petitioners' counsel and not by petitioners. The petition also failed
141947 July 5, 2001
to specify the dates of receipt of the NLRC Decision as well as the
filing of the motion for reconsideration. 9 Under the aforecited
Rules, failure of petitioners to comply with any of the requirements
was sufficient ground for the dismissal of the petition.
Petitioners now present the sole issue of whether there was failure
to comply with the requirements of the Rules in filing their petition
for certiorari.
We find no manifest error on the part of the Court of Appeals;
hence we affirm.
It is true that insofar as verification is concerned, we have held that
there is substantial compliance if the same is executed by an
attorney it being presumed that facts alleged by him are true to his
knowledge and belief.10 However the same does not apply as
regards the requirement of a certification against forum shopping.
Section 3, Rule 46 of the 1997 Rules of Civil Procedure explicitly
requires -
x x x x The petitioner shall also submit together with the petition a
sworn certification that he has not theretofore commenced any
other action involving the same issues in the Supreme Court, the
Court of Appeals or different divisions thereof, or any other tribunal
or agency; if there is such other action or proceeding he must state
the status of the same; and if he should thereafter learn that a
similar action or proceeding has been filed or is pending before the
Supreme Court, the Court of Appeals, or different divisions thereof,
or any other tribunal or agency, he undertakes to promptly inform
the aforesaid courts and other tribunal or agency thereof within five
(5) days therefrom x x x x
It is clear from the above-quoted provision that the certification
must be made by petitioner himself and not by counsel since it is
petitioner who is in the best position to know whether he has
previously commenced any similar action involving the same
issues in any other tribunal or agency.11
Petitioners argue that while it may be true that they are in the best
position to know whether they have commenced an action or not
this information may be divulged to their attorney and there is
nothing anomalous or bizarre about this disclosure. 12 They further
maintain that they executed a Special Power of Attorney
specifically to authorize their counsel to execute the certification on
their behalf.
We are aware of our ruling in BA Savings Bank v. Sia13 that a
certification against forum shopping may be signed by an
authorized lawyers who has personal knowledge of the facts
required to be disclosed in such document. However, BA Savings
Bank must be distinguished from the case at bar because in the
former, the complainant was a corporation, and hence, a juridical
person. Therefore, that case made an exception to the general
rule that the certification must be made by the petitioner himself
since a corporation can only act through natural persons. In fact,
physical actions, e.g., signing and delivery of documents, may be
performed on behalf of the corporate entity only by specifically
authorized individuals. In the instant case, petitioners, are all
natural persons and there is no showing of any reasonable cause
to justify their failure to personally sign the certification. 14 It is
noteworthy that PEPSI in its Comment stated that it was
petitioners themselves who executed the verification and
certification requirements in all their previous pleadings. Counsel
for petitioners argues that as a matter of policy, a Special Power of
Attorney is executed to promptly and effectively meet any
contingency relative to the handling of a case. This argument only
weakens their position since it is clear that at the outset no
justifiable reason yet existed for counsel to substitute petitioners in
signing the certification. In fact, in the case of natural persons, this
policy serves no legal purpose. Convenience cannot be made the
basis for a circumvention of the Rules.
Neither are we convinced that the out-right dismissal of the petition
would defeat the administration of justice. Petitioners argue that
there are very important issues such as their livelihood and the
well being and future of their families. 15 Every petition filed with a
judicial tribunal is sure to affect, even tangentially, either the well
being and future of petitioner himself or that of his family.
Unfortunately, this does not warrant disregarding the Rules.
Moreover, the petition failed to indicate the material dates that
would show the timeliness of the filing thereof with the Court of
Appeals. There are three (3) essential dates that must be stated in
a petition for certiorari brought under Rule 65. First, the date when
notice of the judgment or final order or Resolution was received;
second, when a motion for new trial or reconsideration was filed;
and third, when notice of the denial thereof was received.
Petitioners failed to show the first and second dates, namely, the
date of receipt of the impugned NLRC Decision as well as the date
of filing of their motion for reconsideration. Petitioners counter by
stating that in the body of the petition for certiorari filed in the Court
of Appeals, it was explicitly stated that the, NLRC Resolution dated
11 May 1999 was received by petitioners through counsel on 30
July 1999. They even reiterate this contention in their Reply.
The requirement of setting forth the, three(3) dates in a petition for
certiorari under Rule 65 is for the purpose of determining its
timeliness. Such a petition is required to be filed not later than sixty
(60) days from notice of the judgment, order or Resolution sought
to be assailed.16 Therefore, that the petition for certiorari was filed
forty-one (41) days from receipt of the denial of the motion for
reconsideration is hardly relevant. The Court of Appeals was not in
any position to determine when this period commenced to run and
whether the motion for reconsideration itself was filed on time
G.R. No.
ISMAEL V. SANTOS, ALFREDO G. ARCE and HILARIO M.
PASTRANA, petitioners,
vs.
COURT OF APPEALS, PEPSI COLA PRODUCTS PHILS., INC.,
LUIS P. LORENZO, JR. and FREDERICK DAEL, respondents.
BELLOSILLO, J.:
This petition for review seeks to annul the Resolution1 of the Court
of Appeals in CA-G.R. SP No. 54853 dated 28 September 1999
which summarily dismissed petitioners' special civil action for
certiorari for failing to execute properly the required verification
and certification against forum shopping and to specify the
material dates from which the timeliness of the petition may be
determined.
Private respondent Pepsi Cola Products Phils., Inc. (PEPSI) is a
domestic corporation engaged in the production, distribution and
sale of beverages. At the time of their termination, petitioners
Ismael V. Santos and Alfredo G. Arce were employed by PEPSI as
Complimentary Distribution Specialists (CDS) with a monthly
salary of P 7,500.00 and P10,000.00, respectively, while Hilario M.
Pastrana was employed as Route Manager with a monthly salary
of P 7 ,500.00.
In a letter dated 26 December 1994, 2 PEPSI informed its
employees that due to poor performance of its Metro Manila Sales
Operations it would restructure and streamline certain physical and
sales distribution systems to improve its warehousing efficiency.
Certain positions, including that of petitioners, were declared
redundant and abolished. Consequently, employees with affected
positions were terminated.
On 15 January 1995 petitioners left their respective positions,
accepted their separation pays and executed the corresponding
releases and quitclaims. However, before the end of the year,
petitioners learned that PEPSI created new positions called
Account Development Managers (ADM) with substantially the
same duties and responsibilities as the CDS. Aggrieved, on 15
Apri1 1996, petitioners filled a complaint with the Labor Arbiter for
illegal dismissal with a prayer for reinstatement, back wages,
moral and exemplary damages and attorney's fees.
In their complaint, petitioners alleged that the creation of the new
positions belied PEPSI's claim of redundancy. They further alleged
that the qualifications for both the CDS and ADM positions were
similar and that the employees hired for the latter positions were
even less qualified than they were.3 Likewise taking note of
possible procedural errors, they claimed that while they were
notified of their termination, PEPSI had not shown that the
Department of Labor and Employment (DOLE) was also notified
as mandated by Art. 283 of the Labor Code which states-
Art. 283. Closure of Establishment and Reduction of Personnel.
The employer may also terminate the employment of any
employee due to the installation of labor-saying devices,
redundancy, retrenchment to prevent 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 worker and the Ministry
of Labor and Employment: at least one (1) month before the
intended date thereof xxxx (italic supplied).
PEPSI, on the other hand, maintained that termination due to
redundancy was a management prerogative the wisdom and
soundness of which were beyond the discretionary review of the
courts. Thus, it had the right to manage its affairs and decide
which position was no longer needed for its operations. It further
maintained that the redundancy program was made in good faith
and was not implemented to purposely force certain employees
out of their employment. It also claimed that a close perusal of the
job descriptions of both the CDS and ADM positions would show
that the two (2) were very different in terms of the nature of their
functions, areas of concerns, responsibilities and qualifications. 4
On 18 June 1997, Labor Arbiter Romulus S. Protacio dismissed
the complaint for lack of merit. Furthermore, he ruled that the one
(1)-month written notice prior to termination required by Art. 283
was complied with.
On appeal, the National Labor Relations Commission (NLRC)
affirmed the ruling of the Labor Arbiter. However, in its Decision5
dated 5 March 1999 it found that the Establishment Termination
Report was submitted to the DOLE only on 5 April 1995 or two "(2)
months after the termination had already taken place 6 and thus
effectively reversing the finding of the Labor Arbiter that the
required one (1)-month notice prior to termination was complied
with. Nonetheless, the NLRC dismissed the appeal, citing
International Hardware, Inc. v. NLRC,7 which held -
x x x x if an employee consented to his retrenchment or voluntarily
applied for retrenchment with the employer due to the installation
of labor-saving devices, redundancy, closure or cessation of
operation or to prevent financial losses to the business of the
employer, the required previous notice to the DOLE is not
necessary as the employee thereby acknowledged the existence
of a valid cause for termination of his employment x x x x (italics
supplied).
On 10 September 1999, petitioners filed a special civil action for
certiorari with the Court of Appeals. 8 The Court of Appeals in the
assailed Resolution dismissed the petition outright for failure to
comply with a number of requirements mandated by Sec. 3, Rule
46, in relation to Sec. 1, Rule 65, of the 1997 Rules of Civil
Procedure. Respondent appellate court found that the verification
and certification against forum shopping were executed merely by
position of Sales Manager and simply adding the duties previously
discharged by it to the duties of the General Manager to whom the
Sales Manager used to report. In that case, we held that the
characterization of private respondent's services as no longer
necessary or sustainable, and therefore properly terminable, was
an exercise of business judgment on the part of petitioner
company. The wisdom or soundness of such characterization or
decision is not subject to discretionary review on the part of the
Labor Arbiter or of the NLRC so long as no violation of law or
arbitrary and malicious action is indicated.
In the case at bar, no such violation or arbitrary action was
established by petitioners. The subject matter being well beyond
the discretionary review allowed by law, it behooves this Court to
steer clear of the realm properly belonging to the business experts.
We agree with the NLRC in its application of International
Hardware v. NLRC that the mandate one (1) month notice prior to
termination given to the worker and the DOLE is rendered
unnecessary by the consent of the worker himself. Petitioners
assail the voluntariness of their consent by stating that had they
known of PEPSI's bad, faith they would not have agreed to their
termination, nor would they have signed the corresponding
releases and quitclaims.26 Having established private respondent's
good faith in undertaking the assailed redundancy program, there
is no need to rule on this contention.
Finally, in a last ditch effort to plead their case, petitioners would
want us to believe that their termination was illegal since PEPSI
did not employ fair and reasonable criteria in implementing its
redundancy program. This issue was not raised before the Labor
Arbiter nor with the NLRC. As it would be offensive to the basic
rules of fair play and justice to allow a party to raise a question
which has not been passed upon by both administrative
tribunals,27 it is now too late to entertain it.1wphi1.nt
WHEREFORE, in the absence of any reversible error on the part
of the Court of Appeals, the petition is DENIED. The assailed
Resolution dated 28 September 1999 which summarily dismissed
petitioner's special civil action for certiorari for non-compliance with
Sec. 13, Rule 46, in relation to Sec. 1, Rule 65, of the 1997 Rules
of Civil Procedure is AFFIRMED.
SO ORDERED.
VOL. 151, JUNE 30, 1987
355
Madrigal & Company, Inc. vs. Zamora
No. L-48237. June 30, 1987.*
MADRIGAL & COMPANY, INC., petitioner, vs. HON. RONALDO
B. ZAMORA, PRESIDENTIAL ASSISTANT FOR LEGAL
AFFAIRS, THE HON. SECRETARY OF LABOR, and MADRIGAL
CENTRAL OFFICE EMPLOYEES UNION, respondents.
No. L-49023. June 30, 1987.*
MADRIGAL & COMPANY, INC., petitioner, vs. HON. MINISTER
OF LABOR and MADRIGAL CENTRAL OFFICE EMPLOYEES
UNION, respondents.
Evidence; Findings of administrative agencies are accorded
not only respect but even finality.As a general rule, the
findings of administrative agencies are accorded not only
respect but even finality. This is especially true with respect
to the Department of Labor, which performs not only a
statutory function but carries out a Constitutional mandate as
well. Our jurisdiction, as a rule, is confined to cases of grave
abuse of discretion. But for certiorari to lie, there must be
such arbitrary and whimsical exercise of power, or that
discretion was exercised despotically.
Labor Law; Dividends received by the company are corporate
earnings arising from corporate investment.The petitioner
would, however, have us believe that it in fact sustained
losses. Whatever profits it earned, so it claims were in the
nature of dividends declared on its shareholdings in other
companies in the earning of which the employees had no
participation whatsoever. Cash dividends, according to it,
are the absolute property of the stockholders and cannot be
made available for disposition if only to meet the employees
economic demands. There is no merit in this contention. We
agree with the National Labor Relations Commission that
[t]he dividends received by the company are corporate
earnings arising from corporate investment. Indeed, as
found by the Commission, the petitioner had entered such
earnings in its financial statements as profits, which it would
not have done if they were not in fact profits. Moreover, it is
incorrect to say that such profitsin the form of dividends
are beyond the reach of the petitioners
_______________
* FIRST DIVISION.
356
356
SUPREME COURT REPORTS ANNOTATED
Madrigal & Company, Inc. vs. Zamora
creditors since the petitioner had received them as
compensation for its management services in favor of the
companies it managed as a shareholder thereof. As such
shareholder. the dividends paid to it were its own money,
which may then be available for wage increments. It is not a
case of a corporation distributing dividends in favor of its
since the material dates were not stated. It should not be assumed
that in no event would the motion be filed later than fifteen (15)
days. Technical rules of procedure are not designed to frustrate
the ends of justice. These are provided to effect the proper and
orderly disposition of cases and thus effectively prevent the
clogging of court dockets. Utter disregard of the Rules cannot
justly be rationalized by harking on the policy of liberal
construction. 17
But even if these procedural lapses are dispensed with, the instant
petition, on the merits, must still fail. Petitioners impute grave
abuse of discretion on the part of the NLRC for holding that the
CDS and ADM positions were dissimilar, and for concluding that
the redundancy program of PEPSI was undertaken in good faith
and that the case of International Hardware v. NLRC18 was
applicable.
This Court is not a trier of facts. The question of whether the duties
and responsibilities of the CDS and ADM positions are similar is a
question properly belonging to both the Labor Arbiter and the
NLRC. In fact, the NLRC merely affirmed the finding of the Labor
Arbiter on this point and further elaborated on the differences
between the two (2). Thus it ruled -
x x x x We cannot subscribe to the complainants' assertions that
the positions have similar job descriptions. First CDS report to a
CD Manager, whereas the ADMs do not report to the CD Manager,
leading us to believe that the organizational setup of the sales
department has been changed.
Second, CDS are filed personnel who drive assigned vehicles and
deliver stocks to "dealers" who, under the job description are those
who sell and deliver the same stocks to smaller retail outlets in
their assigned areas. The ADMs are not required to drive trucks
and they do not physically deliver stocks to wholesale dealers.
Instead, they help "dealers" market the stocks through retail. This
conclusion is borne out by the fact (that) ADMs are tasked to
ensure that the stocks are displayed in the best possible locations
in the dealer's store, that they have more shelf space and that
dealers participate in promotional activities in order to sell more
products.
It is clear to us that while CDS are required to physically deliver,
sell and collect payments for softdrinks, they do so not primarily to
retail outlets but to wholesale dealers who have retail customers of
their own. They are not required to assist the dealers they deliver
to in selling the softdrinks more effectively whereas ADMs sell
softdrinks to big retail outlets (groceries and malls who have
shelves and display cases and who require coolers and other
paraphernalia). They do not only sell but they have to effectively
market the products or put them in the best and most
advantageous light so that the dealers who sell the softdrinks
retails can sell more softdrinks. The main thrust of the ADMs job is
to ensure that the softdrinks products ordered from them are
marketed in a certain manner ("Pepsi-Way standards") in keeping
with the promotional thrust of the company.
Factual findings of the NLRC, particularly when they coincide with
those of the Labor Arbiter, are accorded respect, even finality, and
will not be disturbed for as long as such findings are supported by
substantial evidence,19 defined as such relevant evidence as a
reasonable mind might accept as adequate to support a
conclusion.20 In this case, there is no doubt that the findings of the
NLRC are supported by substantial evidence. The job descriptions
submitted by PEPSI are replete with information and is an
adequate basis to compare and contrast the two (2) positions.
Therefore, the two (2) positions being different, it follows that the
redundancy program instituted by PEPSI was undertaken in good
faith. Petitioners have not established that the title Account
Development Manager was created in order to maliciously
terminate their employment. Nor have they shown that PEPSI had
any ill motive against them. It is therefore apparent that the
restructuring and streamlining of PEPSI's distribution and sales
systems were an honest effort to make the company more
efficient.
Redundancy exists when the service capability of the work force is
in excess of what is reasonably needed to meet the demands of
the enterprise.21 A redundant position is one rendered superfluous
by a number of factors, such as overhiring of workers, decreased
volume of business, dropping of a particular product line previously
manufactured by the company or phasing out of a service
previously undertaken by the business.22
Based on the fact that PEPSI's Metro Manila Sales Operations
were not meeting its sales targets,23 and on the fact that new
positions were subsequently created, it is evident that PEPSI
wanted to restructure its organization in order to include more
complex positions that would either absorb or render completely
unnecessary the positions it had previously declared redundant.
The soundness of this business judgment of PEPSI has been
assailed by petitioners, arguing that it is more logical to implement
new procedures in physical distribution, sales quotas, and other
policies aimed at improving the performance of the division rather
than to reduce the number of employees and create new
positions.24
This argument cannot be accepted. While it is true that
management may not, under the guise of invoking its prerogative,
ease out employees and defeat their constitutional right to security
of tenure, the same must be respected if clearly undertaken in
good faith and if no arbitrary or malicious action is shown.
Similarly, in Wiltshire File Co., Inc. v. NLRC 25 petitioner company
effected some changes in its organization by abolishing the
Secretary of Labor that Rizal Cement Co., Inc., from which it
derives income12 as the General Manager or Agent13 had absolute property of the stockholders and hence, out of reach
ceased operating temporarily.14 In addition, because of by creditors of the corporation. Here, the petitioner was
the desire of the stockholders to phase out the operations of
the Madrigal & Co., Inc. due to lack of business incentives
and prospects, and in order to prevent further losses,15 it
had to reduce its capital stock on two occasions As the
situation, therefore, now stands, the Madrigal & Co., Inc. is
without substantial income to speak of, necessitating a
reorganization, by way of retrenchment, of its employees and
operations.16 The petitioner then requested that it be
allowed to effect said reorganization gradually considering all
the circumstances, by phasing out in at least three (3) stages,
or in a manner the Company deems just, equitable and
convenient to all concerned, about which your good office
will be apprised accordingly.17 The letter, however, was not
verified and neither was it accompanied by the proper
supporting papers. For this reason, the Department of Labor
took no action on the petitioners request.
On January 19, 1976, the labor arbiter rendered a decision18
granting, among other things, a general wage increase of
P200.00 a month beginning March 1, 1974 plus a monthly
living allowance of P100.00 monthly in favor of the
petitioners employees. The arbiter specifically found that the
petitioner had been making substantial profits in its
operation19 since 1972 through 1975. The petitioner
appealed.
_______________
9 Rollo, G.R. No. 49023, 4.
10 Id., 2529.
11 Id., G.R. No. 48237, 1820.
12 Id., 18.
13 Id.
14 Id.
15 Id.
16 Id.
17 Id.
18 Id., G.R. No. 49023, 3237.
19 Id., 34.
359
VOL. 151, JUNE 30, 1987
359
Madrigal & Company, Inc. vs. Zamora
On January 29, 1976, the petitioner applied for clearance to
terminate the services of a number of employees pursuant
supposedly to its retrenchment program. On February 3,
1976, the petitioner applied for clearance to terminate 18
employees more.20 On the same date, the respondent union
went to the Regional Office (No. IV) of the Department of
Labor (NLRC Case No. R042143276) to complain of illegal objectives, in the management of Rizal Cement Co., Inc.1
lockout against the petitioner.21 Acting on this complaint, the
Secretary of Labor, in a decision dated December 14, 1976,22
found the dismissals to be contrary to law23 and ordered
the petitioner to reinstate some 40 employees, 37 of them with
backwages.24 The petitioner then moved for reconsideration,
which the Acting Labor Secretary, Amado Inciong, denied.25
Thereafter, the petitioner filed an appeal to the Office of the
President. The respondent, the Presidential Assistant on
Legal Affairs, affirmed with modification the Labor
Departments decision, thus:
xxx xxx xxx
1. Eliseo Dizon, Eugenio Evangelista and Benjamin Victorio
are excluded from the order of reinstatement.
2. Rogelio Meneses and Roberto Taladro who appear to have
voluntarily retired and paid their retirement pay, their cases
are left to the judgment of the Secretary of Labor who is in a
better position to assess appellants allegation as to their
retirement.
3. The rest are hereby reinstated with six (6) months
backwages, except Aleli Contreras, Teresita Eusebio and
Norma Parlade who are to be reinstated without backwages.
SO ORDERED.26
xxx xxx xxx
On May 15, 1978, the petitioner came to this court. (G.R.
_______________
20 Id., G.R. No. 48237, 3, 84.
21 Id.
22 Id., 2028.
23 Id., 27.
24 Id., 28.
25 Id., 2936.
26 Id., 6061.
360
360
SUPREME COURT REPORTS ANNOTATED
Madrigal & Company, Inc. vs. Zamora
No. 48237.)
Meanwhile, on May 25, 1977, the National Labor Relations
Commission rendered a decision affirming the labor arbiter s
judgment in Case No. LR-5415.27 The petitioner appealed to
the Secretary of Labor. On June 9, 1978, the Secretary of
stockholders, in which case, such dividends would be the
acting as stockholder itself, and in that case, the right to a
share in such dividends, by way of salary increases, may not
be denied its employees.
Same; Unfair Labor Practice; Reduction of capital to evade
employees demand for salary adjustments, mass lay-off of
employees under the guise of retrenchment policy constitute
unfair labor practice.Accordingly, this court is convinced
that the petitioners capital reduction efforts were, to begin
with, a subterfuge, a deception as it were, to camouflage the
fact that it had been making profits, and consequently, to
justify the mass lay off in its employee ranks, especially of
union members. They were nothing but a premature and plain
distribution of corporate assets to obviate a just sharing to
labor of the vast profits obtained by its joint efforts with
capital through the years. Surely, we can neither countenance
nor condone this. It is an unfair labor practice. As we
observed in Peoples Bank and Trust Company v. Peoples
Bank and Trust Co. Employees Union: xxx xxx xxx As has
been held by this Court in Insular Lumber Company vs. CA, et
al., L-23875, August 29, 1969, 29 SCRA 371, retrenchment can
only be availed of if the company is losing or meeting
financial reverses in its operation, which certainly is not the
case at bar. Undisputed is the fact, that the Bank at no time
incurred losses. As a matter of fact. the net earnings of the
Bank would be in the average of P2,000,000.00 a year from
1960 to 1969 and, during this period of nine (9) years, the
Bank continuously declared dividends to its stockholders.
Thus the mass layoff or dismissal of the 65 employees under
the guise of retrenchment policy of the Bank is a lame excuse
and a veritable smoke-screen of its scheme to bust the Union
and thus unduly disturb the employment tenure of the
employees concerned, which act is certainly an unfair labor
practice.
PETITIONS for certiorari and prohibition to review the
decision of the Secretary of Labor.
The facts are stated in the opinion of the Court.
357
VOL. 151, JUNE 30, 1987
357
Madrigal & Company, Inc, vs. Zamora
SARMIENTO, J.:
These are two petitions for certiorari and prohibition filed by
the petitioner, the Madrigal & Co., Inc, The facts are
undisputed.
The petitioner was engaged, among several other corporate
Admittedly, the petitioner and Rizal Cement Co., Inc. are sister
companies.2 Both are owned by the same or practically the
same stockholders.3
On December 28, 1973, the respondent, the Madrigal Central
Office Employees Union, sought for the renewal of its
collective bargaining agreement with the petitioner, which
was due to expire on February 28, 1974.4 Specifically, it
proposed a wage increase of P200.00 a month, an allowance
of P1 00,00 a month, and other economic benefits.5 The
petitioner, however, requested for a deferment in the
negotiations,
On July 29, 1974, by an alleged resolution of its stockholders,
the petitioner reduced its capital stock from 765,000 shares to
267,366 shares.6 This was effected through the distribution of
the marketable securities owned by the petitioner to its
stockholders in exchange for their shares in an equivalent
amount in the corporation.7
On August 22, 1975, by yet another alleged stockholders
action, the petitioner reduced its authorized capitalization
from 267,366 shares to 110,085 shares, again, through the
same scheme.8
After the petitioners failure to sit down with the respondent
union, the latter, on August 28, 1974, commenced Case No.
LR-5415 with the National Labor Relations Commission
_______________
1 Rollo, G.R. No. 48237, 10, 18, 2021.
2 Id., 10.
3 Id., 20.
4 Id., 21.
5 Id., 29,
6 Id., 18, 30.
7 Id.
8 Id.
358
358
SUPREME COURT REPORTS ANNOTATED
Madrigal & Company, Inc. vs. Zamora
on a complaint for unfair labor practice.9 In due time, the
petitioner filed its position paper,10 alleging operational
losses. Pending the resolution of Case No. LR-5415, the
petitioner, in a letter dated November 17, 1975,11 informed the
In urging reversal of the appealed decision, appellant
contends that (1) its letter dated November 17, 1975,
constitute substantial compliance with the clearance
requirement to terminate; and (2) individual appellees
dismissal had no relation to any union activities, but was the
result of an honest-to-goodness retrenchment policy
occasioned by loss of income due to cessation of operation.
We find the first contention to be without merit. Aside from
the fact that the controversial letter was unverified, with not
even a single document submitted in support thereof, the
same failed to specify the individual employees to be affected
by the intended retrenchment. Not only this, but the letter is
so vague and indefinite regarding the manner of effecting
appellants retrenchment plan as to provide the Secretary of
(sic) a reasonable basis on which to determine whether the
request for retrenchment was valid or otherwise, and whether
the mechanics in giving effect thereto was just or unjust to
the employees concerned. In fact. to be cleary implied from
the letter is that the implementary measures needed to give
effect to the intended retrenchment are yet to be thought of or
concretized in the indefinite future, measures about which the
office of the Secretary will be apprised accordingly. All
these, and more, as correctly
_______________
35 Special Events & Central Shipping Office Workers Union v.
San Miguel Corp., supra, citing Consolidated Farms, Inc. v.
Noriel, No. L-47752, July 31, 1978, 84 SCRA 469 (1970), Scott
v. Inciong, No. L-38868, December 29, 1975, 68 SCRA 473
(1975), and San Miguel Corp. v. Secretary of Labor, No. L-
39195, May 26, 1975, 64 SCRA 56 (1975).
36 Busier v. Leogardo, Jr., No. L-63316, July 31, 1984, 131
SCRA 151 (1984), citing Palma and Ignacio v. Q & S, Inc., No.
L20366, May 19, 1966, 17 SCRA 97 (1966) and Philippine
Virginia Tobacco Administration v. Lucero, No. L-32550,
October 27, 1983, 125 SCRA 337 (1983).
363
VOL. 151, JUNE 30, 1987
363
Madrigal & Company, Inc. vs. Zamora
found by the Acting Secretary, cannot but show that the letter
is insufficient in form and substance to constitute a valid
compliance with the clearance requirement. That being so, it
matters little whether or not complainant union or any of its
members failed to interpose any opposition thereto.
It cannot be over-emphasized that the purpose in requiring a
prior clearance by the Secretary of Labor, in cases of
shutdown or dismissal of employees, is to afford said official
ample opportunity to examine and determine the
reasonableness of the request. This is made imperative in
order to give meaning and substance to the constitutional
mandate that the State must afford protection to labor, and
guarantee their security of tenure. Indeed, the rules require
that the application for clearance be filed ten (10) days before
the intended shutdown or dismissal, serving a copy thereof to
the employees affected in order that the latter may register
their own individual objections against the grant of the
clearance. But how could this requirement of notice to the
employees have been complied with, when, as observed by
the Acting Secretary in his modificatory decision dated June
30, 1977 the latter of November 17, 1975 does not even state
definitely the employees involved upon whom service could
be made.
With respect to appellants second contention, we agree with
the Acting Secretarys findings that individual appellees
dismissal was an offshoot of the unions demand for a
renegotiation of the then validly existing collective bargaining
Agreement.
xxx xxx xxx
The pattern of appellants acts after the decision of the Labor
Arbiter in Case No. LR-5415 has convinced us that its sole
objective was to render moot and academic the desire of the
union to exercise its right to bargain collectively with
management, especially so when it is considered in the light
of the fact that under the said decision the demand by the
union for wage increase and allowances was granted. What
renders appellants motive suspect was its haste in
terminating the services of individual appellees, without
waiting the outcome of its appeal in Case No. LR-5415. The
amount involved by its offer to pay double separation could
very well have been used to pay the salaries of those
employees whose services were sought to be terminated,
until the resolution of its appeal with the NLRC, since anyway,
if its planned retrenchment is found to be justifiable and done
in good faith, its only liability is to answer for the separation
pay provided by law. By and large, therefore, we agree with
the Acting Secretary that, under the circumstances obtaining
in this case,
364
364
SUPREME COURT REPORTS ANNOTATED
Madrigal & Company, Inc. vs. Zamora
Labor dismissed the appeal.28 Following these successive
reversals, the petitioner came anew to this court. (G.R. No.
49023.)
By our resolution dated October 9, 1978, we consolidated
G.R. No. 48237 with G.R. No. 49023.29 We likewise issued
temporary restraining orders.30
In G.R. No. 48237, the petitioner argues, that.
xxx xxx xxx
I. SAID RESPONDENTS ERRED IN HOLDING THAT THERE
WAS NO VALID COMPLIANCE WITH THE CLEARANCE
REQUIREMENT.
II. SAID RESPONDENTS ERRED IN NOT HOLDING THAT
THERE IS NO LOCKOUT HERE IN LEGAL CONTEMPLATION,
MUCH LESS FOR UNION-BUSTING PURPOSES.
III. RESPONDENT PRESIDENTIAL ASSISTANT ERRED IN
ORDERING THE REINSTATEMENT OF THE REST OF
AFFECTED MEMBERS OF RESPONDENT UNION WITH SIX (6)
MONTHS BACKWAGES, EXCEPT ALELI CONTRERAS,
TERESITA EUSEBIO AND NORMA PARLADE WHO ARE TO BE
REINSTATED WITHOUT BACKWAGES.
IV. RESPONDENT PRESIDENTIAL ASSISTANT ERRED IN
LEAVING TO THE JUDGMENT OF RESPONDENT SECRETARY
THE CASES OF ROGELIO MENESES AND ROBERTO
TALADRO WHO HAD VOLUNTARILY RETIRED AND PAID
THEIR RETIREMENT PAY.31
xxx xxx xxx
_______________
27 Id., G.R. No. 49023, 6476.
28 Id., 7880.
29 Id., 86-A1.
30 Id., 8586; id., G.R. No. 48237, 7778.
31 Id., G.R. No. 48237, 6.
361
VOL. 151, JUNE 30, 1987
361
Madrigal & Company, Inc. us. Zamora
while in G.R. No. 49023, it submits that.
xxx xxx xxx
1. RESPONDENT MINISTER ERRED IN AFFIRMING THE
DECISION EN BANC OF THE NATIONAL LABOR RELATIONS
COMMISSION DESPITE CLEAR INDICATIONS IN THE
RECORD THAT THE AWARD WAS PREMATURE IN THE
ABSENCE OF A DEADLOCK IN NEGOTIATION AND THE
FAILURE ON THE PART OF THE LABOR ARBITER TO
RESOLVE THE MAIN IF NOT ONLY ISSUE OF REFUSAL TO
BARGAIN, THEREBY DEPRIVING PETITIONER OF ITS RIGHT
TO DUE PROCESS.
2. ASSUMING ARGUENDO THAT THERE WAS A DEADLOCK
IN NEGOTIATION, RESPONDENT MINISTER ERRED
NEVERTHELESS IN NOT FINDING THAT THE ECONOMIC
BENEFITS GRANTED IN THE FORM OF SALARY INCREASES
ARE UNFAIR AND VIOLATIVE OF THE MANDATORY
GUIDELINES PRESCRIBED UNDER PRESIDENTIAL DECREE
NO. 525 AND IGNORING THE UNDISPUTED FACT THAT
PETITIONER HAD VIRTUALLY CEASED OPERATIONS AFTER
HAVING TWICE DECREASED ITS CAPITAL STOCKS AND,
THEREFORE, NOT FINANCIALLY CAPABLE TO ABSORB
SUCH AWARD OF BENEFITS.32
xxx xxx xxx
There is no merit in these two (2) petitions,
As a general rule, the findings of administrative agencies are
accorded not only respect but even finality.33 This is
especially true with respect to the Department of Labor, which
performs not only a statutory function but carries out a
Constitutional mandate as well.34 Our jurisdiction, as a rule,
is confined to
_______________
32 Id., G.R. No. 49023, 8.
33 Special Events & Central Shipping Office Workers Union
San Miguel Corp., Nos. L-5100206, May 30, 1983, 122 SCRA
557 (1983), citing International Hardwood and Veneer Co. of
the Phil. v. Leogardo, No. L-57429, October 28, 1982, 117
SCRA 967 (1982), Genconsu Free Workers Union v. Inciong,
No. L-48687, July 2, 1979, 91 SCRA 311 (1979), and Dy Keh
Beng v. International Labor, No. L-32245, May 25, 1979, 90
SCRA 161 (1979).
34 Intl. Hardwood and Veneer Co. of the Phil. v. Leogardo,
supra.
362
362
SUPREME COURT REPORTS ANNOTATED
Madrigal & Company, Inc. us, Zamora
cases of grave abuse of discretion.35 But for certiorari to lie,
there must be such arbitrary and whimsical exercise of power,
or that discretion was exercised despotically.36
In no way can the questioned decisions be seen as arbitrary.
The decisions themselves show why.
Anent Case No. R042143276 (G.R. No. 48237), we are
satisfied with the correctness of the respondent Presidential
Assistant for Legal Affairs findings. We quote:
xxx xxx xxx
security holdings on the pretext that they belong exclusively
to its stockholders. The dividends received by the company
are corporate earnings arising from corporate investment
which no doubt are attended to by the employees involved in
this proceedings, Otherwise, it would not have been reflected
as part of profits in the companys yearly financial
statements. In determining the reason
366
366
SUPREME COURT REPORTS ANNOTATED
Madrigal & Company, Inc. vs. Zamora
ableness of the economic grants below, we have, therefore,
scrutinized the companys Statement of Income and
Expenses from 1972 to 1975 and after equating the welfare of
the employees with the substantial earnings of the company,
we find the award to be predicated on valid justifications.
The salary increase we herein sanction is also in keeping with
the rational that made imperative the enactment of the
Termination Pay Law since in case the respondent company
really closes down, the employees will receive higher
separation pay or retirement benefits to tide them over while
seeking another employment.38
What clearly emerges from the recorded facts is that the
petitioner, awash with profits from its business operations but
confronted with the demand of the union for wage increases,
decided to evade its responsibility towards the employees by
a devised capital reduction. While the reduction in capital
stock created an apparent need for retrenchment, it was, by
all indications, just a mask for the purge of union members,
who, by then, had agitated for wage increases. In the face of
the petitioner companys piling profits, the unionists had the
right to demand for such salary adjustments.
That the petitioner made quite handsome profits is clear from
the records. The labor arbiter stated in his decision in the
collective agreement case (Case No. LR-5415):
xxx xxx xxx
A clear scrutiny of the financial reports of the respondent
[herein petitioner] reveals that it had been making substantial
profits in the operation.
In 1972, when it still had 765,000 common shares, of which
305,000 were unissued and 459,000 outstanding capitalized at
P16,830,000.00, the respondent made a net profit of
P2,403,211.58. Its total assets were P70,821,317.81.
In 1973, based on the same capitalization, its profit increased
to P2,724,465.33. Its total assets increased to P83,240,473.73.
In 1974, although its capitalization was reduced from
P16,830,000.00 to P1 1,230,459.36, its profits were further
increased to P2,922,349.70. Its assets were P78,842,175.75.
_______________
38 Id., G.R. No 49023, 6567.
367
VOL. 151, JUNE 30, 1987
367
Madrigal & Company, Inc. vs. Zamora
The reduction in its assets by P4,398,297.98 was due to the
fact that its capital stock was reduced by the amount of
P5,599,540.54.
In 1975, for the period of only six months, the respondent
reported a net profit of P547,414.72, which when added to the
surplus of P5,591.214.19, makes a total surplus of
P6,138,628.91 as of June 30, 1975.39
xxx xxx xxx
The petitioner would, however, have us believe that it in fact
sustained losses Whatever profits it earned, so it claims were
in the nature of dividends declared on its shareholdings in
other companies in the earning of which the employees had
no participation whatsoever.40 Cash dividends, according these factual environment, it is our view that the Labor Arbiter
to it, are the absolute property of the stockholders and
cannot be made available for disposition if only to meet the
employees economic demands.41
There is no merit in this contention. We agree with the
National Labor Relations Commission that [t]he dividends
received by the company are corporate earnings arising from
corporate investment.42 Indeed, as found by the
Commission, the petitioner had entered such earnings in its
financial statements as profits, which it would not have done
if they were not in fact prof fits.43
Moreover, it is incorrect to say that such profitsin the form
of dividendsare beyond the reach of the petitioners
creditors since the petitioner had received them as
compensation for its management services in favor of the
companies it managed as a shareholder thereof. As such
shareholder, the dividends paid to it were its own money,
which may then be available for wage increments. It is not a
case of a corporation distributing dividends in favor of its
stockholders, in which case, such dividends would be the
absolute property of the stockholders and hence, out of reach
by creditors of the corporation. Here, the petitioner was
acting as stockholder itself,
_______________
39 Id., 3435.
respondents action [was] a systematic and deliberate
attempt to get rid of complainants because of their union
activities.
We now come to the individual cases of Aleli Contreras,
Teresita Eusebio and Norma Parlade. It is appellants claim
that these three (3) should not be reinstated inasmuch as they
have abandoned their work by their continued absences, and
moreover in the case of Contreras, she failed to oppose the
application for clearance filed against her on October 24,
1975. However, appellants payrolls for December 1631, 1975,
January 115, 1976 and January 1631, 1976, show that the
three (3) were on leave without pay. As correctly
appreciated by the Acting Secretary, these payrolls prove,
first, that leave has been granted to these employees, and,
second, that it is a practice in the company to grant leaves
without pay without loss of employment status, to those who
have exhausted their authorized leaves. As regards, Norma
Parlade, the records show that she truly incurred illness and
actually underwent surgery in Oct., 1975. As to Aleli
Contreras, there is no showing that the Secretary of Labor or
appellant ever acted on the clearance. If we were to follow the
logic of appellant, Contreras should not have been included
in the application for clearance filed on Feb. 3, 1976. The fact
that she was included shows that up to that time, she was still
considered as a regular employee. It was for these reasons,
coupled with the length of service that these employees have
rendered appellant, that the Acting Secretary ordered their
reinstatement but without backwages.37
xxx xxx xxx
With respect to Case No. LR-5415 (G.R. No. 49023), we are
likewise content with the findings of the National Labor
Relations Commission. Thus:
xxx xxx xxx
Appellant now points that the only issue certified to
compulsory arbitration is refusal to bargain and it is,
therefore, premature to dictate the terms of the CBA on the
assumption that there was already a deadlock in negotiation.
Appellant further contends that, assuming there was
deadlock in negotiation, the economic benefits granted are
unreasonable and violative of the guideline prescribed by P.D.
525.
On the other hand, it is the unions stance that its economic
demands are justified by the persistent increase in the cost of
living
_______________
37 Id., G.R. No. 48237, 5557, 5859.
365
VOL. 151, JUNE 30, 1987
365
Madrigal & Company, Inc. vs. Zamora
and the substantial earnings of the company from 1971 to
1975.
It bears to stress that although the unions petition was
precipitated by the companys refusal to bargain, there are
glaring circumstances pointing out that the parties also
submitted deadlock to arbitration. The petition itself is
couched in general terms, praying for arbitration of the
unions dispute with the respondent concerning proposed
changes in the collective bargaining agreement. It is
supported with a copy of the proposed changes which just
goes to show that the union, aside from the issue concerning
respondents refusal to bargain, sought determination of the
merit of its proposals. On the part of the appellant company, it
pleaded financial incapacity to absorb the proposed
economic benefits during the initial stage of the proceedings
below. Even the evidence and arguments proferred below by
both parties are relevant to deadlock issue. In the f ace of
below did not commit a reversible error in rendering judgment
on the proposed CBA changes. At any rate, the minimum
requirements of due process was satisfied because as
heretofore stated, the appellant was given opportunity, and
had in fact, presented evidence and argument in avoidance of
the proposed CBA changes.
We do not also subscribe to appellants argument that by
reducing its capital, it is made evident that it is phasing out its
operations. On the contrary, whatever may be the reason
behind such reductions, it is indicative of an intention to keep
the company a going concern, 80 much so that until now
almost four (4) years later, it is still very much in existence
and operational as before.
We now come to the question concerning the equitableness
of the economic benefits granted below. It requires no
evidence to show that the employees concerned deserve
some degree of upliftment due to the unabated increase in the
cost of living especially in Metro Manila. Of course the
company would like us to believe that it is losing and is
therefore not financially capable of improving the present
CBA to favor its employees. In support of such assertion, the
company points that the profits reflected in its yearly
Statement of Income and Expenses are dividends from
security holdings. We, however, reject as puerile its
suggestion to dissociate the dividends it received from
51 No. L-23557, April 30, 1974, 56 SCRA 694 (1974).
370
370
SUPREME COURT REPORTS ANNOTATED
Madrigal & Company, Inc. vs. Zamora
firmed in a long line of decisions that came later,52 hereby
fixes the amount of backwages at three (3) years pay
reckoned at the increased rates decreed by the labor arbiter
in Case No. LR5415 without deduction or qualification.
_______________
52 Manila Hotel Corporation v. NLRC, No. L-53453, January 22,
1986, 141 SCRA 169 (1986); Akay Printing Press v. Minister of
Labor and Employment, No. L-59651, December 6, 1985, 140
SCRA 381 (1985); Magtoto v. National Labor Relations
Commission, No. L63370, November 18, 1985, 140 SCRA 58
(1985); Panay Railways, Inc. v. National Labor Relations
Commission, No. L-69416, July 11, 1985, 137 SCRA 480 (1985);
Lepanto Consolidated Mining Company v. Encarnacion, Nos.
L-6700203, April 30, 1985, 136 SCRA 256 (1985); Medical
Doctors, Inc. (Makati Medical Center) v. NLRC, No. L-56633,
April 24, 1985, 136 SCRA 1 (1985); Insular Life Assurance Co.,
Ltd. v. NLRC, No. L-49071, April 17, 1985, 135 SCRA 697
(1985); Flexo Manufacturing Corp. v. NLRC, No. L-55971,
February 28, 1985, 135 SCRA 145 (1985); Philippine Airlines,
Inc. v. NLRC, No. L-64809, November 29, 1983, 126 SCRA 223
(1983); Associated Anglo American Tobacco Corporation v.
Lazaro, No. L-63779, October 27, 1983, 125 SCRA 463 (1983);
Capital Garment Corporation v. Ople, No. L-53627, September
10, 1982, 117 SCRA 473 (1982); Litex Employees Association
v. CIR, No. L-39154, September 9, 1982, 116 SCRA 459 (1982);
Yucoco v. Inciong, No. L-49061, March 29, 1982, 113 SCRA 245
(1982); Peoples Industrial and Commercial Employees and
Workers Org. (FFLU) v. Peoples Industrial and Commercial
Corp., No. L-37687, March 15, 1982, 112 SCRA 440 (1982);
Kapisanan ng Manggagawa sa Camara Shoes v. Camara
Shoes, No. L-50985, January 30, 1982, 111 SCRA 477 (1982);
Pepito v. Secretary of Labor, No, L-49418, February 29,1980,
96 SCRA 454 (1980); Citizens League of Free-Workers v. CIR,
No. L-38293, February 21, 1980, 96 SCRA 225 (1980); Liberty
Cotton Mills Workers Union v. Liberty Cotton Mills, Inc., No. L-
33987, May 31, 1979, 90 SCRA 391 (1979); Dy Keh Beng v.
International Labor, supra; Bachrach Motor Co., Inc. v. Court
of Industrial Relations, No. L-26136, October 30, 1978, 86
SCRA 27 (1978); L.R. Aguinaldo & Co., Inc. v. Court of
Industrial Relations, No. L-31909, April 3, 1978, 82 SCRA 309
(1978); Danao Development Corporation v. NLRC, Nos. L40706
& 40700, February 16, 1978, 81 SCRA 487 (1978); Monteverde
v. Court of Industrial Relations, No. L-32975, September 30,
1977, 79 SCRA 259 (1977); Insular Life Assurance Co., Ltd.
Employees Association-Natu v. Insular Life Assurance Co.,
Ltd., No. L-25291, March 10, 1977, 76 SCRA 50 (1977);
Peoples Bank and Trust Com
371
VOL. 161, JUNE 30, 1987
371
Madrigal & Company, Inc. vs. Zamora
WHEREFORE, the petitions are hereby DISMISSED. Subject to
the modification as to the amount of backwages hereby
awarded, the challenged decisions are AFFIRMED. The
temporary restraining orders are LIFTED. With costs against
the petitioner.
This decision is IMMEDIATELY EXECUTORY.
SO ORDERED.
Yap (Chairman), Narvasa, Melencio-Herrera, Cruz, Feliciano
and Gancayco, JJ., concur.
Petitions dismissed Decisions affirmed with modification.
Orders lifted.
Notes.Labor must be represented by a union that can
express its collective will. (Federacion Obrera de la Industria
Tabaquera y Otros Trabajadores de Filipinas vs. Noriel, 72
SCRA 24.)
Terms and conditions of collective bargaining contract
constitute the law between the parties. (Batangas-
LagunaTayabas Bus Company vs. Court of Appeals, 71 SCRA
470.)
Refusal by employer to comply with provisions of collective
bargaining agreement is an unfair labor practice. (MRR Yard
Crew Union vs. Philippine National Railways, 72 SCRA 88.)
o0o should be raised before the National Labor Relations
_______________
pany v. Peoples Bank and Trust Co. Employees Union, supra;
Luzon Stevedoring v. Court of Industrial Relations, No. L-
34300, November 22, 1974, 61 SCRA 154 (1974); Feati
University Faculty Club (Paflu) v. Feati University, No. L-
31503, August 25, 1974, 58 SCRA 395 (1974).
372 [Madrigal & Company, Inc. vs. Zamora, 151 SCRA
355(1987)]
VOL. 193, FEBRUARY 7, 1991
40 Id., 53.
41 Id.
42 Id., 67.
43 Id.
368
368
SUPREME COURT REPORTS ANNOTATED
Madrigal & Company, Inc. vs. Zamora
and in that case, the right to a share in such dividends, by
way of salary increases, may not be denied its employees.
Accordingly, this court is convinced that the petitioners
capital reduction efforts were, to begin with, a subterfuge, a
deception as it were, to camouflage the fact that it had been
making profits, and consequently, to justify the mass lay off in
its employee ranks, especially of union members, They were
nothing but a premature and plain distribution of corporate
assets to obviate a just sharing to labor of the vast profits
obtained by its joint efforts with capital through the years.
Surely, we can neither countenance nor condone this. It is an
unfair labor practice.
As we observed in Peoples Bank and Trust Company v.
Peoples Bank and Trust Co. Employees Union:44
xxx xxx xxx
As has been held by this Court in Insular Lumber Company
vs. CA, et al., L-23875, August 29, 1969, 29 SCRA 371,
retrenchment can only be availed of if the company is losing
or meeting financial reverses in its operation, which certainly
is not the case at bar. Undisputed is the fact, that the Bank at
no time incurred losses. As a matter of fact, the net
earnings of the Bank would be in the average of P2,000,000.00
a year from 1960 to 1969 and, during this period of nine (9)
years, the Bank continuously declared dividends to its
stockholders. Thus the mass lay-off or dismissal of the 65
employees under the guise of retrenchment policy of the
Bank is a lame excuse and a veritable smoke-screen of its
scheme to bust the Union and thus unduly disturb the
employment tenure of the employees concerned, which act is
certainly an unfair labor practice,45
Yet, at the same time, the petitioner would claim that the
phasing out of its operations which brought about the
retrenchment of the affected employees was mainly dictated
be the necessity of its stockholders in their capacity as heirs
of the late Don Vicente Madrigal to partition the estate left by
_______________
44 Nos. L-39598 and 39603, January 13, 1976, 69 SCRA 10
(1976).
45 Supra, 2526.
369
VOL. 151, JUNE 30, 1987
369
Madrigal & Company, Inc. vs. Zamora
him.46 It must be noted, however, that the labor cases were
tried on the theory of losses the petitioner was supposed to
have incurred to justify retrenchment. The petitioner cannot
change its theory in the Supreme Court. Moreover, there is
nothing in the records that will substantiate this claim. But
what is more important is the fact that it is not impossible to
partition the Madrigal estateassuming that the estate is up
for partitionwithout the petitioners business closing shop
and inevitably, without the petitioner laying off its employees.
As regards the question whether or not the petitioners letter
dated November 17, 197547 was in substantial compliance
with legal clearance requirements, suffice it to state that apart
from the Secretary of Labors valid observation that the same
did not constitute a sufficient clearance as contemplated by
law,48 the factual circumstances show that the letter in
question was itself a part of the systematic and deliberate
attempt to get rid of [the union members] because of their
union activities.49 Hence, whether or not the said letter
complied with the legal formalities is beside the point since
under the circumstances, retrenchment was, in all events,
unjustified. Parenthetically, the clearance required under
Presidential Decree No. 850 has been done away with by
Batas Blg. 130, approved on August 21,1981.
During the pendency of these petitions, the petitioner
submitted manifestations to the effect that certain employees
have accepted retirement benefits pursuant to its
retrenchment scheme.50 This is a matter of defense that
Commission.
To do away with the protracted process of determining the
earnings acquired by the employees as a result of ad interim
employment, and to erase any doubt as to the amount of
backwages due them, this court, in line with the precedent set
in Mercury Drug Co., Inc. v. Court of Industrial Relations,51 af-
_______________
46 Id., G.R. No. 48237, 144.
47 Id., 1819.
48 Id., 25.
49 Id., 26.
50 Id., 118122, 141145.
The validity of the redemption of a foreclosed real property is
the center of this controversy.
The facts as found by the respondent court are not disputed.
A reading of the records shows that [Pampanga Bus Co.]
PAMBUSCO, original owners of the lots in question under
TCT Nos. 4314, 4315 and 4316, mortgaged the same to the
Development Bank of the Philippines (DBP) on January 3,
1962 in consideration of the amount of P935.000.00. This
mortgage was foreclosed. In the foreclosure sale under Act
No. 3135 held on October 25, 1974, the said properties were
awarded to Rosita Pena as highest bidder. A certificate of sale
was issued in her favor by the Senior Deputy Sheriff of
Pamapanga, Edgardo A. Zabat, upon payment of the sum of
P128,000.00 to the Office of the Provincial Sheriff (Exh. 23).
The certificate of sale was registered on October 29, 1974
(Exh. G).
On November 19, 1974, the board of directors of
PAMBUSCO, through three (3) out of its five (5) directors,
resolved to assign its right of redemption over the aforesaid
lots and authorized one of its members, Atty. Joaquin
Briones, to execute and sign a Deed of Assignment for and in
behalf of PAMBUSCO in favor of any interested party xxx
(Exh. 24). Consequently, on March 18, 1975, Briones executed
a Deed of Assignment of PAMBUSCOs redemption right over
the subject lots in favor of Marcelino Enriquez (Exh. 25). The
latter then redeemed the said properties and a certificate of
redemption dated August 15, 1975 was issued in his favor by
Sheriff Zabat upon payment of the sum of one hundred forty
thousand, four hundred seventy four pesos P140,474.00) to
the Office of the Provincial Sheriff of Pampanga (Exh. 26).
A day after the aforesaid certificate was issued, Enriquez
executed a deed of absolute sale of the subject properties in
favor of plaintiffs-appellants, the spouses Rising T. Yap and
Catalina Lugue, for the sum of P140,000.00 (Exh. F).
On August 18, 1975, a levy on attachment in favor of Capitol
Allied Trading was entered as an additional encumbrance on
TCT Nos. 4314, 4315 and 4316 and a Notice of a pending
consulta was also annotated on the same titles concerning
the Allied Trading case entitled Dante Gutierrez, et al. vs.
PAMBUSCO (Civil Case No. 4310) in which the registrability of
the aforesaid lots in the name of the spouses Yap was sought
to be resolved (Exh. 20-F). The certificate of sale issued by
the Sheriff in favor of defendant Pea, the resolution of the
PAMBUSCOs board of directors assigning its redemption
rights
720
720
SUPREME COURT REPORTS ANNOTATED
Pea vs. Court of Appeals
to any interested party, the deed of assignment PAMBUSCO
executed in favor of Marcelino B. Enriquez, the certificate of
redemption issued by the Sheriff in favor of Enriquez as well
as the deed of absolute sale of the subject lots executed by
Enriquez in favor of the plaintiffs-appellants were all
annotated on the same certificates of title likewise on August
18, 1975. Also, on the same date, the Office of the Provincial
Sheriff of San Fernando, Pampanga informed defendant-
appellee by registered mail that the properties under TCT
Nos. 4314, 4315 and 4316 x x x x x x xxx were all redeemed by
Mr. Marcelino B. Enriquez on August 15,1975 xxx xxx xxx;
and that she may now get her money at the Sheriffs Office
(Exh. J and J-1).
On September 8, 1975, Pena wrote the Sheriff notifying him
that the redemption was not valid as it was made under a void
deed of assignment. She then requested the recall of the said
redemption and a restraint on any registration or transaction
regarding the lots in question (Exh. 27).
On Sept. 10, 1975, the CFI Branch III, Pampanga in the
aforementioned Civil Case No. 4310, entitled Dante Gutierrez,
et al. vs. PAMBUSCO, et al., ordered the Register of Deeds of
Pampanga xxx to desist from registering or noting in his
registry of property xxx any of the following documents under
contract, until further orders:
(a) Deed of Assignment dated March 18, 1975 executed by the
defendant Pampanga Bus Company in virtue of a resolution
of its Board of Directors in favor of defendant Marcelino
Enriquez;
(b) A Certificate of Redemption issued by defendant Deputy
Sheriff Edgardo Zabat in favor of defendant Marcelino
Enriquez dated August 15, 1975;
(c) Deed of Sale dated August 16,1975 executed by defendant
Marcelino Enriquez in favor of defendant Rising Yap. (Original
Record, p. 244)
On November 17, 1975, the Land Registration Commission
opined under LRC Resolution No. 1029 that the levy on
attachment in favor of Capitol Allied Trading (represented by
Dante Gutierrez) should be carried over on the new title that
would be issued in the name of Rising Yap in the event that he
is able to present the owners duplicates of the certificates of
title herein involved (Exh. G).
Meanwhile, defendant Pea, through counsel, wrote the
Sheriff asking for the execution of a deed of final sale in her
favor on the ground that the one (1) year period of
redemption has long elapsed without any valid redemption
717
Pea vs. Court of Appeals
G.R. No. 91478. February 7, 1991.*
ROSITA PENA, petitioner, us. THE COURT OF APPEALS,
SPOUSES RISING T. YAP and CATALINA YAP, PAMPANGA
BUS CO., INC., JESUS DOMINGO, JOAQUIN BRIONES,
SALVADOR BERNARDEZ, MARCELINO ENRIQUEZ and
EDGARDO A. ZABAT, respondents.
Corporation Law; By-laws; Quorum; Three (3) out of five (5)
members of the board of directors present in the special
meeting of respondent PAMBUSCO do not constitute a
quorum to validly transact business. Section 4 of its amended
by-laws requires at least four (4) members present to
constitute a quorum in a special meeting of its board of
directors.The by-laws of a corporation are its own private
laws which substantially have the same effect as the laws of
the corporation. They are in effect, written, into the charter. In
this sense they become part of the fundamental law of the
corporation with which the corporation and its directors and
officers must comply. Apparently, only three (3) out of five (5)
members of the board of directors of respondent PAMBUSCO
convened on November 19, 1974 by virtue of a prior notice of
a special meeting. There was no quorum to validly transact
business since, under Section 4 of the amended by-laws
hereinabove reproduced, at least four (4) members must be
present to constitute a quorum in a special meeting of the
board of directors of respondent PAMBUSCO.
Same; Board of Directors; Only persons who own at least one
(1) share in their own right may qualify to be directors of a
corporation.As a matter of fact, the three (3) alleged
directors who attended the special meeting on November
19,1974 were not listed as directors of respondent
PAMBUSCO in the latest general information sheet of
respondent PAMBUSCO filed with the SEC dated 18 March
1951. Similarly, the latest list of stockholders of respondent
PAMBUSCO on file with the SEC does not show that the said
alleged directors were
_______________
* FIRST DIVISION.
718
718
SUPREME COURT REPORTS ANNOTATED
Pea vs. Court of Appeals
among the stockholders of respondent PAMBUSCO. Under
Section 30 of the then applicable Corporation Law, only
persons who own at least one (1) share in their own right may
qualify to be directors of a corporation. Further, under Section
28 1/2 ofthe said law, the sale or disposition of all and/or
substantially all properties of the corporation requires, in
addition to a proper board resolution, the affirmative votes of
the stockholders holding at least two-thirds (2/3) of the voting
power in the corporation in a meeting duly called for that
purpose. No doubt, the questioned resolution was not
confirmed at a subsequent stockholders meeting duly called
for the purpose by the affirmative votes of the stockholders
holding at least two-thirds (2/3) of the voting power in the
corporation. The same requirement is found in Section 40 of
the present Corporation Code.
Same; Deed of Assignment; Civil Law; Donation; Liberality as
a consideration in the deed of assignment of the respondent
PAMBUSCO in favor of its former corporate officer for
services rendered is not just an ordinary deed of assignment
but a donation.Respondent court, in upholding the
questioned deed of assignment, which appears to be without
any consideration at all, held that the consideration thereof is
the liberality of the respondent PAMBUSCO in favor of its
former corporate officer, respondent Enriquez, for services
rendered. Assuming this to be so, then as correctly argued by
petitioner, it is not just an ordinary, deed of assignment, but is
in fact a donation. Under Article 725 of the Civil Code, in order
to be valid, such a donation must be made in a public
document and the acceptance must be made in the same or in
a separate instrument. In the latter case, the donor shall be
notified of the acceptance in an authentic form and such step
must be noted in both instruments. Non-compliance with this
requirement renders the donation null and void. Since
undeniably the deed of assignment dated March 8, 1975 in
question, shows that there was no acceptance of the donation
in the same and in a separate document, the said deed of
assignment is thus void ab initio and of no force and effect.
PETITION for certiorari to review the decision and resolution
of the Court of Appeals.
The facts are stated in the opinion of the Court.
Cesar L. Villanueva for petitioner.
Martin N. Roque for private respondents.
719
VOL. 193, FEBRUARY 7, 1991
719
Pea vs. Court of Appeals
GANCAYCO, J.:
Marcelino Enriquez in favor of the plaintiffs herein be all
declared null and void; and further, that TCT Nos. 148983-R,
148984-R and 148985-R, covering these parcels issued in the
plaintiffs name be cancelled and, in lieu thereof,
corresponding certificates of title over these same parcels be
issued in the name of defendant Rosita Pea.
Thereafter, the defendants with prior leave of court filed a
third-party complaint third-party defendants PAMBUSCO,
Jesus Domingo, Joaquin Briones, Salvador Bernardez (as
members of the Board of Directors of PAMBUSCO), Marcelino
Enriquez, and Deputy Sheriff Edgardo Zabat of Pampanga. All
these third-party defendants, how-
723
VOL. 193, FEBRUARY 7, 1991
723
Pea vs. Court of Appeals
ever, were declared as in default for failure to file their answer,
except Edgardo Zabat who did file his answer but failed to
appear at the pre-trial.
After trial, a decision was rendered by the court in favor of
the defendants-appellees, to wit:
WHEREFORE, and in view of all the foregoing, judgment is
hereby rendered dismissing the complaint filed by the
plaintiffs against the defendants and declaring as null and
void the following:
(a) The resolution of the Board of Directors of PAMBUSCO
approved on November 19, 1974 assigning the PAMBUSCOs
right of redemption concerning the parcels involved herein;
(b) The deed of assignment dated March 18, 1975 executed in
favor of Marcelino Enriquez pursuant to the resolution
referred to in the preceding paragraph;
(c) The certificate of redemption dated August 15, 1975
issued by Deputy Sheriff Edgardo Zabat in favor of Marcelino
Enriquez concerning these parcels;
(d) The deed of absolute sale dated August 15, 1975 executed
by Marcelino Enriquez in favor of the plaintiffs concerning the
same parcels; and
(e) TCT Nos. 148983-R, 148984-R and 148985-R of the
Kegister of Deeds of Pampanga in the name of the plaintiffs
also covering these parcels.
Third-party defendant Edgardo Zabat, in his capacity as
Deputy Sheriff of Pampanga is directed to execute in favor of
defendant Rosita Pena the corresponding certificate of final
sale involving the parcels bought by her in the auction sale of
October 25, 1974 for which a certificate of sale had been
issued to her.
Finally, the third-party defendants herein except Deputy
Sheriff Edgardo Zabat are hereby ordered to pay the
defendants/ third party plaintiffs, jointly and severally, the
amount of P10,000.00 as attorneys fees plus costs. 2
Thus, an appeal from said judgment of the trial court was
interposed by private respondents to the Court of Appeals
wherein in due course a decision was rendered on June 20,
1989, the dispositive part of which reads as follows:
_______________
2 Pages 35 to 38, Rollo.
724
724
SUPREME COURT REPORTS ANNOTATED
Pea vs. Court of Appeals
WHEREFORE, premises considered, the judgment of the trial
court on appeal is REVERSED. Defendant-appellee Pena is
hereby ordered to vacate the lands in question and pay the
plaintiffs-appellants the accrued rentals from October, 1974 in
the amount of P1,500.00 per month up to December, 1978 and
the amount of P2,000.00 per month thereafter, until appellee
finally vacate (sic) the premises; with interest at the legal
rate.
SO ORDERED.3
A motion for reconsideration filed by the appellee was denied
in a resolution dated December 27, 1989.
Hence, this petition for review on certiorari of said decision
and resolution of the appellate court predicated on the
following assigned errors:
First Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN
HOLDING THAT THE TRIAL COURT HAD NO JURISDICTION
TO RULE ON THE VALIDITY OF THE QUESTIONED
RESOLUTION AND TRANSFERS.
Second Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN
HOLDING THAT PETITIONER HAS NO LEGAL STANDING TO
ASSAIL THE VALIDITY OF THE QUESTIONED RESOLUTION
AND THE SERIES OF SUCCEEDING TRANSACTIONS
LEADING TO THE REGISTRATION OF THE SUBJECT
PROPERTIES IN FAVOR OF THE RESPONDENTS YAP.
Third Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN
HOLDING THAT THE RESOLUTION OF RESPONDENT
having been exercised; hence she will now refuse to receive
the redemption money xxx (Exh. 28).
On Dec. 30, 1977, plaintiff Yap wrote defendant Pea asking
721
VOL. 193, FEBRUARY 7, 1991
721
Pea vs. Court of Appeals
payment of back rentals in the amount of P42,750.00 for the
use and occupancy of the land and house located at Sta.
Lucia, San Fernando, Pampanga, and informing her of an
increase in monthly rental to P2,000; otherwise, to vacate the
premises or face an eviction cum collection suit (Exh. D).
In the meantime, the subject lots, formerly under TCT Nos.
4314, 4315 and 4316 were registered on June 16, 1978 in the
name of the spouses Yap under TCT Nos. 148983-R, 148984-R
and 148985-R, with an annotation of a levy on attachment in
favor of Capitol Allied Trading. The LRC Resolution No. 1029
allowing the conditioned registration of the subject lots in the
name of the spouses Yap was also annotated on TCT No. 4315
on June 16, 1978 and the notice of a pending consulta noted
thereon on August 18, 1975 was cancelled on the same date.
No Trial on the merits was held concerning Civil Case No.
4310. In an order dated February 17, 1983, the case was
dismissed without prejudice.
Despite the foregoing, defendant-appellee Pea remained in
possession of the lots in question; hence, the spouses Yap
were prompted to file the instant case.1
The antecedents of the present petition are as follows:
Plaintiffs-appellants, the spouses Rising T. Yap and Catalina
Lugue, are the registered owners of the lots in question under
Transfer Certificate of Title (TCT) Nos. 148983-R, 148984-R,
148985-R. In the complaint filed on December 15, 1978,
appellants sought to recover possession over the subject
lands from defendants Rosita Pena and Washington Distillery
on the ground that being registered owners, they have to
enforce their right to possession against defendants who
have been allegedly in unlawful possession thereof since
October 1974 when the previous owners assigned (their)
right to collect rentals x x x in favor of plaintiffs (Record, p.
5). The amount claimed as damages is pegged on the total
amount of unpaid rentals from October 1974 (as taken from
the allegations in the complaint) up to December 1978 at a
monthly rate of P1,500.00 and the further sum of P2,000.00 a
month from January 1979 until the defendants finally vacate
the xxx premises in question; with interest at the legal rate
(Record, p. 6).
In their answer, defendants Rosita Pena and Washington
Distillery denied the material allegations of the complaint and
by way of an
_______________
1 Pages 38 to 40, Rollo.
722
722
SUPREME COURT REPORTS ANNOTATED
Pea vs. Court of Appeals
affirmative and special defense asserted that Perla is now the
legitimate owner of the subject lands for having purchased
the same in a foreclosure proceeding instituted by the DBP
xxx against PAMBUSCO xxx and no valid redemption having
been effected within the period provided by law. It was
contended that plaintiffs could not have acquired ownership
over the subject properties under a deed of absolute sale
executed in their favor by one Marcelino B. Enriquez who
likewise could not have become [the] owner of the properties
in question by redeeming the same on August 18, 1975 (Exh.
26) under an allegedly] void deed of assignment executed in
his favor on March 18, 1975 by the original owners of the land
in question, the PAMBUSCO. The defense was that since the
deed of assignment executed by PAMBUSCO in favor of
Enriquez was void ab initio for being an ultra vires act of its
board of directors and, for being without any valuable
consideration, it could not have had any legal effect; hence,
all the acts which flowed from it and all the rights and
obligations which derived from the aforesaid void deed are
likewise void and without any legal effect.
Further, it was alleged in the same Answer that plaintiffs are
buyers in bad faith because they have caused the titles of the
subject properties with the Register of Deeds to be issued in
their names despite an order from the then CFI, Br. III,
Pampanga in Civil Case No. 4310, entitled Dante Gutierrez, et
al. vs. Pampanga Bus Company, Inc., et al., to desist from
registering or noting in his registry of property xxx any of the
above-mentioned documents under contest, until further
orders. (Record, p. 11).
For its part, defendant Washington Distillery stated that it
has never occupied the subject lots; hence they should not
have been impleaded in the complaint.
The defendants, therefore, prayed that the complaint be
dismissed; that the deed of assignment executed in favor of
Marcelino Enriquez, the certificate of redemption issued by
the Provincial Sheriff also in favor of Marcelino Enriquez, and
the deed of sale of these parcels of land executed by
727
VOL. 193, FEBRUARY 7, 1991
727
Pea vs. Court of Appeals
or subsidiarily in a contract may exercise an action for nullity
of the contract if he is prejudiced in his rights with respect to
one of the contracting parties, and can show the detriment
which would positively result to him from the contract in
which he had no intervention, Indeed, in the case now before
Us, the complaint alleges facts which show that plaintiff
suffered detriment as a result of the deed of sale entered into
by and between defendant PHHC and defendant Melisenda L.
Santos. We believe that the plaintiff should be given a chance
to present evidence to establish that she suffered detriment
and that she is entitled to relief. (Emphasis supplied.)
There can be no question in this case that the questioned
resolution and series of transactions resulting in the
registration of the properties in the name of respondent Yap
spouses adversely affected the rights of petitioner to the said
properties. Consequently, petitioner has the legal standing to
question the validity of said resolution and transactions.
As to the question of validity of the board resolution of
respondent PAMBUSCO adopted on November 19, 1974,
Section 4, Article III of the amended by-laws of respondent
PAMBUSCO, provides as follows:
Sec. 4. Notices of regular and special meetings of the Board
of Directors shall be mailed to each Director not less than five
days before any such meeting, and notices of special meeting
shall state the purpose or purposes thereof. Notices of
regular meetings shall be sent by the Secretary and notices of
special meetings by the President or Directors issuing the
call. No failure or irregularity of notice of meeting shall
invalidate any regular meeting or proceeding thereat;
Provided a quorum of the Board is present, nor of any special
meeting; Provided at least four Directors are present.
(Emphasis supplied.)8
The trial court in finding the resolution void held as follows:
On the other hand, this Court finds merit in the position
taken by the defendants that the questioned resolution
should be declared invalid it having been approved in a
meeting attended by only 3 of the 5 members of the Board of
Directors of PAMBUSCO which attendance is short of the
number required by the By-Laws of the corporation.
_______________
8 Exhibit 4-A.
728
728
SUPREME COURT REPORTS ANNOTATED
Pea vs. Court of Appeals
x x x.
In the meeting of November 19, 1974 when the questioned
resolution was approved, the three members of the Board of
Directors of PAMBUSCO who were present were Jesus
Domingo, Joaquin Briones, and Salvador Bernardez. The
remaining 2 others, namely: Judge Pio Marcos and Alfredo
Mamuyac were both absent therefrom. As it becomes clear
that the resolution approved on November 19, 1974 is null and
void it having been approved by only 3 of the members of the
Board of Directors who were the only ones present at the said
meeting, the deed of assignment subsequently executed in
favor of Marcelino Enriquez pursuant to this resolution also
becomes null and void, x x x9
However, the respondent court overturning said legal
conclusions of the trial court made the following disquisition:
It should be noted that the provision in Section 4, Article III
of PAMBUSCOs amended by-laws would apply only in case
of a failure to notify the members of the board of directors on
the holding of a special meeting, x x x.
In the instant case, however, there was no proof whatsoever,
either by way of documentary or testimonial evidence, that
there was such a failure or irregularity of notice as to make
the aforecited provision apply. There was not even such an
allegation in the Answer that should have necessitated a
proof thereof. The fact alone that only three (3) out of five (5)
members of the board cf directors attended the subject
special meeting, was not enough to declare the aforesaid
proceeding void ab initio, much less the board resolution
borne out of it, when there was no proof of irregularity nor
failure of notice and when the defense made in the Answer
did not touch upon the said failure of attendance. Therefore,
the judgment declaring the nullity of the subject board
resolution must be set aside for lack of proof.
Moreover, there is no categorical declaration in the by-laws
that a failure to comply with the attendance requirement in a
special meeting should make all the acts of the board therein
null and void ab initio. A cursory reading of the subject
provision, as aforequoted, would show that its framers only
intended to make voidable a board meeting held Without the
necessary compliance with the attendance requirement in the
by-laws. Just the use of the word Invalidate already denotes a
legal imputation of validity to the questioned board
_______________
PAMBUSCO, ADOPTED ON 19 NOVEMBER 1974, ASSIGNING
ITS RIGHT OF REDEMPTION IS NOT VOID OR AT THE VERY
LEAST LEGALLY DEFECTIVE.
_______________
3 Page 52, Rollo.
725
VOL. 193, FEBRUARY 7, 1991
725
Pea vs. Court of Appeals
Fourth Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN
HOLDING THAT THE DEED OF ASSIGNMENT, DATED 8
MARCH 1975, IN FAVOR OF RESPONDENT ENRIQUEZ IS NOT
VOID OR AT THE VERY LEAST VOIDABLE OR RESCISSIBLE.
Fifth Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN NOT
HOLDING THAT THE QUESTIONED DEED OF ASSIGNMENT,
DATED 8 MARCH 1975, WAS VOID AB INITIO FOR FAILING TO
COMPLY WITH THE FORMALITIES MANDATORILY REQUIRED
UNDER THE LAW FOR DONATIONS.
Sixth Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN
HOLDING THAT RESPONDENTS YAP ARE PURCHASERS IN
GOOD FAITH AND IN FURTHER HOLDING THAT IT WAS TOO
LATE FOR PETITIONER TO INTERPOSE THE ISSUE THAT
RESPONDENTS YAP WERE PURCHASERS IN BAD FAITH.
Seventh Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN
REVERSING THE DECISION OF THE TRIAL COURT.4
The petition is impressed with merit.
First, the preliminary issues.
The respondent court ruled that the trial court has no
jurisdiction to annul the board resolution as the matter falls
within the jurisdiction of the Securities and Exchange
Commission (SEC) and that petitioner did not have the proper
standing to have the same declared null and void.
In Philex Mining Corporation vs. Reyes,5 this Court held that
it is the fact of relationship between the parties that
determines the proper and exclusive jurisdiction of the SEC
to hear and
_______________
4 Pages 12 to 13, Rollo.
5 118 SCRA 602 (1982).
726
726
SUPREME COURT REPORTS ANNOTATED
Pea vs. Court of Appeals
decide intra-corporate disputes; that unless the controversy
has arisen between and among stockholders of the
corporation, or between the stockholders and the officers of
the corporation, then the case is not within the jurisdiction of
the SEC. Where the issue involves a party who is neither a
stockholder or officer of the corporation, the same is not
within the jurisdiction of the SEC.
In Union Glass & Container Corporation vs. Securities and
Exchange Commission,6 this Court defined the relationships
which are covered within intra-corporate disputes under
Presidential Decree No. 902-A, as amended, as follows:
Otherwise stated, in order that the SEC can take cognizance
of a case, the controversy must pertain to any of the following
relationships; (a) between the corporation, partnership or
association and the public; (b) between the corporation,
partnership or association and its stockholders, partners,
members, or officers; (c) between the corporation,
partnership or association and the state in so far as its
franchise, permit or license to operate is concerned; and (d)
among the stockholders, partners or associates themselves.
In this case, neither petitioner nor respondents Yap spouses
are stockholders or officers of PAMBUSCO. Consequently, the
issue of the validity of the series of transactions resulting in
the subject properties being registered in the names of
respondents Yap may be resolved only by the regular courts.
Respondent court held that petitioner being a stranger to the
questioned resolution and series of succeeding transactions
has no legal standing to question their validity. In Teves vs.
Peoples Homesite and Housing Corporation,7 this Court
held:
We note however, in reading the complaint that the plaintiff
is seeking the declaration of the nullity of the deed of sale,
not as a party in the deed, or because she is obliged
principally or subsidiarily under the deed, but because she
has an interest that is affected by the deed. This Court has
held that a person who is not a party obliged principally
_______________
6 126 SCRA 31, 38 (1983).
7 23 SCRA 1141, 1147 (1968).
14 Exhibit 7.
15 Exhibit 8.
731
VOL. 193, FEBRUARY 7, 1991
731
Pea vs. Court of Appeals
holders under the law, the said resolution, as well as the
subsequent assignment executed on March 8, 1975 assigning
to respondent Enriquez the said right of redemption, should
be struck down as null and void.
Respondent court, in upholding the questioned deed of
assignment, which appears to be without any consideration at
all, held that the consideration thereof is the liberality of the
respondent PAMBUSCO in favor of its former corporate
officer, respondent Enriquez, for services rendered. Assuming
this to be so, then as correctly argued by petitioner, it is not
just an ordinary deed of assignment, but is in fact a donation.
Under Article 725 of the Civil Code, in order to be valid, such a
donation must be made in a public document and the
acceptance must be made in the same or in a separate
instrument. In the latter case, the donor shall be notified of
the acceptance in an authentic form and such step must be
noted in both instruments.16
Non-compliance with this requirement renders the donation
null and void.17 Since undeniably the deed of assignment
dated March 8, 1975 in question,18 shows that there was no
acceptance of the donation in the same and in a separate
document, the said deed of assignment is thus void ab initio
and of no force and effect.
WHEREFORE, the petition is GRANTED. The questioned
decision of the respondent Court of Appeals dated June 20,
1989 and its resolution dated December 27, 1989 are hereby
REVERSED AND SET ASIDE and another judgment is hereby
rendered AFFIRMING in toto the decision of the trial court.
SO ORDERED.
Narvasa (Chairman), Cruz, Grio-Aquino and Medialdea,
JJ., concur.
Petition granted. Decision and resolution annulled and set
aside.
_______________
16 Article 749, Civil Code.
17 Uzon vs. Del Rosario, et al., L-4963, January 28, 1953 92
Phil. 530; Aldaba vs. Court of Appeals, 27 SCRA 263 (1969).
18 Exhibit 25.
732
732
SUPREME COURT REPORTS ANNOTATED
Nabus vs. Court of Appeals
Note.Purpose of the formal requirements is to insure that
the acceptance of the donation is duly communicated to the
donor. (Pajarillo vs. Intermediate Appellate Court, 176 SCRA
340.)
o0o [Pea vs. Court of Appeals, 193 SCRA 717(1991)] Pea vs. Court of Appeals
ISLAMIC DIRECTORATE OF THE PHILIPPINES, MANUEL F.
PEREA and SECURITIES & EXCHANGE COMMISSION,
petitioners, vs.COURT OF APPEALS and IGLESIA NI CRISTO,
respondents.
G.R. No. 117897, 14 May 1997.
HERMOSISIMA, JR., J.:
1971, the ISLAMIC DIRECTORATE OF THE PHILIPPINES ("IDP")
was incorporated with the primary purpose of establishing a
mosque, school, and other religious infrastructures in Quezon City.
IDP purchased a 49,652-square meter lot in Tandang Sora, QC,
which was covered by TCT Nos. RT-26520 (176616) and RT-
26521 (170567).
When President Marcos declared martial law in 1972, most of the
members of the 1971 Board of Trustees ("Tamano Group")flew to
the Middle East to escape political persecution.
Thereafter, two contending groups claiming to be the IDP Board of
Trustees sprung: the Carpizo group and Abbas group.
In a suit between the two groups, SEC rendered a decision in
1986 declaring both groups to be null and void. SEC recommeded
that the a new by-laws be approved and a new election be
conducted upon the approval of the by-laws. However, the SEC
recommendation was not heeded.
In 1989, the Carpizo group passed a Board Resolution authorizing
the sale of the land to Iglesia Ni Cristo ("INC"), and a Deed of Sale
was eventually executed.
In 1991, the Tamano Group filed a petition before the SEC
questioning the sale.
9 Pages 92 to 93, Rollo.
729
VOL. 193, FEBRUARY 7, 1991
729
Pea vs. Court of Appeals
meeting absent its invalidation in the proceedings prescribed
by the corporations by-laws and/or the general incorporation
law. More significantly, it should be noted that even if the
subject special meeting is itself declared void, it does not
follow that the acts of the board therein are ipso facto void
and without any legal effect. Without the declaration of nullity
of the subject board proceedings, its validity should be
maintained and the acts borne out of it should be presumed
valid. Considering that the subject special board meeting has
not been declared void in a proper proceeding, nor even in
the trial by the court below, there is no reason why the acts of
the board in the said special meeting should be treated as
void ab initio, x x x.10
The Court disagrees.
The by-laws of a corporation are its own private laws which
substantially have the same effect as the laws of the
corporation. They are in effect, written, into the charter. In this
sense they become part of the fundamental law of the
corporation with which the corporation and its directors and
officers must comply.11
Apparently, only three (3) out of five (5) members of the board
of directors of respondent PAMBUSCO convened on
November 19, 1974 by virtue of a prior notice of a special
meeting. There was no quorum to validly transact business
since, under Section 4 of the amended by-laws hereinabove
reproduced, at least four (4) members must be present to
constitute a quorum in a special meeting of the board of
directors of respondent PAMBUSCO.
Under Section 25 of the Corporation Code of the Philippines,
the articles of incorporation or by-laws of the corporation may
fix a greater number than the majority of the number of board
members to constitute the quorum necessary for the valid
transaction of business. Any number less than the number
provided in the articles or by-laws therein cannot constitute a
quorum and any act therein would not bind the corporation;
all that the attending directors could do is to adjourn.12
Moreover, the records show that respondent PAMBUSCO
ceased to operate as of November 15, 1949 as evidenced by a
_______________
10 Pages 44 to 45, Rollo.
11 8 Fletcher Cyclopedia of the Law of Private Corporations,
Perm, Ed., pages 750 to 751.
12 Citing Ballantine, page 130.
730
730
SUPREME COURT REPORTS ANNOTATED
letter of the SEC to said corporation dated April 17, 1980.13
Being a dormant corporation for several years, it was highly
irregular, if not anomalous, for a group of three (3) individuals
representing themselves to be the directors of respondent
PAMBUSCO to pass a resolution disposing of the only
remaining asset of the corporation in favor of a former
corporate officer.
As a matter of fact, the three (3) alleged directors who
attended the special meeting on November 19, 1974 were not
listed as directors of respondent PAMBUSCO in the latest
general information sheet of respondent PAMBUSCO filed
with the SEC dated 18 March 1951.14 Similarly, the latest list
of stockholders of respondent PAMBUSCO on file with the
SEC does not show that the said alleged directors were
among the stockholders of respondent PAMBUSCO.15
Under Section 30 of the then applicable Corporation Law, only
persons who own at least one (1) share in their own right may
qualify to be directors of a corporation. Further, under Section
28 1/2 of the said law, the sale or disposition of all and/ or
substantially all properties of the corporation requires, in
addition to a proper board resolution, the affirmative votes of
the stockholders holding at least two-thirds (2/3) of the voting
power in the corporation in a meeting duly called for that
purpose. No doubt, the questioned resolution was not
confirmed at a subsequent stockholders meeting duly called
for the purpose by the affirmative votes of the stockholders
holding at least two-thirds (2/3) of the voting power in the
corporation. The same requirement is found in Section 40 of
the present Corporation Code.
It is also undisputed that at the time of the passage of the
questioned resolution, respondent PAMBUSCO was insolvent
and its only remaining asset was its right of redemption over
the subject properties. Since the disposition of said
redemption right of respondent PAMBUSCO by virtue of the
questioned resolution was not approved by the required
number of stock-
_______________
13 Exhibit 19.

G.R. No. L-56655 July 25, 1983
Lessons Applicable: Preemptive Rights (Sec. 39) (Corporate Law)
FACTS:
February 6, 1959: Articles of Incorporation (AIC) of Jamiatul
Philippine-Al Islamia, Inc. (Jamiatul) (originally Kamilol
Islam Institute, Inc.) were filed with the SEC
December 14, 1962: approved AIC
The corporation had an authorized capital stock of P200K
divided into 20K shares at a par value of P10 each. Of the
authorized capital stock, 8,058 shares worth P80,580.00 were
subscribed and fully paid for
Datu Tagoranao Benito subscribed to 460 shares worth P4,600
October 28, 1975: filed a certificate of increase of its capital
stock from P200K to P1M
November 25, 1975: stockholders meeting was held
were P191,560.00 worth of shares were represented
P110,980 worth of shares were subsequently issued
by the corporation from the unissued portion of the
authorized capital stock of P200,000
Of the increased capital stock of P1M0, P160K worth of
shares were subscribed by Mrs. Fatima A. Ramos, Mrs.
Tarhata A. Lucman and Mrs. Moki-in Alonto.
November 18, 1976: Datu Tagoranao filed with SEC a petition
alleging that the additional issue (worth P110,980) was made
in violation of his pre-emptive right to said additional issue
and that the increase in the authorized capital stock was illegal
considering that the stockholders of record were not notified
of the meeting wherein the proposed increase was in the
agenda
SEC:
issuance by the corporation of its unissued shares
was validly made and was not subject to the pre-
emptive rights of stockholders
directed Jamiatul to allow petitioner to subscribe
thereto, at par value, proportionate to his present
shareholdings, adding thereto the 2,540 shares
transferred to him by Mr. Domocao Alonto and
Mrs. Moki-in Alonto
ISSUES:
W/N the issuance of the P110,980 of authorized capital stock
of P200,000 is in violation of pre-emptive right - NO
W/N the issuance of the increase in the authorized capital
stock is in violation of pre-emptive right
HELD: Dismissed for lack of merit
NO
GR: pre-emptive right is recognized only with respect to new
issue of shares, and not with respect to additional issues of
originally authorized shares
Theory: when a corporation at its inception offers
its first shares, it is presumed to have offered all of
those which it is authorized to issue
original subscriber is deemed to have
taken his shares knowing that they form
a definite proportionate part of the
whole number of authorized shares
When the shares left unsubscribed are
later re-offered, he cannot therefore
claim a dilution of interest.
2. NO
stockholders' meeting was held which included the increase of
its capital stock from P200,000.00 to P1,000,000.00
he was not notified of said meeting and that he
never attended the same as he was out of the
country at the time
administrative bodies will not be interfered with by the courts
in the absence of grave abuse of discretion on the part of said
agencies, or unless the aforementioned findings are not
supported by substantial evidence
G.R. No. L-19761 January 29, 1923
PHILIPPINE TRUST COMPANY, as assignee in insolvency of
"La Cooperativa Naval Filipina," plaintiff-appellee,
vs.
MARCIANO RIVERA, defendant-appellant.
Meanwhile, INC filed a suit for specific performance before RTC
Branch 81 against the Carpizo group. INC also moved to compel
a certain Leticia Ligon (who is apparently the mortgagee of the lot)
to surrender the title.
The Tamano group sought to intervene, but the intervention was
denied despite being informed of the pending SEC case. In 1992,
the Court subsequently ruled that the INC as the rightful owner of
the land, and ordered Ligon to surrender the titles for annotation.
Ligon appealed to CA and SC, but her appeals were denied.
In 1993, the SEC ruled that the sale was null and void . On appeal
CA reversed the SEC ruling.
MAIN ISSUE: W/N the sale between the Carpizo group and INC
is null and void.
RULING: YES.
Since the SEC has declared the Carpizo group as a void Board of
Trustees, the sale it entered into with INC is likewise void. Without
a valid consent of a contracting party, there can be no valid
contract.
In this case, the IDP, never gave its consent, through a legitimate
Board of Trustees, to the disputed Deed of Absolute Sale executed
in favor of INC. Therefore, this is a case not only of vitiated
consent, but one where consent on the part of one of the
supposed contracting parties is totally wanting. Ineluctably, the
subject sale is void and produces no effect whatsoever.
Further, the Carpizo group failed to comply with Section 40 of the
Corporation Code, which provides that: " ... a corporation may, by
a majority vote of its board of directors or trustees, sell, lease,
exchange, mortgage, pledge or otherwise dispose of all or
substantially all of its property and assets... when authorized by
the vote of the stockholders representing at least two-thirds (2/3)
of the outstanding capital stock; or in case of non-stock
corporation, by the vote of at least two-thirds (2/3) of the members,
in a stockholders' or members' meeting duly called for the
purpose...."
The subject lot constitutes the only property of IDP. Hence, its sale
to a third-party is a sale or disposition of all the corporate property
and assets of IDP. For the sale to be valid, the majority vote of the
legitimate Board of Trustees, concurred in by the vote of at least
2/3 of the bona fide members of the corporation should have been
obtained. These twin requirements were not met in the case at bar.
ANCILLARY ISSUE: W/N The Ligon ruling constitutes res
judicata.
RULING: NO.
Section 49(b), Rule 39 enunciates the first concept of res judicata
known as "bar by prior judgment," whereas, Section 49(c), Rule 39
is referred to as "conclusiveness of judgment."
There is "bar by former judgment" when, between the first case
where the judgment was rendered, and the second case where
such judgment is invoked, there is identity of parties, subject
matter and cause of action. When the three identities are present,
the judgment on the merits rendered in the first constitutes an
absolute bar to the subsequent action. But where between the first
case wherein judgment is rendered and the second case wherein
such judgment is invoked, there is only identity of parties but there
is no identity of cause of action, the judgment is conclusive in the
second case, only as to those matters actually and directly
controverted and determined, and not as to matters merely
involved therein. This is what is termed "conclusiveness of
judgment."
Neither applies to the case at bar. There is no "bar by former
judgment" since while there may be identity of subject matter (IDP
property) in both cases, there is no identity of parties. The
principal parties in the first case were Ligon and the Iglesia Ni
Cristo. The IDP can not be considered essentially a formal party
thereto for the simple reason that it was not duly represented by a
legitimate Board of Trustees.
Res Judicata in the form of "conclusiveness of judgment" cannot
likewise apply for the reason that the primary issue in the first case
is the possession of the titles, and not the sale of the land, as in
this case.
Corporate Law Case Digest: Datu Tagoranao Benito V. Sec (1983)
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supervision, control and regulatory jurisdiction to investigate
whether the corporation has unrestricted retained earnings to
cover the payment for the shares, and whether the purchase is for
a legitimate corporate purpose as provided in Sections 41 and 122
of the Corporation Code.
Same; Corporations; Trust Fund Doctrine; There can be no
distribution of assets among stockholders without first paying the
corporate creditors.The requirement of unrestricted retained
earnings to cover the shares is based on the trust fund doctrine
which means that the capital stock, property and other assets of a
corporation are regarded as equity in trust for the payment of
corporate creditors. The reason is that creditors of a corporation
are preferred over the stockholders in the distribution of corporate
assets. There can be no distribution of assets among the
stockholders without first paying corporate creditors. Hence, any
disposition of corporate funds to the prejudice of creditors is null
and void. "Creditors of a corporation have the right to assume that
so long as there are outstanding debts and liabilities, the board of
directors will not use the assets of the corporation to purchase its
own stock ..." (Steinberg vs. Velasco, 52 Phil. 953.)
Contracts, Interpretation of; Provisions of existing laws are
deemed incorporated in a valid contract without the parties' making
express reference to it.These provisions of the Corporation
Code should be deemed written into the agreement between the
corporation and the stockholders even if there is no express
reference to them in the promissory note. The principle is well
settled that an existing law enters into and forms part of a valid
contract without need for the parties' expressly making reference
to it (Lakas ng Manggagawang Makabayan vs. Abiera, 36 SCRA
437).
PETITION for certiorari to review the decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Lim, Duran & Associates for petitioner.
Renato J. Dilag for private respondent.
GRIO-AQUINO, J.:
The only issue in this case is whether or not a suit brought by a
withdrawing stockholder against the corporation to enforce
payment of the balance due on the consideration (evidenced by
542
542
SUPREME COURT REPORTS ANNOTATED
Boman Environmental Dev't. Corp. vs. Court of Appeals
a corporate promissory note) for the surrender of his shares of
stock and interests in the corporation, involves an intra-corporate
dispute. The resolution of that issue will determine whether the
Securities and Exchange Commission (SEC) or a regular court
has jurisdiction over the action.
On May 7, 1984, respondent Nilcar Y. Fajilan offered in writing to
resign as President and Member of the Board of Directors of
petitioner, Boman Environmental Development Corporation
(BEDECO), and to sell to the company all his shares, rights, and
interests therein for P300,000 plus the transfer to him of the
company's Isuzu pick-up truck which he had been using. The
letter-offer (Exh. A-1) reads as follows:
"07 May l984
"THE BOARD OF DIRECTORS,
BOMAN ENVIRONMENTAL DEVELOPMENT
CORPORATION
2nd Floor, AGS Building,
466 EDSA, Makati,
Metro Manila
Gentlemen:.
"With deepest regrets, I am tendering my resignation as member
of the Board of Directors and President of the Company effective
as soon as my shares and interests thereto are sold and fully paid.
"It is really painful to leave the Company which we painstakingly
labored and nortured for years to attain its success today,
however, family interests and other considerations dictate me
otherwise.
"Thank you for your interest of buying my shares and other
interests on the Company. It is really my intention to divest myself
of these investments and sell them all for PESOS: THREE
HUNDRED THOUSAND (P300,000) payable in cash in addition to
the Isuzu pick up I am presently using for and in behalf of the
Company.
"Thank you.
NILCAR Y. FAJILAN
Director/President" (p. 239, Rollo.)
At a meeting of the Board of Directors of BEDECO on June
14,1984, Fajilan's resignation as president was accepted and new
officers were elected. Fajilan's offer to sell his shares back to the
corporation was approved, the Board promising to pay
543
VOL. 167, NOVEMBER 22, 1988
543
Boman Environmental Dev't. Corp. vs. Court of Appeals
for them on a staggered basis from July 15, 1984 to December 15,
1984(Annex B).
Araneta and Zaragoza for appellant.
Ross and Lawrence for appellee.
STREET, J.:
This action was instituted on November 21, 1921, in the Court of
First Instance of Manila, by the Philippine Trust Company, as
assignee in insolvency of La Cooperativa Naval Filipina, against
Marciano Rivera, for the purpose of recovering a balance of
P22,500, alleged to be due upon defendant's subscription to the
capital stock of said insolvent corporation. The trial judge having
given judgment in favor of the plaintiff for the amount sued for, the
defendant appealed.
It appears in evidence that in 1918 the Cooperativa Naval Filipina
was duly incorporated under the laws of the Philippine Islands,
with a capital of P100,000, divided into one thousand shares of a
par value of P100 each. Among the incorporators of this company
was numbered the defendant Mariano Rivera, who subscribed for
450 shares representing a value of P45,000, the remainder of the
stock being taken by other persons. The articles of incorporation
were duly registered in the Bureau of Commerce and Industry on
October 30 of the same year.
In the course of time the company became insolvent and went into
the hands of the Philippine Trust Company, as assignee in
bankruptcy; and by it this action was instituted to recover one-half
of the stock subscription of the defendant, which admittedly has
never been paid.
The reason given for the failure of the defendant to pay the entire
subscription is, that not long after the Cooperativa Naval Filipina
had been incorporated, a meeting of its stockholders occurred, at
which a resolution was adopted to the effect that the capital should
be reduced by 50 per centum and the subscribers released from
the obligation to pay any unpaid balance of their subscription in
excess of 50 per centum of the same. As a result of this resolution
it seems to have been supposed that the subscription of the
various shareholders had been cancelled to the extent stated; and
fully paid certificate were issued to each shareholders for one-half
of his subscription. It does not appear that the formalities
prescribed in section 17 of the Corporation Law (Act No. 1459), as
amended, relative to the reduction of capital stock in corporations
were observed, and in particular it does not appear that any
certificate was at any time filed in the Bureau of Commerce and
Industry, showing such reduction.
His Honor, the trial judge, therefore held that the resolution relied
upon the defendant was without effect and that the defendant was
still liable for the unpaid balance of his subscription. In this we
think his Honor was clearly right.
It is established doctrine that subscription to the capital of a
corporation constitute a find to which creditors have a right to look
for satisfaction of their claims and that the assignee in insolvency
can maintain an action upon any unpaid stock subscription in order
to realize assets for the payment of its debts. (Velasco vs. Poizat,
37 Phil., 802.) A corporation has no power to release an original
subscriber to its capital stock from the obligation of paying for his
shares, without a valuable consideration for such release; and as
against creditors a reduction of the capital stock can take place
only in the manner an under the conditions prescribed by the
statute or the charter or the articles of incorporation. Moreover,
strict compliance with the statutory regulations is necessary (14 C.
J., 498, 620).
In the case before us the resolution releasing the shareholders
from their obligation to pay 50 per centum of their respective
subscriptions was an attempted withdrawal of so much capital
from the fund upon which the company's creditors were entitled
ultimately to rely and, having been effected without compliance
with the statutory requirements, was wholly ineffectual.
The judgment will be affirmed with cost, and it is so ordered.
540
SUPREME COURT REPORTS ANNOTATED
Boman Environmental Dev't. Corp. vs. Court of Appeals
No. L-77860. November 22, 1988.*
BOMAN ENVIRONMENTAL DEVELOPMENT CORPORATION,
petitioners, vs. HON. COURT OF APPEALS and NILCAR Y.
FAJILAN, respondents.
Corporation Law; Jurisdiction of the SEC; Intra-corporate
Controversy; A suit filed by a stockholder against the corporation to
enforce the latter's promissory note or to compel the corporation to
pay for his shareholdings is cognizable by the SEC alone.
Fajilan's suit against the corporation to enforce the latter's
promissory note or compel the corporation to pay for his
shareholdings is cognizable by the SEC alone which shall
determine whether such payment will not constitute a distribution
of corporate assets to a stockholder in preference over creditors of
the corporation. The SEC has exclusive
_______________
12 Perez vs. Ong Chua, 116 SCRA 732 (1982).
13 Ramos, et al. vs. Ramos, et al., supra, citing 90 C.J.S. 887-889;
54 Am. Jur. 449-450.
* FIRST DIVISION.
541
VOL. 167, NOVEMBER 22, 1988
541
Boman Environmental Dev't. Corp. vs. Court of Appeals
Dec. 15, 1984 The resolution of the Board was communicated to Fajilan in the
P300,000.00 following letter-agreement dated June 25, 1984 to which he affixed
his conformity (Annex C):
"June 25,1984
545 "Mr. Nilcar Y. Fajilan
No. 159 Aramismis Street
VOL. 167, NOVEMBER 22, 1988 Project 7, Quezon City
545 "Dear Mr. Fajilan:
Boman Environmental Dev't. Corp. vs. Court of Appeals "Please be informed that after due deliberation the Board of
Directors has accepted your offer to sell your share and interest in
BOMAN ENVIRONMENTAL the company at the price of P300,000.00, inclusive of your unpaid
salary from February 1984 to May 31,1984, loan principal, interest
DEVELOPMENT CORPORATION on loan, profit sharing and share on book value of the corporation
as at May 31,1984. Payment of the P300,000.00 shall be as
By: follows:
"July 15, 1984
(SGD)ALFREDO S. PANGILINAN P100,000.00
President September 15, 1984
"Signed in the presence of: P 75,000.00
October 15, 1984
(SGD) MAXIMO R. REBALDO P 62,500.00
December 15, 1984
(SGD) BENEDICTO M. EMPAYNADO" P 62,500.00

(Annex D, p. 247, Rollo.) P300,000.00.

"To assure you of payment of the above amount on respective due
However, BEDECO paid only P50,000 on July 15, 1984 and dates, the company will execute the necessary promissory note.
another P50,000 on August 31, 1984 and defaulted in paying the "In addition to the above, the Ford Courier Pick-up will belong to
balance of P200,000. you subject to your assumption of the outstanding obligation
On April 30,1985, Fajilan filed a complaint in the Regional Trial thereof with Fil-Invest. It is understood that upon your full payment
Court of Makati for collection of that balance from BEDECO. of the pick-up, arrangement will be made and negotiated with Fil-
In an order dated September 9,1985, the trial court, through Judge Invest regarding the transfer of the ownership of the vehicle to
Ansberto Paredes, dismissed the complaint for lack of jurisdiction. your name.
It ruled that the controversy arose out of intracorporate relations, "If the above meets your requirements, kindly signify your
hence, the Securities and Exchange Commission has original and conformity/approval by signing below.
exclusive jurisdiction to hear and decide it. Very truly yours,
His motion for reconsideration of that order having been denied, (SGD) JAMES C. PERALTA
Fajilan filed a "Petition for Certiorari, and Mandamus with Corporate Secretary
Preliminary Attachment" in the Intermediate Appellate Court. "CONFORME:
In a decision dated March 2, 1987, the Court of Appeals set aside (SGD) NILCAR Y. FAJILAN
Judge Paredes' order of dismissal and directed him to take 544
cognizance of the case. BEDECO's motion for reconsideration was
denied in a resolution dated March 24,1987 of the Court of 544
Appeals. SUPREME COURT REPORTS ANNOTATED
In its decision, the Appellate Court characterized the case as a suit Boman Environmental Dev't. Corp. vs. Court of Appeals
for collection of a sum of money as Fajilan "was merely suing on Noted:
the balance of the promissory note" (p. 4, Decision; p. 196, Rollo)
which BEDECO failed and refused to pay in full. More particularly, (SGD) ALFREDO S. PANGILINAN
the Court of Appeals held: (SGD) MAXIMO R. REBALDO
"While it is true that the circumstances which led to the execution (SGD) BENEDICTO M. EMPAYNADO"
of the promissory note by the Board of Directors of respondent "SUBSCRIBED AND SWORN TO before me, this 3rd day of July,
corporation was an intra-corporate matter, there arose no contro- 1984, Alfredo S. Pangilinan exhibiting to me his Residence
546 Certificate No. 1696224 issued at Makati, Metro Manila on January
24, 1984, in his capacity as President of Boman Environmental
546 Development Corporation with Corporate Residence Certificate
SUPREME COURT REPORTS ANNOTATED No. 207911 issued at Makati, Metro Manila on March 26,1984.
Boman Environmental Dev't. Corp. vs. Court of Appeals "(SGD) ERNESTO B. DURAN
versy as to the sale of petitioner's interests and rights as well as NOTARY PUBLIC
his shares as Member of the Board of Directors and President of Until December 31,1984
respondent corporation. The intra-corporate matter of the PTR No. 8582861 Issued
resignation of petitioner as Member of the Board of Directors and on January 24,1984 at
President of respondent corporation has long been settled without Makati, Metro Manila
issue. "The Board of Directors of respondent corporation has Doc. No. 392
likewise long settled the sale by petitioner of all his shares, rights Page No. 80
and interests in favor of the corporation. No controversy arose out Book No. X
of this transaction. The jurisdiction of the Securities and Exchange Series of 1984." (p. 245, Rollo.)
Commission therefore need not be invoked on this matter." (p.
196, Rollo.) A promissory note dated July 3, 1984, was signed by BEDECO'S
The petition is impressed with merit. new president, Alfredo Pangilinan, in the presence of two directors,
Section 5(b) of P.D. No. 902-A, as amended, grants the SEC committing BEDECO to pay him P300,000 over a six-month period
original and exclusive jurisdiction to hear and decide cases from July 15, 1984 to December 15, 1984. The promissory note
involving (Exh. D) provided as follows:
"b) Controversies arising out of intra-corporate or partnership "PROMISSORY NOTE
relations, between and among stockholders, members, or
associates; between any or all of them and the corporation, Makati, Metro Manila
partnership or association of which they are stockholders, July 3, 1984
members or associates, respectively; x x x" (Italics supplied.) "FOR VALUE RECEIVED, BOMAN ENVIRONMENTAL
This case involves an intra-corporate controversy because the DEVELOPMENT CORPORATION, a domestic corporation duly
parties are a stockholder and the corporation. As correctly registered with the Securities and Exchange Commission, with
observed by the trial court, the perfection of the agreement to sell office at Rm. 608, Metro Bank Bldg., Ayala Blvd., Makati, Metro
Fajilan's participation and interests in BEDECO and the execution Manila, promise to pay NILCAR Y. FAJILAN of 17 Aramismis St.,
of the promissory note for payment of the price of the sale did not Project 7, Quezon City, the sum of PESOS: THREE HUNDRED
remove the dispute from the coverage of Section 5(b) of P.D. No. THOUSAND (P300,000.00), Philippine Currency payable as
902, as amended, for both the said agreement (Annex C) and the follows:
promissory note (Annex D) arose from intra-corporate relations. "P1 00,000.00
Indeed, all the signatories of both documents were stockholders of
the corporation at the time of signing the same. It was an intra- July 15, 1984
corporate transaction, hence, this suit is an intra-corporate 75,000.00
controversy.
Fajilan's offer to resign as president and director "effective as soon Sept. 15, 1984
as my shares and interests thereto (sic) are sold and fully paid" 62,500.00
(Annex A-1, p. 239, Rollo) implied that he would remain a
stockholder until his shares and interests were fully paid for, for October 15, 1984
one cannot be a director or president of a corporation unless he is 62,500.00

San Juan, Africa and Benedicto for plaintiffs-appellants.
Vicente Hilado and Gianzon, Sison, Yulo and Associates for
defendants-appellants.
CAPISTRANO, J.:
This was a representative or derivative suit commenced on
October 20, 1953, in the Court of First Instance of Manila by four
minority stockholders against the Ma-ao Sugar Central Co., Inc.
and J. Amado Araneta and three other directors of the corporation.
The complaint comprising the period November, 1946 to October,
1952, stated five causes of action, to wit: (1) for alleged illegal and
ultra-vires acts consisting of self-dealing irregular loans, and
unauthorized investments; (2) for alleged gross mismanagement;
(3) for alleged forfeiture of corporate rights warranting dissolution;
(4) for alleged damages and attorney's fees; and (5) for
receivership.
Plaintiffs prayed, in substance, as follows:
Under the FIRST CAUSE OF ACTION, that the defendant J.
Amado Araneta and his individual co-defendants be ordered to
render an accounting of all transactions made and carried out by
them for defendant corporation, and "to collect, produce and/or
pay to the defendant corporation the outstanding balance of the
amounts so diverted and still unpaid to defendant corporation";
Under the SECOND CAUSE OF ACTION, that the individual
defendants be held liable and be ordered to pay to the defendant
corporation "whatever amounts may be recovered by the plaintiffs
in Civil Case No. 20122, entitled 'Francisco Rodriguez vs. Ma-ao
Sugar Central Co.'"; to return to the defendant corporation all
amounts withdrawn by way of discretionary funds or backpay, and
to account for the difference between the corporation's crop loan
accounts payable and its crop loan accounts receivable;
Under the THIRD CAUSE OF ACTION, that the corporation be
dissolved and its net assets be distributed to the stockholders; and
Under the FOURTH CAUSE OF ACTION, that the defendants be
ordered "to pay the sum of P300,000.00 by way of compensatory,
moral and exemplary damages and for expenses of litigation,
including attorney's fees and costs of the suit."
THE FIFTH CAUSE OF ACTION was an application for the
provisional remedy of receivership.
In their answer originally filed on December 1, 1953, and amended
on February 1, 1955, defendants denied "the allegations regarding
the supposed gross mismanagement, fraudulent use and diversion
of corporate funds, disregard of corporate requirements, abuse of
trust and violation of fiduciary relationship, etc., supposed to have
been discovered by plaintiffs, all of which are nothing but
gratuitous, unwarranted, exaggerated and distorted conclusions
not supported by plain and specific facts and transactions alleged
in the complaint."
BY WAY OF SPECIAL DEFENSES, the defendants alleged,
among other things: (1) that the complaint "is premature, improper
and unjustified"; (2) that plaintiffs did not make an "earnest, not
simulated effort" to exhaust first their remedies within the
corporation before filing their complaint; (3) that no actual loss had
been suffered by the defendant corporation on account of the
transactions questioned by plaintiffs; (4) that the payments by the
debtors of all amounts due to the defendant corporation
constituted a full, sufficient and adequate remedy for the
grievances alleged in the complaint and (5) that the dissolution
and/or receivership of the defendant corporation would violate and
impair the obligation of existing contracts of said corporation.
BY WAY OF COUNTERCLAIM, the defendants in substance
further alleged, among others, that the complaint was premature,
improper and malicious, and that the language used was
"unnecessarily vituperative abusive and insulting, particularly
against defendant J. Amado Araneta who appears to be the main
target of their hatred." Wherefore, the defendant sought to recover
"compensation for damages, actual, moral, exemplary and
corrective, including reasonable attorney's fees."
After trial, the Lower Court rendered its Decision (later
supplemented by an Order resolving defendants' Motion for
Reconsideration), the dispositive portion of which reads:
IN VIEW WHEREOF, the Court dismisses the petition for
dissolution but condemns J. Amado Araneta to pay unto Ma-ao
Sugar Central Co., Inc. the amount of P46,270.00 with 8% interest
from the date of the filing of this complaint, plus the costs; the
Court reiterates the preliminary injunction restraining the Ma-ao
Sugar Central Co., Inc. management to give any loans or
advances to its officers and orders that this injunction be as it is
hereby made, permanent; and orders it to refrain from making
investments in Acoje Mining, Mabuhay Printing, and any other
company whose purpose is not connected with the Sugar Central
business; costs of plaintiffs to be borne by the Corporation and J.
Amado Araneta.
From this judgment both parties appealed directly to the Supreme
Court.
Before taking up the errors respectively, assigned by the parties,
we should state that the following findings of the Lower Court on
the commission of corporate irregularities by the defendants have
not been questioned by the defendants:
1. Failure to hold stockholders' meetings regularly. No
stockholders' meetings were held in 1947, 1950 and 1951;
2. Irregularities in the keeping of the books. Untrue entries were
made in the books which could not simply be considered as
innocent errors;
3. Illegal investments in the Mabuhay Printing, P2,280,00, and the
Acoje Mining, P7,000.00. The investments were made not in
also a stockholder thereof. The fact that he was replaced as
president of the corporation did not necessar-
547
VOL. 167, NOVEMBER 22, 1988
547
Boman Environmental Dev't. Corp. vs. Court of Appeals
ily mean that he ceased to be a stockholder considering how the
corporation failed to complete payment of the consideration for the
purchase of his shares of stock and interests in the goodwill of the
business. There has been no actual transfer of his shares to the
corporation. In the books of the corporation he is still a
stockholder.
Fajilan's suit against the corporation to enforce the latter's
promissory note or compel the corporation to pay for his
shareholdings is cognizable by the SEC alone which shall
determine whether such payment will not constitute a distribution
of corporate assets to a stockholder in preference over creditors of
the corporation. The SEC has exclusive supervision, control and
regulatory jurisdiction to investigate whether the corporation has
unrestricted retained earnings to cover the payment for the shares,
and whether the purchase is for a legitimate corporate purpose as
provided in Sections 41 and 122 of the Corporation Code, which
reads as follows:
"SEC. 41. Power to acquire own shares.A stock corporation
shall have the.power to purchase or acquire its own shares for a
legitimate corporate purpose or purposes, including but not limited
to the following cases: Provided, That the corporation has
unrestricted retained earnings in its books to cover the shares to
be purchased or acquired;
"1. To eliminate fractional shares arising out of stock dividends;
"2. To collect or compromise an indebtedness to the corporation,
arising out of unpaid subscription, in a delinquency sale, and to
purchase delinquent shares sold during said sale; and
"3. To pay dissenting or withdrawing stockholders entitled to
payment for their shares under the provisions of this Code,"
"Sec. 12. Corporate liquidation. xxx.
xxx xxx xxx
"Except by decrease of capital stock and as otherwise allowed by
this Code, no corporation shall distribute any of its assets or
property except upon lawful dissolution and after payment of all its
debts and liabilities, (77a, 89a, 16a)."
These provisions of the Corporation Code should be deemed
written into the agreement between the corporation and the
stockholders even if there is no express reference to them in the
promissory note. The principle is well settled that an
548
548
SUPREME COURT REPORTS ANNOTATED
Boman Environmental Dev't. Corp. vs. Court of Appeals
existing law enters into and forms part of a valid contract without
need for the parties' expressly making reference to it (Lakas ng
Manggagawang Makabayan vs. Abiera, 36 SCRA 437).
The requirement of unrestricted retained earnings to cover the
shares is based on the trust fund doctrine which means that the
capital stock, property and other assets of a corporation are
regarded as equity in trust for the payment of corporate creditors.
The reason is that creditors of a corporation are preferred over the
stockholders in the distribution of corporate assets. There can be
no distribution of assets among the stockholders without first
paying corporate creditors. Hence, any disposition of corporate
funds to the prejudice of creditors is null and void. "Creditors of a
corporation have the right to assume that so long as there are
outstanding debts and liabilities, the board of directors will not use
the assets of the corporation to purchase its own
stock . . ."(Steinberg vs. Velasco, 52 Phil. 953.)
WHEREFORE, the petition for certiorari is granted, The decision of
the Court of Appeals is reversed and set aside. The order of the
trial court dismissing the complaint for lack of jurisdiction is hereby
reinstated. No costs.
SO ORDERED.
Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.
Petition granted. Decision set aside.
Note.Disputes involving controversies between and among
stockholders fall within the original and exclusive jurisdiction of the
Securities and Exchange Commission under Section 6 of
Presidential Decree No. 902-A. (Abejo vs. Dela Cruz, 149 SCRA
654).
o0o
[Boman Environmental Dev't. Corp. vs. Court of Appeals, 167
SCRA 540(1988)]
G.R. No. L-17504 & L-17506 February 28, 1969
RAMON DE LA RAMA, FRANCISCO RODRIGUEZ, HORTENCIA
SALAS, PAZ SALAS and PATRIA SALAS, heirs of Magdalena
Salas, as stockholders on their own behalf and for the benefit
of the Ma-ao Sugar Central Co., Inc., and other stockholders
thereof who may wish to join in this action, plaintiffs-appellants,
vs.
MA-AO SUGAR CENTRAL CO., INC., J. AMADO ARANETA,
MRS. RAMON S. ARANETA, ROMUALDO M. ARANETA, and
RAMON A. YULO, defendants-appellants.
(3) "As to the crop loan anomalies in that instead of giving unto the
planters the entire amount alloted for that, the Central withheld a
certain portion for their own use, as can be seen in Appendix A of
Exh. C-1, while the theory of plaintiffs is that since between the
amount of P3,791,551.78 the crop loan account payable, and the
amount of P1,708,488.22, the crop loan receivable, there is a
difference of P2,083,063.56, this would indicate that this latter sum
had been used by the Central itself for its own purposes; on the
other hand, defendants contend that the first amount did not
represent the totality of the crop loans obtained from the Bank for
the purpose of relending to the planters, but that it included the
Central's own credit line on its 40% share in the standing crop; and
that this irregularity amounts to a grievance by plaintiffs as planters
and not as stockholders, the Court must find that as to this count,
there is really reason to find that said anomaly is not a clear basis
for the derivative suit, first, because plaintiffs' evidence is not very
sufficient to prove clearly the alleged diversion in the face of
defendants' defense; there should have been a showing that the
Central had no authority to make the diversion; and secondly, if the
anomaly existed, there is ground to hold with defendants that it
was an anomaly pernicious not to the Central but to the planters; it
was not even pernicious to the stockholders.
Going to the discriminatory acts of J. Amado Araneta, namely,
manipulation of cane allotments, withholding of molasses and
alcohol shares, withholding of trucking allowance, formation of rival
planters associations, refusal to deal with legitimate planters
group, Exh. S; the Court notices that as to the failure to provide
hauling transportation, this in a way is corroborated by Exh. 7, that
part containing the decision of the Court of First Instance of
Manila, civil 20122, Francisco Rodriguez v. Ma-ao Sugar; for the
reason, however, that even if these were true, those grievances
were grievances of plaintiffs as planters and not as stockholders
just as the grievance as to the crop loans already adverted to,
this Court will find insufficient merit on this count. (Decision, pp.
230-231, supra.)
xxx xxx xxx
(4) "...; for the Court must admit its limitations and confess that it
cannot pretend to know better than the Board in matters where the
Board has not transgressed any positive statute or by-law
especially where as here, there is the circumstance that
presumably, an impartial representative in the Board of Directors,
the one from the Philippine National Bank, against whom
apparently plaintiffs have no quarrel, does not appear to have
made any protest against the same; the net result will be to hold
that the culpable acts proved are not enough to secure a
dissolution; the Court will only order the correction of abuses,
proved as already mentioned; nor will the Court grant any more
damages one way or the other. (Decision, p. 244, supra.)
On the other hand, the errors assigned in the appeal of the
defendants as appellants are as follows:
I.
THE LOWER COURT ERRED IN ADJUDGING J. AMADO
ARANETA TO PAY TO MA-AO SUGAR CENTRAL CO., INC., THE
AMOUNT OF P46,270.00, WITH 8% INTEREST FROM THE
DATE OF FILING OF THE COMPLAINT.
II.
THE LOWER COURT ERRED IN NOT ORDERING THE
PLAINTIFFS TO PAY THE DEFENDANTS, PARTICULARLY J.
AMADO ARANETA, THE DAMAGES PRAYED FOR IN THE
COUNTERCLAIM OF SAID DEFENDANTS.
The portions of the Decision of the Lower Court assailed by the
defendants as appellants are as follows:
(1) "As to the alleged juggling of books in that the personal
account of J. Amado Araneta of P46,270.00 was closed on
October 31, 1947 by charges transferred to loans receivable nor
was interest paid on this amount, the Court finds that this is related
to charge No. 1, namely, the granting of personal loans to J.
Amado Araneta; it is really true that according to the books, and as
admitted by defendants, J. Amado Araneta secured personal
loans; in 1947, the cash advance to him was P132,082.00 (Exh.
A); the Court has no doubt that this was against the By-Laws
which provided that:
The Directors shall not in any case borrow money from the
Company. (Sec. III, Art. 7);
the Court therefore finds this count to be duly proved; worse, the
Court also finds that as plaintiffs contend, while the books of the
Corporation would show that the last balance of P46,270.00 was
written off as paid, as testified to by Auditor Mr. Sanchez, the
payment appeared to be nothing more than a transfer of his loan
receivable account, stated otherwise, the item was only transferred
from the personal account to the loan receivable account, so that
again the Court considers established the juggling of the books;
and then again, it is also true that the loans were secured without
any interest and while it is true that in the Directors' meeting of 21
October, 1953, it was resolved to collect 8%, the Court does not
see how such a unilateral action of the Board could bind the
borrowers. Be it stated that defendants have presented in
evidence Exh. 5 photostatic copy of the page in loan receivable
and it is sought to be proved that J. Amado Araneta's debt was
totally paid on 31 October, 1953; to the Court, in the absence of
definite primary proof of actual payment having found out that
there had already been a juggling of books, it cannot just believe
that the amount had been paid as noted in the books. (Decision,
pp. 233-235 of Record on Appeal.)
pursuance of the corporate purpose and without the requisite
authority of two-thirds of the stockholders;
4. Unauthorized loans to J. Amado Araneta totalling P132,082.00
(which, according to the defendants, had been fully paid), in
violation of the by-laws of the corporation which prohibits any
director from borrowing money from the corporation;
5. Diversion of corporate funds of the Ma-ao Sugar Central Co.,
Inc. to:
J. Amado Araneta & Co.
P243,415.62
Luzon Industrial Corp.
585,918.17
Associated Sugar
463,860.36
General Securities
86,743.65
Bacolod Murcia
501,030.61
Central Azucarera del Danao
97,884.42
Talisay-Silay
4,365.90
The Court found that sums were taken out of the funds of the Ma-
ao Sugar Central Co., Inc. and delivered to these affiliated
companies, and vice versa, without the approval of the Ma-ao
Board of Directors, in violation of Sec. III, Art. 6-A of the by-laws.
The errors assigned in the appeal of the plaintiffs, as appellants,
are as follows:
I.
THE LOWER COURT ERRED IN HOLDING THAT THE
INVESTMENT OF CORPORATE FUNDS OF THE MA-AO
SUGAR CENTRAL CO., INC., IN THE PHILIPPINE FIBER
PROCESSING CO., INC. WAS NOT A VIOLATION OF SEC. 17-
OF THE CORPORATION LAW.
II.
THE LOWER COURT ERRED IN NOT FINDING THAT THE MA-
AO SUGAR CENTRAL CO., INC. WAS INSOLVENT.
III.
THE LOWER COURT ERRED IN HOLDING THAT THE
DISCRIMINATORY ACTS COMMITTED AGAINST PLANTERS
DID NOT CONSTITUTE MISMANAGEMENT.
IV.
THE LOWER COURT ERRED IN HOLDING THAT ITS
CULPABLE ACTS WERE INSUFFICIENT FOR THE
DISSOLUTION OF THE CORPORATION.
The portions of the Decision of the Lower Court assailed by the
plaintiffs as appellants are as follows:
(1) ".... Finally, as to the Philippine Fiber, the Court takes it that
defendants admit having invested P655,000.00 in shares of stock
of this company but that this was ratified by the Board of Directors
in Resolutions 60 and 80, Exhibits "R" and "R-2"; more than that,
defendants contend that since said company was engaged in the
manufacture of sugar bags it was perfectly legitimate for Ma-ao
Sugar either to manufacture sugar bags or invest in another
corporation engaged in said manufacture, and they quote
authorities for the purpose, pp. 28-31, memorandum; the Court is
persuaded to believe that the defendants on this point are correct,
because while Sec. 17-1/2 of the Corporation Law provides that:
No corporation organized under this act shall invest its funds in
any other corporation or business or for any purpose other than
the main purpose for which it was organized unless its board of
directors has been so authorized in a resolution by the affirmative
vote of stockholders holding shares in the corporation entitling
them to exercise at least two-thirds of the voting power on such
proposal at the stockholders' meeting called for the purpose.
the Court is convinced that that law should be understood to mean
as the authorities state, that it is prohibited to the Corporation to
invest in shares of another corporation unless such an investment
is authorized by two-thirds of the voting power of the stockholders,
if the purpose of the corporation in which investment is made is
foreign to the purpose of the investing corporation because surely
there is more logic in the stand that if the investment is made in a
corporation whose business is important to the investing
corporation and would aid it in its purpose, to require authority of
the stockholders would be to unduly curtail the Power of the Board
of Directors; the only trouble here is that the investment was made
without any previous authority of the Board of Directors but was
only ratified afterwards; this of course would have the effect of
legalizing the unauthorized act but it is an indication of the manner
in which corporate business is transacted by the Ma-ao Sugar
administration, the fact that off and on, there would be passed by
the Board of Directors, resolutions ratifying all acts previously done
by the management, e.g. resolutions passed on February 25,
1947, and February 25, 1952, by the Board of Directors as set
forth in the affidavit of Isidro T. Dunca p. 127, etc. Vol. 1. (Decision,
pp. 239-241 of Record on Appeal.)
xxx xxx xxx
(2) "On the other hand, the Court has noted against plaintiffs that
their contention that Ma-ao Sugar is on the verge of bankruptcy
has not been clearly shown; against this are Exh. C to Exh. C-3
perhaps the best proof that insolvency is still far is that this action
was filed in 1953 and almost seven years have passed since then
without the company apparently getting worse than it was
before; ..." (Decision, pp. 243-244, supra.)
xxx xxx xxx
(10) Except as in this section otherwise provided, and in order to
accomplish its purpose as stated in the articles of incorporation, to
acquire, hold, mortgage, pledge or dispose of shares, bonds,
securities and other evidences of indebtedness of any domestic or
foreign corporation.
A reading of the two afore-quoted provisions shows that there is
need for interpretation of the apparent conflict.
In his work entitled "The Philippine Corporation Law," now in its 5th
edition, Professor Sulpicio S. Guevara of the University of the
Philippines, College of Law, a well-known authority in commercial
law, reconciled these two apparently conflicting legal provisions, as
follows:
j. Power to acquire or dispose of shares or securities. A private
corporation, in order to accomplish its purpose as stated in its
articles of incorporation, and subject to the limitations imposed by
the Corporation Law, has the power to acquire, hold, mortgage,
pledge or dispose of shares, bonds, securities, and other
evidences of indebtedness of any domestic or foreign corporation.
Such an act, if done in pursuance of the corporate purpose, does
not need the approval of the stockholders; but when the purchase
of shares of another corporation is done solely for investment and
not to accomplish the purpose of its incorporation, the vote of
approval of the stockholders is necessary. In any case, the
purchase of such shares or securities must be subject to the
limitations established by the Corporation Law; namely, (a) that no
agricultural or mining corporation shall in anywise be interested in
any other agricultural or mining corporation; or (b) that a non-
agricultural or non-mining corporation shall be restricted to own not
more than 15% of the voting stock of any agricultural or mining
corporation; and (c) that such holdings shall be solely for
investment and not for the purpose of bringing about a monopoly
in any line of commerce or combination in restraint of trade. (The
Philippine Corporation Law by Sulpicio S. Guevara, 1967 Ed., p.
89.) (Emphasis ours.)lawphi1.nt
40. Power to invest corporate funds. A private corporation has
the power to invest its corporate funds in any other corporation or
business, or for any purpose other than the main purpose for
which it was organized, provided that 'its board of directors has
been so authorized in a resolution by the affirmative vote of
stockholders holding shares in the corporation entitling them to
exercise at least two-thirds of the voting power on such a proposal
at a stockholders' meeting called for that purpose,' and provided
further, that no agricultural or mining corporation shall in anywise
be interested in any other agricultural or mining corporation. When
the investment is necessary to accomplish its purpose or purposes
as stated in it articles of incorporation, the approval of the
stockholders is not necessary. (Id., p. 108.) (Emphasis ours.)
We agree with Professor Guevara.
We therefore agree with the finding of the Lower Court that the
investment in question does not fall under the purview of Sec. 17-
of the Corporation Law.
With respect to the defendants' assignment of errors, the second
(referring to the counterclaim) is clearly without merit. As the Lower
Court aptly ruled in its Order of September 3, 1960 (resolving the
defendants' Motion for Reconsideration) the findings of fact were
enough to justify a dismissal of the counterclaim, "because the
counterclaims were based on the fact that the complaint was
premature, improper, malicious and that the language is
unnecessarily vituperative abusive and insulting; but the Court has
not found that the complaint is premature; nor has the Court found
that the complaint was malicious; these findings can be gleaned
from the decision; with respect to the allegation that the complaint
was abusive and insulting, the Court does not concur; for it has not
seen anything in the evidence that would justify a finding that
plaintiffs had been actuated by bad faith, nor is there anything in
the complaint essentially libelous especially as the rule is that
allegations in pleadings where relevant, are privileged even though
they may not be clearly proved afterwards; ..."
As regards defendants' first assignment of error, referring to the
status of the account of J. Amado Araneta in the amount of
P46,270.00, this Court likewise agrees with the finding of the
Lower Court that Exhibit 5, photostatic copy of the page on loans
receivable does not constitute definite primary proof of actual
payment, particularly in this case where there is evidence that the
account in question was transferred from one account to another.
There is no better substitute for an official receipt and a cancelled
check as evidence of payment.
In the judgment, the lower court ordered the management of the
Ma-ao Sugar Central Co., Inc. "to refrain from making investments
in Acoje Mining, Mabuhay Printing and any other company whose
purpose is not connected with the sugar central business." This
portion of the decision should be reversed because, Sec. 17- of
the Corporation Law allows a corporation to "invest its fund in any
other corporation or business, or for any purpose other than the
main purpose for which it was organized," provided that its board
of directors has been so authorized by the affirmative vote of
stockholders holding shares entitling them to exercise at least two-
thirds of the voting power.
IN VIEW OF ALL THE FOREGOING, that part of the judgment
which orders the Ma-ao Sugar Central Co., Inc. "to refrain from
making investments in Acoje Mining, Mabuhay Printing, and any
other: company whose purpose is not connected with the sugar
central business," is reversed. The other parts of the judgment are,
affirmed. No special pronouncement as to costs.
(2) "With respect to the second point in the motion for
reconsideration to the effect that the Court did not make any
findings of fact on the counterclaim of defendants, although the
Court did not say that in so many words, the Court takes it that its
findings of fact on pages 17 to 21 of its decision were enough to
justify a dismissal of the counterclaim, because the counterclaims
were based on the fact that the complaint was premature,
improper, malicious and that the language is unnecessarily
vituperative abusive and insulting; but the Court has not found that
the complaint is premature; nor has the Court found that the
complaint was malicious; these findings can be gleaned from the
decision with respect to the allegation that the complaint was
abusive and insulting, the Court does not concur; for it has not
seen anything in the evidence that would justify a finding that
plaintiffs and been actuated by bad faith, nor is there anything in
the complaint essentially libelous; especially as the rule is that
allegations in pleading where relevant, are privileged even though
they may not clearly proved afterwards; so that the Court has not
seen any merit in the counterclaims; and the Court had believed
that the decision already carried with it the implication of the
dismissal of the counterclaims, but if that is not enough, the Court
makes its position clear on this matter in this order, and clarifies
that it has dismissed the counterclaims of defendant; ..." (Order of
September 3, 1960, pp. 248-249, supra.)
Regarding Assignment of Errors Nos. 2, 3 and 4 contained in the
brief of the plaintiffs as appellants, it appears to us that the Lower
Court was correct in its appreciation (1) that the evidence
presented did not show that the defendant Ma-ao Sugar Company
was insolvent (2) that the alleged discriminatory acts committed by
the defendant Central against the planters were not a proper
subject of derivative suit, but, at most, constituted a cause of
action of the individual planters; and (3) that the acts of
mismanagement complained of and proved do not justify a
dissolution of the corporation.
Whether insolvency exists is usually a question of fact, to be
determined from an inventory of the assets and their value, as well
as a consideration of the liabilities.... But the mere impairment of
capital stock alone does not establish insolvency there being other
evidence as to the corporation being a going concern with
sufficient assets. Also, the excess of liabilities over assets does
not establish insolvency, when other assets are available.
(Fletcher Cyc. of the Law of Private Corporations, Vol. 15A, 1938
Ed pp. 34-37; Emphasis supplied).
But relief by dissolution will be awarded in such cases only where
no other adequate remedy is available, and is not available where
the rights of the stockholders can be, or are, protected in some
other way. (16 Fletcher Cyc. Corporations, 1942 Ed., pp. 812-813,
citing "Thwing v. McDonald", 134 Minn. 148, 156 N.W. 780, 158
N.W. 820, 159 N.W. 564, Ann. Cas. 1918 E 420; Mitchell v. Bank
of St. Paul, 7 Minn. 252).
The First Assignment of Error in the brief of the plaintiffs as
appellants, contending that the investment of corporate funds by
the Ma-ao Sugar Co., Inc., in another corporation (the Philippine
Fiber Processing Co., Inc.) constitutes a violation of Sec. 17- of
the Corporation Law, deserves consideration.
Plaintiffs-appellants contend that in 1950 the Ma-ao Sugar Central
Co., Inc., through its President, J. Amado Araneta,, subscribed for
P300,000.00 worth of capital stock of the Philippine Fiber
Processing Co. Inc., that payments on the subscription were made
on September 20, 1950, for P150,000.00, on April 30, 1951, for
P50,000.00, and on March 6, 1952, for P100,000.00; that at the
time the first two payments were made there was no board
resolution authorizing the investment; and that it was only on
November 26, 1951, that the President of Ma-ao Sugar Central
Co., Inc., was so authorized by the Board of Directors.
In addition, 355,000 shares of stock of the same Philippine Fiber
Processing Co., Inc., owned by Luzon Industrial, corporation were
transferred on May 31, 1952, to the defendant Ma-ao Sugar
Central Co., Inc., with a valuation of P355,000.00 on the basis of
P1.00 par value per share. Again the "investment" was made
without prior board resolution, the authorizing resolution having
been subsequentIy approved only on June 4, 1952.
Plaintiffs-appellants also contend that even assuming, arguendo,
that the said Board Resolutions are valid, the transaction, is still
wanting in legality, no resolution having been approved by the
affirmative vote of stockholders holding shares in the corporation
entitling them to exercise at least two-thirds of the voting power, as
required in Sec. 17- of the Corporation Law.
The legal provision invoked by the plaintiffs, as appellants, Sec.
17- of the Corporation Law, provides:
No corporation organized under this act shall invest its funds in
any other corporation or business, or for any purpose other than
the main purpose for which it was organized, unless its board of
directors has been so authorized in a resolution by the affirmative
vote of stockholders holding shares in the corporation entitling
them to exercise at least two-thirds of the voting power on such
proposal at a stockholders' meeting called for the purpose ....
On the other hand, the defendants, as appellees, invoked Sec. 13,
par. 10 of the Corporation Law, which provides:
SEC. 13. Every corporation has the power:
xxx xxx xxx
(9) To enter into any obligation or contract essential to the proper
administration of its corporate affairs or necessary for the proper
transaction of the business or accomplishment of the purpose for
which the corporation was organized;
In view of the request of the employees contained in the letter
dated August 31, 1981, it was also decided that, all those
remaining employees will receive another 25% (of their gratuity) on
or before October 15, 1981 and another 25% on or before the end
of November, 1981 of their respective gratuity.
At that, time, however, petitioner Asuncion Lopez Gonzales was
still abroad. Allegedly, while she was still out of the country, she
sent a cablegram to the corporation, objecting to certain matters
taken up by the board in her absence, such as the sale of some of
the assets of the corporation. Upon her return, she flied a
derivative suit with the Securities and Exchange Commission
(SEC) against majority shareholder Arturo F. Lopez.
Notwithstanding the "corporate squabble" between petitioner
Asuncion Lopez Gonzales and Arturo Lopez, the first two (2)
installments of the gratuity pay of private respondents Florentina
Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista
were paid by petitioner corporation.
Also, petitioner corporation had prepared the cash vouchers and
checks for the third installments of gratuity pay of said private
respondents (Florentina Fontecha, Mila Refuerzo, Marcial Mamaril
and Perfecto Bautista). For some reason, said vouchers were
cancelled by petitioner Asuncion Lopez Gonzales.
Likewise, the first, second and third installments of gratuity pay of
the rest of private respondents, particularly, Edward Mamaril,
Marissa Pascual and Allan Pimentel, were prepared but cancelled
by petitioner Asuncion Lopez Gonzales. Despite private
respondents' repeated demands for their gratuity pay, corporation
refused to pay the same. 4
On July 23, 1984, Labor Arbiter Raymundo R. Valenzuela
rendered judgment in favor of private respondents. 5
Petitioners appealed the adverse ruling of the Labor arbiter to
public respondent National Labor Relations Commission. The
appeal focused on the alleged non-ratification and non-approval of
the assailed August 17, 1981 and September 1, 1981 Board
Resolutions during the Annual Stockholders' Meeting held on
March 1, 1982. Petitioners further insisted that the payment of the
gratuity to some of the private respondents was a mere "mistake"
on the part of petitioner corporation since, pursuant to Resolution
No. 6, dated September 8, 1980, and Resolution No. 10, dated
October 6, 1980, said gratuity pay should be given only upon the
employees' retirement.
On November 20, 1985, public respondent, through its Second
Division, dismissed the appeal for lack of merit, the pertinent
portion of which states: 6
We cannot agree with the contention of respondents (petitioners')
that the Labor Arbiter a quo committed abuse of discretion in his
decision.
Respondents' (petitioners') contention that, the two (2) resolutions
dated 17 August 1981 and 1 September 1981 . . . which were not
approved in the annual stockholders meeting had no force and
effect, deserves scant consideration. The records show that the
stockholders did not revoke nor nullify these resolutions granting
gratuities to complainants.
On record, it appears that the said resolutions arose from the
legitimate creation of the Board of Directors who steered the
corporate affairs of the corporation. . . .
Respondents' (petitioners') allegation that the three (3)
complainants, Mila E. Refuerzo, Marissa S. Pascual and Edward
Mamaril, who had resigned after filing the complaint on February
8, 1982, were precluded to (sic) receive gratuity because the said
resolutions referred to only retiring employee could not be given
credence. A reading of Resolutions dated 17 August 1981 and 1
September 1981 disclosed that there were periods mentioned for
the payment of complainants' gratuities. This disproves
respondents' argument allowing gratuities upon retirement of
employees. Additionally, the proposed distribution of assets (Exh.
C-1) filed by Mr. Arturo F. Lopez also made mention of gratuity pay,
" . . . (wherein) an employee who desires to resign from the LRI
will be given the gratuity pay he or she earned." (Emphasis
supplied) Let us be reminded, too, that the complainants'
resignation was not voluntary but it was pressurized (sic) due to
"power struggle" which was evident between Arturo Lopez and
Asuncion Gonzales.
The respondents' (petitioners') contention of a mistake to have
been committed in granting the first two (2) installments of
gratuities to complainants Perfecto Bautista, Florentina Fontecha,
Marcial Mamaril and Mila Refuerzo, (has) no legal leg to stand on.
The record is bereft of any evidence that the Board of Directors
had passed a resolution nor is there any minutes of whatever
nature proving mistakes in the award of damages (sic).
With regard to the award of service incentive leave and others, the
Commission finds no cogent reason to disturb the appealed
decision.
We affirm.
WHEREFORE, let the appealed decision be, as it is hereby,
AFFIRMED and let the instant appeal (be) dismissed for lack of
merit.
SO ORDERED.
Petitioners reconsidered. 7 In their motion for reconsideration,
petitioners assailed the validity of the board resolutions passed on
August 17, 1981 and September 1, 1981, respectively, and
claimed, for the first time, that petitioner Asuncion Lopez Gonzales
was not notified of the special board meetings held on said dates.
The motion for reconsideration was denied by the Second Division
on July 24, 1986.
Concepcion, C.J., Reyes, J.B.L., Dizon, Zaldivar, Castro,
Fernando and Barredo, JJ., concur.
Makalintal, Sanchez and Teehankee, JJ., took no part.
G.R. No. 76801 August 11, 1995
LOPEZ REALTY, INC., AND ASUNCION LOPEZ GONZALES,
petitioners,
vs.
FLORENTINA FONTECHA, ET AL., AND THE NATIONAL
LABOR RELATIONS COMMISSION, respondents.
PUNO, J.:
The controversy at bench arose from a complaint filed by private
respondents, 1 namely, Florentina Fontecha, Mila Refuerzo,
Marcial Mamaril, Perfecto Bautista, Edward Mamaril, Marissa
Pascual and Allan Pimentel, against their employer Lopez Realty
Incorporated (petitioner) and its majority stockholder, Asuncion
Lopez Gonzales, for alleged non-payment of their gratuity pay and
other benefits. 2 The case was docketed as NLRC-NCR Case No.
2-2176-82.
Lopez Realty, Inc., is a corporation engaged in real estate
business, while petitioner Asuncion Lopez Gonzales is one of its
majority shareholders. Her interest in the company vis-a-vis the
other shareholders is as follows:
1
Asuncion Lopez Gonzales
7831
shares
2
Teresita Lopez Marquez
7830
shares
3
Arturo F. Lopez
7830
shares
4
Rosendo de Leon
4
shares
5
Benjamin Bernardino
1
share
6
Leo Rivera
1
share
Except for Arturo F. Lopez, the rest of the shareholders also sit as
members of the Board of Directors.
As found by the Labor arbiter. 3 sometime in 1978, Arturo Lopez
submitted a proposal relative to the distribution of certain assets of
petitioner corporation among its three (3) main shareholders. The
proposal had three (3) aspects, viz: (1) the sale of assets of the
company to pay for its obligations; (2) the transfer of certain assets
of the company to its three (3) main shareholders, while some
other assets shall remain with the company; and (3) the reduction
of employees with provision for their gratuity pay. The proposal
was deliberated upon and approved in a special meeting of the
board of directors held on April 17, 1978.
It appears that petitioner corporation approved two (2) resolutions
providing for the gratuity pay of its employees, viz: (a) Resolution
No. 6, Series of 1980, passed by the stockholders in a special
meeting held on September 8, 1980, resolving to set aside, twice a
year, a certain sum of money for the gratuity pay of its retiring
employees and to create a Gratuity Fund for the said contingency;
and (b) Resolution No. 10, Series of 1980, setting aside the
amount of P157,750.00 as Gratuity Fund covering the period from
1950 up to 1980.
Meanwhile, on July 28, 1981, board member and majority
stockholder Teresita Lopez Marquez died.
On August 17, 1981, except for Asuncion Lopez Gonzales who
was then abroad, the remaining members of the Board of
Directors, namely: Rosendo de Leon, Benjamin Bernardino, and
Leo Rivera, convened a special meeting and passed a resolution
which reads:
Resolved, as it is hereby resolved that the gratuity (pay) of the
employees be given as follows:
(a) Those who will be laid off be given the full amount of gratuity;
(b) Those who will be retained will receive 25% of their gratuity
(pay) due on September 1, 1981, and another 25% on January 1,
1982, and 50% to be retained by the office in the meantime.
(emphasis supplied)
Private respondents were the retained employees of petitioner
corporation. In a letter, dated August 31, 1981, private respondents
requested for the full payment of their gratuity pay. Their request
was granted in a special meeting held on September 1, 1981. The
relevant, portion of the minutes of the said board meeting reads:
acquiesced thereto. As pointed out by private respondents,
petitioner Asuncion Lopez Gonzales affixed her signature on Cash
Voucher Nos. 81-10-510 and 81-10-506, both dated October 15,
1981, evidencing the 2nd installment of the gratuity pay of private
respondents Mila Refuerzo and Florentina Fontecha. 18
We hold, therefore, that the conduct of petitioners after the
passage of resolutions dated August, 17, 1951 and September 1,
1981, had estopped them from assailing the validity of said board
resolutions.
Assuming, arguendo, that there was no notice given to Asuncion
Lopez Gonzalez during the special meetings held on August 17,
1981 and September 1, 1981, it is erroneous to state that the
resolutions passed by the board during the said meetings were
ultra vires. In legal parlance, "ultra vires" act refers to one which is
not within the corporate powers conferred by the Corporation Code
or articles of incorporation or not necessary or incidental in the
exercise of the powers so conferred. 19
The assailed resolutions before us cover a subject which concerns
the benefit and welfare of the company's employees. To stress,
providing gratuity pay for its employees is one of the express
powers of the corporation under the Corporation Code, hence,
petitioners cannot invoke the doctrine of ultra vires to avoid any
liability arising from the issuance the subject resolutions. 20
We reject petitioners' allegation that private respondents, namely,
Mila Refuerzo, Marissa Pascual and Edward Mamaril who
resigned from petitioner corporation after the filing of the case, are
precluded from receiving their gratuity pay. Pursuant to board
resolutions dated August 17, 1981 and September 1, 1981,
respectively, petitioner corporation obliged itself to give the gratuity
pay of its retained employees in four (4) installments: on
September 1, 1981; October 15, 1981; November, 1981; and
January 1, 1982. Hence, at the time the aforenamed private
respondents tendered their resignation, the aforementioned private
respondents were already entitled to receive their gratuity pay.
Petitioners try to convince us that the subject resolutions had no
force and effect in view of the non-approval thereof during the
Annual Stockholders' Meeting held on March 1, 1982. To
strengthen their position, petitioners cite section 28 1/2 of the
Corporation Law (Section 40 of the Corporation Code). We are not
persuaded.
The cited provision is not applicable to the case at bench as it
refers to the sale, lease, exchange or disposition of all or
substantially all of the corporation's assets, including its goodwill.
In such a case, the action taken by the board of directors requires
the authorization of the stockholders on record.
It will be observed that, except far Arturo Lopez, the stockholders
of petitioner corporation also sit as members of the board of
directors. Under the circumstances in field, it will be illogical and
superfluous to require the stockholders' approval of the subject
resolutions. Thus, even without the stockholders' approval of the
subject resolutions, petitioners are still liable to pay private
respondents' gratuity pay.
IN VIEW WHEREOF, the instant petition is DISMISSED for lack of
merit and the temporary restraining order we issued on February
9, 1987 is LIFTED. Accordingly, the assailed resolution of the
National Labor Relations Commission in NLRC-NCR-2176-82 is
AFFIRMED. This decision is immediately executory. Costs against
petitioners.
SO ORDERED.
G.R. No. L-4935 May 28, 1954
J. M. TUASON & CO., INC., represented by it Managing
PARTNER, GREGORIA ARANETA, INC., plaintiff-appellee,
vs.
QUIRINO BOLAOS, defendant-appellant.
Araneta and Araneta for appellee.
Jose A. Buendia for appellant.
REYES, J.:
This is an action originally brought in the Court of First Instance of
Rizal, Quezon City Branch, to recover possesion of registered land
situated in barrio Tatalon, Quezon City.
Plaintiff's complaint was amended three times with respect to the
extent and description of the land sought to be recovered. The
original complaint described the land as a portion of a lot
registered in plaintiff's name under Transfer Certificate of Title No.
37686 of the land record of Rizal Province and as containing an
area of 13 hectares more or less. But the complaint was amended
by reducing the area of 6 hectares, more or less, after the
defendant had indicated the plaintiff's surveyors the portion of land
claimed and occupied by him. The second amendment became
necessary and was allowed following the testimony of plaintiff's
surveyors that a portion of the area was embraced in another
certificate of title, which was plaintiff's Transfer Certificate of Title
No. 37677. And still later, in the course of trial, after defendant's
surveyor and witness, Quirino Feria, had testified that the area
occupied and claimed by defendant was about 13 hectares, as
shown in his Exhibit 1, plaintiff again, with the leave of court,
amended its complaint to make its allegations conform to the
evidence.
Defendant, in his answer, sets up prescription and title in himself
thru "open, continuous, exclusive and public and notorious
possession (of land in dispute) under claim of ownership, adverse
to the entire world by defendant and his predecessor in interest"
from "time in-memorial". The answer further alleges that
registration of the land in dispute was obtained by plaintiff or its
On September 4, 1986, petitioners filed another motion for
reconsideration. Again, the motion was denied by public
respondent in a Minute Resolution dated November 19, 1986. 8
Hence, the petition. As prayed for, we issued a Temporary
Restraining Order, 9 enjoining public respondent from enforcing or
executing the Resolution, dated November 20, 1986 (sic), in
NLRC-NCR-2-2176-82. 10
The sole issue is whether or not public respondent acted with
grave abuse of discretion in holding that private respondents are
entitled to receive their gratuity pay under the assailed board
resolutions dated August 17, 1951 and September 1, 1981.
Petitioners contend that the board resolutions passed on August
17, 1981 and September 1, 1981, granting gratuity pay to their
retained employees, are ultra vires on the ground that petitioner
Asuncion Lopez Gonzales was not duly notified of the said special
meetings. They aver, further, that said board resolutions were not
ratified by the stockholders of the corporation pursuant to Section
28 1/2 of the Corporation Law (Section 40 of the Corporation
Code). They also insist that the gratuity pay must be given only to
the retiring employees, to the exclusion of the retained employees
or those who voluntarily resigned from their posts.
At the outset, we note that petitioners allegation on lack of notice
to petitioner Asuncion Lopez Gonzales was raised for the first time
in the in their motion for reconsideration filed before public
respondent National Labor Relations Commission, or after said
public respondent had affirmed the decision of the labor arbiter. To
stress, in their appeal before the NLRC, petitioners never raised
the issue of lack of notice to Asuncion Lopez Gonzales. The
appeal dealt with (a) the failure of the stockholders to ratify the
assailed resolutions and (b) the alleged "mistake" committed by
petitioner corporation in giving the gratuity pay to some of its
employees who are yet to retire from employment.
In their comment, 11 private respondents maintain that the new
ground of lack of notice was not raised before the labor arbiter,
hence, petitioners are barred from raising the same on appeal.
Private respondents claim, further, that such failure on the part of
petitioners, had deprived them the opportunity to present evidence
that, in a subsequent special board meeting held on September
29, 1981, the subject resolution dated September 1, 1981, was
unanimously approved by the board of directors of petitioner
corporation, including petitioner Asuncion Lopez Gonzales. 12
Indeed, it would be offensive to the basic rules of fair play and
justice to allow petitioners to raise questions which have not been
passed upon by the labor arbiter and the public respondent NLRC.
It is well settled that questions not raised in the lower courts
cannot, be raised for the first time on appeal. 13 Hence, petitioners
may not invoke any other ground, other than those it specified at
the labor arbiter level, to impugn the validity of the subject
resolutions.
We now come to petitioners' argument that the resolutions passed
by the board of directors during the special meetings on August 1,
1981, and September 1, 1981, were ultra vires for lack of notice.
The general rule is that a corporation, through its board of
directors, should act in the manner and within the formalities, if
any, prescribed by its charter or by the general law. 14 Thus,
directors must act as a body in a meeting called pursuant to the
law or the corporation's by-laws, otherwise, any action taken
therein may be questioned by any objecting director or
shareholder. 15
Be that as it may, jurisprudence 16 tells us that an action of the
board of directors during a meeting, which was illegal for lack of
notice, may be ratified either expressly, by the action of the
directors in subsequent legal meeting, or impliedly, by the
corporation's subsequent course of conduct. Thus, in one case, 17
it was held:
. . . In 2 Fletcher, Cyclopedia of the Law of Private Corporations
(Perm. Ed.) sec. 429, at page 290, it is stated:
Thus, acts of directors at a meeting which was illegal because of
want of notice may be ratified by the directors at a subsequent
legal meeting, or by the corporations course of conduct
...
Fletcher, supra, further states in sec. 762, at page 1073-1074:
Ratification by directors may be by an express resolution or vote to
that effect, or it may be implied from adoption of the act,
acceptance or acquiescence. Ratification may be effected by a
resolution or vote of the board of directors expressly ratifying
previous acts either of corporate officers or agents; but it is not
necessary, ordinarily, to show a meeting and formal action by the
board of directors in order to establish a ratification.
In American Casualty Co., v. Dakota Tractor and Equipment Co.,
234 F. Supp. 606, 611 (D.N.D. 1964), the court stated:
Moreover, the unauthorized acts of an officer of a corporation may
be ratified by the corporation by conduct implying approval and
adoption of the act in question. Such ratification may be express or
may be inferred from silence and inaction.
In the case at bench, it was established that petitioner corporation
did not issue any resolution revoking nor nullifying the board
resolutions granting gratuity pay to private respondents. Instead,
they paid the gratuity pay, particularly, the first two (2) installments
thereof, of private respondents Florentina Fontecha, Mila
Refuerzo, Marcial Mamaril and Perfecto Bautista.
Despite the alleged lack of notice to petitioner Asuncion Lopez
Gonzales at that time the assailed resolutions were passed, we
can glean from the records that she was aware of the corporation's
obligation under the said resolutions. More importantly, she
Let us now pass on the errors V and VI. Admitting, though his
attorney, at the early stage of the trial, that the land in dispute "is
that described or represented in Exhibit A and in Exhibit B
enclosed in red pencil with the name Quirino Bolaos," defendant
later changed his lawyer and also his theory and tried to prove that
the land in dispute was not covered by plaintiff's certificate of title.
The evidence, however, is against defendant, for it clearly
establishes that plaintiff is the registered owner of lot No. 4-B-3-C,
situate in barrio Tatalon, Quezon City, with an area of 5,297,429.3
square meters, more or less, covered by transfer certificate of title
No. 37686 of the land records of Rizal province, and of lot No. 4-B-
4, situated in the same barrio, having an area of 74,789 square
meters, more or less, covered by transfer certificate of title No.
37677 of the land records of the same province, both lots having
been originally registered on July 8, 1914 under original certificate
of title No. 735. The identity of the lots was established by the
testimony of Antonio Manahan and Magno Faustino, witnesses for
plaintiff, and the identity of the portion thereof claimed by
defendant was established by the testimony of his own witness,
Quirico Feria. The combined testimony of these three witnesses
clearly shows that the portion claimed by defendant is made up of
a part of lot 4-B-3-C and major on portion of lot 4-B-4, and is well
within the area covered by the two transfer certificates of title
already mentioned. This fact also appears admitted in defendant's
answer to the third amended complaint.
As the land in dispute is covered by plaintiff's Torrens certificate of
title and was registered in 1914, the decree of registration can no
longer be impugned on the ground of fraud, error or lack of notice
to defendant, as more than one year has already elapsed from the
issuance and entry of the decree. Neither court the decree be
collaterally attacked by any person claiming title to, or interest in,
the land prior to the registration proceedings. (Sorogon vs.
Makalintal,1 45 Off. Gaz., 3819.) Nor could title to that land in
derogation of that of plaintiff, the registered owner, be acquired by
prescription or adverse possession. (Section 46, Act No. 496.)
Adverse, notorious and continuous possession under claim of
ownership for the period fixed by law is ineffective against a
Torrens title. (Valiente vs. Judge of CFI of Tarlac, 2 etc., 45 Off.
Gaz., Supp. 9, p. 43.) And it is likewise settled that the right to
secure possession under a decree of registration does not
prescribed. (Francisco vs. Cruz, 43 Off. Gaz., 5105, 5109-5110.) A
recent decision of this Court on this point is that rendered in the
case of Jose Alcantara et al., vs. Mariano et al., 92 Phil., 796. This
disposes of the alleged errors V and VI.
As to error VII, it is claimed that `there was no evidence to sustain
the finding that defendant should be sentenced to pay plaintiff
P132.62 monthly from January, 1940, until he vacates the
premises.' But it appears from the record that that reasonable
compensation for the use and occupation of the premises, as
stipulated at the hearing was P10 a month for each hectare and
that the area occupied by defendant was 13.2619 hectares. The
total rent to be paid for the area occupied should therefore be
P132.62 a month. It is appears from the testimony of J. A. Araneta
and witness Emigdio Tanjuatco that as early as 1939 an action of
ejectment had already been filed against defendant. And it cannot
be supposed that defendant has been paying rents, for he has
been asserting all along that the premises in question 'have always
been since time immemorial in open, continuous, exclusive and
public and notorious possession and under claim of ownership
adverse to the entire world by defendant and his predecessors in
interest.' This assignment of error is thus clearly without merit.
Error No. VIII is but a consequence of the other errors alleged and
needs for further consideration.
During the pendency of this case in this Court appellant, thru other
counsel, has filed a motion to dismiss alleging that there is
pending before the Court of First Instance of Rizal another action
between the same parties and for the same cause and seeking to
sustain that allegation with a copy of the complaint filed in said
action. But an examination of that complaint reveals that
appellant's allegation is not correct, for the pretended identity of
parties and cause of action in the two suits does not appear. That
other case is one for recovery of ownership, while the present one
is for recovery of possession. And while appellant claims that he is
also involved in that order action because it is a class suit, the
complaint does not show that such is really the case. On the
contrary, it appears that the action seeks relief for each individual
plaintiff and not relief for and on behalf of others. The motion for
dismissal is clearly without merit.
Wherefore, the judgment appealed from is affirmed, with costs
against the plaintiff.
Paras, C.J., Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo,
Labrador, and Concepcion, JJ., concur.
predecessors in interest thru "fraud or error and without knowledge
(of) or interest either personal or thru publication to defendant
and/or predecessors in interest." The answer therefore prays that
the complaint be dismissed with costs and plaintiff required to
reconvey the land to defendant or pay its value.
After trial, the lower court rendered judgment for plaintiff, declaring
defendant to be without any right to the land in question and
ordering him to restore possession thereof to plaintiff and to pay
the latter a monthly rent of P132.62 from January, 1940, until he
vacates the land, and also to pay the costs.
Appealing directly to this court because of the value of the property
involved, defendant makes the following assignment or errors:
I. The trial court erred in not dismissing the case on the ground
that the case was not brought by the real property in interest.
II. The trial court erred in admitting the third amended complaint.
III. The trial court erred in denying defendant's motion to strike.
IV. The trial court erred in including in its decision land not involved
in the litigation.
V. The trial court erred in holding that the land in dispute is covered
by transfer certificates of Title Nos. 37686 and 37677.
Vl. The trial court erred in not finding that the defendant is the true
and lawful owner of the land.
VII. The trial court erred in finding that the defendant is liable to
pay the plaintiff the amount of P132.62 monthly from January,
1940, until he vacates the premises.
VIII. The trial court erred in not ordering the plaintiff to reconvey
the land in litigation to the defendant.
As to the first assigned error, there is nothing to the contention that
the present action is not brought by the real party in interest, that
is, by J. M. Tuason and Co., Inc. What the Rules of Court require
is that an action be brought in the name of, but not necessarily by,
the real party in interest. (Section 2, Rule 2.) In fact the practice is
for an attorney-at-law to bring the action, that is to file the
complaint, in the name of the plaintiff. That practice appears to
have been followed in this case, since the complaint is signed by
the law firm of Araneta and Araneta, "counsel for plaintiff" and
commences with the statement "comes now plaintiff, through its
undersigned counsel." It is true that the complaint also states that
the plaintiff is "represented herein by its Managing Partner
Gregorio Araneta, Inc.", another corporation, but there is nothing
against one corporation being represented by another person,
natural or juridical, in a suit in court. The contention that Gregorio
Araneta, Inc. can not act as managing partner for plaintiff on the
theory that it is illegal for two corporations to enter into a
partnership is without merit, for the true rule is that "though a
corporation has no power to enter into a partnership, it may
nevertheless enter into a joint venture with another where the
nature of that venture is in line with the business authorized by its
charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R.,
1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in the
record to indicate that the venture in which plaintiff is represented
by Gregorio Araneta, Inc. as "its managing partner" is not in line
with the corporate business of either of them.
Errors II, III, and IV, referring to the admission of the third amended
complaint, may be answered by mere reference to section 4 of
Rule 17, Rules of Court, which sanctions such amendment. It
reads:
Sec. 4. Amendment to conform to evidence. When issues not
raised by the pleadings are tried by express or implied consent of
the parties, they shall be treated in all respects, as if they had
been raised in the pleadings. Such amendment of the pleadings as
may be necessary to cause them to conform to the evidence and
to raise these issues may be made upon motion of any party at my
time, even of the trial of these issues. If evidence is objected to at
the trial on the ground that it is not within the issues made by the
pleadings, the court may allow the pleadings to be amended and
shall be so freely when the presentation of the merits of the action
will be subserved thereby and the objecting party fails to satisfy
the court that the admission of such evidence would prejudice him
in maintaining his action or defense upon the merits. The court
may grant a continuance to enable the objecting party to meet
such evidence.
Under this provision amendment is not even necessary for the
purpose of rendering judgment on issues proved though not
alleged. Thus, commenting on the provision, Chief Justice Moran
says in this Rules of Court:
Under this section, American courts have, under the New Federal
Rules of Civil Procedure, ruled that where the facts shown entitled
plaintiff to relief other than that asked for, no amendment to the
complaint is necessary, especially where defendant has himself
raised the point on which recovery is based, and that the appellate
court treat the pleadings as amended to conform to the evidence,
although the pleadings were not actually amended. (I Moran,
Rules of Court, 1952 ed., 389-390.)
Our conclusion therefore is that specification of error II, III, and IV
are without merit..