCPI’s financial records.34 As regards MCPI’s intent to buy the lot adjacent to the
that the MOA was a very informal agreement meant to address an urgent hospital necessity; (3) committed an error hospital, the respondents claim that the allegation is an afterthought and no evidence supports it. 35 The respondents
33
also contend that estoppel does not apply in the instant case as they had repeatedly, but in vain, asked the MCPI’s since 1997, but the matter was only brought up for ratification by the stockholders in the annual meetings held in the
Board of Directors for a copy of the MOA, and letters were thereafter sent to challenge its validity.36 years 2000 to 2003. This circumstance lends no credence to the petitioners’ cause.
The respondents aver as well that the petitioners’ several attempts for the MOA’s ratification by the stockholders The Court thus finds the CA’s ruling anent the invalidity of the MOA as amply supported by both evidence and
through the required two-third votes had failed in the years 2000 up to2003. Despite the foregoing, the ultrasound jurisprudence.
investors continue to operate the unit and receive income therefrom causing prejudice to MCPI.37 Pursuant to Section
31 of the Corporation Code, the petitioners should therefore be liable not just for the profits or revenues they had The acts of petitioner MCPI Board of Directors compelled the respondents to litigate, hence, the CA’s award of
received from the ultrasound unit’s operation, but for all profits which otherwise would have accrued to MCPI.38 attorney’s fees is proper.
Ruling of the Court Anent when attorney’s fees should be awarded, the Court, in Benedicto v. Villaflores,42 declared that:
It is settled that the award of attorney’s fees is the exception rather than the rule and counsel’s fees are not to be
The Court affirms but clarifies and modifies the CA’s disquisition. awarded every time a party wins suit. The power of the court to award attorney’s fees under Article 2208 of the
Civil Code demands factual, legal, and equitable justification; its basis cannot be left to speculation or conjecture.
The instant petition raises mere factual issues and no exceptional grounds exist for the Court to re-evaluate the Where granted, the court must explicitly state in the body of the decision, and not only in the dispositive portion
evidence submitted by the parties. thereof, the legal reason for the award of attorney’s fees.43
Century Iron Works, Inc. v. Banas39 explains what the proper subjects of a petition filed under Rule 45 of the Rules of In the case before this Court, the CA awarded the amount of ₱200,000.00 as attorney’s fees in favor of the
Court are, viz: respondents, predicating the same on the unjustified acts of the petitioners and the interval of time it took for the
controversy to be resolved. The CA had laid down the basis for the award and the Court now finds the same to be
reasonable under the circumstances.
A petition for review on certiorari under Rule 45 is an appeal from a ruling of a lower tribunal on pure questions of
law. It is only in exceptional circumstances40 that we admit and review questions of fact.
However, the herein assailed decision and resolution still need to be modified lest unjust enrichment flows therefrom.
A question of law arises when there is doubt as to what the law is on a certain state of facts, while there is a question
of fact when the doubt arises as to the truth or falsity of the alleged facts. For a question to be one of law, the To prevent unjust enrichment, the ultrasound investors should retain ownership of the equipment.
question must not involve an examination of the probative value of the evidence presented by the litigants or any of
them. The resolution of the issue must rest solely on what the law provides on the given set of circumstances. Once Article 22 of the New Civil Code provides that "every person who through an act of performance by another, or any
it is clear that the issue invites a review of the evidence presented, the question posed is one of fact. Thus, the test other means, acquires or comes into possession of something at the expense of the latter without just or legal
of whether a question is one of law or of fact is not the appellation given to such question by the party raising the ground, shall return the same to him." The main objective of the principle against unjust enrichment is to prevent
same; rather, it is whether the appellate court can determine the issue raised without reviewing or evaluating the one from enriching himself at the expense of another without just cause or consideration.44
evidence, in which case, it is a question of law; otherwise it is a question of fact.41 (Citations omitted)
In the case at bar, the ultrasound investors pooled together the amount of ₱850,000.00, which was used to purchase
In the instant petition, the Court agrees with the respondents that the issues presented are not legal. The RTC and the equipment.1âwphi1 Because of the MOA’s invalidity, the ultrasound investors can no longer operate the
the CA differed in their factual findings and their appreciation of the same. However, no compelling grounds exist for ultrasound unit within MCP. Nonetheless, it is only fair for the ultrasound investors to retain ownership of the
this Court to apply the exception in lieu of the general rule that evidence shall not be re-evaluated. equipment, which they may use or dispose of independently of MCPI.
As acknowledged by the petitioners and aptly pointed out by the respondents, the existence of the circumstances and IN VIEW OF THE FOREGOING, the instant petition is DENIED. The Decision dated May 23, 2008 and Resolution dated
urgent hospital necessity justifying the purchase and operation of the ultrasound unit by the investors were not at December 12, 2008 of the Court of Appeals in CA-G.R. SP No. 89279 are AFFIRMED but with the following
the outset offered as evidence. Having been belatedly raised, the aforesaid defenses were not scrutinized during the CLARIFICATIONS/ MODIFICATIONS:
trial and their truth or falsity was not uncovered. This is fatal to the petitioners’ cause. The CA thus cannot be faulted (a) The petitioners Angeles Balinghasay, Renato Bernabe, Alodia del Rosario, Rustico Jimenez, Virgilio Oblepias,
for ruling against the petitioners in the face of evidence showing that: (a) there was no quorum when the Board Reynaldo Savet, Salvacion Villamora and Dionisia Villareal are directed, within SIXTY (60) DAYS from notice hereof,
meetings were held on August 14, 1998 and February 5, 1999; (b) the MOA was not ratified by a vote of two-thirds to FULLY ACCOUNT FOR and RETURN TO Medical Center Parañaque, Inc. ALL INCOME the corporation should have
of MCPI’s outstanding capital stock; and (c) the Balance Sheets for the years 1996 to 2000 indicated that MCPI was earned from the operation of the ultrasound unit from 1997 to present;
in a financial position to purchase the ultrasound equipment. (b) The petitioners Angeles Balinghasay, Renato Bernabe, Alodia del Rosario, Rustico Jimenez, Virgilio Oblepias,
Reynaldo Savet, Salvacion Villamora and Dionisia Villareal are also directed to JOINTLY AND SEVERALLY PAY the
The petitioners harp on their lofty purpose, which had supposedly moved them to purchase and operate the amount of ₱200,000.00 as ATTORNEY'S FEES to respondents Cecilia Castillo, Oscar del Rosario, Arturo Flores,
ultrasound unit. Unfortunately, their claims are not evident in the records.1âwphi1 Further, even if their claims were Xerxes Navarro, Maria Antonia Templo and Medical Center Parañaque, Inc.; and
to be assumed as true for argument’s sake, the fact remains that the Board Directors, who approved the MOA, did
not outrightly inform the stockholders about it. The ultrasound equipment was purchased and had been in operation
34
(c) In accordance with Nacar v. Gallery Frames, 45 the NET INCOME to be RETURNED to Medical Center Parafiaque,
Inc., plus ₱200,000.00 awarded as ATTORNEY'S FEES, shall be subject to INTEREST at the rate of six percent (6%)
per annum, to be reckoned sixty days from notice of this Resolution until full satisfaction thereof.
The Court's directives are without prejudice to the right of reimbursement, which the petitioners Angeles
Balinghasay, Renato Bernabe, Alodia del Rosario, Rustico Jimenez, Virgilio Oblepias, Reynaldo Savet, Salvacion
Villamora and Dionisia Villareal may pursue against the rest of the ultrasound investors.
[ G.R. No. 210906, October 16, 2019 ]
AGO REALTY & DEVELOPMENT CORPORATION (ARDC), EMMANUEL F. AGO, AND CORAZON CASTAÑEDA-
AGO, PETITIONERS, V. DR. ANGELITA F. AGO, TERESITA PALOMA-APIN, AND MARIBEL AMARO,
RESPONDENTS.
[G.R. No. 211203, October 16, 2019]
DR. ANGELITA F. AGO, PETITIONER, V. AGO REALTY & DEVELOPMENT CORPORATION, EMMANUEL F. AGO,
CORAZON C. AGO, EMMANUEL VICTOR C. AGO, AND ARTHUR EMMANUEL C. AGO, RESPONDENTS.
Grounded on equity, the derivative suit has proven to be an effective tool for the protection of minority shareholders.
Such actions have for their object the vindication of a corporate injury, even though they are not brought by the
corporation, but by its stockholders. That said, derivative suits remain an exception. As a general rule, corporate
litigation must be commenced by the corporation itself, with the imprimatur of the board of directors, which,
pursuant to the law, wields the power to sue. Therefore, since the derivative suit is a remedy of last resort, it must
be shown that the board, to the detriment of the corporation and without a valid business consideration, refuses to
remedy a corporate wrong. A derivative suit may only be instituted after such an omission. Simply put, derivative
suits take a back seat to board-sanctioned litigation whenever the corporation is willing and able to sue in its own
name.
35
On appeal are the September 26, 2013 Decision1 and the January 10, 2014 Resolution2 rendered by the Court of Anent Maribel's inclusion as defendant, it was argued that the plaintiffs had no cause of action against her since the
Appeals (CA) in CA-G.R. CV No. 99771. complaint failed to point out any act for which she should be held accountable. Being a mere employee of Angelita,
she had no participation in the acts complained of. 16
The Factual Antecedents
Notably, a defense common to all the defendants was that ARDC never authorized the institution of the suit. Without
Petitioner Ago Realty & Development Corporation (ARDC) is a close corporation.3 Its stockholders are petitioner a resolution emanating from the corporation's Board of Directors, it was argued that Emmanuel, et al. had no legal
Emmanuel F. Ago (Emmanuel); his wife, petitioner Corazon C. Ago (Corazon); their children, Emmanuel Victor C. Ago standing to bring the case since the lots in question belonged to ARDC.
and Arthur Emmanuel C. Ago (collectively Emmanuel, et al.); and Emmanuel's sister, respondent Angelita F. Ago
(Angelita). Per ARDC's General Information Sheet,4 their respective stockholdings are as follows: On July 24, 2007, the local officials of Legazpi City were dropped as defendants on motion of Emmanuel, et
al. Hence, the case against them was dismissed.17
Number of Subscribed
Amount
Shares
After the pre-trial conference was terminated on July 31, 2007, trial on the merits ensued.18
Emmanuel 2,498 P249,800.00
The RTC's Ruling
Corazon 1,000 P100,000.00
On September 20, 2012, the RTC rendered a Decision19 dismissing the complaint and holding Emmanuel and
Victor 1 P100.00 Corazon jointly and severally liable for damages. Finding ARDC to be the real party in interest, the trial court ruled
that the plaintiffs had no cause of action.20 Since Emmanuel, et al. brought the case without the proper resolution
Arthur 1 P100.00
from the Board of Directors,21 it was held that they were not authorized to sue on behalf of the corporation.22 The
Angelita 1,500 P150,000.00 RTC gave consideration to the undisputed fact that the properties in litigation belonged to ARDC, concluding that
Emmanuel, et al., in their individual capacities, were not the real parties in interest.23
TOTAL 5,000 P500,000.00
Next, the trial court found that Teresita's restaurant business was not operating on ARDC's property. The finding was
based on Corazon's admission that the restaurant was built on Lot No. 1-B, contrary to what was alleged in the
This controversy arose when Angelita introduced improvements on Lot No. H-3, titled in the name of ARDC,
complaint.24
without the proper resolution from the corporation's Board of Directors. The improvements also encroached
on Lot No. H-1 and Lot No. H-2, which also belonged to ARDC.5 Lastly, the suit was held to be baseless, thus entitling the defendants to damages and attorney's fees.25 Angelita
was awarded moral damages since Emmanuel's claims caused her embarrassment and tarnished her reputation in
Consequently, on August 11, 2006, ARDC and Emmanuel, et al. filed a complaint6 before the Legazpi City Regional
Bicol. Maribel was likewise awarded moral damages because the suit took her by surprise, made her restless,
Trial Court (RTC). They essentially alleged that Angelita, in connivance with Teresita P. Apin (Teresita), Maribel
resulted in a rise in her blood pressure, and caused her to figure in an accident.26 However, Teresita's claim for
Amaro (Maribel), and certain local officials of Legazpi City, introduced unauthorized improvements on corporate
moral and exemplary damages failed, as she did not take the witness stand.27 Nevertheless, she,28 Angelita, and
property. For her part, Teresita was accused of operating a restaurant named "Kicks Resto Bar" in the
Maribel29 were awarded attorney's fees on the ground that the action was clearly unfounded.
improvements,7 while Maribel was impleaded as Angelita's employee.8 On the other hand, the local officials were
impleaded as defendants since they were responsible for issuing the permits relative to the improvements introduced The fallo of the RTC's Decision reads:
by Angelita and the business concerns thereon.9 WHEREFORE, in view of the foregoing, the court hereby orders:
1. That the herein-entitled complaint be DISMISSED as it is hereby DISMISSED and
On September 15, 2006, Teresita filed her answer. She denied all the material allegations and averred that her
2. That Emmanuel F. Ago and Corazon Casta[ñ]eda-Ago be ordered to pay jointly and solidarily the following in
restaurant was operating not on Lot No. H-3, as stated in the complaint, but on Lot No. 1-B, which is not ARDC's
damages:
property.10
A. To Teresita Paloma Apin, the amount of P150,000.00 in attorney's fees;
On February 9, 2007, after their motion to dismiss was denied,11 Angelita and Maribel filed their answer.12 Angelita B. To each of Dr. Angelita F. Ago and Maribel Amaro, the amount of P100,000.00 in moral damages; and,
admitted to introducing improvements on the subject lots. She narrated that sometime in the 1960s, Emmanuel and C. To both Dr. Angelita F. Ago and Maribel Amaro, the amount of P200,000.00 in attorney's fees.
Corazon immigrated to the United States, leaving the management of ARDC's properties to her. She thus took
The CA's Ruling
control of the corporation's properties and introduced improvements thereon, particularly a semi-permanent
multipurpose structure13 and a fence designed to protect the lot.14 On September 26, 2013, the CA rendered the herein assailed Decision affirming the RTC's ruling anent the plaintiffs'
lack of cause of action, but deleting the lower court's award of moral damages and attorney's fees. The appellate
Angelita further claimed that the suit was brought because she refused to heed to Emmanuel's demand that she
court held that the case partook of the nature of a derivative suit. As such, Emmanuel, et al. needed the imprimatur
buyout his shares in ARDC for $6,000,000.00. After she failed to satisfy the unreasonable demand, Emmanuel,
of ARDC's Board of Directors to institute the action.31 While they were able to present a resolution purportedly
through two letters sent by counsel, allegedly accused her of introducing improvements on ARDC's property and
authorizing the filing of the case, the CA refused to give credence thereto on the ground that the same was passed
allowing Teresita to operate a restaurant business thereon, without the necessary authorization from the
by the corporation's stockholders, and not its Board of Directors.32
corporation's Board of Directors. For such acts, Emmanuel supposedly demanded damages amounting to
P10,000,000.00.15 As for the award of moral damages, the CA held that the case was not totally baseless considering that Angelita
indeed introduced substantial improvements on ARDC's property. The filing of the case was thus held to be free from
36
malicious intent.33 Likewise, the award of attorney's fees was erroneous since there was no factual or legal basis for The most recent edition of our corporation law came with the passage of Republic Act No. 11232, or the Revised
its grant.34 Corporation Code, which took effect on February 23, 2019. This new piece of legislation introduced many significant
changes to the corporate regulatory regime in this jurisdiction. Notably, it removed the requirement to incorporate
The CA, therefore, disposed of the case, viz.: with at least five incorporators,50 the minimum capitalization requirement for stock corporations,51 and the 50-year
WHEREFORE, the Decision dated September 20, 2012 of the Regional Trial Court of Legazpi City, Branch 1, in Civil limit on the duration of the corporate term.52 Also, in an effort to strengthen corporate governance, the new law
Case No. 10585 is AFFIRMED WITH MODIFICATION, in that, the award of moral damages and attorney's fees in requires corporations imbued with public interest to allocate a certain percentage of their board seats to independent
favor of the defendants-appellees is DELETED. directors,53 as well as to elect a compliance officer to ensure adherence to all relevant laws and regulations.54
After the CA denied their respective motions for reconsideration through the herein assailed Resolution, ARDC, Corporate powers are exercised by the board of directors
Emmanuel, and Corazon,36 on the one hand, and Angelita,37 on the other, filed the instant consolidated petitions for
review on certiorari, raising the following issues: If there is one constant that has been observed from the introduction of the Spanish Code of Commerce to the
enactment of the Revised Corporation Code, it is that "[c]orporations are creatures of the law."55 They owe their
The Issues existence to the sovereign powers of the State, exercised by the Legislature, which—by general law or, in certain
instances, direct act—prescribes the manner of their formation or organization.56 Throughout their lifetimes,
In G.R. No. 210906 (filed by ARDC and Emmanuel, et al.):
corporations are subject to a plethora of regulatory requirements, such as those involving annual reports,57 voting in
Whether or not Emmanuel, et al. may sue on behalf of ARDC absent a resolution or any other grant of authority
stockholders' or directors' meetings,58 and, depending on the industry where the firm operates, limitations on
from its Board of Directors sanctioning the institution of the case.38
foreign ownership.59 As so aptly put in Ang Pue & Co., et al. v. Sec. of Comm. and Industry,60 "[t]o organize a
In G.R. No. 211203 (filed by Angelita):
corporation x x x is not a matter of absolute right but a privilege which may be enjoyed only under such terms as the
Whether or not the grant of moral damages and attorney's fees in favor of Angelita is warranted.39
State may deem necessary to impose."61
The Court's Ruling
While corporations are subjected to the State's broad regulatory powers, it is their directors and officers who are
The petitions have no merit. Hence, the CA's decision stands. tasked with addressing questions of internal policy and management.62 The business of a corporation is conducted
by its board of directors, and so long as the board acts in good faith, the State, through the courts, may not interfere
The historical development of corporation law in the Philippines with its management decisions.63 This finds support in Section 23 of the Corporation Code, which provides that a
corporation exercises its powers, conducts its business, and controls and holds its property through its board of
Towards the end of the Spanish occupation, the application of the Spanish Code of Commerce was extended to the directors.64
Philippine Islands.40 This introduced the sociedad anónima, a juridical entity formed "upon the execution of the
public instrument in which its articles of agreement appear, and the contribution of funds and personal As creatures of the law, corporations only possess those powers that are granted through statute, either expressly or
property."41 Just as today's corporations, sociedades anónimas could own and deal in property, as well as sue and by way of implication, or those that are incidental to their existence.65
be sued.42
One of the powers expressly granted by law to corporations is the power to sue.66 As with other corporate
With the conclusion of the Treaty of Paris, Spain ceded the Philippines to the United States.43 The Americans brought powers, the power to sue is lodged in the board of directors, acting as a collegial body.67 Thus, in the absence of any
with them their notion of the corporation through the enactment of Act No. 1459, "a sort of codification of American clear authority from the board, charter, or by-laws,68 no suit may be maintained on behalf of the corporation. A case
corporate law."44 Their attention was caught by the fact that Spanish law did not provide for an entity that was instituted by a corporation without authority from its board of directors is subject to dismissal on the ground of
precisely equivalent to the American or English corporation.45 To them, the sociedad anónima was an inadequate failure to state a cause of action.69
business medium.
In certain instances, however, the stockholders may sue on behalf of the corporation
Appropriately named the Corporation Law, Act No. 1459 took effect on April 1, 1906 and was to serve as the principal
corporate regulatory statute for the next 74 years. The law defined a corporation as "an artificial being created by As an exception70 to the foregoing rule, jurisprudence has recognized certain instances when minority stockholders
operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by may bring suits on behalf of corporations.71 Where the board of directors itself is a party to the wrong, either
law or incident to its existence,"46 a definition that is still used to this day. It contained special provisions expressly because it is the author thereof or because it refuses to take remedial action, equity permits individual stockholders
penalizing the employment of persons in involuntary servitude47 and the unlicensed transaction of business by a to seek redress.72 These actions have come to be known as derivative suits. In Chua v. Court of Appeals,73 the
foreign corporation.48 Court defined a derivative suit as "a suit by a shareholder to enforce a corporate cause of action."74
However, as Act No. 1459 was unable to keep up with modern commerce, it was replaced by Batas Pambansa Blg. In derivative suits, it is the corporation that is the victim of the wrong. As such, it is the corporation that is properly
68, otherwise known as the Corporation Code. The new law codified various jurisprudential pronouncements made regarded as the real party in interest, while the relator-stockholder is merely a nominal party.75 The corporation
under its predecessor, clarified the obligations of corporate directors and officers, and defined close corporations, must be impleaded so that the benefits of the suit accrue to it and also because it must be barred from bringing a
providing special rules for their formation and the ownership of their stock. It also dispensed with the old restrictions subsequent case against the same defendants for the same cause of action.76 Stated otherwise, the judgment
pertinent to agricultural and mining corporations, the limitations on corporate ownership of real property, and the rendered in the suit must constitute res judicata against the corporation, even though it refuses to sue through its
penal clauses integrated into certain provisions of the law.49 board of directors.77
The Corporation Code was the law in effect at the time the factual antecedents of this case occurred. That said, not every wrong suffered by a stockholder involving a corporation will vest in him or her the standing to
commence a derivative suit.78 In Cua, Jr., et al. v. Tan, et al.,79 the Court explained when such actions lie, viz.:
37
Suits by stockholders or members of a corporation based on wrongful or fraudulent acts of directors or other However, in derivative suits, the recognized rule is different. Since the board is guilty of breaching the trust reposed
persons may be classified into individual suits, class suits, and derivative suits. Where a stockholder or member is in it by the stockholders, it is but logical to dispense with the requirement of obtaining from it authority to institute
denied the right of inspection, his suit would be individual because the wrong is done to him personally and not to the case and to sign the certification against forum shopping. It has been held that when "the corporation x x x is
the other stockholders or the corporation. Where the wrong is done to a group of stockholders, as where preferred under the complete control of the principal defendants in the case, x x x it is obvious that a demand upon the
stockholders' rights are violated, a class or representative suit will be proper for the protection of all stockholders [board] to institute an action and prosecute the same effectively would [be] useless, and the law does not require
belonging to the same group. But where the acts complained of constitute a wrong to the corporation itself, the litigants to perform useless acts."86 Thus, the institution of a derivative suit need not be preceded by a board
cause of action belongs to the corporation and not to the individual stockholder or member. Although in most every resolution.
case of wrong to the corporation, each stockholder is necessarily affected because the value of his interest therein
would be impaired, this fact of itself is not sufficient to give him an individual cause of action since the corporation But, given that authority from the board of directors can be dispensed with in derivative suits, can the case filed by
is a person distinct and separate from him, and can and should itself sue the wrongdoer. Otherwise, not only would Emmanuel, et al. even be classified as such in the first place?
the theory of separate entity be violated, but there would be multiplicity of suits as well as a violation of the priority
Emmanuel, et al. argue that they have the right to file a derivative suit on behalf of ARDC.87 Since the corporation
rights of creditors. Furthermore, there is the difficulty of determining the amount of damages that should be paid to
was the victim of the wrong committed by Angelita, i.e., the introduction of improvements on its property without its
each individual stockholder.
consent, a derivative suit lies as the appropriate remedy.
However, in cases of mismanagement where the wrongful acts are committed by the directors or trustees
On this score, they err.
themselves, a stockholder or member may find that he has no redress because the former are vested by law with
the right to decide whether or not the corporation should sue, and they will never be willing to sue themselves. The The derivative suit is an equitable remedy and one of last resort
corporation would thus be helpless to seek remedy. Because of the frequent occurrence of such a situation, the
common law gradually recognized the right of a stockholder to sue on behalf of a corporation in what eventually The right of stockholders to bring derivative suits is not based on any provision of the Corporation Code or the
became known as a "derivative suit." It has been proven to be an effective remedy of the minority against the Securities Regulation Code, but is a right that is implied by the fiduciary duties that directors owe corporations and
abuses of management. Thus, an individual stockholder is permitted to institute a derivative suit on behalf of the stockholders.88 Derivative suits are, therefore, grounded not on law, but on equity.89
corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever officials of the
corporation refuse to sue or are the ones to be sued or hold the control of the corporation. In such actions, the In Hi-Yield Realty, Incorporated v. Court of Appeals, et al.,90 a corporation, through its controlling stockholder and
suing stockholder is regarded as the nominal party, with the corporation as the party in interest.80 (Emphasis and without authority from its board of directors, entered into loan obligations that later led to the foreclosure of its
underscoring supplied) property. A minority stockholder then instituted a petition to annul the subject mortgage deeds and the consequent
foreclosure sales. The complaint alleged that the suing minority stockholder had been excluded from corporate affairs
Here, the CA held that since the cause of action belongs to ARDC, the properties in question being titled in its name, and that attempts between him and the other stockholders to compromise the case had failed. Since the board of
the case instituted by Emmanuel, et al. was derivative in nature. As such, they should have first secured a board directors did nothing to rectify the corporation's questionable transactions, the Court allowed the institution of the
resolution authorizing them to bring suit.81 Emmanuel, et al. counter, arguing that a derivative suit does not require complaint as a derivative suit.
the imprimatur of the board of directors.82 Since, in derivative suits, the corporation is usually under the control of
the wrongdoers, it would be absurd to require the stockholders to obtain board authority prior to the commencement In Gochan v. Young,91 minority stockholders instituted a complaint against directors and officers who appropriated
of litigation. for themselves corporate funds through excessive salaries and cash advances. It was stated that the capital of the
corporation was impaired, as the firm was prevented from using its own funds in the conduct of its regular business.
Emmanuel et al. are correct. The Court held that the suit was correctly classified as derivative in nature since the relator-stockholders had clearly
alleged injury to the corporation. The fact that the plaintiffs alleged damage to themselves in their personal
A board resolution is not needed for the institution of a derivative suit capacities on top of the damage done to the corporation merely gave rise to an additional cause of action, but it did
not disqualify them from filing a derivative suit.
The record reveals that the complaint a quo was filed by Emmanuel, et al. While the caption states that ARDC was
also one of the plaintiffs, there is nothing showing that the corporation's Board of Directors had authorized the filing In San Miguel Corporation v. Kahn,92 a significant number of shares of San Miguel Corporation (SMC) were acquired
of the case. Thus, the case is deemed as instituted by Emmanuel, et al. without ARDC's acquiescence. by 14 other companies. SMC tried to repurchase shares through its wholly-owned foreign subsidiary, Neptunia
Corporation Limited (Neptunia). However, the shares had been sequestered by the Presidential Commission on Good
As discussed above, the corporate power to sue is exercised by the board of directors. For this purpose, the board
Government (PCGG) on the ground that they were owned by one of the cronies of former President Ferdinand E.
may authorize a representative of the corporation to perform all necessary physical acts, such as the signing of
Marcos. Later, SMC's Board of Directors passed a resolution assuming Neptunia's liability for the purchase of the
documents.83 Such authority may be derived from the by-laws or from a specific act of the board of directors, i.e., a
subject shares. The board opined that there was nothing illegal about the assumption of liability since Neptunia was
board resolution.84
wholly-owned by SMC. Subsequently, Eduardo de los Angeles (De los Angeles), director and minority stockholder of
In Rep. of the Phils. v. Coalbrine Int'l. Phils., Inc., et al.,85 the Court dismissed a complaint for damages instituted SMC, brought a derivative suit challenging the board resolution as constituting an improper use of corporate funds.
by a corporation because the managing director who signed the certification against forum shopping failed to show When the case reached the Court, it was held that De los Angeles had properly resorted to a derivative suit. It was of
that the board of directors authorized her to do so. Ruling that the lack of such certification was prejudicial to the no moment that he owned only 20 SMC shares or that he was elected to the board of directors by the PCGG. Since
corporation's cause, the Court held that the managing director should have first obtained a valid board resolution the case concerned the validity of the assumption by SMC of the indebtedness of Neptunia, a cause of action that
sanctioning the filing of the case and the signing of the certification. indeed belonged to the former corporation, the Court held that De los Angeles could maintain the suit on behalf of
SMC.
38
Despite derivative suits being grounded on equity, they cannot prosper in the absence of any or some of the board will readily litigate in order to protect the majority's corporate interests. For the minority, on the other hand,
requisites enumerated in the Interim Rules of Procedure for Intra-Corporate Controversies,93 viz.: this may not be the case. There may be situations where a corporation is wronged, but the board of directors refuses
Rule 8: DERIVATIVE SUITS to take remedial action. The board's refusal may be based on valid business considerations, such as that the costs of
Section 1. Derivative action. - A stockholder or member may bring an action in the name of a corporation or litigation exceed the potential judgment award. But in situations where the board's decision is tantamount to
association, as the case may be, provided, that: breaching the trust reposed in it by the minority, equity necessitates that the aggrieved stockholders be given a
(1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and the remedy. Thus, the minority, in a derivative capacity, may sue or defend104 on behalf of the corporation.
time the action was filed;
(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all Due to their control over the board of directors, the majority should not ordinarily be allowed to resort to derivative
remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or suits. Where a corporation under the effective control of the majority is wronged, board-sanctioned litigation should
partnership to obtain the relief he desires; take precedence over derivative actions. After all, the law expressly vests the power to sue in the board of
(3) No appraisal rights are available for the acts or acts complained of; and directors,105 and a remedy based on equity, such as the derivative suit, can prevail only in the absence of one
(4) The suits is not a nuisance or harassment suit.94 provided by statute.106 In other words, majority stockholders who have undisputed corporate control cannot resort
to derivative suits when there is nothing preventing the corporation itself from filing the case.
The second requisite does not obtain in this case.
In the complaint they filed before the Legazpi City RTC, Emmanuel, et al. alleged that, together, they own 70% of
Before instituting a derivative suit, the relator-stockholder must exert all reasonable efforts to exhaust all remedies ARDC's shares of capital stock.107 In support of their allegation, they attached to their complaint the corporation's
available under the articles of incorporation, the by-laws, and the laws or rules governing the corporation or General Information Sheet,108 which shows that, out of ARDC's 5,000 shares of stock, 3,500 belong to
partnership to obtain the relief he or she desires. Such fact must then be alleged with particularity in the Emmanuel, et al. collectively, while only 1,500 belong to Angelita.
complaint.95 "The obvious intent behind the rule is to make the derivative suit the final recourse of the stockholder,
after all other remedies to obtain the relief sought had failed."96 Clearly, the case before the RTC was instituted by the stockholders holding the controlling interest in ARDC.
However, the wrong done directly to ARDC was a wrong done only indirectly to the inchoate corporate interests of
In their petition, Emmanuel, et al. allege that they exerted all reasonable efforts to exhaust all remedies available to Emmanuel, et al.109 If ARDC truly desired to vindicate its rights, it should have done so through its Board of
them. They point to the fact that they invited Angelita to a meeting to amicably settle the dispute.97 Indeed, the Directors. Considering the majority shareholdings of the plaintiffs a quo, their interests should have been protected
record shows that Emmanuel, Corazon, and Angelita came together for a special stockholders' meeting on August 11, by the board through affirmative action.
2006. However, their attempt to resolve the dispute turned sour when Angelita walked out before the meeting even
started.98 However, this could not happen because ARDC did not have a board of directors. On this point, the record is bereft of
any showing that ARDC's stockholders ever met to elect its governing board. Before the trial court, Emmanuel
Contrary to the postulation of Emmanuel and Corazon, their attempt to settle the dispute with Angelita can hardly be admitted that ARDC never held any stockholders' meetings from the time it was incorporated until 2005, viz.:
considered "all reasonable efforts to exhaust all remedies available." Q Mr. Ago, you would also agree with me that from 1989 until 2000 you had no meeting of stockholders in Ago
Realty and Development Corporation?
In Yu, et al. v. Yukayguan, et al.,99 the Court rejected the argument that attempts between stockholders to amicably A No.
settle a corporate dispute constitute "all reasonable efforts to exhaust all remedies available." It was held that: Q Do you mean to say that you had meeting?
The allegation of respondent Joseph in his Affidavit of his repeated attempts to talk to petitioner Anthony regarding A There were no meetings.
their dispute hardly constitutes "all reasonable efforts to exhaust all remedies available." Respondents did not refer Q Similarly in 2000, 2001, 2003 until 2005[,] there were no meetings of stockholders in Ago Realty and
to or mention at all any other remedy under the articles of incorporation or by-laws of Winchester, Inc., available Development Corporation[?]
for dispute resolution among stockholders, which respondents unsuccessfully availed themselves of. And the Court A No, there was no meeting.
is not prepared to conclude that the articles of incorporation and by-laws of Winchester, Inc. absolutely failed to Q And you would confirm or you would agree with me that there was no election likewise of Ago Realty and
provide for such remedies.100 Development Corporation as far as its corporate officers are concerned?
A Yes.
More importantly, an apparent remedy available to Emmanuel, et al. was to cause ARDC itself, through its Board of
Q And that was from 1989 until 2005?
Directors, to directly institute the case. Because of their controlling interest in the corporation, Emmanuel, et
A Yes.
al. could have prevailed upon the board to pass a resolution authorizing any of them to file the case and sign the
Q Likewise, during that period from 1989 up to 2005[,] there were no board resolutions interpreted x x x or issued
certification against forum shopping.
by Ago Realty and Development Corporation?
The derivative suit has proven to be an effective tool for the protection of the minority shareholder's corporate A No, there's no need.110 (Citation omitted)
interest. It is essentially an exception to the rule that a wrong done to a corporation must be vindicated through legal
There is likewise no showing that ARDC held an election for its Board of Directors from 2005 until the filing of the
action commenced by the board of directors.
complaint before the RTC. While Emmanuel, Corazon, and Angelita came together for a special stockholders' meeting
Through the voting procedure found in the Corporation Code,101 the majority shareholders exercise control over the on August 11, 2006, no election was held then. As mentioned earlier, Angelita walked out before the meeting
board of directors. In Gamboa v. Finance Secretary Teves, et al.,102 the Court, in no uncertain terms, declared that: started, and Emmanuel and Corazon were only able to pass a stockholders' resolution purportedly authorizing the
"[i]ndisputably, one of the rights of a stockholder is the right to participate in the control or management of the institution of the instant case.111 However, as amply discussed above, a corporation's power to sue is lodged in its
corporation. This is exercised through his vote in the election of directors because it is the board of directors that board of directors. Hence, the resolution, not emanating from the board, was inefficacious.
controls or manages the corporation."103 Hence, in the normal course of things, when a corporation is wronged, the
39
The failure of ARDC's majority stockholders to elect a board of directors must be taken against them. To be The fact that [SMBI] is a family corporation does not exempt private respondent Juanito Ang from complying with
sure, there was nothing preventing Emmanuel, et al. from holding a meeting for the purpose of electing a board, the Interim Rules. In the x x x Yu case, the Supreme Court held that a family corporation is not exempt from
even in Angelita's absence or over her objection. It is admitted that the plaintiffs a quo hold a majority of ARDC's complying with the clear requirements and formalities of the rules for filing a derivative suit. There is nothing in the
capital stock, by virtue of which they could have constituted a board to exercise the corporation's powers.112 If they pertinent laws or rules which state that there is a distinction between x x x family corporations x x x and other
had done so, the instant case could have been instituted by ARDC itself. types of corporations in the institution by a stockholder of a derivative suit.121 (Citation omitted)
The role of the board of directors is impressed with such importance that corporate business cannot properly be The next contention of Emmanuel, et al. is that Emmanuel, as President of ARDC, had the authority to institute the
conducted without it case and sign the certification against forum shopping. In support of their argument, they point to the By-laws of
ARDC, which provide that the President is authorized "[t]o represent the corporation at all functions and proceedings"
Being necessary to the legitimate operation of business, the board of directors is an organ that is indispensable to and "[t]o perform such other duties as are incident in his office or are entrusted by the Board of Directors."122 They
the corporate vehicle. ᇈ WᑭHIL If this case were allowed to prosper as a derivative suit, the non-election of boards of assert that jurisprudence has consistently recognized the legal standing of the president to bring corporate
directors would be incentivized, and the stability brought by "centralized management"113 eroded. Majority litigation.123
shareholders cannot be allowed to bypass the formation of a board and directly conduct corporate business
themselves. The Court cannot stress enough that the law mandates corporations to exercise their powers through The argument deserves scant consideration.
their governing boards. Hence, if a person114 or group of persons truly desires to conduct business through the
corporate medium, then he, she, or they, as a matter of law, must form a board of directors. To allow Emmanuel, et Emmanuel's designation as President was ineffectual because ARDC did not have a board of directors. Section 25 of
al. to forego the election of directors, and directly commence and prosecute this case would not only downplay the the Corporation Code explicitly requires the president of a corporation to concurrently hold office as a
key role of the board in corporate affairs, but also undermine the theory of separate juridical personality. director.124 This only serves to further highlight the key role of the board as a corporate manager. By designating a
director as president of the corporation, the law intended to create a close-knit relationship between the top
It is axiomatic that a corporation is an entity with a legal personality separate and distinct from the people corporate officer and the collegial body that ultimately wields the corporation's powers.
comprising it.115 Accordingly, a wrong done to a corporation does not vest in its shareholders a cause of action
against the wrongdoer. Since the corporation is the real party in interest, it must seek redress itself. As stated above, The lower courts correctly refused to award damages
a case instituted by the stockholders would be subject to dismissal on the ground that the complaint fails to state a
Turning now to Angelita's petition, she argues that the CA erred in deleting the award of moral damages and
cause of action.116
attorney's fees. According to her, the case filed before the Legazpi City RTC was totally baseless and
Here, because ARDC is the victim of the act complained of, the cause of action does not lie with Emmanuel, et al. The unfounded.125 To support her assertion, she points to the fact that Emmanuel and Corazon sued without the
corporation should have filed the case itself through its board of directors. However, this could not be done since authority of ARDC's Board of Directors.126 Essentially, Angelita claims that the filing of the case a quo amounted to
those responsible for the institution of this case never bothered to elect a governing body to wield ARDC's powers malicious prosecution.
and to manage its affairs. Their omission cannot be without consequence. Verily, by virtue of their admitted
The argument fails to persuade.
controlling interest in ARDC, Emmanuel, et al. could have come together and formed a board of directors consisting
of all five of the corporation's stockholders. Even without Angelita's participation, such a board would have been able Jurisprudence has defined malicious prosecution as "an action for damages brought by one against whom a criminal
to validly conduct business117 and, accordingly, could have sanctioned the filing of the complaint before the Legazpi prosecution, civil suit, or other legal proceeding has been instituted maliciously and without probable cause, after the
City RTC. The aggrieved stockholders cannot now come before the Court, claiming that their remedy is a derivative termination of such prosecution, suit, or other proceeding in favor of the defendant therein."127 While generally
suit. Their failure to elect a board ultimately resulted in their failure to exhaust all legal remedies to obtain the relief associated with criminal actions, "the term has been expanded to include unfounded civil suits instituted just to vex
they desired. Since this case could have been brought by ARDC, through its board, its stockholders cannot maintain and humiliate the defendant despite the absence of a cause of action or probable cause."128 For an action based on
the suit themselves, purporting to sue in a derivative capacity. Emmanuel, et al. should not be allowed to use a malicious prosecution to prosper, it is indispensable that the institution of the prior legal proceeding be impelled or
derivative suit to shortcut the law. actuated by legal malice.129
Neither can Emmanuel, et al. take refuge in their assertion that ARDC is a close family corporation. They claim that Here, it was never shown that the institution of the case against Angelita was tainted with bad faith or malice. Since
the stockholders of a close corporation may take part in the active management of corporate affairs. Hence, they, as it is settled that she introduced improvements on ARDC's property without its consent, it follows that the complaint
ARDC's stockholders, are legally invested with the power to sue for the corporation. was not baseless at all. However, because the case was not brought by the corporation, but by its stockholders, its
dismissal was properly decreed by the trial court.
As correctly claimed, under Section 97 of the Corporation Code,118 a close corporation may task its stockholders
with the management of business, essentially designating them as directors. However, the law is clear that a close The fact that Emmanuel, et al. brought the case without the consent of the corporation cannot be equivalent to
corporation must do so through a provision to that effect contained in its articles of incorporation. Nowhere in ARDC's malice. Surely, they could have elected a board of directors to run ARDC's affairs, but their failure to do so, coupled
Articles of incorporation119 can such a provision be found. There is nothing that expressly or impliedly allows with the filing of the complaint before the RTC, should not make them liable for moral damages. After all, the fact
Emmanuel, et al. and Angelita, or any of them, to manage the corporation. Hence, the merger of stock ownership that a case is dismissed does not per se make that case one of malicious prosecution and subject the plaintiff to the
and active management that Emmanuel, et al. rely on cannot be applied to ARDC. payment of moral damages.130 Since it is not a sound public policy to place a premium on the right to litigate, no
damages can be charged on those who exercise such precious right in good faith, even if done erroneously.131
Further, assuming arguendo that ARDC is a close family corporation, the same cannot be considered a justification
for noncompliance with the requirements for the filing of a derivative suit. In Ang v. Sps. Ang,120 the Court Neither does the Court see any cogent reason to award attorney's fees in favor of Angelita. Certainly, she only has
declared: herself to blame for the filing of the case before the RTC. If she did not introduce improvements on ARDC's property,
Emmanuel et al. would have no reason to institute an action against her. Since she treated corporate property as if it
40
was her own, she should have reasonably expected retaliatory action from the other shareholders. Hence, the CA The Securities and Exchange Commission is the government agency, under the direct general supervision of the
was correct to delete the award of attorney's fees. Office of the President, 1 with the immense task of enforcing the Revised Securities Act, and all other duties assigned
to it by pertinent laws. Among its inumerable functions, and one of the most important, is the supervision of all
WHEREFORE, the September 26, 2013 Decision and January 10, 2014 Resolution rendered by the Court of Appeals corporations, partnerships or associations, who are grantees of primary franchise and/or a license or permit issued
in CA-G.R. CV No. 99771 are AFFIRMED. by the government to operate in the Philippines. 2 Just how far this regulatory authority extends, particularly, with
regard to the Petitioner Philippine Stock Exchange, Inc. is the issue in the case at bar.
In this Petition for Review on Certiorari, petitioner assails the resolution of the respondent Court of Appeals, dated
June 27, 1996, which affirmed the decision of the Securities and Exchange Commission ordering the petitioner
Philippine Stock Exchange, Inc. to allow the private respondent Puerto Azul Land, Inc. to be listed in its stock market,
thus paving the way for the public offering of PALI's shares.
The facts of the case are undisputed, and are hereby restated in sum.
The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to offer its shares to the public in
order to raise funds allegedly to develop its properties and pay its loans with several banking institutions. In January,
1995, PALI was issued a Permit to Sell its shares to the public by the Securities and Exchange Commission (SEC). To
facilitate the trading of its shares among investors, PALI sought to course the trading of its shares through the
Philippine Stock Exchange, Inc. (PSE), for which purpose it filed with the said stock exchange an application to list its
shares, with supporting documents attached.
On February 8, 1996, the Listing Committee of the PSE, upon a perusal of PALI's application, recommended to the
PSE's Board of Governors the approval of PALI's listing application.
On February 14, 1996, before it could act upon PALI's application, the Board of Governors of the PSE received a
letter from the heirs of Ferdinand E. Marcos, claiming that the late President Marcos was the legal and beneficial
owner of certain properties forming part of the Puerto Azul Beach Hotel and Resort Complex which PALI claims to be
among its assets and that the Ternate Development Corporation, which is among the stockholders of PALI, likewise
appears to have been held and continue to be held in trust by one Rebecco Panlilio for then President Marcos and
now, effectively for his estate, and requested PALI's application to be deferred. PALI was requested to comment upon
the said letter.
PALI's answer stated that the properties forming part of the Puerto Azul Beach Hotel and Resort Complex were not
claimed by PALI as its assets. On the contrary, the resort is actually owned by Fantasia Filipina Resort, Inc. and the
Puerto Azul Country Club, entities distinct from PALI. Furthermore, the Ternate Development Corporation owns only
1.20% of PALI. The Marcoses responded that their claim is not confined to the facilities forming part of the Puerto
Azul Hotel and Resort Complex, thereby implying that they are also asserting legal and beneficial ownership of other
properties titled under the name of PALI.
On February 20, 1996, the PSE wrote Chairman Magtanggol Gunigundo of the Presidential Commission on Good
Government (PCGG) requesting for comments on the letters of the PALI and the Marcoses. On March 4, 1996, the
PSE was informed that the Marcoses received a Temporary Restraining Order on the same date, enjoining the
Marcoses from, among others, "further impeding, obstructing, delaying or interfering in any manner by or any means
with the consideration, processing and approval by the PSE of the initial public offering of PALI." The TRO was issued
by Judge Martin S. Villarama, Executive Judge of the RTC of Pasig City in Civil Case No. 65561, pending in Branch 69
thereof.
G.R. No. 125469 October 27, 1997
In its regular meeting held on March 27, 1996, the Board of Governors of the PSE reached its decision to reject
PHILIPPINE STOCK EXCHANGE, INC., petitioner, PALI's application, citing the existence of serious claims, issues and circumstances surrounding PALI's ownership over
vs. its assets that adversely affect the suitability of listing PALI's shares in the stock exchange.
THE HONORABLE COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and PUERTO AZUL
LAND, INC., respondents. On April 11, 1996, PALI wrote a letter to the SEC addressed to the then Acting Chairman, Perfecto R. Yasay, Jr.,
bringing to the SEC's attention the action taken by the PSE in the application of PALI for the listing of its shares with
the PSE, and requesting that the SEC, in the exercise of its supervisory and regulatory powers over stock exchanges
41
under Section 6(j) of P.D. No. 902-A, review the PSE's action on PALI's listing application and institute such the securities act vested the public respondent with jurisdiction and control over all corporations; the power to
measures as are just and proper under the circumstances. authorize the establishment of stock exchanges; the right to supervise and regulate the same; and the power to alter
and supplement rules of the exchange in the listing or delisting of securities, then the law certainly granted to the
On the same date, or on April 11, 1996, the SEC wrote to the PSE, attaching thereto the letter of PALI and directing public respondent the plenary authority over the petitioner; and the power of review necessarily comes within its
the PSE to file its comments thereto within five days from its receipt and for its authorized representative to appear authority.
for an "inquiry" on the matter. On April 22, 1996, the PSE submitted a letter to the SEC containing its comments to
the April 11, 1996 letter of PALI. All in all, the court held that PALI complied with all the requirements for public listing, affirming the SEC's ruling to
the effect that:
On April 24, 1996, the SEC rendered its Order, reversing the PSE's decision. The dispositive portion of the said order . . . the Philippine Stock Exchange has acted in an arbitrary and abusive manner in disapproving the application of
reads: PALI for listing of its shares in the face of the following considerations:
WHEREFORE, premises considered, and invoking the Commissioner's authority and jurisdiction under Section 3 of 1. PALI has clearly and admittedly complied with the Listing Rules and full disclosure requirements of the
the Revised Securities Act, in conjunction with Section 3, 6(j) and 6(m) of Presidential Decree No. 902-A, the Exchange;
decision of the Board of Governors of the Philippine Stock Exchange denying the listing of shares of Puerto Azul 2. In applying its clear and reasonable standards on the suitability for listing of shares, PSE has failed to justify
Land, Inc., is hereby set aside, and the PSE is hereby ordered to immediately cause the listing of the PALI shares in why it acted differently on the application of PALI, as compared to the IPOs of other companies similarly situated
the Exchange, without prejudice to its authority to require PALI to disclose such other material information it deems that were allowed listing in the Exchange;
necessary for the protection of the investigating public. 3. It appears that the claims and issues on the title to PALI's properties were even less serious than the claims
This Order shall take effect immediately. against the assets of the other companies in that, the assertions of the Marcoses that they are owners of the
disputed properties were not substantiated enough to overcome the strength of a title to properties issued under
PSE filed a motion for reconsideration of the said order on April 29, 1996, which was, however denied by the
the Torrens System as evidence of ownership thereof;
Commission in its May 9, 1996 Order which states:
4. No action has been filed in any court of competent jurisdiction seeking to nullify PALI's ownership over the
WHEREFORE, premises considered, the Commission finds no compelling reason to reconsider its order dated April
disputed properties, neither has the government instituted recovery proceedings against these properties. Yet the
24, 1996, and in the light of recent developments on the adverse claim against the PALI properties, PSE should
import of PSE's decision in denying PALI's application is that it would be PALI, not the Marcoses, that must go to
require PALI to submit full disclosure of material facts and information to protect the investing public. In this
court to prove the legality of its ownership on these properties before its shares can be listed.
regard, PALI is hereby ordered to amend its registration statements filed with the Commission to incorporate the
full disclosure of these material facts and information. In addition, the argument that the PALI properties belong to the Military/Naval Reservation does not inspire belief.
The point is, the PALI properties are now titled. A property losses its public character the moment it is covered by a
Dissatisfied with this ruling, the PSE filed with the Court of Appeals on May 17, 1996 a Petition for Review (with
title. As a matter of fact, the titles have long been settled by a final judgment; and the final decree having been
Application for Writ of Preliminary Injunction and Temporary Restraining Order), assailing the above mentioned
registered, they can no longer be re-opened considering that the one year period has already passed. Lastly, the
orders of the SEC, submitting the following as errors of the SEC:
determination of what standard to apply in allowing PALI's application for listing, whether the discretion method or
I. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN ISSUING THE ASSAILED ORDERS
the system of public disclosure adhered to by the SEC, should be addressed to the Securities Commission, it being
WITHOUT POWER, JURISDICTION, OR AUTHORITY; SEC HAS NO POWER TO ORDER THE LISTING AND SALE OF
the government agency that exercises both supervisory and regulatory authority over all corporations.
SHARES OF PALI WHOSE ASSETS ARE SEQUESTERED AND TO REVIEW AND SUBSTITUTE DECISIONS OF PSE ON
LISTING APPLICATIONS; On August 15, 19961 the PSE, after it was granted an extension, filed the instant Petition for Review on Certiorari,
II. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN FINDING THAT PSE ACTED IN AN taking exception to the rulings of the SEC and the Court of Appeals. Respondent PALI filed its Comment to the
ARBITRARY AND ABUSIVE MANNER IN DISAPPROVING PALI'S LISTING APPLICATION; petition on October 17, 1996. On the same date, the PCGG filed a Motion for Leave to file a Petition for Intervention.
III. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID FOR ALLOWING FURTHER DISPOSITION OF This was followed up by the PCGG's Petition for Intervention on October 21, 1996. A supplemental Comment was
PROPERTIES IN CUSTODIA LEGIS AND WHICH FORM PART OF NAVAL/MILITARY RESERVATION; AND filed by PALI on October 25, 1997. The Office of the Solicitor General, representing the SEC and the Court of Appeals,
IV. THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY PROMULGATED AND ITS IMPLEMENTATION AND likewise filed its Comment on December 26, 1996. In answer to the PCGG's motion for leave to file petition for
APPLICATION IN THIS CASE VIOLATES THE DUE PROCESS CLAUSE OF THE CONSTITUTION. intervention, PALI filed its Comment thereto on January 17, 1997, whereas the PSE filed its own Comment on
January 20, 1997.
On June 4, 1996, PALI filed its Comment to the Petition for Review and subsequently, a Comment and Motion to
Dismiss. On June 10, 1996, PSE fled its Reply to Comment and Opposition to Motion to Dismiss. On February 25, 1996, the PSE filed its Consolidated Reply to the comments of respondent PALI (October 17, 1996)
and the Solicitor General (December 26, 1996). On May 16, 1997, PALI filed its Rejoinder to the said consolidated
On June 27, 1996, the Court of Appeals promulgated its Resolution dismissing the PSE's Petition for Review. Hence,
reply of PSE.
this Petition by the PSE.
PSE submits that the Court of Appeals erred in ruling that the SEC had authority to order the PSE to list the shares of
The appellate court had ruled that the SEC had both jurisdiction and authority to look into the decision of the
PALI in the stock exchange. Under presidential decree No. 902-A, the powers of the SEC over stock exchanges are
petitioner PSE, pursuant to Section 3 3 of the Revised Securities Act in relation to Section 6(j) and 6(m) 4 of P.D. No.
more limited as compared to its authority over ordinary corporations. In connection with this, the powers of the SEC
902-A, and Section 38(b)5 of the Revised Securities Act, and for the purpose of ensuring fair administration of the
over stock exchanges under the Revised Securities Act are specifically enumerated, and these do not include the
exchange. Both as a corporation and as a stock exchange, the petitioner is subject to public respondent's jurisdiction,
power to reverse the decisions of the stock exchange. Authorities are in abundance even in the United States, from
regulation and control. Accepting the argument that the public respondent has the authority merely to supervise or
which the country's security policies are patterned, to the effect of giving the Securities Commission less control over
regulate, would amount to serious consequences, considering that the petitioner is a stock exchange whose business
stock exchanges, which in turn are given more lee-way in making the decision whether or not to allow corporations
is impressed with public interest. Abuse is not remote if the public respondent is left without any system of control. If
to offer their stock to the public through the stock exchange. This is in accord with the "business judgment rule"
42
whereby the SEC and the courts are barred from intruding into business judgments of corporations, when the same The SEC's power to look into the subject ruling of the PSE, therefore, may be implied from or be considered as
are made in good faith. the said rule precludes the reversal of the decision of the PSE to deny PALI's listing necessary or incidental to the carrying out of the SEC's express power to insure fair dealing in securities traded upon
application, absent a showing of bad faith on the part of the PSE. Under the listing rules of the PSE, to which PALI a stock exchange or to ensure the fair administration of such exchange. 7 It is, likewise, observed that the principal
had previously agreed to comply, the PSE retains the discretion to accept or reject applications for listing. Thus, even function of the SEC is the supervision and control over corporations, partnerships and associations with the end in
if an issuer has complied with the PSE listing rules and requirements, PSE retains the discretion to accept or reject view that investment in these entities may be encouraged and protected, and their activities for the promotion of
the issuer's listing application if the PSE determines that the listing shall not serve the interests of the investing economic development. 8
public.
Thus, it was in the alleged exercise of this authority that the SEC reversed the decision of the PSE to deny the
Moreover, PSE argues that the SEC has no jurisdiction over sequestered corporations, nor with corporations whose application for listing in the stock exchange of the private respondent PALI. The SEC's action was affirmed by the
properties are under sequestration. A reading of Republic of the Philippines vs. Sadiganbayan, G.R. No. 105205, 240 Court of Appeals.
SCRA 376, would reveal that the properties of PALI, which were derived from the Ternate Development Corporation
(TDC) and the Monte del Sol Development Corporation (MSDC). are under sequestration by the PCGG, and subject of We affirm that the SEC is the entity with the primary say as to whether or not securities, including shares of stock of
forfeiture proceedings in the Sandiganbayan. This ruling of the Court is the "law of the case" between the Republic a corporation, may be traded or not in the stock exchange. This is in line with the SEC's mission to ensure proper
and TDC and MSDC. It categorically declares that the assets of these corporations were sequestered by the PCGG on compliance with the laws, such as the Revised Securities Act and to regulate the sale and disposition of securities in
March 10, 1986 and April 4, 1988. the country. 9 As the appellate court explains:
Paramount policy also supports the authority of the public respondent to review petitioner's denial of the listing.
It is, likewise, intimated that the Court of Appeals' sanction that PALI's ownership over its properties can no longer Being a stock exchange, the petitioner performs a function that is vital to the national economy, as the business is
be questioned, since certificates of title have been issued to PALI and more than one year has since lapsed, is affected with public interest. As a matter of fact, it has often been said that the economy moves on the basis of the
erroneous and ignores well settled jurisprudence on land titles. That a certificate of title issued under the Torrens rise and fall of stocks being traded. By its economic power, the petitioner certainly can dictate which and how many
System is a conclusive evidence of ownership is not an absolute rule and admits certain exceptions. It is fundamental users are allowed to sell securities thru the facilities of a stock exchange, if allowed to interpret its own rules
that forest lands or military reservations are non-alienable. Thus, when a title covers a forest reserve or a liberally as it may please. Petitioner can either allow or deny the entry to the market of securities. To repeat, the
government reservation, such title is void. monopoly, unless accompanied by control, becomes subject to abuse; hence, considering public interest, then it
should be subject to government regulation.
PSE, likewise, assails the SEC's and the Court of Appeals reliance on the alleged policy of "full disclosure" to uphold
the listing of PALI's shares with the PSE, in the absence of a clear mandate for the effectivity of such policy. As it is, The role of the SEC in our national economy cannot be minimized. The legislature, through the Revised Securities
the case records reveal the truth that PALI did not comply with the listing rules and disclosure requirements. In fact, Act, Presidential Decree No. 902-A, and other pertinent laws, has entrusted to it the serious responsibility of
PALI's documents supporting its application contained misrepresentations and misleading statements, and concealed enforcing all laws affecting corporations and other forms of associations not otherwise vested in some other
material information. The matter of sequestration of PALI's properties and the fact that the same form part of government office. 10
military/naval/forest reservations were not reflected in PALI's application.
This is not to say, however, that the PSE's management prerogatives are under the absolute control of the SEC. The
It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is clothed with the markings PSE is, alter all, a corporation authorized by its corporate franchise to engage in its proposed and duly approved
of a corporate entity, it functions as the primary channel through which the vessels of capital trade ply. The PSE's business. One of the PSE's main concerns, as such, is still the generation of profit for its stockholders. Moreover, the
relevance to the continued operation and filtration of the securities transactions in the country gives it a distinct color PSE has all the rights pertaining to corporations, including the right to sue and be sued, to hold property in its own
of importance such that government intervention in its affairs becomes justified, if not necessarily. Indeed, as the name, to enter (or not to enter) into contracts with third persons, and to perform all other legal acts within its
only operational stock exchange in the country today, the PSE enjoys a monopoly of securities transactions, and as allocated express or implied powers.
such, it yields an immense influence upon the country's economy.
A corporation is but an association of individuals, allowed to transact under an assumed corporate name, and with a
Due to this special nature of stock exchanges, the country's lawmakers has seen it wise to give special treatment to distinct legal personality. In organizing itself as a collective body, it waives no constitutional immunities and
the administration and regulation of stock exchanges. 6 perquisites appropriate to such a body. 11 As to its corporate and management decisions, therefore, the state will
generally not interfere with the same. Questions of policy and of management are left to the honest decision of the
These provisions, read together with the general grant of jurisdiction, and right of supervision and control over all officers and directors of a corporation, and the courts are without authority to substitute their judgment for the
corporations under Sec. 3 of P.D. 902-A, give the SEC the special mandate to be vigilant in the supervision of the judgment of the board of directors. The board is the business manager of the corporation, and so long as it acts in
affairs of stock exchanges so that the interests of the investing public may be fully safeguard. good faith, its orders are not reviewable by the courts. 12
Section 3 of Presidential Decree 902-A, standing alone, is enough authority to uphold the SEC's challenged control Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to reverse the PSE's
authority over the petitioner PSE even as it provides that "the Commission shall have absolute jurisdiction, decision in matters of application for listing in the market, the SEC may exercise such power only if the PSE's
supervision, and control over all corporations, partnerships or associations, who are the grantees of primary judgment is attended by bad faith. In Board of Liquidators vs. Kalaw,13 it was held that bad faith does not simply
franchises and/or a license or permit issued by the government to operate in the Philippines. . ." The SEC's connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of
regulatory authority over private corporations encompasses a wide margin of areas, touching nearly all of a wrong. It means a breach of a known duty through some motive or interest of ill will, partaking of the nature of
corporation's concerns. This authority springs from the fact that a corporation owes its existence to the concession of fraud.
its corporate franchise from the state.
In reaching its decision to deny the application for listing of PALI, the PSE considered important facts, which, in the
general scheme, brings to serious question the qualification of PALI to sell its shares to the public through the stock
43
exchange. During the time for receiving objections to the application, the PSE heard from the representative of the The question as to what policy is, or should be relied upon in approving the registration and sale of securities in the
late President Ferdinand E. Marcos and his family who claim the properties of the private respondent to be part of the SEC is not for the Court to determine, but is left to the sound discretion of the Securities and Exchange Commission.
Marcos estate. In time, the PCGG confirmed this claim. In fact, an order of sequestration has been issued covering In mandating the SEC to administer the Revised Securities Act, and in performing its other functions under pertinent
the properties of PALI, and suit for reconveyance to the state has been filed in the Sandiganbayan Court. How the laws, the Revised Securities Act, under Section 3 thereof, gives the SEC the power to promulgate such rules and
properties were effectively transferred, despite the sequestration order, from the TDC and MSDC to Rebecco Panlilio, regulations as it may consider appropriate in the public interest for the enforcement of the said laws. The second
and to the private respondent PALI, in only a short span of time, are not yet explained to the Court, but it is clear paragraph of Section 4 of the said law, on the other hand, provides that no security, unless exempt by law, shall be
that such circumstances give rise to serious doubt as to the integrity of PALI as a stock issuer. The petitioner was in issued, endorsed, sold, transferred or in any other manner conveyed to the public, unless registered in accordance
the right when it refused application of PALI, for a contrary ruling was not to the best interest of the general public. with the rules and regulations that shall be promulgated in the public interest and for the protection of investors by
The purpose of the Revised Securities Act, after all, is to give adequate and effective protection to the investing the Commission. Presidential Decree No. 902-A, on the other hand, provides that the SEC, as regulatory agency, has
public against fraudulent representations, or false promises, and the imposition of worthless ventures. 14 supervision and control over all corporations and over the securities market as a whole, and as such, is given ample
authority in determining appropriate policies. Pursuant to this regulatory authority, the SEC has manifested that it
It is to be observed that the U.S. Securities Act emphasized its avowed protection to acts detrimental to legitimate has adopted the policy of "full material disclosure" where all companies, listed or applying for listing, are required to
business, thus: divulge truthfully and accurately, all material information about themselves and the securities they sell, for the
The Securities Act, often referred to as the "truth in securities" Act, was designed not only to provide investors with protection of the investing public, and under pain of administrative, criminal and civil sanctions. In connection with
adequate information upon which to base their decisions to buy and sell securities, but also to protect legitimate this, a fact is deemed material if it tends to induce or otherwise effect the sale or purchase of its securities. 15 While
business seeking to obtain capital through honest presentation against competition from crooked promoters and to the employment of this policy is recognized and sanctioned by the laws, nonetheless, the Revised Securities Act sets
prevent fraud in the sale of securities. (Tenth Annual Report, U.S. Securities & Exchange Commission, p. 14). substantial and procedural standards which a proposed issuer of securities must satisfy. 16 Pertinently, Section 9 of
As has been pointed out, the effects of such an act are chiefly (1) prevention of excesses and fraudulent the Revised Securities Act sets forth the possible Grounds for the Rejection of the registration of a security:
transactions, merely by requirement of that their details be revealed; (2) placing the market during the early
stages of the offering of a security a body of information, which operating indirectly through investment services — The Commission may reject a registration statement and refuse to issue a permit to sell the securities included
and expert investors, will tend to produce a more accurate appraisal of a security, . . . Thus, the Commission may in such registration statement if it finds that —
refuse to permit a registration statement to become effective if it appears on its face to be incomplete or inaccurate (1) The registration statement is on its face incomplete or inaccurate in any material respect or includes any
in any material respect, and empower the Commission to issue a stop order suspending the effectiveness of any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to
registration statement which is found to include any untrue statement of a material fact or to omit to state any make the statements therein not misleading; or
material fact required to be stated therein or necessary to make the statements therein not misleading. (Idem). (2) The issuer or registrant —
(i) is not solvent or not in sound financial condition;
Also, as the primary market for securities, the PSE has established its name and goodwill, and it has the right to (ii) has violated or has not complied with the provisions of this Act, or the rules promulgated pursuant thereto,
protect such goodwill by maintaining a reasonable standard of propriety in the entities who choose to transact or any order of the Commission;
through its facilities. It was reasonable for the PSE, therefore, to exercise its judgment in the manner it deems (iii) has failed to comply with any of the applicable requirements and conditions that the Commission may, in
appropriate for its business identity, as long as no rights are trampled upon, and public welfare is safeguarded. the public interest and for the protection of investors, impose before the security can be registered;
(iv) has been engaged or is engaged or is about to engage in fraudulent transaction;
In this connection, it is proper to observe that the concept of government absolutism is a thing of the past, and
(v) is in any way dishonest or is not of good repute; or
should remain so.
(vi) does not conduct its business in accordance with law or is engaged in a business that is illegal or contrary
The observation that the title of PALI over its properties is absolute and can no longer be assailed is of no moment. to government rules and regulations.
At this juncture, there is the claim that the properties were owned by TDC and MSDC and were transferred in (3) The enterprise or the business of the issuer is not shown to be sound or to be based on sound business
violation of sequestration orders, to Rebecco Panlilio and later on to PALI, besides the claim of the Marcoses that principles;
such properties belong to the Marcos estate, and were held only in trust by Rebecco Panlilio. It is also alleged by the (4) An officer, member of the board of directors, or principal stockholder of the issuer is disqualified to be such
petitioner that these properties belong to naval and forest reserves, and therefore beyond private dominion. If any of officer, director or principal stockholder; or
these claims is established to be true, the certificates of title over the subject properties now held by PALI map be (5) The issuer or registrant has not shown to the satisfaction of the Commission that the sale of its security
disregarded, as it is an established rule that a registration of a certificate of title does not confer ownership over the would not work to the prejudice of the public interest or as a fraud upon the purchasers or investors . (Emphasis
properties described therein to the person named as owner. The inscription in the registry, to be effective, must be Ours)
made in good faith. The defense of indefeasibility of a Torrens Title does not extend to a transferee who takes the
A reading of the foregoing grounds reveals the intention of the lawmakers to make the registration and issuance of
certificate of title with notice of a flaw.
securities dependent, to a certain extent, on the merits of the securities themselves, and of the issuer, to be
In any case, for the purpose of determining whether PSE acted correctly in refusing the application of PALI, the true determined by the Securities and Exchange Commission. This measure was meant to protect the interests of the
ownership of the properties of PALI need not be determined as an absolute fact. What is material is that the investing public against fraudulent and worthless securities, and the SEC is mandated by law to safeguard these
uncertainty of the properties' ownership and alienability exists, and this puts to question the qualification of PALI's interests, following the policies and rules therefore provided. The absolute reliance on the full disclosure method in
public offering. In sum, the Court finds that the SEC had acted arbitrarily in arrogating unto itself the discretion of the registration of securities is, therefore, untenable. As it is, the Court finds that the private respondent PALI, on at
approving the application for listing in the PSE of the private respondent PALI, since this is a matter addressed to the least two points (nos. 1 and 5) has failed to support the propriety of the issue of its shares with unfailing clarity,
sound discretion of the PSE, a corporation entity, whose business judgments are respected in the absence of bad thereby lending support to the conclusion that the PSE acted correctly in refusing the listing of PALI in its stock
faith. exchange. This does not discount the effectivity of whatever method the SEC, in the exercise of its vested authority,
chooses in setting the standard for public offerings of corporations wishing to do so. However, the SEC must
44
recognize and implement the mandate of the law, particularly the Revised Securities Act, the provisions of which G.R. No. 161886 March 16, 2007
cannot be amended or supplanted by mere administrative issuance.
FILIPINAS PORT SERVICES, INC., represented by stockholders, ELIODORO C. CRUZ and MINDANAO
In resume, the Court finds that the PSE has acted with justified circumspection, discounting, therefore, any TERMINAL AND BROKERAGE SERVICES, INC., Petitioners,
imputation of arbitrariness and whimsical animation on its part. Its action in refusing to allow the listing of PALI in vs.
the stock exchange is justified by the law and by the circumstances attendant to this case. VICTORIANO S. GO, ARSENIO LOPEZ CHUA, EDGAR C. TRINIDAD, HERMENEGILDO M. TRINIDAD, JESUS
SYBICO, MARY JEAN D. CO, HENRY CHUA, JOSELITO S. JAYME, ERNESTO S. JAYME, and ELIEZER B. DE
ACCORDINGLY, in view of the foregoing considerations, the Court hereby GRANTS the Petition for Review JESUS, Respondents.
on Certiorari. The Decisions of the Court of Appeals and the Securities and Exchange Commission dated July 27,
1996 and April 24, 1996 respectively, are hereby REVERSED and SET ASIDE, and a new Judgment is hereby Assailed and sought to be set aside in this petition for review on certiorari is the Decision 1 dated 19 January 2004 of
ENTERED, affirming the decision of the Philippine Stock Exchange to deny the application for listing of the private the Court of Appeals (CA) in CA-G.R. CV No. 73827, reversing an earlier decision of the Regional Trial Court (RTC) of
respondent Puerto Azul Land, Inc. Davao City and accordingly dismissing the derivative suit instituted by petitioner Eliodoro C. Cruz for and in behalf of
the stockholders of co-petitioner Filipinas Port Services, Inc. (Filport, hereafter).
The case is actually an intra-corporate dispute involving Filport, a domestic corporation engaged in stevedoring
services with principal office in Davao City. It was initially instituted with the Securities and Exchange Commission
(SEC) where the case hibernated and remained unresolved for several years until it was overtaken by the enactment
into law, on 19 July 2000, of Republic Act (R.A.) No. 8799, otherwise known as the Securities Regulation Code. From
the SEC and consistent with R.A. No. 8799, the case was transferred to the RTC of Manila, Branch 14, sitting as a
corporate court. Subsequently, upon respondents’ motion, the case eventually landed at the RTC of Davao City where
it was docketed as Civil Case No. 28,552-2001. RTC-Davao City, Branch 10, ruled in favor of the petitioners
prompting respondents to go to the CA in CA-G.R. CV No. 73827. This time, the respondents prevailed, hence, this
petition for review by the petitioners.
The relevant facts:
On 4 September 1992, petitioner Eliodoro C. Cruz, Filport’s president from 1968 until he lost his bid for reelection as
Filport’s president during the general stockholders’ meeting in 1991, wrote a letter 2 to the corporation’s Board of
Directors questioning the board’s creation of the following positions with a monthly remuneration of ₱13,050.00
each, and the election thereto of certain members of the board, to wit:
Asst. Vice-President for Corporate Planning - Edgar C. Trinidad (Director)
Asst. Vice-President for Operations - Eliezer B. de Jesus (Director)
Asst. Vice-President for Finance - Mary Jean D. Co (Director)
Asst. Vice-President for Administration - Henry Chua (Director)
Special Asst. to the Chairman - Arsenio Lopez Chua (Director)
Special Asst. to the President - Fortunato V. de Castro
In his aforesaid letter, Cruz requested the board to take necessary action/actions to recover from those elected to
the aforementioned positions the salaries they have received.
On 15 September 1992, the board met and took up Cruz’s letter. The records do not show what specific
action/actions the board had taken on the letter. Evidently, whatever action/actions the board took did not sit well
with Cruz.
On 14 June 1993, Cruz, purportedly in representation of Filport and its stockholders, among which is herein co-
petitioner Mindanao Terminal and Brokerage Services, Inc. (Minterbro), filed with the SEC a petition 3 which he
describes as a derivative suit against the herein respondents who were then the incumbent members of Filport’s
Board of Directors, for alleged acts of mismanagement detrimental to the interest of the corporation and its
shareholders at large, namely:
1. creation of an executive committee in 1991 composed of seven (7) members of the board with compensation of
₱500.00 for each member per meeting, an office which, to Cruz, is not provided for in the by-laws of the
corporation and whose function merely duplicates those of the President and General Manager;
45
2. increase in the emoluments of the Chairman, Vice-President, Treasurer and Assistant General Manager which WHEREFORE, judgment is rendered ordering:
increases are greatly disproportionate to the volume and character of the work of the directors holding said Edgar C. Trinidad under the third and fourth causes of action to restore to the corporation the total amount of
positions; salaries he received as assistant vice president for corporate planning; and likewise ordering Fortunato V. de Castro
3. re-creation of the positions of Assistant Vice-Presidents (AVPs) for Corporate Planning, Operations, Finance and and Arsenio Lopez Chua under the fourth cause of action to restore to the corporation the salaries they each
Administration, and the election thereto of board members Edgar C. Trinidad, Eliezer de Jesus, Mary Jean D. Co received as special assistants respectively to the president and board chairman. In case of insolvency of any or all
and Henry Chua, respectively; and of them, the members of the board who created their positions are subsidiarily liable.
4. creation of the additional positions of Special Assistants to the President and the Board Chairman, with Fortunato The counter claim is dismissed.
V. de Castro and Arsenio Lopez Chua elected to the same, the directors elected/appointed thereto not doing any
work to deserve the monthly remuneration of ₱13,050.00 each. From the adverse decision of the trial court, herein respondents went on appeal to the CA in CA-G.R. CV No. 73827.
In the same petition, docketed as SEC Case No. 06-93-4491, Cruz alleged that despite demands made upon the In its decision6 of 19 January 2004, the CA, taking exceptions to the findings of the trial court that the creation of the
respondent members of the board of directors to desist from creating the positions in question and to account for the positions of Assistant Vice President for Corporate Planning, Special Assistant to the President and Special Assistant
amounts incurred in creating the same, the demands were unheeded. Cruz thus prayed that the respondent to the Board Chairman was merely for accommodation purposes, granted the respondents’ appeal, reversed and set
members of the board of directors be made to pay Filport, jointly and severally, the sums of money variedly aside the appealed decision of the trial court and accordingly dismissed the so-called derivative suit filed by Cruz, et
representing the damages incurred as a result of the creation of the offices/positions complained of and the al., thus:
aggregate amount of the questioned increased salaries. IN VIEW OF ALL THE FOREGOING, the instant appeal is GRANTED, the challenged decision is REVERSED and SET
ASIDE, and a new one entered DISMISSING Civil Case No. 28,552-2001 with no pronouncement as to costs.
In their common Answer with Counterclaim,4 the respondents denied the allegations of mismanagement and
materially averred as follows: Intrigued, and quite understandably, by the fact that, in its decision, the CA, before proceeding to address the merits
1. the creation of the executive committee and the grant of per diems for the attendance of each member are of the appeal, prefaced its disposition with the statement reading "[T]he appeal is bereft of merit," 7 thereby
allowed under the by-laws of the corporation; contradicting the very fallo of its own decision and the discussions made in the body thereof, respondents filed with
2. the increases in the salaries/emoluments of the Chairman, Vice-President, Treasurer and Assistant General the appellate court a Motion For Nunc Pro Tunc Order, 8 thereunder praying that the phrase "[T]he appeal is bereft of
Manager were well within the financial capacity of the corporation and well-deserved by the officers elected merit," be corrected to read "[T]he appeal is impressed with merit." In its resolution9 of 23 April 2004, the CA
thereto; and granted the respondents’ motion and accordingly effected the desired correction.
3. the positions of AVPs for Corporate Planning, Operations, Finance and Administration were already in existence
Hence, petitioners’ present recourse.
during the tenure of Cruz as president of the corporation, and were merely recreated by the Board, adding that all
those appointed to said positions of Assistant Vice Presidents, as well as the additional position of Special Assistants Petitioners assigned four (4) errors allegedly committed by the CA. For clarity, we shall formulate the issues as
to the Chairman and the President, rendered services to deserve their compensation. follows:
1. Whether the CA erred in holding that Filport’s Board of Directors acted within its powers in creating the executive
In the same Answer, respondents further averred that Cruz and his co-petitioner Minterbro, while admittedly
committee and the positions of AVPs for Corporate Planning, Operations, Finance and Administration, and those of
stockholders of Filport, have no authority nor standing to bring the so-called "derivative suit" for and in behalf of the
the Special Assistants to the President and the Board Chairman, each with corresponding remuneration, and in
corporation; that respondent Mary Jean D. Co has already ceased to be a corporate director and so with Fortunato V.
increasing the salaries of the positions of Board Chairman, Vice-President, Treasurer and Assistant General
de Castro, one of those holding an assailed position; and that no demand to cease and desist from further
Manager; and
committing the acts complained of was made upon the board. By way of affirmative defenses, respondents asserted
2. Whether the CA erred in finding that no evidence exists to prove that (a) the positions of AVP for Corporate
that (1) the petition is not duly verified by petitioner Filport which is the real party-in-interest; (2) Filport, as
Planning, Special Assistant to the President and Special Assistant to the Board Chairman were created merely for
represented by Cruz and Minterbro, failed to exhaust remedies for redress within the corporation before bringing the
accommodation, and (b) the salaries/emoluments corresponding to said positions were actually paid to and
suit; and (3) the petition does not show that the stockholders bringing the suit are joined as nominal parties. In
received by the directors appointed thereto.
support of their counterclaim, respondents averred that Cruz filed the alleged derivative suit in bad faith and purely
for harassment purposes on account of his non-reelection to the board in the 1991 general stockholders’ meeting. For their part, respondents, aside from questioning the propriety of the instant petition as the same allegedly raises
only questions of fact and not of law, also put in issue the purported derivative nature of the main suit initiated by
As earlier narrated, the derivative suit (SEC Case No. 06-93-4491) hibernated with the SEC for a long period of time.
petitioner Eliodoro C. Cruz allegedly in representation of and in behalf of Filport and its stockholders.
With the enactment of R.A. No. 8799, the case was first turned over to the RTC of Manila, Branch 14, sitting as a
corporate court. Thereafter, on respondents’ motion, it was eventually transferred to the RTC of Davao City whereat The petition is bereft of merit.
it was docketed as Civil Case No. 28,552-2001 and raffled to Branch 10 thereof.
It is axiomatic that in petitions for review on certiorari under Rule 45 of the Rules of Court, only questions of law may
On 10 December 2001, RTC-Davao City rendered its decision5 in the case. Even as it found that (1) Filport’s Board of be raised and passed upon by the Court. Factual findings of the CA are binding and conclusive and will not be
Directors has the power to create positions not provided for in the by-laws of the corporation since the board is the reviewed or disturbed on appeal.10 Of course, the rule is not cast in stone; it admits of certain exceptions, such as
governing body; and (2) the increases in the salaries of the board chairman, vice-president, treasurer and assistant when the findings of fact of the appellate court are at variance with those of the trial court, 11 as here. For this reason,
general manager are reasonable, the trial court nonetheless rendered judgment against the respondents by ordering and for a proper and complete resolution of the case, we shall delve into the records and reexamine the same.
the directors holding the positions of Assistant Vice President for Corporate Planning, Special Assistant to the
President and Special Assistant to the Board Chairman to refund to the corporation the salaries they have received as The governing body of a corporation is its board of directors. Section 23 of the Corporation Code 12 explicitly provides
such officers "considering that Filipinas Port Services is not a big corporation requiring multiple executive positions" that unless otherwise provided therein, the corporate powers of all corporations formed under the Code shall be
and that said positions "were just created for accommodation." We quote the fallo of the trial court’s decision. exercised, all business conducted and all property of the corporation shall be controlled and held by a board of
46
directors. Thus, with the exception only of some powers expressly granted by law to stockholders (or members, in one who moved for the creation of the positions of the AVPs for Operations, Finance and Administration. By his
case of non-stock corporations), the board of directors (or trustees, in case of non-stock corporations) has the sole acquiescence and/or ratification of the creation of the aforesaid offices, Cruz is virtually precluded from suing to
authority to determine policies, enter into contracts, and conduct the ordinary business of the corporation within the declare such acts of the board as invalid or illegal. And it makes no difference that he sues in behalf of himself and of
scope of its charter, i.e., its articles of incorporation, by-laws and relevant provisions of law. Verily, the authority of the other stockholders. Indeed, as his voice was not heard in protest when he was still Filport’s president, raising a
the board of directors is restricted to the management of the regular business affairs of the corporation, unless more hue and cry only now leads to the inevitable conclusion that he did so out of spite and resentment for his non-
extensive power is expressly conferred. reelection as president of the corporation.
The raison d’etre behind the conferment of corporate powers on the board of directors is not lost on the Court. With regard to the increased emoluments of the Board Chairman, Vice-President, Treasurer and Assistant General
Indeed, the concentration in the board of the powers of control of corporate business and of appointment of Manager which are supposedly disproportionate to the volume and nature of their work, the Court, after a judicious
corporate officers and managers is necessary for efficiency in any large organization. Stockholders are too numerous, scrutiny of the increase vis-à-vis the value of the services rendered to the corporation by the officers concerned,
scattered and unfamiliar with the business of a corporation to conduct its business directly. And so the plan of agrees with the findings of both the trial and appellate courts as to the reasonableness and fairness thereof.
corporate organization is for the stockholders to choose the directors who shall control and supervise the conduct of
corporate business.13 Continuing, petitioners contend that the CA did not appreciate their evidence as to the alleged acts of
mismanagement by the then incumbent board. A perusal of the records, however, reveals that petitioners merely
In the present case, the board’s creation of the positions of Assistant Vice Presidents for Corporate Planning, relied on the testimony of Cruz in support of their bold claim of mismanagement. To the mind of the Court, Cruz’
Operations, Finance and Administration, and those of the Special Assistants to the President and the Board testimony on the matter of mismanagement is bereft of any foundation. As it were, his testimony consists merely of
Chairman, was in accordance with the regular business operations of Filport as it is authorized to do so by the insinuations of alleged wrongdoings on the part of the board. Without more, petitioners’ posture of mismanagement
corporation’s by-laws, pursuant to the Corporation Code. must fall and with it goes their prayer to hold the respondents liable therefor.
The election of officers of a corporation is provided for under Section 25 of the Code which reads: But even assuming, in gratia argumenti, that there was mismanagement resulting to corporate damages and/or
Sec. 25. Corporate officers, quorum. – Immediately after their election, the directors of a corporation must formally business losses, still the respondents may not be held liable in the absence, as here, of a showing of bad faith in
organize by the election of a president, who shall be a director, a treasurer who may or may not be a director, a doing the acts complained of.
secretary who shall be a resident and citizen of the Philippines, and such other officers as may be provided for in
the by-laws. (Emphasis supplied.) If the cause of the losses is merely error in business judgment, not amounting to bad faith or negligence, directors
and/or officers are not liable.17 For them to be held accountable, the mismanagement and the resulting losses on
In turn, the amended Bylaws of Filport14 provides the following: account thereof are not the only matters to be proven; it is likewise necessary to show that the directors and/or
Officers of the corporation, as provided for by the by-laws, shall be elected by the board of directors at their first officers acted in bad faith and with malice in doing the assailed acts. Bad faith does not simply connote bad judgment
meeting after the election of Directors. xxx or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a
The officers of the corporation shall be a Chairman of the Board, President, a Vice-President, a Secretary, a known duty through some motive or interest or ill-will partaking of the nature of fraud.18 We have searched the
Treasurer, a General Manager and such other officers as the Board of Directors may from time to time provide, and records and nowhere do we find a "dishonest purpose" or "some moral obliquity," or "conscious doing of a wrong" on
these officers shall be elected to hold office until their successors are elected and qualified. (Emphasis supplied.) the part of the respondents that "partakes of the nature of fraud."
Likewise, the fixing of the corresponding remuneration for the positions in question is provided for in the same by- We thus extend concurrence to the following findings of the CA, affirmatory of those of the trial court:
laws of the corporation, viz: xxx As a matter of fact, it was during the term of appellee Cruz, as president and director, that the executive
xxx The Board of Directors shall fix the compensation of the officers and agents of the corporation. (Emphasis committee was created. What is more, it was appellee himself who moved for the creation of the positions of
supplied.) assistant vice presidents for operations, for finance, and for administration. He should not be heard to complain
thereafter for similar corporate acts.
Unfortunately, the bylaws of the corporation are silent as to the creation by its board of directors of an executive
committee. Under Section 3515 of the Corporation Code, the creation of an executive committee must be provided for The increase in the salaries of the board chairman, president, treasurer, and assistant general manager are indeed
in the bylaws of the corporation. reasonable enough in view of the responsibilities assigned to them, and the special knowledge required, to be able to
effectively discharge their respective functions and duties.
Notwithstanding the silence of Filport’s bylaws on the matter, we cannot rule that the creation of the executive
committee by the board of directors is illegal or unlawful. One reason is the absence of a showing as to the true Surely, factual findings of trial courts, especially when affirmed by the CA, are binding and conclusive on this Court.
nature and functions of said executive committee considering that the "executive committee," referred to in Section
35 of the Corporation Code which is as powerful as the board of directors and in effect acting for the board itself, There is, however, a factual matter over which the CA and the trial court parted ways. We refer to the
should be distinguished from other committees which are within the competency of the board to create at anytime accommodation angle.
and whose actions require ratification and confirmation by the board. 16 Another reason is that, ratiocinated by both
The trial court was with petitioner Cruz in saying that the creation of the positions of the three (3) AVPs for Corporate
the two (2) courts below, the Board of Directors has the power to create positions not provided for in Filport’s bylaws
Planning, Special Assistant to the President and Special Assistant to the Board Chairman, each with a salary of
since the board is the corporation’s governing body, clearly upholding the power of its board to exercise its
₱13,050.00 a month, was merely for accommodation purposes considering that Filport is not a big corporation
prerogatives in managing the business affairs of the corporation.
requiring multiple executive positions. Hence, the trial court’s order for said officers to return the amounts they
As well, it may not be amiss to point out that, as testified to and admitted by petitioner Cruz himself, it was during received as compensation.
his incumbency as Filport president that the executive committee in question was created, and that he was even the
47
On the other hand, the CA took issue with the trial court and ruled that Cruz’s accommodation theory is not based on Under the Corporation Code, where a corporation is an injured party, its power to sue is lodged with its board of
facts and without any evidentiary substantiation. directors or trustees. But an individual stockholder may be permitted to institute a derivative suit in behalf of the
corporation in order to protect or vindicate corporate rights whenever the officials of the corporation refuse to sue, or
We concur with the line of the appellate court. For truly, aside from Cruz’s bare and self-serving testimony, no other when a demand upon them to file the necessary action would be futile because they are the ones to be sued, or
evidence was presented to show the fact of "accommodation." By itself, the testimony of Cruz is not enough to because they hold control of the corporation.22 In such actions, the corporation is the real party-in-interest while the
support his claim that accommodation was the underlying factor behind the creation of the aforementioned three (3) suing stockholder, in behalf of the corporation, is only a nominal party.23
positions.
Here, the action below is principally for damages resulting from alleged mismanagement of the affairs of Filport by its
It is elementary in procedural law that bare allegations do not constitute evidence adequate to support a conclusion. directors/officers, it being alleged that the acts of mismanagement are detrimental to the interests of Filport. Thus,
It is basic in the rule of evidence that he who alleges a fact bears the burden of proving it by the quantum of proof the injury complained of primarily pertains to the corporation so that the suit for relief should be by the corporation.
required. Bare allegations, unsubstantiated by evidence, are not equivalent to proof under the Rules of Court. 19 The However, since the ones to be sued are the directors/officers of the corporation itself, a stockholder, like petitioner
party having the burden of proof must establish his case by a preponderance of evidence.20 Cruz, may validly institute a "derivative suit" to vindicate the alleged corporate injury, in which case Cruz is only a
nominal party while Filport is the real party-in-interest. For sure, in the prayer portion of petitioners’ petition before
Besides, the determination of the necessity for additional offices and/or positions in a corporation is a management
the SEC, the reliefs prayed were asked to be made in favor of Filport.
prerogative which courts are not wont to review in the absence of any proof that such prerogative was exercised in
bad faith or with malice.1awphi1.nét Besides, the requisites before a derivative suit can be filed by a stockholder are present in this case, to wit:
a) the party bringing suit should be a shareholder as of the time of the act or transaction complained of, the
Indeed, it would be an improper judicial intrusion into the internal affairs of Filport were the Court to determine the
number of his shares not being material;
propriety or impropriety of the creation of offices therein and the grant of salary increases to officers thereof. Such
b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of directors for the
are corporate and/or business decisions which only the corporation’s Board of Directors can determine.
appropriate relief but the latter has failed or refused to heed his plea; and
So it is that in Philippine Stock Exchange, Inc. v. CA,21 the Court unequivocally held: c) the cause of action actually devolves on the corporation, the wrongdoing or harm having been, or being caused
Questions of policy or of management are left solely to the honest decision of the board as the business manager of to the corporation and not to the particular stockholder bringing the suit.24
the corporation, and the court is without authority to substitute its judgment for that of the board, and as long as it
Indisputably, petitioner Cruz (1) is a stockholder of Filport; (2) he sought without success to have its board of
acts in good faith and in the exercise of honest judgment in the interest of the corporation, its orders are not
directors remedy what he perceived as wrong when he wrote a letter requesting the board to do the necessary action
reviewable by the courts.
in his complaint; and (3) the alleged wrong was in truth a wrong against the stockholders of the corporation
In a last-ditch attempt to salvage their cause, petitioners assert that the CA went beyond the issues raised in the generally, and not against Cruz or Minterbro, in particular. In the end, it is Filport, not Cruz which directly stands to
court of origin when it ruled on the absence of receipt of actual payment of the salaries/emoluments pertaining to the benefit from the suit. And while it is true that the complaining stockholder must show to the satisfaction of the court
positions of Assistant Vice-President for Corporate Planning, Special Assistant to the Board Chairman and Special that he has exhausted all the means within his reach to attain within the corporation itself the redress for his
Assistant to the President. Petitioners insist that the issue of nonpayment was never raised by the respondents grievances, or actions in conformity to his wishes, nonetheless, where the corporation is under the complete control
before the trial court, as in fact, the latter allegedly admitted the same in their Answer With Counterclaim. of the principal defendants, as here, there is no necessity of making a demand upon the directors. The reason is
obvious: a demand upon the board to institute an action and prosecute the same effectively would have been useless
We are not persuaded. and an exercise in futility. In fine, we rule and so hold that the petition filed with the SEC at the instance of Cruz,
which ultimately found its way to the RTC of Davao City as Civil Case No. 28,552-2001, is a derivative suit of which
By claiming that Filport suffered damages because the directors appointed to the assailed positions are not doing Cruz has the necessary legal standing to institute.
anything to deserve their compensation, petitioners are saddled with the burden of proving that salaries were
actually paid. Since the trial court, in effect, found that the petitioners successfully proved payment of the salaries WHEREFORE, the petition is DENIED and the challenged decision of the CA is AFFIRMED in all respects.
when it directed the reimbursements of the same, respondents necessarily have to raise the issue on appeal. And the
CA rightly resolved the issue when it found that no evidence of actual payment of the salaries in question was
actually adduced. Respondents’ alleged admission of the fact of payment cannot be inferred from a reading of the
pertinent portions of the parties’ respective initiatory pleadings. Respondents’ allegations in their Answer With
Counterclaim that the officers corresponding to the positions created "performed the work called for in their
positions" or "deserve their compensation," cannot be interpreted to mean that they were "actually paid" such
compensation. Directly put, the averment that "one deserves one’s compensation" does not necessarily carry the
implication that "such compensation was actually remitted or received." And because payment was not duly proven,
there is no evidentiary or factual basis for the trial court to direct respondents to make reimbursements thereof to
the corporation.
This brings us to the respondents’ claim that the case filed by the petitioners before the SEC, which eventually landed
in RTC-Davao City as Civil Case No. 28,552-2001, is not a derivative suit, as maintained by the petitioners.
We sustain the petitioners.
48
(*) Over the counter (OTC) payments are now accepted at 27 Asiatrust Banks branches Metro Manila wide.[6]
Petitioner Catherine believed that the imposition of the special assessment in Board Resolution No. 7-2001 was
unjust and/or illegal, however, she took no action against the same. Petitioner Catherine simply avoided paying the
special assessment by settling the amounts due in her Statements of Account from September 2001 to January 2002
[ G.R. No. 200150. November 07, 2016 ] short of P500.00.[7]
CATHERINE CHING, LORENZO CHING, LAURENCE CHING, AND CHRISTINE CHING, PETITIONERS, V. Respondent BOD then passed Board Resolution No. 3-2002 on April 18, 2002 which suspended the privileges of the
QUEZON CITY SPORTS CLUB, INC.; MEMBERS OF THE BOARD OF DIRECTORS, NAMELY: ANTONIO T. members of respondent Club who had not yet paid the special assessment, thus:
CHUA, MARGARET MARY A. RODAS, ALEJANDRO G. YABUT, JR., ROBERT C. GAW, EDGARDO A. HO,
ROMULO D. SALES, BIENVENIDO ALANO, AUGUSTO E. OROSA, AND THE FINANCE MANAGER, LOURDES As per report of the Finance Manager, 80% of the active/assessed members paid the special assessment while 20%
RUTH M. LOPEZ, RESPONDENTS. have not yet [paid] their shares.
Assailed before the Court under Rule 45 of the Rules of Court is the Decision [1] dated June 27, 2011 in CA-G.R. CV To fully enforce Board Resolution No. 7-2001 and in order to be fair with the other members who have already paid,
No. 92293 of the Court of Appeals, which reversed and set aside the Decision[2] dated May 23, 2008 of the Regional the Board deemed it appropriate to suspend the privileges of those members who would continue not to pay the said
Trial Court (RTC) of Quezon City, Branch 223, in Civil Case No. Q-03-50022; and ordered the dismissal of the special assessment despite receipt of the demand to do so.[8]
Complaint for Damages of petitioners, spouses Lorenzo (Lorenzo) and Catherine (Catherine) Ching and their children
Laurence and Christine Ching, against respondents, Quezon City Sports Club, Inc. (Club); the Board of Directors Petitioner Catherine continued availing herself of the services of respondent Club and regularly paid the amounts due
(BOD) of respondent Club, namely, Antonio T. Chua (Chua), Margaret Mary A. Rodas, Alejandro G. Yabut, Jr., Robert in her Statements of Account from February 2002 to May 2003, but always leaving behind a balance of more or less
C. Gaw, Edgardo A. Ho (Ho), Romulo D. Sales, Bienvenido Alano, and Augusto E. Orosa; and the Finance Manager of P2,500.00.[9] Petitioner Catherine was not personally informed of Board Resolution No. 3-2002 nor advised that she
respondent Club, Lourdes Ruth M. Lopez (Lopez). The RTC directed respondents to jointly and severally pay was already deemed delinquent in the payment of any other Statements of Account.
petitioners P200,000.00 as moral damages, P50,000.00 as exemplary damages, P50,000.00 as attorney's fees; and
On May 22, 2003, petitioner Laurence went to respondent Club intending to avail himself of its services using the
costs of suit.
account of his mother, petitioner Catherine. Respondent Club refused to accommodate petitioner Laurence because
Respondent Club is a duly registered domestic corporation providing recreational activities, sports facilities, and his mother's membership privileges had been suspended. The following day, May 23, 2003, petitioner Catherine went
exclusive privileges and services to its members. to respondent Club to verify the suspension of her membership privileges. Respondent Lopez, the Finance Manager of
respondent Club, gave petitioner Catherine copies of Board Resolution Nos. 7-2001 and 3-2002. Petitioner Catherine
Petitioner Catherine became a member and regular patron of respondent Club in 1989. Per policy of respondent Club, also noticed during said visit that her name was included and highlighted in respondent Lopez's Memorandum dated
petitioner Catherine's membership privileges were extended to immediate family members. May 22, 2003 addressed to "All Outlets" with the subject matter of "Suspended Members Due to Non-Payment of
P2,500.00 Special Assessment," copies of which were posted at the workstations of the employees of respondent
On June 15, 1999, the National Labor Relations Commission (NLRC) rendered a Decision in NLRC NCR Case No. 00- Club and in other conspicuous places within the premises of respondent Club.[10]
07-06219, ordering respondent Club to pay backwages, 13th and 14th month pay, and allowances to six illegally
dismissed employees. The successive appeals of respondent Club to the Court of Appeals and this Court were Petitioner Catherine, through counsel, sent respondents a letter dated May 24, 2003 demanding the immediate recall
unsuccessful, and the judgment for illegal dismissal against respondent Club became final and executory. As a result, of the suspension of her membership privileges, an explanation why she should not file a case for damages against
an alias writ of execution of said judgment was served on respondent Club on September 19, 200 1 for the total respondents, and an apology for besmirching her name and good reputation.[11] Respondents, also through counsel,
amount of P4,433,550.00. replied in a letter dated May 29, 2003 pointing out that respondent Club had never besmirched the reputation of any
of its members in its 20 years of existence; that petitioner Catherine herself admitted that she had failed to pay the
Because respondent Club was not in a financial position to pay the monetary awards in NLRC NCR Case No. 00-07- P2,500.00 special assessment fee; and that the list of suspended members who failed to pay the special assessment
06219, respondent BOD approved on September 20, 200I Board Resolution No. 7-2001, [3] entitled "Special fee was never posted but was given to the members concerned.[12]
Assessment for Club Members in Relation to the Marie Rose Navarro, et al. v. QCSI, et al. Case ," resolving to "seek
the assistance of its members by assessing each member the amount of TWO THOUSAND FIVE HUNDRED PESOS Meanwhile, so she can avail herself of the services of respondent Club, petitioner Catherine registered as a guest of
(P2,500.00) payable in five (5) equal monthly payments starting the month of September 2001." either her husband, petitioner Lorenzo, or her other daughter, Noelle Ching (Noelle). Consequently, petitioner
Catherine was paying more than double her customary fees to enjoy the services of respondent Club.
Petitioner Catherine was duly notified of the implementation of the special assessment through a Letter [4] dated
September 25, 2001 from the Treasurer of respondent Club. The amount of P500.00 was debited and/or charged to On July 7, 2003, petitioners instituted before the RTC a Complaint for damages against respondents, based on
Catherine's account each month from September 2001 to January 2002, as reflected in the Statements of Articles 19, 20, and 21 of the Civil Code.[13] Petitioners prayed for the following reliefs:
Account[5] issued by respondent Club. Each Statement of Account sent by respondent Club to petitioner Catherine
included a general notice, quoted below: Wherefore, it is respectfully prayed that after due hearing, judgment be rendered against the [respondents] ordering
(*) This statement is rendered as of the above date and shall be deemed correct if no discrepancy is reported within them to reinstate the membership of [petitioner] Catherine Ching with the Quezon City Sports Club, Inc., and
ten (10) days from receipt hereof. ordering [respondents] to:
a. Refund the amount of P1,822.80 incurred by [petitioners] as a consequence of the illegal suspension of the
(*) Accounts which are past due for 60 days and the amount is over Php20,000.00 will be automatically suspended.
membership of Catherine Ching;
(*) Accounts that are 75 days in arrears will be automatically suspended regardless of amount. b. Pay to [petitioners] the amount of Two Million Pesos (P2,000,000.00) as moral damages;
49
c. Pay to [petitioners] the amount of Two Hundred Thousand Pesos (P200,000.00) as attorney's fees and the board, are serious or prejudicial to the Club. In either case however, a suspension or expulsion comes after
P2,500.00 per court appearance; proper notice and hearing. It could be for this reason why Board Resolution [No.] 3-2002 required "receipt of a
d. Pay exemplary damages for P50,000.00 or in such amount as may be determined by the Honorable Court; demand" upon a member before his privileges are suspended. Here, it appears that the privileges of [petitioners]
and were suspended without notice or demand having been issued to [petitioner] Catherine to pay the special
e. Pay the costs of the suit.[14] assessment and if she fails her privileges and that of her dependents will be suspended. True it is that the
statement of account contains a reminder that an account which is more than seventy-five (75) days in arrears,
Respondents filed their separate Answers with Counterclaims, seeking the dismissal of petitioners' Complaint and regardless of the amount, will be suspended but the Statements of Account, offered in evidence by [respondents]
payment of moral damages, exemplary damages, and attorney's fees. were for other expenses and billings incurred by [petitioners] such as Sports and Recreation Chits (CHH), Charge
Account Slip Chits (CHC), Beauty Parlor Chits (CBP), Reflexology Chits (RC), Restaurant Chits (CHR), Monthly Dues
During trial, petitioners Catherine and Lorenzo [15] and Roland Dacut[16] (Dacut), an employee of respondent Club and
(MD) and Locker Rental (LR), and none containing a demand for the payment for the special assessment. There
petitioner Catherine's regular tennis trainer for 10 years, all took the witness stand. All documentary exhibits
could be some other Statements of Account but these were not formally offered and since they were not offered
formally offered by petitioners were admitted by the RTC in its Order[17] dated November 21, 2005.
the Court will not consider them as such. Needless to state, the Statements of Account forming part of the
It was revealed during trial that a few days after the filing of the Complaint, petitioner Catherine was refused access [respondents'] evidence do not prove demand upon the [petitioners] to pay for the Special Assessment before their
to respondent Club, even as a mere guest of her daughter Noelle. Apparently, respondents "disapproved" Noelle's privileges can be suspended. True also that [petitioner] Catherine admitted during the Pre-trial Conference of her
letter dated July 8, 2003 extending her membership privileges at respondent Club to her mother, petitioner being aware of the billings for the special assessment but this admission is vague as to the time when she came to
Catherine, and other immediate family members. [18] To lift the suspension of her membership privileges, petitioner know of these billings partaking of a demand.[28]
Catherine finally paid "under protest" the special assessment of P2,500.00 on July 13, 2003.[19]
In addition, the RTC adjudged that respondents acted in bad faith or with malice in continuing to deprive petitioner
Petitioner Catherine lamented that even though she had already paid the special assessment, respondents continued Catherine her membership privileges even after she had already paid the special assessment, thus:
harassing her when she was at respondent Club. Every time petitioner Catherine went to respondent Club, a security The [c]ourt finds no reason to doubt the testimony of Roland Dacut. It gains weight because he has no reason to
guard would unusually monitor her movements and activities. Dacut was also directed by the management of testify particularly against his employer whom he has served for twenty (20) years. His testimony establishes
respondent Club to stop playing with petitioner Catherine or other members of her family. [20] [respondent] Chua's deliberate intention to deny the [petitioners] of their privilege of playing tennis at the
[respondent] Club despite their membership. This deliberate intention is further established by Roland Dacut's
Petitioners also filed a Manifestation on January 22, 2007 informing the RTC that on September 21, 2006, respondent testimony that everytime [petitioner] Catherine would come to the [respondent] Club the security guards would
BOD issued Board Resolution No. 10-2006,[21] in which they resolved to expel petitioner Catherine as a regular monitor her moves or activities by following where she would go. The [c]ourt is appalled by these actions because
member of respondent Club due to her filing of the civil suit against respondents. Petitioner Catherine received a at the time he was directed to stop playing with the [petitioners] sometime around August or September of 2004,
notice of her expulsion on November 20, 2006.[22] Petitioner Catherine's expulsion from respondent Club became the [petitioner] Catherine's membership with the [respondent] Club has already been reinstated when she paid the
subject matter of another case before the RTC. special assessment in July 2003. [Respondent] Club's action in depriving [petitioners] of their privileges are
certainly not consistent with good faith. [Respondents'] violation of their By-laws coupled by their acts of depriving
Respondents, for their part, presented the testimonies of respondent Lopez,[23] Finance Manager; respondent Ho, the [petitioners] of their privileges despite their reinstatement in July 2003 thus would entitle them for the
[24]
BOD member; and Karen Layug,[25] Human Resources Department Manager, all of respondent Club. The RTC, in damages they claim. [Petitioners'] evidence while not preponderant to support the invalidity of Board Resolution
its Order[26] dated July 10, 2007, admitted all the documentary evidence formally offered by respondents. No. 7-2001 however are strong enough to prove violation of the Club's By-laws where [petitioners] were
immediately suspended without notice and hearing and for their continuous act of depriving them of their privilege
The RTC rendered its Decision on May 23, 2008. The RTC, based on the "Business Judgment Rule" and Philippine
as members of the [respondent] Club.[29] (Citations omitted.)
Stock Exchange, Inc. v. Court of Appeals,[27] held that questions of policy and management are left to the honest
decision of the officers and directors of a corporation; and the courts are without authority to substitute their The RTC decreed in the end:
judgment for that of the BOD unless said judgment had been attended with bad faith. The RTC found no evidence of WHEREFORE, on the basis of the foregoing, judgment is hereby rendered in favor of [petitioners] (a) DIRECTING all
bad faith on the part of respondents in adopting Board Resolution No. 7-2001 on September 20, 2001, imposing the the [respondents], jointly and severally to pay the [petitioners] moral damages in the amount of two hundred
special assessment of P2,500.00 on all members of respondent Club. Respondent Club was forced to adopt said thousand pesos (P200,000.00), Philippine Currency; (b) DIRECTING all the [respondents], jointly and severally to
Board Resolution because it was not in a financial capacity to pay the judgment in NLRC NCR Case No. 00-07-06219. pay the [petitioners] the amount of fifty thousand pesos (P50,000.00), Philippine Currency as exemplary damages;
The special assessment was reasonable and fair in order to save respondent Club from the execution of the alias writ (c) DIRECTING all the [respondents], jointly and severally to pay the [petitioners] the amount of fifty thousand
of execution. pesos (P50,000.00), Philippine Currency as and by way of attorney's fees; and (d) to pay the costs of the suit.[30]
The RTC pointed out petitioner Catherine's admission in the Pre-Trial Order dated July 26, 2005 that she was aware Respondents filed a Motion for Reconsideration of the foregoing RTC judgment, attaching certified true copies of
of the issuance of Board Resolution No. 7-2001. Petitioner Catherine's silence and/or failure to immediately challenge petitioner Catherine's Statements of Account issued by respondent Club from September 2001 to January 2002,
the validity of said Board Resolution could only be construed as her assent to the same and/or waiver of her right to which included the P500.00 monthly installment charges for the special assessment. In an Order[31] dated September
question its propriety. 24, 2008, the RTC denied the Motion for Reconsideration of respondents.
The RTC though ruled that respondents failed to comply with the By-Laws of respondent Club when they suspended Respondents appealed before the Court of Appeals.
petitioner Catherine's privileges. According to the trial court:
Section 35 of the By-laws of the [respondent] Club provides the grounds and the procedure for the suspension In its Decision dated June 27, 2011, the Court of Appeals narrowed down the pivotal issue for its resolution to
and/or expulsion of a member. A member maybe suspended or expelled if he or she violates the By-laws, rules, whether or not respondents are liable to pay petitioners moral and exemplary damages, attorney's fees, and costs of
regulations, resolution and orders duly promulgated by the Board of Directors or for an act, which in the opinion of
50
suit for (a) suspending petitioner Catherine's membership privileges without prior notice as required by the By-Laws September 2001 to January 2002, and the approval on April 18, 2002 of Board Resolution No. 3-2002 which
of respondent Club; and (b) posting the Memorandum dated May 22, 2003 within the premises of respondent Club. suspended the privileges of members of respondent Club who had not paid the special assessment, petitioner
Catherine's privileges were not actually suspended until respondent Lopez issued her Memorandum dated May 22,
The Court of Appeals ruled in favor of respondents. 2003: (c) billing clerks and attendants were furnished copies of respondent Lopez's Memorandum dated May 22,
2003 for their guidance or reference since it was their duty to check the status of a member's account, and if they
The Court of Appeals determined that Section 33(a) of the By-Laws of respondent Club on the "Billing of Members,
wrongfully accommodated a suspended member, then the charges incurred by said member would be automatically
Posting of Suspended Accounts" applied to petitioners' case, instead of Section 35 of the same By Laws on
deducted from their salaries; (d) copies of respondent Lopez's Memorandum dated May 22, 2003 were posted in the
"Suspension and Expulsion;" and the former allowed automatic suspension of a member's privileges after notice, but
billing clerks' cubicles and there was no proof that copies of said Memorandum were posted in conspicuous places
with no need for a hearing. The appellate court reasoned:
within the premises of respondent Club; and (e) there was likewise no evidence that respondents instructed or
The fact that there is a separate provision in the Club's By-Laws specifically dealing with suspension due to non-
authorized the billing clerks to post copies of respondent Lopez's Memorandum dated May 22, 2003 in their cubicles
payment of accounts negates [petitioners'] claim that Catherine's suspension may only be implemented upon
and to highlight petitioner Catherine's name. Hence, there was no basis for awarding moral and exemplary damages,
proper notice and hearing. As testified to by the Club's Finance Manager and admitted by Catherine during the pre-
attorney's fees, and costs of suit in petitioners' favor.
trial, the Club's policy on the suspension of accounts was implemented on the basis of the following annotations
found in the monthly Statement of Account, to wit: To the Court of Appeals, Dacut's testimony that they were instructed by the management of respondent Club to
* * * * NOTICE * * * * avoid petitioners was hearsay, as the instructions were merely relayed to him by Sonny Torres (Torres), a tennis
(*) This statement is rendered as of the above date and shall be deemed correct if no discrepancy is reported attendant. Dacut had no personal knowledge as to whether respondents had in fact directed Torres to give such an
within ten (10) days from receipt hereof. instruction to the trainers. Although hearsay evidence could be admitted due to the lack of objection to the same, as
(*) Accounts which are past due for 60 days and the amount is over Php 20,000.00 will be what happened in this case, it was still without probative value.
automatically suspended.
(*) Accounts that are 75 days in arrears will be automatically suspended regardless of amount. Lastly, the Court of Appeals denied the counterclaims for damages of respondents. Respondents failed to establish
that petitioners were moved by bad faith or malice in impleading the respondent BOD in the case a quo. In the
While the Club's Treasurer was previously required to notify the member that if his bill is not paid in full by the end absence of a wrongful act or omission, or of fraud or bad faith on petitioners' part, moral damages could not be
of the same month, his name will be posted as suspended the following day, it is apparent that the policy of the awarded; and without moral damages, then there was no basis to award exemplary damages and attorney's fees.
club regarding non-payment of accounts was changed into automatic suspension, depending on the amount and
length of time that the bill remains unpaid. However, the current policy appears to be beneficial to the members The dispositive portion of the Decision of the appellate court reads:
since they are granted an extension of 60 or 75 days, as the case may be, within which to settle their outstanding WHEREFORE, the Decision dated May 23, 2008 of the Regional Trial Court of Quezon City, Branch 223, in Civil
obligations before their accounts may be suspended. Case No. Q-03-50022, is hereby REVERSED and SET ASIDE. [Petitioners'] Complaint is hereby DISMISSED for
lack of merit.[33]
At any rate, We find that the monthly Statements of Account (Statements) sent to Catherine should be considered
as sufficient notice of suspension. An examination of Catherine's Statements for the months of September to Petitioners' Motion for Reconsideration was denied by the Court of Appeals in its Resolution [34] dated January 12,
December 2001 and January 2002 show that she was billed for the special assessment in the amount of P500.00 2012.
and was reflected therein as "SAL-02", "SAL-03", "SAL-04", and "SAL-05". Catherine cannot feign ignorance of this
fact in view of her admission, viz.: (1) her Statements clearly indicate that accounts that are 75 days in arrears will Hence, petitioners filed the instant Petition with the following assignment of errors:
be automatically suspended; (2) she was billed for the P2,500.00 special assessment from September 2001 to I THE COURT OF APPEALS ERRED IN RULING THAT THE SUSPENSION OF CATHERINE CHING IN NOT PAYING THE
January 2002; and (3) the special assessment remained unpaid for 1 year and 4 months. In addition, the amount SPECIAL ASSESSMENT PURSUANT TO A BOARD RESOLUTION CAN BE MADE UNDER ARTICLE 33 OF THE BY-LAWS
of the special assessment, together with the penalties for non payment thereof, were written in the box with the OF THE CLUB.
heading "OVER 60 DAYS" in her subsequent Statements. In view of the foregoing, the Club correctly suspended II THE COURT OF APPEALS ERRED IN RULING THAT THERE WAS NO BAD FAITH OR INTENT TO INJURE OR
Catherine's account considering that the special assessment remained unpaid for more than 75 days. HUMILIATE IN THE POSTING AND HIGHLIGHTING OF THE NAME OF CATHERINE CHING IN THE MEMORANDUM
CONTAINING THE LIST OF SUSPENDED MEMBERS.
Be that as it may, the court a quo ruled that the entries with the code "SAL" do not appear in the Statements III THE COURT OF APPEALS ERRED IN RULING THAT THE TESTIMONY OF ROLAND DACUT IS HEARSAY.[35]
which were formally offered by [respondents]. Indeed, a formal offer is necessary, since judges are required to
base their findings of fact and their judgment solely and strictly upon the evidence offered by the parties at the Preliminarily, the Court notes that this Petition does not question the imposition of the special assessment of
trial. In the case at bar, it appears that while [respondents] Alano, Ho, and Lopez attached the pertinent pages of P2,500.00 upon the members of respondent Club under Board Resolution No. 7-2001. It also does not challenge
Catherine's Statements (September 2001 to January 2002) which contain the entries "SAL" to their Answer, they petitioner Catherine's eventual expulsion from respondent Club on November 20, 2006, which is the subject matter
failed to include these pages to the Statements which they formally offered in evidence. However, a scrutiny of the of another case.
Statements attached to their Answer reveals that they form an integral part of the Statements formally offered in
The instant Petition assails the manner by which respondents suspended petitioner Catherine's membership
evidence. More importantly, the offer of the Statements attached to their Answer would be a mere superfluity since
privileges at respondent Club. It was allegedly done in violation of petitioners' right to due process and with ill motive
Catherine had already admitted that she was aware that she was billed for the P2,500.00 special assessment from
and in bad faith, causing damage to petitioners.
September 2001 to January 2002.[32] (Citations omitted.)
The Petition is partly meritorious.
The Court of Appeals also found no bad faith or intent to injure/humiliate on the part of respondents, considering
that: (a) the suspension of petitioner Catherine's privileges was in accordance with the By-Laws and policy of The following facts are undisputed: (1) respondent BOD approved Board Resolution No. 7-2001 on September 20,
respondent Club; (b) despite petitioner Catherine's failure to pay the special assessment charged against her from 2001 imposing the special assessment of P2,500.00 upon every member of the respondent Club, payable in five
51
monthly installments of P500.00, to raise the payment for the monetary judgment against respondent Club in NLRC result from all of them taken jointly." Verily, all stipulations of the contract are considered and the whole agreement
NCR Case No. 00-07-06219; (2) petitioner Catherine was charged the P500.00 monthly installment for the special is rendered valid and enforceable, instead of treating some provisions as superfluous, void, or inoperable.
assessment in her Statements of Account from September 2001 to January 2002, but she did not pay any of them;
(3) petitioner Catherine was continually charged the total of P2,500.00 special assessment in her Statements of Being guided accordingly, the Court now turns to the pertinent By-Laws of respondent Club.
Account from February 2002 to May 2003, which she still did not pay; (4) petitioner Catherine received all the said
At cursory glance, it would seem that the suspension of petitioner Catherine's privileges was due to the P2,500.00
Statements of Account; (5) by virtue of Board Resolution No. 3-2002, passed by respondent BOD on April 18, 2002,
special assessment charged in her Statements of Account from September 2001 to January 2002, which remained
and respondent Lopez's Memorandum dated May 22, 2003, the membership privileges of members of respondent
unpaid for over three months by the time respondent BOD passed Board Resolution No. 3-2002 on April 18, 2002;
Club who did not pay the special assessment, which included petitioner Catherine, were suspended; (6) petitioner
and for one year and four months by the time respondent Lopez issued her Memorandum dated May 22, 2003.
Catherine paid the P2,500.00 special assessment only on July 13, 2003, after her membership privileges were
However, tracing back, the P2,500.00 special assessment was not an ordinary account or bill incurred by petitioners
already suspended.
in respondent Club, as contemplated in Section 33(a) of the By-Laws.
Petitioners, on one hand, maintain that petitioner Catherine's nonpayment of the special assessment of P2,500.00
Section 33(a) of the By-Laws refers to the regular dues and ordinary accounts or bills incurred by members as they
was a violation of a resolution of the respondent Board, to which Section 35(a) of the By-Laws of respondent Club -
avail of the services at respondent Club, and for which the members are charged in their monthly Statement of
requiring notice and hearing prior to the member's suspension - should have applied:
Account. The immediate payment or collection of the amount charged in the member's monthly Statement of
SUSPENSION AND EXPULSION Account is essential so respondent Club can carry-on its day-to-day operations, which is why Section 33(a) allows for
Sec. 35. (a) For violating these By-Laws or rules and regulations of the Club, or resolution and orders duly the automatic suspension of a nonpaying member after a specified period and notification.
promulgated at Board or stockholders' meeting, or for any other causes and acts of a member which in
The special assessment in the instant case arose from an extraordinary circumstance, i.e., the necessity of raising
the opinion of the Board are serious or prejudicial to the Club such as acts or conduct of a member or
payment for the monetary judgment against respondent Club in an illegal dismissal case. The special assessment of
the immediate members of his family, his guest or visitors, which the Board may deem disorderly or
P2,500.00 was imposed upon the members by respondent BOD through Board Resolution No. 7-2001 dated
injurious to the interest or hostile to the objects of the Club, the offending member may be suspended,
September 20, 2001; it only so happened that said Board Resolution was implemented by directly charging the
or expelled by a two-thirds (2/33) vote of the Board of Directors upon proper notice and hearing.
[36] special assessment, in P500.00 installments, in the members' Statements of Account for five months. Thus,
(Emphases supplied.)
petitioner Catherine's nonpayment of the special assessment was, ultimately, a violation of Board Resolution No. 7-
2001, covered by Section 35(a) of the By-Laws. This much was acknowledged by respondent BOD itself when it
Respondents, on the other hand, invoke Section 33(a) of the By-Laws of respondent Club, which allows the
mentioned in Board Resolution No. 3-2002 that "[t]o enforce Board Resolution No. 7-2001," it was suspending the
suspension of a member with unpaid bills after notice:
members who did not pay the special assessment.
Sec. 33. (a) Billing of Members, Posting of Suspended Accounts As soon as possible after the end of every month, a
statement showing the account or bill of a member for said month will be prepared and sent to them. Section 35(a) of the By-Laws requires notice and hearing prior to a member's suspension. Definitely, in this case,
If the bill of any regular member remains unpaid by the 20th of the month following that in which the petitioner Catherine did not receive notice specifically advising her that she could be suspended for nonpayment of
bill was incurred, the Treasurer shall notify him that if his bill is not paid in full by the end of the the special assessment imposed by Board Resolution No. 7-2001 and affording her a hearing prior to her suspension
same month, his name will be posted as suspended the following day at the Clubhouse Bulletin Board. through Board Resolution No. 3-2002. Respondents merely relied on the general notice printed in petitioner
While posted, a regular member together with the immediate members of his family mal not use the Catherine's Statements of Account from September 2001 to April 2002 warning of automatic suspension for accounts
facilities or avail of the privileges of the Club.[37] (Emphases supplied.) of over P20,000.00 which are past due for 60 days, and accounts regardless of amount which are 75 days in arrears.
While said general notice in the Statements of Account might have been sufficient for purposes of Section 33(a) of
The Court had previously recognized in Forest Hills Golf and Country Club, Inc. v. Gardpro, Inc.,[38] that articles of the By-Laws, it fell short of the stricter requirement under Section 35(a) of the same By-Laws. Petitioner Catherine's
incorporation and by-laws of a country club are the fundamental documents governing the conduct of the corporate right to due process was clearly violated.
affairs of said club; they establish the norms of procedure for exercising rights, and reflected the purposes and
intentions of the incorporators. The by-laws are the self-imposed rules resulting from the agreement between the Nevertheless, it is not lost upon this Court that petitioner Catherine herself admitted violating Board Resolution No.
country club and its members to conduct the corporate business in a particular way. In that sense, the by-laws are 7-2001 by not paying the P2,500.00 special assessment. Petitioner Catherine cannot deny knowledge of the special
the private "statutes" by which the country club is regulated, and will function. Until repealed, the by-laws are the assessment because the first installment of P500.00 was already charged in her Statement of Account for September
continuing rules for the government of the country club and its officers, the proper function being to regulate the 2001 and she willfully did not pay said amount. Despite being aware of the special assessment, petitioner Catherine
transaction of the incidental business of the country club. The by-laws constitute a binding contract as between the simply chose not to pay the same, without taking any other step to let respondents know of her opposition to said
country club and its members, and as among the members themselves. The by-laws are self-imposed private laws special assessment, until she complained in her letter dated May 24, 2003 about the suspension of her membership
binding on all members, directors, and officers of the country club. The prevailing rule is that the provisions of the privileges. Again, the Court is not called upon to determine the propriety of the imposition of the special assessment
articles of incorporation and the by-laws must be strictly complied with and applied to the letter. upon the members of the respondent Club. Whatever reasons petitioner Catherine might have against the special
assessment would not change the fact of her nonpayment of the same in violation of Board Resolution No. 7-2001.
In construing and applying the provisions of the articles of incorporation and by-laws of the country club, the Court, Consequently, there was ground for respondents to suspend petitioner Catherine's membership privileges.
also in Forest Hills, sustained the application by the Court of Appeals therein of the rules on interpretation of
contracts under Articles 1370 and 1374 of the Civil Code. The plain meaning rule embodied in Article 1370 of the Civil Moreover, bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some
Code provides that if the terms of the contract are clear and leave no doubt upon the intention of the contracting moral obliquity and conscious doing of wrong. It means a breach of a known duty through some motive or interest or
parties, the literal meaning of its stipulations shall control; while Article 1374 of the Civil Code declares that "[t]he ill will that partakes of the nature of fraud. The determination of whether one acted in bad faith is evidentiary in
various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may nature, and acts of bad faith must be substantiated by evidence. Indeed, it is well-settled that bad faith under the
52
law cannot be presumed; it must be established by clear and convincing evidence. The ascertainment of good faith, A Mrs. Ching told me it was because of the assessment fee of two thousand five hundred pesos (P2,500.00).
or lack of it, is a question of fact. While the general rule is that questions of fact are outside the province of this Q Why, what happened? What did Mrs. Ching do with that two thousand five hundred pesos (P2,500.00)?
Court to determine in a petition for review under Rule 45 of the Revised Rules of Court - because the Court is not a
A She did not pay the assessment, sir.[40]
trier of facts - the rule is not iron-clad. Among the recognized exceptions to such rule is that the findings of the Court
of Appeals are contrary to that of the trial court, as in this case.[39]
Irrefragably, Dacut had no personal knowledge that respondent Chua, President of respondent Club, had in fact given
After a review of the records, the Court, like the Court of Appeals, finds no bad faith on the part of respondents in the order to the trainers not to play with petitioners. Dacut only relied on what Torres, a tennis assistant, relayed to
implementing petitioner Catherine's suspension. Petitioners utterly failed to establish that respondents acted with him and the other trainers. Yet, Torres only said that the order was given "sa taas" (from the top), without
malice or ill will or motive in the issuance and distribution to the billing clerks and attendants of respondent Lopez's mentioning any name. It was Dacut who deduced that Torres was referring to respondent Chua. It was also not clear
Memorandum dated May 22, 2003, which bore the list of suspended members of respondent Club. In contrast, by what authority Torres spoke for or on behalf of respondent Chua. Therefore, Dacut's testimony on this matter is
respondents were able to explain that these were done in the ordinary course of business, i.e., to implement Board evidently hearsay evidence, which, although admitted for lack of objection, had no probative value.
Resolution Nos. 7-2001 and 3-2002. It was necessary that the billing clerks and attendants had a list of the
suspended members of respondent Club as they were the ones on the frontline who directly deal with the members Worthy of reiterating herein is the following disquisition of the Court in Patula v. People[41] on hearsay evidence:
and would bear the penalty if they mistakenly allowed suspended members access to the services of respondent
To elucidate why the Prosecution's hearsay evidence was unreliable and untrustworthy, and thus devoid of
Club. There was also no proof that respondents actually ordered the highlighting of petitioner Catherine's name in the
probative value, reference is made to Section 36 of Rule 130, Rules of Court, a rule that states that a witness can
list and/or the posting of the list in the billing clerks' work stations; these could have been easily done by the billing
testify only to those facts that she knows of her personal knowledge; that is, which are derived from her own
clerks themselves on their own volition. Noticeably, there were also other names highlighted in the list, not just
perception, except as otherwise provided in the Rules of Court. The personal knowledge of a witness is a
petitioner Catherine's. In addition, the posting of the list of suspended members in conspicuous places in respondent
substantive prerequisite for accepting testimonial evidence that establishes the truth of a disputed fact. A witness
Club did not necessarily connote bad faith on the part of respondents because Section 33(a) of the By-Laws, which
bereft of personal knowledge of the disputed fact cannot be called upon for that purpose because her testimony
respondents misguidedly believed applied to this case, authorized the posting of such a list on the Clubhouse Bulletin
derives its value not from the credit accorded to her as a witness presently testifying but from the veracity and
Board.
competency of the extrajudicial source of her information.
The Court further affirms the Court of Appeals in not according weight and credence to Dacut's testimony that
In case a witness is permitted to testify based on what she has heard another person say about the facts in
respondents expressly ordered the trainers not to play with petitioners. Reproduced below are the pertinent portions
dispute, the person from whom the witness derived the information on the facts in dispute is not in
of Dacut's testimony:
court and under oath to be examined and cross-examined. The weight of such testimony then depends not upon
ATTY. CALMA:
the veracity of the witness but upon the veracity of the other person giving the information to the witness without
Q Now, was your playing tennis with [her] continuous?
oath. The information cannot be tested because the declarant is not standing in court as a witness and cannot,
A No, sir.
therefore, be cross-examined.
Q Why?
A The management of the Quezon City Sports Club directed or ordered us trainers not to play with Mrs. Ching. It is apparent, too, that a person who relates a hearsay is not obliged to enter into any particular, to answer any
question, to solve any difficulties, to reconcile any contradictions, to explain any obscurities, to remove any
Q Was it only Mrs. Ching? Did they say that you not [play] with Mrs. Ching only?
ambiguities; and that she entrenches herself in the simple assertion that she was told so, and leaves the burden
A The Ching family, sir. entirely upon the dead or absent author. Thus, the rule against hearsay testimony rests mainly on the ground that
Q Who relayed to you the order? there was no opportunity to cross-examine the declarant. The testimony may have been given under oath and
A The tennis attendant told us, sir, sa taas, but he does not want to mention the name. before a court of justice, but if it is offered against a party who is afforded no opportunity to cross-examine the
witness, it is hearsay just the same.
Q Who was this tennis attendant?
A Sonny Torres, sir.
Moreover, the theory of the hearsay rule is that when a human utterance is offered as evidence of the truth of the
Q When he said, taas, what does he meant by that? fact asserted, the credit of the assertor becomes the basis of inference, and, therefore, the assertion can be
A The tennis attendant was referring to the President. received as evidence only when made on the witness stand, subject to the test of cross-examination. However, if
an extrajudicial utterance is offered, not as an assertion to prove the matter asserted but without reference to the
Q Who is the President, do you know him?
truth of the matter asserted, the hearsay rule does not apply. For example, in a slander case, if a prosecution
A Antonio Chua.
witness testifies that he heard the accused say that the complainant was a thief, this testimony is admissible not to
Q Now, how did he tell you about this order? prove that the complainant was really a thief, but merely to show that the accused uttered those words. This kind
A He told the tennis attendant not to play with Mrs. Ching and were told to just hide in case Mrs. Ching arrives. of utterance is hearsay in character but is not legal hearsay. The distinction is, therefore, between (a) the fact that
Q So, if Mrs. Ching arrives to play tennis in the Club, what would you do considering this order? the statement was made, to which the hearsay rule does not apply, and (b) the truth of the facts asserted in the
statement, to which the hearsay rule applies.
A To run and to hide and not to play with Mrs. Ching.
Q Why? Section 36, Rule 130 of the Rules of Court is understandably not the only rule that explains why testimony that is
A According to the attendant, he said that once we play with Mrs. Ching, may paglalagyan kami. hearsay should be excluded from consideration. Excluding hearsay also aims to preserve the right of the opposing
party to cross-examine the original declarant claiming to have a direct knowledge of the transaction or occurrence.
Q Mr. Witness, do you know the reason why that order was issued?
If hearsay is allowed, the right stands to be denied because the declarant is not in court. It is then to be stressed
53
that the right to cross-examine the adverse party's witness, being the only means of testing the credibility of the question of whether or not exemplary damages should be awarded." Because petitioners herein failed to show
witnesses and their testimonies, is essential to the administration of justice. that they are entitled to moral damages, then the Court cannot award exemplary damages.
To address the problem of controlling inadmissible hearsay as evidence to establish the truth in a dispute while also As regards the award of attorney's fees, it is well-settled that it is the exception rather than the general rule.
safeguarding a party's right to cross-examine her adversary's witness, the Rules of Court offers two solutions. The Counsel's fees are not awarded every time a party prevails in a suit because of the policy that no premium should be
first solution is to require that all the witnesses in a judicial trial or hearing be examined only in court under oath or placed on the right to litigate. Attorney's fees, as part of damages, are not necessarily equated to the amount paid
affirmation. Section 1, Rule 132 of the Rules of Court formalizes this solution, viz.: by a litigant to a lawyer. In the ordinary sense, attorney's fees represent the reasonable compensation paid to a
Section 1. Examination to be done in open court. - The examination of witnesses presented in a trial or hearing lawyer by his client for the legal services he has rendered to the latter; while in its extraordinary concept, they may
shall be done in open court, and under oath or affirmation. Unless the witness is incapacitated to speak, or the be awarded by the court as indemnity for damages to be paid by the losing party to the prevailing party. Attorney's
question calls for a different mode of answer, the answers of the witness shall be given orally. fees, as part of damages, are awarded only in the instances specified in Article 2208 of the Civil Code.[45] As such, it
is necessary for the court to make findings of fact and law that would bring the case within the ambit of these
The second solution is to require that all witnesses be subject to the cross-examination by the adverse party. Section enumerated instances to justify the grant of such award, and in all cases it must be reasonable.[46] None of the
6, Rule 132 of the Rules of Court ensures this solution thusly: grounds stated in Article 2208 are present in the present case. As the Court held in Asian Terminals, Inc. v. Allied
Section 6. Cross-examination; its purpose and extent. - Upon the termination of the direct examination, the Guarantee Insurance, Co., Inc.,[47] "[a]lthough attorney's fees may be awarded when a claimant is 'compelled to
witness may be cross-examined by the adverse party as to any matters stated in the direct examination, or litigate with third persons or incur expenses to protect his interest' by reason of an unjustified act or omission on the
connected therewith, with sufficient fullness and freedom to test his accuracy and truthfulness and freedom from part of the party from whom it is sought, but when there is a lack of findings on the amount to be awarded, and
interest or bias, or the reverse, and to elicit all important facts bearing upon the issue. since there is no sufficient showing of bad faith in the defendant's refusal to pay other than an erroneous assertion of
the righteousness of its cause, attorney's fees cannot be awarded against the latter."
Although the second solution traces its existence to a Constitutional precept relevant to criminal cases, i.e., Section
14, (2), Article III, of the 1987 Constitution, which guarantees that: "In all criminal prosecutions, the accused shall x Even so, the Court deems it proper to award nominal damages to petitioners. Article 2221 of the Civil Code
x x enjoy the right x x x to meet the witnesses face to face x x x ," the rule requiring the cross-examination by the authorizes the award of nominal damages to a plaintiff whose right has been violated or invaded by the defendant,
adverse party equally applies to non-criminal proceedings. for the purpose of vindicating or recognizing that right, not for indemnifying the plaintiff for any loss suffered. The
Court may also award nominal damages in every case where a property right has been invaded. The amount of such
We thus stress that the rule excluding hearsay as evidence is based upon serious concerns about the trustworthiness
damages is addressed to the sound discretion of the court, taking into account the relevant circumstances. [48] For its
and reliability of hearsay evidence due to its not being given under oath or solemn affirmation and due to its not
failure to observe due process, as provided under Section 35(a) of the By-Laws, in the suspension of petitioner
being subjected to cross-examination by the opposing counsel to test the perception, memory, veracity and
Catherine's privileges, respondent Club is liable to pay petitioners nominal damages in the amount of P25,000.00.
articulateness of the out-of-court declarant or actor upon whose reliability the worth of the out-of-court statement
depends. (Citations omitted.) The Court clarifies that only respondent Club shall be liable for the nominal damages because in the absence of
malice and bad faith, officers of a corporation cannot be made personally liable for the liabilities of the corporation
In all, there was no evidence that respondents acted in bad faith by particularly singling out petitioners, from among
which, by legal fiction, has a personality separate and distinct from its officers, stockholders, and members.
all other members of respondent Club who did not pay the assessment, to be harassed or humiliated.
WHEREFORE, in view of the foregoing, the instant Petition is partly GRANTED. The Decision dated June 27, 2011 of
Considering that there was justifiable ground for the suspension of petitioner Catherine's privileges in respondent
the Court of Appeals in CA-G.R. CV No. 92293 is REVERSED and SET ASIDE. The respondent Quezon City Sports
Club, but her right to due process was violated as she was not afforded notice and hearing prior to the suspension,
Club, Inc. is ORDERED to pay petitioners Lorenzo Ching, Catherine Ching, Laurence Ching, and Christine Ching
the Court proceeds to determine the reliefs to which petitioners are entitled.
nominal damages in the amount of P25,000.00.
The elements for the award of moral damages in a case are: (1) an injury clearly sustained by the claimant; (2) a
culpable act or omission factually established; (3) a wrongful act or omission by the defendant as the proximate
cause of the injury sustained by the claimant; and (4) the award of damages predicated on any of the cases stated in
Article 2219 of the Civil Code.[42] Also, the person claiming moral damages must prove the existence of bad faith by
clear and convincing evidence, for the law always presumes good faith. It is not enough that one suffered sleepless
nights, mental anguish, and serious anxiety as the result of the actuations of the other party. Invariably, such action
must be shown to have been willfully done in bad faith or with ill motive.[43]
There being no clear and convincing evidence of respondents' bad faith in suspending petitioner Catherine's privileges
in respondent Club nor in implementing such suspension, petitioners are not entitled to moral damages. Since the
basis for moral damages has not been established, there is no basis to recover exemplary damages and attorney's
fees, as well.[44]
Under Article 2229 of the Civil Code, "[e]xemplary or corrective damages are imposed, by way of example or
correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages." Article
2234 of the same Code further provides that "[w]hile the amount of the exemplary damages need not be proven, the
plaintiff must show that he is entitled to moral, temperate or compensatory damages before the court may consider
54
On December 29, 1994, the petitioners filed a complaint17 for collection of sum of money with application for
preliminary attachment against Arma Traders, Tan, Uy, Ting, Gui, and Ng.
G.R. No.176897 December 11, 2013 Claims of the petitioners
ADVANCE PAPER CORPORATION and GEORGE HAW, in his capacity as President of Advance Paper The petitioners claimed that the respondents fraudulently issued the postdated checks as payment for the purchases
Corporation, Petitioners, and loan transactions knowing that they did not have sufficient funds with the drawee banks.18
vs.
ARMA TRADERS CORPORATION, MANUEL TING, CHENG GUI and BENJAMIN NG, Respondents. To prove the purchases on credit, the petitioners presented the summary of the transactions and their
corresponding sales invoices as their documentary evidence.19
x-------------------------------------------------x
During the trial, Haw also testified that within one or two weeks upon delivery of the paper products, Arma Traders
ANTONIO TAN and UY SENG KEE WILLY, Respondents. paid the purchases in the form of postdated checks. Thus, he personally collected these checks on Saturdays and
upon receiving the checks, he surrendered to Arma Traders the original of the sales invoices while he retained the
duplicate of the invoices.20
Before us is a Petition for Review1 seeking to set aside the Decision of the Court of Appeals (CA) in CA-G.R. CV No.
71499 dated March 31, 2006 and the Resolution dated March 7, 2007.2 The Decision reversed and set aside the
ruling of the Regional Trial Court (RTC) of Manila, Branch 18 in Civil Case No. 94-72526 which ordered Arma Traders To prove the loan transactions, the petitioners presented the copies of the checks21 which Advance Paper issued in
Corporation (Arma Traders) to pay Advance Paper Corporation (Advance Paper) the sum of ₱15,321,798.25 with favor of Arma Traders. The petitioners also filed a manifestation22 dated June 14, 1995, submitting a bank statement
interest, and ₱1,500,000.00 for attorney’s fees, plus the cost of the suit.3 from Metrobank EDSA Kalookan Branch. This was to show that Advance Paper’s credit line with Metrobank has been
transferred to the account of Arma Traders as payee from October 1994 to December 1994.
Petitioner Advance Paper is a domestic corporation engaged in the business of producing, printing, manufacturing,
distributing and selling of various paper products.4 Petitioner George Haw (Haw) is the President while his wife, Moreover, Haw testified to prove the loan transactions. When asked why he considered extending the loans without
Connie Haw, is the General Manager.5 any collateral and loan agreement or promissory note, and only on the basis of the issuance of the postdated checks,
he answered that it was because he trusted Arma Traders since it had been their customer for a long time and that
none of the previous checks ever bounced.23
Respondent Arma Traders is also a domestic corporation engaged in the wholesale and distribution of school and
office supplies, and novelty products.6 Respondent Antonio Tan (Tan) was formerly the President while respondent Uy
Seng Kee Willy (Uy) is the Treasurer of Arma Traders. 7 They represented Arma Traders when dealing with its Claims of the respondents
supplier, Advance Paper, for about 14 years.8
The respondents argued that the purchases on credit were spurious, simulated and fraudulent since there was no
On the other hand, respondents Manuel Ting, Cheng Gui and Benjamin Ng worked for Arma Traders as Vice- delivery of the ₱7,000,000.00 worth of notebooks and other paper products.24
President, General Manager and Corporate Secretary, respectively.9
During the trial, Ng testified that Arma Traders did not purchase notebooks and other paper products from
On various dates from September to December 1994, Arma Traders purchased on credit notebooks and other paper September to December 1994. He claimed that during this period, Arma Traders concentrated on Christmas items,
products amounting to ₱7,533,001.49 from Advance Paper. 10 not school and office supplies. He also narrated that upon learning about the complaint filed by the petitioners, he
immediately looked for Arma Traders’ records and found no receipts involving the purchases of notebooks and other
paper products from Advance Paper.25
Upon the representation of Tan and Uy, Arma Traders also obtained three loans from Advance Paper in November
1994 in the amounts of ₱3,380,171.82, ₱1,000,000.00, and ₱3,408,623.94 or a total of ₱7,788,796.76. 11 Arma
Traders needed the loan to settle its obligations to other suppliers because its own collectibles did not arrive on As to the loan transactions, the respondents countered that these were the personal obligations of Tan and Uy to
time.12 Because of its good business relations with Arma Traders, Advance Paper extended the loans.13 Advance Paper. These loans were never intended to benefit the respondents.
As payment for the purchases on credit and the loan transactions, Arma Traders issued 82 postdated The respondents also claimed that the loan transactions were ultra vires because the board of directors of Arma
checks14 payable to cash or to Advance Paper. Tan and Uy were Arma Traders’ authorized bank signatories who Traders did not issue a board resolution authorizing Tan and Uy to obtain the loans from Advance Paper. They
signed and issued these checks which had the aggregate amount of ₱15,130,636.87.15 claimed that the borrowing of money must be done only with the prior approval of the board of directors because
without the approval, the corporate officers are acting in excess of their authority or ultra vires. When the acts of the
corporate officers are ultra vires, the corporation is not liable for whatever acts that these officers committed in
Advance Paper presented the checks to the drawee bank but these were dishonored either for "insufficiency of funds"
excess of their authority. Further, the respondents claimed that Advance Paper failed to verify Tan and Uy’s authority
or "account closed." Despite repeated demands, however, Arma Traders failed to settle its account with Advance
to transact business with them. Hence, Advance Paper should suffer the consequences.26
Paper.16
55
The respondents accused Tan and Uy for conspiring with the petitioners to defraud Arma Traders through a series of Arma Traders appealed the RTC decision to the CA.
transactions known as rediscounting of postdated checks. In rediscounting, the respondents explained that Tan and
Uy would issue Arma Traders’ postdated checks to the petitioners in exchange for cash, discounted by as much as The CA Ruling
7% to 10% depending on how long were the terms of repayment. The rediscounted percentage represented the
interest or profit earned by the petitioners in these transactions.27
The CA held that the petitioners failed to prove by preponderance of evidence the existence of the purchases on
credit and loans based on the following grounds:
Tan did not file his Answer and was eventually declared in default. First, Arma Traders was not liable for the loan in the absence of a board resolution authorizing Tan and Uy to
obtain the loan from Advance Paper.39 The CA acknowledged that Tan and Uy were Arma Traders’ authorized bank
On the other hand, Uy filed his Answer28 dated January 20, 1995 but was subsequently declared in default upon his signatories. However, the CA explained that this is not sufficient because the authority to sign the checks is
failure to appear during the pre-trial. In his Answer, he admitted that Arma Traders together with its corporate different from the required authority to contract a loan.40
officers have been transacting business with Advance Paper.29 He claimed that he and Tan have been authorized by Second, the CA also held that the petitioners presented incompetent and inadmissible evidence to prove the
the board of directors for the past 13 years to issue checks in behalf of Arma Traders to pay its obligations with purchases on credit since the sales invoices were hearsay. 41 The CA pointed out that Haw’s testimony as to the
Advance Paper.30 Furthermore, he admitted that Arma Traders’ checks were issued to pay its contractual identification of the sales invoices was not an exception to the hearsay rule because there was no showing that the
obligations with Advance Paper.31 However, according to him, Advance Paper was informed beforehand that Arma secretaries who prepared the sales invoices are already dead or unable to testify as required by the Rules of
Traders’ checks were funded out of the ₱20,000,000.00 worth of collectibles coming from the provinces. Court.42 Further, the CA noted that the secretaries were not identified or presented in court.43
Unfortunately, the expected collectibles did not materialize for unknown reasons.32 Third, the CA ruling heavily relied on Ng’s Appellant’s Brief44 which made the detailed description of the "badges of
fraud." The CA averred that the petitioners failed to satisfactorily rebut the badges of fraud 45 which include the
Ng filed his Answer33 and claimed that the management of Arma Traders was left entirely to Tan and Uy. Thus, he inconsistencies in:
never participated in the company’s daily transactions.34 (1) "Exhibit E-26," a postdated check, which was allegedly issued in favor of Advance Paper but turned out to be
a check payable to Top Line, Advance Paper’s sister company;46
(2) "Sale Invoice No. 8946," an evidence to prove the existence of the purchases on credit, whose photocopy
Atty. Ernest S. Ang, Jr. (Atty. Ang), Arma Traders’ Vice-President for Legal Affairs and Credit and Collection, testified failed to reflect the amount stated in the duplicate copy,47 and;
that he investigated the transactions involving Tan and Uy and discovered that they were financing their own (3) The SEC report of Advance Paper for the year ended 1994 reflected its account receivables amounting to
business using Arma Traders’ resources. He also accused Haw for conniving with Tan and Uy in fraudulently making ₱219,705.19 only – an amount far from the claimed ₱15,321,798.25 receivables from Arma Traders.48
Arma Traders liable for their personal debts. He based this conclusion from the following: First, basic human
experience and common sense tell us that a lender will not agree to extend additional loan to another person who
already owes a substantial sum from the lender – in this case, petitioner Advance Paper. Second, there was no other Hence, the CA set aside the RTC’s order for Arma Traders to pay Advance Paper the sum of ₱15,321,798.25,
document proving the existence of the loan other than the postdated checks. Third, the total of the purchase and ₱1,500,000.00 for attorney’s fees, plus cost of suit.49 It affirmed the RTC decision dismissing the complaint against
loan transactions vis-à-vis the total amount of the postdated checks did not tally. Fourth, he found out that the respondents Tan, Uy, Ting, Gui and Ng.50 The CA also directed the petitioners to solidarily pay each of the
certified true copy of Advance Paper’s report with the Securities and Exchange Commission (SEC report) did not respondents their counterclaims of ₱250,000.00 as moral damages, ₱250,000.00 as exemplary damages, and
reflect the ₱15,000,000.00 collectibles it had with Arma Traders.35 ₱250,000.00 as attorney’s fees.51
Atty. Ang also testified that he already filed several cases of estafa and qualified theft 36 against Tan and Uy and that The Petition
several warrants of arrest had been issued against them.
The petitioners raise the following arguments.
In their pre-trial brief,37 the respondents named Sharow Ong, the secretary of Tan and Uy, to testify on how Tan and
Uy conspired with the petitioners to defraud Arma Traders. However, the respondents did not present her on the First, Arma Traders led the petitioners to believe that Tan and Uy had the authority to obtain loans since the
witness stand. respondents left the active and sole management of the company to Tan and Uy since 1984. In fact, Ng testified that
Arma Traders’ stockholders and board of directors never conducted a meeting from 1984 to 1995. Therefore, if the
The RTC Ruling respondents’ position will be sustained, they will have the absurd power to question all the business transactions of
Arma Traders.52 Citing Lipat v. Pacific Banking Corporation, 53 the petitioners said that if a corporation knowingly
permits one of its officers or any other agent to act within the scope of an apparent authority, it holds him out to the
On June 18, 2001, the RTC ruled that the purchases on credit and loans were sufficiently proven by the petitioners. public as possessing the power to do those acts; thus, the corporation will, as against anyone who has in good faith
Hence, the RTC ordered Arma Traders to pay Advance Paper the sum of ₱15,321,798.25 with interest, and dealt with it through such agent, be estopped from denying the agent’s authority.
₱1,500,000.00 for attorney’s fees, plus the cost of the suit.
Second, the petitioners argue that Haw’s testimony is not hearsay. They emphasize that Haw has personal
The RTC held that the respondents failed to present hard, admissible and credible evidence to prove that the sale knowledge of the assailed purchases and loan transactions because he dealt with the customers, and supervised and
invoices were forged or fictitious, and that the loan transactions were personal obligations of Tan and Uy. directed the preparation of the sales invoices and the deliveries of the goods. 54 Moreover, the petitioners stress that
Nonetheless, the RTC dismissed the complaint against Tan, Uy, Ting, Gui and Ng due to the lack of evidence showing the respondents never objected to the admissibility of the sales invoices on the ground that they were hearsay.55
that they bound themselves, either jointly or solidarily, with Arma Traders for the payment of its account.38
56
Third, the petitioners dispute the CA’s findings on the existence of the badges of fraud. The petitioners countered: II. Whether the petition for review should be dismissed on the ground of failure to file the motion for
(1) The discrepancies between the figures in the 15 out of the 96 photocopies and duplicate originals of the sales reconsideration with the CA on time.
invoices amounting to ₱4,624.80 – an insignificant amount compared to the total purchases of III. Whether Arma Traders is liable to pay the loans applying the doctrine of apparent authority.
₱7,533,001.49 – may have been caused by the failure to put the carbon paper. 56 Besides, the remaining 81 IV. Whether the petitioners proved Arma Traders’ liability on the purchases on credit by preponderance of
sales invoices are uncontroverted. The petitioners also raise the point that this discrepancy is a nonissue evidence.
because the duplicate originals were surrendered in the RTC.57
(2) The respondents misled Haw during the cross-examination and took his answer out of context. 58 The petitioners The Court's Ruling
argue that this maneuver is insufficient to discredit Haw’s entire testimony.59
(3) Arma Traders should be faulted for indicating Top Line as the payee in Exhibit E-26 or PBC check no. 091014.
Moreover, Exhibit E-26 does not refer to PBC check no. 091014 but to PBC check no. 091032 payable to the order We grant the petition.
of cash.60
(4) The discrepancy in the total amount of the checks which is ₱15,130,363.87 as against the total obligation The procedural issues.
of ₱15,321,798.25 does not necessarily prove that the transactions are spurious.61
(5) The difference in Advance Paper’s accounts receivables in the SEC report and in Arma Traders’ obligation with First, the respondents correctly cited A.M. No. 02-8-13-SC dated February 19, 2008 which refer to the amendment of
Advance Paper was based on non-existent evidence because Exhibit 294-NG does not pertain to any balance
the 2004 Rules on Notarial Practice. It deleted the Community Tax Certificate among the accepted proof of identity of
sheet.62 Moreover, the term "accounts receivable" is not synonymous with "cause of action." The respondents the affiant because of its inherent unreliability. The petitioners violated this when they used Community Tax
cannot escape their liability by simply pointing the SEC report because the petitioners have established their cause
Certificate No. 05730869 in their Petition for Review.73 Nevertheless, the defective jurat in the
of action – that the purchases on credit and loan transactions took place, the respondents issued the dishonored Verification/Certification of Non-Forum Shopping is not a fatal defect because it is only a formal, not a jurisdictional,
checks to cover their debts, and they refused to settle their obligation with Advance Paper.63
requirement that the Court may waive.74 Furthermore, we cannot simply ignore the millions of pesos at stake in this
case. To do so might cause grave injustice to a party, a situation that this Court intends to avoid.
The Case for the Respondents
Second, no less than the CA itself waived the rules on the period to file the motion for reconsideration. A review of
The respondents argue that the Petition for Review should be dismissed summarily because of the following the CA Resolution75 dated March 7, 2007, reveals that the petitioners’ Motion for Reconsideration was denied because
procedural grounds: first, for failure to comply with A.M. No. 02-8-13-SC; 64 and second, the CA decision is already the allegations were a mere rehash of what the petitioners earlier argued – not because the motion for
final and executory since the petitioners filed their Motion for Reconsideration out of time. They explain that under reconsideration was filed out of time.
the rules of the CA, if the last day for filing of any pleading falls on a Saturday not a holiday, the same must be filed
on said Saturday, as the Docket and Receiving Section of the CA is open on a Saturday.65
The substantive issues.
The respondents argue that while as a general rule, a corporation is estopped from denying the authority of its Arma Traders is liable to pay the loans on the basis of the doctrine of apparent authority.
agents which it allowed to deal with the general public; this is only true if the person dealing with the agent dealt in
good faith.66 In the present case, the respondents claim that the petitioners are in bad faith because the petitioners
connived with Tan and Uy to make Arma Traders liable for the non-existent deliveries of notebooks and other paper The doctrine of apparent authority provides that a corporation will be estopped from denying the agent’s authority if
products.67 They also insist that the sales invoices are manufactured evidence.68 it knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, and it
holds him out to the public as possessing the power to do those acts. 76 The doctrine of apparent authority does not
apply if the principal did not commit any acts or conduct which a third party knew and relied upon in good faith as a
As to the loans, the respondents aver that these were Tan and Uy’s personal obligations with Advance
result of the exercise of reasonable prudence. Moreover, the agent’s acts or conduct must have produced a change of
Paper.69 Moreover, while the three cashier’s checks were deposited in the account of Arma Traders, it is likewise true position to the third party’s detriment.77
that Tan and Uy issued Arma Traders’ checks in favor of Advance Paper. All these checks are evidence of Tan, Uy and
Haw’s systematic conspiracy to siphon Arma Traders corporate funds.70
In Inter-Asia Investment Industries v. Court of Appeals,78 we explained:
Under this provision [referring to Sec. 23 of the Corporation Code], the power and responsibility to decide whether
The respondents also seek to discredit Haw’s testimony on the basis of the following. First, his testimony as regards
the corporation should enter into a contract that will bind the corporation is lodged in the board, subject to the
the sales invoices is hearsay because he did not personally prepare these documentary evidence. 71 Second, Haw articles of incorporation, bylaws, or relevant provisions of law. However, just as a natural person who may
suspiciously never had any written authority from his own Board of Directors to lend money. Third, the respondents
authorize another to do certain acts for and on his behalf, the board of directors may validly delegate
also questioned why Advance Paper granted the ₱7,000,000.00 loan without requiring Arma Traders to present any some of its functions and powers to officers, committees or agents. The authority of such individuals to
collateral or guarantees.72
bind the corporation is generally derived from law, corporate bylaws or authorization from the board,
either expressly or impliedly by habit, custom or acquiescence in the general course of business, viz.:
The Issues A corporate officer or agent may represent and bind the corporation in transactions with third persons to the
extent that [the] authority to do so has been conferred upon him, and this includes powers as, in the usual
The main procedural and substantive issues are: course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred,
I. Whether the petition for review should be dismissed for failure to comply with A.M. No. 02-8-13-SC.
57
powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent The respondents failed to object to the admissibility of the sales invoices on the ground that they are
powers as the corporation has caused person dealing with the officer or agent to believe that it has conferred. hearsay
[A]pparent authority is derived not merely from practice. Its existence may be ascertained The rule is that failure to object to the offered evidence renders it admissible, and the court cannot, on its own,
through (1) the general manner in which the corporation holds out an officer or agent as having the power to act disregard such evidence.85 When a party desires the court to reject the evidence offered, it must so state in the form
or, in other words the apparent authority to act in general, with which it clothes him; or (2) the acquiescence of a timely objection and it cannot raise the objection to the evidence for the first time on appeal. Because of a
in his acts of a particular nature, with actual or constructive knowledge thereof, within or beyond the party’s failure to timely object, the evidence becomes part of the evidence in the case. Thereafter, all the parties are
scope of his ordinary powers. It requires presentation of evidence of similar act(s) executed either in considered bound by any outcome arising from the offer of evidence properly presented.86
its favor or in favor of other parties. It is not the quantity of similar acts which establishes apparent
authority, but the vesting of a corporate officer with the power to bind the corporation. [emphases and In Heirs of Policronio M. Ureta, Sr. v. Heirs of Liberato M. Ureta,87 however, we held:
underscores ours] [H]earsay evidence whether objected to or not cannot be given credence for having no probative
value.1âwphi1 This principle, however, has been relaxed in cases where, in addition to the failure to object to the
In People’s Aircargo and Warehousing Co., Inc. v. Court of Appeals, 79 we ruled that the doctrine of apparent admissibility of the subject evidence, there were other pieces of evidence presented or there were other
authority is applied when the petitioner, through its president Antonio Punsalan Jr., entered into the First Contract circumstances prevailing to support the fact in issue. (emphasis and underscore ours; citation omitted)
without first securing board approval. Despite such lack of board approval, petitioner did not object to or repudiate
said contract, thus "clothing" its president with the power to bind the corporation. We agree with the respondents that with respect to the identification of the sales invoices, Haw’s testimony was
hearsay because he was not present during its preparation88 and the secretaries who prepared them were not
"Inasmuch as a corporate president is often given general supervision and control over corporate operations, the presented to identify them in court. Further, these sales invoices do not fall within the exceptions to the hearsay rule
strict rule that said officer has no inherent power to act for the corporation is slowly giving way to the realization even under the "entries in the course of business" because the petitioners failed to show that the entrant was
that such officer has certain limited powers in the transaction of the usual and ordinary business of the deceased or was unable to testify.89
corporation."80 "In the absence of a charter or bylaw provision to the contrary, the president is presumed
to have the authority to act within the domain of the general objectives of its business and within the But even though the sales invoices are hearsay, nonetheless, they form part of the records of the case for the
scope of his or her usual duties."81 respondents’ failure to object as to the admissibility of the sales invoices on the ground that they are
hearsay.90 Based on the records, the respondents through Ng objected to the offer "for the purpose [to] which they
In the present petition, we do not agree with the CA’s findings that Arma Traders is not liable to pay the loans due are being offered" only – not on the ground that they were hearsay.91
to the lack of board resolution authorizing Tan and Uy to obtain the loans. To begin with, Arma Traders’ Articles of
Incorporation82 provides that the corporation may borrow or raise money to meet the financial requirements The petitioners have proven theirclaims for the unpaid purchases on credit by preponderance of
of its business by the issuance of bonds, promissory notes and other evidence of indebtedness. Likewise, it evidence.
states that Tan and Uy are not just ordinary corporate officers and authorized bank signatories because they are
also Arma Traders’ incorporators along with respondents Ng and Ting, and Pedro Chao. Furthermore, the
respondents, through Ng who is Arma Traders’ corporate secretary, incorporator, stockholder and director, testified We are not convinced by the respondents’ argument that the purchases are spurious because no less than
that the sole management of Arma Traders was left to Tan and Uy and that he and the other officers Uy admitted that all the checks issued were in payments of the contractual obligations of the Arma
never dealt with the business and management of Arma Traders for 14 years. He also confirmed that Traders with Advance Paper. 92 Moreover, there are other pieces of evidence to prove the existence of the
since 1984 up to the filing of the complaint against Arma Traders, its stockholders and board of purchases other than the sales invoices themselves. For one, Arma Traders’ postdated checks evince the existence of
directors never had its meeting.83 the purchases on credit. Moreover, Haw testified that within one or two weeks, Arma Traders paid the purchases in
the form of postdated checks. He personally collected these checks on Saturdays and upon receiving the checks, he
surrendered to Arma Traders the original of the sales invoices while he retained the duplicate of the invoices.93
Thus, Arma Traders bestowed upon Tan and Uy broad powers by allowing them to transact with third persons
without the necessary written authority from its non-performing board of directors. Arma Traders failed to take
precautions to prevent its own corporate officers from abusing their powers. Because of its own laxity in its business The respondents attempted to impugn the credibility of Haw by pointing to the inconsistencies they can find from the
dealings, Arma Traders is now estopped from denying Tan and Uy’s authority to obtain loan from Advance Paper. transcript of stenographic notes. However, we are not persuaded that these inconsistencies are sufficiently pervasive
to affect the totality of evidence showing the general relationship between Advance Paper and Arma Traders.
We also reject the respondents’ claim that Advance Paper, through Haw, connived with Tan and Uy. The records do
not contain any evidence to prove that the loan transactions were personal to Tan and Uy. A different conclusion Additionally, the issue of credibility of witnesses is to be resolved primarily by the trial court because it is in the
might have been inferred had the cashier’s checks been issued in favor of Tan and Uy, and had the postdated checks better position to assess the credibility of witnesses as it heard the testimonies and observed the deportment and
in favor of Advance Paper been either Tan and/or Uy’s, or had the respondents presented convincing evidence to manner of testifying of the witnesses. Accordingly, its findings are entitled to great respect and will not be disturbed
show how Tan and Uy conspired with the petitioners to defraud Arma Traders. 84 We note that the respondents on appeal in the absence of any showing that the trial court overlooked, misunderstood, or misapplied some facts or
initially intended to present Sharow Ong, the secretary of Tan and Uy, to testify on how Advance Paper connived with circumstances of weight and substance which would have affected the result of the case.94
Tan and Uy. As mentioned, the respondents failed to present her on the witness stand.
58
In the present case, the RTC judge took into consideration the substance and the manner by which Haw answered
each propounded questions to him in the witness stand. Hence, the minor inconsistencies in Haw’s testimony
notwithstanding, the RTC held that the respondents claim that the purchase and loan transactions were spurious is
"not worthy of serious consideration." Besides, the respondents failed to convince us that the RTC judge overlooked,
misunderstood, or misapplied some facts or circumstances of weight and substance which would have affected the
result of the case.
On the other hand, we agree with the petitioners that the discrepancies in the photocopy of the sales invoices and its
duplicate copy have been sufficiently explained. Besides, this is already a non-issue since the duplicate copies were
[ G.R. No. 221771, September 18, 2019 ]
surrendered in the RTC.95 Furthermore, the fact that the value of Arma Traders' checks does not tally with the total
amount of their obligation with Advance Paper is not inconsistent with the existence of the purchases and loan
transactions. TERP CONSTRUCTION CORPORATION, PETITIONER, V. BANCO FILIPINO SAVINGS AND MORTGAGE BANK,
RESPONDENT.
As against the case and the evidence Advance Paper presented, the respondents relied on the core theory of an
alleged conspiracy between Tan, Uy and Haw to defraud Arma Traders. However, the records are bereft of supporting A corporation's repeated payment of an allegedly unauthorized obligation contracted by one (1) of its officers
evidence to prove the alleged conspiracy. Instead, the respondents simply dwelled on the minor inconsistencies from effectively ratifies that corporate officer's allegedly unauthorized act.
the petitioners' evidence that the respondents appear to have magnified. From these perspectives, the
preponderance of evidence thus lies heavily in the petitioners' favor as the RTC found. For this reason, we find the This Court resolves a Petition for Review on Certiorari1 assailing the Decision2 and Resolution3 of the Court of
petition meritorious. Appeals, which reversed and set aside the Regional Trial Court Decision and ordered Terp Construction Corporation
(Terp Construction) to pay Banco Filipino Savings and Mortgage Bank (Banco Filipino) interest differentials of
WHEREFORE, premises considered, we GRANT the petition. The decision dated March 31, 2006 and the resolution P18,104,431.33.
dated March 7, 2007 of the Court of Appeals in CA-G.R. CV No. 71499 are REVERSED and SET ASIDE. The Regional
Trial Court decision in Civil Case No. 94-72526 dated June 18, 2001 is REINSTATED. No costs. Sometime in 1995, Terp Construction planned to develop a housing project called the Margarita Eastville and a
condominium called Margarita Plaza. To finance the projects, Terp Construction, Home Insurance Guaranty
Corporation, and Planters Development Bank (Planters Bank) agreed to raise funds through the issuance of bonds
worth P400 million called the Margarita Project Participation Certificates (Margarita Bonds).4
The three (3) companies entered into a Contract of Guaranty in which they agreed that Terp Construction would sell
the Margarita Bonds and convey the funds generated into an asset pool named the Margarita Asset Pool Formation
and Trust Agreement. Planters Bank, as trustee, would be the custodian of the assets in the asset pool with the
corresponding obligation to pay the interests and redeem the bonds at maturity. Home Insurance Guaranty
Corporation, as guarantor, would pay investors the value of the bond at maturity plus 8.5% interest per year.5
Banco Filipino purchased Margarita Bonds for P100 million. It asked for additional interest other than the guaranteed
8.5% per annum, based on the letters dated February 3, 1997 and April 8, 1997 written by Terp Construction Senior
Vice President Alberto Escalona (Escalona).6
Terp Construction began constructing Margarita Eastville and Margarita Plaza. After the economic crisis in 1997,
however, it suffered unrealized income and could not proceed with the construction.7
When the Margarita Bonds matured, the funds in the asset pool were insufficient to pay the bond holders. Pursuant
to the Contract of Guaranty, Planters Bank conveyed the asset pool funds to Home Insurance Guaranty Corporation,
which then paid Banco Filipino interest earnings of 8.5% per year. Banco Filipino, however, sent Terp Construction a
demand letter dated January 31, 2001, alleging that it was entitled to a 15.5% interest on its investment and that as
of July 1, 2001, it was entitled to a seven percent (7%) remaining unpaid interest of P 18,104,431.33.8 Terp
Construction refused to pay the demanded interest.9
Terp Construction filed a Complaint for declaration of nullity of interest, damages, and attorney's fees against Banco
Filipino. It alleged that it only agreed to pay the seven percent (7%) additional interest on the condition that all the
59
asset pool funds would be released to Terp Construction for it to pay the additional interest. However, it could not Petitioner also argues that it was not liable for the payment of interest differentials since there was no written
have paid the additional interest since the funds of the asset pool were never released to it.10 contract between the parties on any additional payment beyond the stipulated 8.5%.24 It asserts that Escalona's
acts as then senior vice president cannot bind the corporation since he was not authorized to make such
Banco Filipino, on the other hand, alleged that it was induced into buying the Margarita Bonds after Terp commitments.25 It also points out that its erroneous payment of additional interest over the agreed interest of 8.5%
Construction, through its senior vice president's letters, committed to pay 15.5% interest on a P50 million bond that cannot be interpreted as a ratification of its senior vice president's acts because it was never obligated itself to pay in
Banco Filipino held for a client and 16.5% interest on a P50 million bond it held for another client. It alleged that Terp the first place.26
Construction paid the additional interest twice during the Margarita Bonds' holding period.11
Respondent, on the other hand, counters that conflicting findings of fact between the trial court and the Court of
Banco Filipino claimed that in September 1998, after no payment of interest on the bonds had been made, Planters Appeals do not automatically grant petitioner an exception to the general rule in Rule 45 of the Rules of Court.27 It
Bank called on the guaranty of Home Insurance Guaranty Corporation, which only paid 8.5% interest instead of the contends that there was overwhelming evidence that petitioner agreed to pay respondent interest differentials in
15.5% and 16.5% interests that Terp Construction had committed to pay. Thus, it demanded the interest view of the two (2) letters from Escalona.28 It maintains that Escalona's acts as then senior vice president were
differentials, but to no avail.12 subsequently ratified by the Board of Directors when petitioner paid respondent additional interests during the
Margarita Bonds' term.29
Banco Filipino further alleged that it investigated the cause of default and found that it was because Terp
Construction was unable to finish the Margarita projects. It also found that despite raising P400 million from the In rebuttal, petitioner insists that no agreement existed from the very beginning to pay these interest differentials
bonds, only P39 million was actually used for the projects. It alleged that as of November 30, 2001, the unpaid since the two (2) letters of its then senior vice president were merely offers made in a contract's negotiation stage
interest differentials already amounted to P29,932,827.71.13 that was not perfected.30 It maintains that respondent, as bank accorded with a higher standard of diligence, cannot
merely rely on the legal precept of apparent authority to prove the existence of a monetary obligation.31
On May 29, 2010, the Regional Trial Court issued a Decision in favor of Terp Construction. It found that there was no
evidence to show that Terp Construction was obligated to pay the interest differentials, and that the act of Escalona, This Court is asked to resolve the issue of whether or not the Court of Appeals erred in ruling that petitioner Terp
the senior vice president, were not binding on the corporation since they were not ratified.14 Construction Corporation expressly agreed to be bound to respondent Banco Filipino Savings Mortgage Bank for
additional interest in the bonds it purchased.
Banco Filipino appealed before the Court of Appeals, arguing, among others, that the two (2) letters sent by Escalona
were sufficient evidence to prove that Terp Construction committed to pay the interest differentials.15 Before resolving this issue, however, this Court must first pass upon the procedural issue of whether or not factual
questions are proper in this case in view of the conflicting factual findings of the Regional Trial Court and the Court of
Appeals.
On October 16, 2014, the Court of Appeals rendered a Decision16 setting aside the Regional Trial Court Decision and
ordering Terp Construction to pay Banco Filipino interest differentials of P18,104,431.33.17
The Petition is denied.
According to the Court of Appeals, both parties agreed that Terp Construction would pay Banco Filipino additional
interest other than the guaranteed 8.5%. The only issue was Terp Construction's allegation that the payment of this As a general rule, only questions of law may be brought in a petition for review on certiorari under Rule 45 of the
additional interest was subject to a condition that the asset pool funds would be released to Terp Construction.18 Rules of Court.32 This Court will not disturb the factual findings of the lower courts if they are supported by
substantial evidence.33 There are, of course, recognized exceptions to this rule, which are provided in Medina v.
Mayor Asistio, Jr.:34
The Court of Appeals, however, found that from the February 3, 1997 and April 8, 1997 letters of Terp Construction (1) When the conclusion is a finding grounded entirely on speculation, surmises or conjectures; (2) When the
to Banco Filipino, the obligation to pay 16.5% and 15.5% interest was a pure obligation since the condition alleged inference made is manifestly mistaken, absurd or impossible; (3) Where there is a grave abuse of discretion; (4)
was never mentioned.19 When the judgment is based on a misapprehension of facts; (5) When the findings of fact are conflicting; (6) When
the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the
The Court of Appeals also found unmeritorious Terp Construction's defense that the letters were unauthorized acts of admissions of both appellant and appellee; (7) The findings of the Court of Appeals are contrary to those of the trial
Escalona, its then senior vice president, since his acts were ratified when Terp Construction paid interest differentials court; (8) When the findings of fact are conclusions without citation of specific evidence on which they are based;
twice to Banco Filipino during the Margarita Bonds' holding period.20 (9) When the facts set forth in the petition as well as in the petitioners' main and reply briefs are not disputed by
the respondents; and (10) The finding of fact of the Court of Appeals is premised on the supposed absence of
Terp Construction filed a Motion for Reconsideration, but this was denied in a December 9, 2015 evidence and is contradicted by the evidence on record.35 (Citations omitted)
Resolution.21 Hence, this Petition22 was filed.
However, a party cannot merely claim that its case falls under any of the exceptions to the general rule. In Pascual v.
Petitioner submits that while a petition under Rule 45 of the Rules of Court is generally limited to questions of law, its Burgos,36 this Court explained that the party claiming the exception "must demonstrate and prove"37 that a review
of the factual findings is necessary.
case falls under one (1) of the recognized exceptions since the factual findings of the trial court and the Court of
Appeals are conflicting.23
Here, petitioner claims that its case falls under the exceptions since the factual findings of the trial court are in
conflict with the factual findings of the Court of Appeals.38 The Court of Appeals' reversal of the trial court's factual
60
findings, however, is not sufficient reason to warrant this Court's review. In Uniland Resources v. Development Bank Escalona likewise had apparent authority to transact on behalf of petitioner. In Yao Ka Sin Trading v. Court of
of the Philippines:39 Appeals:48
It bears emphasizing that mere disagreement between the Court of . Appeals and the trial court as to the facts of a The rule is of course settled that "[a]lthough an officer or agent acts without, or in excess of, his actual authority if
case does not of itself warrant this Court's review of the same. It has been held that the doctrine that the findings he acts within the scope of an apparent authority with which the corporation has clothed him by holding him out or
of fact made by the Court of Appeals, being conclusive in nature, are binding on this Court, applies even if the permitting him to appear as having such authority, the corporation is bound thereby in favor of a person who deals
Court of Appeals was in disagreement with the lower court as to the weight of evidence with a consequent reversal with him in good faith in reliance on such apparent authority, as where an officer is allowed to exercise a particular
of its findings of fact, so long as the findings of the Court of Appeals are borne out by the record or based on authority with respect to the business, or a particular branch of its continuously and publicly, for a considerable
substantial evidence. While the foregoing doctrine is not absolute, petitioner has not sufficiently proved that his time."49
case falls under the known exceptions.40
Apparent authority is ascertained through:
The Court of Appeals is a trier of facts. Its factual findings, even if contradictory to those of the trial court, may be (1) the general manner by which the corporation holds out an officer or agent as having power to act or, in other
binding on this Court when they are supported by substantial evidence. Pascual explains: words, the apparent authority with which it clothes him to act in general, or (2) the acquiescence in his acts of a
The Court of Appeals, acting as an appellate court, is still a trier of facts. Parties can raise questions of fact before particular nature, with actual or constructive knowledge thereof, whether within or without the scope of his
the Court of Appeals and it will have jurisdiction to rule on these matters. Otherwise, if only questions of law are ordinary powers.50 (Citation omitted)
raised, the appeal should be filed directly before this court.41
Here, respondent relied on Escalona's apparent authority to promise interest payments over and above the
In any case, there was no error in the factual findings of the Court of Appeals. Petitioner categorically committed guaranteed 8.5%, considering that Escalona was petitioner's then senior vice president. His apparent authority was
itself to pay respondent over and above the guaranteed interest of 8.5% per annum. further demonstrated by petitioner paying respondent what Escalona promised during the Margarita Bonds' term.
Relevant portions of the letters sent by its then Senior Vice President Escalona to respondent, as reproduced in the It should likewise be noted that at the time this Petition was filed, Escalona signed the Verification and
Court of Appeals Decision read: Certification51 as the president of the corporation, signifying that petitioner did not consider his alleged unauthorized
[February 3, 1997 letter]: acts as fatal to his continued involvement in corporate affairs.
... We hereby commit a guaranteed floor rate of 16.5% as project proponent. This would commit us to pay the
differential interest earnings to be paid by Planters Development Bank as Trustee every 182 days from purchase WHEREFORE, the Petition is DENIED. Petitioner Terp Construction Corporation is ordered to pay respondent Banco
date of period of three (3) years until maturity date.... Filipino Savings and Mortgage Bank the amount of Eighteen Million One Hundred Four Thousand and Four Hundred
[April 8, 1997 letter]: Thirty-One Pesos and Thirty-Three Centavos (P18,104,431.33) with legal interest of twelve percent (12%) to be
Terp Construction commit (sic) that the yield to you for this investment is 15.5%. The difference between the computed from January 31, 2001 until June 30, 2013 and six percent (6%) from July 1, 2013 until its full
yield approved by the Project Governing Board will be paid for by, Terp Construction Corp.42 satisfaction. The total amount payable shall likewise earn interest at the rate of six percent (6%) per annum from the
finality of this Decision until its full satisfaction.52
Petitioner disavows this obligation and contends that it was merely an unauthorized offer made by one (1) of its
officers during the negotiation stage of a contract. Petitioner, however, does not deny that it paid respondent the
additional interest during the Margarita Bonds' holding period, not just once, but twice.
A corporation exercises its corporate powers through its board of directors.43 This power may be validly delegated to
its officers, committees, or agencies. "The authority of such individuals to bind the corporation is generally derived
from law, corporate bylaws or authorization from the board, either expressly or impliedly by habit, custom or
acquiescence in the general course of business[.]"44
The authority of the board of directors to delegate its corporate powers may either be: (1) actual; or (2) apparent.45
Actual authority may be express or implied. Express actual authority refers to the corporate powers expressly
delegated by the board of directors. Implied actual authority, on the other hand, "can be measured by his or her
prior acts which have been ratified by the corporation or whose benefits have been accepted by the corporation."46
Petitioner's subsequent act of twice paying the additional interest Escalona committed to during the term of the
Margarita Bonds is considered a ratification of Escalona's acts. Petitioner's only defense that they were "erroneous
payment[s]"47 since it never obligated itself from the start cannot stand.ℒαwρhi ৷ Corporations are bound by errors of
their own making.
61
Since Helen had yet to make the promised deposit and her account balance did not amount to P46 Million, Berras
protested to Caña that she cannot credit the corresponding amounts to the five accounts as indicated in the fund
transfer receipts. Nonetheless, Caña effected a local override and approved the fund transfer.9 Consequently, the
amounts were credited to the five deposit accounts, including Valerio's, in the amount of P10 Million.
Meanwhile, at 11:57:23 a.m., Valerio withdrew P1,722,500.00 from her deposit account at AB-Pasay. At 11:58:35
a.m., via electronic fund transfer. Valerio deposited P1,590,000.00 to the account of Mario's brother Manuel and the
latter's wife and Sheila Macam. To prove the fund transfer to the Spouses Manuel Macam's account, Valerio
presented the deposit slip with her handwritten notation10 addressed to Mario.
[ G.R. No. 200635, February 01, 2021 ] On that same date, through Sheila's deposit of P1,590,000.00 by way of a credit memo, the Spouses Mario Macam
opened Savings Account No. 1850-06565-2 at Allied Bank-Pasong Tamo (AB-PT) Branch. In subsequent and separate
ALLIED BANKING CORPORATION* AND GUILLERMO DIMOG, PETITIONERS, VS. SPOUSES MARIO instances, the Spouses Mario Macam were able to make withdrawals in the total amount of P490,000.00,11 leaving a
ANTONIO MACAM** & ROSE TRINIDAD MACAM, SPOUSES WILLAR FELIX AND MARIBEL CANA AND balance of P1.1 Million in their savings account with AB-PT.
SPOUSES MELCHOR AND HELEN GARCIA, RESPONDENTS.
Yet still on February 6, 2003, Caña instructed Berras to reverse the P10 Million fund transfer to Yolanda Lim. Berras
This Petition for Review on Certiorari assails the November 10, 2011 Decision1 of the Court of Appeals (CA) in CA- again inquired about the P46 Million deposit but was told by Caña to wait.
G.R. CV No. 91098 which affirmed in toto the November 12, 2007 Decision2 of the Regional Trial Court (RTC) of
Makati City, Branch 59 in Civil Case No. 03-850 finding petitioners Allied Banking Corporation (Allied Bank) and Later that day, Caña again instructed Berras to debit specific amounts from different accounts, to wit:
Guillermo Dimog (Dimog) solidarity liable for damages to the Spouses Mario Antonio and Rose Trinidad Macam (a) Elena Valerio - P8.3 Million;
(Spouses Mario Macam). (b) Gilda Tiglao - P1.7 Million; and
(c) Rosite Capili -P5.7 Million.12
Mario Macam (Mario), on the recommendation of his brother Manuel and facilitation of Elena Valerio (Valerio),
invested P1,572,000.00 in the cellular card business of respondent Helen Garcia (Helen). Valerio was a Unit Manager Once again, Berras inquired about Helen's promised deposit but Caña told her to just wait.13
in Helen's business, soliciting investments and promising weekly interest payments of 2.29%.
Meanwhile, Mamalayan sent Short Messaging Service (SMS)14messages to Caña regarding Helen's deposit and the
On November 4, 2002, Mario deposited P1,572,000.00 in Valerio's Savings Account4 with Allied Bank-Pasay Road arrival of the requested armored vans. Caña's answer to Mamalayan was no different; the latter was likewise told to
Branch (AB-Pasay). In turn, Valerio issued Bank of the Philippines Island Check No. 3090-045359 to Mario covering wait.15
the principal amount of his investment.
Mamalayan learned of the debiting of the three accounts16 after the Branch Head of Allied Bank-Imus (AB-I) inquired
On February 6, 2003, a series of transactions occurred at the Allied Bank-Alabang Las Piñas Branch (AB-ALP), headed about the huge debit on their client's account. Mamalayan told the AB-I Branch Head to contact Caña as she was
by respondent Maribel Caña (Caña). At 8:45 a.m., Caña informed bank teller Melissa Berras (Berras) to anticipate a unaware of the said debit transactions.
deposit by Helen in the amount of P46 Million. Caña likewise instructed the Branch Operating Officer, Milani
Mamalayan (Mamalayan), to arrange for two armored vans to pick up the P46 Million deposit.5
At 3:30 p.m., Mamalayan received an SMS from Caña that the P46 Million deposit had been cancelled.17 As soon as
Berras overheard Mamalayan telling the Pick-Up Tellers and the Cash Center about the cancellation, Berras
At 9:45 a.m., Mamalayan informed Caña of the arrival of the armored vans. Thereupon, Caña gave Berras five filled approached Mamalayan and told her about the fund transfer transactions totaling P46 Million which she had
out and approved fund transfer receipts6 in the total amount of P46 Million with the following details: expedited. Berras disclosed to Mamalayan: (1) Caña's specific instructions; (2) Caña's override and approval of the
NAME ACCOUNT NO. AMOUNT fund transfer transactions from Helen's account to five different accounts despite the lack of fund deposit of P46
Million, and (3) the subsequent credits, debits and reversals made on the accounts of Valerio, Capili and Tiglao.18
a. Digna Gonzales 3680-01407-1 P6 Million
b. Elena Valerio 3090-045359-1 P10 Million At 5:50 p.m., Caña instructed Mamalayan to book the amount of P20.3 Million under "Accounts Receivable"
c. Rosite Capili (Capili) 1840-04249-3 P10 Million corresponding to the unrecovered amount from the P46 Million which had been earlier transferred to various deposit
accounts.19
d. Yolanda Lim 1823-00281-5 P10 Million
e. Gilda Tiglao (Tiglao) 3090-04535-9 P10 Million7 Due to the significant discrepancy, Allied Bank investigated the branch, AB-ALP, and its transactions on February 6,
2003. Allied Bank was able to recover more than half of the amount, leaving a balance of P9,800,000.00.20
The fund transfer receipts bore only Caña's signature and ostensibly indicated Helen's deposit account as the source
of the P46 Million fund transfer.8
62
On February 19, 2003, Angela Barcelona, Region Head, Retail Banking Group for Allied Bank's South Metro Manila 5. The bank also admitted that on the same date of February 6, 2003 Elena Valerio withdrew the sum of
Branches, ordered the debit of the remaining P1.1 Million from the account of the Spouses Mario Macam which P1,722,500.00 from her account with Allied Bank- Pasay Road Branch and remitted the sum of P1,590,000.00 to
resulted in the closure thereof.21 the account Sheila and Manuel Macam with Allied Bank-Pasong Tamo Branch.
6. The bank also admitted several withdrawals made by the plaintiff as stated in the complaint particularly on
On March 3, 2003, the Spouses Mario Macam learned of the closure after they were unable to withdraw from their February 6, 2003 in the amount of P125,000.00, on February 10,2003 in the amount of P40,000.00 and on
account. Hence, the Spouses Mario Macam filed the complaint for Damages against the bank and the AB-PT Branch February 12, 2003 in the amount of P325,000.00.
Head, Dimog.22 7. The bank also admitted that on February 19,2003 it withdrew or debited the entire remaining balance of
P1,100,000.00 from the subject account, thereby resulting in the closure of the account without any notice [to] the
plaintiff.32
Not unexpectedly, Allied Bank denied any liability for the closure of the Spouses Mario Macam's account and claimed
ownership of the P1.1 Million deposit. Allied Bank traced its title to the dubious transfers amounting to P46 Million on
February 6, 2003 beginning from the crediting of Helen's account and the ensuing fund transfers to various deposit Ruling of the Regional Trial Court:
accounts maintained by particular individuals with different branches of Allied Bank.23
After trial, the RTC issued its Decision, thus:
Given its allegations in its Answer,24 Allied Bank subsequently filed a Third Party Complaint25 against respondents, WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows:
the Spouses Willar Felix and Maribel Caña and the Spouses Melchor and Helen Garcia ( Spouses Garcia). 1. On the main complaint, ordering [petitioners] Allied Bank and Guillermo P. Dimog jointly and severally, to pay
respondents Mario Antonio Y. Macam and Rose Trinidad T. Macam, the amount of Pl.l Million with interest thereon
at 12% interest per annum, computed from the date [the accounts of respondents, the Spouses Mario Macam]
Third party defendants, the Spouses Caña and the Spouses Garcia, renounced liability for the initial P46 Million fund had been closed on February 19, 2003 until the full amount is actually paid;
transfer transactions effected by Caña and all succeeding fund transfer transactions linked thereto on the ubiquitous 2. On the third-party complaint, ordering the third-party defendants [Spouses] Willard Felix and Maribel Caña and
date of February 6, 2003.26 Spouses Melchor and Helen Garcia, jointly and severally to pay defendants and third-party plaintiffs Allied Bank
and Guillermo Dimog, the amount of P 1.1 Million plus interest thereon, which this Court orders said defendants
Caña maintained that she did not and has never conspired with Helen to defraud the bank. Pursuant to the and third-party plaintiffs to pay [respondents, the Spouses Mario Macam] in the principal complaint by way of
requirements of Republic Act No. 9160 (RA 9160) or the Anti-Money Laundering Act of 2001,27 Caña conducted an reimbursement and/or subrogation.33
investigation into the source of Helen's funds and confirmed that Helen was indeed engaged in the cell card
business.28 Ruling of the Court of Appeals:
According to Caña, Helen was a valued client of Allied Bank, maintaining another deposit account with the bank's Allied Bank and the Spouses Garcia appealed to the CA insisting on their exculpation from liability. However, the
Molino-Cavite Branch. Helen's transactions with Allied Bank nearly consisted of huge cash inter branch deposits appellate court affirmed in toto the ruling of the trial court.
and/or withdrawals as well as regular fund transfers to different Allied Bank branches where Helen's business
colleagues (including Valerio) maintained their respective deposit accounts.29
As the trial court had done, the appellate court likewise found that Allied Bank is liable to the Spouses Mario Macam
for breach of contract, or culpa contractual. It held that Allied Bank reneged on its contractual obligation to the
In prior instances of fund transfers, Helen's account initially lacked sufficient funds which Helen immediately funded Spouses Mario Macam to pay their money in deposit on demand. Citing Section 2 34 of RA 8791 35 (The General
within 20 minutes of the notice of insufficiency. Thus, as previously practiced, and as a valued client of Allied Bank, Banking Law of 2000 or GBL) and jurisprudence,36 the appellate court held that given the fiduciary nature of the
on the date and transaction in question, Caña promptly approved the request of Helen for an overdraft of F46 Million relationship between a bank and its depositors, a bank is under obligation to treat the accounts of its depositors with
and the succeeding transfer of funds to Helen's regular target deposit accounts.30 meticulous care. In the performance of that obligation, the appellate court found Allied Bank to have failed and thus
liable to the Spouses Mario Macam for damages.
The Spouses Garcia, on the other hand, denied any hand and participation in the P46 Million fund transfer
transaction: Helen did not instruct Caña to credit the said amount to her account nor did she instruct Caña to Hence, this appeal by certiorari of Allied Bank positing grave error in the ruling of the appellate court:
approve the subsequent fund transfer to the different deposit accounts of certain individuals.31
Issues:
The Pre-Trial Order contained the following stipulation of facts:
1. That demands were made upon [Allied Bank] for the return of the said amount attached to the complaint.
2. The bank also admitted the opening of the accounts on February 6, 2003 with an opening balance of I. THE HONORABLE [CA] ERRED IN AFFIRMING THE RULING OF THE TRIAL COURT THAT ALLIED BANK IS LIABLE
P1,590,000.00. FOR THE ULTRA VIRES ACTS OF ITS EMPLOYEE, RESPONDENT MARIBEL CAÑA IN ALLOWING THE TRANSFER OF
3. The bank also admitted that this opening balance of P1,590,00.00 was a transfer from the account of Sheila P46,000,000.00 FROM THE ACCOUNT OF RESPONDENT HELEN GARCIA DESPITE THE ABSENCE OF AN EQUIVALENT
Marie Macam with Allied-Bank Pasong Tamo Branch to the opening the account of plaintiffs Mario Antonio Macam DEPOSIT.
and Rose T. Macam.
4. The bank also admitted that the amount of P10 Million was remitted from Allied Bank-Alabang Las Pinas Branch
to the account of Elena Valerio with Allied Bank-Pasay Road.
63
II. THE HONORABLE [CA] ERRED IN AFFIRMING THE RULING OF THE TRIAL COURT THAT THE INFIRMITIES WHICH complying with its obligations under the contract of simple loan, beyond those required of non-bank debtors under a
ATTENDED THE TRANSACTIONS STOPPED WITH ELENA VALERIO, SUCH THAT THE TRANSFER FROM VALERIO'S similar contract of simple loan.43
ACCOUNT TO SHEILA MACAM AND FINALLY TO RESPONDENTS SPS. MACAM WERE ALL VALID.
In this case, all the fund transfer transactions which culminated in the transfer of P1,590,000.00 to the account of
III. THE HONORABLE [CA] ERRED IN AFFIRMING THE RULING OF THE TRIAL COURT THAT RESPONDENTS SPS. the Spouses Mario Macam were effected through Allied Bank's network of branches nationwide. Section 20 of the GBL
MACAM ACQUIRED VALID TITLE TO THE AMOUNT OF P1,590,000.00 DEPOSITED ON FEBRUARY 6, 2003 IN THEIR allows universal or commercial banks, upon prior approval of the Bangko Sentral ng Pilipinas, to open branches or
ACCOUNT AT ALLIED BANK-PA SONG TAMO BRANCH. offices within or outside the Philippines. It further provides that "a bank authorized to establish branches or other
offices shall be responsible for all business conducted in such branches and offices to the same extent and in the
IV. THE HONORABLE [CA] ERRED IN AFFIRMING THE RULING OF THE TRIAL COURT IN ORDERING ALLIED BANK same manner as though such business had all been conducted in the head office. A bank and its branches and offices
TO PAY THE RESPONDENTS SPS. MACAM Fl, 100,000.00 WITH INTEREST THEREON AT 12% PER ANNUM FROM 19 shall be treated as one unit."
FEBRUARY 2003 UNTIL FULLY PAID.
Allied Bank cannot obliquely repudiate the resulting banking relationship with the Spouses Mario Macam and the
V. THE HONORABLE [CA] ERRED IN AFFIRMING THE RULING OF THE TRIAL COURT IN NOT ORDERING fiduciary nature thereof when it accepted the spouses' initial deposit of P1,590,000.00, the very same funds it now
RESPONDENTS SPS. MACAM TO RETURN TO ALLIED BANK THE AMOUNT OF P490,000.00 REPRESENTING claims as its own. It cannot belatedly claim ignorance of its performance of a core banking function, i.e., accepting or
WITHDRAWALS MADE FROM THE SUBJECT ACCOUNT. creating demand deposits.44
VI. THE HONORABLE [CA] ERRED IN AFFIRMING THE RULING OF THE TRIAL COURT IN NOT AWARDING "A certificate of deposit is defined as a written acknowledgment by a bank or banker of the receipt of a sum of money
PETITIONERS' COUNTERCLAIMS FOR DAMAGES.37 on deposit which the bank or banker promises to pay to the depositor, to the order of the depositor, or to some other
person or his order, whereby the relation of debtor and creditor between the bank and the depositor is created.
"45 It is presumed that the money deposited in a bank account belongs to the person in whose name the deposit
Our Ruling account is opened.46
We make short shrift of Allied Bank's raised errors and condense these into the sole issue of whether Allied Bank is With its acceptance of the Spouses Mario Macam's deposit and their opening of an account with the bank's Pasong
liable for unilaterally debiting and closing the deposit account of the Spouses Mario Macam. Tamo Branch on February 6, 2003, Allied Bank explicitly recognized the spouses' ownership and title over the
P1,590,000.00. Notably, the bank repeatedly acknowledged the creditor- debtor relationship and its obligation to pay
Allied Bank remains adamant and persists in its arguments that it holds valid title not only to the P1.1 Million that it the Spouses Mario Macam on demand when the latter withdrew money from the said account on three separate
debited from the account of the Spouses Mario Macam but to the entire P1,590,000.00 used to open the subject occasions. Undoubtedly, Allied Bank is liable to the Spouses Mario Macam for the P1.1 Million in their deposit
deposit account of the Spouses Mario Macam with AB-PT Branch as well. account.
In framing its arguments, Allied Bank defines its banking relationship with the Spouses Mario Macam in the negative Notwithstanding the foregoing, Allied Bank still insists that the P1,590,000.00 can be traced to the P10 Million
as "not that which is ordinarily between a bank and its depositor." The bank asseverates that it owns the funds which wrongfully credited to Valerio's account which, in turn, is traced to the P46 Million illegally credited to Helen's
inadvertently found its way into the Spouses Mario Macam's account. account. Thus, according to Allied Bank, it retained title over the money, including that traceable and transferred to
the Spouses Mario Macam.
The arguments of Allied Bank are untenable.
We disagree.
RA 8791 enshrines the fiduciary nature of banking that requires high standards of integrity and performance.38 The
statute now reflects jurisprudential holdings that the banking industry is impressed with public interest requiring The deposit in the Spouses Mario Macam's account consisting of money is generic and fungible.47 The quality of
banks to assume a degree of diligence higher than that of a good father of a family.39 Thus, all banks are charged being fungible depends upon their possibility, because of their nature or the will of the parties, of being substituted
with extraordinary diligence in the handling and care of its deposits as well as the highest degree of diligence in the by others of the same kind, not having a distinct individuality.48
selection and supervision of its employees.40
Allied Bank claims ownership of the equivalent amount of money, i.e. the value thereof which it ultimately traces to
The foregoing obligation of banks is absolute and deemed written into every deposit agreement with its depositors.41 the spurious credit of P46 Million to Helen's account, and part thereof subsequently traced to the Spouses Mario
Macam's account. Indeed, it cannot claim the money itself which transferred accounts based on the false fund
We affirm the lower courts' uniform factual finding that there is a deposit agreement between Allied Bank and the transfer transactions effected by Caña on February 6, 2003.
Spouses Mario Macam. The savings deposit agreement between the bank and the depositor is the contract that
determines the rights and obligations of the parties as in a simple loan.42 In contemplation of the fiduciary nature of It bears emphasizing that "[m]oney bears no earmarks of peculiar ownership. Its primary purpose is to pass from
a bank-depositor relationship, the law imposes on the bank a higher standard of integrity and performance in hand to hand as a medium of exchange, without other evidence of its title."49 Money, which had passed through
different transactions of a bank in the general course of business, even if of traceable origin, is no exception. Clearly
64
therefore, Allied Bank's unilateral closure of the Spouses Mario Macam's deposit account violated their savings As correctly pointed out by the [Spouses Mario Macam], the infirmities attended the funds transfer from Helen
deposit agreement. Garcia down the line, the defect stopped with Elena Valerio, such that the subsequent transfer from Valerio to
Sheila Macam and finally to [the Spouses Mario Macam], was not affected thereby. [The Spouses Mario Macam]
To completely evade liability, Allied Bank ascribes all blame to the acts of its employee, Caña, beginning with the had nothing to do with the P10 Million transferred from Helen Garcia to Elena Valerio on February 6, 2003 and that
credit of P46 Million to Helen's account without an actual deposit of funds. The bank further muddles the issues, the matter was solely between and among Garcia, Caña and Valerio. Had the amount transferred to Valerio
assumes all the injury and damage, but none of the responsibility for its own negligence and that of its employee. It remained in her account, the reversal would have been correct because of the general rule that a bank can
turns a blind eye on its contractual obligation to, and the damage suffered by, its depositor. compensate or set off the deposit in its hands for the payment of any indebtedness to it on the part of the
depositor. However, it was already a different matter the moment Valerio transferred said funds to the accounts of
Sheila and Manuel Macam because said transfer already had the proper approval of the Branch Head. The same
Allied Bank belabors under a cloud of confusion. Its liability under the deposit agreement with the Spouses Mario goes for the transfer from Sheila and Manuel Macam to their account. In the latter instances, the depositor is
Macam is primary and not vicarious. entitled to the protection and meticulous care of the bank.54
Articles 1172,50 217651 and 218052 of the Civil Code lay down the following principles: As previously pointed out, Allied Bank already recognized the ownership of the Spouses Mario Macam over the
(1) the responsibility of the obligor arising from negligence in the performance of the obligation is demandable; P1,590,000.00 when it accepted the amount as their initial deposit in their newly opened demand deposit. The
(2) the fault or negligence of the obligor causing damage to another obliges him to pay for the damage done; and bank cannot simply disavow the deposit agreement after unraveling the tortuous acts of its employee.
(3) the obligation to pay for the damage is demandable not only for one's own acts or omission, but also for those
of persons for whom one is responsible.
Allied Bank is expected to act with extraordinary diligence required of banks. We cannot overemphasize that the
highest degree of diligence required of banks likewise contemplates such diligence in the selection and supervision
Paragraph 5 of Article 2180 provides that "employers shall be liable for the damages caused by their employees xxx of its employees. The very nature of their work which involves handling millions of pesos in daily transactions
acting within the scope of their assigned tasks xxx." requires a degree of responsibility, care and trustworthiness that is far greater than those expected from ordinary
clerks and employees.55 The bank must not only exercise "high standards of integrity and performance," it must
As admitted by the bank, the initial fund transfer transaction approved by Caña snowballed into a series of also insure that its employees do likewise because this is the only way to insure that the bank will comply with its
unauthorized debit and credit transactions leading to the closure of the Spouses Mario Macam's subject deposit fiduciary duty.56
account. All the tortuous acts of Caña occurred and transpired within Allied Bank's network of branches and offices
and during banking hours. Allied Bank's other employees, Berras and even Mamalayan, likewise participated in the We thus agree with the trial court's holding that Allied Bank clothed Caña with sufficient authority to effect the
fraudulent acts of their Branch Head, Caña. ostensible crediting of Helen's account and approve the subsequent fund transfers to five different accounts in the
total amount of P46 Million. The trial court found that in previous instances, Caña had extended Helen the same
From Allied Bank's narration of facts, a regular fund transfer transaction has a corresponding debit memo and the credit arrangement via a temporary overdraft line.
fund transfer receipts must bear the signatures of the Branch Head, Caña, the Branch Operating Officer, Mamalayan,
and the teller who effected the transactions, Berras. This is consistent with Caña's testimony that, on other occasions when Helen's account lacked sufficient funds for
transfer, the latter would be allowed a temporary overdraft which was immediately settled upon notice of the
However, Allied Bank is quick to admit that Caña overrode the verification requirements and approved the P46 Million insufficient funds.
fund transfer transactions. Although the bank was ultimately prejudiced by Caña's acts, it is primarily liable to the
Spouses Mario Macam for breaching the savings deposit agreement between them. In this case, AB-ALP Branch, headed by Caña, held the top spot in terms of low cost deposit within the Metro Manila
South area for the year 2002, which Caña partly attributed to the business transactions Helen conducted with their
We quote with favor the uniform rulings of the appellate and the trial courts in that regard: branch. In year 2002 alone, Helen's deposit balance ranged from P20 to P80 Million, with the highest deposits made
xxx It is likewise noteworthy to mention that numerous lapses which contributed to the perpetration of Maribel in October but declined significantly in December. Evidently, Caña was intent to retain the deposit account of Helen
Caña's scheming plans were committed by other personnel of Allied Bank. First and foremost, Melissa Berras, one for Allied Bank.
of Allied Bank's teller, who was already aware of the tortuous and fraudulent act of Maribel Caña in crediting the
sum of P46 Million in favor of xxx Helen Garcia's account notwithstanding the fact that no debit had been made The RTC correctly observed, thus:
thereto, failed to take any steps in forestalling or reporting to the management the said fraudulent act. Also, Milani
Mamalayan, the Branch Operating Officer of Allied Bank, Alabang, Las Pinas Branch was negligent for not verifying
with Maribel Caña regarding the last minute cancellation of the purported deposit of Helen Garcia even after the It may be worthy to mention the fact that banks accord overdraft line to their favored clients. These fund transfers to
former had already received a call from the Imus, Cavite Branch inquiring as to why the account of its client, Rosite and credits to accounts as against overdraft account to debit from, constitutes valid transactions.
Capili, had been debited. Thus, [Allied] Bank must answer for the damages incurred by [the Spouses Mario Macam]
for the tortuous and negligent acts of its employees. [Allied] Bank breached its contractual obligation with [the It is admitted that third-party defendant Caña is the Bank Manager of Allied Bank who authorized the debiting of the
Spouses Mario Macam] and such degree of culpability contributed to the damage caused to the latter.33 P46,000,000.00 funds from the current account of third-party defendant Helen Garcia. The act of Caña albeit
unauthorized by the bank still binds the bank. One thing clear from the record is that the unauthorized acts of Caña
may have been a practice in the past, where favored clients are accorded Temporary Over Draft Line. This is
manifested in the treatment of the unrecovered amount after the reversals made, where Third- Party Defendants
65
Sps. Melchor and Helen Garcia were made to execute a Real Estate Mortgage to secure payment for the unrecovered interest to six percent (6%) per annum. Pursuant to our ruling in Nacar v. Gallery Frames,62 BSP Circular No. 799 is
amount of T9.8 Million. It is a policy practiced by banking institutions wherein the bank's loan committee approves in prospectively applied from July 1, 2013.
the form of loan the amount constituting the overdraft balance for the purpose of regularizing the temporary
overdraft (TOD) granted the depositors against Chattel or Real Estate Mortgages. Thus we modify the lower courts' ruling on the applicable rate of legal interest, to wit: (1) twelve percent (12%) per
annum from February 19, 2003 to June 30, 2013; and (2) six percent (6%) per annum from July 1, 2013 to date
It appears that in the previous instances, there were [occasions] of promised belated deposits of Helen Garcia that when this Decision becomes final and executory.
have always materialized hence, the practice went on.
We likewise impose interest on interest due based on Article 2212 of the Civil Code which provides that "interest due
It is true that it was Caña who facilitated the transactions by making an override and through the use of fund shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this
transfer tickets which she accomplished and which did not bear the required validation of the teller and the Branch point."63 Consequently, interest on interest due is imposed at the rate of (1) twelve percent (12%) per annum from
Operations Officer. It is inconceivable that the bank would not have known the unauthorized transaction it appearing July 17, 2003 to June 30, 2013; and (2) six percent (6%) per annum from July 1, 2013 until this Decision becomes
to involve too huge an amount to have [gone] unnoticed. For this reason, [Allied Bank] had indeed failed to perform final and executory.
what was incumbent upon it, which is to ensure regularity in the banking transactions, x x x57
The total amount owing the Spouses Mario Macam set forth in this Decision shall further earn legal interest at the
The authority of a corporate officer or agent in dealing with third persons may be actual or apparent.58 The apparent rate of six percent (6%) per annum computed from its finality until full payment thereof, the interim period being
authority to act for and to bind a corporation may be presumed from acts of recognition in other instances, wherein deemed to be a forbearance of credit.
the power was exercised without any objection from its board or shareholders.59 Caña's act of approving the P46
Million fund transfer and the subsequent transfers to different accounts in various branches of Allied Bank leading to In addition, we award attorney's fees of P50,000.00 since the Spouses Mario Macam were compelled to litigate and
the P1,590,000.00 transfer to the account of the Spouses Mario Macam all appear to have been clothed with incur expenses to protect their interests.64
authority. Indeed, the subsequent transfers (of funds) were approved by several Branch Heads.
Lastly, we exclude Dimog from liability to pay damages to the Spouses Mario Macam, albeit his defense and
The doctrine of "apparent authority", with special reference to banks, has long been recognized in this jurisdiction. subsequent appeals had been joined with that of his co-defendant, Allied Bank. It must be stressed, Dimog never
Apparent authority is derived not merely from practice. Its existence may be ascertained through 1) the general raised as an issue his liability, separate from that of Allied Bank, to the Spouses Macam.
manner in which the corporation holds out an officer or agent as having the power to act, or in other words, the
apparent authority to act in general, with which it clothes him; or 2) the acquiescence in his acts of a particular
nature, with actual or constructive knowledge thereof, within or beyond the scope of his ordinary powers.60 Well-settled is the rule that when a case is on appeal, the Court has the authority to review matters not specifically
raised or assigned as error if their consideration is necessary in reaching a just conclusion of the case.65
Prescinding from all the foregoing, the lower courts were correct in sustaining Allied Bank's liability to the Spouses
Mario Macam for culpa contractual. In this regard, apart from Dimog's position as AB-PT Branch Head, there is no evidence pointing to an even miniscule
participation in the debit of P1.1 Million from the Spouses Mario Macam's account. The factual findings of the lower
courts show that it was Barcelona, Retail Banking Group for Allied Bank's South Metro Manila Branches, who ordered
The liability for damages of those who are negligent in the performance of their obligation is laid down in Article the debit of the remaining P1.1 Million which led to the closure of the Spouses Mario Macam's account. On the whole,
117061 of the Civil Code.ℒαwρhi ৷ Dimog's participation in the breach of contract by Allied Bank was never established and proven.
As ruled by the lower courts, the date of default in this case is February 19, 2003 when Allied Bank simultaneously WHEREFORE, the Petition for Review on Certiorari is DENIED. The November 10, 2011 Decision of the Court of
debited the P1.1 Million funds from, and closed, the account of the Spouses Mario Macam. Article 2209 of the Civil Appeals in CA-G.R. CV No. 91098 is AFFIRMED with MODIFICATION in that petitioner Allied Banking
Code solidifies the consequence of payment of interest as an indemnity for damages when the obligor incurs in delay: Corporation is solely liable to pay respondent Rose Trinidad Macam the following:
(1) the principal amount of P1.1 Million;
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity (2) legal interest of twelve percent (12%) per annum on the principal amount of P1.1 Million reckoned from
for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the February 19, 2003 until June 30, 2013;
absence of stipulation, the legal interest, which is six percent per annum. (3) legal interest of six percent (6%) per annum on the principal amount of P1.1 Million from July 1, 2013 to date
when this Decision becomes final and executory;
In this case, at the time the interest accrued on the deposit of the Spouses Mario Macam on February 19, 2003, the (4) legal interest of twelve percent (12%) per annum on the total of paragraphs 2 & 3 from July 17, 2003, date of
date of default when the account was closed, the then prevailing rate of legal interest was twelve percent (12%) judicial demand, to June 30, 2013, as interest on interest due;
per annum under Central Bank (CB) Circular No. 416 in cases involving the loan or forbearance of money. (5) legal interest of six percent (6%) per annum on the total of paragraphs 2 & 3 from July 1, 2013 to date when
this Decision becomes final and executory, as interest on interest due;
(6) six percent (6%) per annum interest on the total of the monetary awards from the finality of this Decision until
However, the twelve percent (12%) per annum rate of legal interest is only applicable until June 30, 2013, before the fall payment thereof; and
advent and effectivity of Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013 reducing the rate of legal (7) Attorney's fees in the amount of P50,000.00.
66
The antecedent facts follow:
Respondent filed a complaint10 for illegal dismissal and money claims for 13th and 14th month pay, bonuses and
other benefits, as well as the payment of moral and exemplary damages and attorney’s fees. Respondent posits the
following allegations in his Position Paper:11
On January 3, 1994, respondent was hired by petitioner corporation as its Logistics Officer and was assigned at
petitioner corporation’s corporate office in Pasay City. At the time of the filing of the complaint, respondent was
already a Supervisor at the Logistics and Purchasing Department with a monthly salary of ₱39,815.00.
On November 3, 2004, petitioner corporation conducted a random drug test where respondent was randomly chosen
among its employees who would be tested for illegal drug use. Through an Intracompany Correspondence, 12 these
employees were informed that they were selected for random drug testing to be conducted on the same day that
G.R. No. 181490 April 23, 2014 they received the correspondence. Respondent was duly notified that he was scheduled to be tested after lunch on
that day. His receipt of the notice was evidenced by his signature on the correspondence.
MIRANT (PHILIPPINES) CORPORATION AND EDGARDO A. BAUTISTA, Petitioners,

vs. Respondent avers that at around 11:30 a.m. of the same day, he received a phone call from his wife’s colleague who
JOSELITO A. CARO, Respondent. informed him that a bombing incident occurred near his wife’s work station in Tel Aviv, Israel where his wife was
then working as a caregiver. Respondent attached to his Position Paper a Press Release 13 of the Department of
Foreign Affairs (DFA) in Manila to prove the occurrence of the bombing incident and a letter14 from the colleague of
At bar is a petition1 under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing the Decision2 and
his wife who allegedly gave him a phone call from Tel Aviv.
Resolution3 of the Court of Appeals (CA) dated June 26, 2007 and January 11, 2008, respectively, which reversed
and set aside the Decision4 of the National Labor Relations Commission (NLRC) in NLRC NCR CA No. 046551-05
(NCR-00-03-02511-05). The NLRC decision vacated and set aside the Decision5 of the Labor Arbiter which found that Respondent claims that after the said phone call, he proceeded to the Israeli Embassy to confirm the news on the
respondent Joselito A. Caro (Caro) was illegally dismissed by petitioner Mirant (Philippines) Corporation (Mirant). alleged bombing incident. Respondent further claims that before he left the office on the day of the random drug
test, he first informed the secretary of his Department, Irene Torres (Torres), at around 12:30 p.m. that he will give
preferential attention to the emergency phone call that he just received. He also told Torres that he would be back at
Petitioner corporation is organized and operating under and by virtue of the laws of the Republic of the Philippines. It
the office as soon as he has resolved his predicament. Respondent recounts that he tried to contact his wife by phone
is a holding company that owns shares in project companies such as Mirant Sual Corporation and Mirant Pagbilao
but he could not reach her. He then had to go to the Israeli Embassy to confirm the bombing incident. However, he
Corporation (Mirant Pagbilao) which operate and maintain power stations located in Sual, Pangasinan and Pagbilao,
was told by Eveth Salvador (Salvador), a lobby attendant at the Israeli Embassy, that he could not be allowed entry
Quezon, respectively. Petitioner corporation and its related companies maintain around 2,000 employees detailed in
due to security reasons.
its main office and other sites. Petitioner corporation had changed its name to CEPA Operations in 1996 and to
Southern Company in 2001. In 2002, Southern Company was sold to petitioner Mirant whose corporate parent is an
Atlanta-based power producer in the United States of America. 6 Petitioner corporation is now known as Team Energy On that same day, at around 6:15 p.m., respondent returned to petitioner corporation’s office. When he was finally
Corporation.7 able to charge his cellphone at the office, he received a text message from Tina Cecilia (Cecilia), a member of the
Drug Watch Committee that conducted the drug test, informing him to participate in the said drug test. He
immediately called up Cecilia to explain the reasons for his failure to submit himself to the random drug test that
Petitioner Edgardo A. Bautista (Bautista) was the President of petitioner corporation when respondent was
day. He also proposed that he would submit to a drug test the following day at his own expense. Respondent never
terminated from employment.8
heard from Cecilia again.
Respondent was hired by Mirant Pagbilao on January 3, 1994 as its Logistics Officer. In 2002, when Southern
On November 8, 2004, respondent received a Show Cause Notice 15 from petitioner corporation through Jaime Dulot
Company was sold to Mirant, respondent was already a Supervisor of the Logistics and Purchasing Department of
(Dulot), his immediate supervisor, requiring him to explain in writing why he should not be charged with "unjustified
petitioner. At the time of the severance of his employment, respondent was the Procurement Supervisor of Mirant
refusal to submit to random drug testing." Respondent submitted his written explanation 16 on November 11, 2004.
Pagbilao assigned at petitioner corporation’s corporate office. As Procurement Supervisor, his main task was to serve
Petitioner corporation further required respondent on December 14, 2004 to submit additional pieces of supporting
as the link between the Materials Management Department of petitioner corporation and its staff, and the suppliers
documents to prove that respondent was at the Israeli Embassy in the afternoon of November 3, 2004 and that the
and service contractors in order to ensure that procurement is carried out in conformity with set policies, procedures
said bombing incident actually occurred. Respondent requested for a hearing to explain that he could not submit
and practices. In addition, respondent was put incharge of ensuring the timely, economical, safe and expeditious
proof that he was indeed present at the Israeli Embassy during the said day because he was not allegedly allowed
delivery of materials at the right quality and quantity to petitioner corporation’s plant. Respondent was also
entry by the embassy due to security reasons. On January 3, 2005, respondent submitted the required additional
responsible for guiding and overseeing the welfare and training needs of the staff of the Materials Management
supporting documents.17
Department. Due to the nature of respondent’s functions, petitioner corporation considers his position as
confidential.9
67
On January 13, 2005, petitioner corporation’s Investigating Panel issued an Investigating Report 18 finding respondent "unjustified refusal to submit to random drug testing." 27 Petitioner corporation’s Vice-President for Operations,
guilty of "unjustified refusal to submit to random drug testing" and recommended a penalty of four working weeks Sliman, however disagreed with the Investigating Panel’s recommendations and terminated the services of
suspension without pay, instead of termination, due to the presence of mitigating circumstances. In the same Report, respondent in accordance with the subject drug policy. Sliman likewise stated that respondent’s violation of the policy
the Investigating Panel also recommended that petitioner corporation should review its policy on random drug amounted to willful breach of trust and loss of confidence.28
testing, especially of the ambiguities cast by the term "unjustified refusal."
A cursory examination of the pleadings of petitioner corporation would show that it concurs with the narration of
On January 19, 2005, petitioner corporation’s Asst. Vice President for Material Management Department, George K. facts of respondent on material events from the time that Cecilia sent an electronic mail at about 9:23 a.m. on
Lamela, Jr. (Lamela), recommended19 that respondent be terminated from employment instead of merely being November 3, 2004 to all employees of petitioner corporation assigned at its Corporate Office advising them of the
suspended. Lamela argued that even if respondent did not outrightly refuse to take the random drug test, he avoided details of the drug test – up to the time of respondent’s missing his schedule to take the drug test. Petitioner
the same. Lamela averred that "avoidance" was synonymous with "refusal." corporation and respondent’s point of disagreement, however, is whether respondent’s proffered reasons for not
being able to take the drug test on the scheduled day constituted valid defenses that would have taken his failure to
On February 14, 2005, respondent received a letter20 from petitioner corporation’s Vice President for Operations, undergo the drug test out of the category of "unjustified refusal." Petitioner corporation argues that respondent’s
Tommy J. Sliman (Sliman), terminating him on the same date. Respondent filed a Motion to Appeal 21 his termination omission amounted to "unjustified refusal" to submit to the random drug test as he could not proffer a satisfactory
on February 23, 2005. The motion was denied by petitioner corporation on March 1, 2005. explanation why he failed to submit to the drug test:
1. Petitioner corporation is not convinced that there was indeed such a phone call at noon of November 3, 2004 as
respondent could not even tell who called him up.
It is the contention of respondent that he was illegally dismissed by petitioner corporation due to the latter’s non- 2. Respondent could not even tell if he received the call via the landline telephone service at petitioner
compliance with the twin requirements of notice and hearing. He asserts that while there was a notice charging him corporation’s office or at his mobile phone.
of "unjustified refusal to submit to random drug testing," there was no notice of hearing and petitioner corporation’s 3. Petitioner corporation was also of the opinion that granting there was such a phone call, there was no compelling
investigation was not the equivalent of the "hearing" required under the law which should have accorded respondent reason for respondent to act on it at the expense of his scheduled drug testing. Petitioner corporation principally
the opportunity to be heard. pointed out that the call merely stated that a bomb exploded near his wife’s work station without stating that his
wife was affected. Hence, it found no point in confirming it with extraordinary haste and forego the drug test which
Respondent further asserts that he was illegally dismissed due to the following circumstances: would have taken only a few minutes to accomplish. If at all, respondent should have undergone the drug testing
1. He signed the notice that he was randomly selected as a participant to the company drug testing; first before proceeding to confirm the news so as to leave his mind free from this obligation.
2. Even the Investigating Panel was at a loss in interpreting the charge because it believed that the term "refusal" 4. Petitioner corporation maintained that respondent could have easily asked permission from the Drug Watch
was ambiguous, and therefore such doubt must be construed in his favor; and Committee that he was leaving the office since the place where the activity was conducted was very close to his
3. He agreed to take the drug test the following day at his own expense, which he says was clearly not an work station.29
indication of evasion from the drug test.
To the mind of petitioners, they are not liable for illegal dismissal because all of these circumstances prove that
Petitioner corporation counters with the following allegations: respondent really eluded the random drug test and was therefore validly terminated for cause after being properly
accorded with due process. Petitioners further argue that they have already fully settled the claim of respondent as
On November 3, 2004, a random drug test was conducted on petitioner corporation’s employees at its Corporate evidenced by a Quitclaim which he duly executed. Lastly, petitioners maintain that they are not guilty of unfair labor
practice as respondent’s dismissal was not intended to curtail his right to self-organization; that respondent is not
Office at the CTC Bldg. in Roxas Blvd., Pasay City. The random drug test was conducted pursuant to Republic Act No.
9165, otherwise known as the "Comprehensive Dangerous Drugs Act of 2002." Respondent was randomly selected entitled to the payment of his 13th and 14th month bonuses and other incentives as he failed to show that he is
entitled to these amounts according to company policy; that respondent is not entitled to reinstatement, payment of
among petitioner’s employees to undergo the said drug test which was to be carried out by Drug Check Philippines,
Inc.22 full back wages, moral and exemplary damages and attorney’s fees due to his termination for cause.
In a decision dated August 31, 2005, Labor Arbiter Aliman D. Mangandog found respondent to have been illegally
When respondent failed to appear at the scheduled drug test, Cecilia prepared an incident report addressed to Dulot,
the Logistics Manager of the Materials Management Department.23 Since it was stated under petitioner corporation’s dismissed. The Labor Arbiter also found that the quitclaim purportedly executed by respondent was not a bona fide
quitclaim which effectively discharged petitioners of all the claims of respondent in the case at bar. If at all, the Labor
Mirant Drugs Policy Employee Handbook to terminate an employee for "unjustified refusal to submit to a random
drug test" for the first offense, Dulot sent respondent a Show Cause Notice 24 dated November 8, 2004, requiring him Arbiter considered the execution of the quitclaim as a clear attempt on the part of petitioners to mislead its office into
thinking that respondent no longer had any cause of action against petitioner corporation. The decision stated, viz.:
to explain why no disciplinary action should be imposed for his failure to take the random drug test. Respondent, in a
letter dated November 11, 2004, explained that he attended to an emergency call from his wife’s colleague and WHEREFORE, premises considered, this Office finds respondents GUILTY of illegal dismissal, and hereby ordered to
jointly and severally reinstate complainant back to his former position without loss on seniority rights and benefits
apologized for the inconvenience he had caused. He offered to submit to a drug test the next day even at his
expense.25 Finding respondent’s explanation unsatisfactory, petitioner corporation formed a panel to investigate and and to pay him his backwages and other benefits from the date he was illegally dismissed up to the time he is
actually reinstated, partially computed as of this date in the amount of ₱258,797.50 (₱39,815.00 x 6.5 mos.) plus
recommend the penalty to be imposed on respondent.26 The Investigating Panel found respondent’s explanations as
to his whereabouts on that day to be inconsistent, and recommended that he be suspended for four weeks without his 13th and 14th month pay in the amount of ₱43,132.91 or in the total amount of ₱301,930.41.
Respondents are also ordered to pay complainant the amount of ₱3,000,000.00 as and by way of moral and
pay. The Investigating Panel took into account that respondent did not directly refuse to be subjected to the drug
test and that he had been serving the company for ten years without any record of violation of its policies. The exemplary damages, and to pay complainant the amount equivalent to ten percent (10%) of the total awards as
and by way of attorney’s fees.
Investigating Panel further recommended that the Mirant Drug Policy be reviewed to clearly define the phrase
68
The Labor Arbiter stated that while petitioner corporation observed the proper procedure in the termination of an embassy on 3 November 2004. Ms. Zandueta further informed Mr. Bailon that no bombing occurred in Tel Aviv on 3
employee for a purported authorized cause, such just cause did not exist in the case at bar. The decision did not November 2004 and that the only reported incident of such nature occurred on 1 November 2004. A letter x x x to
agree with the conclusions reached by petitioner corporation’s own Investigating Panel that while respondent did not this effect was written by Consul Ziva Samech of the Embassy of Israel. A press release x x x of the Department of
refuse to submit to the questioned drug test and merely "avoided" it on the designated day, "avoidance" and Foreign Affairs confirm[ed] that the bombing occurred on 1 November 2004.
"refusal" are one and the same. It also held that the terms "avoidance" and "refusal" are separate and distinct and
that "the two words are not even synonymous with each other."31 The Labor Arbiter considered as more tenable the In his explanation, the [respondent] stated that the reason why he had to leave the office on 3 November 2004 was
stance of respondent that his omission merely resulted to a "failure" to submit to the said drug test – and not an to verify an information at the Israel Embassy of the alleged bombing incident on the same day. However,
"unjustified refusal." Even if respondent’s omission is to be considered as refusal, the Labor Arbiter opined that it was [petitioners] in their position paper alleged that Ms. Torres of [petitioner] company received a text message from him
not tantamount to "unjustified refusal" which constitutes as just cause for his termination. Finally, the Labor Arbiter at around 12:47 p.m. informing her that he will try to be back since he had a lot of things to do and asking her if
found that respondent was entitled to moral and exemplary damages and attorney’s fees. there was a signatory on that day. [Respondent] did not deny sending said text messages to Ms. Torres in his reply
and rejoinder x x x. He actually confirmed that he was involved in the CIIS registration with all companies that was
On appeal to the NLRC, petitioners alleged that the decision of the Labor Arbiter was rendered with grave abuse of involved with [petitioner] company and worked on the registration of [petitioner] company’s vehicles with TRO.
discretion for being contrary to law, rules and established jurisprudence, and contained serious errors in the findings
of facts which, if not corrected, would cause grave and irreparable damage or injury to petitioners. The NLRC, giving It is also herein noted that [respondent] had initially reported to Ms. Torres that it was his mother in law who
weight and emphasis to the inconsistencies in respondent’s explanations, considered his omission as "unjustified informed him about the problem concerning his wife. However, in his written explanation x x x, the [respondent]
refusal" in violation of petitioner corporation’s drug policy. Thus, in a decision dated May 31, 2006, the NLRC ruled, stated that it was a friend of his wife, whom he could not even identify, who informed him of the alleged bombing
viz.: incident in Tel Aviv, Israel. [Respondent] also did not deny receiving a cellphone call from Ms. Cecilia that day. He
x x x [Respondent] was duly notified as shown by copy of the notice x x x which he signed to acknowledge receipt merely stated that he did not know that it was Ms. Cecilia calling him up in a cellphone and it was only after he
thereof on the said date. [Respondent] did not refute [petitioner corporation’s] allegation that he was also charged his cellphone at the office that night that he received her message. In effect, [respondent] asserted that his
personally reminded of said drug test on the same day by Ms. Cecilia of [petitioner corporation’s] drug watch cellphone battery was running low or drained. [Petitioners] were able to refute [these] averments of [respondent]
committee. However, [respondent] was nowhere to be found at [petitioner corporation’s] premises at the time when they presented [respondent’s] Smart Billing Statement
when he was supposed to be tested. Due to his failure to take part in the random drug test, an incident report x x x x x x showing that he was able to make a cellphone call at 5:29 p.m. to [petitioner corporation’s] supplier, Mutico
was prepared by the Drug Cause Notice x x x to explain in writing why no disciplinary action should be taken for a duration of two (2) minutes.32
against him for his unjustified refusal to submit to random drug test, a type D offense punishable with termination.
Pursuant to said directive, [respondent] submitted an explanation x x x on 11 November 2004, pertinent portions
of which read: Given the foregoing facts, the NLRC stated that the offer of respondent to submit to another drug test the following
"I was scheduled for drug test after lunch that day of November 3, 2004 as confirmed with Tina Cecilia. I was day, even at his expense, cannot operate to free him from liability. The NLRC opined that taking the drug test on the
having my lunch when a colleague of my wife abroad called up informing me that there was something wrong day following the scheduled random drug test would affect both the integrity and the accuracy of the specimen which
[that] happened in their neighborhood, where a bomb exploded near her workstation. Immediately, I [left] the was supposed to be taken from a randomly selected employee who was notified of his/her selection on the same day
office to confirm said information but at around 12:30 P.M. that day, I informed MS. IRENE TORRES, our that the drug test was to be administered. The NLRC further asserted that a drug test, conducted many hours or a
Department Secretary[,] that I would be attending to this emergency call. Did even [inform] her that I’ll try to be day after the employee was notified, would compromise its results because the employee may have possibly taken
back as soon as possible but unfortunately, I was able to return at 6:15 P.M. I didn’t know that Tina was the one remedial measures to metabolize or eradicate whatever drugs s/he may have ingested prior to the drug test.
calling me on my cell that day. Did only receive her message after I charged my cell at the office that night. I
was able to call back Tina Cecilia later [that] night if it’s possible to have it (drug test) the next day. The NLRC further stated that these circumstances have clearly established the falsity of respondent’s claims and
My apology [for] any inconvenience to the Drug Watch Committee, that I forgot everything that day including my found no justifiable reason for respondent to refuse to submit to the petitioner corporation’s random drug test. While
scheduled drug test due to confusion of what had happened. It [was] not my intention not to undergo nor refuse the NLRC acknowledged that it was petitioner corporation’s own Investigating Panel that considered respondent’s
to have a drug test knowing well that it’s a company policy and it’s mandated by law." failure to take the required drug test as mere "avoidance" and not "unjustified refusal," it concluded that such finding
was merely recommendatory to guide top management on what action to take.
In the course of the investigation, [respondent] was requested to present proof pertaining to the alleged call he
received on 3 November 2004 from a colleague of his wife regarding the bomb explosion in Tel Aviv, his presence at The NLRC also found that petitioner corporation’s denial of respondent’s motion to reconsider his termination was in
the Israel Embassy also on 3 November 2004. [Respondent], thereafter, submitted a facsimile which he allegedly order. Petitioner corporation’s reasons for such denial are quoted in the NLRC decision, viz.:
received from his wife's colleague confirming that she called and informed him of the bombing incident. However, a "Your appeal is anchored on your claim that you responded to an emergency call from someone abroad informing
perusal of said facsimile x x x reveals that the same cannot be given any probative value because, as correctly you that a bomb exploded near the work station of your wife making you unable to undergo the scheduled drug
observed by [petitioners], it can barely be read and upon inquiry with PLDT, the international area code of Israel testing. This claim is groundless taking into account the following:
which is 00972 should appear on the face of the facsimile if indeed said facsimile originated from Israel. We are not convinced that there was indeed that call which you claim to have received noon of November 3,
[Respondent] also could not present proof of his presence at the Israel Embassy on said time and date. He instead 2004. On the contrary, our belief is based on the fact that you could not tell who called you up or how the call got
provided the name of a certain Ms. Eveth Salvador of said embassy who could certify that he was present thereat. to you. If you forgot to ask the name of the person who called you up, surely you would have known how the call
Accordingly, Mr. Bailon, a member of the investigation panel, verified with Ms. Salvador who told him that she is only came to you. You said you were having lunch at the third floor of the CTC building when you received the call.
the telephone operator of the Israel Embassy and that she was not in a position to validate [respondent’s] presence There were only two means of communication available to you then: the land line telephone service in your office
at the Embassy. Mr. Bailon was then referred to a certain Ms. Aimee Zandueta, also of said embassy, who confirmed and your mobile phone. If your claim were (sic) not fabricated, you would be able to tell which of these two was
that based on their records, [respondent] did not visit the embassy nor was he attended to by any member of said used.
69
Granting that you indeed received that alleged call, from your own account, there was no compelling reason for The CA disagreed with the NLRC and ruled that it was immaterial whether respondent failed, refused, or avoided
you to act on it at the expense of your scheduled drug testing. The call, as it were, merely stated that ‘something being tested. To the appellate court, the singular fact material to this case was that respondent did not get himself
wrong happened (sic) in their neighborhood, where a bomb exploded near her workstation.’ Nothing was said if tested in clear disobedience of company instructions and policy. Despite such disobedience, however, the appellate
your wife was affected. There is no point in confirming it with extraordinary haste and forego the drug test which court considered the penalty of dismissal to be too harsh to be imposed on respondent, viz.:
would have taken only a few minutes to accomplish. If at all, you should have undergone the drug testing first x x x While it is a management prerogative to terminate its erring employee for willful disobedience, the Supreme
before proceeding to confirm the news so as to leave your mind free from this obligation. Court has recognized that such penalty is too harsh depending on the circumstances of each case. "There must be
reasonable proportionality between, on the one hand, the willful disobedience by the employee and, on the other
Additionally, if it was indeed necessary that you skip the scheduled drug testing to verify that call, why did you hand, the penalty imposed therefor" x x x.
not ask permission from the Drug Watch [C]ommittee that you were leaving? The place where the activity was
being conducted was very close to your workstation. It was absolutely within your reach to inform any of its In this case, [petitioner corporation’s] own investigating panel has revealed that the penalty of dismissal is too harsh
members that you were attending to an emergency call. Why did you not do so? to impose on [respondent], considering that this was the first time in his 10-year employment that the latter violated
its company policies. The investigating panel even suggested that a review be had of the company policy on the term
All this undisputedly proves that you merely eluded the drug testing. Your claim that you did not refuse to be "unjustified refusal" to clearly define what constitutes a violation thereof. The recommendation of the investigating
screened carries no value. Your act was a negation of your words."33 panel is partially reproduced as follows:
"VII. Recommendation
However, despite having violated the company policy, the panel recommends 4 working weeks suspension
The NLRC found that respondent was not only validly dismissed for cause – he was also properly accorded his without pay (twice the company policy’s maximum of 2 working weeks suspension) instead of termination due to
constitutional right to due process as shown by the following succession of events: the following mitigating circumstances.
1. On November 8, 2004, respondent was given a show-cause notice requiring him to explain in writing within 1. Mr. Joselito A. Caro did not directly refuse to be subjected to the random drug test scheduled on November
three days why no disciplinary action should be taken against him for violation of company policy on unjustified 3, 2004.
refusal to submit to random drug testing – a type D offense which results in termination. 2. In the case of Mr. Joselito A. Caro, the two conditions for termination (Unjustified and Refusal) were not fully
2. Respondent submitted his explanation on November 11, 2004. met as he expressly agreed to undergo drug test.
3. On December 9, 2004, respondent was given a notice of investigation34 informing him of a meeting on December 3. Mr. Joselito A. Caro voluntarily offered himself to undergo drug test the following day at his own expense.
13, 2004 at 9:00 a.m. In this meeting, respondent was allowed to explain his side, present his evidences and
witnesses, and confront the witnesses presented against him.
4. On February 14, 2005, respondent was served a letter of termination which clearly stated the reasons therefor.35 Doubling the maximum of 2 weeks suspension to 4 weeks is indicative of the gravity of the offense committed. The
panel believes that although mitigating factors partially offset reasons for termination, the 2 weeks maximum
suspension is too lenient penalty for such an offense.
The NLRC, notwithstanding its finding that respondent was dismissed for cause and with due process, granted
financial assistance to respondent on equitable grounds. It invoked the past decisions of this Court which allowed the
award of financial assistance due to factors such as long years of service or the Court’s concern and compassion The Panel also took into consideration that Mr. Joselito A. Caro has served the company for ten (10) years without
towards labor where the infraction was not so serious. Thus, considering respondent’s 10 years of service with any record of violation of the company policies.
petitioner corporation without any record of violation of company policies, the NLRC ordered petitioner corporation to
pay respondent financial assistance equivalent to one-half (1/2) month pay for every year of service in the amount of The Panel also recommends that Management review the Mirant Drug Policy specifically ‘Unjustified [R]efusal to
One Hundred Ninety-Nine Thousand Seventy-Five Pesos (₱199,075.00). The NLRC decision states thus: submit to random drug testing.’ The Panel believes that the term refusal casts certain ambiguities and should be
WHEREFORE, the decision dated 31 August 2005 is VACATED and SET ASIDE. The instant complaint is dismissed clearly defined."42
for lack of merit. However, respondent Mirant [Philippines] Corp. is ordered to pay complainant financial assistance
in the amount of one hundred ninety-nine thousand seventy five pesos (₱199,075.00). The CA however found that award of moral and exemplary damages is without basis due to lack of bad faith on the
part of the petitioner corporation which merely acted within its management prerogative. In its assailed Decision
Respondent filed a motion for reconsideration, 37 while petitioners filed a motion for partial reconsideration38 of the dated June 26, 2007, the CA ruled, viz.:
NLRC decision. In a Resolution39 dated June 30, 2006, the NLRC denied both motions. IN VIEW OF ALL THE FOREGOING, the instant petition is GRANTED. The assailed Decision dated May 31, 2006 and
Resolution dated June 30, 2006 rendered by the National Labor Relations Commission (NLRC) in NLRC NCR CA No.
In a petition for certiorari before the CA, respondent raised the following issues: whether the NLRC acted without or 046551-05 (NCR-00-03-02511-05) are REVERSED and SET ASIDE. The Labor Arbiter’s Decision dated August 31,
in excess of its jurisdiction, or with grave abuse of discretion amounting to lack or excess of its jurisdiction when it 2005 is hereby REINSTATED with MODIFICATION by omitting the award of moral and exemplary damages as well
construed that the terms "failure," "avoidance," "refusal" and "unjustified refusal" have similar meanings; reversed as attorney’s fees, and that the petitioner’s salary equivalent to four (4) working weeks at the time he was
the factual findings of the Labor Arbiter; and held that respondent deliberately breached petitioner’s Anti-Drugs terminated be deducted from his backwages. No cost.
Policy.40 Respondent further argued before the appellate court that his failure to submit himself to the random drug
test was justified because he merely responded to an emergency call regarding his wife’s safety in Tel Aviv, and that Petitioner moved for reconsideration. In its assailed Resolution dated January 11, 2008, the CA denied petitioners’
such failure cannot be considered synonymous with "avoidance" or "refusal" so as to mean "unjustified refusal" in motion for reconsideration for lack of merit. It ruled that the arguments in the motion for reconsideration were
order to be meted the penalty of termination.41 already raised in their past pleadings.
70
In this instant Petition, petitioners raise the following grounds: or is pending, he shall report that fact within five (5) days therefrom to the court wherein his aforesaid complaint
I. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT FAILED TO CONSIDER THAT: or initiatory pleading has been filed.
A. THE PETITION FOR CERTIORARI FILED BY RESPONDENT CARO SHOULD HAVE BEEN SUMMARILY DISMISSED
CONSIDERING THAT IT LACKED THE REQUISITE VERIFICATION AND CERTIFICATION AGAINST FORUM Failure to comply with the foregoing requirements shall not be curable by mere amendment of the complaint or
SHOPPING REQUIRED BY THE RULES OF COURT; OR other initiatory pleading but shall be cause for the dismissal of the case without prejudice, unless otherwise
B. AT THE VERY LEAST, THE SAID PETITION FOR CERTIORARI FILED BY RESPONDENT CARO SHOULD HAVE provided, upon motion and after hearing. The submission of a false certification or noncompliance with any of the
BEEN CONSIDERED MOOT SINCE RESPONDENT CARO HAD ALREADY PREVIOUSLY EXECUTED A QUITCLAIM undertakings therein shall constitute indirect contempt of court, without prejudice to the corresponding
DISCHARGING THE PETITIONERS FROM ALL HIS MONETARY CLAIMS. administrative and criminal actions. If the acts of the party or his counsel clearly constitute willful and deliberate
II. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND DECIDED QUESTIONS OF SUBSTANCE IN A WAY forum shopping, the same shall be ground for summary dismissal with prejudice and shall constitute direct
NOT IN ACCORDANCE WITH LAW AND APPLICABLE DECISIONS OF THE HONORABLE COURT, CONSIDERING THAT: contempt, as well as a cause for administrative sanctions.
A. THE COURT OF APPEALS REVERSED THE DECISION DATED 31 MAY 2006 OF THE NLRC ON THE GROUND THAT
THERE WAS GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
NOTWITHSTANDING THE FACT THAT IT AFFIRMED THE NLRC’S FINDINGS THAT RESPONDENT CARO It is the contention of petitioners that due to respondent’s failure to subscribe the Verification and Certification of
DELIBERATELY DISOBEYED PETITIONER MIRANT’S ANTI-DRUGS POLICY. Non-Forum Shopping before a Notary Public, the said verification and certification cannot be considered to have been
B. THE PENALTY OF TERMINATION SHOULD HAVE BEEN SUSTAINED BY THE COURT OF APPEALS GIVEN ITS made under oath. Accordingly, such omission is fatal to the entire petition for not being properly verified and
POSITIVE FINDING THAT RESPONDENT CARO DELIBERATELY AND WILLFULLY DISOBEYED PETITIONER certified. The CA therefore erred when it did not dismiss the petition.
MIRANT’S ANTI-DRUGS POLICY.
C. IN INVALIDATING RESPONDENT CARO’S DISMISSAL, THE COURT OF APPEALS SUBSTITUTED WITH ITS OWN This jurisdiction has adopted in the field of labor protection a liberal stance towards the construction of the rules of
DISCRETION A CLEAR MANAGEMENT PREROGATIVE BELONGING ONLY TO PETITIONER MIRANT IN THE INSTANT procedure in order to serve the ends of substantial justice. This liberal construction in labor law emanates from the
CASE. mandate that the workingman’s welfare should be the primordial and paramount consideration. 45 Thus, if the rules of
D. THE WILLFUL AND DELIBERATE VIOLATION OF PETITIONER MIRANT’S ANTI-DRUGS POLICY AGGRAVATED procedure will stunt courts from fulfilling this mandate, the rules of procedure shall be relaxed if the circumstances of
RESPONDENT CARO’S WRONGFUL CONDUCT WHICH JUSTIFIED HIS TERMINATION. a case warrant the exercise of such liberality. If we sustain the argument of petitioners in the case at bar that the
E. IN INVALIDATING RESPONDENT CARO’S DISMISSAL, THE COURT OF APPEALS, IN EFFECT, BELITTLED THE petition for certiorari should have been dismissed outright by the CA, the NLRC decision would have reached finality
IMPORTANCE AND SERIOUSNESS OF PETITIONER MIRANT’S ANTI-DRUGS POLICY AND CONSEQUENTLY and respondent would have lost his remedy and denied his right to be protected against illegal dismissal under the
HAMPERED THE EFFECTIVE IMPLEMENTATION OF THE SAME. Labor Code, as amended.
F. THE EXISTENCE OF OTHER GROUNDS FOR CARO’S DISMISSAL, SUCH AS WILLFUL DISOBEDIENCE AND
[LOSS] OF TRUST AND CONFIDENCE, JUSTIFIED HIS TERMINATION FROM EMPLOYMENT.
It is beyond debate that petitioner corporation’s enforcement of its Anti-Drugs Policy is an exercise of its
III. NONETHELESS, THE AWARD OF FINANCIAL ASSISTANCE IN FAVOR OF RESPONDENT CARO IS NOT management prerogative. It is also a conceded fact that respondent "failed" to take the random drug test as
WARRANTED CONSIDERING THAT RESPONDENT CARO’S WILLFUL AND DELIBERATE REFUSAL TO SUBJECT
scheduled, and under the said company policy, such failure metes the penalty of termination for the first offense. A
HIMSELF TO PETITIONER MIRANT’S DRUG TEST AND HIS SUBSEQUENT EFFORTS TO CONCEAL THE SAME SHOWS plain, simple and literal application of the said policy to the omission of respondent would have warranted his
HIS DEPRAVED MORAL CHARACTER.
outright dismissal from employment – if the facts were that simple in the case at bar. Beyond debate – the facts of
IV. THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT HELD PETITIONER BAUTISTA PERSONALLY LIABLE FOR this case are not – and this disables the Court from permitting a straight application of an otherwise prima facie
[RESPONDENT] CARO’S UNFOUNDED CLAIMS CONSIDERING THAT, ASIDE FROM RESPONDENT CARO’S DISMISSAL
straightforward rule if the ends of substantial justice have to be served.
BEING LAWFUL, PETITIONER BAUTISTA MERELY ACTED WITHIN THE SCOPE OF HIS FUNCTIONS IN GOOD FAITH.44
It is the crux of petitioners’ argument that respondent’s omission amounted to "unjust refusal" because he could not
We shall first rule on the issue raised by petitioners that the petition for certiorari filed by respondent with the CA
sufficiently support with convincing proof and evidence his defenses for failing to take the random drug test. For
should have been summarily dismissed as it lacked the requisite verification and certification against forum shopping petitioners, the inconsistencies in respondent’s explanations likewise operated to cast doubt on his real reasons and
under Sections 4 and 5, Rule 7 of the Rules, viz.:
motives for not submitting to the random drug test on schedule. In recognition of these inconsistencies and the lack
SEC. 4. Verification. – Except when otherwise specifically required by law or rule, pleadings need not be under of convincing proof from the point of view of petitioners, the NLRC reversed the decision of the Labor Arbiter. The CA
oath, verified or accompanied by affidavit.
found the ruling of the Labor Arbiter to be more in accord with the facts, law and existing jurisprudence.
A pleading is verified by an affidavit that the affiant has read the pleading and that the allegations therein are true
and correct of his knowledge and belief.
A pleading required to be verified which contains a verification based on "information and belief," or upon We agree with the disposition of the appellate court that there was illegal dismissal in the case at bar.
"knowledge, information and belief," or lacks a proper verification, shall be treated as an unsigned pleading.
While the adoption and enforcement by petitioner corporation of its Anti-Drugs Policy is recognized as a valid
SEC. 5. Certification against forum shopping. – The plaintiff or principal party shall certify under oath in the exercise of its management prerogative as an employer, such exercise is not absolute and unbridled. Managerial
complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and prerogatives are subject to limitations provided by law, collective bargaining agreements, and the general principles
simultaneously filed therewith: (a) that he has not theretofore commenced any action or filed any claim involving of fair play and justice.46 In the exercise of its management prerogative, an employer must therefore ensure that the
the same issues in any court, tribunal or quasi-judicial agency and, to the best of his knowledge, no such other policies, rules and regulations on work-related activities of the employees must always be fair and reasonable and
action or claim is pending therein; (b) if there is such other pending action or claim, a complete statement of the the corresponding penalties, when prescribed, commensurate to the offense involved and to the degree of the
present status thereof; and (c) if he should thereafter learn that the same or similar action or claim has been filed infraction.47 The Anti-Drugs Policy of Mirant fell short of these requirements.
71
Petitioner corporation’s subject Anti-Drugs Policy fell short of being fair and reasonable. To be sure, the unreasonableness of the penalty of termination as imposed in this case is further highlighted by a
fact admitted by petitioner corporation itself: that for the ten-year period that respondent had been employed by
First. The policy was not clear on what constitutes "unjustified refusal" when the subject drug policy prescribed that petitioner corporation, he did not have any record of a violation of its company policies.
an employee’s "unjustified refusal" to submit to a random drug test shall be punishable by the penalty of termination
for the first offense. To be sure, the term "unjustified refusal" could not possibly cover all forms of "refusal" as the As to the other issue relentlessly being raised by petitioner corporation that respondent’s petition for certiorari before
employee’s resistance, to be punishable by termination, must be "unjustified." To the mind of the Court, it is on this the CA should have been considered moot as respondent had already previously executed a quitclaim discharging
area where petitioner corporation had fallen short of making it clear to its employees – as well as to management – petitioner corporation from all his monetary claims, we cannot agree. Quitclaims executed by laborers are ineffective
as to what types of acts would fall under the purview of "unjustified refusal." Even petitioner corporation’s own to bar claims for the full measure of their legal rights,52 especially in this case where the evidence on record shows
Investigating Panel recognized this ambiguity, viz.: that the amount stated in the quitclaim exactly corresponds to the amount claimed as unpaid wages by respondent
The Panel also recommends that Management review the Mirant Drug Policy specifically "Unjustified [R]efusal to under Annex A53 of his Reply54 filed with the Labor Arbiter. Prima facie, this creates a false impression that
submit to random drug testing." The Panel believes that the term "refusal" casts certain ambiguities and should be respondent’s claims have already been settled by petitioner corporation – discharging the latter from all of
clearly defined.48 respondent’s monetary claims. In truth and in fact, however, the amount paid under the subject quitclaim
represented the salaries of respondent that remained unpaid at the time of his termination – not the amounts being
The fact that petitioner corporation’s own Investigating Panel and its Vice President for Operations, Sliman, differed claimed in the case at bar.
in their recommendations regarding respondent’s case are first-hand proof that there, indeed, is ambiguity in the
interpretation and application of the subject drug policy. The fact that petitioner corporation’s own personnel had to We believe that this issue was extensively discussed by both the Labor Arbiter and the CA and we find no reversible
dissect the intended meaning of "unjustified refusal" is further proof that it is not clear on what context the term error on the disposition of this issue, viz.:
"unjustified refusal" applies to. It is therefore not a surprise that the Labor Arbiter, the NLRC and the CA have A review of the records show that the alluded quitclaim, which was undated and not even notarized although
perceived the term "unjustified refusal" on different prisms due to the lack of parameters as to what comes under its signed by the petitioner, was for the amount of ₱59,630.05. The said quitclaim was attached as Annex 26 in the
purview. To be sure, the fact that the courts and entities involved in this case had to engage in semantics – and [petitioners’] Position Paper filed before the Labor Arbiter. As fully explained by [respondent] in his Reply filed with
come up with different constructions – is yet another glaring proof that the subject policy is not clear creating doubt the Labor Arbiter, the amount stated therein was his last pay due to him when he was terminated, not the amount
that respondent’s dismissal was a result of petitioner corporation’s valid exercise of its management prerogative. representing his legitimate claims in this labor suit x x x. To bolster his defense, [respondent] submitted the pay
form issued to him by the [petitioner corporation], showing his net pay at ₱59,630.05 exactly the amount stated in
It is not a mere jurisprudential principle, but an enshrined provision of law, that all doubts shall be resolved in favor the quitclaim x x x. Then, too, as stated on the quitclaim itself, the intention of the waiver executed by the
of labor. Thus, in Article 4 of the Labor Code, as amended, "[a]ll doubts in the implementation and interpretation of [respondent] was to release [petitioner corporation] from any liability only on the said amount representing
the provisions of [the Labor] Code, including its implementing rules and regulations, shall be resolved in favor of [respondent’s] "full and final payment of [his] last salary/separation pay" x x x. It did not in any way waive
labor." In Article 1702 of the New Civil Code, a similar provision states that "[i]n case of doubt, all labor legislation [respondent’s] right to pursue his legitimate claims regarding his dismissal in a labor suit. Thus, We gave no
and all labor contracts shall be construed in favor of the safety and decent living for the laborer." Applying these credence to [petitioners’] private defense that alleged quitclaim rendered the instant petition moot.55
provisions of law to the circumstances in the case at bar, it is not fair for this Court to allow an ambiguous policy to
prejudice the rights of an employee against illegal dismissal. To hold otherwise and sustain the stance of petitioner Finally, the petition avers that petitioner Bautista should not be held personally liable for respondent’s dismissal as he
corporation would be to adopt an interpretation that goes against the very grain of labor protection in this acted in good faith and within the scope of his official functions as then president of petitioner corporation. We agree
jurisdiction. As correctly stated by the Labor Arbiter, "when a conflicting interest of labor and capital are weighed on with petitioners.1âwphi1 Both decisions of the Labor Arbiter and the CA did not discuss the basis of the personal
the scales of social justice, the heavier influence of the latter must be counter-balanced by the sympathy and liability of petitioner Bautista, and yet the dispositive portion of the decision of the Labor Arbiter - which was affirmed
compassion the law must accord the underprivileged worker."49 by the appellate court - held him jointly and severally liable with petitioner corporation, viz.:
WHEREFORE, premises considered, this Office finds respondents GUILTY of illegal dismissal, and hereby ordered to
Second. The penalty of termination imposed by petitioner corporation upon respondent fell short of being reasonable. jointly and severally reinstate complainant back to his former position without loss on seniority rights and benefits
Company policies and regulations are generally valid and binding between the employer and the employee unless and to pay him his backwages and other benefits from the date he was illegally dismissed up to the time he is
shown to be grossly oppressive or contrary to law 50 – as in the case at bar. Recognizing the ambiguity in the subject actually reinstated, partially computed as of this date in the amount of ₱258,797.50 (₱39,815.00 x 6.5 mos.) plus
policy, the CA was more inclined to adopt the recommendation of petitioner corporation’s own Investigating Panel his 13th and 14th month pay in the amount of ₱43,132.91 or in the total amount of ₱301,930.41. Respondents are
over that of Sliman and the NLRC. The appellate court succinctly but incisively pointed out, viz.: also ordered to pay complainant the amount of ₱3,000,000.00 as and by way of moral and exemplary damages,
x x x We find, as correctly pointed out by the investigating panel, that the [petitioner corporation’s] Anti-Drug and to pay complainant the amount equivalent to ten percent (10%) of the total awards as and by way of
Policy is excessive in terminating an employee for his "unjustified refusal" to subject himself to the random drug attorney's fees.
test on first offense, without clearly defining what amounts to an "unjustified refusal."
A corporation has a personality separate and distinct from its officers and board of directors who may only be held
Thus, We find that the recommended four (4) working weeks’ suspension without pay as the reasonable penalty to personally liable for damages if it is proven that they acted with malice or bad faith in the dismissal of an
be imposed on [respondent] for his disobedience. x x x51 (Additional emphasis supplied.) employee.57 Absent any evidence on record that petitioner Bautista acted maliciously or in bad faith in effecting the
termination of respondent, plus the apparent lack of allegation in the pleadings of respondent that petitioner Bautista
acted in such manner, the doctrine of corporate fiction dictates that only petitioner corporation should be held liable
for the illegal dismissal of respondent.
72
WHEREFORE, the petition for review on certiorari is DENIED. The assailed Decision dated June 26, 2007 and the transacted business with QTCI for almost a year, without questioning the license or the authority of the traders
Resolution dated January 11, 2008 in CA-G.R. SP No. 96153 are AFFIRMED with the MODIFICATION that only handling his account. It was only after it became apparent that QTCI could no longer resume its business
petitioner corporation is found GUILTY of the illegal dismissal of respondent Joselito A. Caro. Petitioner Edgardo A. transactions by reason of the CDO that respondent raised the alleged lack of authority of the brokers or traders
Bautista is not held personally liable as then President of petitioner corporation at the time of the illegal dismissal. handling his account. The losses suffered by respondent were due to circumstances beyond petitioners’ control and
could not be attributed to them. Respondent’s remedy, they added, should be against the unlicensed brokers who
handled the account. Thus, petitioners prayed for the dismissal of the complaint.6
After due proceedings, the SEC Hearing Officer rendered a decision7 in favor of respondent, decreeing that:
WHEREFORE, premises considered, [petitioners] Queensland Tokyo [C]ommodities, Inc., Romeo Y. Lau (aka "Lau
Ching Yee") and Charlie F. Collado are hereby ordered to jointly and severally pay the [respondent] the following:
1. The amount of ₱138,164.00, Philippine currency, representing the x x x return of his [respondent’s] peso
investment, plus legal rate of interest from February 1998 until fully paid;
2. The amount of $19,820.00, American dollars, or its peso equivalent at the time of payment representing the
[respondent’s] return of his dollar investments, plus legal rate of interest from February 1998 until fully paid;
3. The amount of ₱100,000.00 as (sic) by way of moral damages;
4. The amount of ₱50,000.00 as and (sic) by way of exemplary damages;
G.R. No. 172727 September 8, 2010
5. The amount of ₱10,000.00 as and for attorney’s fees; and
6. The amount of ₱2,877.00 as cost of suit.
QUEENSLAND-TOKYO COMMODITIES, INC., ROMEO Y. LAU, and CHARLIE COLLADO, Petitioners,
vs.
Petitioners appealed to the Commission en banc, but the appeal was dismissed because the Notice of Appeal and the
THOMAS GEORGE, Respondent.
Memorandum on Appeal were not verified.9
At bar is a petition for review on certiorari under Rule 45 of the Rules of Court filed by Queensland-Tokyo
Petitioners then went to the CA via a petition for review10 under Rule 43, faulting the Commission en banc for
Commodities, Inc. (QTCI), Romeo Y. Lau (Lau), and Charlie Collado (Collado), challenging the September 30, 2005
dismissing their appeal on purely technical ground. They insisted that they did not violate the rules on commodity
Decision1 and the January 20, 2006 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 58741.
futures trading. Thus, they faulted the SEC Hearing Officer for nullifying the Customer’s Agreement and for holding
them liable for respondent’s claims.
QTCI is a duly licensed broker engaged in the trading of commodity futures. In 1995, Guillermo Mendoza, Jr.
(Mendoza) and Oniler Lontoc (Lontoc) of QTCI met with respondent Thomas George (respondent), encouraging the
On September 30, 2005, the CA rendered the now challenged Decision.11 It declared the dismissal of petitioners’
latter to invest with QTCI. On July 7, 1995, upon Mendoza’s prodding, respondent finally invested with QTCI. On the
appeal by the Commission en banc improper. Nevertheless, it did not order a remand of the case to the Commission
same day, Collado, in behalf of QTCI, and respondent signed the Customer’s Agreement.3 Forming part of the
en banc because jurisdiction over petitioners’ appeal had already been transferred to the Regional Trial Court (RTC)
agreement was the Special Power of Attorney4 executed by respondent, appointing Mendoza as his attorney-in-fact
by virtue of Republic Act No. 8799 or the Securities Regulation Code. The CA thus proceeded to decide the merits of
with full authority to trade and manage his account.
the case, affirming in toto the decision of the SEC Hearing Officer. The appellate court failed to see any reason to
disturb the SEC Hearing Officer’s finding of liability on the part of petitioners. It sustained the finding that petitioners
On June 20, 1996, the Securities and Exchange Commission (SEC) issued a Cease-and-Desist Order (CDO) against violated the Revised Rules and Regulations on Commodity Futures Trading when they allowed an unlicensed
QTCI. Alarmed by the issuance of the CDO, respondent demanded from QTCI the return of his investment, but it was salesman, like Mendoza, to handle respondent’s account. The CA also upheld the nullification of the Customer’s
not heeded. He then sought legal assistance, and discovered that Mendoza and Lontoc were not licensed commodity Agreement, and the award of moral and exemplary damages, as well attorney’s fees, in favor of respondent. The CA
futures salesmen. disposed, thus:
WHEREFORE, premises considered, the petition is DISMISSED for lack of merit. The assailed decision dated
On February 4, 1998, respondent filed a complaint for Recovery of Investment with Damages5 with the SEC against February 7, 2000 is hereby AFFIRMED in toto.
QTCI, Lau, and Collado (petitioners), and against the unlicensed salesmen, Mendoza and Lontoc. The case was
docketed as SEC Case No. 02-98-5886, and was raffled to SEC Hearing Officer Julieto F. Fabrero. Petitioners filed a motion for reconsideration,13 but the CA denied it on January 20, 2006.14
Only petitioners answered the complaint, as Mendoza and Lontoc had since vanished into thin air. Traversing the Hence, this recourse by petitioners arguing that:
complaint, petitioners denied the material allegations in the complaint and alleged lack of cause of action, as a A. THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONERS KNOWINGLY PERMITTED AN
defense. Petitioners averred that QTCI only assigned duly qualified persons to handle the accounts of its clients; and UNLICENSED TRADER TO SOLICIT AND HANDLE REPONDENT’S ACCOUNT, AND THAT PETITIONERS ARE GUILTY OF
denied allowing unlicensed brokers or agents to handle respondent’s account. They claimed that they were not aware FRAUD AND MISREPRESENTATION.
of, nor were they privy to, any arrangement which resulted in the account of respondent being handled by unlicensed B. THE HONORABLE COURT OF APPEALS ERRED IN FINDING INDIVIDUAL PETITIONERS SOLIDARILY LIABLE FOR
brokers. They added that even assuming that the subject account was handled by an unlicensed broker, respondent THE DAMAGES AND AWARDS DUE [THE] RESPONDENT.15
is now estopped from raising it as a ground for the return of his investment. They pointed out that respondent
73
Petitioners insist that they did not violate the Revised Rules and Regulations on Commodity Futures Trading. They It is settled that a void contract is equivalent to nothing; it produces no civil effect. It does not create, modify, or
claim that it has been QTCI’s policy and practice to appoint only licensed traders to trade the client’s account. They extinguish a juridical relation. Parties to a void agreement cannot expect the aid of the law; the courts leave them as
denied any participation in the designation of Mendoza as respondent’s attorney-in-fact; taking exception to the they are, because they are deemed in pari delicto or in equal fault. 21 This rule, however, is not absolute. Article 1412
findings that they permitted Mendoza to trade respondent’s account. Petitioners also assailed the weight given by the of the Civil Code provides an exception, and permits the return of that which may have been given under a void
SEC Hearing Officer and by the CA to respondent’s evidence. contract. Thus:
Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the
It is evident that the issue raised in this petition is the correctness of the factual findings of the SEC Hearing Officer, following rules shall be observed:
as affirmed by the CA. It is well-settled that factual findings of administrative agencies are generally held to be (1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of
binding and final so long as they are supported by substantial evidence in the records of the case. It is not the the contract, or demand the performance of the other's undertaking;
function of this Court to analyze or weigh all over again the evidence and the credibility of witnesses presented (2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the
before the lower court, tribunal, or office, as we are not a trier of facts. Our jurisdiction is limited to reviewing and contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand
revising errors of law imputed to the lower court, the latter’s findings of fact being conclusive and not reviewable by the return of what he has given without any obligation to comply with his promise.
this Court.16
The evidence on record established that petitioners indeed permitted an unlicensed trader and salesman, like
We sustain the finding of the SEC Hearing Officer and the CA that petitioners allowed unlicensed individuals to Mendoza, to handle respondent’s account. On the other hand, the record is bereft of proof that respondent had
engage in, solicit or accept orders in futures contracts, and thus, transgressed the Revised Rules and Regulations on knowledge that the person handling his account was not a licensed trader. Respondent can, therefore, recover the
Commodity Futures Trading.17 amount he had given under the contract. The SEC Hearing Officer and the CA, therefore, committed no reversible
error in holding that respondent is entitled to a full recovery of his investments.
We are not persuaded by petitioners’ assertion that they had no hand in Mendoza’s designation as respondent’s
attorney-in-fact. As pointed out by the CA, the Special Power of Attorney formed part of respondent’s agreement Petitioners Collado and Lau next fault the CA in making them solidarily liable for the payment of respondent’s claim.
with QTCI, and under the Customer’s Agreement,18 only a licensed or registered dealer or investment consultant may
be appointed as attorney-in-fact. Thus: Doctrine dictates that a corporation is invested by law with a personality separate and distinct from those of the
2. If I so desire, I shall appoint you as my agent pursuant to a Special Power of Attorney which I shall execute for persons composing it, such that, save for certain exceptions, corporate officers who entered into contracts in behalf
this purpose and which form part of this Agreement. of the corporation cannot be held personally liable for the liabilities of the latter. Personal liability of a corporate
xxxx director, trustee, or officer, along (although not necessarily) with the corporation, may validly attach, as a rule, only
18. I hereby confer, pursuant to the Special Power of Attorney herewith attached, full authority to your when – (1) he assents to a patently unlawful act of the corporation, or when he is guilty of bad faith or gross
licensed/registered dealer/investment in charge of my account/s and your Senior Officer, who must also be a negligence in directing its affairs, or when there is a conflict of interest resulting in damages to the corporation, its
licensed/registered dealer/investment consultant, to sign all order slips on futures trading. 19 stockholders, or other persons; (2) he consents to the issuance of watered down stocks or who, having knowledge
thereof, does not forthwith file with the corporate secretary his written objection thereto; (3) he agrees to hold
Inexplicably, petitioners did not object to, and in fact recognized, Mendoza’s appointment as respondent’s attorney- himself personally and solidarily liable with the corporation; or (4) he is made by a specific provision of law
in-fact. Collado, in behalf of QTCI, concluded the Customer’s Agreement despite the fact that the appointed attorney- personally answerable for his corporate action.221avvphi1
in-fact was not a licensed dealer. Worse, petitioners permitted Mendoza to handle respondent’s account.
In holding Lau and Collado jointly and severally liable with QTCI for respondent’s claim, the SEC Hearing Officer
Indubitably, petitioners violated the Revised Rules and Regulations on Commodity Futures Trading prohibiting any explained in this wise:
unlicensed person to engage in, solicit or accept orders in futures contract. Consequently, the SEC Hearing Officer Anent the issue of who among the individual [petitioners] are jointly liable with QTCI in the payment of the awards,
and the CA cannot be faulted for declaring the contract between QTCI and respondent void. the Commission took into consideration, among others, that audit report on the trading activities submitted by the
Brokers and Exchange Department (BED) of this Commission (Exhibit "J"). The findings contained in the report
include the presence of seven (7) unlicensed investment consultants in QTCI, and the company practice of
Batas Pambansa Bilang (B.P. Blg.) 178 or the Revised Securities Act explicitly provided: changing deeds of Special Power of Attorney bearing those who are licensed (exhibits "J-1" and "J-2").
SEC. 53. Validity of Contracts. x x x.
(b) Every contract executed in violation of any provision of this Act, or any rule or regulation thereunder, and every
contract, including any contract for listing a security on an exchange heretofore or hereafter made, the The Commission also took into consideration the fact that [petitioner] Collado, who is not a licensed commodity
performance of which involves the violation of, or the continuance of any relationship or practice in violation of, any salesman, himself violated the aforequoted provisions of the Revised Rules and Regulations on Commodity Futures
provision of this Act, or any rule and regulation thereunder, shall be void. Trading when he admitted having participated in the execution of the customers orders (p. 7, TSN dated January
Likewise, Paragraph 2920 of the Customer’s Agreement provides: 21, 1999) without giving any exception thereto, which presumably includes his participation in the execution of
29. Contracts entered into by unlicensed Account Executives (A/E) or Investment consultants are deemed void and customers orders of the [respondent].
of no legal effect.
Such being the case, [Mendoza’s] participation in the trading of [respondent’s] account is within the knowledge of
Clearly, the CA merely adhered to the clear provision of B.P. Blg. 178 and to the stipulation in the parties’ agreement [petitioner] Collado.
when it declared as void the Customer’s Agreement between QTCI and respondent.
74
The presence of seven (7) unlicensed investment consultants within QTCI apart from x x x Mendoza, and In fine, except for the modification of the awards for moral and exemplary damages, there is no justification to
[petitioner] Collado’s participation in the unlawful execution of orders under the [respondent’s] account clearly overturn the findings of the SEC Hearing Officer, as affirmed by the CA.
established the fact that the management of QTCI failed to implement the rules and regulations against the hiring
of, and associating with, unlicensed consultants or traders. How these unlicensed personnel been able to pursue We reiterate that the findings of facts and conclusions of law of the SEC are controlling on the reviewing authority.
their unlawful activities is a reflection of how negligent [the] management was. Indeed, the rule is that the findings of fact of administrative bodies, if based on substantial evidence, are controlling
on the reviewing authority. It has been held that it is not for the appellate court to substitute its own judgment for
[Petitioner] Romeo Lau, as president of [petitioner] QTCI, cannot feign innocence on the existence of these that of the administrative agency on the sufficiency of the evidence and the credibility of the witnesses. The Hearing
unlawful activities within the company, especially so that Collado, himself a ranking officer of QTCI, is involved in Officer had the optimum opportunity to review the pieces of evidence presented before him and to observe the
the unlawful execution of customers orders. [Petitioner] Lau, being the chief operating officer, cannot escape the demeanor of the witnesses. Administrative decisions on matters within his jurisdiction are entitled to respect and can
fact that had he exercised a modicum of care and discretion in supervising the operations of QTCI, he could have only be set aside on proof of grave abuse of discretion, fraud, or error of law, 29 which has not been shown by
detected and prevented the unlawful acts of [petitioner] Collado and Mendoza. petitioner in this case.
It is therefore safe to conclude that although Lau may not have participated nor been aware of the unlawful acts, WHEREFORE, the challenged Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 58741
he is however deemed to have been grossly negligence in directing the affairs of QTCI. are AFFIRMED with MODIFICATION that the awards for moral and exemplary damages are reduced to ₱50,000.00
and ₱30,000.00, respectively.
In all, it having been established by substantial evidence that [petitioner] Collado assented to the unlawful act of
QTCI, and that [petitioner] Lau is grossly negligent in directing the affairs of QTCI, and 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 [ G.R. No. 245858, December 02, 2020 ]
We find no compelling reason to depart from the conclusion of the SEC Hearing Officer, which was affirmed by the JOHN A. OSCARES, PETITIONER, VS. MAGSAYSAY MARITIME CORP., SK SHIPPING (SINGAPORE) PTE.
CA. We are in full accord with his reasons for holding Lau and Collado jointly and severally liable with QTCI for the LTD., AND/OR ARNOLD B. JAVIER, RESPONDENTS.
payment of respondent’s claim.
Before this Court is a Petition for Review on Certiorari1 assailing the Decision2 dated August 29, 2018 and
Finally we sustain the awards for moral and exemplary damages in favor of respondent. Moral damages are meant to Resolution3 dated February 27, 2019 of the Court of Appeals (CA) in CA-G.R. SP No. 151822. The CA reversed and
compensate the claimant for any physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, set aside the Decision4 dated March 30, 2017 and Resolution5 dated July 14, 2017 of the Office of the Panel of
wounded feelings, moral shock, social humiliation, and similar injuries unjustly caused. Although incapable of Voluntary Arbitrators (Panel) awarding US$131,797.00 as total and permanent disability fees or its equivalent in
pecuniary estimation, the amount must somehow be proportional to and in approximation of the suffering inflicted. Philippine Peso at the time of payment, 10% thereof as attorney's fees or its equivalent, and P100,000.00 as moral
Moral damages are not punitive in nature and were never intended to enrich the claimant at the expense of the damages, to petitioner John A. Oscares (Oscares).
defendant.24
Facts of the Case
25
Likewise, exemplary damages are properly exigible of QTCI. Article 2229 of the Civil Code provides that such
damages may be imposed by way of example or correction for the public good. While exemplary damages cannot be On August 14, 2015, the Philippine Overseas Employment Administration (POEA) approved the contract of
recovered as a matter of right, they need not be proved, although plaintiff must show that he is entitled to moral, employment between Oscares and respondent SK Shipping (Singapore) Pte. Ltd., through its manning agent
temperate, or compensatory damages before the court may consider the question of whether or not exemplary respondent Magsaysay Maritime Corporation (respondents). He was certified as fit to work by respondents'
damages should be awarded. Exemplary damages are imposed not to enrich one party or impoverish another, but to examining physician on August 29, 2015. As Second Assistant Engineer on board the vessel MV K. Garnet, he was
serve as a deterrent against or as a negative incentive to curb socially deleterious actions.26 responsible for the maintenance, operation of engineering, electrical and electronic systems of the vessel.6
However, the same statutory and jurisprudential standards dictate reduction of the amounts of moral and exemplary On November 4, 2015, while the vessel was anchored in Panama, Oscares was singing in front of a videoke machine
damages fixed by the SEC. Certainly, there is no hard-and-fast rule in determining what would be a fair and together with another crew member when he slipped and fell out of balance. As a result, he suffered major knee
reasonable amount of moral and exemplary damages, since each case must be governed by its own peculiar injuries. First aid was administered to him. On November 11, 2015, he was sent to a medical facility in San Luis
facts.27 Courts are given discretion in determining the amount, with the limitation that it should not be palpably and Hospital, Mexico. He was diagnosed with fracture fragmentary of the tibia bone epiphysis in the right leg and fracture
scandalously excessive. Indeed, it must be commensurate to the loss or injury suffered.28 crack of the tibia bone epyphysis in the left leg. It was recommended that he undergo major knee surgery or
osteosintesis-fixation and sterilization. Oscares was declared unfit to work for 10 weeks.7
In this case, we find a need to modify, by reducing the awards for moral damages from ₱100,000.00 to ₱50,000.00;
and for exemplary damages from ₱50,000.00 to ₱30,000.00. On December 10, 2015, Oscares was repatriated to Manila. Upon arrival, he reported to respondents who referred
him to NGC Medical Specialist Clinic, Inc. (NGC) for post-employment medical examination and
management.8 Oscares underwent x-ray of both knees on December 14, 2015. The result revealed that he had
complete oblique fracture of the right medical condyle. Thus, he was recommended to undergo major knee surgery.
75
Respondents insisted that Oscares should shoulder the cost of his surgery. Since his protests fell on deaf ears, he On August 29, 2018, the CA granted the petition and reversed and set aside the decision of the panel of voluntary
was compelled to undergo the necessary surgery on December 29, 2016. Oscares also shouldered his physical arbitrators. The CA held that Oscares' injury was not work-related, work-caused, or work-aggravated. It has no
rehabilitation which ensued thereafter. Nonetheless, he was required to report to NGC.9 connection whatsoever to his official duties. Consequently, it is not compensable.26
On March 16, 2016, NGC issued an interim disability assessment of Grade 10-complete immobility of a knee joint in Oscares filed a motion for reconsideration,27 but it was denied by the CA. As such, he filed a petition for review
full flexion. However, Oscares' attending physician in Seamen's Hospital, Iloilo declared him unfit for duty on April 12, on certiorari before Us. First, Oscares argues that according to the case of Iloilo Dock & Engineering Co. v.
2016. The removal of his plates was recommended thereafter.10 Workmen's Compensation Commission,28 when the employer pays for the employee's time from the moment that he
leaves his home until he returns home, any accidents occurring during the employee's rest and recreation should be
On July 28, 2016, Dr. Nicomedes G. Cruz (Dr. Cruz) issued a final disability assessment of Grade 10 for Oscares. considered work-related. Seafarers are being paid from their embarkation on the vessel until their disembarkation.
Oscares then sought the opinion of Dr. Manuel Magtira, an orthopaedist, who issued a medical report11 dated July They must stay on board the vessel even during their rest and recreation. Consequently, any injury incurred by
12, 2016 recommending permanent disability and considered him permanently unfit in any capacity for further sea seafarers during their rest and recreation should be compensable as long as their actions are not contrary to law or
duties. Dr. Victor Pundavela (Dr. Pundavela), another doctor consulted by Oscares, issued a medical report12 on July that they intentionally inflicted injury on themselves.29 Second, it is presumed that an injury was directly caused or
14, 2016 likewise stating that he is permanently disabled and unfit for sea duty in any capacity.13 rose out of the employment or was aggravated by it if it was established through evidence that the injury occurred in
the course of employment. Oscares undoubtedly incurred his injury while he was in the course of his employment on
the vessel. Hence, the presumption applies.30 Third, respondents' designated physician failed to issue a categorical
Consequently, Oscares sent a demand letter14 dated July 25, 2016 to respondents for a copy of his final assessment certification that Oscares was fit to work. The physician also failed to discuss the implication of his disability on his
and referral to a third doctor. Since respondents took no action, he filed a notice to arbitrate against them. After capacity to return to work. In fact, the assessment did not clarify Oscares' medical condition.31 Due to respondents'
mandatory conciliation/mediation, they reached a deadlock.15 failure to issue a final assessment in accordance with the law, Oscares is presumed to have total and permanent
disability and is entitled to a Grade 1 disability rating. In any event, Oscares can no longer perform his former
On July 14, 2017, the Panel ruled that Oscares is entitled to total and permanent disability benefits worth duties.32 Fourth, respondents failed to respond to Oscares' offer to refer his case to a third physician. As such,
US$131,797.00 based on the Collective Bargaining Agreement (CBA). In addition, it awarded moral damages of Oscares cannot be faulted for filing the complaint without an opinion from a third doctor.33 Also, the certification
P100,000.00 for respondents' gross negligence in its delay in addressing and refusing to shoulder the medical needs from his chosen physicians should prevail in light of respondents' refusal to respond to Oscares' request to consult a
of Oscares, as well as for circumventing the provisions of the POEA-Standard Employment Contract (POEA-SEC) and third doctor.34
the CBA. The Panel likewise awarded ten percent (10%) of the total award as attorney's fees since he was compelled
to incur litigation expenses to protect his rights.16 Respondents filed their comment35 wherein they argue first, that Oscares cannot argue for the first time before this
Court that his right to due process was violated when respondents' designated physician didn't give him a copy of the
According to the Panel, a work-related injury is one arising out of and in the course of employment. An injury occurs final assessment. Oscares was well-aware of the Grade 10 disability assessment made by the designated physician
in the course of employment when it takes place within the period of employment, at a place where the employee because this was explained to him on his last medical visit.36 Also, contrary to Oscares' claim, the POEA-SEC does
reasonably may be in the performance of his duties, and while fulfilling those duties or engaged in something not require the company-designated physician to discuss the implication of his disability on his capacity to work.
incidental thereto.17 Under the personal comfort doctrine,18 acts of personal ministration for the comfort or Section 20A of the POEA-SEC only requires an assessment of fitness to work or degree of disability and the
convenience of the employee is an incident of employment. Thus, the Panel held that when Oscares suffered from his assessment made by respondents' designated physician complied with this requirement.37 Second, Iloilo Dock &
injury, he was engaged in an act necessary to his physical well-being and incidental to his employment.19 Engineering Co. does not state that rest and recreation forms part of employment.38 In any event, it is not
applicable in this case because the issue here is different. The issue in Iloilo Dock & Engineering Co. was the
The Panel also found no evidence to show that respondents gave Oscares a copy of his final disability assessment. compensability of the death of the employee in relation to his proximity to the workplace when he died. In this case,
the issue is whether Oscares' injury incurred during his rest and recreation is compensable.39 Third, respondents
Moreover, Dr. Cruz was not an expert on Oscares' case since his area of expertise is general and cancer surgery. The
Panel was more convinced with the findings of Oscares' attending physician in Seamen's Hospital, Dr. Magtira, and insist that Oscares' injury was not work-related. He was not hired to sing on board so it cannot be said that his injury
was incidental to his employment. His act of singing while jumping has no relation to his duties as Second Assistant
Dr. Pundavela that his disability was total and permanent.20
Engineer. It was a purely personal and social function. Therefore, the injury resulting from it is not
compensable.40 Fourth, the mere fact that respondents did not rehire Oscares is not conclusive proof of his
After the Panel denied its motion for reconsideration,21 respondents filed a petition for review22 with the CA. disability. Oscares did not show that he sought employment elsewhere but was unsuccessful due to his condition.
Respondents argued that the Panel erred in applying the personal comfort doctrine since it only covers acts which are Hence, he has no basis to claim that he has a total and permanent disability.41 Fifth, Oscares failed to comply with
related to one's personal comfort for a brief momentary period, such as using the restroom. Oscares' act of singing the POEA-SEC's requirement that a final assessment must be made by the company-designated physician before it
while jumping is not included, is a purely personal and social function, and is not incidental to his work.23 Further, can be disputed through a secondary assessment. Oscares consulted with his chosen physicians on July 12 and 14,
Oscares should not have consulted private physicians before respondents' designated physician issued his final 2016, which is before respondents' designated physician issued the final assessment on July 28, 2016, or 227 days
assessment. Thus, the former's assessment was premature.24 Also, Dr. Cruz and NGC's assessment should prevail after Oscares' repatriation.42 Respondents even expressed their willingness to consult a third doctor before the
since they conducted a more adequate, thorough, and exhaustive examination on Oscares. Moreover, Oscares Panel.43 Accordingly, the assessment of respondents' designated physician should prevail over that of Oscares'
submitted the CBA only after it submitted its position paper. Worse, it is not even the CBA stated in the contract of chosen physicians44 Sixth, the CBA submitted by Oscares is different from the CBA in their contract. As such, he
employment. With respect to the costs of Oscares' treatment, respondents asserted that it presented proof of cannot claim benefits under it.45 He is also not entitled to moral damages and attorney's fees because respondents
payment of sickness allowance, medical and transportation reimbursements.25 dutifully complied with their obligations by giving him medical attention prior to the issuance of the final
assessment.46
76
Issue Taking into consideration the medical certificates and laboratory test results detailing the extent and nature of
Oscares' injury, We find that the impediment assessment of Grade 10 (20.15%) is reflective of his medical status and
The sole issue before Us is whether the CA erred in setting aside the ruling of the Panel. resulting incapacity. We reviewed the schedule of disability or impediment for injuries under the POEA-SEC, and We
find a comparable disability equivalent to Grade 10 as follows:
LOWER EXTREMITIES
Ruling of the Court xxxx
23. Complete immobility of a knee joint in full extension.....................Gr.1065
We resolve to grant disability compensation to Oscares equivalent to Grade 10 as recommended by respondents'
designated physician. We apply the same grading disability to Oscares' injury. Following the POEA-SEC, the corresponding rate of
compensation for his injury is US$10,075.00 or its peso equivalent. Oscares' injury does not qualify for a Grade 1
It is well-settled that in order for a seafarer's injury to be compensated, it must be shown that: (1) the injury or rating under Section 32 of the POEA-SEC. The medical conditions affecting the lower extremities under the POEA-SEC
illness must be work-related; and (2) the work-related injury or illness must have existed during the term of the that are more severe in nature than Oscares' condition and qualify for a Grade 1 rating include loss of both feet at
seafarer's employment contract.47 A work-related injury is defined as one arising out of and in the course of ankle joint or above, failure of [sic] fracture of both hips to unite, and paralysis of both lower extremities.
employment.48 As for what can be considered in the course of employment, the Court in the case of Iloilo Dock &
Engineering Co. held that it is when it takes place within the period of the employment, at a place where the However, We do not agree with the Panel's reference to the CBA in determining the amount due to Oscares. The CBA
employee reasonably may be, and while he is fulfilling his duties or is engaged in doing something incidental thereto. submitted by Oscares was not signed by either respondents or the International Transport Worker's Federation.66 It
While the case of Iloilo Dock & Engineering Co. involves Act No. 3428 or the Workmen's Compensation Act, We have is also unclear if such CBA, which is entitled "P.N.O. "TCC" Collective Agreement," is the same referred to in the
subsequently applied such definition in cases involving seafarers.49 After all, entitlement to disability benefits by contract of employment, which is "IBF-FKSU/AMOSUP KSA." Therefore, the provisions of the 2010 POEA-SEC shall
seafarers is a matter governed not only by the contract between the parties but also by Articles 197 to 199, Title II, govern.
Book IV of the Labor Code, in relation to Rule X of the Rules and Regulations Implementing Book IV of the Labor
Code.50 In the case of Phil-Nippon Kyoei, Corp. v. Gudelosao,51 We recognized that the death benefits granted
under the Labor Code are similar to those granted in the POEA-SEC, such that both are given when the death is due Pursuant to Section 20(A)(3) of the 2010 POEA-SEC, Oscares is entitled to sickness allowance in an amount
to a work-related cause during the term of the employee's contract.52 Prior to the Labor Code, the Workmen's equivalent to his basic wage computed at the time he signed off until he is declared fit to work or the degree of
Compensation Act is the first law on workmen's compensation in the Philippines for work-related injury, illness, or disability has been assessed by the company-designated physician, but shall in no case exceed 120 days.
death.53 As such, We have also noted that the rule on compensation for work related-injuries of seafarers is Respondents have not submitted proof that they reimbursed Oscares for the expenses he incurred in seeking medical
analogous to the rule under the Workmen's Compensation Act, that a preliminary link between the illness and the attention for his injury. In addition, Oscares is also entitled to a disability benefit of Grade 10, to be paid in Philippine
employment must first be shown before the presumption of work-relation can attach.54 currency at the exchange rate prevailing at the time of payment.
In the case of Luzon Stevedoring Corporation v. Workmen's Compensation Commission,55 the Court held that "acts Oscares should likewise receive moral damages. Under Article 2220 of the Civil Code, moral damages may be
reasonably necessary to health and comfort of an employee while at work, such as satisfaction of his thirst, hunger, awarded in breaches of contract when the defendant acted fraudulently or in bad faith. Even though respondents'
or other physical demands, or protecting himself from excessive cold, are incidental to the employment and injuries designated physician recommended that Oscares undergo surgery, it was Oscares himself who shouldered his
sustained in the performance of such acts are compensable as arising out of and in the course of surgery. Respondents acted in bad faith when it failed to comply with their obligation under Section 20(A)(2) of the
employment."56 Similar to Iloilo Dock & Engineering Co., Luzon Stevedoring Corporation also involves Act No. 3428. 2010 POEA-SEC which states that the medical attention needed by the seafarer after his repatriation shall be
Even so, we find that its ruling applies here since Act No. 3428, like the POEA-SEC, also makes personal injury from provided at cost to the employer. Aside from moral damages, Oscares should also receive attorney's fees. This is
any accident arising out of and in the course of the employment compensable.57 pursuant to Article 2208 of the Civil Code which provides for the recovery of attorney's fees in actions for indemnity
under workmen's compensation and employer's liability laws.
In this case, Oscares' act of singing can be considered necessary to his health and comfort while on board the vessel.
He incurred his injury while he was performing this act. Oscares neither willfully injured himself nor acted with Respondents, including Arnold Javier as the President of Magsaysay Maritime Corporation, shall be jointly and
notorious negligence. Notorious negligence is defined as something more than mere or simple negligence or severally liable to Oscares in accordance with Section 10 of Republic Act (RA) No. 8042, as amended by RA No.
contributory negligence; it signifies a deliberate act of the employee to disregard his own personal safety.58 Jumping 10022, which provides that "if the recruitment/placement agency is a juridical being, the corporate officers and
while singing cannot be considered as a reckless or deliberate act that is unmindful of one's safety. There is nothing directors and partners as the case may be, shall themselves be jointly and solidarily liable with the corporation or
inherently dangerous about jumping while singing.ℒαwρhi ৷ Respondents themselves did not allege that Oscares partnership for the aforesaid claims and damages." In Gargallo v. Dohle Seafront Crewing (Manila), Inc.,67 We
intentionally injured himself or was negligent. The truth is that he simply lost his balance. Accordingly, Oscares' explained that corporate officers or directors cannot, as a general rule, be personally held liable for the contracts
injury is compensable. In fact, no less than respondents' designated physician assessed a disability of Grade 10 for entered into by the corporation because the corporation has a separate and distinct legal personality. However,
Oscares' injury. Respondents' designated physician initially made this assessment on March 16, 2016, or 91 days "personal liability of such corporate director, trustee, or officer, along (although not necessarily) with the corporation,
after Oscares was repatriated.59 Afterwards, Oscares continued to receive therapy60 and consult with the company- may validly attach when he is made by a specific provision of law personally answerable for his corporate
designated physician.61 The final disability assessment was made on July 28, 2016, or 231 days after Oscares' action." As such, We upheld the joint and solidary liability of the officer in that case following Sec. 10 of RA No.
repatriation.62 Notably, Oscares offered to consult another physician but respondents did not respond to his 8042, as amended.68 We similarly imposed joint and several liability on the foreign employer, local manning agency,
offer.63 Respondents claim though that Oscares consulted his own physician even before respondents' designated and its officer/director in Cariño v. Maine Marine Phils., Inc.69
physician issued the final assessment.64
77
Respondents alleged that pursuant to a Writ of Execution issued by the National Conciliation and Mediation Board on In September 2006, EOL demanded the release of the remaining phone lines to cover its initial order of 2,000 units.
October 3, 2017, they paid the full judgment award.70 If it is true, Oscares must return the excess of what he SMART informed EOL that before it approved further phone line applications, the parties should restate and clarify
received to respondents because he is only entitled to disability benefits of Grade 10, sickness allowance, moral the agreements between them, to which EOL agreed. 10 In a letter dated September 13, 2006 (Letter Agreement),
damages, and attorney's fees. This is in accordance with Section 18, Rule XI of the 2011 National Labor Relations SMART specified the terms of the agreement over the 1,119 phone lines it already issued in favor of EOL. 11 In
Commission Rules of Procedure, as amended by En Bane Resolution Nos. 11-12, Series of 2012 and 05-14, Series of addition to the Letter Agreement, EOL executed an Undertaking 12 (EOL Undertaking) where it affirmed its availment
2014.71 However, respondents have not submitted proof that it has paid the full judgment award to Oscares. Hence, of 1,119 SMART cell phones and services. EOL also agreed to assume full responsibility for the charges incurred on
We do not have any basis to order the return the excess of what they allegedly paid to Oscares. the use of all these units. The pertinent portion of the EOL Undertaking signed by Samaco III and petitioner Nolasco
provides:
WHEREFORE, the petition is GRANTED. The Decision dated August 29, 2018 and and the Resolution dated February 3. Everything Online, Inc. agrees that it shall be fully responsible for the settlement of whatever charges to be
27, 2019 of the Court of Appeals in CA-G.R. SP No. 151822 are REVERSED and SET ASIDE. The Decision dated incurred under the above mobile numbers and shall fully comply with the terms and conditions pertaining to the
March 30, 2017 and the Resolution dated July 14, 2017 of the Office of the Panel of Voluntary Arbitrators Smart Corporate Service Application Form and other related Subscription Contracts. Likewise, Everything Online,
are REINSTATED with the MODIFICATION in that respondents Magsaysay Maritime Corp., SK Shipping Inc. shall bind itself to be continuously responsible regardless of assignment and movements of its designated
(Singapore) Pte. Ltd., and/or Arnold B. Javier are jointly and severally held liable to pay petitioner John A. Oscares users until such time that the units are validly transferred, after the expiration of the lock-in period, after twenty
sickness allowance in an amount equivalent to his basic wage not exceeding 120 days and disability benefit four (24) months for nineteen (19) lines at Plan 1200 and after thirty six (36) months for one thousand one
equivalent to Grade 10 rating under the POEA-SEC. hundred (1,100) lines at Plan 500, respectively.
xxxx
9. The President and each one of the directors and officers of Everything Online, Inc. shall be held
solidarity liable in their personal capacity with the franchisee or assignee for all charges for the use of
the SMART cellphone units acquired by Everything Online, Inc. 13 (Emphases supplied)
SMART averred that after the execution of the EOL Undertaking, its credit and collection department sent, by email,
phone bills to EOL that had been previously returned to SMART. These bills were for the collection of the monthly
G.R. No. 212885
payment due on the lines that were supposedly given to EOL's franchisees. However, EOL allegedly refused to receive
the bills, stating that it was not liable for the payment of bills of phone lines assigned to franchisees. 14
SPOUSES NOLASCO FERNANDEZ and MARICRIS FERNANDEZ, Petitioners
vs.
On October 13, 2006, SMART notified EOL that its collectibles already amounted to at least ₱18,000,000.00
SMART COMMUNICATIONS, INC., Respondent
representing the costs of cell phone units and the plans usage. EOL officers were also reminded that under the EOL
Undertaking and the Letter A6rreements, it is bound to pay the bills of the franchisees, whether the phones were in
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the December 2, 2013 the possession of the franchisees or not. 15
Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 113832. The challenged ruling reversed the November 11,
2009 Order2 of the Regional Trial Court (RTC) of Makati City, Branch 62, which dismissed the complaint against
On July 27, 2007, a meeting was purportedly held between the parties where EOL proposed to update the payments
petitioners Nolasco Fernandez (Nolasco) and Maricris Fernandez (Maricris) as co-defendants in Civil Case No. 09-199.
for 304 accounts of its franchisees and it would update and amend the monthly plan for the other 765 accounts. EOL
then issued Banco De Oro Check No. 1003473 dated August 3, 2007 for ₱394,064.62 in favor of SMART as partial
Everything Online, Inc. (EOL) is a corporation that offers internet services nationwide through franchisees. 3 Smart payment and as a sign of good faith. However, the BDO check was dishonored upon presentment clue to insufficiency
Communications, Inc. (SMART), on the other hand, is a mobile phone service provider. 4 Petitioners Nolasco and of funds. 16
Maricris were the Chief Executive Officer (CEO) and Member of the Board of Directors of EOL, respectively. 5
On November 8, 2007, SMART sent EOL a notice of final demand for the payment of the outstanding amount of
As alleged in the Amended Complaint,6 EOL sought SMART sometime in 2006 to provide the mobile communication ₱17,506,740.55. Despite receipt of the demand letter, EOL failed to pay the amount due. On January 2, 2008,
requirements for its expansion. Series of meetings ensued between the parties where it was determined that EOL another demand letter for ₱20,662,073.45 17 was sent by SMART to EOL. No payment was made by EOL. SMART
would be needing approximately 2,000 post-paid lines with corresponding cell phone units. Nineteen (19) of these claimed that the total due from EOL already amounted to ₱39,770,810.87 as of October 31, 2008. 18
lines shall be under the corporate account of EOL while the rest of the lines and phones shall be distributed to EOL's
franchisees. 7 In view of this, EOL's corporate president Salustiano G. Samaco III (Samaco III), signed on separate
SMART failed to collect from EOL despite repeated demands. Thus, on April 1, 2009, an Amended Complaint 19 with
occasions, two (2) Corporate Service Applications (SAF) for the 2,000 postpaid lines with corresponding cell phone
an application for a writ of preliminary attachment was filed by SMART before the RTC of Makati, Branch 62 for
units. He also signed Letters of Undertaking 8 to cover for the 1,119 phone lines issued by SMART to EOL thus far.
Collection of Sum of Money docketed as Civil Case No. 09- 199 against EOL and all its directors and officers including
Paragraph 8 of these Letters of Undertaking read:
petitioners Nolasco and Maricris.
8. The President and each one of the directors and officers of the corporation shall be held solidarily liable in their
personal capacity with the SUBSCRIBER for all charges for the use of the SMART Celfones (sic) units acquired by
the said SUBSCRIBER.9 On April 20, 2009, the trial court gave due course to the application for the issuance of a writ of attachment and
ordered the posting of an attachment bond in the amount of ₱39,770,810.87.20
78
On June 15, 2009, petitioners filed a Motion to Dismiss With a Very Urgent Motion to Lift and Discharge Writ of -B-THE REGIONAL TRIAL COURT OF MAKATI CITY, BRANCH 62 DID NOT COMMIT GRAVE ABUSE OF DISCRETION
Preliminary Attachment issued against them.21 Petitioners averred that they are not the real party in interest in the AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN DISMISSING THE COMPLAINT AGAINST PETITIONERS.36
case.22 Maricris claimed that the only allegation holding the directors and officers personally and solidarily liable with
EOL was the alleged provisions in the Letter Agreements23 and EOL Undertaking.24 The Letter Agreements and EOL The petition essentially presents the following issues for the Court's resolution: (l) whether or not an order of
Undertaking failed to show that she expressly agreed to be bound by the provisions contained therein. Accordingly, dismissal of the complaint should be assailed via a petition for certiorari under Rule 65; and (2) whether or not there
the complaint against her must be dismissed. 25 was a ground to dismiss complaint for a collection of sum of money against petitioners as corporate officer and
director.
With respect to Nolasco, petitioners argued that while his signature appears in the EOL Undertaking, it is not a
sufficient ground to implead him in the complaint together with EOL. It was SMART that drafted the EOL Undertaking Ruling of the Court
and Nolasco's participation is limited to the affixing of his signature thereon after EOL's President has already signed
it. Nolasco signed in good faith and without the opportunity to read the contents of the same. Be that as it may,
Nolasco is not the real party in interest in this case because he was no longer an Officer/Director of EOL at the time Before going into the substance of the petition, the Court shall first resolve the procedural question the petitioners
the complaint was filed as their entire share was already assigned to one of EOL's directors. 26 raised.1awp++i1
The RTC Ruling Petitioners' argument that the petition for certiorari under Rule 65 is a wrong remedy and should have been
dismissed by the CA fails to persuade.
On November 11, 2009, the RTC issued an Order 27 granting the motions to dismiss. The dispositive portion of the
Order reads: Under Section 1, Rule 65 of the Rules of Court, a petition for certiorari may be filed when any tribunal, board or
WHEREFORE, finding the defendant individuals' separate Motion to Dismiss being impressed with merit, the officer exercising judicial or quasi-judicial functions has acted without or in excess of its or his jurisdiction, or with
Court GRANTS the same. The Complaint against the named individuals is hereby ordered DISMISSED. Defendant grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal, or any plain, speedy,
Everything Online, Inc., is ordered to file its responsive pleading within the non-extendible period of five (5) days and adequate remedy in the ordinary course of law. An act of a court or tribunal is considered committed with grave
from notice hereof. Consequently, the writs of attachment as well as collateral papers issued in pursuance to the abuse of discretion if it is whimsical, arbitrary, or capricious amounting to "an evasion of a positive duty or a virtual
writ in so far as they involve properties belonging to the named defendant individuals are refusal to perform a duty enjoined by law or to act at all in contemplation of law, such as where the power is
hereby RECALLED and SET ASIDE. exercised in an arbitrary and despotic manner by reason of passion or hostility."37
EOL29 and SMART30 filed separate motions for partial reconsideration but these were denied by the trial court in its An order of dismissal of the complaint is a final order that is subject to appeal. 38 Section 1, Rule 41 of the Rules of
February 22, 2010 Order. 31 Court reads:
Section 1. - Subject of appeal. An appeal may be taken from a judgment or final order that completely disposes of
the case, or of a particular matter therein when declared by these Rules to be appealable.
Ascribing grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the R TC, SMART The same provision also provides that no appeal may be taken from the following:
elevated the case to the CA via a Petition for Certiorari under Rule 65 of the 1997 Rules of Civil Procedure. 32 (a) An order denying a petition for relief or any similar motion seeking relief from judgment;
(b) An interlocutory order;
Ruling of the CA (c) An order disallowing or dismissing an appeal;
(d) An order denying a motion to set aside a judgment by consent, confession or compromise on the ground of
On December 2, 2013, the CA promulgated the assailed Decision 33 partly grating the respondent's petition fraud, mistake or duress, or any other ground vitiating consent;
for certiorari. The appellate court found grave abuse on the part of the trial court in dismissing the complaint against (e) An order of execution;
individual defendants. The CA ruled that there was overwhelming evidence indicating that Samaco III and Spouses (f) A judgment or final order for or against one or more of several parties or in separate claims,
Fernandez expressly bound themselves to be solidarily liable with EOL to SMART. The CA decreed as follows: counterclaims, cross-claims and third-party complaints, while the main case is pending, unless the
WHEREFORE, premises considered, the instant petition is PARTLY GRANTED. Accordingly, the assailed Orders court allows an appeal therefrom; or
are hereby MODIFIED to REINSTATE the complaint against private individual respondents Salustiano Samaco III (g) An order dismissing an action without prejudice. (Emphasis supplied)
and spouses Nolasco and Maricris Fernandez being corporate officers of private respondent Everything Online Inc.
In all the above instances where the judgment or final order is not appealable, the aggrieved party may file an
SO ORDERED. 34 (Emphasis in the original) appropriate special civil action for certiorari under Rule 65. 39
Petitioners moved for reconsideration but, their Motion was denied by the CA in its Resolution35 dated June 4, 2014, Here, the RTC Order40 granting the motion to dismiss filed by petitioners is a final order because it terminates the
leading the petitioners to file the instant recourse anchored on the following grounds: proceedings against them. However, the final order falls within exception (f) of the Rule since the case involves
-A-THE PETITION FOR CERTIORARI UNDER RULE 65 SHOULD NOT BE THE PROPER REMEDY AGAINST A FINAL several defendants, and the complaint for sum of money against EOL is still pending. There being no appeal, "or any
ORDER OF DISMISSAL ISSUED BY THE REGIONAL TRIAL COURT OF MAKATI CITY, BRANCH 62. plain, speedy, and adequate remedy in law, the remedy of a special civil action for certiorari is proper as there is a
need to promptly relieve the aggrieved party from the injurious effects of the acts of an inferior court or tribunal."41
79
Having settled procedural matters, for resolution is the substantive issue of whether or not there was a ground to A corporate director, trustee, or officer is to be held solidarily liable with the corporation in the following instances:
dismiss complaint for a collection of sum of money against petitioners as corporate officer and director. 1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote for or assent to
patently unlawful acts of the corporation; (b) act in bad faith or with gross negligence in directing the corporate
The Court finds the petition partly meritorious. affairs; (c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and
other persons;
2. When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof,
Petitioners asseverated in their motion to dismiss that the complaint fails to state a cause of action because it was did not forthwith file with the corporate secretary his written objection thereto;
brought against defendants who are not the real parties in interest. 3) When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily
liable with the Corporation; or
A real party in interest is the party who stands to be benefited or injured by the judgment in the suit, or the party 4) When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate
entitled to the avails of the suit. 42 Thus, "[a]ny decision rendered against a person who is not a real party in interest action. 57
in the case cannot be executed."43 Consequently, a "complaint filed against such a person should be dismissed for
failure to state a cause of action."44 These instances have not been shown in the case of petitioner Maricris. While the Amended Complaint alleged that
EOL fraudulently refused to pay the amount due, nothing in the said pleading or its annexes would show the basis of
As provided in Zuniga-Santos v. Santos-Gran, et al.:45 Maricris' alleged fraudulent act that warrants piercing the corporate veil. No explanation or narration of facts was
A complaint states a cause of action if it sufficiently avers the existence of the three (3) essential elements of a presented pointing to the circumstances constituting fraud which must be stated with particularity, thus rendering
cause of action, namely: (a) a right in favor of the plaintiff by whatever means and under whatever law it arises or the allegation of fraud simply an unfounded conclusion of law. Without specific averments, "the complaint presents
is created; (b) an obligation on the part of the named defendant to respect or not to violate such right; and (c) an no basis upon which the court should act, or for the defendant to meet it with an intelligent answer and must,
act or omission on the part of the named defendant violative of the right of the plaintiff or constituting a breach of perforce, be dismissed for failure to state a cause of action."58
the obligation of defendant to the plaintiff for which the latter may maintain an action for recovery of damages. If
the allegations of the complaint do not state the concurrence of these elements, the complaint becomes vulnerable In the determination of sufficiency of a cause of action for purposes of resolving a motion to dismiss, the court must
to a motion to dismiss on the ground of failure to state a cause of action. (Emphasis supplied) decide, "hypothetically admitting the factual allegations in a complaint, whether it can grant the prayer in the
complaint."59
A judicious examination of the Amended Complaint46 shows that petitioners were impleaded in the instant action
based on the provisions of the Letter Agreement47 and EOL Undertaking,48 which purportedly bound them to be The Court pronounced in Guillermo, et al. v. Philippine Information Agency, et al.,60 that:
solidarily liable with the corporation in its obligation with SMART. In effect, the Amended Complaint seeks to pierce It is well to point out that the plaintiffs cause of action should not merely be "stated" but, importantly, the
the veil of corporate fiction against Nolasco and Maricris in their capacities as corporate officer and director of EOL. statement thereof should be "sufficient." This is why the elementary test in a motion to dismiss on such ground is
whether or not the complaint alleges facts which if true would justify the relief demanded. As a corollary, it has
It is basic in corporation law that a corporation is an artificial being invested by law with a personality separate and been held that only ultimate facts and not legal conclusions or evidentiary facts are considered for purposes of
distinct from its stockholders and from other corporations to which it may be connected. 49 Inferred from a applying the test. This is consistent with Section 1, Rule 8 of the Rules of Court which states that the complaint
corporation's separate personality is that "consent by a corporation through its representatives is not consent of the need only allege the ultimate facts or the essential facts constituting the plaintiffs cause of action. A fact is
representative, personally."50 The corporate obligations, incurred through official acts of its representatives, are its essential if they cannot be stricken out without leaving the statement of the cause of action inadequate. Since the
own. Corollarily, a stockholder, director, or representative does not become a party to a contract just because a inquiry is into the sufficiency, not the veracity, of the material allegations, it follows that the analysis should be
corporation executed a contract through that stockholder, director, or representative. 51 confined to the four corners of the complaint, and no other.61
As a general rule, a corporation's representatives are not bound by the terms of the contract executed by the By merely stating a legal conclusion, the Amended Complaint presented no sufficient allegation against petitioner
corporation. "They are not personally liable for obligations and liabilities incurred on or in behalf of the corporation. Maricris upon which the Court could grant the relief prayed for. The trial court correctly dismissed the complaint
"52 against Maricris on the ground of failure to state cause of action.
There are instances, however, when the distinction between personalities of directors, officers, and representatives, This is not the case with petitioner Nolasco. Nolasco, as CEO, signed the EOL Undertaking purportedly binding himself
and of the corporation, are disregarded. This is piercing the veil of corporate fiction. 53 The doctrine of piercing the to be "held solidarily liable in his personal capacity with the franchisee or assignee for all charges for the use of
veil of corporate fiction is a legal precept that allows a corporation's separate personality to be disregarded under SMART cell phone units acquired by Everything Online, Inc." Such allegation proffers hypothetically admitted ultimate
certain circumstances, so that a corporation and its stockholders or members, or a corporation and another related facts, which would warrant an action for a collection for sum of money based on the provision of the EOL
corporation could be treated as a single entity. It is meant to apply only in situations where the separate corporate Undertaking.62
personality of a corporation is being abused or being used for wrongful purposes. 54
Again, in filing a motion to dismiss on the ground of failure to state a cause of action, a defendant hypothetically
The piercing of the corporate veil must be done with caution. 55 To justify the piercing of the veil of corporate fiction, admits the truth of the facts alleged in the complaint. 63 Since allegations of evidentiary facts and conclusions of law
"it must be shown by clear and convincing proof that the separate: and distinct personality of the corporation was are normally omitted in pleadings, "the hypothetical admission extends only to the relevant and material facts well
purposefully employed to evade a legitimate and binding commitment and perpetuate a fraud or like wrongdoings."56 pleaded in the complaint, as well as inferences fairly deductible therefrom."64
80
The following is clearly stipulated in Item 9 of the EOL Undertaking signed by Nolasco, viz.: Petitioner Metroplex Berhad (Metroplex) is a corporation in liquidation duly organized and existing under and by
9. The President and each one of the directors and officers of Everything Online, Inc. shall be held virtue of the laws of Malaysia, while petitioner Paxell Investment Limited (Paxell) is a corporation duly organized and
solidarity liable in their personal capacity with the franchisee or assignee for all charges for the use of existing under and by virtue of the laws of Western Somoa. Both Metroplex and Paxell have their principal offices at
the SMART cellphone units acquired by Everything Online, Inc.65 Kuala Lumpur, Malaysia.5
Verily, the trial court erred in dismissing the complaint against petitioner Nolasco. The allegations in the complaint, On the other hand, respondent Sinophil is a publicly-listed corporation duly organized and existing under and by
regarding the possible personal liability of petitioner Nolasco based on Item 9 of EOL Undertaking, 66 sufficiently virtue of the laws of the Philippines with principal office at Pasig City, Philippines. Respondent Belle Corporation
stated a cause of action. The question of whether petitioner Nolasco is a real party-in-interest who would be (Belle) is another publicly-listed corporation duly organized and existing under and by virtue of the laws of the
benefited or injured by the judgment, would be better threshed out in a full-blown trial. Indeed, in cases that call for Philippines with principal office also at Pasig City.6
the piercing of the corporate veil, "parties who are normally treated as distinct individuals should be made to
participate in the proceedings in order to determine if such distinction should be disregarded and, if so, to determine The other individual respondents are the SEC Directors, Assistant Directors, and officers of the SEC who caused,
the extent of their liabilities."67 facilitated, implemented, and approved the questioned actions of the Operating Departments of the SEC. These
Operating Departments included the Company Registration and Monitoring Department (CRMD); the Corporation
WHEREFORE, premises considered, the petition is PARTLY GRANTED. The December 2, 2013 Decision of Court of Finance Department (CFD); the Corporate and Partnership Registration Division (CPRD); and the Financial Analysis
Appeals in CA-G.R. SP. No. 113832 is hereby MODIFIED to the extent that the complaint against petitioner Maricris and Audit Division (FAAD) of the SEC.7
Fernandez is dismissed for failure to state a cause of action.
The Antecedents:
In August 1998, Sinophil entered into a Share Swap Agreement (Swap Agreement) with Metroplex and Paxell. Under
the Swap Agreement, Metroplex and Paxell would transfer 40% of their shareholdings in Legend International
Resorts Limited (Legend) for a combined 35.5% stake in Sinophil.8
In their Comment/Opposition,9 however, Sinophil and Belle alleged that the Swap Agreement was entered into in
March 1997. Pursuant to the Swap Agreement, Sinophil issued 2.41 billion shares to Metroplex and 1.45 billion
shares to Paxell, totaling 3.87 billion shares in exchange for 46.38 million shares of Legend which were transferred
by the Metroplex Group (Metroplex and Paxell) to Sinophil's name.
[ G.R. No. 208281, June 28, 2021 ]

In the interim, Metroplex pledged two billion of its Sinophil shares with Union Bank and Asian Bank to secure the
loans of Legend with the said banks.10
METROPLEX BERHAD AND PAXELL INVESTMENT LIMITED, PETITIONERS, VS. SINOPHIL CORPORATION,
BELLE CORPORATION, DIRECTOR BENITO A. CATARAN, IN HIS CAPACITY AS HEAD OF THE COMPANY
The following pertinent sequence of events followed:
REGISTRATION AND MONITORING DEPARTMENT DIRECTOR JUSTINA F. CALLANGAN, IN HER CAPACITY
AS HEAD OF THE CORPORATION FINANCE DEPARTMENT, ASST. DIRECTOR FERDINAND B. SALES, IN HIS
CAPACITY AS HEAD OF CORPORATE AND PARTNERSHIP REGISTRATION DIVISION, ASST. DIRECTOR On August 23, 2001, Sinophil and Belle executed a Memorandum of Agreement (Unwinding Agreement) with
YOLANDA L. TAPALES, IN HER CAPACITY AS HEAD OF THE FINANCIAL ANALYSIS AND AUDIT DIVISION, Metroplex and Paxell rescinding the 1998 Swap Agreement. After the execution of the Unwinding Agreement,
AND JOHN DOES, RESPONDENTS. Metroplex and Paxell were unable to return 1.87 billion of the Sinophil shares while another two billion Sinophil
shares remained pledged by Metroplex in favor of International Exchange Bank and Asian Bank.11
This Petition for Review on Certiorari1 with Application for the Issuance of a Temporary Restraining Order and/or Writ
of Preliminary Injunction seeks the reversal of the January 29, 2013 Decision2 and July 17, 2013 Resolution3 of the On February 18, 2002 and June 3, 2005, the shareholders of Sinophil voted for the reduction of Sinophil's authorized
Court of Appeals (CA) in CA G.R. SP No. 107942. capital stock.12
The appellate court affirmed in toto the February 26, 2009 Order4 of the Securities and Exchange Commission On March 28, 2006, the CRMD and the CFD approved the first amendment of the Articles of Incorporation of Sinophil,
(SEC) En Banc finding no error in its Operating Departments' approval of the reduction of Sinophil Corporation's reducing its authorized capital stock by 1.87 billion shares. The following day, or on March 29, 2006, the approval of
(Sinophil) capital stock. the reduction of Sinophil's authorized capital stock was disclosed to the Philippine Stock Exchange, Inc. (PSE).13
The Antecedents: On June 21, 2007, the shareholders of Sinophil again approved the proposal of the Board of Directors to reduce its
authorized capital stock by another one billion shares.14
81
On June 24, 2008, the CRMD and the CFD approved the second amendment of the Articles of Incorporation of issued because the grave and irreparable danger to the investing public that petitioners fear is not present in the
Sinophil which further reduced its authorized capital stock by one billion shares. On June 30, 2008, the approval of case.23
the reduction of Sinophil's authorized capital stock was likewise disclosed to the PSE.15
The dispositive portion of the Order of the SEC reads as follows:
On July 21, 2008, petitioners Yaw Chee Cheow (Yaw), Metroplex and Paxell filed a Petition for Review Ad Cautelam WHEREFORE, premises considered, the Petition for Review with Prayer for the Issuance of a Cease and Desist
Ex Abundanti16 before the SEC assailing the approval by the CRMD and the CFD of the amendments by Sinophil of Order is DENIED.
its Articles of Incorporation. Petitioners claimed that:
1. They opposed the decrease of the authorized capital stock; Aggrieved, petitioners appealed before the CA raising the following alleged errors in the SEC's ruling:
2. They were not given the opportunity to be heard by the CFD; 1. The SEC committed serious and manifest errors in affirming the actions of its respondent Operating Departments
3. The reduction was approved by the CRMD and CFD despite the lack of more than two-thirds (2/3) approval of (CRMD, CFD, CPRD and FAAD) which approved the reduction of the authorized capital stock of private respondent
the Sinophil shareholders; Sinophil through the selective reduction of the latter's issued capital;
4. The decrease in the authorized capital stock of Sinophil violated the legal requirement that a corporation cannot 2. The SEC committed serious and manifest errors in ruling that the selective reduction of the issued capital of
reduce its issued capital unless it has unrestricted retained earnings; private respondent Sinophil complied with all relevant legal and procedural requirements; and
5. The decreases involved the "selective reduction" of Sinophil 's authorized capital stock which resulted in the 3. The SEC committed serious and manifest errors in denying the application of petitioners for a cease and desist
diminution of the shareholdings of petitioner Yaw and other shareholders of Sinophil, and the return of the order against the respondents.25
investments of petitioners Metroplex and Paxell ahead of Yaw and other shareholders of Sinophil;
6. The selective reduction entailed the assumption and payment of loans secured by Metroplex and Paxell 's
Sinophil shares, to the prejudice of Sinophil and its shareholders including petitioner Yaw.17 Ruling of the Court of Appeals:
Thus, the following three issues were raised by the petitioners: On January 29, 2013, the CA promulgated its Decision26 which upheld the findings of the SEC, viz.:
1. Whether the actions of the CRMD and the CFD allowing the reduction of the outstanding capital stock of Sinophil WHEREFORE, considering the foregoing, the petition is DENIED. The assailed Order dated February 26, 2009 of
authorized the "selective" reduction of its issued capital; the Securities and Exchange Commission in Case No. EB 07-08-137 is hereby AFFIRMED in toto.
2. Whether such "selective" reduction had complied with all relevant and procedural requirements and could be
legally done through the cancellation and delisting of the 3.87 billion Sinophil shares of Metroplex and Paxell over On July 17, 2013, the CA issued a Resolution28 denying petitioners' motion for reconsideration for lack of merit as all
the objection of the petitioners; and the issues raised were a mere rehash of the arguments already passed upon.29
3. Whether the questioned actions of the CRMD and the CFD constitute grave reversible errors or abuse of
discretion amounting to lack or excess of jurisdiction which should be set aside and declared null and void.18
Issues
On the other hand, private and public respondents claimed, among others, that there was full compliance with In their Petition for Review on Certiorari30 filed with the Court, petitioners raised the following arguments:
Section 38 of the Corporation Code by the submission of all the requirements and that there was a presumption of
1. The challenged Decision and the challenged Resolution of the CA should be reversed and set aside for being
regularity in the performance of public respondents' duties.19 contrary to law and jurisprudence, considering that the CA was not proscribed from reviewing such findings of
public respondents' Operating Departments and in fact, such findings are not supported by substantial evidence;
Ruling of the Securities and Exchange Commission: 2. The challenged Decision, as affirmed by the challenged Resolution, of the CA should be reversed and set aside
for being contrary to law and jurisprudence, considering that the SEC has the jurisdiction to review the actions of
The SEC was confronted with these issues for resolution: public respondents Operating Departments in approving the reduction of the authorized capital stock of private
1. Whether the decrease of the capital stock of Sinophil Corporation was validly allowed by the CRMD and the CFD; respondent Sinophil through the selective reduction of the latter's issued capital;
and 3. The challenged Decision, as affirmed by the challenged Resolution, of the CA should be reversed and set aside
2. Whether the issuance of a cease and desist order is in order.20 for being contrary to law and jurisprudence, considering that private respondent Sinophil failed to comply with the
requirements of the law and the SEC, particularly notice and hearing and prior approval of all of the shareholders
and, in fact, violated the Trust Fund Doctrine;
On February 26, 2009, the SEC issued its assailed Order21 denying petitioners' Petition for Review Ad Cautelam Ex 4. The petitioners are entitled to the application for injunctive relief against the respondents as prayed under the
Abundanti and essentially affirming the acts of the CRMD and CFD regarding the decrease in the capital stock of instant petition.31
Sinophil.
Ultimately, the main issue raised by petitioners is whether or not the appellate court correctly affirmed in toto the
The SEC found that the decrease in capital stock complied with the requirements imposed by the Corporation Code, Order of the SEC.
particularly Section 38. It held that the equal or unequal reduction of a corporation's capital stock is a matter solely
between the stockholders and cannot be enjoined either by the courts or the creditors.22
Our Ruling
Moreover, the SEC found no basis to grant the prayer for the issuance of a cease and desist order. Petitioners failed
to raise valid grounds for its issuance. The Commission held that a cease and desist order could not be ultimately The Court denies the Petition.
82
The appellate court is correct in finding that the decrease in respondent Sinophil's capital stock was legal and that the that there has been transferred to the corporation property the valuation of which is equal to twenty-five (25%)
public respondent SEC's approval thereof was proper. percent of the subscription:
Section 38 of the Corporation Code clearly lists down the requirements for a corporation to decrease its Provided, further, That no decrease of the capital stock shall be approved by the Commission if its effect shall
capital stock. prejudice the rights of corporate creditors.
Petitioners have been asserting from the beginning that private respondent Sinophil failed to comply with the Section 38 is clear. A corporation can only decrease its capital stock if the following are present:
following legal requirements for a decrease in its authorized capital stock: (a) notice and hearing; (b) approval of all 1. Approval by a majority vote of the board of directors;
stockholders; (c) legitimate business purposes; and (d) approval of all creditors. 2. Written notice of the proposed diminution of the capital stock, and of the time and place of a stockholders'
meeting duly called for the purpose, addressed to each stockholder at his place of residence;
The Court agrees with the appellate court's rejection of petitioners' contentions considering that the legal provisions 3. 2/3 of the outstanding capital stock voting favorably at the said stockholders' meeting duly;
they cited, i.e., Section 13 of the Securities Regulation Code, the SEC Opinions, and the Trust Fund Doctrine, do not 4. Certificate in duplicate, signed by majority of the directors and countersigned by the chairman and secretary of
apply to the case at bar. What applies instead is Section 38 of the Corporation Code, the pertinent portions of which the stockholders' meeting stating that legal requirements have been complied with;
provide: 5. Prior approval of the SEC; and
Sec. 38. Power to increase or decrease capital stock; incur, create or increase bonded indebtedness. - No 6. Effects do not prejudice the rights of corporate creditors.
corporation shall increase or decrease its capital stock or incur, create or increase any bonded indebtedness unless
approved by a majority vote of the board of directors, and at a stockholder's meeting duly called for the purpose, The list of requirements under Section 38 is altogether different from the list of legal requirements presented by
two-thirds (2/3) of the outstanding capital stock shall favor the increase or diminution of the capital stock, or the petitioners. In short, petitioners plainly did not comply with the law. The Court agrees with the appellate court when
incurring, creating or increasing of any bonded indebtedness. Written notice of the proposed increase it held that:
or diminution of the capital stock or of the incurring, creating, or increasing of any bonded indebtedness and of the We reject petitioners' contentions as they do not even cite any particular rule wherein notice and hearing is
time and place of the stockholders' meeting at which the proposed increase or diminution of the capital stock or the required before approval for the increase or decrease in the capital stock is granted or denied. The provision cited
incurring or increasing of any bonded indebtedness is to be considered, must be addressed to each stockholder at by petitioners in their brief, Section 13 of RA 8799, is not even appropriate as it refers to the rejection or
his place of residence as shown on the books of the corporation and deposited to the addressee in the post office revocation of the registration of securities, on any of the grounds stated in said section, none of which obtains in
with postage prepaid, or served personally. the case at bar. There is likewise no validity nor legal basis to the allegation that prior approval of all the
stockholders is required for the reduction in capital stock. Suffice it to state that under Section 38 of the
A certificate in duplicate must be signed by a majority of the directors of the corporation and countersigned by the Corporation Code, such decrease only requires the approval of a majority of the board of directors and, at a
chairman and the secretary of the stockholders' meeting, setting forth: stockholder's meeting duly called for the purpose, two-thirds (2/3) vote of the outstanding capital stock. So long as
(1) That the requirements of this section have been complied with; written notice of the proposed increase or diminution of the capital stock was made to all stockholders, the
(2) The amount of the increase or diminution of the capital stock; presence and approval of at least 2/3 of the capital stock is enough to make the increase or diminution valid. This
(3) x x x; is the plain language of the provision over which no other interpretation may be made.32 (Emphasis supplied)
(4) x x x;
(5) The actual indebtedness of the corporation on the day of the meeting; Here, a judicious perusal of the records of the case reveals that Sinophil submitted to the SEC the following
(6) The amount of stock represented at the meeting; and documents in support of its application for the decrease of its authorized capital stock and in full compliance with the
(7) The vote authorizing the increase or diminution of the capital stock, or the incurring, creating or increasing of requirements laid down under Section 38:
any bonded indebtedness. 1. Certificate of Decrease of Capital Stock;
2. Director's Certificate;
Any increase or decrease in the capital stock or the incurring, creating or increasing of any bonded 3. Amended Articles of Incorporation;
indebtedness shall require prior approval of the Securities and Exchange Commission. 4. Audited Financial Statements as of the last fiscal year stamped and received by the Bureau of Internal Revenue
and the SEC (as of December 31, 2004 and 2007);
5. Long Form Audit Report of the Audited Financial Statements (as of December 31, 2004 and 2007);
One of the duplicate certificates shall be kept on file in the office of the corporation and the other shall be filed with 6. List of Creditors (Schedule of Liabilities as of December 31, 2004 and 2007), as certified by the Accountant;
the Securities and Exchange Commission and attached to the original articles of incorporation. From and after 7. Written consent of Creditors;
approval by the Securities and Exchange Commission and the issuance by the Commission of its certificate of filing, 8. Notice of Decrease of Capital; and
the capital stock shall stand increased or decreased and the incurring, creating or increasing of any bonded 9. Affidavits of Publication of the Notice of Decrease of Capital.33
indebtedness authorized, as the certificate of filing may declare: Provided, That the Securities and Exchange
Commission shall not accept for filing any certificate of increase of capital stock unless accompanied by the sworn
statement of the treasurer of the corporation lawfully holding office at the time of the filing of the certificate, Three stockholders' meeting were likewise held on February 18, 2002, June 3, 2005 and June 21, 2007 where the
showing that at least twenty-five (25%) percent of such increased capital stock has been subscribed and that at stockholders voted for the reduction of the corporation's authorized capital stock.
least twenty-five (25%) percent of the amount subscribed has been paid either in actual cash to the corporation or
SEC only has the ministerial duty to approve the decrease of a corporation's authorized capital stock.
83
After a corporation faithfully complies with the requirements laid down in Section 38, the SEC has nothing more to do Petitioners argue that unless the questioned act of respondents of irregularly or illegally reducing Sinophil's issued
other than approve the same. Pursuant to Section 38, the scope of the SEC's determination of the legality of the capital stock is restrained permanently, "the same will operate as a fraud on investors such as the Petitioners and will
decrease in authorized capital stock is confined only to the determination of whether the corporation submitted the also likely cause grave or irreparable injury or prejudice to the investing public."37
requisite authentic documents to support the diminution. Simply, the SEC's function here is purely administrative in
nature. The Court disagrees.
In Ong Yang v. Tiu,34 the Court held that decreasing a corporation's authorized capital stock, which is an The alleged fraud as well as the grave or irreparable injury or prejudice to the investing public are not present in the
amendment of the corporation's Articles of Incorporation, is a decision that only the stockholders and the directors case.
can make, considering that they are the contracting parties thereto. For third persons or parties outside the
corporation like the SEC to interfere to the decrease of the capital stock without reasonable ground is a violation of
the "business judgment rule" which states that: Firstly, there is no fraudulent act committed by respondents as has been held by both the CA and this Court, as
[C]ontracts intra vires entered into by the board of directors are binding upon the corporation and courts will not discussed above.
interfere unless such contracts are so unconscionable and oppressive as to amount to wanton destruction to the
rights of the minority, as when plaintiffs aver that the defendants (members of the board), have concluded a Secondly, petitioners failed to show how the investing public would be prejudiced by the decrease and delisting in
transaction among themselves as will result in serious injury to the plaintiffs stockholders. view of its disclosure to the PSE.
The reason behind the rule is aptly explained by Dean Cesar L. Villanueva, an esteemed author in corporate law, Disclosure of corporate actions to the stock exchange is intended to apprise the investing public of the condition and
thus: planned corporate actions of the listed corporation, thereby providing investors with sufficient, relevant and material
Courts and other tribunals are wont to override the business judgment of the board mainly because, courts are not information as to the nature of the investment vehicle and the relationship of the risks and returns associated with
in the business of business, and the laissez faire rule or the free enterprise system prevailing in our social and it.38 The corporation's simple act of disclosing the decrease and delisting to the PSE was more than enough notice to
economic set-up dictates that it is better for the State and its organs to leave business to the businessmen; the investing public. There was nothing in the corporation's act that resulted in grave or irreparable injury or
especially so, when courts are ill-equipped to make business decisions. More importantly, the social contract in the prejudice to the investing public.
corporate family to decide the course of the corporate business has been vested in the board and not with the
courts.35 WHEREFORE, the Petition for Review on Certiorari with Application for the Issuance of a Temporary Restraining
Order and/or Writ of Preliminary Injunction is DENIED.
The "business judgment rule" simply means that "the SEC and the courts are barred from intruding into business
judgments of corporations, when the same are made in good faith."36
Furthermore, the SEC is not vested by law with any power to interpret contracts and interfere in the determination of
the rights between and among a corporation's stockholders. Neither can the SEC adjudicate on the contractual
relations among these same stockholders.ℒαwρhi ৷ Thus, petitioners' allegation that it is the SEC that should
determine the parties' rights under the contracts executed, particularly the Swap Agreement, the Unwinding
Agreement, and the general proxy, has no basis. To stress, the SEC's only function here was to determine the
corporation's compliance with the formal requirements under Section 38 of Corporation Code.
The issuance of an injunctive relief of temporary restraining order (TRO) is not warranted.
Section 4, Rule 58 of the Rules of Court provides that a TRO may be granted only when:
(a) The applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the
commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts,
either for a limited period or perpetually;
(b) The commission, continuance or non-performance of the act or acts complained of during the litigation would
probably work injustice to the applicant; or
(c) The party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to
be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or
proceeding, and tending to render the judgment ineffectual.
84
G.R. No. 206649, July 20, 2016
FOREST HELLS GOLF AND COUNTRY CLUB, INC., REPRESENTED BY RAINIER L. MADRID, IN A DERIVATIVE
CAPACITY AS SHAREHOLDER AND CLUB MEMBER, Petitioner, v. FIL-ESTATE PROPERTIES, INC., AND FIL-
ESTATE GOLF DEVELOPMENT, INC., Respondents.
"A derivative action is a suit by a shareholder to enforce a corporate cause of action x x x on behalf of the
corporation in order to protect or vindicate [its] rights [when its] officials refuse to sue, or are the ones to be sued,
or hold control of [it]."1 Upon the enactment of Republic Act (RA) No. 8799, otherwise known as "The Securities
Regulation Code," jurisdiction over such action now lies with the special commercial courts designated by this Court
pursuant to A.M. No. 00- 11-03-SC promulgated on November 21, 2000.2chanrobleslaw
On March 31, 1993, Kingsville Construction and Development Corporation (Kingsville) and Kings Properties
Corporation (KPC) entered into a project agreement with respondent Fil-Estate Properties, Inc. (FEPI), whereby the
latter agreed to finance and cause the development of several parcels of land owned by Kingsville in Antipolo, Rizal,
85
into Forest Hills Residential Estates and Golf and Country Club, a first-class residential area/golf-course/commercial Feeling aggrieved, petitioner FHGCCI moved for reconsideration23 but the RTC denied the same in its Order24 dated
center.6 Under the agreement, respondent FEPI was tasked to incorporate petitioner Forest Hills Golf and Country February 1, 2013.
Club, Inc. (FHGCCI) with an authorized stock of 3,600 shares; and to perform the development and construction
work and other undertakings as full payment of its subscription to the authorized capital stock of the club.7 As to the Issue
remaining shares of the club, they agreed that these should be retained by Kingsville in exchange for the parcels of
land used for the golf course development. 8chanrobleslaw
Hence, petitioner FHGCCI directly filed before this Court the instant Petition for Review on Certiorari25cralawred
under Rule 45 of the Rules of Court on a pure question of law, raising the sole issue of:
On July 10, 1995, respondent FEPI assigned its rights and obligations over the project to a related corporation, WHETHER OR NOT PETITIONER [FHGCCI'S] ORDINARY CIVIL SUIT FOR SPECIFIC PERFORMANCE WITH DAMAGES
respondent Fil-Estate Golf Development, Inc. (FEGDI).9chanrobleslaw AGAINST RESPONDENTS [FEPI AND FEGDI] VIS-A-VIS THE LATTER'S OBLIGATION UNDER THE PROJECT
AGREEMENT TO FULLY COMPLETE AND DEVELOP THE FOREST HELLS RESIDENTIAL ESTATES AND GOLF COURSE
On July 19, 1996, Rainier L. Madrid (Madrid) purchased two Class "A" shares at the secondary price of P3 80,000.00 AND COUNTRY CLUB IS COGNIZABLE BY THE LOWER COURT AS A REGULAR COURT OR BY THE RTC-
each, and applied for a membership to the club for P25,000.00. 10chanrobleslaw BINANGONAN, BRANCH 70, AS A SPECIAL COMMERCIAL COURT FOR INTRA-CORPORATE CONTROVERSIES.26
Due to the delayed construction of the second 18-Hole Golf Course, Madrid wrote two demand letters dated October Petitioner FHGCCVs Arguments
29, 2009 and March 15, 2010 to the Board of Directors of petitioner FHGCCI asking them to initiate the appropriate
legal action against respondents FEPI and FEGDI.11 The Board of Directors, however, failed and/or refused to act on Petitioner FHGCCI admits that it filed a derivative suit.27 However, it contends that not all derivative suits involve
the demand letters.12chanrobleslaw intra-corporate controversies.28 In this case, it filed a derivative suit for specific performance in order to enforce the
project agreement between KPC, Kingsville, and respondents FEPI and FEGDI.29 And although respondent FEGDI is a
Thus, on April 21, 2010, Madrid, in a derivative capacity on behalf of petitioner FHGCCI, filed with the RTC of Antipolo stockholder of petitioner FHGCCI, it argues that this does not make the instant case an intra-corporate controversy
City a Complaint for Specific Performance with Damages,13 docketed as Civil Case No. 10-9042, against respondents as the case was filed against respondents FEPI and FEGDI as developers, and not as stockholders of petitioner
FEPI and FEGDI.14chanrobleslaw FHGCCI.30 In fact, the causes of action stated in the Complaint do not involve intra-corporate controversies, nor do
these involve the intra-corporate relations between and among the stockholders and the corporation's officials.31
In their Answer with Compulsory Counterclaim,15 respondents FEPI and FEGDI argued that there is no cause of Thus, the RTC seriously erred in applying the case of Reyes32 without clearly explaining why the instant case
action against them as petitioner FHGCCI failed to state the contractual and/or legal bases of their alleged obligation; involves an intra-corporate controversy.33chanrobleslaw
that no prior demand was made to them; that the action is not a proper derivative suit as petitioner FHGCCI failed to
exhaust all remedies available under the articles of incorporation and by-laws; and that petitioner FHGCCI failed to Respondents' Arguments
implead its Board of Directors as indispensable parties.
Respondents FEPI and FEGDI, on the other hand, reiterate the arguments raised in their Answer before the RTC, to
Petitioner FHGCCI, in turn, filed a Reply16 arguing that the case does not involve an intra-corporate controversy and wit: that petitioner FHGCCI has no cause of action as it failed to present any contract upon which it can base its
that the exhaustion of intra-corporate remedies was futile and useless as the Board of Directors of petitioner FHGCCI claim; that the filing of the case is premature as no prior demand was made to respondents FEPI and FEGDI; that the
also own respondent FEGDI. Complaint is not a proper derivative suit as petitioner FHGCCI failed to exhaust all remedies available under the
articles of incorporation and by-laws; and that petitioner FHGCCI failed to implead its Board of Directors as
Respondents FEPI and FEGDI filed a Rejoinder17 followed by a Motion18 to set their affirmative defenses for indispensable parties.34 They also maintain that the instant case is an intra-corporate controversy as the allegations
preliminary hearing. in the Complaint clearly show that petitioner FHGCCI is suing respondents FEPI and FEGDI not only as developers but
also as stockholders of petitioner FHGCCI.35 And since the instant case involves an intra-corporate controversy, the
RTC correctly dismissed the Complaint for lack of jurisdiction, as the RTC is not a special commercial
Petitioner FHGCCI filed a Motion19 for leave to amend its Complaint to implead KPC and Kingsville as additional court.36chanrobleslaw
defendants and to include Madrid as additional plaintiff in his personal capacity. Respondents FEPI and FEGDI
opposed the Motion.20chanrobleslaw
Our Ruling
Ruling of the Regional Trial Court

The Petition lacks merit.
On May 14, 2012, applying the relationship and nature of controversy tests in Reyes v. Hon. RTC of Makati, Br.
14221 and taking into account the fact that petitioner FHGCCI denominated the Complaint as a derivative suit, the The Complaint, denominated as a derivative suit for specific performance, falls under the jurisdiction of special
RTC issued an Order22 dismissing the case for lack of jurisdiction, without prejudice to the re-filing of the same with commercial courts.
the proper special commercial court sitting at Binangonan, Rizal. Consequently, the motion for leave to amend the
Complaint was mooted. Petitioner FHGCCFs main contention is that its Complaint, although denominated as a derivative suit, does not fall
under the jurisdiction of special commercial courts, as it does not involve an intra-corporate controversy.
86
We do not agree. SUBSCRIBERS NUMBER AND KIND OF SHARES
1. Noel M. Cariño 1 Founder's Share
2. Robert John L. Sobrepeña 1 Founder's Share
It is a fundamental principle that jurisdiction is conferred by law and is determined by the material allegations of the 3. Ferdinand T. Santos 1 Founder's Share
complaint, containing the concise statement of ultimate facts of a plaintifFs cause of action.37chanrobleslaw 4. Sabrina T.Santos 1 Founder's Share
5. Enrique Sobrepeña, Jr. 1 Founder's Share
6. Johnson Ong 1 Founder's Share
In this case, petitioner FHGCCI alleged in its Complaint that:
7. Romeo G. Carlos 1 Founder's Share
8. Manuel Yu 1 Founder's Share
PREFATORY 9. FEGDI 537 Class "A", 190 Class "B", 292 Class "C", 146 Class "D"; total = 1165
10. Kings Properties Corp. 290 Class "A", 102 Class "B", 292 Class "C", 146 Class "D"; total = 627
This is a derivative suit filed by Shareholder and Club Member Rainier Madrid on behalf of [petitioner FHGCCI] to
compel [respondents FEPI and FEGDI], to finish the construction and complete development of Club's Arnold 10. Worse, with manifest intention of giving undue benefit, gain and/or advantage to [respondents] FEPI/FEGDI
and to retain control of FHGCCI via the Founders' Shares, the FHGCCI Board of Directors appear to have
Palmer 2nd Nine-Holes Golf Course and the adjunct Country Club Premises.
deliberately failed, shirked and refused to sue, act and demand that [respondents] FEPI/FEGDI complete and finish
the construction and/or turn-over of the second golf course, specifically the Arnold Palmer 2 nd Nine-Holes and the
Despite repeated demands on FHGCCI, which appears controlled and managed by interlocking directors of additional "Country Club" premises and adjunct country club facilities, to enable them, as "Founder Shareholders,"
[respondents FEPI and FEGDI] as an "OLD BOYS CLUB," and therefore guilty of grave conflict of interest to initiate to hold on to, continue their control and exclusive management of the Club, as an "OLD BOYS CLUB," to the
legal actions against developer [respondent] FEGDI vis-a-vis the completion of the Club's Arnold Palmer 2nd Nine- damage and prejudice of FHGCCI, and its members whose corporate rights remain IN LIMBO to date.
Holes Golf Course and the promised Country Club Facilities, FHGCCI has failed, shirked, and refused to sue the
[respondents FEPI and FEGDI].
13. To date, however, the FHGCCI Board of Directors intentionally and deliberately failed and/or refused to heed
Shareholder and Club Member Rainier L. Madrid and numerous undisclosed members of FHGCCPs above valid and
This BAD FAITH inaction and refusal to sue [respondents FEPI and FEGDI] by the FHGCCI Board of Directors is just demand, to the damage and prejudice of [petitioner] FHGCCI and its Members.
definitely prejudicial to FHGCCI and its members as they have been long deprived the maximum use of the
promised Full 36-Hole Golf Course and Country Club Amenities, thereby rendering them in fundamental and
material breach of their SEC Disclosure Statements, Marketing and Sales Contracts. 2.2 As shown, for more than ten (10) years now from the stipulated full completion of the 2nd 18-Holes Arnold
Palmer Golf Course, and the country club facilities in September 2000, the FHGCCI Board of Directors, being guilty
of apparent conflict of interest prescinding from their interlocking directorships, have deliberately and purposely
The FHGCCI Board of Directors [are] guilty of grave conflict of interest as Founder Shareholders Noel M. Carifio, failed, shirked and/or refused to demand and sue [respondents] developer FEPI/FEGDI to fully complete the
Robert John L. Sobrepefia, Ferdinand T. Santos and Enrique Sobrepena, Jr. are also the majority Board of Directors Project, especially the 36-Hole Golf Course, and adjunct Country Club and commercial complex amenities, to the
of [respondent] FEPI and later [respondent] FEGDI, who for more than ten (10) years NOW has failed and refused grave damage and prejudice of [petitioner] FHGCCI and its Members. It is pure and simple, SYNDICATED ESTAFA.
to complete the Project for which they should have sued [respondents] FEPI [and] FEGDI as early as 2000.
2.3. Consequently, [respondents FEPI and FEGDI], jointly and severally, should be compelled, ordered and directed
Indeed, the control, exclusive management and operations of FHGCCI, which should have been turned-over to the to fully perform, finish, complete and turn-over the whole 36-Hole Golf Course and Country Club Amenities
General Membership, has been illegally withheld, retained and continued to be enjoyed by FHGCCI Board of soonest.
Directors via their abusive, void and illegal Founder's Shares, subject now of a separate suit to compel turnover of
the FHGCCI to its General Membership.
3.2. Additionally, [respondents] FEPI and FEGDI must be ordered to render an accounting of ALL work done,
EXISTING work-in-progress, if any, and differential backlog in connection with their performance and delivery of
The patent interlocking directorship of FHGCCI and [respondents] FEPI /FEGDI sufficiently shows the abuse, high the Project, including the contracted 36-Hole Golf Course and Country Club Amenities.38 (Emphasis supplied)
handed and condescending strong arm posture of FHGCCI Board of Directors in failing or refraining from suing
[respondents] FEPI [and] FEGDI as the developer for the full and total completion of [the] 36-Hole Golf Course and
adjunct Country Club facilities. Based on the foregoing allegations, it is clear that Madrid filed a derivative suit on behalf of petitioner FHGCCI to
compel respondents FEPI and FEGDI to complete the golf course and country club project and to render an
accounting of all works done, existing work-in-progress and, if any, differential backlog. The fact that petitioner
HENCE, THIS DERIVATIVE SUIT. FHGCCI denominated the Complaint as a derivative suit for specific performance is sufficient reason for the RTC to
xxxx dismiss it for lack of jurisdiction, as the RTC where the Complaint was raffled is not a special commercial court. Upon
ALLEGATIONS COMMON TO ALL CAUSES OF ACTION the enactment of RA No. 8799, jurisdiction over intra- corporate disputes, including derivatives suits, is now vested
in the RTCs designated as special commercial courts by this Court pursuant to A.M. No. 00- 11-03-SC promulgated
4. On June 29, 1995, [respondent] FEPI incorporated the Golf and Country Club Company - [FHGCCf] x x x. on November 21, 2000.39chanrobleslaw
Per FHGCCI's Articles of Incorporation, fifty (50%) percent of its authorized member shares appears to have been Petitioner FHGCCI's contention that the instant case does not involve an intra-corporate controversy as it was filed
distributed as follows: against respondents FEPI and FEGDI as developers, and not as shareholders of the corporation holds no water.
87
Apparent in the Complaint are allegations of the interlocking directorships of the Board of Directors of petitioner In this case, however, to refer the case to a special commercial court would be a waste of time since it is apparent on
FHGCCI and respondents FEPI and FEGDI, the conflict of interest of the Board of Directors of petitioner FHGCCI, and the face of the Complaint, as pointed out by respondents FEPI and FEGDI in their Answer, that petitioner FHGCCI
their bad faith in carrying out their duties. Likewise alleged is that respondent FEPI and, later, respondent FEGDI are failed to comply with the requisites for a valid derivative suit.
shareholders of petitioner FHGCCI which under the project agreement, respondent FEPI was tasked to perform the
development and construction work and other obligations and undertakings of the project as full payment of its Rule 8, Section 1 of the Interim Rules of Procedure Governing Intra- Corporate Controversies provides:
subscription to the authorized capital stock of petitioner FHGCCI, which it later assigned to respondent FEGDI. SECTION 1. Derivative action. — A stockholder or member may bring an action in the name of a corporation or
Considering these allegations, we find that, contrary to the claim of petitioner FHGCCI, there are unavoidably intra- association, as the case may be, provided, that:
corporate controversies intertwined in the specific performance case. (1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the
time the action was filed;
Moreover, a derivative suit is a remedy designed by equity as a principal defense of the minority shareholders (2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all
against the abuses of the majority.40 Under the Corporation Code, the corporation's power to sue is lodged with its remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or
board of directors or trustees.41 However, when its officials refuse to sue, or are the ones to be sued, or hold control partnership to obtain the relief he desires;
of the corporation, an individual stockholder may be permitted to institute a derivative suit to enforce a corporate (3) No appraisal rights are available for the act or acts complained of; and
cause of action on behalf of a corporation in order to protect or vindicate its rights.42 In such actions, the corporation (4) The suit is not a nuisance or harassment suit. In case of nuisance or harassment suit, the court shall forthwith
is the real party in interest, while the stockholder suing on behalf of the corporation is only a nominal party.43 dismiss the case.
Considering its purpose, a derivative suit, therefore, would necessarily touch upon the internal affairs of a
corporation. Corollarily, "[f]or a derivative suit to prosper, it is required that the minority stockholder suing for and on behalf of
the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf of the
It is for this reason that a derivative suit is among the cases covered by the Interim Rules of Procedure Governing corporation and all other stockholders similarly situated who may wish to join him in the suit."45 It is also required
Intra-Corporate Controversies, A.M. No. 01-2-04- SC, March 13, 2001. Section l(a), Rule 1 of the said Interim Rules that the stockholder "should have exerted all reasonable efforts to exhaust all remedies available under the articles
states that: of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires [and
RULE 1 General Provisions that such fact is alleged] with particularity in the complaint."46 The purpose for this rule is "to make the derivative
SECTION 1. (a) Cases Covered— These Rules shall govern the procedure to be observed in civil cases involving suit the final recourse of the stockholder, after all other remedies to obtain the relief sought had failed."47 Finally,
the following: the stockholder is also required "to allege, explicitly or otherwise, the fact that there were no appraisal rights
(1) Devices or schemes employed by, or any act of, the board of directors, business associates, officers or available for the acts complained of, as well as a categorical statement that the suit is not a nuisance or a
partners, amounting to fraud or misrepresentation which may be detrimental to the interest of the public harassment suit."48chanrobleslaw
and/or of the stockholders, partners, or members of any corporation, partnership, or association;
(2) Controversies arising out of intra-corporate, partnership, or association relations, between and among In this case, Madrid, as a shareholder of petitioner FHGCCI, failed to allege with particularity in the Complaint, and
stockholders, members, or associates; and between, any or all of them and the corporation, partnership, or even in the Amended Complaint, that he exerted all reasonable efforts to exhaust all remedies available under the
association of which they are stockholders, members, or associates, respectively; articles of incorporation, by-laws, or rules governing the corporation; that no appraisal rights are available for the
(3) Controversies in the election or appointment of directors, trustees, officers, or managers of corporations, acts or acts complained of; and that the suit is not a nuisance or a harassment suit. Although the Complaint alleged
partnerships, or associations; that demand letters were sent to the Board of Directors of petitioner FHGCCI and that these were unheeded, these
(4) Derivative suits; and allegations will not suffice.
(5) Inspection of corporate books.
Thus, for failing to meet the requirements set forth in Section 1, Rule 8 of the Interim Rules of Procedure Governing
In view of the foregoing, we agree with the RTC that the instant derivative suit for specific performance against Intra-Corporate Controversies, the Complaint, denominated as a derivative suit for specific performance, must be
respondents FEPI and FEGDI falls under the jurisdiction of special commercial courts. dismissed.
In Gonzales v. GJH Land, Inc.,44 we laid down the guidelines to be observed if a commercial case filed before the WHEREFORE, the Petition is hereby DENIED. The assailed Orders dated May 14,2012 and February 1, 2013 of the
proper RTC is wrongly raffled to its regular branch. In that case, we said that if the RTC has no internal branch Regional Trial Court, Branch 74, Antipolo City, in Civil Case No. 10-9042 are hereby AFFIRMED.
designated as a Special Commercial Court, the proper recourse is to refer the case to the nearest RTC with a
designated Special Commercial Court branch within the judicial region. Upon referral, the RTC to which the case was
referred to should redocket the case as a commercial case. And if the said RTC has only one branch designated as a
Special Commercial Court, it should assign the case to the sole special branch.
The Complaint filed by petitioner FHGCCI failed to comply with the requisites for a valid derivative suit.
88

CommRev Cases

Uploaded by

Copyright:

Available Formats

CommRev Cases

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CommRev Cases

Uploaded by

Copyright:

Available Formats

G.R. No.

Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00

MBMI Resources, Inc. Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60

Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00

Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00

Application of the res inter alios acta rule

On July 9, 2009, Parente lodged her Complaint for illegal dismissal.13

WHEREFORE, premises considered, judgement is hereby rendered as follows:

G.R. No. 224307

[ G.R. No. 210906, October 16, 2019 ]

[G.R. No. 211203, October 16, 2019]

The relevant facts:

We sustain the petitioners.

G.R. No.176897 December 11, 2013 Claims of the petitioners

MIRANT (PHILIPPINES) CORPORATION AND EDGARDO A. BAUTISTA, Petitioners,

[ G.R. No. 208281, June 28, 2021 ]

Ruling of the Regional Trial Court

You might also like