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1 Corpo Page 7 Cases

G.R. No. 113032 August 21, 1997

WESTERN INSTITUTE OF TECHNOLOGY, INC., HOMERO L. VILLASIS, DIMAS ENRIQUEZ, PRESTON F. VILLASIS & REGINALD F. VILLASIS, petitioner, vs. RICARDO T. SALAS, SALVADOR T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS, RICHARD S. SALAS & HON. JUDGE PORFIRIO PARIAN, respondents.

HERMOSISIMA, JR., J.:

Up for review on certiorari are: (1) the Decision dated September 6, 1993 and (2) the Order dated November 23, 1993 of Branch 33 of the Regional Trial Court of Iloilo City in Criminal Cases Nos. 37097 and 37098 for estafa and falsification of a public document, respectively. The judgment acquitted the private respondents of both charges, but petitioners seek to hold them civilly liable.

Private respondents Ricardo T. Salas, Salvador T. Salas, Soledad Salas-Tubilleja, Antonio S. Salas, and Richard S. Salas, belonging to the same family, are the majority and controlling members of the Board of Trustees of Western Institute of Technology, Inc. (WIT, for short), a stock corporation engaged in the operation, among others, of an educational institution. According to petitioners, the minority stockholders of WIT, sometime on June 1, 1986 in the principal office of WIT at La Paz, Iloilo City, a Special Board Meeting was held. In attendance were other members of the Board including one of the petitioners Reginald Villasis. Prior to aforesaid Special Board Meeting, copies of notice thereof, dated May 24, 1986, were distributed to all Board Members. The notice allegedly indicated that the meeting to be held on June 1, 1986 included Item No. 6 which states:

Possible implementation of Art. III, Sec. 6 of the Amended By-Laws of Western Institute of Technology, Inc. on compensation of all officers of the corporation. 1

In said meeting, the Board of Trustees passed Resolution No. 48, s. 1986, granting monthly compensation to the private respondents as corporate officers retroactive June 1, 1985, viz.:

Resolution No. 48 s. 1986

On the motion of Mr. Richard Salas (accused), duly seconded by Mrs. Soledad Tubilleja (accused), it was unanimously resolved that:

The Officers of the Corporation be granted monthly compensation for services rendered as follows: Chairman — P9,000.00/month, Vice Chairman — P3,500.00/month, Corporate Treasurer — P3,500.00/month and Corporate Secretary — P3,500.00/month, retroactive June 1, 1985 and the ten per centum of the net profits shall be distributed equally among the ten members of the Board of Trustees. This shall amend and superceed (sic) any previous resolution.

There were no other business.

The Chairman declared the meeting adjourned at 5:11 P.M.

This is to certify that the foregoing minutes of the regular meeting of the Board of Trustees of Western Institute of Technology, Inc. held on March 30, 1986 is true and correct to the best of my knowledge and belief. 2

A few years later, that is, on March 13, 1991, petitioners Homero Villasis, Prestod Villasis, Reginald Villasis and Dimas Enriquez filed an affidavit-complaint against private respondents before the Office of the City Prosecutor of Iloilo, as a result of which two (2) separate criminal informations, one for falsification of a public document under Article 171 of the Revised Penal Code and the other for estafa under Article 315, par. 1(b) of the RPC, were filed before Branch 33 of the Regional Trial Court of Iloilo City. The charge for falsification of public document was anchored on the private respondents' submission of WIT's income statement for the fiscal year 1985-1986 with the Securities and Exchange Commission (SEC) reflecting therein the disbursement of corporate funds for the compensation of private respondents based on Resolution No. 4, series of 1986, making it appear that the same was passed by the board on March 30, 1986, when in truth, the same was actually passed on June 1, 1986, a date not covered by the corporation's fiscal year 1985-1986 (beginning May 1, 1985 and ending April 30, 1986). The Information for falsification of a public document states:

The undersigned City Prosecutor accuses RICARDO T. SALAS, SALVADOR T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS and RICHARD S. SALAS (whose dates and places of birth cannot be

ascertained) of the crime of FALSIFICATION OF A PUBLIC DOCUMENT, Art. 171 of the Revised Penal Code, committed as follows:

That on or about the 10th day of June, 1986, in the City of Iloilo, Philippines and within the jurisdiction of this Honorable Court, the above-named accused, being then the Chairman, Vice-Chairman, Treasurer, Secretary, and Trustee (who later became Secretary), respectively, of the board of trustees of the Western Institute of Technology, Inc., a corporation duly organized and existing under the laws of the Republic of the Philippines, conspiring and confederating together and mutually helping one another, to better realized (sic) their purpose, did then and there wilfully, unlawfully and criminally prepare and execute and subsequently cause to be submitted to the Securities and Exchange Commission an income statement of the corporation for the fiscal year 1985-1986, the same being required to be submitted every end of the corporation fiscal year by the aforesaid Commission, and therefore, a public document, including therein the disbursement of the retroactive compensation of accused corporate officers in the amount of P186,470.70, by then and there making it appear that the basis thereof Resolution No. 4, Series of 1986 was passed by the board of trustees on March 30, 1986, a date covered by the corporation's fiscal year 1985-1986 (i.e., from May 1, 1985 to April 30, 1986), when in truth and in fact, as said accused well knew, no such Resolution No. 48, Series of 1986 was passed on March 30, 1986.


CONTRARY TO LAW.

Iloilo City, Philippines, November 22, 1991. 3 [Emphasis ours].

The Information, on the other hand, for estafa reads:

The undersigned City Prosecutor accuses RICARDO SALAS, SALVADOR T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS, RICHARD S. SALAS (whose dates and places of birth cannot be ascertained) of the crime of ESTAFA, Art. 315, par. 1 (b) of the Revised Penal Code, committed as follows:

That on or about the 1st day of June, 1986, in the City of Iloilo, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused, being then the Chairman, Vice-Chairman, Treasurer, Secretary, and Trustee (who later became Secretary), respectively; of the Board of Trustees of Western Institute of Technology, Inc., a corporation duly organized and existing under the laws of the Republic of the Philippines, conspiring and confederating together and mutually helping one another to better realize their purpose, did then and there wilfully, unlawfully and feloniously defraud the said corporation (and its stockholders) in the following manner, to wit: herein accused, knowing fully well that they have no sufficient, lawful authority to disburse — let alone violation of applicable laws and jurisprudence, disbursed the funds of the corporation by effecting payment of their retroactive salaries in the amount of P186,470.00 and subsequently paying themselves every 15th and 30th of the month starting June 15, 1986 until the present, in the amount of P19,500.00 per month, as if

the same were their own, and when herein accused were informed of the illegality of these disbursements by the minority stockholders by way of objections made in an annual stockholders' meeting held on June 14, 1986 and every year thereafter, they refused, and still refuse, to rectify the same to the damage and prejudice of the corporation (and its stockholders) in the total sum of P1,453,970.79 as of November 15, 1991.

CONTRARY TO LAW.

Iloilo City, Philippines, November 22, 1991. 4 [Emphasis ours]

Thereafter, trial for the two criminal cases, docketed as Criminal Cases Nos. 37097 and 37098, was consolidated. After a full-blown hearing, Judge Porfirio Parian handed down a verdict of acquittal on both counts 5 dated September 6, 1993 without imposing any civil liability against the accused therein.

Petitioners filed a Motion for Reconsideration 6 of the civil aspect of the RTC Decision which was, however, denied in an Order dated November 23, 1993. 7

Hence, the instant petition.

Significantly on December 8, 1994, a Motion for Intervention, dated December 2, 1994, was filed before this Court by Western Institute of Technology, Inc., supposedly one of the petitioners herein, disowning its inclusion in the petition and submitting that Atty. Tranquilino R. Gale, counsel for the other petitioners, had no authority whatsoever to represent the corporation in filing the petition. Intervenor likewise prayed for the dismissal of the petition for being utterly without merit. The Motion for Intervention was granted on January 16, 1995. 8

Petitioners would like us to hold private respondents civilly liable despite their acquittal in Criminal Cases Nos. 37097 and 37098. They base their claim on the alleged illegal issuance by private respondents of Resolution No. 48, series of 1986 ordering the disbursement of corporate funds in the amount of P186,470.70 representing retroactive compensation as of June 1, 1985 in favor of private respondents, board members of WIT, plus P1,453,970.79 for the subsequent collective salaries of private

respondents every 15th and 30th of the month until the filing of the criminal complaints against them on March 1991. Petitioners maintain that this grant of compensation to private respondents is proscribed under Section 30 of the Corporation Code. Thus, private respondents are obliged to return these amounts to the corporation with interest.

We cannot sustain the petitioners. The pertinent section of the Corporation Code provides:

Sec. 30. Compensation of directors — In the absence of any provision in the by-laws fixing their compensation, the directors shall not receive any compensation, as such directors, except for reasonable per diems: Provided, however, That any such compensation (other than per diems) may be granted to directors by the vote of the stockholders representing at least a majority of the outstanding capital stock at a regular or special stockholders' meeting. In no case shall the total yearly compensation of directors, as such directors, exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year. [Emphasis ours]

There is no argument that directors or trustees, as the case may be, are not entitled to salary or other compensation when they perform nothing more than the usual and ordinary duties of their office. This rule is founded upon a presumption that directors/trustees render service gratuitously, and that the return upon their shares adequately furnishes the motives for service, without compensation. 9 Under the foregoing section, there are only two (2) ways by which members of the board can be granted compensation apart from reasonable per diems: (1) when there is a provision in the by-laws fixing their compensation; and (2) when the stockholders representing a majority of the outstanding capital stock at a regular or special stockholders' meeting agree to give it to them.

This proscription, however, against granting compensation to directors/trustees of a corporation is not a sweeping rule. Worthy of note is the clear phraseology of Section 30 which states: ". . . [T]he directors shall not receive any compensation, as such directors, . . . ." The phrase as such directors is not without significance for it delimits the scope of the prohibition to compensation given to them for services performed purely in their capacity as directors or trustees. The unambiguous implication is that members of the board may receive compensation, in addition to reasonable per diems, when they render services to the corporation in a capacity other than as directors/trustees.10 In the case at bench, Resolution No. 48, s. 1986 granted monthly compensation to private respondents not in their capacity as members of the board, but rather as officers of


the corporation, more particularly as Chairman, Vice-Chairman, Treasurer and Secretary of Western Institute of Technology. We quote once more Resolution No. 48, s. 1986 for easy reference, viz.:

Resolution No. 48 s. 1986

On the motion of Mr. Richard Salas (accused), duly seconded by Mrs. Soledad Tubilleja (accused), it was unanimously resolved that:

The Officers of the Corporation be granted monthly compensation for services rendered as follows: Chairman — P9,000.00/month, Vice Chairman — P3,500.00/month, Corporate Treasurer — P3,500.00/month and Corporate Secretary — P3,500.00/month, retroactive June 1, 1985 and the ten per centum of the net profits shall be distributed equally among the ten members of the Board of Trustees. This shall amend and superceed (sic) any previous resolution.

There were no other business.

The Chairman declared the meeting adjourned at 5:11 P.M.

This is to certify that the foregoing minutes of the regular meeting of the Board of Trustees of Western Institute of Technology, Inc. held on March 30, 1986 is true and correct to the best of my knowledge and belief.]

Clearly, therefore, the prohibition with respect to granting compensation to corporate directors/trustees as suchunder Section 30 is not violated in this particular case. Consequently, the last sentence of Section 30 which provides:

. . . . . . . In no case shall the total yearly compensation of directors, as such directors, exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year. (Emphasis ours]

does not likewise find application in this case since the compensation is being given to private respondents in their capacity as officers of WIT and not as board members.

Petitioners assert that the instant case is a derivative suit brought by them as minority shareholders of WIT for and on behalf of the corporation to annul Resolution No. 48, s. 1986 which is prejudicial to the corporation.

We are unpersuaded. A derivative suit is an action brought by minority shareholders in the name of the corporation to redress wrongs committed against it, for which the directors refuse to sue. 12 It is a remedy designed by equity and has been the principal defense of the minority shareholders against abuses by the majority. 13 Here, however, the case is not a derivative suit but is merely an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098 filed with the RTC of Iloilo for estafa and falsification of public document. Among the basic requirements for a derivative suit to prosper is that the minority shareholder who is suing for and on behalf of the corporation must allege in his complaint before the proper forum that he is suing on a derivative cause of action on behalf of the corporation and all other shareholders similarly situated who wish to join. 14 This is necessary to vest jurisdiction upon the tribunal in line with the rule that it is the allegations in the complaint that vests jurisdiction upon the court or quasi-judicial body concerned over the subject matter and nature of the action. 15 This was not complied with by the petitioners either in their complaint before the court a quo nor in the instant petition which, in part, merely states that "this is a petition for review on certiorari on pure questions of law to set aside a portion of the RTC decision in Criminal Cases Nos. 37097 and 37098" 16 since the trial court's judgment of acquittal failed to impose any civil liability against the private respondents. By no amount of equity considerations, if at all deserved, can a mere appeal on the civil aspect of a criminal case be treated as a derivative suit.

Granting, for purposes of discussion, that this is a derivative suit as insisted by petitioners, which it is not, the same is outrightly dismissible for having been wrongfully filed in the regular court devoid of any jurisdiction to entertain the complaint. The ease should have been filed with the Securities and Exchange Commission (SEC) which exercises original and exclusive jurisdiction over derivative suits, they being intra-corporate disputes, per Section 5 (b) of P.D. No. 902-A:

In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original

and exclusive jurisdiction to hear and decide cases involving:

xxx xxx xxx

b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the State insofar as it concerns their individual franchise or right to exist as such entity;

xxx xxx xxx

[Emphasis ours]

Once the case is decided by the SEC, the losing party may file a petition for review before the Court of Appeals raising questions of fact, of law, or mixed questions of fact and law. 17 It is only after the case has ran this course, and not earlier, can it be brought to us via a petition for review on certiorari under Rule 45 raising only pure questions of law.18 Petitioners, in pleading that we treat the instant petition as a derivative suit, are trying to short-circuit the entire process which we cannot here sanction.

As an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098 for falsification of public document and estafa, which this petition truly is, we have to deny the petition just the same. It will be well to quote the respondent court's ratiocinations acquitting the private respondents on both counts:

The prosecution wants this Court to believe and agree that there is falsification of public document because, as claimed by the prosecution, Resolution No. 48, Series of 1986 (Exh. "1-E-1") was not taken up and passed during the Regular Meeting of the Board of Trustees of the Western Institute of Technology (WIT), Inc. on March 30, 1986, but on June 1, 1986 special meeting of the same board of trustees.

This Court is reluctant to accept this claim of falsification. The prosecution omitted to submit the complete minutes of the regular meeting of the Board of Trustees on March 30, 1986. It only presented in evidence Exh. "C", which is page 5 or the last page of the said minutes. Had the complete minutes (Exh. "1") consisting of five (5) pages, been submitted, it can be readily seen and understood that Resolution No. 48,


Series of 1986 (Exh. "1-E-1") giving compensation to corporate officers, was indeed included in Other Business, No. 6 of the Agenda, and was taken up and passed on March 30, 1986. The mere fact of existence of Exh. "C" also proves that it was passed on March 30, 1986 for Exh. "C" is part and parcel of the whole minutes of the Board of Trustees Regular Meeting on March 30, 1986. No better and more credible proof can be considered other than the Minutes (Exh. "1") itself of the Regular Meeting of the Board of Trustees on March 30, 1986. The imputation that said Resolution No. 48 was neither taken up nor passed on March 30, 1986 because the matter regarding compensation was not specifically stated or written in the Agenda and that the words "possible implementation of said Resolution No. 48, was expressly written in the Agenda for the Special Meeting of the Board on June 1, 1986, is simply an implication. This evidence by implication to the mind of the court cannot prevail over the Minutes (Exh. "1") and cannot ripen into proof beyond reasonable doubt which is demanded in all criminal prosecutions.

This Court finds that under the Eleventh Article (Exh. "3-D-1") of the Articles of Incorporation (Exh. "3-B") of the Panay Educational Institution, Inc., now the Western Institute of Technology, Inc., the officers of the corporation shall receive such compensation as the Board of Directors may provide. These Articles of Incorporation was adopted on May 17, 1957 (Exh. "3-E"). The Officers of the corporation and their corresponding duties are enumerated and stated in Sections 1, 2, 3 and 4 of Art. III of the Amended By-Laws of the Corporation (Exh. "4-A") which was adopted on May 31, 1957. According to Sec. 6, Art. III of the same By-Laws, all officers shall receive such compensation as may be fixed by the Board of Directors.

It is the perception of this Court that the grant of compensation or salary to the accused in their capacity as officers of the corporation, through Resolution No. 48, enacted on March 30, 1986 by the Board of Trustees, is authorized by both the Articles of Incorporation and the By-Laws of the corporation. To state otherwise is to depart from the clear terms of the said articles and by-laws. In their defense the accused have properly and rightly asserted that the grant of salary is not for directors, but for their being officers of the corporation who oversee the day to day activities and operations of the school.

xxx xxx xxx

. . .[O]n the question of whether or not the accused can be held liable for estafa under Sec. 1 (b) of Art. 315 of the Revised Penal Code, it is perceived by this Court that the receipt and the holding of the money by the accused as salary on basis of the authority granted by the Articles and By-Laws of the corporation are not tainted with abuse of confidence. The money they received belongs to them and cannot be said to have been converted and/or misappropriated by them.

xxx xxx xxx 19

[Emphasis ours]

From the foregoing factual findings, which we find to be amply substantiated by the records, it is evident that there is simply no basis to hold the accused, private respondents herein, civilly liable. Section 2(b) of Rule 111 on the New Rules on Criminal Procedure provides:

Sec. 2. Institution of separate civil action.

xxx xxx xxx

(b) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from a declaration in a final judgment that the fact from which the civil might arise did not exist. [Emphasis ours]

Likewise, the last paragraph of Section 2, Rule 120 reads:

Sec. 2. Form and contents of judgment.

xxx xxx xxx

In case of acquittal, unless there is a clear showing that the act from which the civil liability might arise did not exist, the judgment shall make a finding on the civil liability of the accused in favor of the offended party. [Emphasis ours]

The acquittal in Criminal Cases Nos. 37097 and 37098 is not merely based on reasonable doubt but rather on a finding that the accused-private respondents did not commit the criminal acts complained of. Thus, pursuant to the above rule and settled jurisprudence, any civil action ex delicto cannot prosper. Acquittal in a criminal action bars the civil action arising therefrom where

the judgment of acquittal holds that the accused did not commit the criminal acts imputed to them. 20

WHEREFORE, the instant petition is hereby DENIED with costs against petitioners.SO ORDERED.

G.R. No. 121434 June 2, 1997

ELENA F. UICHICO, SAMUEL FLORO, VICTORIA F. BASILIO, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, LUZVIMINDA SANTOS, SHIRLEY PORRAS, CARMEN ELIZARDE, ET. AL., respondents.

HERMOSISIMA, JR., J.:

Sought to be reversed in this special civil action for certiorari and prohibition are the Resolutions of public respondent National Labor Relations Commission (NLRC, for brevity), dated September 30, 1993, December 7, 1995, and May 24, 1995, holding petitioners herein liable for the illegal dismissal of private respondents and ordering them to pay the latter separation pay plus backwages.

Private respondents were employed by Crispa, Inc. for many years in the latter's garments factory located in Pasig Boulevard, Pasig City. Sometime in September, 1991, private respondents' services were terminated on the ground of retrenchment due to alleged serious business losses suffered by Crispa, Inc. in the years immediately preceding 1990. Thereafter, respondent employees, on November, 1991, filed before the NLRC, National Capital Region, Manila, three (3) separate complaints for illegal dismissal and diminution of compensation against Crispa, Inc., Valeriano Floro, and the petitioners. Valeriano Floro was a major stockholder, incorporator and Director of Crispa, Inc., while the petitioners were high ranking officers and directors of the company. Said complaints were consolidated in order to expedite the proceedings. The case was assigned to Labor Arbiter Raul Aquino.

On July 20, 1992, after due hearing, Labor Arbiter Aquino rendered a decision dismissing the complaints for illegal dismissal but at the same time ordering Crispa, Inc., Floro and the petitioners to pay respondent employees separation pay equivalent to seventeen (17) days for every year of service, viz:


WHEREFORE, premises considered, the instant complaint for illegal dismissal is hereby DISMISSED for lack of merit. However, as discussed in this decision, respondents is (sic) hereby directed to pay the separation pay of the complainants equivalent to seventeen (17) days for every year of service and computed as follows:

xxx xxx xxx

All other claims are hereby dismissed for lack of merit. Respondent is hereby ordered to pay 10% attorney's fees based on the award.

SO ORDERED. 1

Dissatisfied, private respondents appealed before the public respondent NLRC. In a Resolution, dated September 30, 1993, the Second Division of the NLRC found Crispa, Inc., Valeriano Floro, together with the petitioners liable for illegal dismissal, and modified the award of separation pay in the amount of one (1) month for every year of service instead of seventeen (17) days, to wit:

WHEREFORE, the assailed Decision is hereby Affirmed with Modification in so far as the award of separation pay is concerned to the effect that respondents are ordered to pay complainants one month for every year of service, instead of 17 days.

All other rulings are hereby AFFIRMED. 2

Petitioners filed a Motion for Reconsideration on November 12, 1993 but the same was denied by the NLRC in a Resolution dated December 7, 1993, thus:

After due consideration of the Motion for Reconsideration filed by respondents on November 12, 1995, from the Resolution of September 30, 1993, the Commission (Second Division) RESOLVED to deny the same for lack of merit. 3

On August 8, 1994, private respondents sought a clarification of public respondent NLRC's Resolution dated September 30, 1993 insofar as the computation of separation pay by the Examination and Computation Division was concerned as well as the failure of

the Resolution to award them full backwages despite the finding of illegal dismissal.

On April 21, 1995, the NLRC, treating the Motion to Clarity Judgment as an Appeal, granted the same in this wise:

ACCORDINGLY, in view of the foregoing, the complainants-appellees Motion to Clarify Judgment is partially GRANTED and Mr. Ricardo Atienza, Acting Chief of the Examination and Computation Division is hereby directed to include in the computation, six months backwages as provided for in the September 30, 1993 Revolution of the Division, which was however omitted in the dispositive portion thereof.

SO ORDERED. 4

Petitioners filed a Motion for Reconsideration of the April 21, 1995 Resolution, which was denied in another Resolution 5 dated May 24, 1995.

Hence, this petition.

We shall dismiss the petition. The law recognizes the right of every business entity to reduce its work force if the same is made necessary by compelling economic factors which would endanger its existence or stability. In spite of overwhelming support granted by the social justice provisions of our Constitution in favor of labor, the fundamental law itself guarantees, even during the process of tilting the scales of social justice towards workers and employees, "the right of enterprises to reasonable returns of investment and to expansion and growth. 6 To hold otherwise would not only be oppressive and inhuman, 7 but also counter-productive and ultimately subversive of the nation's thrust towards a resurgence in our economy which would ultimately benefit the majority of our people. Where appropriate and where conditions are in accord with law and jurisprudence, the Court has authorized valid reductions in the work force to forestall business losses, 8 the hemorrhaging of capital, or even to recognize an obvious reduction in the volume of business which has rendered certain employees redundant. 9 Thus, Article 283 of the Labor Code, which covers retrenchment, reads as follows:

Art. 283. Closure of establishment and reduction of personnel — The employer may also terminate the employment of any employee due to the installation of labor saving devices, redundancy,retrenchment to

prevent losses or the closing or cessation of operation of the establishment or 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. In case of termination due to the installation of labor saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered as one (1) whole year.

Retrenchment, or "lay-off" in layman's parlance, is the termination of employment initiated by the employer through no fault of the employee's and without prejudice to the latter, resorted to by management during periods of business recession, industrial depression, or seasonal fluctuations, or during lulls occasioned by lack of orders, shortage of materials, conversion of the plant for a new production program or the introduction of new methods or more efficient machinery, or of automation. 10 Simply put, it is an act of the employer of dismissing employees because of losses in the operation of a business, lack of work, and considerable reduction on the volume of his business, a right consistently recognized and affirmed by this Court. 11 Nevertheless, while it is true that retrenchment is a management prerogative, it is still subject to faithful compliance with the substantive and procedural requirements laid down by law and jurisprudence. And since retrenchment strikes at the very core of an individual's employment, which may be the only lifeline on which he and his family depend for survival, 12 the burden clearly falls upon the employer to prove economic or business losses with appropriate supporting evidence. 13 Any claim of actual or potential business losses must satisfy certain established standards before any reduction of personnel becomes legal, viz:

1. The losses expected and sought to be avoided must be substantial and not merely de minimis in extent;


2. The substantial losses apprehended must be reasonably imminent, as such imminence can be perceived objectively and in good faith by the employer;

3. The retrenchment must be reasonably necessary and likely to effectively prevent the expected losses.

4. The alleged losses, if already realized, and the expected imminent losses sought to be forestalled, must be proved by sufficient and convincing evidence. 14

In sustaining the Company's submission that it suffered serious business losses in 1991, thus necessitating the retrenchment of respondent employees, the Labor Arbiter found:

On the ground invoked by respondent for closing its business, i.e., serious losses and financial straits, respondent submitted Financial Report wherein it incurred a net loss of Fourty (sic) Three Million Four Hundred Eighteen Thousand Two Hundred Seventy Two and Ninety Eight Centavos (P43,418,272.98) in 1991. Thus, based on all the foregoing, we are constrained that respondent was, indeed, suffering from financial reverses that would justify its decision to close down its business. Hence, under Section 9 (b) Book VI, Rule III of Omnibus Rules Implementing the Labor Code, it provides:

Sec. 9. (b) Where the termination of employment is due to retrenchment to prevent losses and in case of closure or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, or where the employee suffers from a disease and his continued employment is prohibited by law or

is prejudicial to his health or to the health of his co-employees, the employee shall be entitled to termination pay equivalent to at least one-half month pay for every year of service, a fraction of at least six months being considered as one whole year. 15

The NLRC, in its September 30, 1993 Resolution, however, reversed the foregoing findings of the Labor Arbiter and adjudged Crispa, Inc. as well as the petitioners liable for illegal dismissal. The NLRC ruled, thus:

We observe that the basis of the Labor Arbiter in sustaining the argument of financial reverses is the Statement of Profit and Losses submitted by the respondent (Supra.). The same however, does not bear the signature of a certified public accountant or audited by an independent auditor. Briefly stated, it has no evidentiary value. As such, the allege financial losses which caused the temporary closure of respondent CRISPA, Inc. has not been sufficiently established. In the case of Lopez Sugar Corp. vs. FFW, 189 SCRA 179, the Supreme Court held that "alleged losses if already realized and the expected losses sought to be forestalled must be proved by sufficient and commencing (sic)evidence. Consequently, there being no financial reverses for (sic) men (sic) the termination of herein complainants from their employment is perforce illegal. 16

We are more in accord with the aforequoted observations made by the NLRC. It is true that administrative and quasi-judicial bodies like the NLRC are not bound by the technical rules of procedure in the adjudication of cases.17 However, this procedural rule should not be construed as a license to disregard certain fundamental evidentiary rules. While the rules of evidence prevailing in the courts of law or equity are not controlling in proceedings before the NLRC, the evidence presented before it must at least have a modicum of admissibility for it to be given some probative value. 18 The Statement of Profit and Losses submitted by Crispa, Inc. to prove its alleged losses, without the accompanying

signature of a certified public accountant or audited by an independent auditor, are nothing but self-serving documents which ought to be treated as a mere scrap of paper devoid of any probative value. For sure, this is not the kind of sufficient and convincing evidence necessary to discharge the burden of proof required of petitioners to establish the alleged losses suffered by Crispa, Inc. in the years immediately preceding 1990 that would justify the retrenchment of respondent employees. In fact, petitioners, as directors and officers of Crispa, Inc., already concede, albeit quite belatedly, in its Reply to Comment of Public Respondent, 19 the finding of public respondent NLRC that petitioners utterly failed to establish the alleged financial losses borne by Crispa, Inc., 20 thus making the company guilty of illegal dismissal against the private respondents. According to petitioners, what they are actually assailing is the decision of the NLRC holding them solidarily liable with the company for the payment of separation pay and backwages to the private respondents. It is the contention of the petitioners that the award of backwages and separation pay is a corporate obligation and must therefore be assumed by Crispa, Inc. alone.

We do not agree. A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. The general rule is that obligations incurred by the corporation, acting through its directors, officers and employees, are its sole liabilities. 21 There are times, however, when solidary liabilities may be incurred but only when exceptional circumstances warrant such as in the following cases:

1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote for or assent to patently unlawful acts of the corporation; (b) act in bad faith or with gross negligence in directing the corporate affairs; (c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons;

2. When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof did not forthwith file with the corporate secretary his written objection thereto;

3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the corporation; or

7 Corpo Cases

4 When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action. 22

In labor cases, particularly, corporate directors and officers are solidarily liable with the corporation for the termination of employment of corporate employees done with malice or in bad faith. 23 In this case, it is undisputed that petitioners have a direct hand in the illegal dismissal of respondent employees. They were the ones, who as high-ranking officers and directors of Crispa, Inc., signed the Board Resolution retrenching private respondents on the feigned ground of serious business losses that had no basis apart from an unsigned and unaudited Profit and Loss Statement which, to repeat, had no evidentiary value whatsoever. This is indicative of bad faith on the part of petitioners for which they can be held jointly and severally liable with Crispa, Inc. for all the money claims of the illegally terminated respondent employees in this case.

WHEREFORE, finding no grave abuse of discretion on the part of the public respondent NLRC, the instant petition is hereby DISMISSED.

Costs against petitioners.SO ORDERED.

G.R. No. 144805 June 8, 2006

EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners, vs. ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION), ETEROUTREMER, S.A. and FAR EAST BANK & TRUST COMPANY, Respondents.

D E C I S I O N

CALLEJO, SR., J.:

On appeal via a Petition for Review on Certiorari is the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 51022, which affirmed the Decision of the Regional Trial Court (RTC), Pasig City, Branch 165, in Civil Case No. 54887, as well as the Resolution2 of the CA denying the motion for reconsideration thereof.

The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine laws. Since 1950, it had been engaged in the manufacture of roofing materials and pipe products. Its manufacturing operations were conducted on eight parcels of land with a total area of 47,233 square meters. The properties, located in Mandaluyong City, Metro Manila, were covered by Transfer Certificates of Title Nos. 451117, 451118, 451119, 451120, 451121, 451122, 451124 and 451125 under the name of Far East Bank & Trust Company, as trustee. Ninety (90%) percent of the shares of stocks of EC were owned by Eteroutremer S.A. Corporation (ESAC), a corporation organized and registered under the laws of Belgium.3 Jack Glanville, an Australian citizen, was the General Manager and President of EC, while Claude Frederick Delsaux was the Regional Director for Asia of ESAC. Both had their offices in Belgium.

In 1986, the management of ESAC grew concerned about the political situation in the Philippines and wanted to stop its operations in the country. The Committee for Asia of ESAC instructed Michael Adams, a member of EC’s Board of Directors, to dispose of the eight parcels of land. Adams engaged the services of realtor/broker Lauro G. Marquez so that the properties could be offered for sale to prospective buyers. Glanville later showed the properties to Marquez.

Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo B. Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter dated September 12, 1986, Marquez declared that he was authorized to sell the properties for P27,000,000.00 and that the terms of the sale were subject to negotiation.4

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo Litonjua, Jr., and his brother Antonio K. Litonjua. The Litonjua siblings offered to buy the property for P20,000,000.00 cash. Marquez apprised Glanville of the Litonjua siblings’ offer and relayed the same to Delsaux in Belgium, but the latter did not respond. On October 28, 1986, Glanville telexed Delsaux in Belgium, inquiring on his position/ counterproposal to the offer of the Litonjua siblings. It was only on February 12, 1987 that Delsaux sent a telex to Glanville stating that, based on the "Belgian/Swiss decision," the final offer was "US$1,000,000.00 and P2,500,000.00 to cover all existing obligations prior to final liquidation."5

Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua, Jr. accepted the counterproposal of Delsaux. Marquez conferred with Glanville, and in a Letter dated February 26, 1987, confirmed that the Litonjua siblings had accepted the counter-proposal of Delsaux. He also stated that the Litonjua siblings would confirm full payment within 90 days after

execution and preparation of all documents of sale, together with the necessary governmental clearances.6

The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank & Trust Company, Ermita Branch, and drafted an Escrow Agreement to expedite the sale.7

Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale would be implemented. In a telex dated April 22, 1987, Glanville informed Delsaux that he had met with the buyer, which had given him the impression that "he is prepared to press for a satisfactory conclusion to the sale."8 He also emphasized to Delsaux that the buyers were concerned because they would incur expenses in bank commitment fees as a consequence of prolonged period of inaction.9

Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of the Philippines, the political situation in the Philippines had improved. Marquez received a telephone call from Glanville, advising that the sale would no longer proceed. Glanville followed it up with a Letter dated May 7, 1987, confirming that he had been instructed by his principal to inform Marquez that "the decision has been taken at a Board Meeting not to sell the properties on which Eternit Corporation is situated."10

Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC Regional Office had decided not to proceed with the sale of the subject land, to wit:

May 22, 1987

Mr. L.G. Marquez L.G. Marquez, Inc. 334 Makati Stock Exchange Bldg. 6767 Ayala Avenue Makati, Metro Manila Philippines

Dear Sir:

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed with the sale of the land which was proposed to you.

The Committee for Asia of our Group met recently (meeting every six months) and examined the position as far as the Philippines are (sic) concerned. Considering [the] new political situation since the departure of MR. MARCOS and a certain stabilization in the

http://www.lawphil.net/judjuris/juri2006/jun2006/gr_144805_2006.html#fnt1











Philippines, the Committee has decided not to stop our operations in Manila. In fact, production has started again last week, and (sic) to recognize the participation in the Corporation.

We regret that we could not make a deal with you this time, but in case the policy would change at a later state, we would consult you again.

x x x

Yours sincerely,

(Sgd.) C.F. DELSAUX

cc. To: J. GLANVILLE (Eternit Corp.)11

When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding payment for damages they had suffered on account of the aborted sale. EC, however, rejected their demand.

The Litonjuas then filed a complaint for specific performance and damages against EC (now the Eterton Multi-Resources Corporation) and the Far East Bank & Trust Company, and ESAC in the RTC of Pasig City. An amended complaint was filed, in which defendant EC was substituted by Eterton Multi-Resources Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and Deogracias G. Eufemio were impleaded as additional defendants on account of their purchase of ESAC shares of stocks and were the controlling stockholders of EC.

In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not doing business in the Philippines, it cannot be subject to the jurisdiction of Philippine courts; the Board and stockholders of EC never approved any resolution to sell subject properties nor authorized Marquez to sell the same; and the telex dated October 28, 1986 of Jack Glanville was his own personal making which did not bind EC.

On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed the amended complaint.12 The fallo of the decision reads:

WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer, S.A. is dismissed on the ground that there is no valid and binding sale between the plaintiffs and said defendants.

The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of cause of action.

The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer, S.A. is also dismissed for lack of merit.13

The trial court declared that since the authority of the agents/realtors was not in writing, the sale is void and not merely unenforceable, and as such, could not have been ratified by the principal. In any event, such ratification cannot be given any retroactive effect. Plaintiffs could not assume that defendants had agreed to sell the property without a clear authorization from the corporation concerned, that is, through resolutions of the Board of Directors and stockholders. The trial court also pointed out that the supposed sale involves substantially all the assets of defendant EC which would result in the eventual total cessation of its operation.14

The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court erred in concluding that the real estate broker in the instant case needed a written authority from appellee corporation and/or that said broker had no such written authority; and (2) the lower court committed grave error of law in holding that appellee corporation is not legally bound for specific performance and/or damages in the absence of an enabling resolution of the board of directors."15 They averred that Marquez acted merely as a broker or go-between and not as agent of the corporation; hence, it was not necessary for him to be empowered as such by any written authority. They further claimed that an agency by estoppel was created when the corporation clothed Marquez with apparent authority to negotiate for the sale of the properties. However, since it was a bilateral contract to buy and sell, it was equivalent to a perfected contract of sale, which the corporation was obliged to consummate.

In reply, EC alleged that Marquez had no written authority from the Board of Directors to bind it; neither were Glanville and Delsaux authorized by its board of directors to offer the property for sale. Since the sale involved substantially all of the corporation’s assets, it would necessarily need the authority from the stockholders.

On June 16, 2000, the CA rendered judgment affirming the decision of the RTC. 16 The Litonjuas filed a motion for reconsideration, which was also denied by the appellate court.

The CA ruled that Marquez, who was a real estate broker, was a special agent within the purview of Article 1874 of the New Civil Code. Under Section 23 of the Corporation Code, he needed a

special authority from EC’s board of directors to bind such corporation to the sale of its properties. Delsaux, who was merely the representative of ESAC (the majority stockholder of EC) had no authority to bind the latter. The CA pointed out that Delsaux was not even a member of the board of directors of EC. Moreover, the Litonjuas failed to prove that an agency by estoppel had been created between the parties.

In the instant petition for review, petitioners aver that

I

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED CONTRACT OF SALE.

II

THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT MARQUEZ NEEDED A WRITTEN AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE SALE CAN BE PERFECTED.

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX HAVE THE NECESSARY AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY PERMITTED BY RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN APPARENT AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING POWER TO SELL THE SAID PROPERTIES.17

Petitioners maintain that, based on the facts of the case, there was a perfected contract of sale of the parcels of land and the improvements thereon for "US$1,000,000.00 plus P2,500,000.00 to cover obligations prior to final liquidation." Petitioners insist that they had accepted the counter-offer of respondent EC and that before the counter-offer was withdrawn by respondents, the acceptance was made known to them through real estate broker Marquez.

Petitioners assert that there was no need for a written authority from the Board of Directors of EC for Marquez to validly act as broker/middleman/intermediary. As broker, Marquez was not an ordinary agent because his authority was of a special and limited character in most respects. His only job as a broker was to look for a buyer and to bring together the parties to the transaction. He was not authorized to sell the properties or to make a binding contract to respondent EC; hence, petitioners argue, Article 1874 of the New Civil Code does not apply.









In any event, petitioners aver, what is important and decisive was that Marquez was able to communicate both the offer and counter-offer and their acceptance of respondent EC’s counter-offer, resulting in a perfected contract of sale.

Petitioners posit that the testimonial and documentary evidence on record amply shows that Glanville, who was the President and General Manager of respondent EC, and Delsaux, who was the Managing Director for ESAC Asia, had the necessary authority to sell the subject property or, at least, had been allowed by respondent EC to hold themselves out in the public as having the power to sell the subject properties. Petitioners identified such evidence, thus:

1. The testimony of Marquez that he was chosen by Glanville as the then President and General Manager of Eternit, to sell the properties of said corporation to any interested party, which authority, as hereinabove discussed, need not be in writing.

2. The fact that the NEGOTIATIONS for the sale of the subject properties spanned SEVERAL MONTHS, from 1986 to 1987;

3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the Petitioners;

4. The GOOD FAITH of Petitioners in believing Eternit’s offer to sell the properties as evidenced by the Petitioners’ ACCEPTANCE of the counter-offer;

5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the Security Bank and that an ESCROW agreement was drafted over the subject properties;

6. Glanville’s telex to Delsaux inquiring "WHEN WE (Respondents) WILL IMPLEMENT ACTION TO BUY AND SELL";

7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced the fact that Petitioners’ offer was allegedly REJECTED by both Glanville and Delsaux.18

Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to petitioners’ offer and thereafter reject such offer unless they were authorized to do so by respondent EC. Petitioners insist that Delsaux confirmed his authority to sell the properties in his letter to Marquez, to wit:

Dear Sir,

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed with the sale of the land which was proposed to you.

The Committee for Asia of our Group met recently (meeting every six months) and examined the position as far as the Philippines are (sic) concerned. Considering the new political situation since the departure of MR. MARCOS and a certain stabilization in the Philippines, the Committee has decided not to stop our operations in Manila[.] [I]n fact production started again last week, and (sic) to reorganize the participation in the Corporation.

We regret that we could not make a deal with you this time, but in case the policy would change at a later stage we would consult you again.

In the meantime, I remain

Yours sincerely,

C.F. DELSAUX19

Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were knowingly permitted by respondent EC to sell the properties within the scope of an apparent authority. Petitioners insist that respondents held themselves to the public as possessing power to sell the subject properties.

By way of comment, respondents aver that the issues raised by the petitioners are factual, hence, are proscribed by Rule 45 of the Rules of Court. On the merits of the petition, respondents EC (now EMC) and ESAC reiterate their submissions in the CA. They maintain that Glanville, Delsaux and Marquez had no authority from the stockholders of respondent EC and its Board of Directors to offer the properties for sale to the petitioners, or to any other person or entity for that matter. They assert that the decision and resolution of the CA are in accord with law and the evidence on record, and should be affirmed in toto.

Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and Delsaux, conformed to the written authority of Marquez to sell the properties. The authority of Glanville and Delsaux to bind respondent EC is evidenced by the fact that Glanville and Delsaux negotiated for the sale of 90% of stocks of respondent EC to Ruperto Tan on June 1, 1997. Given the significance of their positions and their duties in respondent EC at the time of the transaction, and the fact that respondent ESAC

owns 90% of the shares of stock of respondent EC, a formal resolution of the Board of Directors would be a mere ceremonial formality. What is important, petitioners maintain, is that Marquez was able to communicate the offer of respondent EC and the petitioners’ acceptance thereof. There was no time that they acted without the knowledge of respondents. In fact, respondent EC never repudiated the acts of Glanville, Marquez and Delsaux.

The petition has no merit.

Anent the first issue, we agree with the contention of respondents that the issues raised by petitioner in this case are factual. Whether or not Marquez, Glanville, and Delsaux were authorized by respondent EC to act as its agents relative to the sale of the properties of respondent EC, and if so, the boundaries of their authority as agents, is a question of fact. In the absence of express written terms creating the relationship of an agency, the existence of an agency is a fact question.20 Whether an agency by estoppel was created or whether a person acted within the bounds of his apparent authority, and whether the principal is estopped to deny the apparent authority of its agent are, likewise, questions of fact to be resolved on the basis of the evidence on record.21 The findings of the trial court on such issues, as affirmed by the CA, are conclusive on the Court, absent evidence that the trial and appellate courts ignored, misconstrued, or misapplied facts and circumstances of substance which, if considered, would warrant a modification or reversal of the outcome of the case.22

It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the Rules of Court because the Court is not a trier of facts. It is not to re-examine and assess the evidence on record, whether testimonial and documentary. There are, however, recognized exceptions where the Court may delve into and resolve factual issues, namely:

(1) When the conclusion is a finding grounded entirely on speculations, surmises, or conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings of the Court of Appeals are contrary to those of the trial court; (8) when the findings of fact are conclusions without citation of specific evidence on which they are based; (9) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion; and (10) when the findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record.23








We have reviewed the records thoroughly and find that the petitioners failed to establish that the instant case falls under any of the foregoing exceptions. Indeed, the assailed decision of the Court of Appeals is supported by the evidence on record and the law.

It was the duty of the petitioners to prove that respondent EC had decided to sell its properties and that it had empowered Adams, Glanville and Delsaux or Marquez to offer the properties for sale to prospective buyers and to accept any counter-offer. Petitioners likewise failed to prove that their counter-offer had been accepted by respondent EC, through Glanville and Delsaux. It must be stressed that when specific performance is sought of a contract made with an agent, the agency must be established by clear, certain and specific proof.24

Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines, provides:

SEC. 23. The Board of Directors or Trustees. – Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified.

Indeed, a corporation is a juridical person separate and distinct from its members or stockholders and is not affected by the personal rights,

obligations and transactions of the latter.25 It may act only through its board of directors or, when authorized either by its by-laws or by its board resolution, through its officers or agents in the normal course of business. The general principles of agency govern the relation between the corporation and its officers or agents, subject to the articles of incorporation, by-laws, or relevant provisions of law.26

Under Section 36 of the Corporation Code, a corporation may sell or convey its real properties, subject to the limitations prescribed by law and the Constitution, as follows:

SEC. 36. Corporate powers and capacity. – Every corporation incorporated under this Code has the power and capacity:

x x x x

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property, including securities and bonds of other corporations, as the transaction of a lawful business of the corporation may reasonably and necessarily require, subject to the limitations prescribed by the law and the Constitution.

The property of a corporation, however, is not the property of the stockholders or members, and as such, may not be sold without express authority from the board of directors.27 Physical acts, like the offering of the properties of the corporation for sale, or the acceptance of a counter-offer of prospective buyers of such properties and the execution of the deed of sale covering such property, can be performed by the corporation only by officers or agents duly authorized for the purpose by corporate by-laws or by specific acts of the board of directors.28 Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with, the performance of authorized duties of such director, are not binding on the corporation.29

While a corporation may appoint agents to negotiate for the sale of its real properties, the final say will have to be with the board of directors through its officers and agents as authorized by a board resolution or by its by-laws.30An unauthorized act of an officer of the corporation is not binding on it unless the latter ratifies the same expressly or impliedly by its board of directors. Any sale of real property of a corporation by a person purporting to be an agent thereof but without written authority from the corporation is null and void. The declarations of the agent alone are generally insufficient to establish the fact or extent of his/her authority.31

By the contract of agency, a person binds himself to render some service or to do something in representation on behalf of another,

with the consent or authority of the latter.32 Consent of both principal and agent is necessary to create an agency. The principal

must intend that the agent shall act for him; the agent must intend to accept the authority and act on it, and the intention of

the parties must find expression either in words or conduct between them.33

An agency may be expressed or implied from the act of the principal, from his silence or lack of action, or his failure to repudiate the agency knowing that another person is acting on his behalf without authority. Acceptance by the agent may be expressed, or implied from his acts which carry out the agency, or from his silence or inaction according to the circumstances.34 Agency may be oral unless the law requires a specific form.35However, to create or convey real rights over immovable property, a special power of attorney is

necessary.36Thus, when a sale of a piece of land or any portion thereof is through an agent, the authority of the latter shall be in writing, otherwise, the sale shall be void.37

In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of the Board of Directors of respondent EC empowering Marquez, Glanville or Delsaux as its agents, to sell, let alone offer for sale, for and in its behalf, the eight parcels of land owned by respondent EC including the improvements thereon. The bare fact that Delsaux may have been authorized to sell to Ruperto Tan the shares of stock of respondent ESAC, on June 1, 1997, cannot be used as basis for petitioners’ claim that he had likewise been authorized by respondent EC to sell the parcels of land.

Moreover, the evidence of petitioners shows that Adams and Glanville acted on the authority of Delsaux, who, in turn, acted on the authority of respondent ESAC, through its Committee for Asia,38 the Board of Directors of respondent ESAC,39 and the Belgian/Swiss component of the management of respondent ESAC.40 As such, Adams and Glanville engaged the services of Marquez to offer to sell the properties to prospective buyers. Thus, on September 12, 1986, Marquez wrote the petitioner that he was authorized to offer for sale the property forP27,000,000.00 and the other terms of the sale subject to negotiations. When petitioners offered to purchase the property for P20,000,000.00, through Marquez, the latter relayed petitioners’ offer to Glanville; Glanville had to send a telex to Delsaux to inquire the position of respondent ESAC to petitioners’ offer. However, as admitted by petitioners in their Memorandum, Delsaux was unable to reply immediately to the telex of Glanville because Delsaux had to wait for confirmation from respondent ESAC.41 When Delsaux finally responded to Glanville on February 12, 1987, he made it clear that, based on the "Belgian/Swiss decision" the final offer of respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to cover all existing obligations prior to final liquidation.42 The offer of Delsaux emanated only from the "Belgian/Swiss decision," and not the entire management or Board of Directors of respondent ESAC. While it is true that petitioners accepted the counter-offer of respondent ESAC, respondent EC was not a party to the transaction between them; hence, EC was not bound by such acceptance.

While Glanville was the President and General Manager of respondent EC, and Adams and Delsaux were members of its Board of Directors, the three acted for and in behalf of respondent ESAC, and not as duly authorized agents of respondent EC; a board resolution evincing the grant of such authority is needed to bind EC to any agreement regarding the sale of the subject properties. Such board resolution is not a mere formality but is a condition sine qua non to bind respondent EC. Admittedly, respondent ESAC owned 90% of the shares of stocks of respondent EC; however, the mere fact that a corporation





















owns a majority of the shares of stocks of another, or even all of such shares of stocks, taken alone, will not justify their being treated as one corporation.43

It bears stressing that in an agent-principal relationship, the personality of the principal is extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which the latter would have him do. Such a relationship can only be effected with the consent of the principal, which must not, in any way, be compelled by law or by any court.44

The petitioners cannot feign ignorance of the absence of any regular and valid authority of respondent EC empowering Adams, Glanville or Delsaux to offer the properties for sale and to sell the said properties to the petitioners. A person dealing with a known agent is not authorized, under any circumstances, blindly to trust the agents; statements as to the extent of his powers; such person must not act negligently but must use reasonable diligence and prudence to ascertain whether the agent acts within the scope of his authority.45 The settled rule is that, persons dealing with an assumed agent are bound at their peril, and if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to prove it.46 In this case, the petitioners failed to discharge their burden; hence, petitioners are not entitled to damages from respondent EC.

It appears that Marquez acted not only as real estate broker for the petitioners but also as their agent. As gleaned from the letter of Marquez to Glanville, on February 26, 1987, he confirmed, for and in behalf of the petitioners, that the latter had accepted such offer to sell the land and the improvements thereon. However, we agree with the ruling of the appellate court that Marquez had no authority to bind respondent EC to sell the subject properties. A real estate broker is one who negotiates the sale of real properties. His business, generally speaking, is only to find a purchaser who is willing to buy the land upon terms fixed by the owner. He has no authority to bind the principal by signing a contract of sale. Indeed, an authority to find a purchaser of real property does not include an authority to sell.47

Equally barren of merit is petitioners’ contention that respondent EC is estopped to deny the existence of a principal-agency relationship between it and Glanville or Delsaux. For an agency by estoppel to exist, the following must be established: (1) the principal manifested a representation of the agent’s authority or knowlingly allowed the agent to assume such authority; (2) the third person, in good faith, relied upon such representation; (3) relying upon such representation, such third person has changed his position to his detriment.48 An agency by estoppel, which is similar to the doctrine of apparent authority, requires proof of

reliance upon the representations, and that, in turn, needs proof that the representations predated the action taken in reliance.49Such proof is lacking in this case. In their communications to the petitioners, Glanville and Delsaux positively and unequivocally declared that they were acting for and in behalf of respondent ESAC.

Neither may respondent EC be deemed to have ratified the transactions between the petitioners and respondent ESAC, through Glanville, Delsaux and Marquez. The transactions and the various communications inter se were never submitted to the Board of Directors of respondent EC for ratification.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners.SO ORDERED.

G.R. No. 172727 September 8, 2010

QUEENSLAND-TOKYO COMMODITIES, INC., ROMEO Y. LAU, and CHARLIE COLLADO, Petitioners, vs. THOMAS GEORGE, Respondent.

R E S O L U T I O N

NACHURA, J.:

At bar is a petition for review on certiorari under Rule 45 of the Rules of Court filed by Queensland-Tokyo Commodities, Inc. (QTCI), Romeo Y. Lau (Lau), and Charlie Collado (Collado), challenging the September 30, 2005 Decision1 and the January 20, 2006 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 58741.

QTCI is a duly licensed broker engaged in the trading of commodity futures. In 1995, Guillermo Mendoza, Jr. (Mendoza) and Oniler Lontoc (Lontoc) of QTCI met with respondent Thomas George (respondent), encouraging the latter to invest with QTCI. On July 7, 1995, upon Mendoza’s prodding, respondent finally invested with QTCI. On the same day, Collado, in behalf of QTCI, and respondent signed the Customer’s Agreement.3 Forming part of the agreement was the Special Power of Attorney4 executed by respondent, appointing Mendoza as his attorney-in-fact with full authority to trade and manage his account.

On June 20, 1996, the Securities and Exchange Commission (SEC) issued a Cease-and-Desist Order (CDO) against QTCI. Alarmed by the issuance of the CDO, respondent demanded from QTCI the

return of his investment, but it was not heeded. He then sought legal assistance, and discovered that Mendoza and Lontoc were not licensed commodity futures salesmen.

On February 4, 1998, respondent filed a complaint for Recovery of Investment with Damages5 with the SEC against QTCI, Lau, and Collado (petitioners), and against the unlicensed salesmen, Mendoza and Lontoc. The case was docketed as SEC Case No. 02-98-5886, and was raffled to SEC Hearing Officer Julieto F. Fabrero.

Only petitioners answered the complaint, as Mendoza and Lontoc had since vanished into thin air. Traversing the complaint, petitioners denied the material allegations in the complaint and alleged lack of cause of action, as a defense. Petitioners averred that QTCI only assigned duly qualified persons to handle the accounts of its clients; and denied allowing unlicensed brokers or agents to handle respondent’s account. They claimed that they were not aware of, nor were they privy to, any arrangement which resulted in the account of respondent being handled by unlicensed brokers. They added that even assuming that the subject account was handled by an unlicensed broker, respondent is now estopped from raising it as a ground for the return of his investment. They pointed out that respondent transacted business with QTCI for almost a year, without questioning the license or the authority of the traders handling his account. It was only after it became apparent that QTCI could no longer resume its business transactions by reason of the CDO that respondent raised the alleged lack of authority of the brokers or traders handling his account. The losses suffered by respondent were due to circumstances beyond petitioners’ control and could not be attributed to them. Respondent’s remedy, they added, should be against the unlicensed brokers who handled the account. Thus, petitioners prayed for the dismissal of the complaint.6

After due proceedings, the SEC Hearing Officer rendered a decision7 in favor of respondent, decreeing that:

WHEREFORE, premises considered, [petitioners] Queensland Tokyo [C]ommodities, Inc., Romeo Y. Lau (aka "Lau Ching Yee") and Charlie F. Collado are hereby ordered to jointly and severally pay the [respondent] the following:

1. The amount of P138,164.00, Philippine currency, representing the x x x return of his [respondent’s] peso investment, plus legal rate of interest from February 1998 until fully paid;

2. The amount of $19,820.00, American dollars, or its peso equivalent at the time of payment representing the [respondent’s] return of his dollar investments,








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plus legal rate of interest from February 1998 until fully paid;

3. The amount of P100,000.00 as (sic) by way of moral damages;

4. The amount of P50,000.00 as and (sic) by way of exemplary damages;

5. The amount of P10,000.00 as and for attorney’s fees; and

6. The amount of P2,877.00 as cost of suit.

SO ORDERED.8

Petitioners appealed to the Commission en banc, but the appeal was dismissed because the Notice of Appeal and the Memorandum on Appeal were not verified.9

Petitioners then went to the CA via a petition for review10 under Rule 43, faulting the Commission en banc for dismissing their appeal on purely technical ground. They insisted that they did not violate the rules on commodity futures trading. Thus, they faulted the SEC Hearing Officer for nullifying the Customer’s Agreement and for holding them liable for respondent’s claims.

On September 30, 2005, the CA rendered the now challenged Decision.11 It declared the dismissal of petitioners’ appeal by the Commission en banc improper. Nevertheless, it did not order a remand of the case to the Commission en banc because jurisdiction over petitioners’ appeal had already been transferred to the Regional Trial Court (RTC) by virtue of Republic Act No. 8799 or the Securities Regulation Code. The CA thus proceeded to decide the merits of the case, affirming in toto the decision of the SEC Hearing Officer. The appellate court failed to see any reason to disturb the SEC Hearing Officer’s finding of liability on the part of petitioners. It sustained the finding that petitioners violated the Revised Rules and Regulations on Commodity Futures Trading when they allowed

an unlicensed salesman, like Mendoza, to handle respondent’s account. The CA also upheld the nullification of the Customer’s Agreement, and the award of moral and exemplary damages, as well attorney’s fees, in favor of respondent. The CA disposed, thus:

WHEREFORE, premises considered, the petition is DISMISSED for lack of merit. The assailed decision dated February 7, 2000 is hereby AFFIRMED in toto.

SO ORDERED.12

Petitioners filed a motion for reconsideration,13 but the CA denied it on January 20, 2006.14

Hence, this recourse by petitioners arguing that:

A.

THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONERS KNOWINGLY PERMITTED AN UNLICENSED TRADER TO SOLICIT AND HANDLE REPONDENT’S ACCOUNT, AND THAT PETITIONERS ARE GUILTY OF FRAUD AND MISREPRESENTATION.

B.

THE HONORABLE COURT OF APPEALS ERRED IN FINDING INDIVIDUAL PETITIONERS SOLIDARILY LIABLE FOR THE DAMAGES AND AWARDS DUE [THE] RESPONDENT.15

Petitioners insist that they did not violate the Revised Rules and Regulations on Commodity Futures Trading. They claim that it has been QTCI’s policy and practice to appoint only licensed traders to trade the client’s account. They denied any participation in the designation of Mendoza as respondent’s attorney-in-fact; taking exception to the findings that they permitted Mendoza to trade respondent’s account. Petitioners also assailed the weight given by the SEC Hearing Officer and by the CA to respondent’s evidence.

It is evident that the issue raised in this petition is the correctness of the factual findings of the SEC Hearing Officer, as affirmed by the CA. It is well-settled that factual findings of administrative agencies are generally held to be binding and final so long as they are supported by substantial evidence in the records of the case. It is not the function of this Court to analyze or weigh all over again the evidence and the credibility of witnesses presented before the lower court, tribunal, or office, as we are not a trier of facts. Our jurisdiction is limited to reviewing and revising errors of law imputed to the lower court, the latter’s findings of fact being conclusive and not reviewable by this Court.16

We sustain the finding of the SEC Hearing Officer and the CA that petitioners allowed unlicensed individuals to engage in, solicit or accept orders in futures contracts, and thus, transgressed the Revised Rules and Regulations on Commodity Futures Trading.17

We are not persuaded by petitioners’ assertion that they had no hand in Mendoza’s designation as respondent’s attorney-in-fact.

As pointed out by the CA, the Special Power of Attorney formed part of respondent’s agreement with QTCI, and under the Customer’s Agreement,18 only a licensed or registered dealer or investment consultant may be appointed as attorney-in-fact. Thus:

2. If I so desire, I shall appoint you as my agent pursuant to a Special Power of Attorney which I shall execute for this purpose and which form part of this Agreement.

x x x x

18. I hereby confer, pursuant to the Special Power of Attorney herewith attached, full authority to your licensed/registered dealer/investment in charge of my account/s and your Senior Officer, who must also be a licensed/registered dealer/investment consultant, to sign all order slips on futures trading. 19

Inexplicably, petitioners did not object to, and in fact recognized, Mendoza’s appointment as respondent’s attorney-in-fact. Collado, in behalf of QTCI, concluded the Customer’s Agreement despite the fact that the appointed attorney-in-fact was not a licensed dealer. Worse, petitioners permitted Mendoza to handle respondent’s account.

Indubitably, petitioners violated the Revised Rules and Regulations on Commodity Futures Trading prohibiting any unlicensed person to engage in, solicit or accept orders in futures contract. Consequently, the SEC Hearing Officer and the CA cannot be faulted for declaring the contract between QTCI and respondent void.

Batas Pambansa Bilang (B.P. Blg.) 178 or the Revised Securities Act explicitly provided:

SEC. 53. Validity of Contracts. x x x.

(b) Every contract executed in violation of any provision of this Act, or any rule or regulation thereunder, and every contract, including any contract for listing a security on an exchange heretofore or hereafter made, the performance of which involves the violation of, or the continuance of any relationship or practice in violation of, any provision of this Act, or any rule and regulation thereunder, shall be void.

Likewise, Paragraph 2920 of the Customer’s Agreement provides:

29.















Contracts entered into by unlicensed Account Executives (A/E) or Investment consultants are deemed void and of no legal effect.

Clearly, the CA merely adhered to the clear provision of B.P. Blg. 178 and to the stipulation in the parties’ agreement when it declared as void the Customer’s Agreement between QTCI and respondent.

It is settled that a void contract is equivalent to nothing; it produces no civil effect. It does not create, modify, or extinguish a juridical relation. Parties to a void agreement cannot expect the aid of the law; the courts leave them as they are, because they are deemed in pari delicto or in equal fault.21 This rule, however, is not absolute. Article 1412 of the Civil Code provides an exception, and permits the return of that which may have been given under a void contract. Thus:

Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed:

(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking;

(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise.

The evidence on record established that petitioners indeed permitted an unlicensed trader and salesman, like Mendoza, to handle respondent’s account. On the other hand, the record is bereft of proof that respondent had knowledge that the person handling his account was not a licensed trader. Respondent can, therefore, recover the amount he had given under the contract. The SEC Hearing Officer and the CA, therefore, committed no reversible error in holding that respondent is entitled to a full recovery of his investments.

Petitioners Collado and Lau next fault the CA in making them solidarily liable for the payment of respondent’s claim.

Doctrine dictates that a corporation is invested by law with a personality separate and distinct from those of the persons composing it, such that, save for certain exceptions, corporate officers who entered into contracts in behalf of the corporation cannot be held personally liable for the liabilities of the latter.

Personal liability of a corporate director, trustee, or officer, along (although not necessarily) with the corporation, may validly attach, as a rule, only when – (1) he assents to a patently unlawful act of the corporation, or when he is guilty of bad faith or gross negligence in directing its affairs, or when there is a conflict of interest resulting in damages to the corporation, its stockholders, or other persons; (2) he consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; (3) he agrees to hold himself personally and solidarily liable with the corporation; or (4) he is made by a specific provision of law personally answerable for his corporate action.221avvphi1

In holding Lau and Collado jointly and severally liable with QTCI for respondent’s claim, the SEC Hearing Officer explained in this wise:

Anent the issue of who among the individual [petitioners] are jointly liable with QTCI in the payment of the awards, the Commission took into consideration, among others, that audit report on the trading activities submitted by the Brokers and Exchange Department (BED) of this Commission (Exhibit "J"). The findings contained in the report include the presence of seven (7) unlicensed investment consultants in QTCI, and the company practice of changing deeds of Special Power of Attorney bearing those who are licensed (exhibits "J-1" and "J-2").

The Commission also took into consideration the fact that [petitioner] Collado, who is not a licensed commodity salesman, himself violated the aforequoted provisions of the Revised Rules and Regulations on Commodity Futures Trading when he admitted having participated in the execution of the customers orders (p. 7, TSN dated January 21, 1999) without giving any exception thereto, which presumably includes his participation in the execution of customers orders of the [respondent].

Such being the case, [Mendoza’s] participation in the trading of [respondent’s] account is within the knowledge of [petitioner] Collado.

The presence of seven (7) unlicensed investment consultants within QTCI apart from x x x Mendoza, and [petitioner] Collado’s participation in the unlawful execution of orders under the [respondent’s] account clearly established the fact that the management of QTCI failed to implement the rules and regulations against the hiring of, and associating with, unlicensed consultants or traders. How these unlicensed personnel been able to pursue their unlawful activities is a reflection of how negligent [the] management was.

[Petitioner] Romeo Lau, as president of [petitioner] QTCI, cannot feign innocence on the existence of these unlawful activities within the company, especially so that Collado, himself a ranking officer of QTCI, is involved in the unlawful execution of customers orders. [Petitioner] Lau, being the chief operating officer, cannot escape the fact that had he exercised a modicum of care and discretion in supervising the operations of QTCI, he could have detected and prevented the unlawful acts of [petitioner] Collado and Mendoza.

It is therefore safe to conclude that although Lau may not have participated nor been aware of the unlawful acts, he is however deemed to have been grossly negligence in directing the affairs of QTCI.

In all, it having been established by substantial evidence that [petitioner] Collado assented to the unlawful act of QTCI, and that [petitioner] Lau is grossly negligent in directing the affairs of QTCI, and pursuant to Section 31 of the Corporation Code, they are therefore, jointly and severally liable with QTCI for all the damages and awards due to the [respondent].23

We find no compelling reason to depart from the conclusion of the SEC Hearing Officer, which was affirmed by the CA. We are in full accord with his reasons for holding Lau and Collado jointly and severally liable with QTCI for the payment of respondent’s claim.

Finally we sustain the awards for moral and exemplary damages in favor of respondent. Moral damages are meant to compensate the claimant for any physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injuries unjustly caused. Although incapable of pecuniary estimation, the amount must somehow be proportional to and in approximation of the suffering inflicted. Moral damages are not punitive in nature and were never intended to enrich the claimant at the expense of the defendant.24

Likewise, exemplary damages are properly exigible of QTCI. Article 222925 of the Civil Code provides that such damages may be imposed by way of example or correction for the public good. While exemplary damages cannot be recovered as a matter of right, they need not be proved, although plaintiff must show that he is entitled to moral, temperate, or compensatory damages before the court may consider the question of whether or not exemplary damages should be awarded. Exemplary damages are imposed not to enrich one party or impoverish another, but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions.26








However, the same statutory and jurisprudential standards dictate reduction of the amounts of moral and exemplary damages fixed by the SEC. Certainly, there is no hard-and-fast rule in determining what would be a fair and reasonable amount of moral and exemplary damages, since each case must be governed by its own peculiar facts.27 Courts are given discretion in determining the amount, with the limitation that it should not be palpably and scandalously excessive. Indeed, it must be commensurate to the loss or injury suffered.28

In this case, we find a need to modify, by reducing the awards for moral damages from P100,000.00 toP50,000.00; and for exemplary damages from P50,000.00 to P30,000.00.

In fine, except for the modification of the awards for moral and exemplary damages, there is no justification to overturn the findings of the SEC Hearing Officer, as affirmed by the CA.

We reiterate that the findings of facts and conclusions of law of the SEC are controlling on the reviewing authority. Indeed, the rule is that the findings of fact of administrative bodies, if based on substantial evidence, are controlling on the reviewing authority. It has been held that it is not for the appellate court to substitute its own judgment for that of the administrative agency on the sufficiency of the evidence and the credibility of the witnesses. The Hearing Officer had the optimum opportunity to review the pieces of evidence presented before him and to observe the demeanor of the witnesses. Administrative decisions on matters within his jurisdiction are entitled to respect and can only be set aside on proof of grave abuse of discretion, fraud, or error of law,29 which has not been shown by petitioner in this case.

WHEREFORE, the challenged Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 58741 areAFFIRMED with MODIFICATION that the awards for moral and exemplary damages are reduced to P50,000.00 and P30,000.00, respectively.SO ORDERED.

WENSHA SPA CENTER, INC. and/or XU ZHI JIE, Petitioners,

- versus -

G.R. No. 185122 Present: CARPIO, J., Chairperson, NACHURA, PERALTA, ABAD, and MENDOZA, JJ.

LORETA T. YUNG,

Respondent.

Promulgated: August 16, 2010

X -------------------------------------------------------------------------------------- X

D E C I S I O N MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by an employer who was charged before the National Labor Relations Commission (NLRC) for dismissing an employee upon the advice of a Feng Shui master. In this action, the petitioners assail the May 28, 2008 Decision[1] and October 23, 2008 Resolution[2] of the Court of Appeals (CA) in CA-G.R. SP No. 98855 entitledLoreta T. Yung v. National Labor Relations Commission, Wensha Spa Center, Inc. and/or Xu Zhi Jie. THE FACTS:

Wensha Spa Center, Inc. (Wensha) in Quezon City is in the business of sauna bath and massage services. Xu Zhi Jie a.k.a. Pobby Co (Xu) is its president,[3] respondent Loreta T. Yung (Loreta) was its administrative manager at the time of her termination from employment.

In her position paper,[4] Loreta stated that she used to be employed by Manmen Services Co., Ltd. (Manmen) where Xu was a client. Xu was apparently impressed by Loreta’s performance. After he established Wensha, he convinced Loreta to transfer and work at Wensha. Loreta was initially reluctant to accept Xu’s offer because her job at Manmen was stable and she had been with Manmen for seven years. But Xu was persistent and offered her a higher pay. Enticed, Loreta resigned from Manmen and transferred to Wensha. She started working on April 21, 2004 as Xu’s personal assistant and interpreter at a monthly salary of P12,000.00.

Loreta introduced positive changes to Wensha which resulted in increased business. This pleased Xu so that on May 18, 2004, she was promoted to the position of Administrative Manager.[5]

Loreta recounted that on August 10, 2004, she was asked to leave her office because Xu and a Feng Shui master were exploring the premises. Later that day, Xu asked Loreta to go on leave with pay for one month. She did so and returned on September 10, 2004. Upon her return, Xu and his wife asked her to resign from Wensha because, according to the Feng Shui master, her aura did not match that of Xu. Loreta refused but was informed that she could no longer continue working at

Wensha. That same afternoon, Loreta went to the NLRC and filed a case for illegal dismissal against Xu and Wensha.

Wensha and Xu denied illegally terminating Loreta’s employment. They claimed that two months after Loreta was hired, they received various complaints against her from the employees so that onAugust 10, 2004, they advised her to take a leave of absence for one month while they conducted an investigation on the matter. Based on the results of the investigation, they terminated Loreta’s employment on August 31, 2004 for loss of trust and confidence.[6]

The Labor Arbiter (LA) Francisco Robles dismissed Loreta’s complaint for lack of merit. He found it more probable that Loreta was dismissed from her employment due to Wensha’s loss of trust and confidence in her. The LA’s decision[7] partly reads:

However, this office has found it

dubious and hard to believe the contentions made by the complainant that she was dismissed by the respondents on the sole ground that she is a “mismatch” in respondents' business as advised by an alleged Feng Shui Master. The complainant herself alleged in her position paper that she has done several improvements in respondents’ business such as uplifting the morale and efficiency of its employees and increasing respondents’ clientele, and that respondent Co was very much pleased with the improvements made by the complainant that she was offered twice a promotion but she nevertheless declined. It would be against human experience and contrary to business acumen to let go of someone, who was an asset and has done so much for the company merely on the ground that she is a “mismatch” to the business. Absent any proof submitted by the complainant, this office finds it more probable that the complainant was dismissed due to loss of trust and confidence.[8]

This ruling was affirmed by the NLRC in its December

29, 2006 Resolution,[9] citing its observation that Wensha was still considering the proper action to take on the day Loreta left Wensha and filed her complaint. The NLRC added that this finding was bolstered by Wensha’s September 10, 2004 letter to Loreta asking her to come back to personally clarify some matters, but she declined because she had already filed a case.




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Loreta moved for a reconsideration of the NLRC’s ruling but her motion was denied. Loreta then went to the CA on a petition for certiorari. The CA reversed the ruling of the NLRC on the ground that it gravely abused its discretion in appreciating the factual bases that led to Loreta’s dismissal. The CA noted that there were irregularities and inconsistencies in Wensha’s position. The CA stated the following:

We, thus, peruse the affidavits

and documentary evidence of the Private Respondents and find the following: First, on the affidavits of their witnesses, it must be noted that the same were mere photocopies. It was held that [T]he purpose of the rule in requiring the production of the best evidence is the prevention of fraud, because if a party is in possession of such evidence and withholds it, and seeks to substitute inferior evidence in its place, the presumption naturally arise[s] that the better evidence is withheld for fraudulent purposes which its production would expose and defeat. Moreover, the affidavits were not executed under oath. The rule is that an affiant must sign the document in the presence of and take his oath before a notary public as evidence that the affidavit was properly made. Guided by these principles, the affidavits cannot be assigned any weighty probative value and are mere scraps of paper the contents of which are hearsay. Second, on the sales report and order slips, which allegedly prove that Yung had been charging her food and drinks to Wensha, the said pieces of evidence do not, however, bear Yung’s name thereon or even her signature. In fact, it does not state anyone’s name, except that of Wensha. Hence, it would simply be capricious to pinpoint, or impute, on Yung as the author in charging such expenses to Wensha on the basis of hearsay evidence. Third, while the affidavit of Wensha’s Operations Manager, Princess delos Reyes (delos Reyes), may have been duly executed under oath, she did not, however, specify the alleged infractions that Yung committed. If at all, delos Reyes only made general statements on the alleged complaints against Yung that were not even substantiated by any other piece of evidence. Finally, the daily time records (DTRs) of Yung, which supposedly prove her

habitual tardiness, were mere photocopies that are not even signed by Wensha’s authorized representative, thus suspect, if not violative of the best evidence rule and, therefore, incompetent evidence. x x x [Emphases appear in the original]

x x x x. Finally, after the Private

Respondents filed their position paper, they alleged mistake on the part of their former counsel in stating that Yung was dismissed on August 31, 2004. Thus, they subsequently moved for the admission of their rejoinder. Notably, however, the said rejoinder was dated October 4, 2004, earlier than the date when their position paper was filed, which was on November 3, 2004. It is also puzzling that their position paper was dated November 25, 2004, much later than its date of filing. The irregularities are simply too glaring to be ignored. Nevertheless, the Private Respondents’ admission of Yung’s termination on August 31, 2004 cannot be retracted. They cannot use the mistake of their counsel as an excuse considering that the position paper was verified by their Operations Manager, delos Reyes, who attested to the truth of the contents therein.[10] [Emphasis supplied]

Hence, the fallo of the CA decision reads:

WHEREFORE, the instant

petition is GRANTED. Wensha Spa Center, Inc. and Xu Zhi Jie are ORDERED to, jointly and severally, pay Loreta T. Yung her full backwages, other privileges, and benefits, or their monetary equivalent, corresponding to the period of her dismissal from September 1, 2004 up to the finality of this decision, and damages in the amounts of fifty thousand pesos (Php50,000.00) as moral damages, twenty five thousand pesos (Php25,000.00) as exemplary damages, and twenty thousand pesos (Php20,000.00) as attorney’s fees. No costs.

SO ORDERED.[11]

Wensha and Xu now assail this ruling of the CA in this petition presenting the following:

V. GROUNDS FOR THE ALLOWANCE OF THE PETITION

5.1 The following are the

reasons and arguments, which are purely questions of law and some questions of facts, which justify the appeal by certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure, as amended, to this Honorable SUPREME COURT of the assailed Decision and Resolution, to wit:

5.1.1 The

Honorable COURT OF APPEALS gravely erred in reversing that factual findings of the Honorable Labor Arbiter and the Honorable NLRC (Third Division) notwithstanding recognized and established rule in our jurisdiction that findings of facts of quasi-judicial agencies who have gained expertise on their




respective subject matters are given respect and finality;

5.1.2 The Honorable

COURT OF APPEALS committed grave abuse of discretion and serious errors when it ruled that findings of facts of the Honorable Labor Arbiter and the Honorable NLRC are not supported by substantial evidence despite the fact that the records clearly show that petitioner therein was not dismissed but is under investigation, and that she is guilty of serious infractions that warranted

her termination;

5.1.3 The Honorable

COURT OF APPEALS grave[ly] erred when it ordered herein petitioner to pay herein respondent her separation pay, in lieu of reinstatement, and full backwages, as well as damages and attorney’s fees;

5.1.4 The Honorable

COURT OF APPEALS committed grave abuse of discretion and serious errors when it held that petitioner XU ZHI JIE to be solidarily liable with WENSHA, assuming that respondent was

illegally dismissed;

5.2 The same need to be

corrected as they would work injustice to the herein petitioner, grave and irreparable damage will be done to him, and would pose dangerous precedent.[12]

THE COURT’S RULING:

Loreta’s security of tenure is guaranteed by the Constitution and the Labor Code. The 1987 Philippine Constitution provides in Section 18, Article II that the State shall protect the rights of workers and promote their welfare. Section 3, Article XIII also provides that all workers shall be entitled to security of tenure. Along that line, Article 3 of the Labor Code mandates that the State shall assure the rights of workers to security of tenure.

Under the security of tenure guarantee, a worker can only be terminated from his employment for cause and after due process. For a valid termination by the employer: (1) the dismissal must be for a valid cause as provided in Article 282, or for any of the authorized causes under Articles 283 and 284 of the Labor Code; and (2) the employee must be afforded an opportunity to be heard and to defend himself. A just and valid cause for an employee’s dismissal must be supported by substantial evidence, and before the employee can be dismissed, he must be given notice and an adequate opportunity to be heard.[13] In the process, the employer bears the burden of proving that the dismissal of an employee was for a valid cause. Its failure to discharge this burden renders the dismissal unjustified and, therefore, illegal.[14]

As a rule, the factual findings of the court below are conclusive on Us in a petition for review on certiorari where We review only errors of law. This case, however, is an exception because the CA’s factual findings are not congruent with those of the NLRC and the LA.

According to Wensha in its position paper,[15] it dismissed Loreta on August 31, 2004 after investigating the complaints against her. Wensha asserted that her dismissal was a valid exercise of an employer’s right to terminate a managerial employee for loss of trust and confidence. It claimed that she caused the resignation of an employee because of gossips initiated by her. It was the reason she was asked to take a leave of absence with pay for one month starting August 10, 2004.[16]

Wensha also alleged that Loreta was “sowing intrigues in the company” which was inimical to Wensha. She was also accused of dishonesty, serious breach of trust reposed in her, tardiness, and abuse of authority.[17]








In its Rejoinder, Wensha changed its position claiming

that it did not terminate Loreta’s employment on August 31, 2004. It even sent her a notice requesting her to report back to work. She, however, declined because she had already filed her complaint.[18]

As correctly found by the CA, the cause of Loreta’s dismissal is questionable. Loss of trust and confidence to be a valid ground for dismissal must have basis and must be founded on clearly established facts.[19]

The Court finds the LA ruling that states, “[a]bsent any

proof submitted by the complainant, this office finds it more probable that the complainant was dismissed due to loss of trust and confidence,”[20]to be utterly erroneous as it is contrary to the applicable rules and pertinent jurisprudence. The onus of proving a valid dismissal rests on the employer, not on the employee.[21] It is the employer who bears the burden of proving that its dismissal of the employee is for a valid or authorized cause supported by substantial evidence. [22]

According to the NLRC, “[p]erusal of the entire records show that complainant left the respondents’ premises when she was confronted with the infractions imputed against her.”[23] This information was taken from the affidavit[24] of Princess Delos Reyes (Delos Reyes) which was dated March 21, 2005, not in Wensha’s earlier position paper or pleadings submitted to the LA. The affidavits[25] of employees attached to Delos Reyes’ affidavit were all dated November 19, 2004 indicating that they were not yet executed when the complaints against Loreta were supposedly being investigated in August 2004.

It is also noteworthy that Wensha’s position paper

related that because of the gossips perpetrated by Loreta, a certain Oliva Gonzalo (Gonzalo) resigned from Wensha. Because of the incident, Gonzalo, whose father was a policeman, “reportedly got angry with complainant and of the management telling her friends at respondent company that she would retaliate thus creating fear among those concerned.”[26] As a result, Loreta was advised to take a paid leave of absence for one month while Wensha conducted an investigation. According to Loreta, however, the reason for her termination was her aura did not match that of Xu and the work environment at Wensha. Loreta narrated:

On August 10, 2004 however, complainant was called by respondent Xu and told her to wait at the lounge area while the latter and a Feng Shui Master were doing some analysis of the office. After several hours of waiting, respondent Xu then told complainant that

according to the Feng Shui master her Chinese Zodiac sign is a “mismatch” with that of the respondents; that complainant should not enter the administrative office for a month while an altar was to be placed on the left side where complainant has her table to allegedly correct the “mismatch” and that it is necessary that offerings and prayers have to be made and said for about a month to correct the alleged “jinx.” Respondent Xu instructed complainant not to report to the office for a month with assurance of continued and regular salary. She was ordered not to seek employment elsewhere and was told to come back on the 10th of September 2004.[27]

Although she was a little confused, Loreta did as she

was instructed and did not report for work for a month. She returned to work on September 10, 2004. This is how Loreta recounted the events of that day:

On September 10, 2004, in the

morning, complainant reported to the office of respondents. As usual, she punched-in her time card and signed in the logbook of the security guard. When she entered the administrative office, some of its employees immediately contacted respondent Xu. Respondent Xu then contacted complainant thru her mobile phone and told her to leave the administrative office immediately and instead to wait for him in the dining area.

xxx Complainant waited for

respondent Xu in the dining area. After waiting for about two (2) hours, respondent Xu was nowhere. Instead, it was Jiang Xue Qin a.k.a Annie Co, the Chinese wife of respondent Xu, who arrived and after a short conversation between them, the former frankly told complainant that she has to resign allegedly she is a mismatch to respondent Xu according to the Feng Shui master and therefore she does not fit to work (sic) with the respondents. Surprised and shocked, complainant demanded of Jiang Xue Qin to issue a letter of termination if it were the reason therefor.

Instead of a termination letter issued, Jiang Xue Qin insisted for the complainant's resignation. But when complainant stood her ground, Jian Xue Qin shouted invectives at her and told to leave the office immediately.

Respondent Xu did not show up

but talked to the complainant over the mobile phone and convinced her likewise to resign from the company since there is no way to retain her because her aura unbalanced the area of employment according to the Feng Shui, the Chinese spiritual art of placement. Hearing this from no lees than respondent Xu, complainant left the office and went straight to this Office and filed the present case on September 10, 2004. xxx[28]

Loreta also alleged that in the afternoon of that

day, September 10, 2004, a notice was posted on the Wensha bulletin board that reads:

TO ALL EMPLOYEES OF WENSHA SPA CENTER

WE WOULD LIKE TO INFORM YOU THAT MS. LORIE TSE YUNG, FORMER ADMINISTRATIVE OFFICER OF WENSHA SPA CENTER IS NO LONGER CONNECTED TO THIS COMPANY STARTING TODAY SEPTEMBER 10, 2004.

ANY TRANSACTION MADE BY HER IS NO LONGER A LIABILITY OF THE COMPANY.

(SGD.) THE MANAGEMENT [Italics were in red letters.][29] The Court finds Loreta’s complaint credible. There is

consistency in her pleadings and evidence. In contrast, Wensha’s pleadings and evidence, taken as a whole, suffer from inconsistency. Moreover, the affidavits of the employees only pertain to petty matters that, to the Court’s mind, are not sufficient to support Wensha’s alleged loss of trust and confidence. To be a valid cause for termination of employment, the act or acts constituting breach of trust must have been done intentionally, knowingly, and purposely; and they must be founded on clearly established facts.














The CA decision is supported by evidence and logically flows from a review of the records. Loreta’s narration of the events surrounding her termination from employment was simple and straightforward. Her claims are more credible than the affidavits which were clearly prepared as an afterthought.

More importantly, the records are bereft of evidence that Loreta was duly informed of the charges against her and that she was given the opportunity to respond to those charges prior to her dismissal. If there were indeed charges against Loreta that Wensha had to investigate, then it should have informed her of those charges and required her to explain her side. Wensha should also have kept records of the investigation conducted while Loreta was on leave. The law requires that two notices be given to an employee prior to a valid termination: the first notice is to inform the employee of the charges against her with a warning that she may be terminated from her employment and giving her reasonable opportunity within which to explain her side, and the second notice is the notice to the employee that upon due consideration of all the circumstances, she is being terminated from her employment.[30] This is a requirement of due process and clearly, Loreta did not receive any of those required notices.

We are in accord with the pronouncement of the CA

that the reinstatement of Loreta to her former position is no longer feasible in the light of the strained relations between the parties. Reinstatement, under the circumstances, would no longer be practical as it would not be in the interest of both parties. Under the law and jurisprudence, an illegally dismissed employee is entitled to two reliefs - backwages and reinstatement, which are separate and distinct. If reinstatement would only exacerbate the tension and further ruin the relations of the employer and the employee, or if their relationship has been unduly strained due to irreconcilable differences, particularly where the illegally dismissed employee held a managerial or key position in the company, it would be prudent to order payment of separation pay instead of reinstatement.[31] In the case of Golden Ace Builders v. Talde,[32] We wrote:

Under the doctrine of strained relations, the payment of separation pay has been considered an acceptable alternative to reinstatement when the latter option is no longer desirable or viable. On the one hand, such payment liberates the employee from what could be a highly oppressive work environment. On the other, the payment releases the employer from the grossly unpalatable obligation of maintaining in its employ a worker it could no longer trust.

In the case at bench, the CA, upon its own assessment, pronounced that the relations between petitioners and the respondent have become strained because of her dismissal anchored on dubious charges. The respondent has not contested the finding. As she is not insisting on being reinstated, she should be paid separation pay equivalent to one (1) month salary for every year of service.[33] The CA, however, failed to decree such award in the dispositive portion. This should be rectified.

Nevertheless, the Court finds merit in the argument of petitioner Xu that the CA erred in ruling that he is solidarily liable with Wensha.

Elementary is the rule that a corporation is invested by law with a personality separate and distinct from those of the persons composing it and from that of any other legal entity to which it may be related. “Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality.”[34]

In labor cases, corporate directors and officers may be held solidarily liable with the corporation for the termination of employment only if done with malice or in bad faith.[35] Bad faith does not connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of a known duty through some motive or interest or ill will; it partakes of the nature of fraud.[36]

In the subject decision, the CA concluded that

petitioner Xu and Wensha are jointly and severally liable to Loreta.[37] We have read the decision in its entirety but simply failed to come across any finding of bad faith or malice on the part of Xu. There is, therefore, no justification for such a ruling. To sustain such a finding, there should be an evidence on record that an officer or director acted maliciously or in bad faith in terminating the services of an employee.[38] Moreover, the finding or indication that the dismissal was effected with malice or bad faith should be stated in the decision itself.[39] WHEREFORE, the petition is PARTIALLY GRANTED. The decretal portion of the May 28, 2008 Decision of the Court of Appeals, in CA-G.R. SP No. 98855, is hereby MODIFIED to read as follows:

WHEREFORE, the petition is GRANTED. Wensha Spa Center, Inc. is hereby ordered to pay Loreta T. Yung her full backwages, other privileges, and benefits, or their monetary equivalent, and separation pay reckoned from the date of her dismissal, September 1, 2004, up to the finality of this decision, plus damages in

the amounts of Fifty Thousand (P50,000.00) Pesos, as moral damages; Twenty Five Thousand (P25,000.00) Pesos as exemplary damages; and Twenty Thousand (P20,000.00) Pesos, as attorney’s fees. No costs.

SO ORDERED.

MANUEL LUIS S. SANCHEZ, G.R. No. 172885 Petitioner, Present:

Corona, J.,*

- versus - Carpio Morales,**

Acting Chairperson,

Chico-Nazario,***

Brion, and

Abad, JJ.

REPUBLIC OF THE PHILIPPINES, Represented by the Department of Promulgated: Education, Culture and Sports, Respondent. October 9, 2009 x ---------------------------------------------------------------------------------------- x

DECISION ABAD, J.:

This petition for review on certiorari assails the

February 21, 2006 Decision[1] of the Court of Appeals in CA-G.R. CV 83648 and its Resolution[2] of May 29, 2006, which dismissed the petitioner’s appeal from the decision of Branch 71 of the Regional Trial Court (RTC) of Pasig City in Civil Case 66852. The Facts and the Case

In 1980, during the regime of President Ferdinand E.

Marcos, the government-owned Human Settlements Development Corporation (HSDC) built with public funds and on government land the St. Martin Technical Institute Complex at Barangay Ugong, Pasig City. This later on became known as the University of Life Complex.











http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/172885.htm#_ftn1






In July 1980, First Lady Imelda R. Marcos and others organized the University of Life Foundation, Inc. (ULFI), a private non-stock, non-profit corporation devoted to non-formal education. On August 26, 1980 the government gave the management and operation of the Complex to ULFI but HSDC was to continue to construct facilities and acquire equipment for it. Although ULFI was to get all the incomes of the Complex, ULFI had to pay HSDC an annual fee of 14 percent of HSDC’s investments in it.

After the fall of the Marcos regime in 1986, the new

government reorganized HSDC into the Strategic Investment Development Corporation (SIDCOR) under the supervision of the Office of the President. Realizing that ULFI never paid the 14 percent annual fee due to HSDC, now totaling about P316 million, on July 25, 1989 SIDCOR rescinded the HSDC-ULFI agreement. Ironically, in its place, SIDCOR entered into an Interim Management Agreement with ULFI, allowing it to continue managing and operating the Complex.

Meantime, in October 1989, the government

transferred the ownership of ULFI’s properties to the Department of Education, Culture and Sports (DECS). Later in January 1990, Republic Act 6847 transferred full control and management of the Complex to DECS with effect two years from the law’s enactment. The DECS transferred its offices to the Complex in December 1990. On January 29, 1991, SIDCOR transferred all its rights in the Complex to the National Government which in turn transferred the same to the DECS.

On January 31, 1991 DECS and ULFI entered into a

Management Agreement, granting ULFI the authority to manage and operate the Complex until the end of that year. During this period, ULFI was expressly mandated under the said Management Agreement to remit to the Bureau of the Treasury, through the DECS, all incomes from the Complex, net of allowable expenses.[3] At the end of 1991, the DECS gave ULFI notice to immediately vacate the Complex. But ULFI declined, prompting the DECS to file an action for unlawful detainer against it in Civil Case 2959 of the Metropolitan Trial Court (MeTC) of Pasig City. After hearing, MeTC dismissed the action for lack of merit. On the DECS’s appeal to the RTC, the latter affirmed the order of dismissal.

On appeal of the DECS to the Court of Appeals by

petition for review,[4] however, the latter rendered judgment on January 17, 1995, reversing the MeTC and RTC decisions. The appeals court ordered ULFI to vacate the Complex and pay such reasonable rentals as the MeTC might fix. This Court dismissed ULFI’s recourse to it from the judgment of the Court of Appeals.[5]

On April 15, 1996 the MeTC fixed, after hearing, the

rents that ULFI had to pay the DECS at P22,559,215.14 (due from February 1992 to January 1996) plus P6,325.00 per month until it

shall have vacated the premises.[6] The DECS succeeded in ejecting ULFI but the latter did not pay the amounts due from it.

On June 15, 1998 the DECS filed a complaint[7] before

the RTC of Pasig City in Civil Case 66852 for collection of the P22,559,215.14 in unremitted rents and damages against Henri Kahn, ULFI’s President, and petitioner Manuel Luis S. Sanchez, its Executive Vice-President, based on their personal liability under Section 31 of the Corporation Code. The latter two were Managing Director and Finance Director, respectively, of the corporation.[8]

The complaint alleged that Kahn and petitioner

Sanchez, as key ULFI officers, were remiss in safekeeping ULFI’s corporate incomes and in accounting for them.[9] They neither placed the incomes derived from the Complex in ULFI’s deposit account nor submitted the required financial statements detailing their transactions. The underlying theory of the case is that Kahn and Sanchez “operated ULFI as if it were their own property, handled the collections and spent the money as if it were their personal belonging.”[10] The DECS asked the RTC to order Kahn and Sanchez personally to pay it theP22,559,215.14 in rents due from ULFI with legal interest, exemplary damages of P1,000,000.00, attorney’s fees of P500,000.00, and costs.

In his answer, petitioner Sanchez alleged that, being a

mere officer of ULFI, he cannot be made personally liable for its adjudged corporate liability. He took exception to the complaint, characterizing it as an attempt to pierce the corporate veil that cloaked ULFI.

Satisfied that the DECS fully established its case, on

October 14, 2002, the RTC rendered judgment, ordering Kahn and petitioner Sanchez to pay the DECS, jointly and severally, P22,559,215.14 with legal interest from April 1, 1996 until they shall have fully paid the same, P500,000.00 in exemplary damages, and P200,000.00 in attorney’s fees, plus costs.[11]

Both Kahn and petitioner Sanchez appealed to the

Court of Appeals. The latter court gave due course to Sanchez’s appeal but denied that of Kahn since it was filed out of time. On February 21, 2006 the Court of Appeals rendered judgment, wholly affirming the trial court’s decision,[12] hence, this petition.

In a nutshell, Sanchez argues that he cannot be made

personally liable for ULFI’s corporate obligations absent specific allegations in the complaint and evidence adduced during trial that would warrant a piercing of the corporate veil. He further argues that the DECS is barred by res judicata and forum shopping from collecting from him what it could not get by execution from ULFI under the judgment in the ejectment case. Finally, he claims that because ULFI suffered losses in operations during the period

1992 up to 1996, there could have been nothing left of the rentals it collected from the lessees of the Complex.

The DECS points out, on the other hand, that since

Kahn and petitioner Sanchez were guilty of fraud and bad faith in managing the funds of ULFI, they can be made to personally answer for those funds and to pay its corporate obligations pursuant to Section 31 of the Corporation Code. They collected money from rents but did not, as was their duty, remit this to the DECS pursuant to the DECS-ULFI agreement.

The Issues

The case before this Court presents the following

issues: 1. Whether or not petitioner Sanchez, a director

and chief executive officer of ULFI, can be held liable in damages under Section 31 of the Corporation Code for gross neglect or bad faith in directing the corporation’s affairs; and

2. Whether or not the action in Civil Case 66852 is

barred by res judicata and constitutes forum shopping by the DECS.

Rulings of the Court

Petitioner Sanchez points out that the Court of Appeals’ decision arbitrarily changed the DECS’s theory of the case from one based on his and Kahn’s alleged failure to deposit for the account of ULFI whatever rentals they have collected to another based on their alleged failure to remit to the DECS the incomes of the facilities they managed. But Sanchez is drawing insignificant distinctions from what the DECS claims and what the court below finds. Both essentially rest on Kahn and Sanchez’s failure to account for the rent incomes that they collected from lease of spaces in the facilities of the Complex beyond the one-year management authority that the DECS granted ULFI in 1991.

Petitioner Sanchez claims that there is no ground for

the courts below to pierce the veil of corporate identity and hold him and Kahn, who were mere corporate officers, personally liable for ULFI’s obligations to the DECS. But this is not a case of piercing the veil of corporate fiction. The DECS brought its action against Sanchez and Kahn under Section 31 of the Corporation Code, which should not be confused with actions intended to pierce the corporate fiction.

Section 31 of the Corporation Code makes directors-

officers of corporations jointly and severally liable even to third parties for their gross negligence or bad faith in directing the affairs of their corporations. Thus:












Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons. (Emphasis supplied)

x x x x

The DECS does not have to invoke the doctrine of

piercing the veil of corporate fiction. Section 31 above expressly lays down petitioner Sanchez and Kahn’s liability for damages arising from their gross negligence or bad faith in directing corporate affairs. The doctrine mentioned, on the other hand, is an equitable remedy resorted to only when the corporate fiction is used, among others, to defeat public convenience, justify wrong, protect fraud or defend a crime.[13]

Moreover, in a piercing case, the test is complete

control or domination, not only of finances, but of policy and business practice in respect of the transaction attacked.[14] This is not the case here. Section 31, under which this case was brought, makes a corporate director–who may or may not even be a stockholder or member–accountable for his management of the affairs of the corporation.

Bad faith implies breach of faith and willful failure to

respond to plain and well understood obligation.[15] It does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of a known duty through some motive or interest or ill will.[16] It partakes of the nature of fraud.[17]

Gross negligence, on the other hand, is the want of

even slight care, acting or omitting to act in a situation where there is duty to act, not inadvertently but willfully and intentionally, with a conscious indifference to consequences insofar as other persons may be affected.[18] It evinces a thoughtless disregard of consequences without exerting any effort to avoid them;[19] the want or absence of or failure to exercise slight care or diligence, or the entire absence of care.[20]

In resolving the issue of whether or not petitioner

Sanchez, a director and chief executive officer of ULFI, can be held liable in damages under Section 31 of the Corporation Code for bad faith or gross neglect in directing the corporation’s affairs, the

Court will consider only the Court of Appeals’ findings of facts. This Court’s jurisdiction in a petition for review on certiorari under Rule 45 is limited to reviewing only errors of law. It is bound by the findings of fact of the Court of Appeals.

The Court of Appeals found that from January 1992 to

January 1996, after ULFI’s authority to manage the Complex expired and despite the ejectment suit that the DECS filed against it, petitioner Sanchez and Kahn still continued to lease spaces in those facilities to third persons. And they collected and kept all the rents although they knew that these primarily belonged to the DECS. ULFI had merely managed the facilities and collected earnings from them for the DECS. What is more, Sanchez and Kahn were aware that they had to submit written accounts of those rents and remit the net earnings from them to the Bureau of Treasury, through the DECS, at the end of the year. Yet, Sanchez and Kahn, acting in bad faith or with gross neglect did not turn over even one centavo of rent to the DECS nor render an accounting of their collections. Nor did they account for the money they collected by submitting to the Securities and Exchange Commission the required financial statements covering such collections.

Parenthetically, a witness for the defense, Evangeline

Naniong, ULFI’s bookkeeper, testified that the revenues from the rents were deposited in the bank in the names of Sanchez and ULFI’s accountant. And so only they could withdraw and spend those revenues.[21]

Petitioner Sanchez of course claims that the funds they

had collected proved inadequate even to meet expenses. But, as the appellate court held, he had been unable to substantiate such claims. As the officer charged with approving and implementing corporate disbursements, Sanchez had the duty to present documents showing how the incomes of the foundation were spent. But he failed to do so even after the DECS, which took custody of the records, asked Kahn to submit a list of the documents they needed for establishing their defenses so these may be made available to them.[22] Under the circumstances, the indubitable conclusion is that petitioner Sanchez and Kahn acted with bad faith, if not with gross negligence, in failing to perform their duty to remit to DECS or keep in safe hands ULFI’s incomes from the leases.

Section 31 lays down the “doctrine of corporate

opportunity” and holds personally liable corporate directors found guilty of gross negligence or bad faith in directing the affairs of the corporation, which results in damage or injury to the corporation, its stockholders or members, and other persons. The ejectment suit that held only ULFI liable to the DECS for unpaid rents does not constitute res judicata to the issue of personal liabilities of Kahn and petitioner Sanchez under the circumstances to pay such obligations, given that the unaccounted funds would have settled the same.

Petitioner’s allegations of forum shopping must fail as

well. The essence of forum shopping is the filing of multiple suits involving the same parties for the same cause of action, either simultaneously or successively, for the purpose of obtaining a favorable judgment.[23] This is not the case with respect to the ejectment suit vis-à-vis the action for damages.

WHEREFORE, the Court DENIES the petition

and AFFIRMS the February 21, 2006 Decision of the Court of Appeals in CA-G.R. CV 83648 and its Resolution of May 29, 2006.

SO ORDERED.

Directors; Exercise of Corporate Powers

G.R. No. L-68555 March 19, 1993

PRIME WHITE CEMENT CORPORATION, petitioner, vs. HONORABLE INTERMEDIATE APPELLATE COURT and ALEJANDRO TE, respondents.

De Jesus & Associates for petitioner.

Padlan, Sutton, Mendoza & Associates for private respondent.

CAMPOS, JR., J.:

Before Us is a Petition for Review on Certiorari filed by petitioner Prime White Cement Corporation seeking the reversal of the decision * of the then Intermediate Appellate Court, the dispositive portion of which reads as follows:

WHEREFORE, in view of the foregoing, the judgment appealed from is hereby affirmed in toto. 1

The facts, as found by the trial court and as adopted by the respondent Court are hereby quoted, to wit:

On or about the 16th day of July, 1969, plaintiff and defendant corporation thru its President, Mr. Zosimo Falcon and Justo C. Trazo, as Chairman of the Board, entered into a dealership agreement (Exhibit A) whereby said plaintiff was obligated to act as the exclusive dealer and/or distributor of the said defendant corporation of its













cement products in the entire Mindanao area for a term of five (5) years and proving (sic) among others that:

a. The corporation shall, commencing September, 1970, sell to and supply the plaintiff, as dealer with 20,000 bags (94 lbs/bag) of white cement per month;

b. The plaintiff shall pay the defendant corporation P9.70, Philippine Currency, per bag of white cement, FOB Davao and Cagayan de Oro ports;

c. The plaintiff shall, every time the defendant corporation is ready to deliver the good, open with any bank or banking institution a confirmed, unconditional, and irrevocable letter of credit in favor of the corporation and that upon certification by the boat captain on the bill of lading that the goods have been loaded on board the vessel bound for Davao the said bank or banking institution shall release the corresponding amount as payment of the goods so shipped.

Right after the plaintiff entered into the aforesaid dealership agreement, he placed an advertisement in a national, circulating newspaper the fact of his being the

exclusive dealer of the defendant corporation's white cement products in Mindanao area, more particularly, in the Manila Chronicle dated August 16, 1969 (Exhibits R and R-1) and was even congratulated by his business associates, so much so, he was asked by some of his businessmen friends and close associates if they can be his sub-dealer in the Mindanao area.

Relying heavily on the dealership agreement, plaintiff sometime in the months of September, October, and December, 1969, entered into a written agreement with several hardware stores dealing in buying and selling white cement in the Cities of Davao and Cagayan de Oro which would thus enable him to sell his allocation of 20,000 bags regular supply of the said commodity, by September, 1970 (Exhibits O, O-1, O-2, P, P-1, P-2, Q, Q-1 and Q-2). After the plaintiff was assured by his supposed buyer that his allocation of 20,000 bags of white cement can be disposed of, he informed the defendant corporation in his letter dated August 18, 1970 that he is making the necessary preparation for the opening of the requisite letter of credit to cover the price of the due initial delivery for the month of September, 1970 (Exhibit B), looking forward to the defendant corporation's duty to comply with the dealership agreement. In reply to the aforesaid letter of the plaintiff, the defendant corporation thru its corporate secretary, replied that the board of directors of the said defendant decided to impose the following conditions:

a. Delivery of white cement shall commence at the end of November, 1970;

b. Only 8,000 bags of white cement per month for only a period of three (3) months will be delivered;

c. The price of white cement was priced at P13.30 per bag;

d. The price of white cement is subject to readjustment unilaterally on the part of the defendant;

e. The place of delivery of white cement shall be Austurias (sic);

f. The letter of credit may be opened only with the Prudential Bank, Makati Branch;

g. Payment of white cement shall be made in advance and which payment shall be used by the defendant as guaranty in the opening of a foreign letter of credit to cover costs and expenses in the procurement of materials in the manufacture of white cement. (Exhibit C).

xxx xxx xxx

Several demands to comply with the dealership agreement (Exhibits D, E, G, I, R, L, and N) were made by the plaintiff to the defendant, however, defendant refused to comply with the same, and plaintiff by force of circumstances was constrained to cancel his agreement for the supply of white cement with third parties, which were concluded in anticipation of, and pursuant to the said dealership agreement.


Notwithstanding that the dealership agreement between the plaintiff and defendant was in force and subsisting, the defendant corporation, in violation of, and with evident intention not to be bound by the terms and conditions thereof, entered into an exclusive dealership agreement with a certain Napoleon Co for the marketing of white cement in Mindanao (Exhibit T) hence, this suit. (Plaintiff's Record on Appeal, pp. 86-90). 2

After trial, the trial court adjudged the corporation liable to Alejandro Te in the amount of P3,302,400.00 as actual damages, P100,000.00 as moral damages, and P10,000.00 as and for attorney's fees and costs. The appellate court affirmed the said decision mainly on the following basis, and We quote:

There is no dispute that when Zosimo R. Falcon and Justo B. Trazo signed the dealership agreement Exhibit "A", they were the President and Chairman of the Board, respectively, of defendant-appellant corporation. Neither is the genuineness of the said agreement contested. As a matter of fact, it appears on the face of the contract itself that both officers were duly authorized to enter into the said agreement and signed the same for and in behalf of the corporation. When they, therefore, entered into the said transaction they created the impression that they were duly clothed with the authority to do so. It cannot now be said that the disputed agreement which possesses all the essential requisites of a valid contract was never intended to bind the corporation as this avoidance is barred by the principle of estoppel. 3

In this petition for review, petitioner Prime White Cement Corporation made the following assignment of errors. 4

I

THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT ARE UNPRECEDENTED DEPARTURES FROM THE CODIFIED PRINCIPLE THAT CORPORATE OFFICERS COULD ENTER INTO CONTRACTS IN BEHALF OF THE CORPORATION ONLY WITH PRIOR APPROVAL OF THE BOARD OF DIRECTORS.

II

THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT ARE CONTRARY TO THE ESTABLISHED JURISPRUDENCE, PRINCIPLE AND RULE ON FIDUCIARY DUTY OF DIRECTORS AND OFFICERS OF THE CORPORATION.

III

THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT DISREGARDED THE PRINCIPLE AND JURISPRUDENCE, PRINCIPLE AND RULE ON UNENFORCEABLE CONTRACTS AS PROVIDED IN ARTICLE 1317 OF THE NEW CIVIL CODE.

IV

THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT DISREGARDED THE PRINCIPLE AND JURISPRUDENCE AS TO WHEN AWARD OF ACTUAL AND MORAL DAMAGES IS PROPER.

V

IN NOT AWARDING PETITIONER'S CAUSE OF ACTION AS STATED IN ITS ANSWER WITH SPECIAL AND AFFIRMATIVE DEFENSES WITH COUNTERCLAIM THE INTERMEDIATE APPELLATE COURT HAS CLEARLY DEPARTED FROM THE ACCEPTED USUAL, COURSE OF JUDICIAL PROCEEDINGS.

There is only one legal issue to be resolved by this Court: whether or not the "dealership agreement" referred by the President and Chairman of the Board of petitioner corporation is a valid and enforceable contract. We do not agree with the conclusion of the respondent Court that it is.

Under the Corporation Law, which was then in force at the time this case arose, 5 as well as under the present Corporation Code, all corporate powers shall be exercised by the Board of Directors, except as otherwise provided by law. 6Although it cannot completely abdicate its power and responsibility to act for the juridical entity, the Board may expressly delegate specific powers to its President or any of its officers. In the absence of such

express delegation, a contract entered into by its President, on behalf of the corporation, may still bind the corporation if the board should ratify the same expressly or impliedly. Implied ratification may take various forms — like silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom. 7 Furthermore, even in the absence of express or implied authority by ratification, the President as such may, as a general rule, bind the corporation by a contract in the ordinary course of business, provided the same is reasonable under the circumstances. 8 These rules are basic, but are all general and thus quite flexible. They apply where the President or other officer, purportedly acting for the corporation, is dealing with a third person, i. e., a person outside the corporation.

The situation is quite different where a director or officer is dealing with his own corporation. In the instant case respondent Te was not an ordinary stockholder; he was a member of the Board of Directors and Auditor of the corporation as well. He was what is often referred to as a "self-dealing" director.

A director of a corporation holds a position of trust and as such, he owes a duty of loyalty to his corporation. 9 In case his interests conflict with those of the corporation, he cannot sacrifice the latter to his own advantage and benefit. As corporate managers, directors are committed to seek the maximum amount of profits for the corporation. This trust relationship "is not a matter of statutory or technical law. It springs from the fact that directors have the control and guidance of corporate affairs and property and hence of the property interests of the stockholders." 10 In the case ofGokongwei v. Securities and Exchange Commission, this Court quoted with favor from Pepper v. Litton, 11 thus:

. . . He cannot by the intervention of a corporate entity violate the ancient precept against serving two masters. . . . He cannot utilize his inside information and his strategic position for his own preferment. He cannot violate rules of fair play by doing indirectly through the corporation what he could not do directly. He cannot use his power for his personal advantage and to the detriment of the stockholders and creditors no matter how absolute in terms that power may be and no matter how meticulous he is to satisfy technical requirements. For that power is at all times subject to the equitable limitation that it may not be exercised for the aggrandizement, preference, or advantage of the fiduciary to the exclusion or detriment of the cestuis. . . . .


On the other hand, a director's contract with his corporation is not in all instances void or voidable. If the contract is fair and reasonable under the circumstances, it may be ratified by the stockholders provided a full disclosure of his adverse interest is made. Section 32 of the Corporation Code provides, thus:

Sec. 32. Dealings of directors, trustees or officers with the corporation. — A contract of the corporation with one or more of its directors or trustees or officers is voidable, at the option of such corporation, unless all the following conditions are present:

1. That the presence of such director or trustee in the board meeting in which the contract was approved was not necessary to constitute a quorum for such meeting;

2. That the vote of such director or trustee was not necessary for the approval of the contract;

3. That the contract is fair and reasonable under the circumstances; and

4. That in the case of an officer, the contract with the officer has been previously authorized by the Board of Directors.

Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a contract with a director or trustee, such contract may be ratified by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of two-thirds (2/3) of the members in a meeting called for the purpose: Provided, That full disclosure of the adverse interest of the directors or trustees involved is made at such meeting: Provided, however, That the contract is fair and reasonable under the circumstances.

Although the old Corporation Law which governs the instant case did not contain a similar provision, yet the cited provision substantially incorporates well-settled principles in corporate law. 12

Granting arguendo that the "dealership agreement" involved here would be valid and enforceable if entered into with a person

other than a director or officer of the corporation, the fact that the other party to the contract was a Director and Auditor of the petitioner corporation changes the whole situation. First of all, We believe that the contract was neither fair nor reasonable. The "dealership agreement" entered into in July, 1969, was to sell and supply to respondent Te 20,000 bags of white cement per month, for five years starting September, 1970, at thefixed price of P9.70 per bag. Respondent Te is a businessman himself and must have known, or at least must be presumed to know, that at that time, prices of commodities in general, and white cement in particular, were not stable and were expected to rise. At the time of the contract, petitioner corporation had not even commenced the manufacture of white cement, the reason why delivery was not to begin until 14 months later. He must have known that within that period of six years, there would be a considerable rise in the price of white cement. In fact, respondent Te's own Memorandum shows that in September, 1970, the price per bag was P14.50, and by the middle of 1975, it was already P37.50 per bag. Despite this, no provision was made in the "dealership agreement" to allow for an increase in price mutually acceptable to the parties. Instead, the price was pegged at P9.70 per bag for the whole five years of the contract. Fairness on his part as a director of the corporation from whom he was to buy the cement, would require such a provision. In fact, this unfairness in the contract is also a basis which renders a contract entered into by the President, without authority from the Board of Directors, void or voidable, although it may have been in the ordinary course of business. We believe that the fixed price of P9.70 per bag for a period of five years was not fair and reasonable. Respondent Te, himself, when he subsequently entered into contracts to resell the cement to his "new dealers" Henry Wee 13 and Gaudencio Galang 14 stipulated as follows:

The price of white cement shall be mutually determined by us but in no case shall the same be less than P14.00 per bag (94 lbs).

The contract with Henry Wee was on September 15, 1969, and that with Gaudencio Galang, on October 13, 1967. A similar contract with Prudencio Lim was made on December 29, 1969. 15 All of these contracts were entered into soon after his "dealership agreement" with petitioner corporation, and in each one of them he protected himself from any increase in the market price of white cement. Yet, except for the contract with Henry Wee, the contracts were for only two years from October, 1970. Why did he not protect the corporation in the same manner when he entered into the "dealership agreement"? For that matter, why did the President and the Chairman of the Board not do so either? As director, specially since he was the other party in interest, respondent Te's bounden duty was to act in such manner as not to unduly prejudice the corporation. In the light of the circumstances of this case, it is to Us quite clear that he was guilty of disloyalty to the corporation; he was attempting in effect, to

enrich himself at the expense of the corporation. There is no showing that the stockholders ratified the "dealership agreement" or that they were fully aware of its provisions. The contract was therefore not valid and this Court cannot allow him to reap the fruits of his disloyalty.

As a result of this action which has been proven to be without legal basis, petitioner corporation's reputation and goodwill have been prejudiced. However, there can be no award for moral damages under Article 2217 and succeeding articles on Section 1 of Chapter 3 of Title XVIII of the Civil Code in favor of a corporation.

In view of the foregoing, the Decision and Resolution of the Intermediate Appellate Court dated March 30, 1984 and August 6, 1984, respectively, are hereby SET ASIDE. Private respondent Alejandro Te is hereby ordered to pay petitioner corporation the sum of P20,000.00 for attorney's fees, plus the cost of suit and expenses of litigation.SO ORDERED.

G.R. No. 111448 January 16, 2002

AF REALTY & DEVELOPMENT, INC. and ZENAIDA R. RANULLO, petitioners, vs. DIESELMAN FREIGHT SERVICES, CO., MANUEL C. CRUZ, JR. and MIDAS DEVELOPMENT CORPORATION,respondents.SANDOVAL-GUTIERREZ, J.:

Petition for review on certiorari assailing the Decision dated December 10, 1992 and the Resolution (Amending Decision) dated August 5, 1993 of the Court of Appeals in CA-G.R. CV No. 30133.

Dieselman Freight Service Co. (Dieselman for brevity) is a domestic corporation and a registered owner of a parcel of commercial lot consisting of 2,094 square meters, located at 104 E. Rodriguez Avenue, Barrio Ugong, Pasig City, Metro Manila. The property is covered by Transfer Certificate of Title No. 39849 issued by the Registry of Deeds of the Province of Rizal.1

On May 10, 1988, Manuel C. Cruz, Jr., a member of the board of directors of Dieselman, issued a letter denominated as "Authority To Sell Real Estate"2 to Cristeta N. Polintan, a real estate broker of the CNP Real Estate Brokerage. Cruz, Jr. authorized Polintan "to look for a buyer/buyers and negotiate the sale" of the lot at P3,000.00 per square meter, or a total of P6,282,000.00. Cruz, Jr. has no written authority from Dieselman to sell the lot.

http://www.lawphil.net/judjuris/juri2002/jan2002/gr_111448_2002.html#fnt1



In turn, Cristeta Polintan, through a letter3 dated May 19, 1988, authorized Felicisima ("Mimi") Noble4 to sell the same lot.

Felicisima Noble then offered for sale the property to AF Realty & Development, Inc. (AF Realty) at P2,500.00 per square meter.5 Zenaida Ranullo, board member and vice-president of AF Realty, accepted the offer and issued a check in the amount of P300,000.00 payable to the order of Dieselman. Polintan received the check and signed an "Acknowledgement Receipt"6 indicating that the amount of P300,000.00 represents the partial payment of the property but refundable within two weeks should AF Realty disapprove Ranullo's action on the matter.

On June 29, 1988, AF Realty confirmed its intention to buy the lot. Hence, Ranullo asked Polintan for the board resolution of Dieselman authorizing the sale of the property. However, Polintan could only give Ranullo the original copy of TCT No. 39849, the tax declaration and tax receipt for the lot, and a photocopy of the Articles of Incorporation of Dieselman.7

On August 2, 1988, Manuel F. Cruz, Sr., president of Dieselman, acknowledged receipt of the said P300,000.00 as "earnest money" but required AF Realty to finalize the sale at P4,000.00 per square meter.8 AF Realty replied that it has paid an initial down payment of P300,000.00 and is willing to pay the balance.9

However, on August 13, 1988, Mr. Cruz, Sr. terminated the offer and demanded from AF Realty the return of the title of the lot earlier delivered by Polintan.10

Claiming that there was a perfected contract of sale between them, AF Realty filed with the Regional Trial Court, Branch 160, Pasig City a complaint for specific performance (Civil Case No. 56278) against Dieselman and Cruz, Jr.. The complaint prays that Dieselman be ordered to execute and deliver a final deed of sale in favor of AF Realty.11 In its amended complaint,12 AF Realty asked for payment of P1,500,000.00 as compensatory damages; P400,000.00 as attorney's fees; and P500,000.00 as exemplary damages.

In its answer, Dieselman alleged that there was no meeting of the minds between the parties in the sale of the property and that it did not authorize any person to enter into such transaction on its behalf.

Meanwhile, on July 30, 1988, Dieselman and Midas Development Corporation (Midas) executed a Deed of Absolute Sale13 of the same property. The agreed price was P2,800.00 per square meter. Midas delivered to Dieselman P500,000.00 as down payment and deposited the balance of P5,300,000.00 in escrow account with the PCIBank.

Constrained to protect its interest in the property, Midas filed on April 3, 1989 a Motion for Leave to Intervene in Civil Case No. 56278. Midas alleged that it has purchased the property and took possession thereof, hence Dieselman cannot be compelled to sell and convey it to AF Realty. The trial court granted Midas' motion.

After trial, the lower court rendered the challenged Decision holding that the acts of Cruz, Jr. bound Dieselman in the sale of the lot to AF Realty.14 Consequently, the perfected contract of sale between Dieselman and AF Realty bars Midas' intervention. The trial court also held that Midas acted in bad faith when it initially paid Dieselman P500,000.00 even without seeing the latter's title to the property. Moreover, the notarial report of the sale was not submitted to the Clerk of Court of the Quezon City RTC and the balance of P5,300,000.00 purportedly deposited in escrow by Midas with a bank was not established.1âwphi1.nêt

The dispositive portion of the trial court's Decision reads:

"WHEREFORE, foregoing considered, judgment is hereby rendered ordering defendant to execute and deliver to plaintiffs the final deed of sale of the property covered by the Transfer Certificate of Title No. 39849 of the Registry of Deed of Rizal, Metro Manila District II, including the improvements thereon, and ordering defendants to pay plaintiffs attorney's fees in the amount of P50,000.00 and to pay the costs.

"The counterclaim of defendants is necessarily dismissed.

"The counterclaim and/or the complaint in intervention are likewise dismissed

"SO ORDERED."15

Dissatisfied, all the parties appealed to the Court of Appeals.

AF Realty alleged that the trial court erred in not holding Dieselman liable for moral, compensatory and exemplary damages, and in dismissing its counterclaim against Midas.

Upon the other hand, Dieselman and Midas claimed that the trial court erred in finding that a contract of sale between Dieselman and AF Realty was perfected. Midas further averred that there was no bad faith on its part when it purchased the lot from Dieselman.

In its Decision dated December 10, 1992, the Court of Appeals reversed the judgment of the trial court holding that since Cruz,

Jr. was not authorized in writing by Dieselman to sell the subject property to AF Realty, the sale was not perfected; and that the Deed of Absolute Sale between Dieselman and Midas is valid, there being no bad faith on the part of the latter. The Court of Appeals then declared Dieselman and Cruz, Jr. jointly and severally liable to AF Realty for P100,000.00 as moral damages; P100,000.00 as exemplary damages; and P100,000.00 as attorney's fees.16

On August 5, 1993, the Court of Appeals, upon motions for reconsideration filed by the parties, promulgated an Amending Decision, the dispositive portion of which reads:

"WHEREFORE, The Decision promulgated on October 10, 1992, is hereby AMENDED in the sense that only defendant Mr. Manuel Cruz, Jr. should be made liable to pay the plaintiffs the damages and attorney's fees awarded therein, plus the amount of P300,000.00 unless, in the case of the said P300,000.00, the same is still deposited with the Court which should be restituted to plaintiffs.

"SO ORDERED."17

AF Realty now comes to this Court via the instant petition alleging that the Court of Appeals committed errors of law.

The focal issue for consideration by this Court is who between petitioner AF Realty and respondent Midas has a right over the subject lot.

The Court of Appeals, in reversing the judgment of the trial court, made the following ratiocination:

"From the foregoing scenario, the fact that the board of directors of Dieselman never authorized, verbally and in writing, Cruz, Jr. to sell the property in question or to look for buyers and negotiate the sale of the subject property is undeniable.

"While Cristeta Polintan was actually authorized by Cruz, Jr. to look for buyers and negotiate the sale of the subject property, it should be noted that Cruz, Jr. could not confer on Polintan any authority which he himself did not have. Nemo dat quod non habet. In the same manner, Felicisima Noble could not have possessed authority broader in scope, being a mere extension of Polintan's purported authority, for it is a legal truism in our jurisdiction that a spring cannot rise higher than its source. Succinctly stated, the alleged sale of the subject property was effected through

















persons who were absolutely without any authority whatsoever from Dieselman.

"The argument that Dieselman ratified the contract by accepting the P300,000.00 as partial payment of the purchase price of the subject property is equally untenable. The sale of land through an agent without any written authority is void.

x x x x x x x x x

"On the contrary, anent the sale of the subject property by Dieselman to intervenor Midas, the records bear out that Midas purchased the same from Dieselman on 30 July 1988. The notice of lis pendens was subsequently annotated on the title of the property by plaintiffs on 15 August 1988. However, this subsequent annotation of the notice of lis pendens certainly operated prospectively and did not retroact to make the previous sale of the property to Midas a conveyance in bad faith. A subsequently registered notice of lis pendens surely is not proof of bad faith. It must therefore be borne in mind that the 30 July 1988 deed of sale between Midas and Dieselman is a document duly certified by notary public under his hand and seal. x x x. Such a deed of sale being public document acknowledged before a notary public is admissible as to the date and fact of its execution without further proof of its due execution and delivery (Bael vs. Intermediate Appellate Court, 169 SCRA617; Joson vs. Baltazar, 194 SCRA 114) and to prove the defects and lack of consent in the execution thereof, the evidence must be strong and not merely preponderant x x x."18

We agree with the Court of Appeals.

Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors. Just as a natural person may authorize another to do certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it.19 Thus, contracts or acts of a corporation must be made either by the board of directors or by a corporate agent duly authorized by the board.20 Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with, the performance of authorized duties of such director, are held not binding on the corporation.21

In the instant case, it is undisputed that respondent Cruz, Jr. has no written authority from the board of directors of respondent Dieselman to sell or to negotiate the sale of the lot, much less to appoint other persons for the same purpose. Respondent Cruz, Jr.'s lack of such authority precludes him from conferring any authority to Polintan involving the subject realty. Necessarily, neither could Polintan authorize Felicisima Noble. Clearly, the collective acts of respondent Cruz, Jr., Polintan and Noble cannot bind Dieselman in the purported contract of sale.

Petitioner AF Realty maintains that the sale of land by an unauthorized agent may be ratified where, as here, there is acceptance of the benefits involved. In this case the receipt by respondent Cruz, Jr. from AF Realty of the P300,000.00 as partial payment of the lot effectively binds respondent Dieselman.22

We are not persuaded.

Involved in this case is a sale of land through an agent. Thus, the law on agency under the Civil Code takes precedence. This is well stressed in Yao Ka Sin Trading vs. Court of Appeals:23

"Since a corporation, such as the private respondent, can act only through its officers and agents, all acts within the powers of said corporation may be performed by agents of its selection; and, except so far as limitations or restrictions may be imposed by special charter, by-law, or statutory provisions, the same general principles of law which govern the relation of agency for a natural person govern the officer or agent of a corporation, of whatever status or rank, in respect to his power to act for the corporation; and agents when once appointed, or members acting in their stead, are subject to thesame rules, liabilities, and incapacities as are agents of individuals and private persons." (Emphasis supplied)

Pertinently, Article 1874 of the same Code provides:

"ART. 1874. When a sale of piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void." (Emphasis supplied)

Considering that respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo were not authorized by respondent Dieselman to sell its lot, the supposed contract is void. Being a void contract, it is not susceptible of ratification by clear mandate of Article 1409 of the Civil Code, thus:

"ART. 1409. The following contracts are inexistent and void from the very beginning:

x x x

(7) Those expressly prohibited or declared void by law.

"These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived." (Emphasis supplied)

Upon the other hand, the validity of the sale of the subject lot to respondent Midas is unquestionable. As aptly noted by the Court of Appeals,24 the sale was authorized by a board resolution of respondent Dieselman dated May 27, 1988.1âwphi1.nêt

The Court of Appeals awarded attorney's fees and moral and exemplary damages in favor of petitioner AF Realty and against respondent Cruz, Jr.. The award was made by reason of a breach of contract imputable to respondent Cruz, Jr. for having acted in bad faith. We are no persuaded. It bears stressing that petitioner Zenaida Ranullo, board member and vice-president of petitioner AF Realty who accepted the offer to sell the property, admitted in her testimony25that a board resolution from respondent Dieselman authorizing the sale is necessary to bind the latter in the transaction; and that respondent Cruz, Jr. has no such written authority. In fact, despite demand, such written authority was not presented to her.26 This notwithstanding, petitioner Ranullo tendered a partial payment for the unauthorized transaction. Clearly, respondent Cruz, Jr. should not be held liable for damages and attorney's fees.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are hereby AFFIRMED withMODIFICATION in the sense that the award of damages and attorney's fees is deleted. Respondent Dieselman is ordered to return to petitioner AF Realty its partial payment of P300,000.00. Costs against petitioners.SO ORDERED.











G.R. No. 109491 February 28, 2001

ATRIUM MANAGEMENT CORPORATION, petitioner, vs. COURT OF APPEALS, E.T. HENRY AND CO., LOURDES VICTORIA M. DE LEON, RAFAEL DE LEON, JR., AND HI-CEMENT CORPORATION, respondents.

----------------------------------------

G.R. No. 121794 February 28, 2001

LOURDES M. DE LEON, petitioner, vs. COURT OF APPEALS, ATRIUM MANAGEMENT CORPORATION, AND HI-CEMENT CORPORATION,respondents.

PARDO, J.:

What is before the Court are separate appeals from the decision of the Court of Appeals,1 ruling that Hi-Cement Corporation is not liable for four checks amounting to P2 million issued to E.T. Henry and Co. and discounted to Atrium Management Corporation.

On January 3, 1983, Atrium Management Corporation filed with the Regional Trial Court, Manila an action for collection of the proceeds of four postdated checks in the total amount of P2 million. Hi-Cement Corporation through its corporate signatories, petitioner Lourdes M. de Leon,2 treasurer, and the late Antonio de las Alas, Chairman, issued checks in favor of E.T. Henry and Co. Inc., as payee. E.T. Henry and Co., Inc., in turn, endorsed the four checks to petitioner Atrium Management Corporation for valuable consideration. Upon presentment for payment, the drawee bank dishonored all four checks for the common reason "payment stopped". Atrium, thus, instituted this action after its demand for payment of the value of the checks was denied.3

After due proceedings, on July 20, 1989, the trial court rendered a decision ordering Lourdes M. de Leon, her husband Rafael de Leon, E.T. Henry and Co., Inc. and Hi-Cement Corporation to pay petitioner Atrium, jointly and severally, the amount of P2 million corresponding to the value of the four checks, plus interest and attorney's fees.4

On appeal to the Court of Appeals, on March 17, 1993, the Court of Appeals promulgated its decision modifying the decision of the trial court, absolving Hi-Cement Corporation from liability and dismissing the complaint as against it. The appellate court ruled that: (1) Lourdes M. de Leon was not authorized to issue the subject checks in favor of E.T. Henry, Inc.; (2) The issuance of the

subject checks by Lourdes M. de Leon and the late Antonio de las Alas constituted ultra vires acts; and (3) The subject checks were not issued for valuable consideration.5

At the trial, Atrium presented as its witness Carlos C. Syquia who testified that in February 1981, Enrique Tan of E.T. Henry approached Atrium for financial assistance, offering to discount four RCBC checks in the total amount of P2 million, issued by Hi-Cement in favor of E.T. Henry. Atrium agreed to discount the checks, provided it be allowed to confirm with Hi-Cement the fact that the checks represented payment for petroleum products which E.T. Henry delivered to Hi-Cement. Carlos C. Syquia identified two letters, dated February 6, 1981 and February 9, 1981 issued by Hi-Cement through Lourdes M. de Leon, as treasurer, confirming the issuance of the four checks in favor of E.T. Henry in payment for petroleum products.6

Respondent Hi-Cement presented as witness Ms. Erlinda Yap who testified that she was once a secretary to the treasurer of Hi-Cement, Lourdes M. de Leon, and as such she was familiar with the four RCBC checks as the postdated checks issued by Hi-Cement to E.T. Henry upon instructions of Ms. de Leon. She testified that E.T. Henry offered to give Hi-Cement a loan which the subject checks would secure as collateral.7

On July 20, 1989, the Regional Trial Court, Manila, Branch 09 rendered a decision, the dispositive portion of which reads:

"WHEREFORE, in view of the foregoing considerations, and plaintiff having proved its cause of action by preponderance of evidence, judgment is hereby rendered ordering all the defendants except defendant Antonio de las Alas to pay plaintiff jointly and severally the amount of TWO MILLION (P2,000,000.00) PESOS with the legal rate of interest from the filling of the complaint until fully paid, plus the sum of TWENTY THOUSAND (P20,000.00) PESOS as and for attorney's fees and the cost of suit."

All other claims are, for lack of merit dismissed.

SO ORDERED."8

In due time, both Lourdes M. de Leon and Hi-Cement appealed to the Court of Appeals.9

Lourdes M. de Leon submitted that the trial court erred in ruling that she was solidarilly liable with Hi-Cement for the amount of the check. Also, that the trial court erred in ruling that Atrium was an ordinary holder, not a holder in due course of the rediscounted checks.10

Hi-Cement on its part submitted that the trial court erred in ruling that even if Hi-Cement did not authorize the issuance of the checks, it could still be held liable for the checks. And assuming that the checks were issued with its authorization, the same was without any consideration, which is a defense against a holder in due course and that the liability shall be borne alone by E.T. Henry.11

On March 17, 1993, the Court of Appeals promulgated its decision modifying the ruling of the trial court, the dispositive portion of which reads:

"Judgement is hereby rendered:

(1) dismissing the plaintiff's complaint as against defendants Hi-Cement Corporation and Antonio De las Alas;

(2) ordering the defendants E.T. Henry and Co., Inc. and Lourdes M. de Leon, jointly and severally to pay the plaintiff the sum of TWO MILLION PESOS (P2,000,000.00) with interest at the legal rate from the filling of the complaint until fully paid, plus P20,000.00 for attorney's fees.

(3) Ordering the plaintiff and defendants E.T. Henry and Co., Inc. and Lourdes M. de Leon, jointly and severally to pay defendant Hi-Cement Corporation, the sum of P20,000.00 as and for attorney's fees.

With cost in this instance against the appellee Atrium Management Corporation and appellant Lourdes Victoria M. de Leon.

So ordered."12

Hence, the recourse to this Court.13

The issues raised are the following:

In G. R. No. 109491 (Atrium, petitioner):

1. Whether the issuance of the questioned checks was an ultra vires act;

2. Whether Atrium was not a holder in due course and for value; and


3. Whether the Court of Appeals erred in dismissing the case against Hi-Cement and ordering it to pay P20,000.00 as attorney's fees.14

In G. R. No. 121794 (de Leon, petitioner):

1. Whether the Court of Appeals erred in holding petitioner personally liable for the Hi-Cement checks issued to E.T. Henry;

2. Whether the Court of Appeals erred in ruling that Atrium is a holder in due course;

3. Whether the Court of Appeals erred in ruling that petitioner Lourdes M. de Leon as signatory of the checks was personally liable for the value of the checks, which were declared to be issued without consideration;

4. Whether the Court of Appeals erred in ordering petitioner to pay Hi-Cement attorney's fees and costs.15

We affirm the decision of the Court of Appeals.

We first resolve the issue of whether the issuance of the checks was an ultra vires act. The record reveals that Hi-Cement Corporation issued the four (4) checks to extend financial assistance to E.T. Henry, not as payment of the balance of the P30 million pesos cost of hydro oil delivered by E.T. Henry to Hi-Cement. Why else would petitioner de Leon ask for counterpart checks from E.T. Henry if the checks were in payment for hydro oil delivered by E.T. Henry to Hi-Cement?

Hi-Cement, however, maintains that the checks were not issued for consideration and that Lourdes and E.T. Henry engaged in a "kiting operation" to raise funds for E.T. Henry, who admittedly was in need of financial assistance. The Court finds that there was no sufficient evidence to show that such is the case. Lourdes M. de Leon is the treasurer of the corporation and is authorized to sign checks for the corporation. At the time of the issuance of the checks, there were sufficient funds in the bank to cover payment of the amount of P2 million pesos.

It is, however, our view that there is basis to rule that the act of issuing the checks was well within the ambit of a valid corporate act, for it was for securing a loan to finance the activities of the corporation, hence, not an ultra vires act.

"An ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the power conferred upon it by law"16 The term "ultra vires" is "distinguished from an illegal act for the former is merely voidable which may be enforced by performance, ratification, or estoppel, while the latter is void and cannot be validated."17

The next question to determine is whether Lourdes M. de Leon and Antonio de las Alas were personally liable for the checks issued as corporate officers and authorized signatories of the check.

"Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule, only when:

"1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons;

"2. He consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto;

"3. He agrees to hold himself personally and solidarily liable with the corporation; or

"4. He is made, by a specific provision of law, to personally answer for his corporate action."18

In the case at bar, Lourdes M. de Leon and Antonio de las Alas as treasurer and Chairman of Hi-Cement were authorized to issue the checks. However, Ms. de Leon was negligent when she signed the confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for the rediscounting of the crossed checks issued in favor of E.T. Henry. She was aware that the checks were strictly endorsed for deposit only to the payee's account and not to be further negotiated. What is more, the confirmation letter contained a clause that was not true, that is, "that the checks issued to E.T. Henry were in payment of Hydro oil bought by Hi-Cement from E.T. Henry". Her negligence resulted in damage to the corporation. Hence, Ms. de Leon may be held personally liable therefor.1âwphi1.nêt

The next issue is whether or not petitioner Atrium was a holder of the checks in due course. The Negotiable Instruments Law, Section 52 defines a holder in due course, thus:

"A holder in due course is a holder who has taken the instrument under the following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact;

(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it."

In the instant case, the checks were crossed checks and specifically indorsed for deposit to payee's account only. From the beginning, Atrium was aware of the fact that the checks were all for deposit only to payee's account, meaning E.T. Henry. Clearly, then, Atrium could not be considered a holder in due course.

However, it does not follow as a legal proposition that simply because petitioner Atrium was not a holder in due course for having taken the instruments in question with notice that the same was for deposit only to the account of payee E.T. Henry that it was altogether precluded from recovering on the instrument. The Negotiable Instruments Law does not provide that a holder not in due course can not recover on the instrument.19

The disadvantage of Atrium in not being a holder in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable.20 One such defense is absence or failure of consideration.21

We need not rule on the other issues raised, as they merely follow as a consequence of the foregoing resolutions.

WHEREFORE, the petitions are hereby DENIED. The decision and resolution of the Court of Appeals in CA-G. R. CV No. 26686, are hereby AFFIRMED in toto.

No costs.SO ORDERED.


G.R. No. 131214 July 27, 2000

BA SAVINGS BANK, petitioner, vs. ROGER T. SIA, TACIANA U. SIA and JOHN DOE, respondents.

D E C I S I O N

PANGANIBAN, J.:

The certificate of non-forum shopping required by Supreme Court Circular 28-91 may be signed, for and on behalf of a corporation, by a specifically authorized lawyer who has personal knowledge of the facts required to be disclosed in such document. Unlike natural persons, corporations may perform physical actions only through properly delegated individuals; namely, its officers and/or agents.

The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the August 6, 1997 Resolution1 of the Court of Appeals (CA) in CA-GR SP No. 43209.2

Also challenged by petitioner is the October 24, 1997 CA Resolution3 denying its Motion for Reconsideration.

The Facts

On August 6, 1997, the Court of Appeals issued a Resolution denying due course to a Petition for Certiorari filed by BA Savings Bank, on the ground that "the Certification on anti-forum shopping incorporated in the petition was signed not by the duly authorized representative of the petitioner, as required under Supreme Court Circular No. 28-91, but by its counsel, in contravention of said circular x x x."

A Motion for Reconsideration was subsequently filed by the petitioner, attached to which was a BA Savings Bank Corporate Secretary’s Certificate,4 dated August 14, 1997. The Certificate showed that the petitioner’s Board of Directors approved a Resolution on May 21, 1996, authorizing the petitioner’s lawyers to represent it in any action or proceeding before any court, tribunal or agency; and to sign, execute and deliver the Certificate of Non-forum Shopping, among others.

On October 24, 1997, the Motion for Reconsideration was denied by the Court of Appeals on the ground that Supreme Court Revised Circular No. 28-91 "requires that it is the petitioner, not

the counsel, who must certify under oath to all of the facts and undertakings required therein."

Hence, this appeal.5

Issue

In its Memorandum, petitioner submits the following issues for the consideration of the Court:

"I Whether or not petitioner-corporation’s lawyers are authorized to execute and sign the certificate of non-forum shopping. x x x

"II Whether or not the certification of petitioner’s authorized lawyers will bind the corporation.

"III Whether or not the certification by petitioner corporation’s lawyers is in compliance with the requirements on non-forum shopping."6

Simply stated, the main issue is whether Supreme Court Revised Circular No. 28-91 allows a corporation to authorize its counsel to execute a certificate of non-forum shopping for and on its behalf.

The Court’s Ruling

The Petition is meritorious.

Main Issue:

Authority of Counsel

A corporation, such as the petitioner, has no powers except those expressly conferred on it by the Corporation Code and those that are implied by or are incidental to its existence. In turn, a corporation exercises said powers through its board of directors and/or its duly authorized officers and agents. Physical acts, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate bylaws or by a specific act of the board of directors. "All acts within the powers of a corporation may be performed by agents of its selection; and, except so far as limitations or restrictions which may be imposed by special charter, by-law, or statutory provisions, the same general principles of law which govern the relation of agency for a natural person govern the officer or agent of a corporation, of whatever status or rank, in respect to his power to act for the corporation; and agents once appointed, or members acting in their stead, are subject to the same rules,

liabilities and incapacities as are agents of individuals and private persons."7

In the present case, the corporation’s board of directors issued a Resolution specifically authorizing its lawyers "to act as their agents in any action or proceeding before the Supreme Court, the Court of Appeals, or any other tribunal or agency[;] and to sign, execute and deliver in connection therewith the necessary pleadings, motions, verification, affidavit of merit, certificate of non-forum shopping and other instruments necessary for such action and proceeding." The Resolution was sufficient to vest such persons with the authority to bind the corporation and was specific enough as to the acts they were empowered to do.

In the case of natural persons, Circular 28-91 requires the parties themselves to sign the certificate of non-forum shopping. However, such requirement cannot be imposed on artificial persons, like corporations, for the simple reason that they cannot personally do the task themselves. As already stated, corporations act only through their officers and duly authorized agents. In fact, physical actions, like the signing and the delivery of documents, may be performed, on behalf of the corporate entity, only by specifically authorized individuals.

It is noteworthy that the Circular does not require corporate officers to sign the certificate.1âwphi1 More important, there is no prohibition against authorizing agents to do so.

In fact, not only was BA Savings Bank authorized to name an agent to sign the certificate; it also exercised its appointing authority reasonably well. For who else knows of the circumstances required in the Certificate but its own retained counsel. Its regular officers, like its board chairman and president, may not even know the details required therein.

Consistent with this rationale, the Court en banc in Robern Development Corporation v. Judge Jesus Quitain8 has allowed even an acting regional counsel of the National Power Corporation to sign, among others, the certificate of non-forum shopping required by Circular 28-91. The Court held that the counsel was "in the best position to verify the truthfulness and the correctness of the allegations in the Complaint" and "to know and to certify if an action x x x had already been filed and pending with the courts."9

Circular 28-91 was prescribed by the Supreme Court to prohibit and penalize the evils of forum shopping. We see no circumvention of this rationale if the certificate was signed by the corporation’s specifically authorized counsel, who had personal knowledge of the matters required in the Circular. In Bernardo v. NLRC,10 we explained that a literal interpretation of the Circular

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should be avoided if doing so would subvert its very rationale. Said the Court:

"x x x. Indeed, while the requirement as to certificate of non-forum shopping is mandatory, nonetheless the requirements must not be interpreted too literally and thus defeat the objective of preventing the undesirable practice of forum-shopping."

Finally, we stress that technical rules of procedure should be used to promote, not frustrate, justice.11 While the swift unclogging of court dockets is a laudable objective, the granting of substantial justice is an even more urgent ideal.

WHEREFORE, the Petition is GRANTED and the appealed Resolution is REVERSED and SET ASIDE. The case is REMANDED to the Court of Appeals, which is directed to continue the proceedings in CA-GR SP No. 43209 with all deliberate speed. No costs.SO ORDERED.

MARANAW HOTELS AND G.R. No. 149660

RESORT CORP.,

Petitioner,

Present:

PUNO, C.J., Chairperson,

- versus - CARPIO,

CORONA, AZCUNA, and

LEONARDO-DE CASTRO, JJ.

COURT OF APPEALS, SHERYL

OABEL AND MANILA Promulgated:

RESOURCE DEVELOPMENT

CORP.,

Respondents. January 20, 2009

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N PUNO, C.J.:

Before the Court is a petition for review on certiorari assailing a resolution issued by the Court of Appeals. The resolution denied the petition for review filed by petitioner Maranaw Hotels and Resort Corp.

The present proceedings emanate from a complaint for regularization, subsequently converted into one for illegal dismissal, filed before Labor Arbiter Madjayran H. Ajan by private respondent Sheryl Oabel.

It appears that private respondent Oabel was initially hired by petitioner as an extra beverage attendant on April 24, 1995. This lasted until February 7, 1997.[1] Respondent worked in Century Park Hotel, an establishment owned by the petitioner.

On September 16, 1996,[2] petitioner contracted with Manila Resource Development Corporation.[3] Subsequently, private respondent Oabel was transferred to MANRED, with the latter deporting itself as her employer.[4] MANRED has intervened at all stages of these proceedings and has consistently claimed to be the employer of private respondent Oabel. For the duration of her employment, private respondent Oabel performed the following functions:

Secretary, Public Relations Department: February 10, 1997 – 7

Gift Shop Attendant: April 7, 1997 – April 21, 1997

Waitress: April 22, 1997 – May 20, 1997

Shop Attendant: May 21, 1997 – July 30, 1998[5]

On July 20, 1998, private respondent filed before the Labor Arbiter a petition for regularization of employment against the petitioner. On August 1, 1998, however, private respondent Oabel was dismissed from employment.[6] Respondent converted her petition for regularization into a complaint for illegal dismissal.

Labor Arbiter Madjayran H. Ajan rendered a

decision on July 13, 1999, dismissing the complaint against the petitioner. The decision held:

While complainant alleged that she has been working with the respondent hotel in different department (sic) of the latter on (sic) various capacities (although not all departments are part and parcel of the hotels), complainant never disputed the fact that her work with the same were on a per function basis or on a “need basis” – co-terminus with the function she was hired for….Considering that complainant job (sic) with the respondent hotel was on a per function basis or on a “need basis”, complainant could not even be considered as casual employee or provisional employee. Respondent hotel consider (sic) complainant, at most, a project employee which does not ripened (sic) into regular employee (sic).[7]

Private respondent appealed before the National

Labor Relations Commission (NLRC). The NLRC reversed the ruling of the Labor Arbiter and held that: (1) MANRED is a labor-only contractor, and (2) private respondent was illegally dismissed.

Of the first holding, the NLRC observed that

under the very terms of the service contract, MANRED shall provide the petitioner not specific jobs or services but personnel and that MANRED had insufficient capitalization and was not sufficiently equipped to provide specific jobs.[8] The NLRC likewise observed that the activities performed by the private respondent were directly related to and usually necessary or desirable in the business of the petitioner.[9]

With respect to the termination of private

respondent’s employment, the NLRC held that it was not


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effected for a valid or just cause and was therefore illegal. The dispositive portion of the ruling reads thus:

WHEREFORE, the decision appealed from is hereby REVERSED. xxxx Respondents Century Park Hotel and Manila Resource Development Corporation are hereby declared jointly and severally liable for the following awards in favor of complainant: 1) her full backwages and benefits from August 1, 1998 up to the date of her actual reinstatement; 2) her salary differentials, share in the service charges, service incentive leave pay and 13th month pay from July 20, 1995 to July 31, 1998.

SO ORDERED.[10]

Petitioner subsequently appealed before the Court of Appeals. In a resolution, the appellate court dismissed the petition on account of the failure of the petitioner to append the board resolution authorizing the counsel for petitioner to file the petition before the Court of Appeals. The Court of Appeals held:

After a careful perusal of the records of the case, We resolve to DISMISS the present petition on the ground of non-compliance with the rule on certification against forum shopping taking into account that the aforesaid certification was subscribed and verified by the Personnel Director of petitioner corporation without attaching thereto his authority to do so for and in behalf of petitioner corporation per board resolution or special power of attorney executed by the latter.[11]

Petitioner duly filed its motion for reconsideration

which was denied by the Court of Appeals in a resolution dated August 30, 2001.[12] In the present petition for review, the petitioner invokes substantial justice as justification for a reversal of the resolution of the Court of Appeals.[13] Petitioner likewise contends that the filing of a motion for reconsideration with the certificate of non-forum shopping attached constitutes substantial compliance with the requirement.[14] There is no merit to the petition.

Well-settled is the rule that the certificate of non-forum shopping is a mandatory requirement. Substantial compliance applies only with respect to the contents of the certificate but not as to its presence in the pleading wherein it is required. Petitioner’s contention that the filing of a motion for reconsideration with an appended certificate of non forum-shopping suffices to cure the defect in the pleading is absolutely specious. It negates the very purpose for which the certification against forum shopping is required: to inform the Court of the pendency of any other case which may present similar issues and involve similar parties as the one before it. The requirement applies to both natural and juridical persons. Petitioner relies upon this Court’s ruling in Digital Microwave Corp. v. Court of Appeals[15] to show that its Personnel Director has been duly authorized to sign pleadings for and in behalf of the petitioner. Petitioner, however, has taken the ruling in Digital Microwave out of context. The portion of the ruling in Digital Microwave upon which petitioner relies was in response to the issue of impossibility of compliance by juridical persons with the requirements of Circular 28-91.[16] The Court’s identification of duly authorized officers or directors as the proper signatories of a certificate of non forum-shopping was in response to that issue. The ruling does not, however, ipso facto clothe a corporate officer or director with authority to execute a certificate of non-forum shopping by virtue of the former’s position alone. Any doubt on the matter has been resolved by the Court’s ruling in BPI Leasing Corp. v. Court of Appeals[17] where this Court emphasized that the lawyer acting for the corporation must bespecifically authorized to sign pleadings for the corporation.[18] Specific authorization, the Court held, could only come in the form of a board resolution issued by the Board of Directors that specifically authorizes the counsel to institute the petition and execute the certification, to make his actions binding on his principal, i.e., the corporation.[19]

This Court has not wavered in stressing the need for

strict adherence to procedural requirements. The rules of procedure exist to ensure the orderly administration of justice. They are not to be trifled with lightly.

For this reason alone, the petition must already be

dismissed. However, even if this grave procedural infirmity is set aside, the petition must still fail. In the interest of averting further litigation arising from the present controversy, and in light of the respective positions asserted by the parties in the pleadings and other memoranda filed before this Court, the Court now proceeds to resolve the case on the merits.

Petitioner posits that it has entered into a service

agreement with intervenor MANRED. The latter, in turn,

maintains that private respondent Oabel is its employee and subsequently holds itself out as the employer and offers the reinstatement of private respondent.

Notably, private respondent’s purported employment with MANRED commenced only in 1996, way after she was hired by the petitioner as extra beverage attendant on April 24, 1995. There is thus much credence in the private respondent’s claim that the service agreement executed between the petitioner and MANRED is a mere ploy to circumvent the law on employment, in particular that which pertains on regularization.

In this regard, it has not escaped the notice of the

Court that the operations of the hotel itself do not cease with the end of each event or function and that there is an ever present need for individuals to perform certain tasks necessary in the petitioner’s business. Thus, although the tasks themselves may vary, the need for sufficient manpower to carry them out does not. In any event, as borne out by the findings of the NLRC, the petitioner determines the nature of the tasks to be performed by the private respondent, in the process exercising control.

This being so, the Court finds no difficulty in sustaining the finding of the NLRC that MANRED is a labor-only contractor.[20] Concordantly, the real employer of private respondent Oabel is the petitioner.

It appears further that private respondent has already rendered more than one year of service to the petitioner, for the period 1995-1998, for which she must already be considered a regular employee, pursuant to Article 280 of the Labor Code:

Art. 280. Regular and casual employment. The provisions of written agreement to the contrary notwithstanding and regardless of the oral agreement of the parties, an employment shall be deemed to be regular where the employee has been engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer, except where the employment has been fixed for a specific project or undertaking the completion or termination of which has been determined at the time of the engagement of the employee or where the work or service to be performed is seasonal in nature and the employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding paragraph: Provided, That any employee who has rendered at least one year of service, whether such service is













continuous or broken, shall be considered a regular employee with respect to the activity in which he is employed and his employment shall continue while such activity exists. (Emphasis supplied)

IN VIEW WHEREOF, the present petition is

DENIED. The resolution of the Court of Appeals dated June 15, 2001 is affirmed. Costs against petitioner.

SO ORDERED.

G.R. No. 157802 October 13, 2010

MATLING INDUSTRIAL AND COMMERCIAL CORPORATION, RICHARD K. SPENCER, CATHERINE SPENCER, AND ALEX MANCILLA, Petitioners, vs. RICARDO R. COROS, Respondent.

D E C I S I O N

BERSAMIN, J.:

This case reprises the jurisdictional conundrum of whether a complaint for illegal dismissal is cognizable by the Labor Arbiter (LA) or by the Regional Trial Court (RTC). The determination of whether the dismissed officer was a regular employee or a corporate officer unravels the conundrum. In the case of the regular employee, the LA has jurisdiction; otherwise, the RTC exercises the legal authority to adjudicate.

In this appeal via petition for review on certiorari, the petitioners challenge the decision dated September 13, 20021 and the resolution dated April 2, 2003,2 both promulgated in C.A.-G.R. SP No. 65714 entitled Matling Industrial and Commercial Corporation, et al. v. Ricardo R. Coros and National Labor Relations Commission, whereby by the Court of Appeals (CA) sustained the ruling of the National Labor Relations Commission (NLRC) to the effect that the LA had jurisdiction because the respondent was not a corporate officer of petitioner Matling Industrial and Commercial Corporation (Matling).

Antecedents

After his dismissal by Matling as its Vice President for Finance and Administration, the respondent filed on August 10, 2000 a complaint for illegal suspension and illegal dismissal against Matling and some of its corporate officers (petitioners) in the NLRC, Sub-Regional Arbitration Branch XII, Iligan City.3

The petitioners moved to dismiss the complaint,4 raising the ground, among others, that the complaint pertained to the jurisdiction of the Securities and Exchange Commission (SEC) due to the controversy being intra-corporate inasmuch as the respondent was a member of Matling’s Board of Directors aside from being its Vice-President for Finance and Administration prior to his termination.

The respondent opposed the petitioners’ motion to dismiss,5 insisting that his status as a member of Matling’s Board of Directors was doubtful, considering that he had not been formally elected as such; that he did not own a single share of stock in Matling, considering that he had been made to sign in blank an undated indorsement of the certificate of stock he had been given in 1992; that Matling had taken back and retained the certificate of stock in its custody; and that even assuming that he had been a Director of Matling, he had been removed as the Vice President for Finance and Administration, not as a Director, a fact that the notice of his termination dated April 10, 2000 showed.

On October 16, 2000, the LA granted the petitioners’ motion to dismiss,6 ruling that the respondent was a corporate officer because he was occupying the position of Vice President for Finance and Administration and at the same time was a Member of the Board of Directors of Matling; and that, consequently, his removal was a corporate act of Matling and the controversy resulting from such removal was under the jurisdiction of the SEC, pursuant to Section 5, paragraph (c) of Presidential Decree No. 902.

Ruling of the NLRC

The respondent appealed to the NLRC,7 urging that:

I

THE HONORABLE LABOR ARBITER COMMITTED GRAVE ABUSE OF DISCRETION GRANTING APPELLEE’S MOTION TO DISMISS WITHOUT GIVING THE APPELLANT AN OPPORTUNITY TO FILE HIS OPPOSITION THERETO THEREBY VIOLATING THE BASIC PRINCIPLE OF DUE PROCESS.

II

THE HONORABLE LABOR ARBITER COMMITTED AN ERROR IN DISMISSING THE CASE FOR LACK OF JURISDICTION.

On March 13, 2001, the NLRC set aside the dismissal, concluding that the respondent’s complaint for illegal dismissal was properly cognizable by the LA, not by the SEC, because he was not a corporate officer by virtue of his position in Matling, albeit high ranking and managerial, not being among the positions listed in Matling’s Constitution and By-Laws.8 The NLRC disposed thuswise:

WHEREFORE, the Order appealed from is SET ASIDE. A new one is entered declaring and holding that the case at bench does not involve any intracorporate matter. Hence, jurisdiction to hear and act on said case is vested with the Labor Arbiter, not the SEC, considering that the position of Vice-President for Finance and Administration being held by complainant-appellant is not listed as among respondent's corporate officers.

Accordingly, let the records of this case be REMANDED to the Arbitration Branch of origin in order that the Labor Arbiter below could act on the case at bench, hear both parties, receive their respective evidence and position papers fully observing the requirements of due process, and resolve the same with reasonable dispatch.

SO ORDERED.

The petitioners sought reconsideration,9 reiterating that the respondent, being a member of the Board of Directors, was a corporate officer whose removal was not within the LA’s jurisdiction.

The petitioners later submitted to the NLRC in support of the motion for reconsideration the certified machine copies of Matling’s Amended Articles of Incorporation and By Laws to prove that the President of Matling was thereby granted "full power to create new offices and appoint the officers thereto, and the minutes of special meeting held on June 7, 1999 by Matling’s Board of Directors to prove that the respondent was, indeed, a Member of the Board of Directors.10

Nonetheless, on April 30, 2001, the NLRC denied the petitioners’ motion for reconsideration.11

Ruling of the CA

The petitioners elevated the issue to the CA by petition for certiorari, docketed as C.A.-G.R. No. SP 65714, contending that the NLRC committed grave abuse of discretion amounting to lack of jurisdiction in reversing the correct decision of the LA.

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In its assailed decision promulgated on September 13, 2002,12 the CA dismissed the petition for certiorari, explaining:

For a position to be considered as a corporate office, or, for that matter, for one to be considered as a corporate officer, the position must, if not listed in the by-laws, have been created by the corporation's board of directors, and the occupant thereof appointed or elected by the same board of directors or stockholders. This is the implication of the ruling in Tabang v. National Labor Relations Commission, which reads:

"The president, vice president, secretary and treasurer are commonly regarded as the principal or executive officers of a corporation, and modern corporation statutes usually designate them as the officers of the corporation. However, other offices are sometimes created by the charter or by-laws of a corporation, or the board of directors may be empowered under the by-laws of a corporation to create additional offices as may be necessary.

It has been held that an 'office' is created by the charter of the corporation and the officer is elected by the directors or stockholders. On the other hand, an 'employee' usually occupies no office and generally is employed not by action of the directors or stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee."

This ruling was reiterated in the subsequent cases of Ongkingco v. National Labor Relations Commission and De Rossi v. National Labor Relations Commission.

The position of vice-president for administration and finance, which Coros used to hold in the corporation, was not created by the corporation’s board of directors but only by its president or executive vice-president pursuant to the by-laws of the corporation. Moreover, Coros’ appointment to said position was not made through any act of the board of directors or stockholders of the corporation. Consequently, the position to which Coros was appointed and later on removed from, is not a corporate office despite its nomenclature, but an ordinary office in the corporation.

Coros’ alleged illegal dismissal therefrom is, therefore, within the jurisdiction of the labor arbiter.

WHEREFORE, the petition for certiorari is hereby DISMISSED.

SO ORDERED.

The CA denied the petitioners’ motion for reconsideration on April 2, 2003.13

Issue

Thus, the petitioners are now before the Court for a review on certiorari, positing that the respondent was a stockholder/member of the Matling’s Board of Directors as well as its Vice President for Finance and Administration; and that the CA consequently erred in holding that the LA had jurisdiction.

The decisive issue is whether the respondent was a corporate officer of Matling or not. The resolution of the issue determines whether the LA or the RTC had jurisdiction over his complaint for illegal dismissal.

Ruling

The appeal fails.

I

The Law on Jurisdiction in Dismissal Cases

As a rule, the illegal dismissal of an officer or other employee of a private employer is properly cognizable by the LA. This is pursuant to Article 217 (a) 2 of the Labor Code, as amended, which provides as follows:

Article 217. Jurisdiction of the Labor Arbiters and the Commission. - (a) Except as otherwise provided under this Code, the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the submission of the case by the parties for decision without extension, even in the absence of stenographic notes, the following cases involving all workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file involving wages, rates of pay, hours of work and other terms and conditions of employment;

4. Claims for actual, moral, exemplary and other forms of damages arising from the employer-employee relations;

5. Cases arising from any violation of Article 264 of this Code, including questions involving the legality of strikes and lockouts; and

6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other claims arising from employer-employee relations, including those of persons in domestic or household service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters.

(c) Cases arising from the interpretation or implementation of collective bargaining agreements and those arising from the interpretation or enforcement of company personnel policies shall be disposed of by the Labor Arbiter by referring the same to the grievance machinery and voluntary arbitration as may be provided in said agreements. (As amended by Section 9, Republic Act No. 6715, March 21, 1989).

Where the complaint for illegal dismissal concerns a corporate officer, however, the controversy falls under the jurisdiction of the Securities and Exchange Commission (SEC), because the controversy arises out of intra-corporate or partnership relations between and among stockholders, members, or associates, or between any or all of them and the corporation, partnership, or association of which they are stockholders, members, or associates, respectively; and between such corporation, partnership, or association and the State insofar as the controversy concerns their individual franchise or right to exist as such entity; or because the controversy involves the election or appointment of a director, trustee, officer, or manager of such corporation, partnership, or association.14 Such controversy, among others, is known as an intra-corporate dispute.

Effective on August 8, 2000, upon the passage of Republic Act No. 8799,15 otherwise known as The Securities Regulation Code, the SEC’s jurisdiction over all intra-corporate disputes was transferred to the RTC, pursuant to Section 5.2 of RA No. 8799, to wit:






5.2. The Commission’s jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, that the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.

Considering that the respondent’s complaint for illegal dismissal was commenced on August 10, 2000, it might come under the coverage of Section 5.2 of RA No. 8799, supra, should it turn out that the respondent was a corporate, not a regular, officer of Matling.

II

Was the Respondent’s Position of Vice President for Administration and Finance a Corporate Office?

We must first resolve whether or not the respondent’s position as Vice President for Finance and Administration was a corporate office. If it was, his dismissal by the Board of Directors rendered the matter an intra-corporate dispute cognizable by the RTC pursuant to RA No. 8799.

The petitioners contend that the position of Vice President for Finance and Administration was a corporate office, having been created by Matling’s President pursuant to By-Law No. V, as amended,16 to wit:

BY LAW NO. V Officers

The President shall be the executive head of the corporation; shall preside over the meetings of the stockholders and directors; shall countersign all certificates, contracts and other instruments of the corporation as authorized by the Board of Directors; shall have full power to hire and discharge any or all employees of the corporation; shall have full power to create new offices and to appoint the officers thereto as he may deem proper and necessary in the operations of the corporation and as the progress of the business and welfare of the corporation may demand; shall make reports to the directors and stockholders and perform all such other duties and functions as are incident to his office or are properly required of him by the Board of Directors. In

case of the absence or disability of the President, the Executive Vice President shall have the power to exercise his functions.

The petitioners argue that the power to create corporate offices and to appoint the individuals to assume the offices was delegated by Matling’s Board of Directors to its President through By-Law No. V, as amended; and that any office the President created, like the position of the respondent, was as valid and effective a creation as that made by the Board of Directors, making the office a corporate office. In justification, they cite Tabang v. National Labor Relations Commission,17 which held that "other offices are sometimes created by the charter or by-laws of a corporation, or the board of directors may be empowered under the by-laws of a corporation to create additional officers as may be necessary."

The respondent counters that Matling’s By-Laws did not list his position as Vice President for Finance and Administration as one of the corporate offices; that Matling’s By-Law No. III listed only four corporate officers, namely: President, Executive Vice President, Secretary, and Treasurer; 18 that the corporate offices contemplated in the phrase "and such other officers as may be provided for in the by-laws" found in Section 25 of the Corporation Code should be clearly and expressly stated in the By-Laws; that the fact that Matling’s By-Law No. III dealt with Directors & Officers while its By-Law No. V dealt with Officers proved that there was a differentiation between the officers mentioned in the two provisions, with those classified under By-Law No. V being ordinary or non-corporate officers; and that the officer, to be considered as a corporate officer, must be elected by the Board of Directors or the stockholders, for the President could only appoint an employee to a position pursuant to By-Law No. V.

We agree with respondent.

Section 25 of the Corporation Code provides:

Section 25. Corporate officers, quorum.--Immediately after their election, the directors of a corporation must formally organize by the election of a president, who shall be a director, a treasurer who may or may not be a director, a secretary who shall be a resident and citizen of the Philippines, and such other officers as may be provided for in the by-laws. Any two (2) or more positions may be held concurrently by the same person, except that no one shall act as president and secretary or as president and treasurer at the same time.

The directors or trustees and officers to be elected shall perform the duties enjoined on them by law and the by-laws of the corporation. Unless the articles of incorporation or the by-laws

provide for a greater majority, a majority of the number of directors or trustees as fixed in the articles of incorporation shall constitute a quorum for the transaction of corporate business, and every decision of at least a majority of the directors or trustees present at a meeting at which there is a quorum shall be valid as a corporate act, except for the election of officers which shall require the vote of a majority of all the members of the board.

Directors or trustees cannot attend or vote by proxy at board meetings.

Conformably with Section 25, a position must be expressly mentioned in the By-Laws in order to be considered as a corporate office. Thus, the creation of an office pursuant to or under a By-Law enabling provision is not enough to make a position a corporate office. Guerrea v. Lezama,19 the first ruling on the matter, held that the only officers of a corporation were those given that character either by the Corporation Code or by the By-Laws; the rest of the corporate officers could be considered only as employees or subordinate officials. Thus, it was held inEasycall Communications Phils., Inc. v. King:20

An "office" is created by the charter of the corporation and the officer is elected by the directors or stockholders. On the other hand, an employee occupies no office and generally is employed not by the action of the directors or stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee.

In this case, respondent was appointed vice president for nationwide expansion by Malonzo, petitioner’'s general manager, not by the board of directors of petitioner. It was also Malonzo who determined the compensation package of respondent. Thus, respondent was an employee, not a "corporate officer." The CA was therefore correct in ruling that jurisdiction over the case was properly with the NLRC, not the SEC (now the RTC).

This interpretation is the correct application of Section 25 of the Corporation Code, which plainly states that the corporate officers are the President, Secretary, Treasurer and such other officers as may be provided for in the By-Laws. Accordingly, the corporate officers in the context of PD No. 902-A are exclusively those who are given that character either by the Corporation Code or by the corporation’s By-Laws.

A different interpretation can easily leave the way open for the Board of Directors to circumvent the constitutionally guaranteed security of tenure of the employee by the expedient inclusion in the By-Laws of an enabling clause on the creation of just any corporate officer position.

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It is relevant to state in this connection that the SEC, the primary agency administering the Corporation Code, adopted a similar interpretation of Section 25 of the Corporation Code in its Opinion dated November 25, 1993,21to wit:

Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are the corporate officers enumerated in the by-laws are the exclusive Officers of the corporation and the Board has no power to create other Offices without amending first the corporate By-laws. However, the Board may create appointive positions other than the positions of corporate Officers, but the persons occupying such positions are not considered as corporate officers within the meaning of Section 25 of the Corporation Code and are not empowered to exercise the functions of the corporate Officers, except those functions lawfully delegated to them. Their functions and duties are to be determined by the Board of Directors/Trustees.

Moreover, the Board of Directors of Matling could not validly delegate the power to create a corporate office to the President, in light of Section 25 of the Corporation Code requiring the Board of Directors itself to elect the corporate officers. Verily, the power to elect the corporate officers was a discretionary power that the law exclusively vested in the Board of Directors, and could not be delegated to subordinate officers or agents.22 The office of Vice President for Finance and Administration created by Matling’s President pursuant to By Law No. V was an ordinary, not a corporate, office.

To emphasize, the power to create new offices and the power to appoint the officers to occupy them vested by By-Law No. V merely allowed Matling’s President to create non-corporate offices to be occupied by ordinary employees of Matling. Such powers were incidental to the President’s duties as the executive head of Matling to assist him in the daily operations of the business.

The petitioners’ reliance on Tabang, supra, is misplaced. The statement in Tabang, to the effect that offices not expressly mentioned in the By-Laws but were created pursuant to a By-Law enabling provision were also considered corporate offices, was plainly obiter dictum due to the position subject of the controversy being mentioned in the By-Laws. Thus, the Court held therein that the position was a corporate office, and that the determination of the rights and liabilities arising from the ouster from the position was an intra-corporate controversy within the SEC’s jurisdiction.

In Nacpil v. Intercontinental Broadcasting Corporation,23 which may be the more appropriate ruling, the position subject of the controversy was not expressly mentioned in the By-Laws, but was created pursuant to a By-Law enabling

provision authorizing the Board of Directors to create other offices that the Board of Directors might see fit to create. The Court held there that the position was a corporate office, relying on the obiter dictum in Tabang.

Considering that the observations earlier made herein show that the soundness of their dicta is not unassailable,Tabang and Nacpil should no longer be controlling.

III

Did Respondent’s Status as Director and Stockholder Automatically Convert his Dismissal into an Intra-Corporate Dispute?

Yet, the petitioners insist that because the respondent was a Director/stockholder of Matling, and relying onPaguio v. National Labor Relations Commission24 and Ongkingko v. National Labor Relations Commission,25 the NLRC had no jurisdiction over his complaint, considering that any case for illegal dismissal brought by a stockholder/officer against the corporation was an intra-corporate matter that must fall under the jurisdiction of the SEC conformably with the context of PD No. 902-A.

The petitioners’ insistence is bereft of basis.

To begin with, the reliance on Paguio and Ongkingko is misplaced. In both rulings, the complainants were undeniably corporate officers due to their positions being expressly mentioned in the By-Laws, aside from the fact that both of them had been duly elected by the respective Boards of Directors. But the herein respondent’s position of Vice President for Finance and Administration was not expressly mentioned in the By-Laws; neither was the position of Vice President for Finance and Administration created by Matling’s Board of Directors. Lastly, the President, not the Board of Directors, appointed him.

True it is that the Court pronounced in Tabang as follows:

Also, an intra-corporate controversy is one which arises between a stockholder and the corporation. There is no distinction, qualification or any exemption whatsoever. The provision is broad and covers all kinds of controversies between stockholders and corporations.26

However, the Tabang pronouncement is not controlling because it is too sweeping and does not accord with reason, justice, and fair play. In order to determine whether a dispute constitutes an intra-corporate controversy or not, the Court considers two elements instead, namely: (a) the status or relationship of the

parties; and (b) the nature of the question that is the subject of their controversy. This was our thrust in Viray v. Court of Appeals:27

The establishment of any of the relationships mentioned above will not necessarily always confer jurisdiction over the dispute on the SEC to the exclusion of regular courts. The statement made in one case that the rule admits of no exceptions or distinctions is not that absolute. The better policy in determining which body has jurisdiction over a case would be to consider not only the status or relationship of the parties but also the nature of the question that is the subject of their controversy.

Not every conflict between a corporation and its stockholders involves corporate matters that only the SEC can resolve in the exercise of its adjudicatory or quasi-judicial powers. If, for example, a person leases an apartment owned by a corporation of which he is a stockholder, there should be no question that a complaint for his ejectment for non-payment of rentals would still come under the jurisdiction of the regular courts and not of the SEC. By the same token, if one person injures another in a vehicular accident, the complaint for damages filed by the victim will not come under the jurisdiction of the SEC simply because of the happenstance that both parties are stockholders of the same corporation. A contrary interpretation would dissipate the powers of the regular courts and distort the meaning and intent of PD No. 902-A.

In another case, Mainland Construction Co., Inc. v. Movilla,28 the Court reiterated these determinants thuswise:

In order that the SEC (now the regular courts) can take cognizance of a case, the controversy must pertain to any of the following relationships:

a) between the corporation, partnership or association and the public;

b) between the corporation, partnership or association and its stockholders, partners, members or officers;

c) between the corporation, partnership or association and the State as far as its franchise, permit or license to operate is concerned; and

d) among the stockholders, partners or associates themselves.

The fact that the parties involved in the controversy are all stockholders or that the parties involved are the stockholders and










the corporation does not necessarily place the dispute within the ambit of the jurisdiction of SEC. The better policy to be followed in determining jurisdiction over a case should be to consider concurrent factors such as the status or relationship of the parties or the nature of the question that is the subject of their controversy. In the absence of any one of these factors, the SEC will not have jurisdiction. Furthermore, it does not necessarily follow that every conflict between the corporation and its stockholders would involve such corporate matters as only the SEC can resolve in the exercise of its adjudicatory or quasi-judicial powers.29

The criteria for distinguishing between corporate officers who may be ousted from office at will, on one hand, and ordinary corporate employees who may only be terminated for just cause, on the other hand, do not depend on the nature of the services performed, but on the manner of creation of the office. In the respondent’s case, he was supposedly at once an employee, a stockholder, and a Director of Matling. The circumstances surrounding his appointment to office must be fully considered to determine whether the dismissal constituted an intra-corporate controversy or a labor termination dispute. We must also consider whether his status as Director and stockholder had any relation at all to his appointment and subsequent dismissal as Vice President for Finance and Administration.

Obviously enough, the respondent was not appointed as Vice President for Finance and Administration because of his being a stockholder or Director of Matling. He had started working for Matling on September 8, 1966, and had been employed continuously for 33 years until his termination on April 17, 2000, first as a bookkeeper, and his climb in 1987 to his last position as Vice President for Finance and Administration had been gradual but steady, as the following sequence indicates:

1966 – Bookkeeper

1968 – Senior Accountant

1969 – Chief Accountant

1972 – Office Supervisor

1973 – Assistant Treasurer

1978 – Special Assistant for Finance

1980 – Assistant Comptroller

1983 – Finance and Administrative Manager

1985 – Asst. Vice President for Finance and Administration

1987 to April 17, 2000 – Vice President for Finance and Administration

Even though he might have become a stockholder of Matling in 1992, his promotion to the position of Vice President for Finance and Administration in 1987 was by virtue of the length of quality service he had rendered as an employee of Matling. His subsequent acquisition of the status of Director/stockholder had no relation to his promotion. Besides, his status of Director/stockholder was unaffected by his dismissal from employment as Vice President for Finance and Administration.1avvphi1

In Prudential Bank and Trust Company v. Reyes,30 a case involving a lady bank manager who had risen from the ranks but was dismissed, the Court held that her complaint for illegal dismissal was correctly brought to the NLRC, because she was deemed a regular employee of the bank. The Court observed thus:

It appears that private respondent was appointed Accounting Clerk by the Bank on July 14, 1963. From that position she rose to become supervisor. Then in 1982, she was appointed Assistant Vice-President which she occupied until her illegal dismissal on July 19, 1991. The bank’s contention that she merely holds an elective position and that in effect she is not a regular employee is belied by the nature of her work and her length of service with the Bank. As earlier stated, she rose from the ranks and has been employed with the Bank since 1963 until the termination of her employment in 1991. As Assistant Vice President of the Foreign Department of the Bank, she is tasked, among others, to collect checks drawn against overseas banks payable in foreign currency and to ensure the collection of foreign bills or checks purchased, including the signing of transmittal letters covering the same. It has been stated that "the primary standard of determining regular employment is the reasonable connection between the particular activity performed by the employee in relation to the usual trade or business of the employer. Additionally, "an employee is regular because of the nature of work and the length of service, not because of the mode or even the reason for hiring them." As Assistant Vice-President of the Foreign Department of the Bank she performs tasks integral to the operations of the bank and her length of service with the bank totaling 28 years speaks volumes of her status as a regular employee of the bank. In fine, as a regular employee, she is entitled to security of tenure; that is, her services may be terminated only for a just or authorized cause. This being in truth a case of illegal dismissal, it is no wonder then that the Bank endeavored to the very end to establish loss of trust and confidence and serious misconduct on the part of private respondent but, as will be discussed later, to no avail.

WHEREFORE, we deny the petition for review on certiorari, and affirm the decision of the Court of Appeals.

Costs of suit to be paid by the petitioners.SO ORDERED.

G.R. No. 166859 April 12, 2011

REPUBLIC OF THE PHILIPPINES, Petitioner, vs. SANDIGANBAYAN (FIRST DIVISION), EDUARDO M. COJUANGCO, JR., AGRICULTURAL CONSULTANCY SERVICES, INC., ARCHIPELAGO REALTY CORP., BALETE RANCH, INC., BLACK STALLION RANCH, INC., CHRISTENSEN PLANTATION COMPANY, DISCOVERY REALTY CORP., DREAM PASTURES, INC., ECHO RANCH, INC., FAR EAST RANCH, INC., FILSOV SHIPPING COMPANY, INC., FIRST UNITED TRANSPORT, INC., HABAGAT REALTY DEVELOPMENT, INC., KALAWAKAN RESORTS, INC., KAUNLARAN AGRICULTURAL CORP., LABAYUG AIR TERMINALS, INC., LANDAIR INTERNATIONAL MARKETING CORP., LHL CATTLE CORP., LUCENA OIL FACTORY, INC., MEADOW LARK PLANTATIONS, INC., METROPLEX COMMODITIES, INC., MISTY MOUNTAIN AGRICULTURAL CORP., NORTHEAST CONTRACT TRADERS, INC., NORTHERN CARRIERS CORP., OCEANSIDE MARITIME ENTERPRISES, INC., ORO VERDE SERVICES, INC., PASTORAL FARMS, INC., PCY OIL MANUFACTURING CORP., PHILIPPINE TECHNOLOGIES, INC., PRIMAVERA FARMS, INC., PUNONG-BAYAN HOUSING DEVELOPMENT CORP., PURA ELECTRIC COMPANY, INC., RADIO AUDIENCE DEVELOPERS INTEGRATED ORGANIZATION, INC., RADYO PILIPINO CORP., RANCHO GRANDE, INC., REDDEE DEVELOPERS, INC., SAN ESTEBAN DEVELOPMENT CORP., SILVER LEAF PLANTATIONS, INC., SOUTHERN SERVICE TRADERS, INC., SOUTHERN STAR CATTLE CORP., SPADE ONE RESORTS CORP., UNEXPLORED LAND DEVELOPERS, INC., VERDANT PLANTATIONS, INC., VESTA AGRICULTURAL CORP. AND WINGS RESORTS CORP., Respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 169203

REPUBLIC OF THE PHILIPPINES, Petitioner, vs. SANDIGANBAYAN (FIRST DIVISION), EDUARDO M. COJUANGCO, JR., MEADOW LARK PLANTATIONS, INC., SILVER LEAF PLANTATIONS, INC., PRIMAVERA FARMS, INC., PASTORAL FARMS, INC., BLACK STALLION RANCH, INC., MISTY MOUNTAINS AGRICULTURAL CORP., ARCHIPELAGO REALTY CORP., AGRICULTURAL CONSULTANCY SERVICES, INC., SOUTHERN STAR




CATTLE CORP., LHL CATTLE CORP., RANCHO GRANDE, INC., DREAM PASTURES, INC., FAR EAST RANCH, INC., ECHO RANCH, INC., LAND AIR INTERNATIONAL MARKETING CORP., REDDEE DEVELOPERS, INC., PCY OIL MANUFACTURING CORP., LUCENA OIL FACTORY, INC., METROPLEX COMMODITIES, INC., VESTA AGRICULTURAL CORP., VERDANT PLANTATIONS, INC., KAUNLARAN AGRICULTURAL CORP., ECJ & SONS AGRICULTURAL ENTERPRISES, INC., RADYO PILIPINO CORP., DISCOVERY REALTY CORP., FIRST UNITED TRANSPORT, INC., RADIO AUDIENCE DEVELOPERS INTEGRATED ORGANIZATION, INC., ARCHIPELAGO FINANCE AND LEASING CORP., SAN ESTEBAN DEVELOPMENT CORP., CHRISTENSEN PLANTATION COMPANY, NORTHERN CARRIERS CORP., VENTURE SECURITIES, INC., BALETE RANCH, INC., ORO VERDE SERVICES, INC., and KALAWAKAN RESORTS, INC., Respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 180702

REPUBLIC OF THE PHILIPPINES, Petitioner, vs. EDUARDO M. COJUANGCO, JR., FERDINAND E. MARCOS, IMELDA R. MARCOS, EDGARDO J. ANGARA,* JOSE C. CONCEPCION, AVELINO V. CRUZ, EDUARDO U. ESCUETA, PARAJA G. HAYUDINI, JUAN PONCE ENRILE, TEODORO D. REGALA, DANILO URSUA, ROGELIO A. VINLUAN, AGRICULTURAL CONSULTANCY SERVICES, INC., ANGLO VENTURES, INC., ARCHIPELAGO REALTY CORP., AP HOLDINGS, INC., ARC INVESTMENT, INC., ASC INVESTMENT, INC., AUTONOMOUS DEVELOPMENT CORP., BALETE RANCH, INC., BLACK STALLION RANCH, INC., CAGAYAN DE ORO OIL COMPANY, INC., CHRISTENSEN PLANTATION COMPANY, COCOA INVESTORS, INC., DAVAO AGRICULTURAL AVIATION, INC., DISCOVERY REALTY CORP., DREAM PASTURES, INC., ECHO RANCH, INC., ECJ & SONS AGRI. ENT., INC., FAR EAST RANCH, INC., FILSOV SHIPPING COMPANY, INC., FIRST MERIDIAN DEVELOPMENT, INC., FIRST UNITED TRANSPORT, INC., GRANEXPORT MANUFACTURING CORP., HABAGAT REALTY DEVELOPMENT, INC., HYCO AGRICULTURAL, INC., ILIGAN COCONUT INDUSTRIES, INC., KALAWAKAN RESORTS, INC., KAUNLARAN AGRICULTURAL CORP., LABAYOG AIR TERMINALS, INC., LANDAIR INTERNATIONAL MARKETING CORP., LEGASPI OIL COMPANY, LHL CATTLE CORP., LUCENA OIL FACTORY, INC., MEADOW LARK PLANTATIONS, INC., METROPLEX COMMODITIES, INC., MISTY MOUNTAIN AGRICULTURAL CORP., NORTHEAST CONTRACT TRADERS, INC., NORTHERN CARRIERS CORP., OCEANSIDE MARITIME ENTERPRISES, INC., ORO VERDE SERVICES, INC., PASTORAL FARMS, INC., PCY OIL MANUFACTURING CORP., PHILIPPINE RADIO CORP., INC., PHILIPPINE TECHNOLOGIES, INC., PRIMAVERA FARMS, INC., PUNONG-BAYAN HOUSING DEVELOPMENT CORP., PURA ELECTRIC COMPANY, INC., RADIO AUDIENCE DEVELOPERS INTEGRATED ORGANIZATION, INC., RADYO PILIPINO CORP., RANCHO GRANDE, INC., RANDY ALLIED

VENTURES, INC., REDDEE DEVELOPERS, INC., ROCKSTEEL RESOURCES, INC., ROXAS SHARES, INC., SAN ESTEBAN DEVELOPMENT CORP., SAN MIGUEL CORPORATION OFFICERS, INC., SAN PABLO MANUFACTURING CORP., SOUTHERN LUZON OIL MILLS, INC., SILVER LEAF PLANTATIONS, INC., SORIANO SHARES, INC., SOUTHERN SERVICE TRADERS, INC., SOUTHERN STAR CATTLE CORP., SPADE 1 RESORTS CORP., TAGUM AGRICULTURAL DEVELOPMENT CORP., TEDEUM RESOURCES, INC., THILAGRO EDIBLE OIL MILLS, INC., TODA HOLDINGS, INC., UNEXPLORED LAND DEVELOPERS, INC., VALHALLA PROPERTIES, INC., VENTURES SECURITIES, INC., VERDANT PLANTATIONS, INC., VESTA AGRICULTURAL CORP. and WINGS RESORTS CORP., Respondents. JOVITO R. SALONGA, WIGBERTO E. TAÑADA, OSCAR F. SANTOS, VIRGILIO M. DAVID, ROMEO C. ROYANDAYAN for himself and for SURIGAO DEL SUR FEDERATION OF AGRICULTURAL COOPERATIVES (SUFAC), MORO FARMERS ASSOCIATION OF ZAMBOANGA DEL SUR (MOFAZS) and COCONUT FARMERS OF SOUTHERN LEYTE COOPERATIVE (COFA-SL); PHILIPPINE RURAL RECONSTRUCTION MOVEMENT (PRRM), represented by CONRADO S. NAVARRO; COCONUT INDUSTRY REFORM MOVEMENT, INC. (COIR) represented by JOSE MARIE T. FAUSTINO; VICENTE FABE for himself and for PAMBANSANG KILUSAN NG MGA SAMAHAN NG MAGSASAKA (PAKISAMA); NONITO CLEMENTE for himself and for the NAGKAKAISANG UGNAYAN NG MGA MALILIIT NA MAGSASAKA AT MANGGAGAWA SA NIYUGAN (NIUGAN); DIONELO M. SUANTE, SR. for himself and for KALIPUNAN NG MALILIIT NA MAGNINIYOG NG PILIPINAS (KAMMPIL), INC., Petitioners-Intervenors.

D E C I S I O N

BERSAMIN, J.:

For over two decades, the issue of whether the sequestered sizable block of shares representing 20% of the outstanding capital stock of San Miguel Corporation (SMC) at the time of acquisition belonged to their registered owners or to the coconut farmers has remained unresolved. Through this decision, the Court aims to finally resolve the issue and terminate the uncertainty that has plagued that sizable block of shares since then.

These consolidated cases were initiated on various dates by the Republic of the Philippines (Republic) via petitions for certiorari in G.R. Nos. 1668591 and 169023,2 and via petition for review on certiorari in 180702,3 the first two petitions being brought to assail the following resolutions issued in Civil Case No. 0033-F by the Sandiganbayan, and the third being brought to appeal the adverse decision promulgated on November 28, 2007 in Civil Case No. 0033-F by the Sandiganbayan.

Specifically, the petitions and their particular reliefs are as follows:

(a) G.R. No. 166859 (petition for certiorari), to assail the resolution promulgated on December 10, 20044denying the Republic’s Motion For Partial Summary Judgment;

(b) G.R. No. 169023 (petition for certiorari), to nullify and set aside, firstly, the resolution promulgated on October 8, 2003,5 and, secondly, the resolution promulgated on June 24, 20056 modifying the resolution of October 8, 2003; and

(c) G.R. No. 180702 (petition for review on certiorari), to appeal the decision promulgated on November 28, 2007.7

ANTECEDENTS

On July 31, 1987, the Republic commenced Civil Case No. 0033 in the Sandiganbayan by complaint, impleading as defendants respondent Eduardo M. Cojuangco, Jr. (Cojuangco) and 59 individual defendants. On October 2, 1987, the Republic amended the complaint in Civil Case No. 0033 to include two additional individual defendants. On December 8, 1987, the Republic further amended the complaint through its Amended Complaint [Expanded per Court-Approved Plaintiff’s ‘Manifestation/Motion Dated Dec. 8, 1987] albeit dated October 2, 1987.

More than three years later, on August 23, 1991, the Republic once more amended the complaint apparently to avert the nullification of the writs of sequestration issued against properties of Cojuangco. The amended complaint dated August 19, 1991, designated as Third Amended Complaint [Expanded Per Court-Approved Plaintiff’s Manifestation/Motion Dated Dec. 8, 1987],8 impleaded in addition to Cojuangco, President Marcos, and First Lady Imelda R. Marcos nine other individuals, namely: Edgardo J. Angara, Jose C. Concepcion, Avelino V. Cruz, Eduardo U. Escueta, Paraja G. Hayudini, Juan Ponce Enrile, Teodoro D. Regala, and Rogelio Vinluan, collectively, the ACCRA lawyers, and Danilo Ursua, and 71 corporations.

On March 24, 1999, the Sandiganbayan allowed the subdivision of the complaint in Civil Case No. 0033 into eight complaints, each pertaining to distinct transactions and properties and impleading as defendants only the parties alleged to have participated in the relevant transactions or to have owned the specific properties involved. The subdivision resulted into the following subdivided complaints, to wit:

http://www.lawphil.net/judjuris/juri2011/apr2011/gr_166859_2011.html#fnt1









Subdivided Complaint Subject Matter

1. Civil Case No. 0033-A

Anomalous Purchase and Use of First United Bank (now United Coconut Planters Bank)

2. Civil Case No. 0033-B

Creation of Companies Out of Coco Levy Funds

3. Civil Case No. 0033-C

Creation and Operation of Bugsuk Project and Award of P998 Million Damages to Agricultural Investors, Inc.

4. Civil Case No. 0033-D

Disadvantageous Purchases and Settlement of the Accounts of Oil Mills Out of Coco Levy Funds

5. Civil Case No. 0033-E

Unlawful Disbursement and Dissipation of Coco Levy Funds

6. Civil Case No. 0033-F

Acquisition of SMC shares of stock

7. Civil Case No. 0033-G

Acquisition of Pepsi-Cola

8. Civil Case No. 0033-H

Behest Loans and Contracts

In Civil Case No. 0033-F, the individual defendants were Cojuangco, President Marcos and First Lady Imelda R. Marcos, the ACCRA lawyers, and Ursua. Impleaded as corporate defendants were Southern Luzon Oil Mills, Cagayan de Oro Oil Company, Incorporated, Iligan Coconut Industries, Incorporated, San Pablo Manufacturing Corporation, Granexport Manufacturing Corporation, Legaspi Oil Company, Incorporated, collectively referred to herein as the CIIF Oil Mills, and their 14 holding companies, namely: Soriano Shares, Incorporated, Roxas Shares, Incorporated, Arc Investments, Incorporated, Toda Holdings, Incorporated, ASC Investments, Incorporated, Randy Allied Ventures, Incorporated, AP Holdings, Incorporated, San Miguel Corporation Officers, Incorporated, Te Deum Resources, Incorporated, Anglo Ventures, Incorporated, Rock Steel Resources, Incorporated, Valhalla Properties, Incorporated, and First Meridian Development, Incorporated.

Allegedly, Cojuangco purchased a block of 33,000,000 shares of SMC stock through the 14 holding companies owned by the CIIF Oil Mills. For this reason, the block of 33,133,266 shares of SMC stock shall be referred to as the CIIF block of shares.

Also impleaded as defendants in Civil Case No. 0033-F were several corporations9 alleged to have been under Cojuangco’s control and used by him to acquire the block of shares of SMC stock totaling 16,276,879 at the time of acquisition (representing approximately 20% percent of the capital stock of SMC). These corporations are referred to as Cojuangco corporations or companies, to distinguish them from the CIIF Oil Mills. Reference

hereafter to Cojuangco and the Cojuangco corporations or companies shall be as Cojuangco, et al., unless the context requires individualization.

The material averments of the Republic’s Third Amended Complaint (Subdivided)10 in Civil Case No. 0033-F included the following:

12. Defendant Eduardo Cojuangco, Jr., served as a public officer during the Marcos administration. During the period of his incumbency as a public officer, he acquired assets, funds, and other property grossly and manifestly disproportionate to his salaries, lawful income and income from legitimately acquired property.

13. Having fully established himself as the undisputed "coconut king" with unlimited powers to deal with the coconut levy funds, the stage was now set for Defendant Eduardo M. Cojuangco, Jr. to launch his predatory forays into almost all aspects of Philippine economic activity namely: softdrinks, agribusiness, oil mills, shipping, cement manufacturing, textile, as more fully described below.

14. Defendant Eduardo Cojuangco, Jr. taking undue advantage of his association, influence and connection, acting in unlawful concert with Defendants Ferdinand E. Marcos and Imelda R. Marcos, and the individual defendants, embarked upon devices, schemes and stratagems, including the use of defendant corporations as fronts, to unjustly enrich themselves at the expense of Plaintiff and the Filipino people, such as when he – misused coconut levy funds to buy out majority of the outstanding shares of stock of San Miguel Corporation in order to control the largest agri-business, foods and beverage company in the Philippines, more particularly described as follows:

(b) He entered SMC in early 1983 when he bought most of the 20 million shares Enrique Zobel owned in the Company. The shares, worth $49 million, represented 20% of SMC;

(c) Later that year, Cojuangco also acquired the Soriano stocks through a series of complicated and secret agreements, a key feature of which was a "voting trust agreement" that stipulated that Andres, Jr. or his heir would proxy over the vote of the

shares owned by Soriano and Cojuangco. This agreement, which accounted for 30% of the outstanding shares of SMC and which lasted for five (5) years, enabled the Sorianos to retain management control of SMC for the same period;

(d) Furthermore, in exchange for an SMC investment of $45 million in non-voting preferred shares in UCPB, Soriano served as the vice-chairman of the supposed bank of the coconut farmers, UCPB, and in return, Cojuangco, for investing funds from the coconut levy, was named vice-chairman of SMC;

(e) Consequently, Cojuangco enjoyed the privilege of appointing his nominees to the SMC Board, to which he appointed key members of the ACCRA Law Firm (herein Defendants) instead of coconut farmers whose money really funded the sale;

(f) The scheme of Cojuangco to use the lawyers of the said Firm was revealed in a document which he signed on 19 February 1983 entitled "Principles and Framework of Mutual Cooperation and Assistance" which governed the rules for the conduct of management of SMC and the disposition of the shares which he bought.

(g) All together, Cojuangco purchased 33 million shares of the SMC through the following 14 holding companies:

a) Soriano Shares, Inc.

1,249,163

b) ASC Investors, Inc.

1,562,449

c) Roxas Shares, Inc.

2,190,860

d) ARC Investors, Inc.

4,431,798

e) Toda Holdings, Inc.

3,424,618




f) AP Holdings, Inc. 1,580,997

g) Fernandez Holdings, Inc.

838,837

h) SMC Officers Corps., Inc.

2,385,987

i) Te Deum Resources, Inc.

2,674,899

j) Anglo Ventures Corp.

1,000.000

k) Randy Allied Ventures, Inc.

1,000,000

l) Rock Steel Resources, Inc.

2,432,625

m) Valhalla Properties Ltd., Inc.

1,361,033

n) First Meridian Development, Inc.

1,000,000

33,133,266

3.1. The same fourteen companies were in turn owned by the following six (6) so-called CIIF Companies which were:

a) San Pablo Manufacturing Corp.

19%

b) Southern Luzon Coconut Oil Mills, Inc.

11%

c) Granexport Manufacturing Corporation

19%

d) Legaspi Oil Company, Inc.

18%

e) Cagayan de Oro Oil Company, Inc.

18%

f) Iligan Coconut Industries, Inc.

15%

100%

(h) Defendant Corporations are but "shell" corporations owned by interlocking shareholders who have previously admitted that they are just "nominee stockholders" who do not have any proprietary interest over the shares in their names. The respective affidavits of the following, namely: Jose C. Concepcion, Florentino M. Herrera III, Teresita J. Herbosa, Teodoro D. Regala, Victoria C. de los Reyes, Manuel R. Roxas, Rogelio A. Vinluan, Eduardo U. Escuete and Franklin M. Drilon, who were all, at the time they became such stockholders, lawyers of the Angara Abello Concepcion Regala & Cruz (ACCRA) Law Offices, the previous counsel who incorporated said corporations, prove that they were merely nominee stockholders thereof.

(i) Mr. Eduardo M. Cojuangco, Jr., acquired a total of 16,276,879 shares of San Miguel Corporation from the Ayala group: of said shares, a total of 8,138,440 (broken into 7,128,227 Class A and 1,010,213 Class B shares) were placed in the names of Meadowlark Plantations, Inc. (2,034,610) and Primavera Farms, Inc. (4,069,220). The Articles of Incorporation of these three companies show that Atty. Jose C. Concepcion of ACCRA owns 99.6% of the entire outstanding stock. The same shareholder executed three (3) separate "Declaration of Trust and Assignment of Subscription:" in favor of a BLANK assignee pertaining to his shareholdings in Primavera Farms, Inc., Silver Leaf Plantations, Inc. and Meadowlark Plantations, Inc.

(k) The other respondent Corporations are owned by interlocking shareholders who are likewise lawyers in the ACCRA Law Offices and had admitted their status as "nominee stockholders" only.

(k-1) The corporations: Agricultural Consultancy Services, Inc., Archipelago Realty Corporation, Balete Ranch, Inc., Black Stallion Ranch, Inc., Discovery Realty Corporation,

First United Transport, Inc., Kaunlaran Agricultural Corporation, LandAir International Marketing Corporation, Misty Mountains Agricultural Corporation, Pastoral Farms, Inc., Oro Verde Services, Inc. Radyo Filipino Corporation, Reddee Developers, Inc., Verdant Plantations, Inc. and Vesta Agricultural Corporation, were incorporated by lawyers of ACCRA Law Offices.

(k-2) With respect to PCY Oil Manufacturing Corporation and Metroplex Commodities, Inc., they are controlled respectively by HYCO, Inc. and Ventures Securities, Inc., both of which were incorporated likewise by lawyers of ACCRA Law Offices.

(k-3) The stockholders who appear as incorporators in most of the other Respondents corporations are also lawyers of the ACCRA Law Offices, who as early as 1987 had admitted under oath that they were acting only as "nominee stockholders."

(l) These companies, which ACCRA Law Offices organized for Defendant Cojuangco to be able to control more than 60% of SMC shares, were funded by institutions which depended upon the coconut levy such as the UCPB, UNICOM, United Coconut Planters Assurance Corp. (COCOLIFE), among others. Cojuangco and his ACCRA lawyers used the funds from 6 large coconut oil mills and 10 copra trading companies to borrow money from the UCPB and purchase these holding companies and the SMC stocks. Cojuangco used $150 million from the coconut levy, broken down as follows:

Amount (in

Source Purpose


million)

$22.26 Oil Mills

equity in holding companies

$65.6 Oil Mills

loan to holding companies

$61.2 UCPB

loan to holding companies [164]

The entire amount, therefore, came from the coconut levy, some passing through the Unicom Oil mills, others directly from the UCPB.

(m) With his entry into the said Company, it began to get favors from the Marcos government, significantly the lowering of the excise taxes (sales and specific taxes) on beer, one of the main products of SMC.

(n) Defendant Cojuangco controlled SMC from 1983 until his co-defendant Marcos was deposed in 1986.

(o) Along with Cojuangco, Defendant Enrile and ACCRA also had interests in SMC, broken down as follows:

% of SMC Cojuangco

Owner

31.3% coconut levy money

18% companies linked to Cojuangco

5.2% government

5.2% SMC employee retirement fund

Enrile & ACCRA

1.8% Enrile

1.8% Jaka Investment Corporation

1.8% ACCRA Investment Corporation

15. Defendants Eduardo Cojuangco, Jr., Edgardo J. Angara, Jose C. Concepcion, Teodoro Regala, Avelino Cruz, Rogelio Vinluan, Eduardo U. Escueta and Paraja G. Hayudini of the Angara Concepcion Cruz Regala and Abello law offices (ACCRA) plotted, devised, schemed, conspired and confederated with each other in setting up, through the use of coconut levy funds, the financial and corporate framework and structures that led to the establishment of UCPB, UNICOM, COCOLIFE, COCOMARK. CIC, and more than twenty other coconut levy-funded corporations, including the acquisition of San Miguel Corporation shares and its institutionalization through presidential directives of the coconut monopoly. Through insidious means and machinations, ACCRA, being the wholly-owned investment arm, ACCRA Investments Corporation, became the holder of approximately fifteen million shares representing roughly 3.3% of the total outstanding capital stock of UCPB as of 31 March 1987. This ranks ACCRA Investments Corporation number 44 among the top 100 biggest stockholders of UCPB which has approximately 1,400,000 shareholders. On the other hand, the corporate books show the name Edgardo J. Angara as holding approximately 3,744 shares as of February, 1984.

16. The acts of Defendants, singly or collectively, and/or in unlawful concert with one another, constitute gross abuse of official position and authority, flagrant breach of public trust and fiduciary obligations, brazen abuse of right and power, unjust enrichment, violation of the constitution and laws of the Republic of the Philippines, to the grave and irreparable damage of Plaintiff and the Filipino people.11

On June 17, 1999, Ursua and Enrile each filed his separate Answer with Compulsory Counterclaims.

Before filing their answer, the ACCRA lawyers sought their exclusion as defendants in Civil Case No. 0033, averring that even as they admitted having assisted in the organization and acquisition of the companies included in Civil Case No. 0033, they had acted as mere nominees-stockholders of corporations involved in the sequestration proceedings pursuant to office practice. After the Sandiganbayan denied their motion, they elevated their cause to this Court, which ultimately ruled in their favor in the related cases of Regala, et al. v. Sandiganbayan, et al.12 and Hayudini v. Sandiganbayan, et al.,13 as follows:

WHEREFORE, IN VIEW OF THE FOREGOING, the Resolutions of respondent Sandiganbayan (First Division) promulgated on March

18, 1992 and May 21, 1992 are hereby ANNULLED and SET ASIDE. Respondent Sandiganbayan is further ordered to exclude petitioners Teodoro D. Regala, Edgardo J. Angara, Avelino V. Cruz, Jose C. Concepcion, Victor P. Lazatin, Eduardo U. Escueta and Paraja G. Hayudini as parties-defendants in SB Civil Case No. 0033 entitled "Republic of the Philippines v. Eduardo Cojuangco, Jr., et al."

SO ORDERED.

Conformably with the ruling, the Sandiganbayan excluded the ACCRA lawyers from the case on May 24, 2000.14

On June 23, 1999, Cojuangco filed his Answer to the Third Amended Complaint,15 averring the following affirmative defenses, to wit:

7.00. The Presidential Commission on Good Government (PCGG) is without authority to act in the name and in behalf of the "Republic of the Philippines".

7.01. As constituted in E.O. No. 1, the PCGG was composed of "Minister Jovito R. Salonga, as Chairman, Mr. Ramon Diaz, Mr. Pedro L. Yap, Mr. Raul Daza and Ms. Mary Concepcion Bautista, as Commissioners". When the complaint in the instant case was filed, Minister Salonga, Mr. Pedro L. Yap and Mr. Raul Daza had already left the PCGG. By then the PCGG had become functus officio.

7.02. The Sandiganbayan has no jurisdiction over the complaint or over the transaction alleged in the complaint.

7.03. The complaint does not allege any cause of action.

7.04. The complaint is not brought in the name of the real parties in interest, assuming any cause of action exists.

7.05. Indispensable and necessary parties have not been impleaded.

7.06. There is improper joinder of causes of action (Sec. 6, Rule 2, Rules of Civil Procedure). The causes of action alleged, if any, do not arise out of the same contract, transaction or relation between the parties,







nor are they simply for money, or are of the same nature and character.

7.07. There is improper joinder of parties defendants (Sec. 11, Rule 3, Rules of Civil Procedure).The causes of action alleged as to defendants, if any, do not involve a single transaction or a related series of transactions. Defendant is thus compelled to litigate in a suit regarding matters as to which he has no involvement. The questions of fact and law involved are not common to all defendants.

7.08. In so far as the complaint seeks the forfeiture of assets allegedly acquired by defendant "manifestly out of proportion to their salaries, to their other lawful income and income from legitimately acquired property," under R.A. 1379, the "previous inquiry similar to preliminary investigation in criminal cases" required to be conducted under Sec. 2 of that law before any suit for forfeiture may be instituted, was not conducted; as a consequence, the Court may not acquire and exercise jurisdiction over such a suit.

7.09. The complaint in the instant suit was filed July 31, 1987, or within one year before the local election held on January 18, 1988. If this suit involves an action under R.A. 1379, its institution was also in direct violation of Sec. 2, R.A. No. 1379.

7.10. E.O. No. 1, E.O. No. 2, E.O. No. 14 and 14-A, are unconstitutional. They violate due process, equal protection, ex post facto and bill of attainder provisions of the Constitution.

7.11. Acts imputed to defendant which he had committed were done pursuant to law and in good faith.

The Cojuangco corporations’ Answer16 had the same tenor as the Answer of Cojuangco.

In his own Answer with Compulsory Counterclaims,17 Ursua averred affirmative and special defenses.

In his own Answer with Compulsory Counterclaims,18 Enrile specifically denied the material averments of the Third Amended Complaint and asserted affirmative defenses.

The CIIF Oil Mills’ Answer19 also contained affirmative defenses.

On December 20, 1999, the Sandiganbayan scheduled the pre-trial in Civil Case No. 0033-F on March 8, 2000, giving the parties sufficient time to file their Pre-Trial Briefs prior to that date. Subsequently, the parties filed their respective Pre-Trial Briefs, as follows: Cojuangco and the Cojuangco corporations, jointly on February 14, 2000; Enrile, on March 1, 2000; the CIIF Oil Mills, on March 3, 2000; and Ursua, on March 6, 2000. However, the Republic sought several extensions to file its own Pre-Trial Brief, and eventually did so on May 9, 2000.

In the meanwhile, some non-parties sought to intervene. On November 22, 1999, GABAY Foundation, Inc. (GABAY) filed its complaint-in-intervention. On February 24, 2000, the Philippine Coconut Producers Federation, Inc., Maria Clara L. Lobregat, Jose R. Eleazar, Jr., Domingo Espina, Jose Gomez, Celestino Sabate, Manuel del Rosario, Jose Martinez, Jr., and Eladio Chato (collectively referred to as COCOFED, considering that the co-intervenors were its officers) also sought to intervene, citing the October 2, 1989 ruling in G.R. No. 75713 entitled COCOFED v. PCGG whereby the Court recognized COCOFED as the "private national association of coconut producers certified in 1971 by the PHILCOA as having the largest membership among such producers" and as such "entrusted it with the task of maintaining continuing liaison with the different sectors of the industry, the government and its mass base." Pending resolution of its motion for intervention, COCOFED filed a Pre-Trial Brief on March 2, 2000.

On May 24, 2000, the Sandiganbayan denied GABAY’s intervention without prejudice because it found "that the allowance of GABAY to enter under the special character in which it presents itself would be to open the doors to other groups of coconut farmers whether of the same kind or of any other kind which could be considered a sub-class or a sub-classification of the coconut planters or the coconut industry of this country."20

COCOFED’s intervention as defendant was allowed on May 24, 2000, however, because "the position taken by the COCOFED is relevant to the proceedings herein, if only to state that there is a special function which the COCOFED and the coconut planters have in the matter of the coconut levy funds and the utilization of those funds, part of which is in dispute in the instant matter."21

The pre-trial was actually held on May 24, 2000,22 during which the Sandiganbayan sought clarification from the parties, particularly the Republic, on their respective positions, but at the end it found the clarifications "inadequately" enlightening. Nonetheless, the Sandiganbayan, not disposed to reset, terminated the pre-trial:

xxx primarily because the Court is given a very clear impression that the plaintiff does not know what documents will be or

whether they are even available to prove the causes of action in the complaint. The Court has pursued and has exerted every form of inquiry to see if there is a way by which the plaintiff could explain in any significant particularity the acts and the evidence which will support its claim of wrong-doing by the defendants. The plaintiff has failed to do so.23

The following material portions of the pre-trial order24 are quoted to provide a proper perspective of what transpired during the pre-trial, to wit:

Upon oral inquiry from the Court, the issues which were being raised by plaintiff appear to have been made on a very generic character. Considering that any claim for violation or breach of trust or deception cannot be made on generic statements but rather by specific acts which would demonstrate fraud or breach of trust or deception, together with the evidence in support thereof, the same was not acceptable to the Court.

The plaintiff through its designated counsel for this morning, Atty. Dennis Taningco, has represented to this Court that the annexes to its pre-trial brief, more particularly the findings of the COA in its various examinations, copies of which COA reports are attached to the pre-trial brief, would demonstrate the wrong, the act or omission attributed to the defendants or to several of them and the basis, therefore, for the relief that plaintiff seeks in its complaint. It would appear, however, that the plaintiff through its counsel at this time is not prepared to go into the specifics of the identification of these wrongs or omissions attributed to plaintiff.

The Court has reminded the plaintiff that a COA report proves itself only in proceedings where the issue arises from a review of the accountability of particular officers and, therefore, to show the existence of shortages or deficiencies in an examination conducted for that purpose, provided that such a report is accompanied by its own working papers and other supporting documents.

In civil cases such as this, a COA report would not have the same independent probative value since it is not a review of the accountability of public officers for public property in their custody as accountable officers. It has been the stated view of this Court that a COA report, to be of significant evidence, may itself stand only on the basis of the supporting documents that upon which it is based and upon an analysis made by those who are competent to do so. The Court, therefore, sought a more specific statement from plaintiff as to what these documents were and which of them would prove a particular act or omission or a series of acts or omissions purportedly committed by any, by several or by all of the defendants in any particular stage of the chain of alleged wrong-doing in this case.











The plaintiff was not in a position to do so.

The Court has remonstrated with the plaintiff, insofar as its inadequacy is concerned, primarily because this case was set for pre-trial as far back as December and has been reset from its original setting, with the undertaking by the plaintiff to prepare itself for these proceedings. It appears to this Court at this time that the failure of the plaintiff to have available responses and specific data and documents at this stage is not because the matter has been the product of oversight or notes and papers left elsewhere; rather, the agitation of this Court arises from the fact that at this very stage, the plaintiff through its counsel does not know what these documents are, where these documents will be and is still anticipating a submission or a delivery thereof by COA at an undetermined time. The justification made by counsel for this stance is that this is only pre-trial and this information and the documents are not needed yet.

The Court is not prepared to postpone the pre-trial anew primarily because the Court is given a very clear impression that the plaintiff does not know what documents will be or whether they are even available to prove the causes of action in the complaint. The Court has pursued and has exerted every form of inquiry to see if there is a way by which the plaintiff could explain in any significant particularity the acts and the evidence which will support its claim of wrong-doing by the defendants. The plaintiff has failed to do so.

Defendants Cojuangco have come back and reiterated their previous inquiry as to the statement of the cause of action and the description thereof. While the Court acknowledges that logically, that statement along that line would be primary, the Court also recognizes that sometimes the phrasing of the issue may be determined or may arise after a statement of the evidence is determined by this Court because the Court can put itself in a position of more clearly and perhaps more accurately stating what the issues are. The Pre-Trial Order, after all, is not so much a reflection of merely separate submissions by all of the parties involved, witnesses by the Court, as to what the subject matter of litigation will be, including the determination of what matters of fact remain unresolved. At this time, the plaintiff has not taken the position on any factual statement or any piece of evidence which can be subject of admission or denial, nor any specifics of any act which could be disputed by the defendants; what plaintiff through counsel has stated are general conclusions, general statements of abuse and misuse and opportunism.

After an extended break requested by some of the parties, the sessions were resumed and nothing anew arose from the plaintiff. The plaintiff sought fifteen (15) days to file a reply to the comments and observations made by defendant Cojuangco to the pre-trial brief of the plaintiff. This Court denied this Request since

the submissions in preparation for pre-trial are not litigious or contentious matters. They are mere assertions or positions which may or may not be meritorious depending upon the view of the Court of the entire case and if useful at the pre-trial. At this stage, the plaintiff then reiterated its earlier request to consider the pre-trial terminated. The Court sought the positions of the other parties, whether or not they too were prepared to submit their respective positions on the basis of what was before the Court at pre-trial. All of the parties, in the end, have come to an agreement that they were submitting their own respective positions for purpose of pre-trial on the basis of the submissions made of record.

With all of the above, the pre-trial is now deemed terminated.

This Order has been overly extended simply because there has been a need to put on record all of the events that have taken place leading to the conclusions which were drawn herein.

The parties have indicated a desire to make their submissions outside of trial as a consequence of this terminated pre-trial, with the plea that the transcript of the proceedings this morning be made available to them, so that they may have the basis for whatever assertions they will have to make either before this Court or elsewhere. The Court deems the same reasonable and the Court now gives the parties fifteen (15) days after notice to them that the transcript of stenographic notes of the proceedings herein are complete and ready for them to be retrieved. Settings for trial or for any other proceeding hereafter will be fixed by this Court either upon request of the parties or when the Court itself shall have determined that nothing else has to be done.

The Court has sought confirmation from the parties present as to the accuracy of the recapitulation herein of the proceedings this morning and the Court has gotten assent from all of the parties.

xxx

SO ORDERED.25

In the meanwhile, the Sandiganbayan, in order to conform with the ruling in Presidential Commission on Good Government v. Cojuangco, et al.,26 resolved COCOFED’s Omnibus Motion (with prayer for preliminary injunction) relative to who should vote the UCPB shares under sequestration, holding as follows: 27

In the light of all of the above, the Court submits itself to jurisprudence and with the statements of the Supreme Court in G.R. No. 115352 entitled Enrique Cojuangco, Jr., et al. vs. Jaime Calpo, et al. dated January 27, 1997, as well as the resolution of the Supreme Court promulgated on January 27, 1999 in the case

of PCGG vs. Eduardo Cojuangco, Jr., et al., G.R. No. 13319 which included the Sandiganbayan as one of the respondents. In these two cases, the Supreme Court ruled that the voting of sequestered shares of stock is governed by two considerations, namely:

1. whether there is prima facie evidence showing that the said shares are ill-gotten and thus belong to the State; and

2. whether there is an imminent danger of dissipation thus necessitating their continued sequestration and voting by the PCGG while the main issue pends with the Sandiganbayan.

x x x x x x x x x

In view hereof, the movants COCOFED, et al and Ballares, et al. as well as Eduardo Cojuangco, et al. who were acknowledged to be registered stockholders of the UCPB are authorized, as are all other registered stockholders of the United Coconut Planters Bank, until further orders from this Court, to exercise their rights to vote their shares of stock and themselves to be voted upon in the United Coconut Planters Bank (UCPB) at the scheduled Stockholders’ Meeting on March 6, 2001 or on any subsequent continuation or resetting thereof, and to perform such acts as will normally follow in the exercise of these rights as registered stockholders.

x x x x x x x x x

Consequently, on March 1, 2001, the Sandiganbayan issued a writ of preliminary injunction to enjoin the PCGG from voting the sequestered shares of stock of the UCPB.

On July 25, 2002, before Civil Case No. 0033-F could be set for trial, the Republic filed a Motion for Judgment on the Pleadings and/or for Partial Summary Judgment (Re: Defendants CIIF Companies, 14 Holding Companies and COCOFED, et al.).28

Cojuangco, Enrile, and COCOFED separately opposed the motion. Ursua adopted COCOFED’s opposition.

Thereafter, the Republic likewise filed a Motion for Partial Summary Judgment [Re: Shares in San Miguel Corporation Registered in the Respective Names of Defendant Eduardo M. Cojuangco, Jr. and the Defendant Cojuangco Companies].29

Cojuangco, et al. opposed the motion,30 after which the Republic submitted its reply.31









On February 23, 2004, the Sandiganbayan issued an order,32 in which it enumerated the admitted facts or facts that appeared to be without substantial controversy in relation to the Republic’s Motion for Judgment on the Pleadings and/or for Partial Summary Judgment [Re: Defendants CIIF Companies, 14 Holding Companies and COCOFED, et al.].

Commenting on the order of February 23, 2004, Cojuangco, et al. specified the items they considered as inaccurate, but particularly interposed no objection to item no. 17 (to the extent that item no. 17 stated that Cojuangco had disclaimed any interest in the CIIF block SMC shares of stock registered in the names of the 14 corporations listed in item no. 1 of the order).33

The Republic also filed its Comment,34 but COCOFED denied the admitted facts summarized in the order of February 23, 2004.35

Earlier, on October 8, 2003,36 the Sandiganbayan resolved the various pending motions and pleadings relative to the writs of sequestration issued against the defendants, disposing:

IN VIEW OF THE FOREGOING, the Writs of Sequestration Nos. (a) 86-0042 issued on April 8, 1986, (b) 86-0062 issued on April 21, 1986, (c) 86-0069 issued on April 22, 1986, (d) 86-0085 issued on May 9, 1986, (e) 86-0095 issued on May 16, 1986, (f) 86-0096 dated May 16, 1986, (g) 86-0097 issued on May 16, 1986, (h) 86-0098 issued on May 16, 1986 and (i) 87-0218 issued on May 27, 1987 are hereby declared automatically lifted for being null and void.

Despite the lifting of the writs of sequestration, since the Republic continues to hold a claim on the shares which is yet to be resolved, it is hereby ordered that the following shall be annotated in the relevant corporate books of San Miguel Corporation:

(1) any sale, pledge, mortgage or other disposition of any of the shares of the Defendants Eduardo Cojuangco, et al. shall be subject to the outcome of this case;

(2) the Republic through the PCGG shall be given twenty (20) days written notice by Defendants Eduardo Cojuangco, et al. prior to any sale, pledge, mortgage or other disposition of the shares;

(3) in the event of sale, mortgage or other disposition of the shares, by the Defendants Cojuangco, et al., the consideration therefore, whether in cash or in kind, shall be placed in escrow with Land Bank of the

Philippines, subject to disposition only upon further orders of this Court; and

(4) any cash dividends that are declared on the shares shall be placed in escrow with the Land Bank of the Philippines, subject to disposition only upon further orders of this Court. If in case stock dividends are declared, the conditions on the sale, pledge, mortgage and other disposition of any of the shares as above-mentioned in conditions 1, 2 and 3, shall likewise apply.

In so far as the matters raised by Defendants Eduardo Cojuangco, et al. in their "Omnibus Motion" dated September 23, 1996 and "Reply to PCGG’s Comment/Opposition with Motion to Order PCGG to Complete Inventory, to Nullify Writs of Sequestration and to Enjoin PCGG from Voting Sequestered Shares of Stock" dated January 3, 1997, considering the above conclusion, this Court rules that it is no longer necessary to delve into the matters raised in the said Motions.

SO ORDERED.37

Cojuangco, et al. moved for the modification of the resolution,38 praying for the deletion of the conditions for allegedly restricting their rights. The Republic also sought reconsideration of the resolution.39

Eventually, on June 24, 2005, the Sandiganbayan denied both motions, but reduced the restrictions thuswise:

WHEREFORE, the "Motion for Reconsideration (Re: Resolution dated September 17, 2003 Promulgated on October 8, 2003)" dated October 24, 2003 of Plaintiff Republic is hereby DENIED for lack of merit. As to the "Motion for Modification (Re: Resolution Promulgated on October 8, 2003)" dated October 22, 2003, the same is hereby DENIED for lack of merit. However, the restrictions imposed by this Court in its Resolution dated September 17, 2003 and promulgated on October 8, 2003 shall now read as follows:

"Despite the lifting of the writs of sequestration, since the Republic continues to hold a claim on the shares which is yet to be resolved, it is hereby ordered that the following shall be annotated in the relevant corporate books of San Miguel Corporation:

"a) any sale, pledge, mortgage or other disposition of any of the shares of the Defendants Eduardo Cojuangco, et al. shall be subject to the outcome of this case.

"b) the Republic through the PCGG shall be given twenty (20) days written notice by Defendants Eduardo Cojuangco, et al. prior to any sale, pledge, mortgage or other disposition of the shares.

"SO ORDERED."40

Pending resolution of the motions relative to the lifting of the writs of sequestration, SMC filed a Motion for Intervention with attached Complaint-in-Intervention,41 alleging, among other things, that it had an interest in the matter in dispute between the Republic and defendants CIIF Companies for being the owner by purchase of a portion (i.e., 25,450,000 SMC shares covered by Stock Certificate Nos. A0004129 and B0015556 of the so-called "CIIF block of SMC shares of stock" sought to be recovered as alleged ill-gotten wealth).

Although Cojuangco, et al. interposed no objection to SMC’s intervention, the Republic opposed,42 averring that the intervention would be improper and was a mere attempt to litigate anew issues already raised and passed upon by the Supreme Court. COCOFED similarly opposed SMC’s intervention,43 and Ursua adopted its opposition.

On May 6, 2004, the Sandiganbayan denied SMC’s motion to intervene.44 SMC sought reconsideration,45 and its motion to that effect was opposed by COCOFED and the Republic.

On May 7, 2004, the Sandiganbyan granted the Republic’s Motion for Judgment on the Pleadings and/or Partial Summary Judgment (Re: Defendants CIIF Companies, 14 Holding Companies and COCOFED, et al.) and rendered a Partial Summary Judgment,46 the dispositive portion of which reads as follows:

WHEREFORE, in view of the foregoing, we hold that:

The Motion for Partial Summary Judgment (Re: Defendants CIIF Companies, 14 Holding Companies and Cocofed, et al.) filed by Plaintiff is hereby GRANTED. ACCORDINGLY, THE CIIF COMPANIES, NAMELY:

1. Southern Luzon Coconut Oil Mills (SOLCOM);

2. Cagayan de Oro Oil Co., Inc. (CAGOIL);

3. Iligan Coconut Industries, Inc. (ILICOCO);

4. San Pablo Manufacturing Corp. (SPMC);

5. Granexport Manufacturing Corp. (GRANEX); and

















6. Legaspi Oil Co., Inc. (LEGOIL),

AS WELL AS THE 14 HOLDING COMPANIES, NAMELY:

1. Soriano Shares, Inc.;

2. ACS Investors, Inc.;

3. Roxas Shares, Inc.;

4. Arc Investors, Inc.;

5. Toda Holdings, Inc.;

6. AP. Holdings, Inc.;

7. Fernandez Holdings, Inc.;

8. SMC Officers Corps. Inc.;

9. Te Deum Resources, Inc.;

10. Anglo Ventures, Inc.;

11. Randy Allied Ventures, Inc.;

12. Rock Steel Resources, Inc.;

13. Valhalla Properties Ltd., Inc.; and

14. First Meridian Development, Inc.

AND THE CIIF BLOCK OF SAN MIGUEL CORPORATION (SMC) SHARES OF STOCK TOTALING 33,133,266 SHARES AS OF 1983 TOGETHER WITH ALL DIVIDENDS DECLARED, PAID AND ISSUED THEREON AS WELL AS ANY INCREMENTS THERETO ARISING FROM, BUT NOT LIMITED TO, EXERCISE OF PRE-EMPTIVE RIGHTS ARE DECLARED OWNED BY THE GOVERNMENT IN-TRUST FOR ALL THE COCONUT FARMERS AND ORDERED RECONVEYED TO THE GOVERNMENT.

Let the trial of this Civil Case proceed with respect to the issues which have not been disposed of in this partial Summary Judgment, including the determination of whether the CIIF Block of SMC Shares adjudged to be owned by the Government represents 27% of the issued and outstanding capital stock of

SMC according to plaintiff or 31.3% of said capital stock according to COCOFED, et al. and Ballares, et al.

SO ORDERED.47

In the same resolution of May 7, 2004, the Sandiganbayan considered the Motions to Dismiss filed by Cojuangco, et al. on August 2, 2000 and by Enrile on September 4, 2000 as overtaken by the Republic’s Motion for Judgment on the Pleadings and/or Partial Summary Judgment.48

On May 25, 2004, Cojuangco, et al. filed their Motion for Reconsideration.49

COCOFED filed its so-called Class Action Omnibus Motion: (a) Motion to Dismiss for Lack of Subject Matter Jurisdiction and Alternatively, (b) Motion for Reconsideration dated May 26, 2004.50

The Republic submitted its Consolidated Comment.51

Relative to the resolution of May 7, 2004, the Sandiganbayan issued its resolution of December 10, 2004,52denying the Republic’s Motion for Partial Summary Judgment (Re: Shares in San Miguel Corporation Registered in the Respective Names of Defendants Eduardo M. Cojuangco, Jr. and the defendant Cojuangco Companies) upon the following reasons:

In the instant case, a circumspect review of the records show that while there are facts which appear to be undisputed, there are also genuine factual issues raised by the defendants which need to be threshed out in a full-blown trial. Foremost among these issues are the following:

1) What are the "various sources" of funds, which the defendant Cojuangco and his companies claim they utilized to acquire the disputed SMC shares?

2) Whether or not such funds acquired from alleged "various sources" can be considered coconut levy funds;

3) Whether or not defendant Cojuangco had indeed served in the governing bodies of PC, UCPB and/or CIIF Oil Mills at the time the funds used to purchase the SMC shares were obtained such that he owed a fiduciary duty to render an account to these entities as well as to the coconut farmers;

4) Whether or not defendant Cojuangco took advantage of his position and/or close ties with then President Marcos to obtain favorable concessions or exemptions from the usual financial requirements from the lending banks and/or coco-levy funded companies, in order to raise the funds to acquire the disputed SMC shares; and if so, what are these favorable concessions or exemptions?

Answers to these issues are not evident from the submissions of the plaintiff and must therefore be proven through the presentation of relevant and competent evidence during trial. A perusal of the subject Motion shows that the plaintiff hastily derived conclusions from the defendants’ statements in their previous pleadings although such conclusions were not supported by categorical facts but only mere inferences. In the Reply dated October 2, 2003, the plaintiff construed the supposed meaning of the phrase "various sources" (referring to the source of defendant Cojuangco’s funds which were used to acquire the subject SMC shares), which plaintiff said was quite obvious from the defendants’ admission in his Pre-Trial Brief, which we quote:

"According to Cojuangco’s own Pre-Trial Brief, these so-called ‘various sources’, i.e., the sources from which he obtained the funds he claimed to have used in buying the 20% SMC shares are not in fact ‘various’ as he claims them to be. He says he obtained ‘loans’ from UCPB and ‘advances’ from the CIIF Oil Mills. He even goes as far as to admit that his only evidence in this case would have been ‘records of UCPB’ and a ‘representative of the CIIF Oil Mills’ obviously the ‘records of UCPB’ relate to the ‘loans’ that Cojuangco claims to have obtained from UCPB – of which he was President and CEO – while the ‘representative of the CIIF Oil Mills’ will obviously testify on the ‘advances’ Cojuangco obtained from CIIF Oil Mills – of which he was also the President and CEO."

From the foregoing premises, plaintiff went on to conclude that:

"These admissions of defendant Cojuangco are outright admissions that he (1) took money from the bank entrusted by law with the administration of coconut levy funds and (2) took more money from the very corporations/oil mills in which part of those coconut levy funds (the CIIF) was placed – treating the funds of UCPB and the CIIF as his own personal capital to buy ‘his’ SMC shares."

We cannot agree with the plaintiff’s contention that the defendant’s statements in his Pre-Trial Brief regarding the presentation of a possible CIIF witness as well as UCPB records, can already be considered as admissions of the defendant’s exclusive use and misuse of coconut levy funds to acquire the subject SMC shares and defendant Cojuangco’s alleged taking advantage of his positions to acquire the subject SMC shares.








Moreover, in ruling on a motion for summary judgment, the court "should take that view of the evidence most favorable to the party against whom it is directed, giving such party the benefit of all inferences." Inasmuch as this issue cannot be resolved merely from an interpretation of the defendant’s statements in his brief, the UCPB records must be produced and the CIIF witness must be heard to ensure that the conclusions that will be derived have factual basis and are thus, valid.

WHEREFORE, in view of the forgoing, the Motion for Partial Summary Judgment dated July 11, 2003 is hereby DENIED for lack of merit.

SO ORDERED.

Thereafter, on December 28, 2004, the Sandiganbayan resolved the other pending motions,53 viz:

WHEREFORE, in view of the foregoing, the Motion for Reconsideration dated May 25, 2004 filed by defendant Eduardo M. Cojuangco, Jr., et al. and the Class Action Omnibus Motion: (a) Motion to Dismiss for Lack of Subject Matter Jurisdiction and Alternatively, (b) Motion for Reconsideration dated May 26, 2004 filed by COCOFED, et al. and Ballares, et al. are hereby DENIED for lack of merit.

SO ORDERED.54

COCOFED moved to set the case for trial,55 but the Republic opposed the motion.56 On their part, Cojuangco, et al. also moved to set the trial,57 with the Republic similarly opposing the motion.58

On March 23, 2006, the Sandiganbayan granted the motions to set for trial and set the trial on August 8, 10, and 11, 2006.59

In the meanwhile, on August 9, 2005, the Republic filed a Motion for Execution of Partial Summary Judgment (re: CIIF block of SMC Shares of Stock),60 contending that an execution pending appeal was justified because any appeal by the defendants of the Partial Summary Judgment would be merely dilatory.

Cojuangco, et al. opposed the motion.61

The Sandiganbayan denied the Republic’s Motion for Execution of Partial Summary Judgment (re: CIIF block of SMC Shares of Stock),62 to wit:

WHEREFORE, the MOTION FOR EXECUTION OF PARTIAL SUMMARY JUDGMENT (RE: CIIF BLOCK OF SMC SHARES OF STOCK) dated August 8, 2005 of the plaintiff is hereby denied for lack of merit. However, this Court orders the severance of this particular claim of Plaintiff. The Partial Summary Judgment dated May 7, 2004 is now considered a separate final and appealable judgment with respect to the said CIIF Block of SMC shares of stock.

The Partial Summary Judgment rendered on May 7, 2004 is modified by deleting the last paragraph of the dispositive portion which will now read, as follows:

WHEREFORE, in view of the foregoing, we hold that:

The Motion for Partial Summary Judgment (Re: Defendants CIIF Companies, 14 Holding Companies and Cocofed, et al.) filed by Plaintiff is hereby GRANTED. ACCORDINGLY, THE CIIF COMPANIES, NAMELY:

1. Southern Coconut Oil Mills (SOLCOM);

2. Cagayan de Oro Oil Co., Inc. (CAGOIL);

3. Iligan Coconut Industries, Inc. (ILICOCO);

4. San Pablo Manufacturing Corp. (SPMC);

5. Granexport Manufacturing Corp.

(GRANEX); and

6. Legaspi Oil Co., Inc. (LEGOIL),

AS WELL AS THE 14 HOLDING COMPANIES, NAMELY:

1. Soriano Shares, Inc.;

2. ACS Investors, Inc.;

3. Roxas Shares, Inc.;

4. Arc Investors, Inc.;

5. Toda Holdings, Inc.;

6. AP Holdings, Inc.;

7. Fernandez Holdings, Inc.;

8. SMC Officers Corps, Inc.;

9. Te Deum Resources, Inc.;

10. Anglo Ventures, Inc.;

11. Randy Allied Ventures, Inc.;

12. Rock Steel Resources, Inc.;

13. Valhalla Properties Ltd., Inc.; and

14. First Meridian Development, Inc.

AND THE CIIF BLOCK OF SAN MIGUEL CORPORATION (SMC) SHARES OF STOCK TOTALING 33,133,266 SHARES AS OF 1983 TOGETHER WITH ALL DIVIDENDS DECLARED, PAID AND ISSUED THEREON AS WELL AS ANY INCREMENTS THERETO ARISING FROM, BUT NOT LIMITED TO, EXERCISE OF PRE-EMPTIVE RIGHTS ARE DECLARED OWNED BY THE GOVERNMENT IN TRUST FOR ALL THE COCONUT FARMERS AND ORDERED RECONVEYED TO THE GOVERNMENT.

The aforementioned Partial Summary Judgment is now deemed a separate appealable judgment which finally disposes of the ownership of the CIIF Block of SMC Shares, without prejudice to the continuation of proceedings with respect to the remaining claims particularly those pertaining to the Cojuangco, et al. block of SMC shares.

SO ORDERED.63

During the pendency of the Republic’s motion for execution, Cojuangco, et al. filed a Motion for Authority to Sell San Miguel Corporation (SMC) shares, praying for leave to allow the sale of SMC shares to proceed, exempted from the conditions set forth in the resolutions promulgated on October 3, 2003 and June 24, 2005.64 The Republic opposed, contending that the requested leave to sell would be tantamount to removing jurisdiction over the res or the subject of litigation.65

However, the Sandiganbayan eventually granted the Motion for Authority to Sell San Miguel Corporation (SMC) shares.66

Thereafter, Cojuangco, et al. manifested to the Sandiganbayan that the shares would be sold to the San Miguel Corporation
















Retirement Plan.67 Ruling on the manifestations of Cojuangco, et al., the Sandiganbayan issued its resolution of July 30, 2007 allowing the sale of the shares, to wit:

This notwithstanding however, while the Court exempts the sale from the express condition that it shall be subject to the outcome of the case, defendants Cojuangco, et al. may well be reminded that despite the deletion of the said condition, they cannot transfer to any buyer any interest higher than what they have. No one can transfer a right to another greater than what he himself has. Hence, in the event that the Republic prevails in the instant case, defendants Cojuangco, et al. hold themselves liable to their transferees-buyers, especially if they are buyers in good faith and for value. In such eventuality, defendants Cojuangco, et al. cannot be shielded by the cloak of principle of caveat emptor because case law has it that this rule only requires the purchaser to exercise such care and attention as is usually exercised by ordinarily prudent men in like business affairs, and only applies to defects which are open and patent to the service of one exercising such care.

Moreover, said defendants Eduardo M. Cojuangco, et al. are hereby ordered to render their report on the sale within ten (10) days from completion of the payment by the San Miguel Corporation Retirement Plan.

SO ORDERED.68

Cojuangco, et al. later rendered a complete accounting of the proceeds from the sale of the Cojuangco block of shares of SMC stock, informing that a total amount of P 4,786,107,428.34 had been paid to the UCPB as loan repayment.69

It appears that the trial concerning the disputed block of shares was not scheduled because the consideration and resolution of the aforecited motions for summary judgment occupied much of the ensuing proceedings.

At the hearing of August 8, 2006, the Republic manifested70 that it did not intend to present any testimonial evidence and asked for the marking of certain exhibits that it would have the Sandiganbayan take judicial notice of. The Republic was then allowed to mark certain documents as its Exhibits A to I, inclusive, following which it sought and was granted time within which to formally offer the exhibits.

On August 31, 2006, the Republic filed its Manifestation of Purposes (Re: Matters Requested or Judicial Notice on the 20% Shares in San Miguel Corporation Registered in the Respective Names of defendant Eduardo M. Cojuangco, Jr. and the defendant Cojuangco Companies).71

On September 18, 2006, the Sandiganbayan issued the following resolution,72 to wit:

Acting on the Manifestation of Purposes (Re: Matters Requested or Judicial Notice on the 20% Shares in San Miguel Corporation Registered in the Respective names of Defendant Eduardo M. Cojuangco, Jr. and the Defendant Cojuangco Companies) dated 28 August 2006 filed by the plaintiff, which has been considered its formal offer of evidence, and the Comment of Defendants Eduardo M. Cojuangco, Jr., et al. on Plaintiff’s "Manifestation of Purposes …" Dated August 30, 2006 dated September 15, 2006, the court resolves to ADMIT all the exhibits offered, i.e.:

• Exhibit "A" – the Answer of defendant Eduardo M. Cojuangco, Jr. to the Third Amended Complaint (Subdivided) dated June 23, 1999, as well as the sub-markings (Exhibit "A-1" to "A-4";

• Exhibit "B" – the "Pre-Trial Brief dated January 11, 2000 of defendant CIIF Oil Mills and fourteen (14) CIIF Holding Companies, as well as the sub-markings Exhibits "B-1" and "B-2"

• Exhibit "C" – the Pre-Trial Brief dated January 11, 2000 of defendant Eduardo M. Cojuangco, Jr. as well as the sub-markings Exhibits "C-1", "C-1-a" and "C-1-b";

• Exhibit "D" – the Plaintiff’s Motion for Summary Judgment [Re: Shares in San Miguel Corporation Registered in the Respective Names of Defendant Eduardo M. Cojuangco, Jr. and the Defendant Cojuangco Companies] dated July 11, 2003, as well as the sub-markings Exhibits "D-1" to "D-4"

the said exhibits being part of the record of the case, as well as

• Exhibit "E" – Presidential Decree No. 961 dated July 11, 1976;

• Exhibit "F" – Presidential Decree No. 755 dated July 29, 1975;

• Exhibit "G" – Presidential Decree No. 1468 dated June 11, 1978;

• Exhibit "H" – Decision of the Supreme Court in Republic vs. COCOFED, et al., G.R. Nos. 147062-64, December 14, 2001, 372 SCRA 462

the aforementioned exhibits being matters of public record.

The admission of these exhibits is being made over the objection of the defendants Cojuangco, et al. as to the relevance thereof and as to the purposes for which they were offered in evidence, which matters shall be taken into consideration by the Court in deciding the case on the merits.

The trial hereon shall proceed on November 21, 2006, at 8:30 in the morning as previously scheduled.73

During the hearing on November 24, 2006, Cojuangco, et al. filed their Submission and Offer of Evidence of Defendants,74 formally offering in evidence certain documents to substantiate their counterclaims, and informing that they found no need to present countervailing evidence because the Republic’s evidence did not prove the allegations of the Complaint. On December 5, 2006, after the Republic submitted its Comment,75 the Sandiganbayan admitted the exhibits offered by Cojuangco, et al., and granted the parties a non-extendible period within which to file their respective memoranda and reply-memoranda.

Thereafter, on February 23, 2007, the Sandiganbayan considered the case submitted for decision.76

ISSUES

The various issues submitted for consideration by the Court are summarized hereunder.

G.R. No. 166859

The Republic came to the Court via petition for certiorari77 to assail the denial of its Motion for Partial Summary Judgment through the resolution promulgated on December 10, 2004, insisting that the Sandiganbayan thereby committed grave abuse of discretion: (a) in holding that the various sources of funds used in acquiring the SMC shares of stock remained disputed; (b) in holding that it was disputed whether or not Cojuangco had served in the governing bodies of PCA, UCPB, and/or the CIIF Oil Mills; and (c) in not finding that Cojuangco had taken advantage of his position and had violated his fiduciary obligations in acquiring the SMC shares of stock in issue.

The Court will consider and resolve the issues thereby raised alongside the issues presented in G.R. No. 180702.

G.R. No. 169203













In the resolution promulgated on October 8, 2003, the Sandiganbayan declared as "automatically lifted for being null and void" nine writs of sequestration (WOS) issued against properties of Cojuangco and Cojuangco companies, considering that: (a) eight of them (i.e., WOS No. 86-0062 dated April 21, 1986; WOS No. 86-0069 dated April 22, 1986; WOS No. 86-0085 dated May 9, 1986; WOS No. 86-0095 dated May 16, 1986; WOS No. 86-0096 dated May 16, 1986; WOS No. 86-0097 dated May 16, 1986; WOS No. 86-0098 dated May 16, 1986; and WOS No. 87-0218 dated May 27, 1987) had been issued by only one PCGG Commissioner, contrary to the requirement of Section 3 of the Rules of the PCGG for at least two Commissioners to issue the WOS; and (b) the ninth (i.e., WOS No. 86-0042 dated April 8, 1986), although issued prior to the promulgation of the Rules of the PCGG requiring at least two Commissioners to issue the WOS, was void for being issued without prior determination by the PCGG of a prima facie basis for sequestration.1avvphi1

Nonetheless, despite its lifting of the nine WOS, the Sandiganbayan prescribed four conditions to be still "annotated in the relevant corporate books of San Miguel Corporation" considering that the Republic "continues to hold a claim on the shares which is yet to be resolved."78

In its resolution promulgated on June 24, 2005, the Sandiganbayan denied the Republic’s Motion for Reconsideration filed vis-a-vis the resolution promulgated on October 8, 2003, but reduced the conditions earlier imposed to only two.79

On September 1, 2005, the Republic filed a petition for certiorari80 to annul the resolutions promulgated on October 8, 2003 and on June 24, 2005 on the ground that the Sandiganbayan had thereby committed grave abuse of discretion:

I.

XXX IN LIFTING WRIT OF SEQUESTRATION NOS. 86-0042 AND 87-0218 DESPITE EXISTENCE OF THE BASIC REQUISITES FOR THE VALIDITY OF SEQUESTRATION.

II.

XXX WHEN IT DENIED PETITIONER’S ALTERNATIVE PRAYER IN ITS MOTION FOR RECONSIDERATION FOR THE ISSUANCE OF AN ORDER OF SEQUESTRATION AGAINST ALL THE SUBJECT SHARES OF STOCK IN ACCORDNCE WITH THE RULING IN REPUBLIC VS. SANDIGANBAYAN, 258 SCRA 685 (1996).

III.

XXX IN SUBSEQUENTLY DELETING THE LAST TWO (2) CONDITIONS WHICH IT EARLIER IMPOSED ON THE SUBJECT SHARES OF STOCK.81

G.R. No. 180702

On November 28, 2007, the Sandiganbayan promulgated its decision,82 decreeing as follows:

WHEREFORE, in view of all the foregoing, the Court is constrained to DISMISS, as it hereby DISMISSES, the Third Amended Complaint in subdivided Civil Case No. 0033-F for failure of plaintiff to prove by preponderance of evidence its causes of action against defendants with respect to the twenty percent (20%) outstanding shares of stock of San Miguel Corporation registered in defendants’ names, denominated herein as the "Cojuangco, et al. block" of SMC shares. For lack of satisfactory warrant, the counterclaims in defendants’ Answers are likewise ordered dismissed.

SO ORDERED.

Hence, the Republic appeals, positing:

I.

COCONUT LEVY FUNDS ARE PUBLIC FUNDS. THE SMC SHARES, WHICH WERE ACQUIRED BY RESPONDENTS COJUANGCO, JR. AND THE COJUANGCO COMPANIES WITH THE USE OF COCONUT LEVY FUNDS – IN VIOLATION OF RESPONDENT COJUANGCO, JR.’S FIDUCIARY OBLIGATION – ARE, NECESSARILY, PUBLIC IN CHARACTER AND SHOULD BE RECONVEYED TO THE GOVERNMENT.

II.

PETITIONER HAS CLEARLY DEMONSTRATED ITS ENTITLEMENT, AS A MATTER OF LAW, TO THE RELIEFS PRAYED FOR.83

and urging the following issues to be resolved, to wit:

I.

WHETHER THE HONORABLE SANDIGANBAYAN COMMITTED A REVERSIBLE ERROR WHEN IT DISMISSED CIVIL CASE NO. 0033-F; AND

II.

WHETHER OR NOT THE SUBJECT SHARES IN SMC, WHICH WERE ACQUIRED BY, AND ARE IN THE RESPECTIVE NAMES OF RESPONDENTS COJUANGCO, JR. AND THE COJUANGCO COMPANIES, SHOULD BE RECONVEYED TO THE REPUBLIC OF THE PHILIPPINES FOR HAVING BEEN ACQUIRED USING COCONUT LEVY FUNDS.84

On their part, the petitioners-in-intervention85 submit the following issues, to wit:

I

WHETHER OR NOT THE COURT A QUO GRAVELY ERRED AND DECIDED THE CASE A QUO IN VIOLATION OF LAW AND APPLICABLE RULINGS OF THE HONORABLE COURT IN RULING THAT, WHILE ADMITTEDLY THE SUBJECT SMC SHARES WERE PURCHASED FROM LOAN PROCEEDS FROM UCPB AND ADVANCES FROM THE CIIF OIL MILLS, SAID SUBJECT SMC SHARES ARE NOT PUBLIC PROPERTY

II

WHETHER OR NOT THE COURT A QUO GRAVELY ERRED AND DECIDED THE CASE A QUO IN VIOLATION OF LAW AND APPLICABLE RULINGS OF THE HONORABLE COURT IN FAILING TO RULE THAT, EVEN ASSUMING FOR THE SAKE OF ARGUMENT THAT LOAN PROCEEDS FROM UCPB ARE NOT PUBLIC FINDS, STILL, SINCE RESPONDENT COJUANGCO, IN THE PURCHASE OF THE SUBJECT SMC SHARES FROM SUCH LOAN PROCEEDS, VIOLATED HIS FIDUCIARY DUTIES AND TOOK A COMMERCIAL OPPORTUNITY THAT RIGHTFULLY BELONGED TO UCPB (A PUBLIC CORPORATION), THE SUBJECT SMC SHARES SHOULD REVERT BACK TO THE GOVERNMENT.

RULING

We deny all the petitions of the Republic.

I

Lifting of nine WOS for violation of PCGG Rules did not constitute grave abuse of discretion










Through its resolution promulgated on June 24, 2005, assailed on certiorari in G.R. No. 169203, the Sandiganbayan lifted the nine WOS for the following reasons, to wit:

Having studied the antecedent facts, this Court shall now resolve the pending incidents especially defendants’ "Motion to Affirm that the Writs or Orders of Sequestration Issued on Defendants’ Properties Were Unauthorized, Invalid and Never Became Effective" dated March 5, 1999.

Section 3 of the PCGG Rules and Regulations promulgated on April 11, 1986, provides:

"Sec. 3. Who may issue. – A writ of sequestration or a freeze or hold order may be issued by the Commission upon the authority of at least two Commissioners, based on the affirmation or complaint of an interested party or motu propio (sic) the issuance thereof is warranted."

In this present case, of all the questioned writs of sequestration issued after the effectivity of the PCGG Rules and Regulations or after April 11, 1986, only writ no. 87-0218 issued on May 27, 1987 complied with the requirement that it be issued by at least two Commissioners, the same having been issued by Commissioners Ramon E. Rodrigo and Quintin S. Doromal. However, even if Writ of Sequestration No. 87-0218 complied with the requirement that the same be issued by at least two Commissioners, the records fail to show that it was issued with factual basis or with factual foundation as can be seen from the Certification of the Commission Secretary of the PCGG of the excerpt of the minutes of the meeting of the PCGG held on May 26, 1987, stating therein that:

"The Commission approved the recommendation of Dir. Cruz to sequester all the shares of stock, assets, records, and documents of Balete Ranch, Inc. and the appointment of the Fiscal Committee with ECI Challenge, Inc./Pepsi-Cola for Balete Ranch, Inc. and the Aquacor Marketing Corp. vice Atty. S. Occena. The objective is to consolidate the Fiscal Committee activities covering three associated entities of Mr. Eduardo Cojuangco.Upon recommendation of Comm. Rodrigo, the reconstitution of the Board of Directors of the three companies was deferred for further study."

Nothing in the above-quoted certificate shows that there was a prior determination of a factual basis or factual foundation. It is the absence of a prima facie basis for the issuance of a writ of sequestration and not the lack of authority of two (2) Commissioners which renders the said writ void ab initio. Thus, being the case, Writ of Sequestration No. 87-0218 must be automatically lifted.

As declared by the Honorable Supreme Court in two cases it has decided,

"The absence of a prior determination by the PCGG of a prima facie basis for the sequestration order is, unavoidably, a fatal defect which rendered the sequestration of respondent corporation and its properties void ab initio." And

"The corporation or entity against which such writ is directed will not be able to visually determine its validity, unless the required signatures of at least two commissioners authorizing its issuance appear on the very document itself. The issuance of sequestration orders requires the existence of a prima facie case. The two –commissioner rule is obviously intended to assure a collegial determination of such fact. In this light, a writ bearing only one signature is an obvious transgression of the PCGG Rules."

Consequently, the writs of sequestration nos. 86-0062, 86-0069, 86-0085, 86-0095, 86-0096, 86-0097 and 86-0098 must be lifted for not having complied with the pertinent provisions of the PCGG Rules and Regulations, all of which were issued by only one Commissioner and after April 11, 1986 when the PCGG Rules and Regulations took effect, an utter disregard of the PCGG’s Rules and Regulations. The Honorable Supreme Court has stated that:

"Obviously, Section 3 of the PCGG Rules was intended to protect the public from improvident, reckless and needless sequestrations of private property. And since these Rules were issued by Respondent Commission, it should be the first entity to observe them."

Anent the writ of sequestration no. 86-0042 which was issued on April 8, 1986 or prior to the promulgation of the PCGG Rules and Regulations on April 11, 1986, the same cannot be declared void on the ground that it was signed by only one Commissioner because at the time it was issued, the Rules and Regulations of the PCGG were not yet in effect. However, it again appears that there was no prior determination of the existence of a prima facie basis or factual foundation for the issuance of the said writ. The PCGG, despite sufficient time afforded by this Court to show that a prima facie basis existed prior to the issuance of Writ No. 86-0042, failed to do so. Nothing in the records submitted by the PCGG in compliance of the Resolutions and Order of this Court would reveal that a meeting was held by the Commission for the purpose of determining the existence of a prima facieevidence prior to its issuance. In a case decided by the Honorable Supreme Court, wherein it involved a writ of sequestration issued by the PCGG on March 19, 1986 against all assets, movable and immovable, of Provident International Resources Corporation and Philippine Casino Operators Corporation, the Honorable Supreme Court enunciated:

"The questioned sequestration order was, however issued on March 19, 1986, prior to the promulgation of the PCGG Rules and Regulations. As a consequence, we cannot reasonably expect the commission to abide by said rules, which were nonexistent at the time the subject writ was issued by then Commissioner Mary Concepcion Bautista. Basic is the rule that no statute, decree, ordinance, rule or regulation (and even policies) shall be given retrospective effect unless explicitly stated so. We find no provision in said Rules which expressly gives them retroactive effect, or implies the abrogation of previous writs issued not in accordance with the same Rules. Rather, what said Rules provide is that they "shall be effective immediately," which in legal parlance, is understood as "upon promulgation". Only penal laws are given retroactive effect insofar as they favor the accused.

We distinguish this case from Republic vs. Sandiganbayan, Romualdez and Dio Island Resort, G.R. No. 88126, July 12, 1996 where the sequestration order against Dio Island Resort, dated April 14, 1986, was prepared, issued and signed not by two commissioners of the PCGG, but by the head of its task force in Region VIII. In holding that said order was not valid since it was not issued in accordance with PCGG Rules and Regulations, we explained:

"(Sec. 3 of the PCGG Rules and Regulations), couched in clear and simple language, leaves no room for interpretation. On the basis thereof, it is indubitable that under no circumstances can a sequestration or freeze order be validly issued by one not a commissioner of the PCGG.

x x x x x x x x x

Even assuming arguendo that Atty. Ramirez had been given prior authority by the PCGG to place Dio Island Resort under sequestration, nevertheless, the sequestration order he issued is still void since PCGG may not delegate its authority to sequester to its representatives and subordinates, and any such delegation is valid and ineffective."

We further said:

"In the instant case, there was clearly no prior determination made by the PCGG of a prima facie basis for the sequestration of Dio Island Resort, Inc. x x x

x x x x x x x x x

The absence of a prior determination by the PCGG of a prima facie basis for the sequestration order is, unavoidably, a fatal defect which rendered the sequestration of respondent corporation and its properties void ab initio. Being void ab initio, it


is deemed nonexistent, as though it had never been issued, and therefore is not subject to ratification by the PCGG.

What were obviously lacking in the above case were the basic requisites for the validity of a sequestration order which we laid down in BASECO vs. PCGG, 150 SCRA 181, 216, May 27, 1987, thus:

"Section (3) of the Commission’s Rules and regulations provides that sequestration or freeze (and takeover) orders issue upon the authority of at least two commissioners, based on the affirmation or complaint of an interested party, or motu propio (sic) when the Commission has reasonable grounds to believe that the issuance thereof is warranted."

In the case at bar, there is no question as to the presence of prima facie evidence justifying the issuance of the sequestration order against respondent corporations. But the said order cannot be nullified for lack of the other requisite (authority of at least two commissioners) since, as explained earlier, such requisite was nonexistent at the time the order was issued."

As to the argument of the Plaintiff Republic that Defendants Cojuangco, et al. have not shown any contrary prima facie proof that the properties subject matter of the writs of sequestration were legitimate acquisitions, the same is misplaced. It is a basic legal doctrine, as well as many times enunciated by the Honorable Supreme Court that when a prima facie proof is required in the issuance of a writ, the party seeking such extraordinary writ must establish that it is entitled to it by complying strictly with the requirements for its issuance and not the party against whom the writ is being sought for to establish that the writ should not be issued against it.

According to the Republic, the Sandiganbayan thereby gravely abused its discretion in: (a) in lifting WOS No. 86-0042 and No. 87-0218 despite the basic requisites for the validity of sequestration being existent; (b) in denying the Republic’s alternative prayer for the issuance of an order of sequestration against all the subject shares of stock in accordance with the ruling in Republic v. Sandiganbayan, 258 SCRA 685, as stated in its Motion For Reconsideration; and (c) in deleting the last two conditions the Sandiganbayan had earlier imposed on the subject shares of stock.

We sustain the lifting of the nine WOS for the reasons made extant in the assailed resolution of October 8, 2003, supra.

Section 3 of the Rules of the PCGG, promulgated on April 11, 1986, provides:

Section 3. Who may issue. – A writ of sequestration or a freeze or hold order may be issued by the Commission upon the authority of at least two Commissioners, based on the affirmation or complaint of an interested party or motu proprio when the Commission has reasonable grounds to believe that the issuance thereof is warranted.

Conformably with Section 3, supra, WOS No. 86-0062 dated April 21, 1986; WOS No. 86-0069 dated April 22, 1986; WOS No. 86-0085 dated May 9, 1986; WOS No. 86-0095 dated May 16, 1986; WOS No. 86-0096 dated May 16, 1986; WOS No. 86-0097 dated May 16, 1986; and WOS No. 86-0098 dated May 16, 1986 were lawfully and correctly nullified considering that only one PCGG Commissioner had issued them.

Similarly, WOS No. 86-0042 dated April 8, 1986 and WOS No. 87-0218 dated May 27, 1987 were lawfully and correctly nullified ̶ notwithstanding that WOS No. 86-0042, albeit signed by only one Commissioner (i.e., Commissioner Mary Concepcion Bautista), was not at the time of its issuance subject to the two-Commissioners rule, and WOS No. 87-0218, albeit already issued under the signatures of two Commissioners ̶ considering that both had been issued without a prior determination by the PCGG of a prima facie basis for the sequestration.

Plainly enough, the irregularities infirming the issuance of the several WOS could not be ignored in favor of the Republic and resolved against the persons whose properties were subject of the WOS. Where the Rules of the PCGG instituted safeguards under Section 3, supra, by requiring the concurrent signatures of two Commissioners to every WOS issued and the existence of a prima facie case of ill gotten wealth to support the issuance, the non-compliance with either of the safeguards nullified the WOS thus issued. It is already settled that sequestration, due to its tendency to impede or limit the exercise of proprietary rights by private citizens, is construed strictly against the State, conformably with the legal maxim that statutes in derogation of common rights are generally strictly construed and rigidly confined to the cases clearly within their scope and purpose.86

Consequently, the nullification of the nine WOS, being in implementation of the safeguards the PCGG itself had instituted, did not constitute any abuse of its discretion, least of all grave, on the part of the Sandiganbayan.

Nor did the Sandiganbayan gravely abuse its discretion in reducing from four to only two the conditions imposed for the lifting of the WOS. The Sandiganbayan thereby acted with the best of intentions, being all too aware that the claim of the Republic to the sequestered assets and properties might be prejudiced or harmed pendente lite unless the protective conditions were annotated in the corporate books of SMC. Moreover, the issue

became academic following the Sandiganbayan’s promulgation of its decision dismissing the Republic’s Amended Complaint, which thereby removed the stated reason – "the Republic continues to hold a claim on the shares which is yet to be resolved" – underlying the need for the annotation of the conditions (whether four or two).

II

The Concept and Genesis of Ill-Gotten Wealth in the Philippine Setting

A brief review of the Philippine law and jurisprudence pertinent to ill-gotten wealth should furnish an illuminating backdrop for further discussion.

In the immediate aftermath of the peaceful 1986 EDSA Revolution, the administration of President Corazon C. Aquino saw to it, among others, that rules defining the authority of the government and its instrumentalities were promptly put in place. It is significant to point out, however, that the administration likewise defined the limitations of the authority.

The first official issuance of President Aquino, which was made on February 28, 1986, or just two days after the EDSA Revolution, was Executive Order (E.O.) No. 1, which created the Presidential Commission on Good Government (PCGG). Ostensibly, E.O. No. 1 was the first issuance in light of the EDSA Revolution having come about mainly to address the pillage of the nation’s wealth by President Marcos, his family, and cronies.

E.O. No. 1 contained only two WHEREAS Clauses, to wit:

WHEREAS, vast resources of the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad;

WHEREAS, there is an urgent need to recover all ill-gotten wealth;87

Paragraph (4) of E.O. No. 288 further required that the wealth, to be ill-gotten, must be "acquired by them through or as a result of improper or illegal use of or the conversion of funds belonging to the Government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their official position, authority, relationship, connection or influence to unjustly enrich themselves at the expense and to the grave damage and prejudice of the Filipino people and the Republic of the Philippines."





Although E.O. No. 1 and the other issuances dealing with ill-gotten wealth (i.e., E.O. No. 2, E.O. No. 14, and E.O. No. 14-A) only identified the subject matter of ill-gotten wealth and the persons who could amass ill-gotten wealth and did not include an explicit definition of ill-gotten wealth, we can still discern the meaning and concept of ill-gotten wealth from the WHEREAS Clauses themselves of E.O. No. 1, in that ill-gotten wealth consisted of the "vast resources of the government" amassed by "former President Ferdinand E. Marcos, his immediate family, relatives and close associates both here and abroad." It is clear, therefore, that ill-gotten wealth would not include all the properties of President Marcos, his immediate family, relatives, and close associates but only the part that originated from the "vast resources of the government."

In time and unavoidably, the Supreme Court elaborated on the meaning and concept of ill-gotten wealth. In Bataan Shipyard & Engineering Co., Inc. v. Presidential Commission on Good Government,89 or BASECO, for the sake of brevity, the Court held that:

xxx until it can be determined, through appropriate judicial proceedings, whether the property was in truth "ill-gotten," i.e., acquired through or as a result of improper or illegal use of or the conversion of funds belonging to the Government or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of official position, authority, relationship, connection or influence, resulting in unjust enrichment of the ostensible owner and grave damage and prejudice to the State. And this, too, is the sense in which the term is commonly understood in other jurisdictions.90

The BASECO definition of ill-gotten wealth was reiterated in Presidential Commission on Good Government v. Lucio C. Tan,91 where the Court said:

On this point, we find it relevant to define "ill-gotten wealth." In Bataan Shipyard and Engineering Co., Inc., this Court described "ill-gotten wealth" as follows:

"Ill-gotten wealth is that acquired through or as a result of improper or illegal use of or the conversion of funds belonging to the Government or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of official position, authority, relationship, connection or influence, resulting in unjust enrichment of the ostensible owner and grave damage and prejudice to the State. And this, too, is the sense in which the term is commonly understood in other jurisdiction."

Concerning respondents’ shares of stock here, there is no evidence presented by petitioner that they belong to the Government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions. Nor is there evidence that respondents, taking undue advantage of their connections or relationship with former President Marcos or his family, relatives and close associates, were able to acquire those shares of stock.

Incidentally, in its 1998 ruling in Chavez v. Presidential Commission on Good Government,92 the Court rendered an identical definition of ill-gotten wealth, viz:

xxx. We may also add that ‘ill-gotten wealth’, by its very nature, assumes a public character. Based on the aforementioned Executive Orders, ‘ill-gotten wealth’ refers to assets and properties purportedly acquired, directly or indirectly, by former President Marcos, his immediate family, relatives and close associates through or as a result of their improper or illegal use of government funds or properties; or their having taken undue advantage of their public office; or their use of powers, influence or relationships, "resulting in their unjust enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the Philippines."Clearly, the assets and properties referred to supposedly originated from the government itself. To all intents and purposes, therefore, they belong to the people. As such, upon reconveyance they will be returned to the public treasury, subject only to the satisfaction of positive claims of certain persons as may be adjudged by competent courts. Another declared overriding consideration for the expeditious recovery of ill-gotten wealth is that it may be used for national economic recovery.

All these judicial pronouncements demand two concurring elements to be present before assets or properties were considered as ill-gotten wealth, namely: (a) they must have "originated from the government itself," and (b) they must have been taken by former President Marcos, his immediate family, relatives, and close associates by illegal means.

But settling the sources and the kinds of assets and property covered by E.O. No. 1 and related issuances did not complete the definition of ill-gotten wealth. The further requirement was that the assets and property should have been amassed by former President Marcos, his immediate family, relatives, and close associates both here and abroad. In this regard, identifying former President Marcos, his immediate family, and relatives was not difficult, but identifying other persons who might be the close associates of former President Marcos presented an inherent difficulty, because it was not fair and just to include within the term close associates everyone who had had any association with President Marcos, his immediate family, and relatives.

Again, through several rulings, the Court became the arbiter to determine who were the close associates within the coverage of E.O. No. 1.

In Republic v. Migriño,93 the Court held that respondents Migriño, et al. were not necessarily among the persons covered by the term close subordinate or close associate of former President Marcos by reason alone of their having served as government officials or employees during the Marcos administration, viz:

It does not suffice, as in this case, that the respondent is or was a government official or employee during the administration of former Pres. Marcos. There must be a prima facie showing that the respondent unlawfully accumulated wealth by virtue of his close association or relation with former Pres. Marcos and/or his wife. This is so because otherwise the respondent’s case will fall under existing general laws and procedures on the matter. xxx

In Cruz, Jr. v. Sandiganbayan,94 the Court declared that the petitioner was not a close associate as the term was used in E.O. No. 1 just because he had served as the President and General Manager of the GSIS during the Marcos administration.

In Republic v. Sandiganbayan,95 the Court stated that respondent Maj. Gen. Josephus Q. Ramas’ having been a Commanding General of the Philippine Army during the Marcos administration "d[id] not automatically make him a subordinate of former President Ferdinand Marcos as this term is used in Executive Order Nos. 1, 2, 14 and 14-A absent a showing that he enjoyed close association with former President Marcos."

It is well to point out, consequently, that the distinction laid down by E.O. No. 1 and its related issuances, and expounded by relevant judicial pronouncements unavoidably required competent evidentiary substantiation made in appropriate judicial proceedings to determine: (a) whether the assets or properties involved had come from the vast resources of government, and (b) whether the individuals owning or holding such assets or properties were close associates of President Marcos. The requirement of competent evidentiary substantiation made in appropriate judicial proceedings was imposed because the factual premises for the reconveyance of the assets or properties in favor of the government due to their being ill-gotten wealth could not be simply assumed. Indeed, in BASECO,96 the Court made this clear enough by emphatically observing:

6. Government’s Right and Duty to Recover All Ill-gotten Wealth

There can be no debate about the validity and eminent propriety of the Government’s plan "to recover all ill-gotten wealth."










Neither can there be any debate about the proposition that assuming the above described factual premises of the Executive Orders and Proclamation No. 3 to be true, to be demonstrable by competent evidence, the recovery from Marcos, his family and his minions of the assets and properties involved, is not only a right but a duty on the part of Government.

But however plain and valid that right and duty may be, still a balance must be sought with the equally compelling necessity that a proper respect be accorded and adequate protection assured, the fundamental rights of private property and free enterprise which are deemed pillars of a free society such as ours, and to which all members of that society may without exception lay claim.

xxx Democracy, as a way of life enshrined in the Constitution, embraces as its necessary components freedom of conscience, freedom of expression, and freedom in the pursuit of happiness. Along with these freedoms are included economic freedom and freedom of enterprise within reasonable bounds and under proper control. xxx Evincing much concern for the protection of property, the Constitution distinctly recognizes the preferred position which real estate has occupied in law for ages. Property is bound up with every aspect of social life in a democracy as democracy is conceived in the Constitution. The Constitution realizes the indispensable role which property, owned in reasonable quantities and used legitimately, plays in the stimulation to economic effort and the formation and growth of a solid social middle class that is said to be the bulwark of democracy and the backbone of every progressive and happy country.

a. Need of Evidentiary Substantiation in Proper Suit

Consequently, the factual premises of the Executive Orders cannot simply be assumed. They will have to be duly established by adequate proof in each case, in a proper judicial proceeding, so that the recovery of the ill-gotten wealth may be validly and properly adjudged and consummated; although there are some who maintain that the fact — that an immense fortune, and "vast resources of the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad," and they have resorted to all sorts of clever schemes and manipulations to disguise and hide their illicit acquisitions — is within the realm of judicial notice, being of so extensive notoriety as to dispense with proof thereof. Be this as it may, the requirement of evidentiary substantiation has been expressly acknowledged, and the procedure to be followed explicitly laid down, in Executive Order No. 14. 97

Accordingly, the Republic should furnish to the Sandiganbayan in proper judicial proceedings the competent evidence proving who were the close associates of President Marcos who had amassed assets and properties that would be rightly considered as ill-gotten wealth.

III.

Summary Judgment was not warranted;

The Republic should have adduced evidence to substantiate its allegations against the Respondents

We affirm the decision of November 28, 2007, because the Republic did not discharge its burden as the plaintiff to establish by preponderance of evidence that the respondents’ SMC shares were illegally acquired with coconut-levy funds.

The decision of November 28, 2007 fully explained why the Sandiganbayan dismissed the Republic’s case against Cojuangco, et al., viz:

Going over the evidence, especially the laws, i.e., P.D. No. 961, P.D. No. 755, and P.D. No. 1468, over which plaintiff prayed that Court to take judicial notice of, it is worth noting that these same laws were cited by plaintiff when it filed its motion for judgment on the pleadings and/or summary judgment regarding the CIIF block of SMC shares of stock. Thus, the Court has already passed upon the same laws when it arrived at judgment determining ownership of the CIIF block of SMC shares of stock. Pertinently, in the Partial Summary Judgment promulgated on May 7, 2004, the Court gave the following rulings finding certain provisions of the above-cited laws to be constitutionally infirmed, thus:

In this case, Section 2(d) and Section 9 and 10, Article III, of P.D. Nos. 961 and 1468 mandated the UCPB to utilize the CIIF, an accumulation of a portion of the CCSF and the CIDF, for investment in the form of shares of stock in corporations organized for the purpose of engaging in the establishment and the operation of industries and commercial activities and other allied business undertakings relating to coconut and other palm oils industry in all aspects. The investments made by UCPB in CIIF companies are required by the said Decrees to be equitably distributed for free by the said bank to the coconut farmers (Sec. 10, P.D. No. 961 and Sec. 10, P.D. No. 1468). The public purpose sought to be served by the free distribution of the shares of stock acquired with the use of public funds is not evident in the laws mentioned. More specifically, it is not clear how private ownership of the shares of stock acquired with public funds can serve a public purpose. The mode of distribution of the shares of stock also left much room for the diversion of assets acquired

through public funds into private uses or to serve directly private interests, contrary to the Constitution. In the said distribution, defendants COCOFED, et al. and Ballares, et al. admitted that UCPB followed the administrative issuances of PCA which we found to be constitutionally objectionable in our Partial Summary Judgment in Civil Case No. 0033-A, the pertinent portions of which are quoted hereunder:

x x x x x x x x x

The distribution for free of the shares of stock of the CIIF Companies is tainted with the above-mentioned constitutional infirmities of the PCA administrative issuances. In view of the foregoing, we cannot consider the provision of P.D. No. 961 and P.D. No. 1468 and the implementing regulations issued by the PCA as valid legal basis to hold that assets acquired with public funds have legitimately become private properties.

The CIIF Companies having been acquired with public funds, the 14 CIIF-owned Holding Companies and all their assets, including the CIIF Block of SMC Shares, being public in character, belong to the government. Even granting that the 14 Holding Companies acquired the SMC Shares through CIIF advances and UCPB loans, said advances and loans are still the obligations of the said companies. The incorporating equity or capital of the 14 Holding Companies, which were allegedly used also for the acquisition of the subject SMC shares, being wholly owned by the CIIF Companies, likewise form part of the coconut levy funds, and thus belong to the government in trust for the ultimate beneficiaries thereof, which are all the coconut farmers.

x x x x x x x x x

And, with the above-findings of the Court, the CIIF block of SMC shares were subsequently declared to be of public character and should be reconveyed to the government in trust for coconut farmers. The foregoing findings notwithstanding, a question now arises on whether the same laws can likewise serve as ultimate basis for a finding that the Cojuangco, et al. block of SMC shares are also imbued with public character and should rightfully be reconveyed to the government.

On this point, the Court disagrees with plaintiff that reliance on said laws would suffice to prove that defendants Cojuangco, et al.’s acquisition of SMC shares of stock was illegal as public funds were used. For one, plaintiff’s reliance thereon has always had reference only to the CIIF block of shares, and the Court has already settled the same by going over the laws and quoting related findings in the Partial Summary judgment rendered in Civil Case No. 0033-A. For another, the allegations of plaintiff pertaining to the Cojuangco block representing twenty percent



(20%) of the outstanding capital stock of SMC stress defendant Cojuangco’s acquisition by virtue of his positions as Chief Executive Officer of UCPB, a member-director of the Philippine Coconut Authority (PCA) Governing Board, and a director of the CIIF Oil Mills. Thus, reference to the said laws would not settle whether there was abuse on the part of defendants Cojuangco, et al. of their positions to acquire the SMC shares. 98

Besides, in the Resolution of the Court on plaintiff’s Motion for Parial Summary Judgment (Re: Shares in San Miguel Corporation Registered in the Respective Names of Defendants Eduardo M. Cojuangco, Jr. and the defendant Cojuangco Companies), the Court already rejected plaintiff’s reference to said laws. In fact, the Court declined to grant plaintiff’s motion for partial summary judgment because it simply contended that defendant Cojuangco’s statements in his pleadings, which plaintiff again offered in evidence herein, regarding the presentation of a possible CIIF witness as well as UCPB records can already be considered admissions of defendants’ exclusive use and misuse of coconut levy funds. In the said resolution, the Court already reminded plaintiff that the issues cannot be resolved by plaintiff’s interpretation of defendant Cojuangco’s statements in his brief. Thus, the substantial portion of the Resolution of the Court denying plaintiff’s motion for partial summary judgment is again quoted for emphasis: 99

We cannot agree with the plaintiff’s contention that the defendant’s statements in his Pre-Trial Brief regarding the presentation of a possible CIIF witness as well as UCPB records, can already be considered as admissions of the defendant’s exclusive use and misuse of coconut levy funds to acquire the subject SMC shares and defendant Cojuangco’s alleged taking advantage of his positions to acquire the subject SMC shares. Moreover, in ruling on a motion for summary judgment, the court "should take that view of the evidence most favorable to the party against whom it is directed, giving such party the benefit of all favorable inferences." Inasmuch as this issue cannot be resolved merely from an interpretation of the defendant’s statements in his brief, the UCPB records must be produced and the CIIF witness must be heard to ensure that the conclusions that will be derived have factual basis and are thus, valid. 100

WHEREFORE, in view of the foregoing, the Motion for Partial Summary Judgment dated July 11, 2003 is hereby DENIED for lack of merit.

SO ORDERED.

(Emphasis supplied)

Even assuming that, as plaintiff prayed for, the Court takes judicial notice of the evidence it offered with respect to the Cojuangco block of SMC shares of stock, as contained in plaintiff’s manifestation of purposes, still its evidence do not suffice to prove the material allegations in the complaint that Cojuangco took advantage of his positions in UCPB and PCA in order to acquire the said shares. As above-quoted, the Court, itself, has already ruled, and hereby stress that "UCPB records must be produced and the CIIF witness must be heard to ensure that the conclusions that will be derived have factual basis and are thus, valid." Besides, the Court found that there are genuine factual issues raised by defendants that need to be threshed out in a full-blown trial, and which plaintiff had the burden to substantially prove. Thus, the Court outlined these genuine factual issues as follows:

1) What are the "various sources" of funds, which defendant Cojuangco and his companies claim they utilized to acquire the disputed SMC shares?

2) Whether or not such funds acquired from alleged "various sources" can be considered coconut levy funds;

3) Whether or not defendant Cojuangco had indeed served in the governing bodies of PCA, UCPB and/or CIIF Oil Mills at the time the funds used to purchase the SMC shares were obtained such that he owed a fiduciary duty to render an account to these entities as well as to the coconut farmers;

4) Whether or not defendant Cojuangco took advantage of his position and/or close ties with then President Marcos to obtain favorable concessions or exemptions from the usual financial requirements from the lending banks and/or coco-levy funded companies, in order to raise the funds to acquire the disputed SMC shares; and if so, what are these favorable concessions or exemptions?101

Answers to these issues are not evident from the submissions of plaintiff and must therefore be proven through the presentation of relevant and competent evidence during trial. A perusal of the subject Motion shows that the plaintiff hastily derived conclusions from the defendants’ statements in their previous pleadings although such conclusions were not supported by categorical facts but only mere inferences. xxx xxx xxx." (Emphasis supplied)102

Despite the foregoing pronouncement of the Court, plaintiff did not present any other evidence during the trial of this case but

instead made its manifestation of purposes, that later served as its offer of evidence in the instant case, that merely used the same evidence it had already relied upon when it moved for partial summary judgment over the Cojuangco block of SMC shares. Altogether, the Court finds the same insufficient to prove plaintiff’s allegations in the complaint because more than judicial notices, the factual issues require the presentation of admissible, competent and relevant evidence in accordance with Sections 3 and 4, Rule 128 of the Rules on Evidence.

Moreover, the propriety of taking judicial notice of plaintiff’s exhibits is aptly questioned by defendants Cojuangco, et al. Certainly, the Court can take judicial notice of laws pertaining to the coconut levy funds as well as decisions of the Supreme Court relative thereto, but taking judicial notice does not mean that the Court would accord full probative value to these exhibits. Judicial notice is based upon convenience and expediency for it would certainly be superfluous, inconvenient, and expensive both to parties and the court to require proof, in the ordinary way, of facts which are already known to courts. However, a court cannot take judicial notice of a factual matter in controversy. Certainly, there are genuine factual matters in the instant case, as above-cited, which plaintiff ought to have proven with relevant and competent evidence other than the exhibits it offered.

Referring to plaintiff’s causes of action against defendants Cojuangco, et al., the Court finds its evidence insufficient to prove that the source of funds used to purchase SMC shares indeed came from coconut levy funds. In fact, there is no direct link that the loans obtained by defendant Cojuangco, Jr. were the same money used to pay for the SMC shares. The scheme alleged to have been taken by defendant Cojuangco, Jr. was not even established by any paper trail or testimonial evidence that would have identified the same. On account of his positions in the UCPB, PCA and the CIIF Oil Mills, the Court cannot conclude that he violated the fiduciary obligations of the positions he held in the absence of proof that he was so actuated and that he abused his positions.103

It was plain, indeed, that Cojuangco, et al. had tendered genuine issues through their responsive pleadings and did not admit that the acquisition of the Cojuangco block of SMC shares had been illegal, or had been made with public funds. As a result, the Republic needed to establish its allegations with preponderant competent evidence, because, as earlier stated, the fact that property was ill gotten could not be presumed but must be substantiated with competent proof adduced in proper judicial proceedings. That the Republic opted not to adduce competent evidence thereon despite stern reminders and warnings from the Sandiganbayan to do so revealed that the Republic did not have the competent evidence to prove its allegations against Cojuangco, et al.








Still, the Republic, relying on the 2001 holding in Republic v. COCOFED,104 pleads in its petition for review (G.R. No. 180702) that:

With all due respect, the Honorable Sandiganbayan failed to consider legal precepts and procedural principles vis-à-vis the records of the case showing that the funds or "various loans" or "advances" used in the acquisition of the disputed SMC Shares ultimately came from the coconut levy funds.

As discussed hereunder, respondents’ own admissions in their Answers and Pre-Trial Briefs confirm that the "various sources" of funds utilized in the acquisition of the disputed SMC shares came from "borrowings" and "advances" from the UCPB and the CIIF Oil Mills.105

Thereby, the Republic would have the Sandiganbayan pronounce the block of SMC shares of stock acquired by Cojuangco, et al. as ill-gotten wealth even without the Republic first presenting preponderant evidence establishing that such block had been acquired illegally and with the use of coconut levy funds.

The Court cannot heed the Republic’s pleas for the following reasons:

To begin with, it is notable that the decision of November 28, 2007 did not rule on whether coconut levy funds were public funds or not. The silence of the Sandiganbayan on the matter was probably due to its not seeing the need for such ruling following its conclusion that the Republic had not preponderantly established the source of the funds used to pay the purchase price of the concerned SMC shares, and whether the shares had been acquired with the use of coconut levy funds.

Secondly, the ruling in Republic v. COCOFED106 determined only whether certain stockholders of the UCPB could vote in the stockholders’ meeting that had been called. The issue now before the Court could not be controlled by the ruling in Republic v. COCOFED, however, for even as that ruling determined the issue of voting, the Court was forthright enough about not thereby preempting the Sandiganbayan’s decisions on the merits on ill-gotten wealth in the several cases then pending, including this one, viz:

In making this ruling, we are in no way preempting the proceedings the Sandiganbayan may conduct or the final judgment it may promulgate in Civil Case No. 0033-A, 0033-B and 0033-F. Our determination here is merely prima facie, and should not bar the anti-graft court from making a final ruling, after proper trial and hearing, on the issues and prayers in the said civil

cases, particularly in reference to the ownership of the subject shares.

We also lay down the caveat that, in declaring the coco levy funds to be prima facie public in character, we are not ruling in any final manner on their classification — whether they are general or trust or special funds — since such classification is not at issue here. Suffice it to say that the public nature of the coco levy funds is decreed by the Court only for the purpose of determining the right to vote the shares, pending the final outcome of the said civil cases.

Neither are we resolving in the present case the question of whether the shares held by Respondent Cojuangco are, as he claims, the result of private enterprise. This factual matter should also be taken up in the final decision in the cited cases that are pending in the court a quo. Again, suffice it to say that the only issue settled here is the right of PCGG to vote the sequestered shares, pending the final outcome of said cases.

Thirdly, the Republic’s assertion that coconut levy funds had been used to source the payment for the Cojuangco block of SMC shares was premised on its allegation that the UCPB and the CIIF Oil Mills were public corporations. But the premise was grossly erroneous and overly presumptuous, because:

(a) The fact of the UCPB and the CIIF Oil Mills being public corporations or government-owned or government-controlled corporations precisely remained controverted by Cojuangco, et al. in light of the lack of any competent to that effect being in the records;

(b) Cojuangco explicitly averred in paragraph 2.01.(b) of his Answer that the UCPB was a "private corporation;" and

(c) The Republic did not competently identify or establish which ones of the Cojuangco corporations had supposedly received advances from the CIIF Oil Mills.

Fourthly, the Republic asserts that the contested block of shares had been paid for with "borrowings" from the UCPB and "advances" from the CIIF Oil Mills, and that such borrowings and advances had been illegal because the shares had not been purchased for the "benefit of the Coconut Farmers." To buttress its assertion, the Republic relied on the admissions supposedly made in paragraph 2.01 of Cojuangco’s Answer in relation to paragraph 4 of the Republic’s Amended Complaint.

The best way to know what paragraph 2.01 of Cojuangco’s Answer admitted is to refer to both paragraph 4 of the Amended Complaint and paragraph 2.01 of his Answer, which are hereunder quoted:

Paragraph 4 of the Amended Complaint

4. Defendant EDUARDO M. COJUANGCO, JR., was Governor of Tarlac, Congressman of then First District of Tarlac and Ambassador-at-Large in the Marcos Administration. He was commissioned Lieutenant Colonel in the Philippine Air Force, Reserve. Defendant Eduardo M. Cojuangco, Jr., otherwise known as the "Coconut King" was head of the coconut monopoly which was instituted by Defendant Ferdinand E. Marcos, by virtue of the Presidential Decrees. Defendant Eduardo E. Cojuangco, Jr., who was also one of the closest associates of the Defendant Ferdinand E. Marcos, held the positions of Director of the Philippine Coconut Authority, the United Coconut Mills, Inc., President and Board Director of the United Coconut Planters Bank, United Coconut Planters Life Assurance Corporation, and United Coconut Chemicals, Inc. He was also the Chairman of the Board and Chief Executive Officer and the controlling stockholder of the San Miguel Corporation. He may be served summons at 45 Balete Drive, Quezon City or at 136 East 9th Street, Quezon City.

Paragraph 2.01 of Respondent Cojuangco’s Answer

2.01. Herein defendant admits paragraph 4 only insofar as it alleges the following:

(a) That herein defendant has held the following positions in government: Governor of Tarlac, Congressman of the then First District of Tarlac, Ambassador-at-Large, Lieutenant Colonel in the Philippine Air Force and Director of the Philippines Coconut Authority;

(b) That he held the following positions in private corporations: Member of the Board of Directors of the United Coconut Oil Mills, Inc.; President and member of the Board of Directors of the United Coconut Planters Bank, United Coconut Planters Life Assurance Corporation, and United Coconut Chemicals, Inc.; Chairman of the Board and Chief Executive of San Miguel Corporation; and

(c) That he may be served with summons at 136 East 9th Street, Quezon City.

Herein defendant specifically denies the rest of the allegations of paragraph 4, including any insinuation that whatever association





he may have had with the late Ferdinand Marcos or Imelda Marcos has been in connection with any of the acts or transactions alleged in the complaint or for any unlawful purpose.

It is basic in remedial law that a defendant in a civil case must apprise the trial court and the adverse party of the facts alleged by the complaint that he admits and of the facts alleged by the complaint that he wishes to place into contention. The defendant does the former either by stating in his answer that they are true or by failing to properly deny them. There are two ways of denying alleged facts: one is by general denial, and the other, by specific denial.107

In this jurisdiction, only a specific denial shall be sufficient to place into contention an alleged fact.108 Under Section 10,109 Rule 8 of the Rules of Court, a specific denial of an allegation of the complaint may be made in any of three ways, namely: (a) a defendant specifies each material allegation of fact the truth of which he does not admit and, whenever practicable, sets forth the substance of the matters upon which he relies to support his denial; (b) a defendant who desires to deny only a part of an averment specifies so much of it as is true and material and denies only the remainder; and (c) a defendant who is without knowledge or information sufficient to form a belief as to the truth of a material averment made in the complaint states so, which has the effect of a denial.

The express qualifications contained in paragraph 2.01 of Cojuangco’s Answer constituted efficient specific denials of the averments of paragraph 2 of the Republic’s Amended Complaint under the first method mentioned in Section 10 of Rule 8, supra. Indeed, the aforequoted paragraphs of the Amended Complaint and of Cojuangco’s Answer indicate that Cojuangco thereby expressly qualified his admission of having been the President and a Director of the UCPB with the averment that the UCPB was a "private corporation;" that his Answer’s allegation of his being a member of the Board of Directors of the United Coconut Oil Mills, Inc. did not admit that he was a member of the Board of Directors of the CIIF Oil Mills, because the United Coconut Oil Mills, Inc. was not one of the CIIF Oil Mills; and that his Answer nowhere contained any admission or statement that he had held the various positions in the government or in the private corporations at the same time and in 1983, the time when the contested acquisition of the SMC shares of stock took place.

What the Court stated in Bitong v. Court of Appeals (Fifth Division)110 as to admissions is illuminating:

When taken in its totality, the Amended Answer to the Amended Petition, or even the Answer to the Amended Petition alone, clearly raises an issue as to the legal personality of petitioner to file the complaint. Every alleged admission is taken as an entirety

of the fact which makes for the one side with the qualifications which limit, modify or destroy its effect on the other side. The reason for this is, where part of a statement of a party is used against him as an admission, the court should weigh any other portion connected with the statement, which tends to neutralize or explain the portion which is against interest.

In other words, while the admission is admissible in evidence, its probative value is to be determined from the whole statement and others intimately related or connected therewith as an integrated unit. Although acts or facts admitted do not require proof and cannot be contradicted, however, evidence aliunde can be presented to show that the admission was made through palpable mistake. The rule is always in favor of liberality in construction of pleadings so that the real matter in dispute may be submitted to the judgment of the court.

And, lastly, the Republic cites the following portions of the joint Pre-Trial Brief of Cojuangco, et al.,111 to wit:

IV.

PROPOSED EVIDENCE

xxx

4.01. xxx Assuming, however, that plaintiff presents evidence to support its principal contentions, defendant’s evidence in rebuttal would include testimonial and documentary evidence showing: a) the ownership of the shares of stock prior to their acquisition by respondents (listed in Annexes ‘A" and ‘B"); b) the consideration for the acquisition of the shares of stock by the persons or companies in whose names the shares of stock are now registered; and c) the source of the funds used to pay the purchase price.

4.02. Herein respondents intend to present the following evidence:

xxx

b. Proposed Exhibits ____, ____, ____

Records of the United Coconut Planters Bank which would show borrowings of the companies listed in Annexes "A" and "B", or companies affiliated or associated with them, which were used to source payment of the shares of stock of the San Miguel Corporation subject of this case.

4.03. Witnesses.

xxx

(b) A representative of the United Coconut Planters Bank who will testify in regard the loans which were used to source the payment of the price of SMC shares of stock.

(c) A representative from the CIIF Oil Mills who will testify in regard the loans or credit advances which were used to source the payment of the purchase price of the SMC shares of stock.

The Republic insists that the aforequoted portions of the joint Pre-Trial Brief were Cojuangco, et al.’s admission that:

(a) Cojuangco had received money from the UCPB, a bank entrusted by law with the administration of the coconut levy funds; and

(b) Cojuangco had received more money from the CIIF Oil Mills in which part of the CIIF funds had been placed, and thereby used the funds of the UCPB and the CIIF as capital to buy his SMC shares.112

We disagree with the Republic’s posture.

The statements found in the joint Pre-Trial Brief of Cojuangco, et al. were noticeably written beneath the heading of Proposed Evidence. Such location indicated that the statements were only being proposed, that is, they were not yet intended or offered as admission of any fact stated therein. In other words, the matters stated or set forth therein might or might not be presented at all. Also, the text and tenor of the statements expressly conditioned the proposal on the Republic ultimately presenting its evidence in the action. After the Republic opted not to present its evidence, the condition did not transpire; hence, the proposed admissions, assuming that they were that, did not materialize.

Obviously, too, the statements found under the heading of Proposed Evidence in the joint Pre-Trial Brief were incomplete and inadequate on the important details of the supposed transactions (i.e., alleged borrowings and advances). As such, they could not constitute admissions that the funds had come from borrowings by Cojuangco, et al. from the UCPB or had been credit advances from the CIIF Oil Companies. Moreover, the purpose for presenting the records of the UCPB and the representatives of the UCPB and of the still unidentified or unnamed CIIF Oil Mills as declared in the joint Pre-Trial Brief did not at all show whether the








UCPB and/or the unidentified or unnamed CIIF Oil Mills were the only sources of funding, or that such institutions, assuming them to be the sources of the funding, had been the only sources of funding. Such ambiguousness disqualified the statements from being relied upon as admissions. It is fundamental that any statement, to be considered as an admission for purposes of judicial proceedings, should be definite, certain and unequivocal;113 otherwise, the disputed fact will not get settled.

Another reason for rejecting the Republic’s posture is that the Sandiganbayan, as the trial court, was in no position to second-guess what the non-presented records of the UCPB would show as the borrowings made by the corporations listed in Annexes A and B, or by the companies affiliated or associated with them, that "were used to source payment of the shares of stock of the San Miguel Corporation subject of this case," or what the representative of the UCPB or the representative of the CIIF Oil Mills would testify about loans or credit advances used to source the payment of the price of SMC shares of stock.

Lastly, the Rules of Court has no rule that treats the statements found under the heading Proposed Evidence as admissions binding Cojuangco, et al. On the contrary, the Rules of Court has even distinguished between admitted facts and facts proposed to be admitted during the stage of pre-trial. Section 6 (b),114 Rule 18 of the Rules of Court, requires a Pre-Trial Brief to include a summary of admitted facts and a proposed stipulation of facts. Complying with the requirement, the joint Pre-Trial Brief of Cojuangco, et al. included the summary of admitted facts in its paragraph 3.00 of its Item III, separately and distinctly from the Proposed Evidence, to wit:

III.

SUMMARY OF UNDISPUTED FACTS

3.00. Based on the complaint and the answer, the acquisition of the San Miguel shares by, and their registration in the names of, the companies listed in Annexes "A" and "B" may be deemed undisputed.

3.01. All other allegations in the complaint are disputed.115

The burden of proof, according to Section 1, Rule 131 of the Rules of Court, is "the duty of a party to present evidence on the facts in issue necessary to establish his claim or defense by the amount of evidence required by law." Here, the Republic, being the plaintiff, was the party that carried the burden of proof. That burden required it to demonstrate through competent evidence that the respondents, as defendants, had purchased the SMC shares of stock with the use of public funds; and that the affected shares of

stock constituted ill-gotten wealth. The Republic was well apprised of its burden of proof, first through the joinder of issues made by the responsive pleadings of the defendants, including Cojuangco, et al. The Republic was further reminded through the pre-trial order and the Resolution denying its Motion for Summary Judgment, supra, of the duty to prove the factual allegations on ill-gotten wealth against Cojuangco, et al., specifically the following disputed matters:

(a) When the loans or advances were incurred;

(b) The amount of the loans from the UCPB and of the credit advances from the CIIF Oil Mills, including the specific CIIF Oil Mills involved;

(c) The identities of the borrowers, that is, all of the respondent corporations together, or separately; and the amounts of the borrowings;

(d) The conditions attendant to the loans or advances, if any;

(e) The manner, form, and time of the payments made to Zobel or to the Ayala Group, whether by check, letter of credit, or some other form; and

(f) Whether the loans were paid, and whether the advances were liquidated.

With the Republic nonetheless choosing not to adduce evidence proving the factual allegations, particularly the aforementioned matters, and instead opting to pursue its claims by Motion for Summary Judgment, the Sandiganbayan became completely deprived of the means to know the necessary but crucial details of the transactions on the acquisition of the contested block of shares. The Republic’s failure to adduce evidence shifted no burden to the respondents to establish anything, for it was basic that the party who asserts, not the party who denies, must prove.116 Indeed, in a civil action, the plaintiff has the burden of pleading every essential fact and element of the cause of action and proving them by preponderance of evidence. This means that if the defendant merely denies each of the plaintiff’s allegations and neither side produces evidence on any such element, the plaintiff must necessarily fail in the action.117 Thus, the Sandiganbayan correctly dismissed Civil Case No. 0033-F for failure of the Republic to prove its case by preponderant evidence.

A summary judgment under Rule 35 of the Rules of Court is a procedural technique that is proper only when there is no genuine issue as to the existence of a material fact and the moving party is

entitled to a judgment as a matter of law.118 It is a method intended to expedite or promptly dispose of cases where the facts appear undisputed and certain from the pleadings, depositions, admissions, and affidavits on record.119 Upon a motion for summary judgment the court’s sole function is to determine whether there is an issue of fact to be tried, and all doubts as to the existence of an issue of fact must be resolved against the moving party. In other words, a party who moves for summary judgment has the burden of demonstrating clearly the absence of any genuine issue of fact, and any doubt as to the existence of such an issue is resolved against the movant. Thus, in ruling on a motion for summary judgment, the court should take that view of the evidence most favorable to the party against whom it is directed, giving that party the benefit of all favorable inferences.120

The term genuine issue has been defined as an issue of fact that calls for the presentation of evidence as distinguished from an issue that is sham, fictitious, contrived, set up in bad faith, and patently unsubstantial so as not to constitute a genuine issue for trial. The court can determine this on the basis of the pleadings, admissions, documents, affidavits, and counter-affidavits submitted by the parties to the court. Where the facts pleaded by the parties are disputed or contested, proceedings for a summary judgment cannot take the place of a trial.121 Well-settled is the rule that a party who moves for summary judgment has the burden of demonstrating clearly the absence of any genuine issue of fact.122 Upon that party’s shoulders rests the burden to prove the cause of action, and to show that the defense is interposed solely for the purpose of delay. After the burden has been discharged, the defendant has the burden to show facts sufficient to entitle him to defend.123 Any doubt as to the propriety of a summary judgment shall be resolved against the moving party.

We need not stress that the trial courts have limited authority to render summary judgments and may do so only in cases where no genuine issue as to any material fact clearly exists between the parties. The rule on summary judgment does not invest the trial courts with jurisdiction to try summarily the factual issues upon affidavits, but authorizes summary judgment only when it appears clear that there is no genuine issue as to any material fact.124

IV.

Republic’s burden to establish by preponderance of evidence that respondents’ SMC shares had been illegally acquired with coconut-levy funds was not discharged

Madame Justice Carpio Morales argues in her dissent that although the contested SMC shares could be inescapably treated as fruits of funds that are prima facie public in character, Cojuangco, et al. abstained from presenting countervailing














evidence; and that with the Republic having shown that the SMC shares came into fruition from coco levy funds that are prima facie public funds, Cojuangco, et al. had to go forward with contradicting evidence, but did not.

The Court disagrees. We cannot reverse the decision of November 28, 2007 on the basis alone of judicial pronouncements to the effect that the coconut levy funds were prima facie public funds,125 but without any competent evidence linking the acquisition of the block of SMC shares by Cojuangco, et al. to the coconut levy funds.

V.

No violation of the DOSRI and Single Borrower’s Limit restrictions

The Republic’s lack of proof on the source of the funds by which Cojuangco, et al. had acquired their block of SMC shares has made it shift its position, that it now suggests that Cojuangco had been enabled to obtain the loans by the issuance of LOI 926 exempting the UCPB from the DOSRI and the Single Borrower’s Limit restrictions.

We reject the Republic’s suggestion.

Firstly, as earlier pointed out, the Republic adduced no evidence on the significant particulars of the supposed loan, like the amount, the actual borrower, the approving official, etc. It did not also establish whether or not the loans were DOSRI126 or issued in violation of the Single Borrower’s Limit. Secondly, the Republic could not outrightly assume that President Marcos had issued LOI 926 for the purpose of allowing the loans by the UCPB in favor of Cojuangco. There must be competent evidence to that effect. And, finally, the loans, assuming that they were of a DOSRI nature or without the benefit of the required approvals or in excess of the Single Borrower’s Limit, would not be void for that reason. Instead, the bank or the officers responsible for the approval and grant of the DOSRI loan would be subject only to sanctions under the law.127

VI.

Cojuangco violated no fiduciary duties

The Republic invokes the following pertinent statutory provisions of the Civil Code, to wit:

Article 1455. When any trustee, guardian or other person holding a fiduciary relationship uses trust funds for the purchase of

property and causes the conveyance to be made to him or to a third person, a trust is established by operation of law in favor of the person to whom the funds belong.

Article 1456. If property is acquired through mistake or fraud, the person obtaining it s by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.

and the Corporation Code, as follows:

Section 31. Liability of directors, trustees or officers.—Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors, or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.

When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the corporation.

Did Cojuangco breach his "fiduciary duties" as an officer and member of the Board of Directors of the UCPB? Did his acquisition and holding of the contested SMC shares come under a constructive trust in favor of the Republic?

The answers to these queries are in the negative.

The conditions for the application of Articles 1455 and 1456 of the Civil Code (like the trustee using trust funds to purchase, or a person acquiring property through mistake or fraud), and Section 31 of the Corporation Code (like a director or trustee willfully and knowingly voting for or assenting to patently unlawful acts of the corporation, among others) require factual foundations to be first laid out in appropriate judicial proceedings. Hence, concluding that Cojuangco breached fiduciary duties as an officer and member of the Board of Directors of the UCPB without competent evidence thereon would be unwarranted and unreasonable.

Thus, the Sandiganbayan could not fairly find that Cojuangco had committed breach of any fiduciary duties as an officer and member of the Board of Directors of the UCPB. For one, the Amended Complaint contained no clear factual allegation on which to predicate the application of Articles 1455 and 1456 of

the Civil Code, and Section 31 of the Corporation Code. Although the trust relationship supposedly arose from Cojuangco’s being an officer and member of the Board of Directors of the UCPB, the link between this alleged fact and the borrowings or advances was not established. Nor was there evidence on the loans or borrowings, their amounts, the approving authority, etc. As trial court, the Sandiganbayan could not presume his breach of fiduciary duties without evidence showing so, for fraud or breach of trust is never presumed, but must be alleged and proved.128

The thrust of the Republic that the funds were borrowed or lent might even preclude any consequent trust implication. In a contract of loan, one of the parties (creditor) delivers money or other consumable thing to another (debtor) on the condition that the same amount of the same kind and quality shall be paid.129 Owing to the consumable nature of the thing loaned, the resulting duty of the borrower in a contract of loan is to pay, not to return, to the creditor or lender the very thing loaned. This explains why the ownership of the thing loaned is transferred to the debtor upon perfection of the contract.130 Ownership of the thing loaned having transferred, the debtor enjoys all the rights conferred to an owner of property, including the right to use and enjoy (jus utendi), to consume the thing by its use (jus abutendi), and to dispose (jus disponendi), subject to such limitations as may be provided by law.131 Evidently, the resulting relationship between a creditor and debtor in a contract of loan cannot be characterized as fiduciary.132

To say that a relationship is fiduciary when existing laws do not provide for such requires evidence that confidence is reposed by one party in another who exercises dominion and influence. Absent any special facts and circumstances proving a higher degree of responsibility, any dealings between a lender and borrower are not fiduciary in nature.133 This explains why, for example, a trust receipt transaction is not classified as a simple loan and is characterized as fiduciary, because the Trust Receipts Law (P.D. No. 115) punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner.134

Based on the foregoing, a debtor can appropriate the thing loaned without any responsibility or duty to his creditor to return the very thing that was loaned or to report how the proceeds were used. Nor can he be compelled to return the proceeds and fruits of the loan, for there is nothing under our laws that compel a debtor in a contract of loan to do so. As owner, the debtor can dispose of the thing borrowed and his act will not be considered misappropriation of the thing.135 The only liability on his part is to pay the loan together with the interest that is either stipulated or provided under existing laws.













WHEREFORE, the Court dismisses the petitions for certiorari in G.R. Nos. 166859 and 169023; denies the petition for review on certiorari in G.R. No. 180702; and, accordingly, affirms the decision promulgated by the Sandiganbayan on November 28, 2007 in Civil Case No. 0033-F.

The Court declares that the block of shares in San Miguel Corporation in the names of respondents Cojuangco, et al. subject of Civil Case No. 0033-F is the exclusive property of Cojuangco, et al. as registered owners.

Accordingly, the lifting and setting aside of the Writs of Sequestration affecting said block of shares (namely: Writ of Sequestration No. 86-0062 dated April 21, 1986; Writ of Sequestration No. 86-0069 dated April 22, 1986; Writ of Sequestration No. 86-0085 dated May 9, 1986; Writ of Sequestration No. 86-0095 dated May 16, 1986; Writ of Sequestration No. 86-0096 dated May 16, 1986; Writ of Sequestration No. 86-0097 dated May 16, 1986; Writ of Sequestration No. 86-0098 dated May 16, 1986; Writ of Sequestration No. 86-0042 dated April 8, 1986; and Writ of Sequestration No. 87-0218 dated May 27, 1987) are affirmed; and the annotation of the conditions prescribed in the Resolutions promulgated on October 8, 2003 and June 24, 2005 is cancelled.SO ORDERED.

Directors; Per diems

G.R. No. 159355 August 9, 2010

GABRIEL C. SINGSON, ANDRE NAVATO, EDGARDO P. ZIALCITA, ARACELI E. VILLANUEVA, TYRONE M. REYES, JOSE CLEMENTE, JR., FEDERICO PASCUAL, ALEJANDRA C. CLEMENTE, ALBERT P. FENIX, JR., and MELPIN A. GONZAGA, Petitioners, vs. COMMISSION ON AUDIT, Respondent.

D E C I S I O N

PERALTA, J.:

Before the Court is a petition for certiorari seeking to set aside Decision No. 2002-081,1 dated April 23, 2002, of the Commission on Audit (COA), which affirmed the Decision No. 2000-008,2 dated June 1, 2000, and the Resolution in CAO I Decision No. 2000-012,3 dated August 11, 2000, of the Corporate Audit Office I, and the COA Resolution No. 2003-115,4 dated July 31, 2003, which denied petitioners’ motion for reconsideration thereof and upheld the disallowance of petitioners’ Representation and

Transportation Allowance (RATA) in the total amount of P1,565,000.00 under Notice of Disallowance No. 99-001-101 (96-96) dated June 7, 1999.

The antecedents are as follows:

The Philippine International Convention Center, Inc. (PICCI) is a government corporation whose sole stockholder is the Bangko Sentral ng Pilipinas (BSP). Petitioner Araceli E. Villanueva was then a member of the PICCI Board of Directors and Officer-in-Charge (OIC) of PICCI, while co-petitioners Gabriel C. Singson, Andre Navato, Edgardo P. Zialcita, and Melpin A. Gonzaga, Alejandra C. Clemente, Jose Clemente, Jr., Federico Pascual, Albert P. Fenix, Jr., and Tyrone M. Reyes were then members of the PICCI Board of Directors and officials of the BSP. By virtue of the PICCI By-Laws, petitioners were authorized to receive P1,000.00 per diem each for every meeting attended. Pursuant to its Monetary Board (MB) Resolution No. 155 dated January 5, 1994, as amended by MB Resolution No. 34 dated January 12, 1994, the BSP MB granted additional monthly RATA, in the amount ofP1,500.00, to each of the petitioners, as members of the Board of Directors of PICCI. Consequently, from January 1996 to December 1998, petitioners received their corresponding RATA in the total amount of P1,565,000.00.

On June 7, 1999, then PICCI Corporate Auditor Adelaida A. Aldovino issued Notice of Disallowance No. 99-001-101 (96-98),6 addressed to petitioner Araceli E. Villanueva (through then OIC Susan M. Galang of the Accounting Division of PICCI), disallowing in audit the payment of petitioners’ RATA in the total amount of P1,565,000.00,7and directing them to settle immediately the said disallowances, due to the following reasons: (a) As to petitioner Araceli E. Villanueva, there was double payment of RATA to her as member of the PICCI Board and as OIC of PICCI, which was in violation of Section 8, Article IX-B of the 1987 Constitution and, moreover, Compensation Policy Guideline No. 6 provides that an official already granted commutable RATA and designated by competent authority to perform duties in concurrent capacity as OIC of another position whether or not in the same agency and entitled to similar benefits, shall not be granted said similar benefits, except where said similar allowances are higher in rates than those of his regular position, in which case he may be allowed to collect the difference thereof; and (b) As to petitioners Gabriel Singson, Andre Navato, Edgardo Zialcita, Melpin Gonzaga, Alejandra Clemente, Jose Clemente, Jr., Federico Pascual, Albert P. Fenix, Jr., and Tyrone M. Reyes, there was double payment of RATA to them as members of the PICCI Board and as officers of BSP, which was in violation of Section 8, Article IX-B of the 1987 Constitution and PICCI By-laws and, further, the contemplation of the constitutional provisions which authorized double compensation is construed to mean statutes passed by the national legislative body and does not include resolutions passed

by governing boards, i.e., Section 229 of the Government Accounting and Auditing Manual.

In a letter8 dated September 27, 1999, petitioners, through Board Member and OIC of PICCI Araceli E. Villanueva, sought reconsideration of the Notice of Disallowance No. 99-001-01 (96-98) dated June 7, 1999.

In a letter9 dated October 14, 1999, PICCI Corporate Auditor Aldovino denied petitioners’ motion for reconsideration and, on February 18, 2000, petitioners filed their Notice of Appeal10 and Appeal Memorandum.11

On June 1, 2000, Director Crescencio S. Sunico of the Corporate Audit Office I, COA, rendered a Decision in CAO I Decision No. 2000-208 affirming the disallowance of the RATA received by petitioners in their capacity as Directors of the PICCI Board. He stated that except for per diems, Section 8, Article III of the PICCI By-Laws prohibits the payment of salary to directors in the form of compensation or reimbursement of expenses, based upon the principle expression unius est exclusio alterius (the express mention of one thing in a law means the exclusion of others not expressly mentioned). Neither can the payment of RATA be legally founded on Section 30 of the Corporation Code which states that in the absence of any provision in the by-laws fixing their compensation, the directors shall not receive any compensation as such directors, except for reasonable per diems; provided, however, that any such compensation (other than per diems) may be granted to directors by the vote of the stockholders representing at least a majority of the outstanding capital stock at a regular or special stockholders' meeting. The power to fix the compensation which the directors shall receive, if any, is left to the corporation, to be determined in its by-laws or by the vote of stockholders. The PICC By-Laws allows only the payment of per diem to the directors. Thus, the BSP board resolution granting RATA of P1,500.00 to petitioners violated the PICCI By-Laws. Director Sunico also explained that although MB Resolution No. 15, dated January 5, 1994, as amended by MB Resolution No. 34, dated January 12, 1994, would have the effect of amending the PICCI By-laws, and may render the grant of RATA valid, such amendment, however, had no effect because it failed to comply with the procedural requirements set forth under Section 48 of the Corporation Code.12

On August 11, 2000, Director Sunico issued a Resolution in CAO I Decision No. 2000-012, affirming the disallowance of the RATA received by the petitioners in their capacity as directors in the total amount ofP1,565,000.00.

On petition for review by petitioners, the COA rendered the assailed COA Decision No. 2002-081 dated April 23, 2002, affirming CAO I Decision No. 2000-008 dated June 1, 2000 and

http://www.lawphil.net/judjuris/juri2010/aug2010/gr_159355_2010.html#fnt1













Notice of Disallowance No. 99-001-101 (96-98) dated June 7, 1999. It also directed the Auditor to determine the amounts to be refunded by petitioners and to enforce and monitor their settlement. It ruled that petitioners’ receipt of the P1,500.00 RATA from the BSP for every meeting they attended as members of the PICCI Board of Directors was not valid.

In COA Decision No. 2003-115, dated July 31, 2003, the COA issued a Resolution denying petitioners’ motion for reconsideration and upheld the disallowance of the petitioners’ RATA amounting to P1,565,000.00.

Hence, this present petition for certiorari raising the following grounds:

I.

THE RESPONDENT COA COMMITTED GRAVE ABUSE OF DISCRETION IN FINDING THAT THE PETITIONERS VIOLATED ITS BY-LAWS WHEN SECTION 30 OF THE CORPORATION CODE AUTHORIZES THE STOCKHOLDERS TO GRANT COMPENSATION TO ITS DIRECTORS.

II.

THE RESPONDENT COA COMMITTED GRAVE ABUSE OF DISCRETION IN FINDING THAT THE PAYMENT OF RATA TO BSP OFFICIALS WHO ARE MEMBERS OF THE PICCI BOARD VIOLATED ITEM NO. 4 OF NATIONAL COMPENSATION CIRCULAR (NCC) NO. 67 DATED JANUARY [1], 1992 ISSUED BY THE DEPARTMENT OF BUDGET AND MANAGEMENT (DBM) AS SAID NCC SPECIFICALLY APPLIES ONLY TO "NATIONAL GOVERNMENT OFFICIALS AND EMPLOYEES."

III.

THE RESPONDENT COA COMMITTED GRAVE ABUSE OF DISCRETION IN DIRECTING THE AUDITOR TO ENFORCE REFUND OF THE PAYMENTS TO THE PETITIONERS [WHO ARE] DIRECTORS AS THE PETITIONERS ENJOY THE PRESUMPTION OF GOOD FAITH AND ARE CONVINCED THAT THEY ARE LEGALLY ENTITLED THERETO IN THE LIGHT OF THE SUPREME COURT DECISION IN ASSOCIATION OF DEDICATED EMPLOYEES OF THE PHILIPPINE TOURISM AUTHORITY (ADEPT) VS. COA, 295 SCRA 366.13

Petitioners contend that since PICCI was incorporated with the Securities and Exchange Commission (SEC) (SEC Regulation No. 68840) and has no original charter, it should be governed by Section 30 of the Corporation Code. According to petitioners, their receipt of RATA as directors of PICCI was sanctioned by

PICCI’s sole stockholder, BSP (through its own governing body, the Monetary Board), per MB Resolution No. 15 dated January 5, 1994, as amended by MB Resolution No. 34 dated January 12, 1994.

Respondent counters that said provision does not apply to petitioners as Section 8 of the PICCI By-laws provides that the compensation of the members of the PICCI Board of Directors shall be given only through per diems.

Section 30 of the Corporation Code, which authorizes the stockholders to grant compensation to its directors, states:

Sec. 30. Compensation of Directors. – In the absence of any provision in the by-laws fixing their compensation, the directors shall not receive any compensation, as such directors, except for reasonable per diems; Provided, however, that any such compensation (other than per diems) may be granted to directors by the vote of the stockholders representing at least a majority of the outstanding capital stock at a regular or special stockholders’ meeting. In no case shall the total yearly compensation of directors, as such directors, exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year.

In construing the said provision, it bears stressing that the directors of a corporation shall not receive any compensation for being members of the board of directors, except for reasonable per diems. The two instances where the directors are to be entitled to compensation shall be when it is fixed by the corporation’s by-laws or when the stockholders, representing at least a majority of the outstanding capital stock, vote to grant the same at a regular or special stockholder’s meeting, subject to the qualification that, in any of the two situations, the total yearly compensation of directors, as such directors, shall in no case exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year.

Section 8 of the Amended By-Laws of PICCI,14 in consonance with Section 30 of the Corporation Code, restricted the scope of petitioners’ compensation by fixing their per diem at P1,000.00:

Sec. 8. Compensation. Directors, as such, shall not receive any salary for their services but shall receive a per diem of one thousand pesos (P1,000.00) per meeting actually attended; Provided, that the Board of Directors at a regular and special meeting may increase and decrease, as circumstances shall warrant, such per diems to be received. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any capacity and receiving compensation therefor.15

The nomenclature for the compensation of the directors used herein is per diems, and not salary or any other words of similar import. Thus, petitioners are allowed to receive only per diems of P1,000.00 for every meeting that they actually attended. However, the Board of Directors may increase or decrease the amount of per diems, when the prevailing circumstances shall warrant. No other compensation may be given to them, except only when they serve the corporation in another capacity.

Petitioners justify their entitlement to P1,500.00 RATA from the PICCI, on the theory that:

[T]he purpose in issuing NCC No. 67 is to ensure uniformity and consistency of actions on claims for RATA which is granted by law to national government officials and employees to cover expenses incurred in the discharge or performance of their duties and responsibilities. Moreover, Item 2 of NCC 67 enumerated the national government officials and employees that are covered by the Circular, to wit:

[1] Those whose positions are listed under Service Code 18 of the Index of Occupational Services issued by the Department of Budget and Management (DBM), pursuant to NCC No. 57, except for the positions of the President, Vice-President, Lupon Member and Lupon Chairman and positions under the Local Executives Group;

[2] Those whose positions are identified as chiefs of division in the Personal Services Itemization;

[3] Those whose positions are determined by the DBM to be of equivalent rank with the officials and employees enumerated under Section 2.1 and 2.2 hereof x x x; and

[4] Those who are duly designated by competent authority to perform the full-time duties and responsibilities, whether or not in concurrent capacity, as Officers-in-Charge for one (1) final calendar month or more of the positions enumerated in Sections 2.1, 2.2 and 2.3 hereof.

The PICCI is not an originally chartered corporation, but a subsidiary corporation of BSP organized in accordance with the Corporation Code of the Philippines. The Articles of Incorporation of PICCI was registered on July 29, 1976 in the Securities and Exchange Commission. As such, PICCI does not fall within the coverage of NCC No. 67. As a matter of fact, by virtue of P.D. [No.] 520, PICCI is exempt from the coverage of the civil service law and regulations (and Constitution defining coverage of civil service as





limited to those with original [charter] (TUCP v. NHA, G.R. No. 49677, May 4, 1089, Article IX-B, Sec. 1). Certainly, if PICCI is not part of the National Government, but a mere subsidiary of a government-owned and/or controlled corporation (BSP), its officers, and more importantly, its directors, are not covered by the term "national government officials and employees" to which NCC No. 67 finds application.

Even the BSP, which is the sole stockholder of PICCI, is not covered by NCC No. 67, not only for the same reasons stated above but for the reason that it enjoys fiscal and administrative autonomy, which is defined as the "guarantee of full flexibility to allocate and utilize their resources with the wisdom and dispatch that their needs require" (Bengzon v. Drilon, 208 SCRA 133).16

Respondent maintains that petitioners’ receipt of RATA from PICCI, in addition to their per diem of P1,000 per meeting, and another RATA from BSP, violates the rule against double compensation; that as former officers of the BSP, petitioners Gabriel P. Singson, Araceli E. Villanueva, Andre Navato, Edgardo P. Zialcita, and Melpin A. Gonzaga were also receiving RATA from the BSP, in addition to the RATA granted to them as PICCI Directors; that there is double payment of RATA, since petitioners’ membership in the PICCI Board is a mere adjunct of their positions as BSP officials; that double compensation refers to two sets of compensations for two different offices held concurrently by one officer; and that while there is no general prohibition against holding two offices which are not incompatible, when an officer accepts a second office, he can draw the salary attached to such second office only when he is specifically authorized by law which does not exist in the present case.

In her letter, dated October 14, 1999, to petitioner Araceli E. Villanueva, Corporate Auditor Adelaida A. Aldovino reiterated her decision disallowing disbursements for RATA of PICCI directors for the reasons set forth in Notice of Disallowance No. 99-001-101 (96-98). Thus,

Moreover, while the directors are not strictly speaking Officers-in-Charge, but because they are doing duties in concurrent capacities and are already receiving RATA from their principal office, Budget Compensation Policy Guideline No. 6, dated September 1, 1982, is applicable.

No. 3.0 of the guideline provides:

3.1 An Official/employee already entitled/granted commutable transportation/representation allowances and designated by competent authority to perform duties and responsibilities in concurrent capacity as Officer-in-Charge of another position(s), whether CES or non-CES, whether or not in the same

ministry/bureau/office or agency and entitled to similar benefits/allowances, whether commutable or reimbursable, except where similar allowances are higher in rates than those of his regular position, in which case he may be allowed to collect the difference thereof, provided the period of his temporary stewardship is not less than one month on a reimbursable basis.

In view of the foregoing, we are reiterating our decision disallowing disbursement for RATA of PICCI directors for reasons stated in our Notice of Disallowance No. 99-001-01 (96-98).1avvphi1

Further, please be reminded that disallowance not appealed within six (6) months as prescribed under Section 48, 50 and 51 of PD 1445 shall become final and executory.17

In COA Decision No. 2002-081 dated April 23, 2002, respondent concluded that the payment of RATA to petitioners violated Item No. 4 of National Compensation Circular (NCC) No. 67, dated January 1, 1992, issued by the DBM, as the petitioners were already drawing RATA from their mother agencies and, hence, their receipt of RATA from PICCI was without legal basis and constituted double compensation of RATA which is prohibited under the Constitution. It also explained that under the By-Laws of PICCI, the compensation of its directors should be in the form of per diem and not RATA, and as the By-Laws have the same force and effect of law as the corporate charter, its directors and officers are under obligation to comply therewith.

Section 8, Article IX-B of the Constitution provides that no elective or appointive public officer or employee shall receive additional, double or indirect compensation, unless specifically authorized by law, nor accept without the consent of the Congress, any present emolument, office or title of any kind from any foreign government. Pensions and gratuities shall not be considered as additional, double or indirect compensation.

This provision, however, does not apply to the present case as there was no double compensation of RATA to the petitioners.

In Leynes v. Commission on Audit,18 the Court clarified that what National Compensation Circular (NCC) No. 67 seeks to prevent is the dual collection of RATA by a national official from the budgets of "more than one national agency." In the said case, the interpretation was that NCC No. 67 cannot be construed as nullifying the power of therein local government units to grant allowances to judges under the Local Government Code of 1991. Further, NCC No. 67 applies only to the national funds administered by the DBM, not the local funds of the local government units. Thus,

The pertinent provisions of NCC No. 67 read:

3. Rules and Regulations:

3.1.1 Payment of RATA, whether commutable or reimbursable, shall be in accordance with the rates prescribed for each of the following officials and employees and those of equivalent ranks, and the conditions enumerated under the pertinent sections of the General Provisions of the annual General Appropriations Act (GAA):

x x x x x x x x x

4. Funding Source:

In all cases, commutable and reimbursable RATA shall be paid from the amount appropriated for the purpose and other personal services savings of the agency or project from where the officials and employees covered under this Circular draw their salaries. No one shall be allowed to collect RATA from more than one source. (Italics ours)

In construing NCC No. 67, we apply the principle in statutory construction that force and effect should not be narrowly given to isolated and disjoined clauses of the law but to its spirit, broadly taking all its provisions together in one rational view. Because a statute is enacted as a whole and not in parts or sections, that is, one part is as important as the others, the statute should be construed and given effect as a whole. A provision or section which is unclear by itself may be clarified by reading and construing it in relation to the whole statute.

Taking NCC No. 67 as a whole then, what it seeks to prevent is the dual collection of RATA by a national official from the budgets of "more than one national agency." We emphasize that the other source referred to in the prohibition is another national agency. This can be gleaned from the fact that the sentence "no one shall be allowed to collect RATA from more than one source" (the controversial prohibition) immediately follows the sentence that RATA shall be paid from the budget of the national agency where the concerned national officials and employees draw their salaries. The fact that the other source is another national agency is supported by RA 7645 (the GAA of 1993) invoked by respondent COA itself and, in fact, by all subsequent GAAs for that matter, because the GAAs all essentially provide that (1) the RATA of national officials shall be payable from the budgets of their respective national agencies and (2) those officials on detail with other national agencies shall be paid their RATA only from the budget of their parent national agency:

x x x x x x x x x





Clearly therefore, the prohibition in NCC No. 67 is only against the dual or multiple collection of RATA by a national official from the budgets of two or more national agencies. Stated otherwise, when a national official is on detail with another national agency, he should get his RATA only from his parent national agency and not from the other national agency he is detailed to.19 (Italics supplied.)

Moreover, Section 6 of Republic Act No. 7653 (The New Central Bank Act) defines that the powers and functions of the BSP shall be exercised by the BSP Monetary Board, which is composed of seven (7) members appointed by the President of the Philippines for a term of six (6) years. MB Resolution No. 15,20 dated January 5, 1994, as amended by MB Resolution No. 34, dated January 12, 1994, are valid corporate acts of petitioners that became the bases for granting them additional monthly RATA of P1,500.00, as members of the Board of Directors of PICCI. The RATA is distinct from salary (as a form of compensation). Unlike salary which is paid for services rendered, the RATA is a form of allowance intended to defray expenses deemed unavoidable in the discharge of office. Hence, the RATA is paid only to certain officials who, by the nature of their offices, incur representation and transportation expenses.21 Indeed, aside from the RATA that they have been receiving from the BSP, the grant ofP1,500.00 RATA to each of the petitioners for every board meeting they attended, in their capacity as members of the Board of Directors of PICCI, in addition to their P1,000.00 per diem, does not run afoul the constitutional proscription against double compensation.

Petitioners invoke the ruling of ADEPT v. COA22 whereby the Court took into consideration the good faith of therein petitioners and, thus, allowed them to retain the incentive benefits they had received for the year 1992.

Respondent points out that the records of the case do not support petitioners’ claim of good faith, because they themselves were the authors of the By-Laws of PICCI which prohibit the receipt of compensation other than per diems and, therefore, should have been conversant with the constitutional prohibition on double compensation.

The Court upholds the findings of respondent that petitioners’ right to compensation as members of the PICCI Board of Directors is limited only to per diem of P1,000.00 for every meeting attended, by virtue of the PICCI By-Laws. In the same vein, we also clarify that there has been no double compensation despite the fact that, apart from the RATA they have been receiving from the BSP, petitioners have been granted the RATA of P1,500.00 for every board meeting they attended, in their capacity as members of the Board of Directors of PICCI, pursuant to MB Resolution No. 1523 dated January 5, 1994, as amended by MB Resolution No. 34

dated January 12, 1994, of the Bangko Sentral ng Pilipinas. In this regard, we take into consideration the good faith of petitioners.

The ruling in Blaquera, to which the cited case of ADEPT v. COA was consolidated with, is applicable to the present case as petitioners acted in good faith. The disposition in De Jesus v. Commission on Audit,24 which cited Blaquera, is instructive:

Nevertheless, our pronouncement in Blaquera v. Alcala25 supports petitioners’ position on the refund of the benefits they received. In Blaquera, the officials and employees of several government departments and agencies were paid incentive benefits which the COA disallowed on the ground that Administrative Order No. 29 dated 19 January 1993 prohibited payment of these benefits. While the Court sustained the COA on the disallowance, it nevertheless declared that:

Considering, however, that all the parties here acted in good faith, we cannot countenance the refund of subject incentive benefits for the year 1992, which amounts the petitioners have already received. Indeed, no indicia of bad faith can be detected under the attendant facts and circumstances. The officials and chiefs of offices concerned disbursed such incentive benefits in the honest belief that the amounts given were due to the recipients and the latter accepted the same with gratitude, confident that they richly deserve such benefits.

This ruling in Blaquera applies to the instant case. Petitioners here received the additional allowances and bonuses in good faith under the honest belief that LWUA Board Resolution No. 313 authorized such payment. At the time petitioners received the additional allowances and bonuses, the Court had not yet decided Baybay Water District [v. Commission on Audit].26 Petitioners had no knowledge that such payment was without legal basis. Thus, being in good faith, petitioners need not refund the allowances and bonuses they received but disallowed by the COA.27

In subsequent cases,28 the Court took into account the good faith of the recipients of the allowances, bonuses, and other benefits disallowed by respondent and ruled that they need not refund the same.

As petitioners believed in good faith that they are entitled to the RATA of P1,500.00 for every board meeting they attended, in their capacity as members of the Board of Directors of PICCI, pursuant to MB Resolution No. 1529dated January 5, 1994, as amended by MB Resolution No. 34 dated January 12, 1994, of the BSP, the Court sees no need for them to refund their RATA respectively, in the total amount of P1,565,000.00, covering the period from 1996-1998.

WHEREFORE, the petition is DISMISSED. Decision No. 2002-081, dated April 23, 2002, of the Commission on Audit and its Resolution No. 2003-115, dated July 31, 2003, which denied petitioners’ motion for reconsideration thereof and upheld the disallowance of petitioners’ Representation and Transportation Allowance (RATA) in the total amount of P1,565,000.00 under Notice of Disallowance No. 99-001-101 (96-96) dated June 7, 1999, areAFFIRMED WITH MODIFICATION. Petitioners need not refund the Representation and Transportation Allowance (RATA) they received pursuant to Monetary Board Resolution No. 1530 dated January 5, 1994, as amended by Monetary Board Resolution No. 34 dated January 12, 1994, of the Bangko Sentral ng Pilipinas granting each of them an additional monthly RATA of P1,500.00, for every meeting attended, in their capacity as members of the Board of Directors of Philippine International Convention Center, Inc. (PICCI), or in the total amount ofP1,565,000.00, covering the period from 1996-1998.SO ORDERED.

Director; Holdover

G.R. No. 151969 September 4, 2009

VALLE VERDE COUNTRY CLUB, INC., ERNESTO VILLALUNA, RAY GAMBOA, AMADO M. SANTIAGO, JR., FORTUNATO DEE, AUGUSTO SUNICO, VICTOR SALTA, FRANCISCO ORTIGAS III, ERIC ROXAS, in their capacities as members of the Board of Directors of Valle Verde Country Club, Inc., and JOSE RAMIREZ,Petitioners, vs. VICTOR AFRICA, Respondent.

D E C I S I O N

BRION, J.:

In this petition for review on certiorari,1 the parties raise a legal question on corporate governance: Can the members of a corporation’s board of directors elect another director to fill in a vacancy caused by the resignation of a hold-over director?

THE FACTUAL ANTECEDENTS

On February 27, 1996, during the Annual Stockholders’ Meeting of petitioner Valle Verde Country Club, Inc. (VVCC), the following were elected as members of the VVCC Board of Directors: Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan), Eduardo Makalintal (Makalintal), Francisco Ortigas III, Victor Salta, Amado M. Santiago, Jr., Fortunato Dee, Augusto Sunico, and Ray Gamboa.2 In the years 1997, 1998, 1999, 2000, and 2001, however, the
















requisite quorum for the holding of the stockholders’ meeting could not be obtained. Consequently, the above-named directors continued to serve in the VVCC Board in a hold-over capacity.

On September 1, 1998, Dinglasan resigned from his position as member of the VVCC Board. In a meeting held on October 6, 1998, the remaining directors, still constituting a quorum of VVCC’s nine-member board, elected Eric Roxas (Roxas) to fill in the vacancy created by the resignation of Dinglasan.

A year later, or on November 10, 1998, Makalintal also resigned as member of the VVCC Board. He was replaced by Jose Ramirez (Ramirez), who was elected by the remaining members of the VVCC Board on March 6, 2001.

Respondent Africa (Africa), a member of VVCC, questioned the election of Roxas and Ramirez as members of the VVCC Board with the Securities and Exchange Commission (SEC) and the Regional Trial Court (RTC), respectively. The SEC case questioning the validity of Roxas’ appointment was docketed as SEC Case No. 01-99-6177. The RTC case questioning the validity of Ramirez’ appointment was docketed as Civil Case No. 68726.

In his nullification complaint3 before the RTC, Africa alleged that the election of Roxas was contrary to Section 29, in relation to Section 23, of the Corporation Code of the Philippines (Corporation Code). These provisions read:

Sec. 23. The board of directors or trustees. - Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year until their successors are elected and qualified.

x x x x

Sec. 29. Vacancies in the office of director or trustee. - Any vacancy occurring in the board of directors or trustees other than by removal by the stockholders or members or by expiration of term, may be filled by the vote of at least a majority of the remaining directors or trustees, if still constituting a quorum; otherwise, said vacancies must be filled by the stockholders in a regular or special meeting called for that purpose. A director or trustee so elected to fill a vacancy shall be elected only for the unexpired term of his predecessor in office. xxx. [Emphasis supplied.]

Africa claimed that a year after Makalintal’s election as member of the VVCC Board in 1996, his [Makalintal’s] term – as well as those of the other members of the VVCC Board – should be considered to have already expired. Thus, according to Africa, the resulting vacancy should have been filled by the stockholders in a regular or special meeting called for that purpose, and not by the remaining members of the VVCC Board, as was done in this case.

Africa additionally contends that for the members to exercise the authority to fill in vacancies in the board of directors, Section 29 requires, among others, that there should be an unexpired term during which the successor-member shall serve. Since Makalintal’s term had already expired with the lapse of the one-year term provided in Section 23, there is no more "unexpired term" during which Ramirez could serve.

Through a partial decision4 promulgated on January 23, 2002, the RTC ruled in favor of Africa and declared the election of Ramirez, as Makalintal’s replacement, to the VVCC Board as null and void.

Incidentally, the SEC issued a similar ruling on June 3, 2003, nullifying the election of Roxas as member of the VVCC Board, vice hold-over director Dinglasan. While VVCC manifested its intent to appeal from the SEC’s ruling, no petition was actually filed with the Court of Appeals; thus, the appellate court considered the case closed and terminated and the SEC’s ruling final and executory.5

THE PETITION

VVCC now appeals to the Court to assail the RTC’s January 23, 2002 partial decision for being contrary to law and jurisprudence. VVCC made a direct resort to the Court via a petition for review on certiorari, claiming that the sole issue in the present case involves a purely legal question.

As framed by VVCC, the issue for resolution is whether the remaining directors of the corporation’s Board, still constituting a quorum, can elect another director to fill in a vacancy caused by the resignation of a hold-over director.

Citing law and jurisprudence, VVCC posits that the power to fill in a vacancy created by the resignation of a hold-over director is expressly granted to the remaining members of the corporation’s board of directors.

Under the above-quoted Section 29 of the Corporation Code, a vacancy occurring in the board of directors caused by the expiration of a member’s term shall be filled by the corporation’s stockholders. Correlating Section 29 with Section 23 of the same law, VVCC alleges that a member’s term shall be for one

year and until his successor is elected and qualified; otherwise stated, a member’s term expires only when his successor to the Board is elected and qualified. Thus, "until such time as [a successor is] elected or qualified in an annual election where a quorum is present," VVCC contends that "the term of [a member] of the board of directors has yet not expired."

As the vacancy in this case was caused by Makalintal’s resignation, not by the expiration of his term, VVCC insists that the board rightfully appointed Ramirez to fill in the vacancy.

In support of its arguments, VVCC cites the Court’s ruling in the 1927 El Hogar6 case which states:

Owing to the failure of a quorum at most of the general meetings since the respondent has been in existence, it has been the practice of the directors to fill in vacancies in the directorate by choosing suitable persons from among the stockholders. This custom finds its sanction in Article 71 of the By-Laws, which reads as follows:

Art. 71. The directors shall elect from among the shareholders members to fill the vacancies that may occur in the board of directors until the election at the general meeting.

x x x x

Upon failure of a quorum at any annual meeting the directorate naturally holds over and continues to function until another directorate is chosen and qualified. Unless the law or the charter of a corporation expressly provides that an office shall become vacant at the expiration of the term of office for which the officer was elected, the general rule is to allow the officer to hold over until his successor is duly qualified. Mere failure of a corporation to elect officers does not terminate the terms of existing officers nor dissolve the corporation. The doctrine above stated finds expression in article 66 of the by-laws of the respondent which declares in so many words that directors shall hold office "for the term of one year or until their successors shall have been elected and taken possession of their offices." xxx.

It results that the practice of the directorate of filling vacancies by the action of the directors themselves is valid. Nor can any exception be taken to the personality of the individuals chosen by the directors to fill vacancies in the body. [Emphasis supplied.]

Africa, in opposing VVCC’s contentions, raises the same arguments that he did before the trial court.

THE COURT’S RULING






We are not persuaded by VVCC’s arguments and, thus, find its petition unmeritorious.

To repeat, the issue for the Court to resolve is whether the remaining directors of a corporation’s Board, still constituting a quorum, can elect another director to fill in a vacancy caused by the resignation of a hold-over director. The resolution of this legal issue is significantly hinged on the determination of what constitutes a director’s term of office.

The holdover period is not part of the term of office of a member of the board of directors

The word "term" has acquired a definite meaning in jurisprudence. In several cases, we have defined "term" as the time during which the officer may claim to hold the office as of right, and fixes the interval after which the several incumbents shall succeed one another.7 The term of office is not affected by the holdover.8 The term is fixed by statute and it does not change simply because the office may have become vacant, nor because the incumbent holds over in office beyond the end of the term due to the fact that a successor has not been elected and has failed to qualify.

Term is distinguished from tenure in that an officer’s "tenure" represents the term during which the incumbent actually holds office. The tenure may be shorter (or, in case of holdover, longer) than the term for reasons within or beyond the power of the incumbent.

Based on the above discussion, when Section 239 of the Corporation Code declares that "the board of directors…shall hold office for one (1) year until their successors are elected and qualified," we construe the provision to mean that the term of the members of the board of directors shall be only for one year; their term expires one year after election to the office. The holdover period – that time from the lapse of one year from a member’s election to the Board and until his successor’s election and qualification – is not part of the director’s original term of office, nor is it a new term; the holdover period, however, constitutes part of his tenure. Corollary, when an incumbent member of the board of directors continues to serve in a holdover capacity, it implies that the office has a fixed term, which has expired, and the incumbent is holding the succeeding term.10

After the lapse of one year from his election as member of the VVCC Board in 1996, Makalintal’s term of office is deemed to have already expired. That he continued to serve in the VVCC Board in a holdover capacity cannot be considered as extending his term. To be precise, Makalintal’s term of office began in 1996 and expired in 1997, but, by virtue of the holdover doctrine in Section

23 of the Corporation Code, he continued to hold office until his resignation on November 10, 1998. This holdover period, however, is not to be considered as part of his term, which, as declared, had already expired.

With the expiration of Makalintal’s term of office, a vacancy resulted which, by the terms of Section 2911 of the Corporation Code, must be filled by the stockholders of VVCC in a regular or special meeting called for the purpose. To assume – as VVCC does – that the vacancy is caused by Makalintal’s resignation in 1998, not by the expiration of his term in 1997, is both illogical and unreasonable. His resignation as a holdover director did not change the nature of the vacancy; the vacancy due to the expiration of Makalintal’s term had been created long before his resignation.

The powers of the corporation’s board of directors emanate from its stockholders

VVCC’s construction of Section 29 of the Corporation Code on the authority to fill up vacancies in the board of directors, in relation to Section 23 thereof, effectively weakens the stockholders’ power to participate in the corporate governance by electing their representatives to the board of directors. The board of directors is the directing and controlling body of the corporation. It is a creation of the stockholders and derives its power to control and direct the affairs of the corporation from them. The board of directors, in drawing to themselves the powers of the corporation, occupies a position of trusteeship in relation to the stockholders, in the sense that the board should exercise not only care and diligence, but utmost good faith in the management of corporate affairs.12

The underlying policy of the Corporation Code is that the business and affairs of a corporation must be governed by a board of directors whose members have stood for election, and who have actually been elected by the stockholders, on an annual basis. Only in that way can the directors' continued accountability to shareholders, and the legitimacy of their decisions that bind the corporation's stockholders, be assured. The shareholder vote is critical to the theory that legitimizes the exercise of power by the directors or officers over properties that they do not own.13

This theory of delegated power of the board of directors similarly explains why, under Section 29 of the Corporation Code, in cases where the vacancy in the corporation’s board of directors is caused not by the expiration of a member’s term, the successor "so elected to fill in a vacancy shall be elected only for the unexpired term of the his predecessor in office." The law has authorized the remaining members of the board to fill in a vacancy only in specified instances, so as not to retard or impair the corporation’s operations; yet, in recognition of the

stockholders’ right to elect the members of the board, it limited the period during which the successor shall serve only to the "unexpired term of his predecessor in office."

While the Court in El Hogar approved of the practice of the directors to fill vacancies in the directorate, we point out that this ruling was made before the present Corporation Code was enacted14 and before its Section 29 limited the instances when the remaining directors can fill in vacancies in the board, i.e., when the remaining directors still constitute a quorum and when the vacancy is caused for reasons other than by removal by the stockholders or by expiration of the term.1avvphi1

It also bears noting that the vacancy referred to in Section 29 contemplates a vacancy occurring within the director’s term of office. When a vacancy is created by the expiration of a term, logically, there is no more unexpired term to speak of. Hence, Section 29 declares that it shall be the corporation’s stockholders who shall possess the authority to fill in a vacancy caused by the expiration of a member’s term.

As correctly pointed out by the RTC, when remaining members of the VVCC Board elected Ramirez to replace Makalintal, there was no more unexpired term to speak of, as Makalintal’s one-year term had already expired. Pursuant to law, the authority to fill in the vacancy caused by Makalintal’s leaving lies with the VVCC’s stockholders, not the remaining members of its board of directors.

WHEREFORE, we DENY the petitioners’ petition for review on certiorari, and AFFIRM the partial decision of the Regional Trial Court, Branch 152, Manila, promulgated on January 23, 2002, in Civil Case No. 68726. Costs against the petitioners.SO ORDERED.










G.R. No. 178678 April 16, 2009

DR. HANS CHRISTIAN M. SEÑERES, Petitioner, vs. COMMISSION ON ELECTIONS and MELQUIADES A. ROBLES, Respondents.

D E C I S I O NVELASCO, JR., J.:

The Case

Before us is a Petition for Certiorari1 under Rule 65 with a prayer for a temporary restraining order and/or preliminary injunction to nullify and enjoin the implementation of the Resolution2 dated July 19, 2007 of the Commission on Elections (COMELEC), which declared respondent Melquiades Robles (Robles) as the President of Buhay Hayaan Yumabong (Buhay).

The Undisputed Facts

In 1999, private respondent Robles was elected president and chairperson of Buhay, a party-list group duly registered with COMELEC.3 The constitution of BUHAY provides for a three-year term for all its party officers, without re-election.4 BUHAY participated in the 2001 and 2004 elections, with Robles as its president. All the required Manifestations of Desire to Participate in the said electoral exercises, including the Certificates of Nomination of representatives, carried the signature of Robles as president of BUHAY.5 On January 26, 2007, in connection with the May 2007 elections, BUHAY again filed a Manifestation of its Desire to Participate in the Party-List System of Representation.6 As in the past two elections, the manifestation to participate bore the signature of Robles as BUHAY president.

On March 29, 2007, Robles signed and filed a Certificate of Nomination of BUHAY’s nominees for the 2007 elections containing the following names: (i) Rene M. Velarde, (ii) Ma. Carissa Coscolluela, (iii) William Irwin C. Tieng, (iv) Melchor R. Monsod, and (v) Teresita B. Villarama. Earlier, however, or on March 27, 2007, petitioner Hans Christian Señeres, holding himself up as acting president and secretary-general of BUHAY, also filed a Certificate of Nomination with the COMELEC, nominating: (i) himself, (ii) Hermenegildo C. Dumlao, (iii) Antonio R. Bautista, (iv) Victor Pablo C. Trinidad, and (v) Eduardo C. Solangon, Jr.7

Consequently, on April 17, 2007, Señeres filed with the COMELEC a Petition to Deny Due Course to Certificates of Nomination.8 In it, petitioner Señeres alleged that he was the acting president and secretary-general of BUHAY, having assumed that position since August 17, 2004 when Robles vacated the position. Pushing the

point, Señeres would claim that the nominations made by Robles were, for lack of authority, null and void owing to the expiration of the latter’s term as party president. Furthermore, Señeres asserted that Robles was, under the Constitution,9 disqualified from being an officer of any political party, the latter being the Acting Administrator of the Light Railway Transport Authority (LRTA), a government-controlled corporation. Robles, so Señeres would charge, was into a partisan political activity which civil service members, like the former, were enjoined from engaging in.

On May 10, 2007, the National Council of BUHAY adopted a resolution10 expelling Señeres as party member for his act of submitting a Certificate of Nomination for the party. The resolution reads in part:

WHEREAS, Hans Christian M. Señeres, without authority from the National Council, caused the filing of his Certificate of Nomination with the Comelec last 27 March 2007.

WHEREAS, Hans Christian M. Señeres, again without authority from the National Council, listed in his Certificate of Nomination names of persons who are not even members of the Buhay party.

WHEREAS, Hans Christian M. Señeres, knowing fully well that the National Council had previously approved the following as its official nominees, to wit x x x to the 2007 Party-List elections; and that Mr. Melquiades A. Robles was authorized to sign and submit the party’s Certificate of Nomination with the Comelec; and, with evident premeditation to put the party to public ridicule and with scheming intention to create confusion, still proceeded with the filing of his unauthorized certificate of nomination even nomination persons who are not members of Buhay.

WHEREAS, Hans Christian M. Señeres, in view of the foregoing, underwent Party Discipline process pursuant to Article VII of the Constitution and By-Laws of the Party.

x x x x

WHEREAS, after a careful examination of the [evidence] on his case, the National Council found Hans Christian M. Señeres to have committed acts in violation of the constitution and by-laws of the party and decided to expel him as a member of the party.

NOW THEREFORE, be it RESOLVED as it is hereby RESOLVED that the National Council has decided to expel Hans M. Señeres as a member of the party effective close of business hour of 10 May 2007.

BE IT RESOLVED FURTHER, that all rights and privileges pertaining to the membership of Hans M. Señeres with the party are consequently cancelled.

BE IT RESOLVED FURTHER, that the President and Chairman of the National Council of Buhay, Mr. Melquiades A. Robles, is hereby authorized to cause the necessary filing of whatever documents/letters before the House of Representatives and/or to any other entity/agency/person to remove/drop Mr. Señeres’ name in the roll of members in the said lower house. 11

Later developments saw Robles filing a petition praying for the recognition of Jose D. Villanueva as the new representative of BUHAY in the House of Representatives for the remaining term until June 30, 2007.12 Attached to the petition was a copy of the expelling resolution adverted to. Additionally, Robles also filed on the same day an "Urgent Motion to Declare Null and Void the Certificate of Nomination and Certificates of Acceptance filed by Hans Christian M. Señeres, Hermenegildo Dumlao, Antonio R. Bautista, Victor Pablo Trinidad and Eduardo Solangon, Jr."13

On July 9 and July 18, 2007, respectively, the COMELEC issued two resolutions proclaiming BUHAY as a winning party-list organization for the May 2007 elections entitled to three (3) House seats.14

This was followed by the issuance on July 19, 2007 by the en banc COMELEC of Resolution E.M. No. 07-043 recognizing and declaring Robles as the president of BUHAY and, as such, was the one "duly authorized to sign documents in behalf of the party particularly the Manifestation to participate in the party-list system of representation and the Certification of Nomination of its nominees."15 Explaining its action, COMELEC stated that since no party election was held to replace Robles as party president, then he was holding the position in a hold-over capacity.161avvphi1

The COMELEC disposed of the partisan political activity issue with the terse observation that Señeres’ arguments on the applicability to Robles of the prohibition on partisan political activity were unconvincing.17 The dispositive portion of the COMELEC Resolution reads:

WHEREFORE, premises considered, this Commission (En Banc) hereby recognizes Melquiades A. Robles as the duly authorized representative of Buhay Hayaan Yumabong (Buhay) and to act for and in its behalf pursuant to its Constitution and By-Laws.

SO ORDERED.18




















On July 20, 2007, the first three (3) listed nominees of BUHAY for the May 2007 elections, as per the Certificate of Nomination filed by Robles, namely Rene M. Velarde, Ma. Carissa Coscolluela, and William Irwin C. Tieng, took their oaths of office as BUHAY party-list representatives in the current Congress.19 Accordingly, on September 3, 2007, the COMELEC, sitting as National Board of Canvassers, issued a Certificate of Proclamation to BUHAY and its nominees as representatives to the House of Representatives.20

Aggrieved, petitioner filed the instant petition.

The Issue

Whether or not the COMELEC acted without or in excess of jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction in issuing its challenged Resolution dated June 19, 2007, which declared respondent Robles as the duly authorized representative of BUHAY, and there is no appeal or any other plain, speedy or adequate remedy in the ordinary course of law except the instant petition.

Our Ruling

The petition should be dismissed for lack of merit.

Petition for Certiorari Is an Improper Remedy

A crucial matter in this recourse is whether the petition for certiorari filed by Señeres is the proper remedy.

A special civil action for certiorari may be availed of when the tribunal, board, or officer exercising judicial or quasi-judicial functions has acted without or in excess of jurisdiction and there is no appeal or any plain, speedy, and adequate remedy in the ordinary course of law for the purpose of annulling the proceeding.21 It is the "proper remedy to question any final order, ruling and decision of the COMELEC rendered in the exercise of its adjudicatory or quasi-judicial powers."22 For certiorari to prosper, however, there must be a showing that the COMELEC acted with grave abuse of discretion and that there is no appeal or any plain, speedy and adequate remedy in the ordinary course of law.

In the present case, a plain, speedy and adequate remedy in the ordinary course of law was available to Señeres. The 1987 Constitution cannot be more explicit in this regard. Its Article VI, Section 17 states:

Sec. 17. The Senate and the House of Representatives shall each have an Electoral Tribunal which shall be the sole judge of all

contests relating to the election, returns and qualifications of their respective Members. x x x

This constitutional provision is reiterated in Rule 14 of the 1991 Revised Rules of the Electoral Tribunal of the House of Representatives, to wit:

RULE 14. Jurisdiction.—The Tribunal shall be the sole judge of all contests relating to the election, returns and qualifications of the Members of the House of Representatives.

In Lazatin v. House Electoral Tribunal, the Court elucidated on the import of the word "sole" in Art. VI, Sec. 17 of the Constitution, thus:

The use of the word ‘sole’ emphasizes the exclusive character of the jurisdiction conferred. The exercise of the power by the Electoral Commission under the 1935 Constitution has been described as ‘intended to be as complete and unimpaired as if it had remained originally in the legislature.’ Earlier, this grant of power to the legislature was characterized by Justice Malcolm as ‘full, clear and complete.’ Under the amended 1935 Constitution, the power was unqualifiedly reposed upon the Electoral Tribunal and it remained as full, clear and complete as that previously granted the legislature and the Electoral Commission. The same may be said with regard to the jurisdiction of the Electoral Tribunals under the 1987 Constitution."23

Then came Rasul v. COMELEC and Aquino-Oreta, in which the Court again stressed that "the word ‘sole’ in Sec. 17, Art. VI of the 1987 Constitution and Sec. 250 of the Omnibus Election Code underscore the exclusivity of the Tribunal’s jurisdiction over election contests relating to its members."24

The House of Representatives Electoral Tribunal’s (HRET’s) sole and exclusive jurisdiction over contests relative to the election, returns and qualifications of the members of the House of Representatives "begins only after a candidate has become a member of the House of Representatives."25 Thus, once a winning candidate has been proclaimed, taken his oath, and assumed office as a Member of the House of Representatives, COMELEC’s jurisdiction over elections relating to the election, returns, and qualifications ends, and the HRET’s own jurisdiction begins.26

It is undisputed that the COMELEC, sitting as National Board of Canvassers, proclaimed BUHAY as a winning party-list organization for the May 14, 2007 elections, entitled to three (3) seats in the House of Representatives.27 The proclamation came in the form of two Resolutions dated July 9, 2007 and July 18, 2007,28 respectively. Said resolutions are official proclamations of

COMELEC considering it is BUHAY that ran for election as party-list organization and not the BUHAY nominees.

The following day, on July 19, 2007, the COMELEC issued the assailed resolution declaring "Melquiades A. Robles as the duly authorized representative of Buhay Hayaan Yumabong (Buhay) and to act in its behalf pursuant to its Constitution and By-Laws." COMELEC affirmed that his Certificate of Nomination was a valid one as it ruled that "Robles is the President of Buhay Party-List and therefore duly authorized to sign documents in behalf of the party particularly the Manifestation to participate in the pary-list system of representation and theCertificate of Nomination of its nominees."29 The September 3, 2007 proclamation merely confirmed the challenged July 19, 2007 Resolution. The July 19, 2007 Resolution coupled with the July 9, 2007 and July 18, 2007 proclamations vested the Robles nominees the right to represent BUHAY as its sectoral representatives.

Consequently, the first three (3) nominees in the Certificate of Nomination submitted by Robles then took their oaths of office before the Chief Justice on July 20, 2007 and have since then exercised their duties and functions as BUHAY Party-List representatives in the current Congress.

Without a doubt, at the time Señeres filed this petition before this Court on July 23, 2007, the right of the nominees as party-list representatives had been recognized and declared in the July 19, 2007 Resolution and the nominees had taken their oath and already assumed their offices in the House of Representatives. As such, the proper recourse would have been to file a petition for quo warranto before the HRET within ten (10) days from receipt of the July 19, 2007 Resolution and not a petition for certiorari before this Court.30

Since Señeres failed to file a petition for quo warranto before the HRET within 10 days from receipt of the July 19, 2007 Resolution declaring the validity of Robles’ Certificate of Nomination, said Resolution of the COMELEC has already become final and executory. Thus, this petition has now become moot and can be dismissed outright. And even if we entertain the instant special civil action, still, petitioner’s postulations are bereft of merit.

Act of Nominating Is Not Partisan Political Activity

Petitioner Señeres contends that Robles, acting as BUHAY President and nominating officer, as well as being the Administrator of the LRTA, was engaging in electioneering or partisan political campaign. He bases his argument on the Constitution, which prohibits any officer or employee in the civil service from engaging, directly or indirectly, in any electioneering or partisan political campaign.31 He also cites Sec. 4 of the Civil















Service Law which provides that "no officer or employee in the Civil Service x x x shall engage in any partisan political activity." Lastly, he mentions Sec. 26(i) of the Omnibus Election Code which makes it "an election offense for any officer in the civil service to directly or indirectly x x x engage in any partisan political activity."

This contention lacks basis and is far from being persuasive. The terms "electioneering" and "partisan political activity" have well-established meanings in the Omnibus Election Code, to wit:

Section 79. x x x

(b) The term ‘election campaign’ or ‘partisan political activity’ refers to an act designed to promote the election or defeat of a particular candidate or candidates to a public office which shall include:

(1) Forming organizations, associations, clubs, committees, or other groups of persons for the purpose of soliciting votes and/or undertaking any campaign for or against a candidate;

(2) Holding political caucuses, conferences, meetings, rallies, parades, or other similar assemblies, for the purpose of soliciting votes and/or undertaking any campaign or propaganda for or against a candidate;

(3) Making speeches, announcements or commentaries, or holding interviews for or against the election of any candidate for public office;

(4) Publishing or distributing campaign literature or materials designed to support or oppose the election of any candidate; or

(5) Directly or indirectly soliciting votes, pledges or support for or against a candidate.

The foregoing enumerated acts if performed for the purpose of enhancing the chances of aspirants for nominations for candidacy to a public office by a political party, agreement, or coalition of parties shall not be considered as election campaign or partisan election activity.

Public expression of opinions or discussions of probable issues in a forthcoming election or on attributes of or criticisms against probable candidates proposed to be nominated in a forth coming political party convention shall not be construed as part of any election campaign or partisan political activity contemplated under this Article. (Emphasis supplied.)

Guided by the above perspective, Robles’ act of submitting a nomination list for BUHAY cannot, without more, be considered electioneering or partisan political activity within the context of the Election Code. First of all, petitioner did not aver that Robles committed any of the five (5) acts defined in the aforequoted Sec. 79(b) of the Code, let alone adduce proof to show the fact of commission.

Second, even if Robles performed any of the previously mentioned acts, Sec. 79 of the Code is nonetheless unequivocal that if the same is done only for the "purpose of enhancing the chances of aspirants for nominations for candidacy to a public office by a political party, agreement, or coalition of parties," it is not considered as a prohibited electioneering or partisan election activity.

From this provision, one can conclude that as long as the acts embraced under Sec. 79 pertain to or are in connection with the nomination of a candidate by a party or organization, then such are treated as internal matters and cannot be considered as electioneering or partisan political activity. The twin acts of signing and filing a Certificate of Nomination are purely internal processes of the party or organization and are not designed to enable or ensure the victory of the candidate in the elections. The act of Robles of submitting the certificate nominating Velarde and others was merely in compliance with the COMELEC requirements for nomination of party-list representatives and, hence, cannot be treated as electioneering or partisan political activity proscribed under by Sec. 2(4) of Art. IX(B) of the Constitution for civil servants.

Moreover, despite the fact that Robles is a nominating officer, as well as Chief of the LRTA, petitioner was unable to cite any legal provision that prohibits his concurrent positions of LRTA President and acting president of a party-list organization or that bars him from nominating.

Last but not least, the nomination of Velarde, Coscolluela, Tieng, Monsod, and Villarama to the 2007 party-list elections was, in the final analysis, an act of the National Council of BUHAY. Robles’ role in the nominating process was limited to signing, on behalf of BUHAY, and submitting the party’s Certificate of Nomination to the COMELEC.32 The act of nominating BUHAY’s representatives was veritably a direct and official act of the National Council of BUHAY and not Robles’. Be that as it may, it is irrelevant who among BUHAY’s officials signs the Certificate of Nomination, as long as the signatory was so authorized by BUHAY. The alleged disqualification of Robles as nominating officer is indeed a non-issue and does not affect the act of the National Council of nominating Velarde and others. Hence, the Certificate of Nomination, albeit signed by Robles, is still the product of a valid and legal act of the National Council of BUHAY. Robles’

connection with LRTA could not really be considered as a factor invalidating the nomination process.

"Hold-Over" Principle Applies

Petitioner Señeres further maintains that at the time the Certificate of Nomination was submitted, Robles’ term as President of BUHAY had already expired, thus effectively nullifying the Certificate of Nomination and the nomination process.

Again, petitioner’s contention is untenable. As a general rule, officers and directors of a corporation hold over after the expiration of their terms until such time as their successors are elected or appointed.33 Sec. 23 of the Corporation Code contains a provision to this effect, thus:

Section 23. The board of directors or trustees.—Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year until their successors are elected and qualified.

The holdover doctrine has, to be sure, a purpose which is at once legal as it is practical. It accords validity to what would otherwise be deemed as dubious corporate acts and gives continuity to a corporate enterprise in its relation to outsiders.34 This is the analogical situation obtaining in the present case. The voting members of BUHAY duly elected Robles as party President in October 1999. And although his regular term as such President expired in October 2002,35 no election was held to replace him and the other original set of officers.36 Further, the constitution and by-laws of BUHAY do not expressly or impliedly prohibit a hold-over situation. As such, since no successor was ever elected or qualified, Robles remained the President of BUHAY in a "hold-over" capacity.

Authorities are almost unanimous that one who continues with the discharge of the functions of an office after the expiration of his or her legal term––no successor having, in the meantime, been appointed or chosen––is commonly regarded as a de facto officer, even where no provision is made by law for his holding over and there is nothing to indicate the contrary.37 By fiction of law, the acts of such de facto officer are considered valid and effective.38

So it must be for the acts of Robles while serving as a hold-over Buhay President. Among these acts was the submission of the nomination certificate for the May 14, 2007 elections.









As a final consideration, it bears to state that petitioner is estopped from questioning the authority of Robles as President of BUHAY. As a principle of equity rooted on natural justice, the bar of estoppel precludes a person from going back on his own acts and representations to the prejudice of another whom he has led to rely upon them.39

Again, it cannot be denied that Robles, as BUHAY President, signed all manifestations of the party’s desire to participate in the 2001 and 2004 elections, as well as all Certificates of Nomination.40 In fact, the corresponding certificate for the 2004 elections included petitioner as one of the nominees. During this time, Robles’ term as President had already expired, and yet, petitioner never questioned Robles’ authority to sign the Certificate of Nomination. As a matter of fact, petitioner even benefited from the nomination, because he earned a seat in the House of Representatives as a result of the party’s success.41 Clearly, petitioner cannot now be heard to argue that Robles’ term as president of BUHAY has long since expired, and that his act of submitting the Certificate of Nomination and the manifestation to participate in the 2007 elections is null and void. He is already precluded from doing so.

WHEREFORE, the petition is DISMISSED. Resolution E.M. No. 07-043 of the COMELEC dated July 19, 2007 isAFFIRMED. No costs.SO ORDERED.

Officers

G.R. No. 111008 November 7, 1994

TRAMAT MERCANTILE, INC. AND DAVID ONG, petitioners, vs. HON. COURT OF APPEALS AND MELCHOR DE LA CUESTA, respondents.

Emilio G. Abrogena for petitioners.

Constante B. Albano for private respondent.

VITUG, J.:

This petition for review on certiorari challenges the 04th March 1993 decision of the Court of Appeals and its resolution of 01 July 1993 denying the motion for reconsideration.

On 09 April 1984, Melchor de la Cuesta, doing business under the name and style of "Farmers Machineries," sold to Tramat

Mercantile, Inc. ("Tramat"), one (1) unit HINOMOTO TRACTOR Model MB 1100D powered by a 13 H.P. diesel engine. In payment, David Ong, Tramat's president and manager, issued a check for P33,500.00 (apparently replacing an earlier postdated check for P33,080.00). Tramat, in turn, sold the tractor, together with an attached lawn mower fabricated by it, to the Metropolitan Waterworks and Sewerage System ("NAWASA") for P67,000.00. David Ong caused a "stop payment" of the check when NAWASA refused to pay the tractor and lawn mower after discovering that, aside from some stated defects of the attached lawn mower, the engine (sold by de la Cuesta) was a reconditioned unit.

On 28 May 1985, de la Cuesta filed an action for the recovery of P33,500.00, as well as attorney's fees of P10,000.00, and the costs of suit. Ong, in his answer, averred, among other things, that de la Cuesta had no cause of action; that the questioned transaction was between plaintiff and Tramat Mercantile, Inc., and not with Ong in his personal capacity; and that the payment of the check was stopped because the subject tractor had been priced as a brand new, not as a reconditioned unit.

On 02 November 1989, after the reception of evidence, the trial court rendered a decision, the dispositive portions of which read:

WHEREFORE, in view of the foregoing consideration, judgment is hereby rendered:

1. Ordering the defendants, jointly and severally, to pay the plaintiff the sum of P33,500.00 with legal interest thereon at the rate of 12% per annum from July 7, 1984 until fully paid; and

2. Ordering the defendants, jointly and severally, to pay the plaintiff the sum of P10,000.00 as attorney's fees, and the costs of this suit.

SO ORDERED. 1

An appeal was timely interposed by the defendants. On 04 March 1993, the Court of Appeals affirmed in toto the decision of the

trial court. Defendant-appellants' motion for reconsideration was denied.

Hence, the instant petition.

We could find no reason to reverse the factual findings of both the trial court and the appellate court, particularly in holding that the contract between de la Cuesta and TRAMAT was one of absolute, not conditional, sale of the tractor and that de la Cuesta did not violate any warranty on the sale of the tractor to TRAMAT. The appellate court, in its decision, adequately explained:

If the perfection of the sale was dependent upon acceptance by the MWSS of the subject tractor why did the appellants issue a check in payment of the item to the appellee? And long after MWSS had complained about the defective tractor engine, and after the appellee had failed to remedy the defect, why did the appellants still draw and deliver a replacement check to the appellee for the increased amount of P33,500.00?

These payments argue against the claim now made by the defendants that the sale was conditional.

According to the appellee, the additional amount covered the cost of replacing the oil gasket of the tractor engine when it was repaired in Soledad Cac's gasoline station in Quezon City. The appellants, on the other hand, claims the amount represented the freight charges for transporting the tractor from Cauayan, Isabela to Metro Manila.

The appellants should have explained why they failed to include the freight charges in the first check. The tractor was transported from Isabela to Metro Manila as early as April 1984, and the first check was drawn at about the same time. The freight charges cannot be said to have been incurred when the tractor engine was delivered back to the supplier for repairs. The appellants admitted that the engine was not brought back to Isabela. The repairs were done at Soledad Cac's gasoline station in Quezon City.





Anent the first assigned error, We sustain the trial court's finding that at the time of the purchase, the appellants did not reveal to the appellee the true purpose for which the tractor would be used. Granting that the appellants informed the appellee that they would be reselling the unit to the MWSS, an entity admittedly not engaged in farming, and that they ordered the tractor without the power tiller, an indispensable accessory if the tractor would be used in farming, these in themselves would not constitute the required implied notice to the appellee as seller.

xxx xxx xxx

In regard to the second assigned error, We do not agree that the appellee should have been held liable for the tractor's alleged hidden defects. . . .

It has to be noted in this regard that, to satisfy the requirements of the MWSS, the appellants borrowed a lawn mower from the MWSS so they could fabricate one such mower. The appellants' witness stated that the kind of mid-mounted lawn mower was being manufactured by their competitor, Alpha Machinery, which had by then stopped supplying the same (tsn, Nov. 29, 1988, pp. 73-74). There is no showing that the appellants had had any previous experience in the fabrication of this lawn mower. In fact, as aforesaid, they had to borrow one from the MWSS which they could copy. But although they made a copy with the same specifications and design, there was no assurance that the copy would function as well as with the model.

xxx xxx xxx

Although the trial court discussed it in a different light, We view the matter in the same way the trial court did — that the lawn mower as fabricated by the appellants was the root of the parties' problems.

Having had no previous experience in the manufacture of lawn mowers of the same type as that in litigation, and in a possibly patent-infringing effort to undercut their competition, the appellants gathered enough daring to do the fabrication themselves. But the product might have proved too much for the subject tractor to power, and the tractor's engine was strained beyond its limits, causing it to overheat and damage its gaskets.

No wonder, then, it was a gasket Soledad Cac had to replace, at a cost chargeable to the appellants. No wonder, furthermore, the appellants' witness declared that even after the replacement of that one gasket, the engine still leaked oil after being torture-tested. The integrity of the other engine gaskets might have been impaired, too. Such was the burden placed on the engine. The engine malfunctioned not necessarily because the engine, as alleged by the appellants, had been a reconditioned, and not a brand new, one. It malfunctioned because it was made to do what it simply could not. 2

It was, nevertheless, an error to hold David Ong jointly and severally liable with TRAMAT to de la Cuesta under the questioned transaction. Ong had there so acted, not in his personal capacity, but as an officer of a corporation, TRAMAT, with a distinct and separate personality. As such, it should only be the corporation, not the person acting for and on its behalf, that properly could be made liable thereon. 3

Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule, only when —

1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith, or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; 4

2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; 5

3. He agrees to hold himself personally and solidarily liable with the corporation; 6 or

4. He is made, by a specific provision of law, to personally answer for his corporate action. 7

In the case at bench, there is no indication that petitioner David Ong could be held personally accountable under any of the abovementioned cases.

WHEREFORE, the petition is given DUE COURSE and the decision of the trial court, affirmed by the appellate court, is MODIFIED insofar as it holds petitioner David Ong jointly and severally liable with Tramat Mercantile, Inc., which portion of the questioned judgment is SET ASIDE. In all other respects, the decision appealed from is AFFIRMED. No costs.SO ORDERED

G.R. No. 184520 March 13, 2013

ROLANDO DS.TORRES, Petitioner, vs. RURAL BANK OF SAN JUAN, INC., ANDRES CANO CHUA, JOBEL GO CHUA, JESUS CANO CHUA, MEINRADO DALISAY, JOSE MANALANSAN III, OFELIA GINA BE and NATY ASTRERO, Respondents.

D E C I S I O N

REYES, J.:

This Petition for Review on Certiorari,1 under Rule 45 of the Rules of Court, seeks to reverse and set aside the Decision2 dated February 21, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. 94690 dismissing the complaint for illegal dismissal filed by petitioner Rolando OS. Torres (petitioner) against respondent Rural Bank of San Juan, Inc. (RBSJT) and its officers who are the herein individual respondents, namely: Andres Cano Chua (Andres), Jobel Go Chua (Jobel), Jesus Cano Chua (Jesus), Meinrado Dalisay, Jose Manalansan III (Jose), Ofelia Ginabe (Ofelia) and Naty Astrero (collectively referred to as respondents).3

Likewise assailed is the CA Resolution4 dated June 3, 2008 which denied reconsideration.

The antecedents

Culled from the rulings of the labor tribunals and the appellate court are the ensuing factual milieu:5

http://www.lawphil.net/judjuris/juri2013/mar2013/gr_184520_2013.html#fnt1






The petitioner was initially hired by RBSJI as Personnel and Marketing Manager in 1991. After a six-month probationary period and finding his performance to be satisfactory, RBSJI renewed his employment for the same post to a permanent/regular status. In June 1996, the petitioner was offered the position of Vice-President for RBSJI’s newly created department, Allied Business Ventures. He accepted the offer and concomitantly relinquished his post. The vacancy created was filled by respondent Jobel who temporarily held the position concurrently as a Corporate Planning and Human Resources Development Head.

On September 24, 1996, the petitioner was temporarily assigned as the manager of RBSJI’s N. Domingo branch in view of the resignation of Jacinto Figueroa (Jacinto).

On September 27, 1996, Jacinto requested the petitioner to sign a standard employment clearance pertaining to his accountabilities with RBSJI. When the petitioner declined his request, Jacinto threw a fit and shouted foul invectives. To pacify him, the petitioner bargained to issue a clearance but only for Jacinto’s paid cash advances and salary loan.

About seven months later or on April 17, 1997, respondent Jesus issued a memorandum to the petitioner requiring him to explain why no administrative action should be imposed on him for his unauthorized issuance of a clearance to Jacinto whose accountabilities were yet to be audited. Jacinto was later found to have unliquidated cash advances and was responsible for a questionable transaction involving P11 million for which RBSJI is being sued by a certain Actives Builders Manufacturing Corporation. The memorandum stressed that the clearance petitioner issued effectively barred RBSJI from running after Jacinto.6

The petitioner submitted his explanation on the same day clarifying that the clearance was limited only to Jacinto’s paid cash advances and salary loan based on the receipts presented by Lily Aguilar (Lily), the cashier of N. Domingo branch. He emphasized that he had no foreknowledge nor was he forewarned of Jacinto’s unliquidated cash advances and questionable transactions and that the clearance did not extend to those matters.7

After conducting an investigation, RBSJI’s Human Resources Department recommended the petitioner’s termination from employment for the following reasons, to wit:

1. The issuance of clearance to Mr. Jacinto Figueroa by the petitioner have been prejudicial to the Bank considering that damages [sic] found caused by Mr. Figueroa during his stay with the bank;

2. The petitioner is not in any authority to issue said clearance which is a violation of the Company Code of Conduct and Discipline under Category B Grave Offense No. 1 (falsifying or misrepresenting persons or other company records, documents or papers) equivalent to termination; and

3. The nature of his participation in the issuance of the said clearance could be a reasonable ground for the Management to believe that he is unworthy of the trust and confidence demanded by his position which is also a ground for termination under Article 282 of the Labor Code.8

On May 19, 1997, RBSJI’s Board of Directors adopted the above recommendation and issued Resolution No. 97-102 terminating the petitioner from employment, the import of which was communicated to him in a Memorandum dated May 30, 1997.9

Feeling aggrieved, the petitioner filed the herein complaint for illegal dismissal, illegal deduction, non-payment of service incentive, leave pay and retirement benefits.10 The petitioner averred that the supposed loss of trust and confidence on him was a sham as it is in fact the calculated result of the respondents’ dubious plot to conveniently oust him from RBSJI.

He claimed that he was deceived to accept a Vice-President position, which turned out to be a mere clerical and menial work, so the respondents can install Jobel, the son of a major stockholder of RBSJI, as Personnel and Marketing Manager. The plot to oust the petitioner allegedly began in 1996 when Jobel annexed the Personnel and Marketing Departments to the Business Development and Corporate Planning Department thus usurping the functions of and displacing the petitioner, who was put on a floating status and stripped of managerial privileges and allowances.

The petitioner further alleged that he was cunningly assigned at N. Domingo branch so he can be implicated in the anomalous transaction perpetrated by Jacinto. He narrated that on September 27, 1996, the officers of RBSJI, namely: Jobel, Andres, Jose and Ofelia, were actually at the N. Domingo branch but they all suspiciously left him to face the predicament caused by Jacinto.

He recounted that the next day he was assigned back at the Tarlac extension office and thereafter repeatedly harassed and forced to resign. He tolerated such treatment and pleaded that he be allowed to at least reach his retirement age. On March 7, 1996, he wrote a letter to George Cano Chua (George) expressing his detestation of how the "new guys" are dominating the operations of the company by destroying the image of pioneer employees,

like him, who have worked hard for the good image and market acceptability of RBSJI. The petitioner requested for his transfer to the operations or marketing department. His request was, however, not acted upon.

The petitioner claimed that on March 19, 1997, respondent Jesus verbally terminated him from employment but he later on retracted the same and instead asked the petitioner to tender a resignation letter. The petitioner refused. A month thereafter, the petitioner received the memorandum asking him to explain why he cleared Jacinto of financial accountabilities and thereafter another memorandum terminating him from employment.

For their part, the respondents maintained that the petitioner was validly dismissed for loss of trust and confidence precipitated by his unauthorized issuance of a financial accountability clearance sans audit to a resigned employee. They averred that a copy of the clearance mysteriously disappeared from RBSJI’s records hence, the petitioner’s claim that it pertained only to Jacinto’s paid cash advances and salary loan cannot stand for being uncorroborated.

Attempts at an amicable settlement were made but the same proved futile hence, the Labor Arbiter11 (LA) proceeded to rule on the complaint.

Ruling of LA

In its Decision12 dated November 27, 1998, the LA sustained the claims of the petitioner as against the factually unsubstantiated allegation of loss of trust and confidence propounded by the respondents. The LA observed that the petitioner’s selfless dedication to his job and efforts to achieve RBSJI’s stability, which the respondents failed to dispute, negate any finding of bad faith on his part when he issued a clearance of accountabilities in favor of Jacinto. As such, the said act cannot serve as a valid and justifiable ground for the respondents to lose trust and confidence in him.

The LA further held that the failure of both parties to present a copy of the subject clearance amidst the petitioner’s explanation that it did not absolutely release Jacinto from liability, should work against the respondents since it is the proof that will provide basis for their supposed loss of trust and confidence.

The LA upheld the petitioner’s contention that the loss of trust and confidence in him was indeed a mere afterthought to justify the respondents’ premeditated plan to ease him out of RBSJI. The LA’s conclusion was premised on the convergence of the following circumstances: (1) the petitioner’s stint from 1991-1996 was not marred with any controversy or complaint regarding his









performance; (2) when Jobel joined RBSJI in the latter part of 1996, he took over the department led by the petitioner thus placing the latter in a floating status; and (3) the petitioner’s temporary transfer to the N. Domingo branch was designed to deliberately put him in a bind and blame him on whatever course of action he may take to resolve the same.

Accordingly, the petitioner was found to have been illegally dismissed and thus accorded the following reliefs in the decretal portion of the LA Decision, viz:

WHEREFORE, premises considered, judgment is hereby rendered ordering respondent Bank and individual respondents, to reinstate [the petitioner to his previous or equivalent position, without loss of seniority rights and other benefits and privileges appurtaining [sic] to him, and to pay the petitioner the following:

1. The petitioner’s partial backwages and other emoluments in the form of allowances, as gasoline, maintenance, representation, uniform and membership allowances, from the time of his dismissal up to his actual date of reinstatement, which as of this date amount to:

Backwages (Partial) …………………… P244,800.00

Gasoline Allowances ………………….. 63,000.00

Maintenance Allowance ………………. 45,000.00

Representation Allowance …………….. 54,000.00

Membership Allowance ……………….. 12,000.00

Uniform Allowance …………………… 8,000.00

Total ………P426,800.00

2. The petitioner’s 13th month pay from the time of his dismissal up to actual date of reinstatement, which as of this date amounts to Twenty-Seven Thousand Two Hundred (P27,200.00) Pesos;

3. Moral and exemplary damages in the amount of Fifty Thousand ([P]50,000.00) Pesos each, respectively; and

4. Attorney’s fees amounting to ten percent (10%) of the total award, specifically amounting to Fifty-Five Thousand Nine Hundred Twenty-Three Pesos and Eight ([P]55,923.08) Centavos.

All other claims are hereby Dismissed for lack of merit.

SO ORDERED.13

Ruling of the National Labor Relations Commission (NLRC)

In its Resolution14 dated April 14, 2000, the NLRC disagreed with the LA’s conclusion and opined that it was anchored on irrelevant matters such as the petitioner’s performance and the preferential treatment given to relatives of RBSJI’s stockholders. The NLRC held that the legality of the petitioner’s dismissal must be based on an appreciation of the facts and the proof directly related to the offense charged, which NLRC found to have weighed heavily in favor of the respondents.

The NLRC remarked that the petitioner was indisputably not authorized to issue the clearance. Also, the tantrums and furious attitude exhibited by Jacinto are not valid reasons to submit to his demands. The fact that the N. Domingo branch had been sued civilly on February 25, 1997 for a tax scam while under Jacinto’s leadership, should have alerted the petitioner into issuing him a clearance. The action taken by the petitioner lacked the prudence expected from a man of his stature thus prejudicing the interests of RBSJI. Accordingly, the dispositive portion of the decision reads:

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE. Let a new one [sic] entered DISMISSING the instant case for lack of merit. However, respondent should pay the petitioner his proportionate 13th month pay for 1997 as he was dismissed on May 30, 1997.

SO ORDERED.15

The petitioner sought reconsideration16 which was admitted by the NLRC in an Order dated September 30, 2005. From such Order, the respondents filed a motion for reconsideration on the ground that the petitioner failed to present a copy of his purported motion bearing the requisite proof of filing.17

Traversing both motions, the NLRC issued its Decision18 dated March 3, 2006: (1) granting the petitioner’s plea for the

reconsideration of its Resolution dated April 14, 2000 thus effectively reversing and nullifying the same; and (2) denying the respondents’ motion for reconsideration of the Order dated September 30, 2005.

Anent the first disposition, the NLRC accorded weight to the explanations proffered by the petitioner that the clearance issued to Jacinto was limited only to his paid cash advances and salary loan. The NLRC further held that the offense imputed to the petitioner is not covered by Category B, Grave Offense No. 1 of RBSJI’s Code of Conduct and Discipline as it does not appear that he falsified or misrepresented personal or other company records, documents or papers.19

Taking an entirely opposite stance, the NLRC declared that the clearance issued by the petitioner did not prejudice RBSJI’s interest as it was limited in scope and did not entirely clear Jacinto from all his financial accountabilities. Also, the petitioner was only "a day old" at the N. Domingo branch and thus he cannot be reasonably expected to be aware of the misdeeds purportedly committed by Jacinto.20

For the foregoing reasons, the NLRC reversed its earlier ruling and reinstated the LA’s Decision dated November 27, 1998, thus:

WHEREFORE, the Arbiter’s decision of 27 November 1998 is hereby AFFIRMED and REINSTATED.

Accordingly, the Resolution of 14 April 2000 is REVERSED and SET ASIDE.

Finally, the respondents’ Motion for Reconsideration dated 2 November 2005 is DENIED for lack of merit.

SO ORDERED.21

Ruling of the CA

The respondents sought recourse with the CA,22 which in its Decision23 dated February 21, 2008 reversed and set aside the NLRC Decision dated March 3, 2006 and ruled that the petitioner was dismissed for a just cause. The appellate court articulated that as the Acting Manager of RBSJI’s N. Domingo branch, the petitioner held a highly sensitive and critical position which entailed the conscientious observance of company procedures. Not only was he unauthorized to issue the clearance, he also failed to exercise prudence in clearing Jacinto of his accountabilities given the fact that the same were yet to be audited. Such omission financially prejudiced RBSJI and it amounted to gross negligence and incompetence sufficient to sow













in his employer the seed of mistrust and loss of confidence.24 The decretal portion of the CA Decision thus reads:

IN VIEW OF ALL THE FOREGOING, the petition is GRANTED. The March 03, 2006 Decision of the National Labor Relations Commission is REVERSED and SET ASIDE. The April 14, 2000 Decision of the National Labor Relations Commission is hereby REINSTATED. No costs.

SO ORDERED.25

The petitioner moved for reconsideration26 but the motion was denied in the CA Resolution27 dated June 3, 2008. Hence, the present appeal.

Arguments of the parties

The petitioner avers that the respondents’ claim of loss of trust and confidence is not worthy of credence since they failed to present a copy of the clearance purportedly showing that he cleared Jacinto of all his financial accountabilities and not merely as to his paid cash advances and salary loan. He points out that RBSJI must be in custody thereof considering that it is a vital official record.

The petitioner insists that the alleged loss of trust and confidence in him is a mere subterfuge to cover the respondents’ ploy to oust him out of RBSJI. He asserts that the seven-month gap between the date when he issued the subject clearance and the date when he was sent a memorandum for the said act shows that the respondents’ supposed loss of trust and confidence was a mere afterthought.28

On the other hand, the respondents invoke the ratiocinations of the CA that they were justified in losing the trust and confidence reposed on the petitioner since he failed to exercise the degree of care expected of his managerial position. They reiterate the petitioner’s admission that no audit was yet conducted as to the accountabilities of Jacinto when he issued the clearance.

The respondents further assert that as a former Personnel Manager, the petitioner is well-aware of RBSJI’s policy that before a resigned employee can be cleared of accountabilities, he must be first examined or audited. However, the petitioner opted to violate this policy and yield to Jacinto’s tantrums.29

The above arguments yield the focal issue of whether or not the petitioner was validly dismissed from employment.


The petition is impressed with merit.

Settled is the rule that when supported by substantial evidence, the findings of fact of the CA are conclusive and binding on the parties and are not reviewable by this Court.30 As such, only errors of law are reviewed by the Court in petitions for review of CA decisions. By way of exception, however, the Court will exercise its equity jurisdiction and re-evaluate, review and re-examine the factual findings of the CA when, as in this case, the same are contradicting31 with the findings of the labor tribunals.

The respondents failed to prove that the petitioner was dismissed for a just cause.

As provided in Article 28232 of the Labor Code and as firmly entrenched in jurisprudence,33 an employer has the right to dismiss an employee by reason of willful breach of the trust and confidence reposed in him.

To temper the exercise of such prerogative and to reconcile the same with the employee’s Constitutional guarantee of security of tenure, the law imposes the burden of proof upon the employer to show that the dismissal of the employee is for just cause failing which would mean that the dismissal is not justified. Proof beyond reasonable doubt is not necessary but the factual basis for the dismissal must be clearly and convincingly established.34

Further, the law mandates that before validity can be accorded to a dismissal premised on loss of trust and confidence, two requisites must concur, viz: (1) the employee concerned must be holding a position of trust; and (2) the loss of trust must be based on willful breach of trust founded on clearly established facts.35

There is no arguing that the petitioner was part of the upper echelons of RBSJI’s management from whom greater fidelity to trust is expected. At the time when he committed the act which allegedly led to the loss of RBSJI’s trust and confidence in him, he was the Acting Manager of N. Domingo branch. It was part of the petitioner’s responsibilities to effect a smooth turn-over of pending transactions and to sign and approve instructions within the limits assigned to the position under existing regulations.36 Prior thereto and ever since he was employed, he has occupied positions that entail the power or prerogative to dictate management policies – as Personnel and Marketing Manager and thereafter as Vice-President.

The presence of the first requisite is thus certain. Anent the second requisite, the Court finds that the respondents failed to meet their burden of proving that the petitioner’s dismissal was for a just cause.

The act alleged to have caused the loss of trust and confidence of the respondents in the petitioner was his issuance, without prior authority and audit, of a clearance to Jacinto who turned out to be still liable for unpaid cash advances and for an P11-million fraudulent transaction that exposed RBSJI to suit. According to the respondents, the clearance barred RBSJI from running after Jacinto. The records are, however, barren of any evidence in support of these claims.

As correctly argued by the petitioner and as above set forth, the onus of submitting a copy of the clearance allegedly exonerating Jacinto from all his accountabilities fell on the respondents. It was the single and absolute evidence of the petitioner’s act that purportedly kindled the respondents’ loss of trust. Without it, the respondents’ allegation of loss of trust and confidence has no leg to stand on and must thus be rejected. Moreover, one can reasonably expect that a copy of the clearance, an essential personnel document, is with the respondents. Their failure to present it and the lack of explanation for such failure or the document’s unavailability props up the presumption that its contents are unfavorable to the respondents’ assertions.

At any rate, the absence of the clearance upon which the contradicting claims of the parties could ideally be resolved, should work against the respondents. With only sworn pleadings as proof of their opposite claims on the true contents of the clearance, the Court is bound to apply the principle that the scales of justice should be tilted in favor of labor in case of doubt in the evidence presented.37

RBSJI also failed to substantiate its claim that the petitioner’s act estopped them from pursuing Jacinto for his standing obligations. There is no proof that RBSJI attempted or at least considered to demand from Jacinto the payment of his unpaid cash advances. Neither was RBSJI able to show that it filed a civil or criminal suit against Jacinto to make him responsible for the alleged fraud. There is thus no factual basis for RBSJI’s allegation that it incurred damages or was financially prejudiced by the clearance issued by the petitioner.

More importantly, the complained act of the petitioner did not evince intentional breach of the respondents’ trust and confidence. Neither was the petitioner grossly negligent or unjustified in pursuing the course of action he took.

It must be pointed out that the petitioner was caught in the quandary of signing on the spot a standard employment clearance for the furious Jacinto sans any information on his outstanding accountabilities, and refusing to so sign but risk alarming or scandalizing RBSJI, its employees and clients. Contrary to the respondents’ allegation, the petitioner did not concede to Jacinto’s demands. He was, in fact, able to equalize two equally
















undesirable options by bargaining to instead clear Jacinto only of his settled financial obligations after proper verification with branch cashier Lily. It was only after Lily confirmed Jacinto’s recorded payments that the petitioner signed the clearance. The absence of an audit was precisely what impelled the petitioner to decline signing a standard employment clearance to Jacinto and instead issue a different one pertaining only to his paid accountabilities.

Under these circumstances, it cannot be concluded that the petitioner was in any way prompted by malicious motive in issuing the clearance. He was also able to ensure that RBSJI’s interests are protected and that Jacinto is pacified. He did what any person placed in a similar situation can prudently do. He was able to competently evaluate and control Jacinto’s demands and thus prevent compromising RBSJI’s image, employees and clients to an alarming scene.

The Court has repeatedly emphasized that the act that breached the trust must be willful such that it was done intentionally, knowingly, and purposely, without justifiable excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently.38 The conditions under which the clearance was issued exclude any finding of deliberate or conscious effort on the part of the petitioner to prejudice his employer.

Also, the petitioner did not commit an irregular or prohibited act. He did not falsify or misrepresent any company record as it was officially confirmed by Lily that the items covered by the clearance were truly settled by Jacinto. Hence, the respondents had no factual basis in declaring that the petitioner violated Category B Grave Offense No. 1 of the Company Code of Conduct and Discipline.

The respondents cannot capitalize on the petitioner’s lack of authority to issue a clearance to resigned employees. First, it remains but an unsubstantiated allegation despite the several opportunities for them in the proceedings below to show, through bank documents, that the petitioner is not among those officers so authorized. Second, it is the Court’s considered view that by virtue of the petitioner’s stature in respondent bank, it was well-within his discretion to sign or certify the truthfulness of facts as they appear in RBSJI’s records. Here, the records of RBSJI cashier Lily clearly showed that Jacinto paid the cash advances and salary loan covered by the clearance issued by the petitioner.

Lastly, the seven-month gap between the clearance incident and the April 17, 1997 memorandum asking the petitioner to explain his action is too lengthy to be ignored. It likewise remains uncontroverted that during such period, respondent Jesus verbally terminated the petitioner only to recall the same and

instead ask the latter to tender a resignation letter. When the petitioner refused, he was sent the memorandum questioning his issuance of a clearance to Jacinto seven months earlier. The confluence of these undisputed circumstances supports the inference that the clearance incident was a mere afterthought used to gain ground for the petitioner’s dismissal.

Loss of trust and confidence as a ground for dismissal has never been intended to afford an occasion for abuse because of its subjective nature. It should not be used as a subterfuge for causes which are illegal, improper and unjustified. It must be genuine, not a mere afterthought intended to justify an earlier action taken in bad faith.39

All told, the unsubstantiated claims of the respondents fall short of the standard proof required for valid termination of employment. They failed to clearly and convincingly establish that the petitioner’s act of issuing a clearance to Jacinto rendered him unfit to continue working for RBSJI. The petitioner was illegally dismissed from employment and is entitled to back wages, to be computed from the date he was illegally dismissed until the finality of this decision.40

The disposition of the case made by the LA in its Decision dated November 27, 1998, as affirmed by the NLRC in its Decision dated March 6, 2006, is most in accord with the above disquisitions hence, must be reinstated. However, the monetary awards therein should be clarified.

The petitioner is entitled to separation pay in lieu of reinstatement and his back wages shall earn legal interest.

In accordance with current jurisprudence, the award of back wages shall earn legal interest at the rate of six percent (6%) per annum from the date of the petitioner’s illegal dismissal until the finality of this decision.41Thereafter, it shall earn 12% legal interest until fully paid42 in accordance with the guidelines in Eastern Shipping Lines, Inc., v. Court of Appeals.43

In addition to his back wages, the petitioner is also entitled to separation pay. It cannot be gainsaid that animosity and antagonism have been brewing between the parties since the petitioner was gradually eased out of key positions in RBSJI and to reinstate him will only intensify their hostile working atmosphere.44 Thus, based on strained relations, separation pay equivalent to one (1) month salary for every year of service, with a fraction of a year of at least six (6) months to be considered as one (1) whole year, should be awarded in lieu of reinstatement, to be computed from date of his engagement by RBSJI up to the finality of this decision.45

The award of separation pay in case of strained relations is more beneficial to both parties in that it liberates the employee from what could be a highly oppressive work environment in as much as it releases the employer from the grossly unpalatable obligation of maintaining in its employ a worker it could no longer trust.46

The award of moral and exemplary damages is not warranted.

In M+W Zander Philippines, Inc. v. Enriquez,47 the Court decreed that illegal dismissal, by itself alone, does not entitle the dismissed employee to moral damages; additional facts must be pleaded and proven to warrant the grant of moral damages, thus:

Moral damages are recoverable only where the dismissal of the employee was attended by bad faith or fraud, or constituted an act oppressive to labor, or was done in a manner contrary to morals, good customs or public policy. Such an award cannot be justified solely upon the premise that the employer fired his employee without just cause or due process. Additional facts must be pleaded and proven to warrant the grant of moral damages under the Civil Code, i.e., that the act of dismissal was attended by bad faith or fraud, or constituted an act oppressive to labor, or was done in a manner contrary to morals, good customs or public policy; and, of course, that social humiliation, wounded feelings, grave anxiety, and similar injury resulted therefrom.48 (Citations omitted)

Bad faith does not connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of a known duty through some motive or interest or ill will; it partakes of the nature of fraud.49

Here, the petitioner failed to prove that his dismissal was attended by explicit oppressive, humiliating or demeaning acts. The following events merely sketch the struggle for power within the upper management of RBSJI between the "old guys" and the "new guys"; they do not convincingly prove that the respondents schemed to gradually ease the petitioner out, viz: (1) his promotion as Vice-President; (2) his replacement by Jobel as Personnel and Marketing Manager; (2) his designation as Acting Manager of N. Domingo branch and the recall thereof on the very next day; (3) the presence of Andres, Jose and Ofelia at the N. Domingo branch in the morning of

September 27, 1996; and (4) George’s inaction on the petitioner’s request to be transferred to the operations or marketing department. As disagreeable as they may seem, these acts cannot be equated with bad faith that can justify an award of damages.














Since no moral damages can be granted under the facts of the case, exemplary damages cannot also be awarded.50

The solidary liability of individual respondents as corporate officers must be recalled.

In the same vein, the individual respondents cannot be made solidarily liable with RBSJI for the illegal dismissal. Time and again, the Court has held that a corporation has its own legal personality separate and distinct from those of its stockholders, directors or officers. Hence, absent any evidence that they have exceeded their authority, corporate officers are not personally liable for their official acts. Corporate directors and officers may be held solidarily liable with the corporation for the termination of employment only if done with malice or in bad faith.51 As discussed above, the acts imputed to the respondents do not support a finding of bad faith.

In addition, the lack of a valid cause for the dismissal of an employee does not ipso facto mean that the corporate officers acted with malice or bad faith. There must be an independent proof of malice or bad faith,52 which is absent in the case at bar.

The award of 13th month pay is ncorrect.

Being a managerial employee, the petitioner is not entitled to 13th month pay.1âwphi1 Pursuant to Memorandum Order No. 28, as implemented by the Revised Guidelines on the Implementation of the 13th Month Pay Law dated November 16, 1987, managerial employees are exempt from receiving such benefit without prejudice to the granting of other bonuses, in lieu of the 13th month pay, to managerial employees upon the employer’s discretion.53

The award of attorney’s fees is proper.

It is settled that where an employee was forced to litigate and, thus, incur expenses to protect his rights and interest, the award of attorney’s fees is legally and morally justifiable.54 Pursuant to Article 111 of the Labor Code, ten percent (10%) of the total award is the reasonable amount of attorney’s fees that can be awarded.

WHEREFORE, the petition is GRANTED. The Decision dated February 21, 2008 and Resolution dated June 3, 2008 of the Court of Appeals in CA-G.R. SP No. 94690 are REVERSED and SET ASIDE. The Decision of the Labor Arbiter dated November 27, 1998 is REINSTATED with the following MODIFICATIONS/CLARIFICATIONS: Petitioner Rolando DS. Torres is entitled to the payment of: (a) back wages reckoned from May 30, 1997 up to the finality of this Decision, with interest at six percent (6%) per annum, and 12%

legal interest thereafter until fully paid; and (b) in lieu of reinstatement, separation pay equivalent to one (1) month salary for every year of service, with a fraction of at least six (6) months to be considered as one (1) whole year, to be computed from the date of his employment up to the finality of this decision.

The amounts awarded as moral damages, exemplary damages and 13th month pay are DELETED. Only respondent Rural Bank of San Juan, Inc. is liable for the illegal dismissal and the consequential monetary awards arising therefrom. The other portions of and monetary awards in the Labor Arbiter's Decision dated November 27, 1998 are AFFIRMED.SO ORDERED.

G.R. No. 182571 September 2, 2013

LIGAYA ESGUERRA, LOWELL ESGUERRA AND LIESELL ESGUERRA, PETITIONERS, vs. HOLCIM PHILIPPINES, INC., RESPONDENT.

D E C I S I O N

REYES, J.:

The present petition is an offshoot of our final and executory decision promulgated on December 27, 2002 in G.R. No. 120004, entitled "Iluminada de Guzman v. Court of Appeals and Jorge Esguerra."1 Ligaya Esguerra (Ligaya), Lowell Esguerra (Lowell), and Liesell Esguerra (Liesell) (petitioners) are heirs of Jorge Esguerra (Esguerra) while herein respondent, HOLCIM Philippines, Inc. (HOLCIM) is the successor-in-interest of Iluminada de Guzman (de Guzman).

In the instant petition, the petitioners assail the Decision2 dated August 31, 2007 and Resolution3 dated April 14, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. 94838 which reversed and set aside the: (a) Order4 dated December 1, 2005 of the Regional Trial Court (RTC) of Malolos, Bulacan, Branch 16 granting the petitioners’ motion for the issuance of the alias writ of execution of the Decision dated December 27, 2002 in G.R. No. 120004, which ordered HOLCIM to pay the amount equivalent to the total volume of limestones extracted from the subject property in the sum of P91,872,576.72; (b) Order5 dated December 20, 2005, which reiterated the issuance of the alias writ of execution; and (c) Order6 dated June 7, 2006, which denied the motion for reconsideration of the above-mentioned orders and the manifestation and motion for ocular inspection filed by HOLCIM. The CA’s Resolution dated April 14, 2008 denied herein

petitioners’ motion for reconsideration of the CA’s Decision dated August 31, 2007.

Antecedent Facts

As a backgrounder and as stated in our Decision dated December 27, 2002 in G.R. No. 120004, therein respondent Esguerra filed on December 12, 1989 with the RTC, Malolos, Bulacan, Branch 16 an action to annul the Free Patent in the name of de Guzman. Esguerra claimed that he was the owner of Lot 3308-B, located at Matiktik, Norzagaray, Bulacan, covered by Transfer Certificate of Title No. T-1685-P (M) of the Registry of Deeds of Bulacan, with an approximate area of 47,000 square meters. Esguerra learned that the said parcel of land was being offered for sale by de Guzman to Hi-Cement Corporation (now named HOLCIM Philippines, Inc.). The former possessor of the land, Felisa Maningas, was issued Free Patent No. 575674 which was subsequently issued in the name of de Guzman over said parcel of land located at Gidgid, Norzagaray, Bulacan with an area of 20.5631 hectares and described in Psu-216349, covered by Original Certificate of Title (OCT) No. P-3876. Esguerra also demanded that the portion of his property, which has been encroached upon and included in de Guzman’s Free Patent, be excluded. He later amended his complaint to implead Hi-Cement as a co-defendant since the latter was hauling marble from the subject land. He also prayed that Hi-Cement be ordered to desist from hauling marble, to account for the marble already hauled and to pay him.7

The RTC dismissed Esguerra’s complaint but on appeal, the CA reversed in the Decision dated February 28, 1995 in CA-G.R. CV No. 40140. The dispositive portion reads as follows:

"WHEREFORE, premises considered, the decision appealed from is REVERSED and SET ASIDE and another judgment is hereby rendered:

"1. Declaring [de Guzman’s] OCT No. P-3876 (Exh. B) null and void insofar as the disputed area of 38,641 square meters, which is part of Lot 3308-B, covered by TCT No. 1685-p (Exh. C) in the name of [Esguerra];

"2. Ordering [de Guzman] to cause the segregation, at his expense, of the disputed area of 38,641 square meters from OCT No. P-3876;

"3. Ordering [de Guzman] to surrender her owner’s copy of OCT No. P-3876 to the Register of Deeds of Bulacan who is in turn ordered to exclude from said OCT No. P-3876 the disputed area of 38,641 square meters included in [Esguerra’s] TCT No. T-1685;














"4. Ordering [de Guzman] to immediately vacate and surrender to [Esguerra] possession of the disputed area of 38,641 square meters;

"5. Ordering defendant-appellee Hi-Cement Corporation to immediately cease and desist from quarrying or extracting marble from the disputed area;

"6. Ordering defendant-appellee Hi-Cement Corporation to make an accounting of the compensation or royalty it has paid to defendant-appellee Iluminada de Guzman for marbles quarried from the disputed area of 38,451 square meters from the time of the filing of the amended complaint on March 23, 1990.

"7. Ordering and sentencing defendant-appellee Iluminada de Guzman to pay and turn over to [Esguerra] all such amounts that she has received from her co-defendant Hi-Cement Corporation as compensation or royalty for marbles extracted or quarried from the disputed area of 38,451 square meters beginning March 23, 1990; and

"8. Ordering defendant-appellee Iluminada de Guzman to pay the costs.

"SO ORDERED."8

In our Decision dated December 27, 2002 in G.R. No. 120004, the Court affirmed in toto the aforesaid CA’s decision. After attaining finality, the case was remanded to the RTC for execution.9

Thereafter, the heirs of Esguerra, herein petitioners, filed an Omnibus Motion10 dated September 28, 2004 with the RTC, manifesting that the Court’s decision in G.R. No. 120004 has yet to be executed,11 and thus prayed:

x x x x

1. That Sheriff Perlito Dimagiba be directed to submit his Return on the execution of the judgment;

2. That defendant Iluminada de Guzman and Hi-Cement (now Union Cement Corporation Matictic, Sapang Kawayn [sic], Norzagaray, Bulacan) be diverted [sic] to appear before this Honorable Court x x x;

3. That the plaintiffs be granted other legal and equitable reliefs.12

On December 1, 2004, the RTC issued an Order13, to wit:

Acting on the Omnibus Motion filed by the Heirs of Jorge Esguerra, through counsel, Atty. Orlando Lambino, and pursuant to Secs. 36 and 37, Rule 39 of [the] 1997 Rules of Civil Procedure, the Court hereby GRANTS the same

AS PRAYED FOR, x x x Sheriff Perlito Dimagiba is hereby directed to submit his return of a Writ of Execution dated October 28, 2003 within five (5) days from receipt of this Order.

Accordingly, defendant Iluminada de Guzman of Tanza, Malabon, Metro Manila and the Hi-Cement (now Union Cement Corporation, Matictic, Sapang Kawayan, Norzagaray, Bulacan) are hereby ordered to appear before this Court on December 6, 2004 at 8:30 o’clock in the morning to be examined on the dispositive portion of the judgment of the Court of Appeals, affirmed by the Supreme Court.14

However, contrary to the Order dated December 1, 2004, de Guzman and HOLCIM were not examined. Rather, the petitioners presented Engineer Louie Balicanta who testified that upon an examination of the topographical maps covering the land of the deceased Esguerra, the estimated volume of limestone hauled or quarried therefrom covering the years 1990 to 2003 was 3,535,020.471 cubic meters. On May 16, 2005, the petitioners filed their Formal Offer of Exhibits.15

Later, the petitioners filed a Supplement to the Motion for Execution16 dated August 16, 2005 and a Motion for Alias Writ of Execution17 dated November 9, 2005. They claimed that the royalties due them amounted to P10.00 per metric ton. Thus, for the 9,187,257.67 metric tons18 of limestone which HOLCIM allegedly acquired, the petitioners should receive a total royalty of P91,872,576.72.19

On December 1, 2005, the RTC made a finding that the total volume of limestone which HOLCIM allegedly quarried from the subject land amounted to P91,872,576.72. It also ordered the issuance of an Alias Writ of Execution for the royalties which were purportedly due to the petitioners.20 The said order states:

Acting on the motion for alias writ of execution filed by the [petitioners], through counsel, to be meritorious, the same is hereby granted, it appearing that the decision subject matter of the writ of execution has not been satisfied by [de Guzman] and Hi-Cement Corporation, and considering, further, that the Total Volume Extracted Materials (LIMESTONE) at Lot #3308-B PSD-

102661 (Annex A) was properly proven during the hearing for the examination of judgment debtors showing the claim of Php91,872,576.72 to be substantiated based on the Monthly Mineral Commodity Price Monitor for January 2005 (Annex B), together with the O.R. for Certification fee (Annex C).

AS PRAYED FOR, let an alias writ of execution be issued for the implementation of the Decision of the Supreme Court in relation to the total volume extracted by Hi-Cement (now HOLCIM) which is now the successor of defendant Iluminada de Guzman.21

On December 8, 2005, the petitioners filed an Urgent Motion for Clarification22 praying that the alias writ of execution be clarified for the purpose of directing [de Guzman] and/or Hi-Cement Corporation and/or HOLCIM to pay the petitioners the amount of P91,872,576.72.

As prayed for, the RTC issued an Order23 on December 20, 2005, stating thus:

In view of the Urgent Motion for Clarification filed by the [petitioners], through counsel, and there being no comment/opposition filed by [de Guzman], let an alias writ of execution be issued directing [de Guzman] and/or Hi-Cement Corporation and/or HOLCIM to pay the [petitioners] the amount of Php 91,872,576.72 representing their liability for the minerals extracted from the subject property pursuant to the Order of the Court, dated December 01, 2005.24

Subsequently, an alias writ of execution and notices of garnishment on several banks, garnishing all amounts that may have been deposited or owned by HOLCIM, were issued on December 20, 2005 and December 21, 2005 respectively.25

On January 5, 2006, HOLCIM filed a motion for reconsideration.26 It alleged that it did not owe any amount of royalty to the petitioners for the extracted limestone from the subject land. HOLCIM averred that it had actually entered into an Agreement27 dated March 23, 1993 (Agreement) with the petitioners governing their respective rights and obligations in relation to the limestone allegedly extracted from the land in question. HOLCIM further asserted that it had paid advance royalty to the petitioners from year 1993, in an aggregate sum of P694,184.22, an amount more than the P218,693.10 which the petitioners were entitled under the Agreement.28

On January 13, 2006, the petitioners filed its Opposition to [the] Motion for Reconsideration29 dated January 7, 2006, claiming that the Motion for Reconsideration is barred by the omnibus motion rule because HOLCIM failed to question the petitioners’ motion for execution of this Court’s decision in G.R. No. 120004. The
























petitioners also averred that HOLCIM is barred by estoppel to question the execution of the decision based on the Agreement, because said Agreement is in contravention with the trial court’s previous orders which required HOLCIM to deposit to the clerk of court the royalties due the deceased Esguerra. The petitioners also argued that the Agreement is a way to evade the trial court’s orders and has been procured by taking advantage of the petitioners’ financial distress after Esguerra died.30

On February 21, 2006, HOLCIM filed a Manifestation and Motion (for Ocular Inspection).31 It asked the court to conduct an ocular inspection, advancing the argument that HOLCIM did not extract limestone from any portion of the 47,000-sq m property which Esguerra owned; and that the pictures, which the petitioners presented to prove that HOLCIM has been extracting limestone from the subject land until year 2005, were actually photographs of areas outside the contested land.

On June 7, 2006, the RTC denied HOLCIM’s motion for reconsideration and motion for ocular inspection. It held that the petitioners proved their entitlement to the royalties totaling to P91,872,576.72. The RTC also blamed HOLCIM for not presenting its own witnesses and evidence. It further stated that to grant the motions for reconsideration and ocular inspection is to reopen the case despite the fact that the trial court has no more power to do so since the execution of this Court’s decision in G.R. No. 120004 is now a matter of right on the petitioners’ part.32

On June 13, 2006, HOLCIM filed a Petition for Certiorari (with Urgent Applications for Temporary Restraining Order and/or Writ of Preliminary Injunction)33 with the CA. On June 30, 2006, the petitioners filed their Comment on [the] "Petition for Certiorari" and Opposition,34 to which HOLCIM filed a Reply35 on July 25, 2006. On August 31, 2007, the CA promulgated the now assailed decision finding merit in HOLCIM’s petition.36 The dispositive portion states:

WHEREFORE, the foregoing considered, the instant petition is hereby GRANTED and the assailed Orders REVERSED and SET ASIDE. No costs.

SO ORDERED.37

The motion for reconsideration thereof was denied in the CA’s Resolution38 dated April 14, 2008.

Issues

Thus, the petitioners filed the present petition for review under Rule 45 of the 1997 Rules of Civil Procedure, raising the following assignment of errors:

A. THE [CA] GRAVELY ERRED IN NOT HOLDING THAT [HOLCIM] IS ESTOPPED TO QUESTION THE JURISDICTION OF THE TRIAL COURT TO CONDUCT A HEARING ON THE EXACT PAYMENT WHICH [HOLCIM] WAS SUPPOSED TO PAY TO THE PETITIONERS;

B. THE [CA] GRAVELY ERRED IN NOT DISMISSING [HOLCIM’S] PETITION FOR CERTIORARI ON [THE] GROUND OF LACK OF BOARD RESOLUTION AUTHORIZING THE FILING OF THE PETITION;

C. THE [CA] GRAVELY ERRED IN NOT DISMISSING THE PETITION FOR [CERTIORARI], IT BEING NOT THE PROPER REMEDY, BUT AN APPEAL;

D. THE [CA] GRAVELY ERRED IN HOLDING THAT THE TRIAL COURT GRAVELY ABUSED ITS DISCRETION IN THE EXECUTION OF THE DECISION BY CALLING FOR EVIDENCE TO PROVE THE EXACT AMOUNT WHICH [HOLCIM] HAS TO PAY TO THE PETITIONERS;

E. THE [CA] GRAVELY ERRED IN HOLDING THAT THE ORDERS OF THE TRIAL COURT OF DECEMBER 1, 2005, DECEMBER 20, 2005, AND JUNE 7, 2006 MODIFIED THE DECISION OF THE CA G.R. CV NO. 40140 OF FEBRUARY 28, 1995[.]39

Our Ruling

The present petition has substantially complied with the requirements.

HOLCIM alleged that the present petition is fatally defective since all of the most important pleadings before the RTC and the CA have not been attached to the present petition. However, a review of the records of the case shows that the petitioners attached to their petition the following: (a) the CA’s Decision in CA-G.R. SP No. 94838 dated August 31, 2007;40 (b) the CA’s Resolution in CA-G.R. SP No. 94838 dated April 14, 2008;41 (c) the RTC’s Order in Civil Case No. 725-M-89 dated December 1, 2005;42 (d) the RTC’s Order in Civil Case No. 725-M-89 dated December 20, 2005;43 (e) the RTC’s Order in Civil Case No. 725-M-89 dated June 7, 2006;44 (f) HOLCIM’s Manifestation and Motion (for Ocular Inspection) in Civil Case No. 725-M-89 dated February 21, 2006 and its attachments;45 (g) the Memorandum of Agreement between Republic Cement Corporation and Spouses Juan and Maria Bernabe dated December 1, 1991;46 (h) the Price

Monitor of the Department of Environment and Natural Resources (DENR) on the price per metric ton of non-metallic mines;47 and (i) the Special Power of Attorney executed by Ligaya and Liesell appointing Lowell as their attorney-in-fact.48

From the foregoing, the Court finds the same substantially compliant with the requirements of Section 4, Rule 45 of the 1997 Rules of Civil Procedure. All of the pertinent documents necessary for the Court to appreciate the circumstances surrounding the case and to resolve the issues at hand were attached. Furthermore, the parties’ subsequent comment and reply have sufficiently provided the Court the needed information regarding the proceedings and acts of the trial court during the execution of the final and executory decision of this Court in G.R. No. 120004 which are the matters being questioned. In Shimizu Philippines Contractors, Inc. v. Magsalin,49the Court proceeded to give due course to the petition when it found the same and its attachments sufficient for the Court to access and resolve the controversy.50

On the other hand, the petitioners claim that HOLCIM’s petition for certiorari in the CA failed to comply with the rules on Verification and Certification of Non-Forum Shopping because the latter did not secure and/or attach a certified true copy of a board resolution authorizing any of its officers to file said petition.51 Thus, the CA should have dismissed outright HOLCIM’s petition before it.

The general rule is that a corporation can only exercise its powers and transact its business through its board of directors and through its officers and agents when authorized by a board resolution or its bylaws. The power of a corporation to sue and be sued is exercised by the board of directors. The physical acts of the corporation, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate bylaws or by a specific act of the board. Absent the said board resolution, a petition may not be given due course.52

In Bank of the Philippine Islands v. Court of Appeals,53 the Court held that the application of the rules must be the general rule, and the suspension or even mere relaxation of its application, is the exception. This Court may go beyond the strict application of the rules only on exceptional cases when there is truly substantial compliance with the rule.54

In the case at bar, HOLCIM attached to its Petition for Certiorari before the CA a Secretary’s Certificate authorizing Mr. Paul M. O’Callaghan (O’Callaghan), its Chief Operating Officer, to nominate, designate and appoint the corporation’s authorized representative in court hearings and conferences and the signing of court pleadings.55 It also attached the Special Power of Attorney dated June 9, 2006, signed by O’Callaghan, appointing Sycip Salazar Hernandez & Gatmaitan and/or any of its lawyers to




























represent HOLCIM;56 and consequently, the Verification and Certification of Non Forum Shopping signed by the authorized representative.57 To be sure, HOLCIM, in its Reply filed in the CA, attached another Secretary’s Certificate, designating and confirming O’Callaghan’s power to authorize Sycip Salazar Hernandez & Gatmaitan and/or any of its lawyers to file for and on behalf of HOLCIM, the pertinent civil and/or criminal actions in Civil Case No. 725-M-89 pending before the RTC, including any petition to be filed with the CA and/or the Supreme Court in connection with the Orders dated December 1, 2005, December 20, 2005 and June 7, 2006.58

The foregoing convinces the Court that the CA did not err in admitting HOLCIM’s petition before it. HOLCIM attached all the necessary documents for the filing of a petition for certiorari before the CA. Indeed, there was no complete failure to attach a Certificate of Non-Forum Shopping. In fact, there was such a certificate. While the board resolution may not have been attached, HOLCIM complied just the same when it attached the Secretary’s Certificate dated July 17, 2006, thus proving that O’Callaghan had the authority from the board of directors to appoint the counsel to represent them in Civil Case No. 725-M-89. The Court recognizes the compliance made by HOLCIM in good faith since after the petitioners pointed out the said defect, HOLCIM submitted the Secretary’s Certificate dated July 17, 2006, confirming the earlier Secretary’s Certificate dated June 9, 2006. For the Court, the ruling in General Milling Corporation v. NLRC59 is applicable where the Court rendered a decision in favor of the petitioner despite its failure to attach the Certification of Non- Forum Shopping. The Court held that there was substantial compliance when it eventually submitted the required documents. Substantial justice dictates that technical and procedural rules must give way because a deviation from the rigid enforcement of the rules will better serve the ends of justice. The Court ratiocinated:

The rules of procedure are intended to promote, rather than frustrate, the ends of justice, and while the swift unclogging of court dockets is a laudable objective, it, nevertheless, must not be met at the expense of substantial justice. Technical and procedural rules are intended to help secure, not suppress, the cause of justice and a deviation from the rigid enforcement of the rules may be allowed to attain that prime objective for, after all, the dispensation of justice is the core reason for the existence of courts.60 (Citation omitted)

HOLCIM’s filing in the CA of a petition for certiorari under Rule 65 of the 1997 Rules of Civil Procedure is proper.

The petitioners also argue that the CA gravely erred when it did not dismiss HOLCIM’s petition for certiorari on the ground of improper remedy. The petitioners contend that HOLCIM should

have filed an appeal because when the RTC allowed the petitioners to adduce evidence to determine the exact amount to be paid by HOLCIM during the execution stage, it was implementing the dispositive portion of the decision of the CA in CA-G.R. CV No. 40140 as affirmed by the Court. As ruled by the trial court, a case in which an execution has been issued is regarded as still pending so that all proceedings on the execution are proceedings in the suit. Accordingly, the court that rendered the judgment maintains a general supervisory control over its process of execution, and this power carries with it the right to determine questions of fact and law, which may be involved in the execution.61 Thus, for the petitioners, the RTC neither acted in excess of its jurisdiction nor with grave abuse of discretion, which would call for HOLCIM to file a petition for certiorari.62

The Court disagrees with the petitioners’ mental acrobatics. Their arguments are contrary to Section 1(f), Rule 41 of the Rules of Court, which provides:

Sec. 1. Subject of appeal.—An appeal may be taken from a judgment or final order that completely disposes of the case, or of a particular matter therein when declared by these Rules to be appealable.

No appeal may be taken from:

x x x x

(f) an order of execution;

x x x x

In all the above instances where the judgment or final order is not appealable, the aggrieved party may file an appropriate special civil action under Rule 65.

The foregoing provision is explicit that no appeal may be taken from an order of execution and a party who challenges such order may file a special civil action for certiorari under Rule 65 of the Rules of Court.63 An order of execution, when issued with grave abuse of discretion amounting to lack or excess of jurisdiction, may be the subject of a petition for certiorari under Rule 65.64 Thus, HOLCIM did not err in filing a petition for certiorari under Rule 65 of the 1997 Rules of Civil Procedure.

HOLCIM is not estopped to question the jurisdiction of the trial court to conduct a hearing and to accept evidence on the exact amount of royalty HOLCIM should pay the petitioners.

The petitioners argue that HOLCIM is estopped from questioning the jurisdiction of the RTC in conducting a hearing on the exact amount of royalty that HOLCIM must pay the petitioners. They allege that: (a) HOLCIM expressed willingness to pay the royalty to whoever would be adjudged the rightful owner of the subject land; (b) HOLCIM and de Guzman did not appear in the hearing nor oppose the Omnibus Motion dated September 28, 2004; (c) HOLCIM did not file any opposition or comment on the petitioners’ Formal Offer of Evidence, Supplement to the Motion for Execution and Motion for Alias Writ of Execution; and (d) HOLCIM is now the new owner of de Guzman’s property. As such, it has acquired the rights, interests and liabilities of de Guzman. The petitioners insist that HOLCIM must not only account for the royalty it paid de Guzman, but it must also turn over said payments to the petitioners.65

HOLCIM counter-argues that when it expressed willingness to pay the royalties to whoever would be declared the rightful owner of the subject land, it simply manifested its good faith in fulfilling its obligations. It adds that the petitioners and HOLCIM entered into an Agreement regarding the amount of royalty it should pay to the landowner; and subsequently, the petitioners voluntarily accepted and retained the amount of P694,184.22 paid by HOLCIM. In fact, HOLCIM stresses that the said amount was more than what was stipulated in the Agreement. HOLCIM also asserts that jurisdiction is conferred by law, and not by laches, estoppel or by agreement among the parties and such lack of jurisdiction may be raised at any stage of the proceedings.66 Furthermore, HOLCIM avers that it is even the DENR panel of arbitrators which has jurisdiction over the case pursuant to Section 77 of the Philippine Mining Act of 1995.67 Lastly, HOLCIM claims that it eventually acquired de Guzman’s property, maintaining that the said property did not overlap with Esguerra’s property. Thus, HOLCIM’s ownership and quarrying operations on lands outside the disputed area would have no bearing whatsoever on the petitioners’ claim for royalties on extractions done within the disputed area. HOLCIM also asseverates that the obligation to turn over any royalty paid to de Guzman is not a real obligation which attaches to the disputed area or to the land itself or which follows the property to whoever might subsequently become its owner; rather, HOLCIM argues that the obligation is purely a personal obligation of de Guzman and thus, not transferable to HOLCIM.

What is clear is that the present case emanates from the petitioners’ desire to implement the CA decision in CA-G.R. CV No. 40140 which was affirmed by the Court in the Decision of December 27, 2002 in G.R. No. 120004. At the execution stage, the only thing left for the trial court to do is to implement the final and executory judgment; and the dispositive portion of the decision controls the execution of judgment. The final judgment of this Court cannot be altered or modified, except for clerical errors, misprisions or omissions.68















In the instant case, the CA’s decision which this Court affirmed in G.R. No. 120004 rendered, among others, the following judgment:

(a) Insofar as then defendant-appellee de Guzman is concerned, the CA declared OCT No. P-3876 in her possession null and void in relation to the disputed area of 38,641 sq m; the same CA’s decision subsequently ordered de Guzman –

[i] to segregate at her expense the disputed area of 38,641 sq m from OCT No. P-3876;

[ii] to surrender her owner’s copy of OCT No. P-3876 to the Register of Deeds of Bulacan;

[iii] to immediately vacate and surrender to then plaintiff-appellant Esguerra possession of the disputed area;

[iv] to pay and turn over to plaintiff-appellant Esguerra all the amount she received from her co-defendant Hi-Cement Corporation (now HOLCIM) as compensation or royalty for marbles extracted or quarried from the disputed area of 38,451 sq m beginning March 23, 1990; and

[v] to pay the costs.

(b) Insofar as HOLCIM is concerned, the CA’s decision ordered HOLCIM –

[i] to immediately cease and desist from quarrying or extracting marble from the disputed area; and

[ii] to make an accounting of the royalty it paid to de Guzman.

Indeed, the final judgment does not direct HOLCIM nor its predecessor Hi-Cement to pay a certain amount to Esguerra and his heirs. What was required from HOLCIM to do was merely to account for the payments it made to de Guzman. Apparently, this was not enforced. It may be deduced from the records that when the petitioners filed the Omnibus Motion dated September 28, 2004, they asked for the examination of de Guzman and Hi-Cement (HOLCIM) under Sections 36 and 37 of Rule 39 of the

Rules of Court. This motion was subsequently granted by the trial court.

Sections 3669 and 3770 of Rule 39 of the Rules of Court are resorted to only when the judgment remains unsatisfied, and there is a need for the judgment obligor to appear and be examined concerning his property and income for their application to the unsatisfied amount in the judgment. In the instant case, the decision in CA-G.R. CV No. 40140 as affirmed by the Court calls on HOLCIM to simply make an accounting of the royalty paid to de Guzman. Unfortunately, the trial court, instead of facilitating the accounting of payments made by HOLCIM to de Guzman, proceeded to adduce evidence on the amount of limestone extracted from the disputed area and imposed the monetary liability on HOLCIM.

It is rather unfortunate that HOLCIM did not register a whimper upon petitioners’ presentation of evidence.1âwphi1Notwithstanding, it cannot be denied that the trial court committed grave abuse of discretion in issuing the questioned orders without giving HOLCIM the chance to be heard. Indeed, when the decision has been rendered unenforceable on account of the undetermined amount to be awarded, it was incumbent upon the trial court to receive evidence from both parties to determine the exact amount due to the petitioners.71 Since HOLCIM was not given an opportunity to rebut the petitioners’ evidence, considering that the former’s Manifestation and Motion for Ocular Inspection was denied, justice will be better served if the trial court determines first the existence of documents relative to HOLCIM’s payments made to de Guzman, and if the same is not done, to receive further evidence, this time, from both parties. It must be emphasized, however, that the evidence to be adduced here is in relation to the amount of royalty paid to de Guzman by HOLCIM for marbles extracted from the disputed area of 38,451 sq m beginning March 23, 1990 up to the time HOLCIM ceased to operate in the subject area. In the event that the petitioners’ claim is beyond the subject area and period, and HOLCIM denies such indebtedness, the governing rule should be Section 43, Rule 39 of the Rules of Court, to wit:

SEC. 43. Proceedings when indebtedness denied or another person claims the property.— If it appears that a person or corporation, alleged to have property of the judgment obligor or to be indebted to him, claims an interest in the property adverse to him or denies the debt, the court may authorize, by an order made to that effect, the judgment obligee to institute an action against such person or corporation for the recovery of such interest or debt, forbid a transfer or other disposition of such interest or debt within one hundred twenty (120) days from notice of the order, and may punish disobedience of such order as for contempt. Such order may be modified or vacated at any time

by the court which issued it, or by the court in which the action is brought, upon such terms as may be just. (Emphasis ours)

Pursuant to this Rule, in the examination of a person, corporation, or other juridical entity who has the property of such judgment obligor or is indebted to him (Rule 39, Section 37), and such person, corporation, or juridical entity denies an indebtedness, the court may only authorize the judgment obligee to institute an action against such person or corporation for the recovery of such interest or debt. Nothing in the Rules gives the court the authority to order such person or corporation to pay the judgment obligee and the court exceeds its jurisdiction if it orders the person who denies the indebtedness to pay the same. In Atilano II v. Asaali,72 the Court held that an "[e]xecution of a judgment can only be issued against one who is a party to the action, and not against one who, not being a party thereto, did not have his day in court. Due process dictates that a court decision can only bind a party to the litigation and not against innocent third parties."73

Finally, the Court does not agree with petitioners’ argument that the person of de Guzman is "now merged in the person of HOLCIM or that HOLCIM has assumed her personal liability or the judgment rendered against her."74Nothing in the records shows that HOLCIM admitted of assuming all the liabilities of de Guzman prior to the sale of the subject property. HOLCIM, however, expresses its willingness to pay royalty only to the rightful owner of the disputed area. Thus, in the event that the amount paid by HOLCIM to de Guzman has been proven, de Guzman is ordered to turn over the payment to the petitioners.75 If the petitioners insist that HOLCIM owed them more than what it paid to de Guzman, the petitioners cannot invoke the CA’s decision which was affirmed by the Court in G.R. No. 120004 to ask for additional royalty. As earlier discussed, this must be addressed in a separate action for the purpose. All told, the Court finds no reversible error with the decision of the CA in nullifying the orders of the RTC for having been issued in excess of its jurisdiction.

WHEREFORE, the Decision dated August 31, 2007 and the Resolution dated April 14, 2008 of the Court of Appeals in CA-G.R. SP No. 94838 are hereby AFFIRMED.SO ORDERED.









G.R. No. 167751 March 2, 2011

HARPOON MARINE SERVICES, Inc. and JOSE LIDO T. ROSIT, Petitioners, vs. FERNAN H. FRANCISCO, Respondent.

D E C I S I O N

DEL CASTILLO, J.:

Satisfactory evidence of a valid or just cause of dismissal is indispensably required in order to protect a laborer’s right to security of tenure. In the case before us, the employer presented none despite the burden to prove clearly its cause.

This Petition for Review on Certiorari with Prayer for the Issuance of a Temporary Restraining Order and/or a Writ of Preliminary Injunction1 assails the Decision2 dated January 26, 2005 and Resolution3 dated April 12, 2005 of the Court of Appeals (CA) in CA-G.R. SP No. 79630, which affirmed the Decision4 of the National Labor Relations Commission (NLRC) dated March 31, 2003, as well as the NLRC modified Decision5 dated June 30, 2003, declaring petitioners Harpoon Marine Services, Incorporated (Harpoon) and Jose Lido T. Rosit (Rosit) solidarily liable to pay respondent Fernan H. Francisco (respondent) separation pay, backwages and unpaid commissions for illegally dismissing him.

Factual Antecedents

Petitioner Harpoon, a company engaged in ship building and ship repair, with petitioner Rosit as its President and Chief Executive Officer (CEO), originally hired respondent in 1992 as its Yard Supervisor tasked to oversee and supervise all projects of the company. In 1998, respondent left for employment elsewhere but was rehired by petitioner Harpoon and assumed his previous position a year after.

On June 15, 2001, respondent averred that he was unceremoniously dismissed by petitioner Rosit. He was informed that the company could no longer afford his salary and that he would be paid his separation pay and accrued commissions. Respondent nonetheless continued to report for work. A few days later, however, he was barred from entering the company premises. Relying on the promise of petitioner Rosit, respondent went to the office on June 30, 2001 to receive his separation pay and commissions, but petitioner Rosit offered only his separation pay. Respondent refused to accept it and also declined to sign a quitclaim. After several unheeded requests, respondent, through his counsel, sent a demand letter dated September 24, 20016 to petitioners asking for payment of P70,000.00, which represents

his commissions for the seven boats7 constructed and repaired by the company under his supervision. In a letter-reply dated September 28, 2001,8 petitioners denied that it owed respondent any commission, asserting that they never entered into any contract or agreement for the payment of commissions. Hence, on October 24, 2001, respondent filed an illegal dismissal complaint praying for the payment of his backwages, separation pay, unpaid commissions, moral and exemplary damages and attorney’s fees.

Petitioners presented a different version of the events and refuted the allegations of respondent. They explained that petitioner Rosit indeed talked to respondent on June 15, 2001 not to dismiss him but only to remind and warn him of his excessive absences and tardiness, as evinced by his Time Card covering the period June 1-15, 2001.9Instead of improving his work behavior, respondent continued to absent himself and sought employment with another company engaged in the same line of business, thus, creating serious damage in the form of unfinished projects. Petitioners denied having terminated respondent as the latter voluntarily abandoned his work after going on Absence Without Official Leave (AWOL) beginning June 22, 2001. Petitioners contended that when respondent’s absences persisted, several memoranda10 informing him of his absences were sent to him by ordinary mail and were duly filed with the Department of Labor and Employment (DOLE) on August 13, 2001. Upon respondent’s continuous and deliberate failure to respond to these memoranda, a Notice of Termination dated July 30, 200111 was later on issued to him.

Respondent, however, denied his alleged tardiness and excessive absences. He claimed that the three-day absence appearing on his time card cannot be considered as habitual absenteeism. He claimed that he incurred those absences because petitioner Rosit, who was hospitalized at those times, ordered them not to report for work until he is discharged from the hospital. In fact, a co-worker, Nestor Solares (Solares), attested that respondent always goes to work and continued to report until June 20, 2001.12 Respondent further denied having received the memoranda that were allegedly mailed to him, asserting that said documents were merely fabricated to cover up and justify petitioners’ act of illegally terminating him on June 15, 2001. Respondent absolved himself of fault for defective works, justifying that he was illegally terminated even before the company projects were completed. Finally, respondent denied petitioners’ asseveration that he abandoned his job without any formal notice in 1998 as he wrote a resignation letter which petitioners received.

As regards the commissions claimed, respondent insisted that in addition to his fixed monthly salary ofP18,200.00, he was paid a commission of P10,000.00 for every ship repaired or constructed

by the company. As proof, he presented two check vouchers13 issued by the company showing payment thereof.

Petitioners, on the other hand, contended that respondent was hired as a regular employee with a fixed salary and not as an employee paid on commission basis. The act of giving additional monetary benefit once in a while to employees was a form of recognizing employees’ efforts and cannot in any way be interpreted as commissions. Petitioners then clarified that the word "commission" as appearing in the check vouchers refer to "additional money" that employees receive as differentiated from the usual "vale" and is written for accounting and auditing purposes only.

Ruling of the Labor Arbiter

On May 17, 2002, the Labor Arbiter rendered a Decision14 holding that respondent was validly dismissed due to his unjustified absences and tardiness and that due process was observed when he was duly served with several memoranda relative to the cause of his dismissal. The Labor Arbiter also found respondent entitled to the payment of commissions by giving credence to the check vouchers presented by respondent as well as attorney’s fees for withholding the payment of commissions pursuant to Article 111 of the Labor Code. The dispositive portion of the Labor Arbiter’s Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered finding the dismissal of complainant Fernan H. Francisco legal; ordering respondents Harpoon Marine Services Inc., and Jose Lido T. Rosit, to pay complainant his commission in the sum of PHP70,000.00; as well as attorney’s fees of ten percent (10%) thereof; and dismissing all other claims for lack of merit.

SO ORDERED.15

Proceedings before the National Labor Relations Commission

Both parties appealed to the NLRC. Petitioners alleged that the Labor Arbiter erred in ruling that respondent is entitled to the payment of commissions and attorney’s fees. They questioned the authenticity of the check vouchers for being photocopies bearing only initials of a person who remained unidentified. Also, according to petitioners, the vouchers did not prove that commissions were given regularly as to warrant respondent’s entitlement thereto.16

Respondent, on the other hand, maintained that his dismissal was illegal because there is no sufficient evidence on record of his alleged gross absenteeism and tardiness. He likewise imputed bad faith on the part of petitioners for concocting the memoranda for


















the purpose of providing a semblance of compliance with due process requirements.17

In its Decision dated March 31, 2003,18 the NLRC affirmed the Labor

Arbiter’s award of commissions in favor of respondent for failure of petitioners to refute the validity of his claim. The NLRC, however, deleted the award of attorney’s fees for lack of evidence showing petitioners’ bad faith in terminating respondent.

As the NLRC only resolved petitioners’ appeal, respondent moved before the NLRC to resolve his appeal of the Labor Arbiter’s Decision.19 For their part, petitioners filed a Verified Motion for Reconsideration20 reiterating that there was patent error in admitting, as valid evidence, photocopies of the check vouchers without substantial proof that they are genuine copies of the originals.

The NLRC, in its Decision dated June 30, 2003,21 modified its previous ruling and held that respondent’s dismissal was illegal. According to the NLRC, the only evidence presented by the petitioners to prove respondent’s habitual absenteeism and tardiness is his time card for the period covering June 1-15, 2001. However, said time card reveals that respondent incurred only three absences for the said period, which cannot be considered as gross and habitual. With regard to the award of commissions, the NLRC affirmed the Labor Arbiter because of petitioners’ failure to question the authenticity of the check vouchers in the first instance before the Labor Arbiter. It, nevertheless, sustained the deletion of the award of attorney’s fees in the absence of proof that petitioners acted in bad faith. Thus, for being illegally dismissed, the NLRC granted respondent backwages and separation pay in addition to the commissions, as contained in the dispositive portion of its Decision, as follows:

WHEREFORE, the decision dated 31 March 2003 is further MODIFIED. Respondents are found to have illegally dismissed complainant Fernan H. Francisco and are ordered to pay him the following:

1. Backwages = P218,066.33

(15 June 2001 – 17 May 2002)

a) Salary – P18,200.00 x 11.06 months = P201,292.00

b) 13th month pay: P201,292.00/12 = 16,774.33

----------------

2. Separation Pay of one month salary for

every year of service

(October 1999 – 17 May 2002)

P18,200.00 x 3 yrs. = 54,600.00

3. Commission = 70,000.00

TOTAL P342,666.33

The Motion for Reconsideration filed by complainant and respondents are hereby DISMISSED for lack of merit.

SO ORDERED.22

Ruling of the Court of Appeals

Petitioners filed a petition for certiorari23 with the CA, which on January 26, 2005, affirmed the findings and conclusions of the NLRC. The CA agreed with the NLRC in not giving any probative weight to the memoranda since there is no proof that the same were sent to respondent. It also upheld respondent’s right to the payment of commissions on the basis of the check vouchers and declared petitioners solidarily liable for respondent’s backwages, separation pay and accrued commissions.

Petitioners moved for reconsideration which was denied by the CA. Hence, this petition.

Issues

WHETHER The Court of Appeals committed error in rendering its Decision and its Resolution dismissing and denying the Petition for Certiorari a quo when it failed to rectify and correct the findings and conclusions of the NLRC (and of the Labor Arbiter a quo), which were arrived at with grave abuse of discretion amounting to lack or excess of jurisdiction. In particular:

I

WHETHER THE COURT OF APPEALS ERRED WHEN IT FAILED TO REVERSE THE FINDINGS OF THE NLRC AND OF THE LABOR ARBITER A QUO BECAUSE THESE FINDINGS ARE NOT SUPPORTED BY SUBSTANTIAL EVIDENCE[;] ARE CONFLICTING AND CONTRADICTORY; GROUNDED UPON SPECULATION, CONJECTURES, AND ASSUMPTIONS; [AND] ARE MERE

CONCLUSIONS FOUNDED UPON A MISAPPREHENSION OF FACTS, AMONG OTHERS.

II

WHETHER THE COURT OF APPEALS ERRED WHEN IT RULED THAT THERE WAS AN ILLEGAL DISMISSAL IN THE SEPARATION FROM EMPLOYMENT OF FERNAN H. FRANCISCO NOTWITHSTANDING THE FACT THAT HE WAS HABITUALLY ABSENT, SUBSEQUENTLY WENT ON AWOL, AND HAD ABANDONED HIS WORK AND CORRELATIVELY, WHETHER HE IS ENTITLED TO BACKWAGES AND SEPARATION PAY.

III

WHETHER THE COURT OF APPEALS ERRED WHEN IT RULED THAT FERNAN H. FRANCISCO IS ENTITLED TO COMMISSIONS IN THE AMOUNT OF P70,000 EVEN THOUGH NO SUBSTANTIAL EVIDENCE WAS SHOWN TO SUPPORT THE CLAIM.

IV

WHETHER THE COURT OF APPEALS ERRED WHEN IT RULED THAT THERE WAS BAD FAITH ON THE PART OF PETITIONER ROSIT EVEN THOUGH NO SUBSTANTIAL EVIDENCE WAS PRESENTED TO PROVE THIS AND CORRELATIVELY, WHETHER PETITIONER ROSIT CAN BE HELD SOLIDARILY LIABLE WITH PETITIONER HARPOON.24

Petitioners submit that there was no basis for the CA to rule that respondent was illegally dismissed since more than sufficient proof was adduced to show his habitual absenteeism and abandonment of work as when he further incurred additional absences after June 15, 2001 and subsequently went on AWOL; when he completely ignored all the notices/memoranda sent to him; when he never demanded for reinstatement in his September 24, 2001 demand letter, complaint and position paper before the Labor Arbiter; when it took him four months before filing an illegal dismissal complaint; and when he was later found to have been working for another company.

Petitioners also question the veracity of the documents presented by respondent to prove his entitlement to commissions, to wit: the two check vouchers25 and the purported list26 of vessels allegedly constructed and repaired by the company. Petitioners insist that the check vouchers neither prove that commissions were paid on account of a repair or construction of a vessel nor were admissible to prove that a regular commission is given for every vessel that is constructed/repaired by the company under respondent’s supervision. The list of the vessels, on the other hand, cannot be used as basis in arriving at the amount of commissions due because it is self-serving, unsigned, unverified












and merely enumerates a list of names of vessels which does not prove anything. Therefore, the award of commissions was based on unsupported assertions of respondent.

Petitioners also insist that petitioner Rosit, being an officer of the company, has a personality distinct from that of petitioner Harpoon and that no proof was adduced to show that he acted with malice or bad faith hence no liability, solidary or otherwise, should be imposed on him.

Our Ruling

The petition is partly meritorious.

Respondent was illegally dismissed for failure of petitioners to prove the existence of a just cause for his dismissal.

Petitioners reiterate that respondent was a habitual absentee as indubitably shown by his time card for the period covering June 1-15, 2001,27 payroll28 for the same period as well as the memoranda29 enumerating his absences subsequent to

June 15, 2001.

Respondent belies these claims and explained that his absence for three days as reflected in the time card was due to petitioner Rosit’s prohibition for them to report for work owing to the latter’s hospitalization. He claims that he was illegally terminated on June 15, 2001 and was subsequently prevented from entering company premises. In defense, petitioners deny terminating respondent on June 15, 2001, maintaining that petitioner Rosit merely reminded him of his numerous absences. However, in defiance of the company’s order, respondent continued to absent himself, went on AWOL and abandoned his work.

We find no merit in petitioners’ contention that respondent incurred unexplained and habitual absences and tardiness. A scrutiny of the time card and payroll discloses that respondent incurred only three days of absence and no record of tardiness. As aptly held by the NLRC, the time card and payroll presented by petitioners do not show gross and habitual absenteeism and tardiness especially since respondent’s explanation of his three-day absence was not denied by petitioners at the first instance before the Labor Arbiter. No other evidence was presented to show the alleged absences and tardiness. On the other hand, Solares, a co-worker of respondent has stated under oath that, as their supervisor, respondent was diligent in reporting for work until June 20, 2001 when they heard the news concerning respondent’s termination from his job.

Likewise, we are not persuaded with petitioners’ claim that respondent incurred additional absences, went on AWOL and abandoned his work. It is worthy to note at this point that petitioners never denied having offered respondent his separation pay. In fact, in their letter-reply dated September 28, 2001,30 petitioners intimated that respondent may pick up the amount of P27,584.37 any time he wants, which amount represents his separation and 13th month pays. Oddly, petitioners deemed it fit to give respondent his separation pay despite their assertion that there is just cause for his dismissal on the ground of habitual absences. This inconsistent stand of petitioners bolsters the fact that they wanted to terminate respondent, thus giving more credence to respondent’s protestation that he was barred and prevented from reporting for work.

Jurisprudence provides for two essential requirements for abandonment of work to exist. The "failure to report for work or absence without valid or justifiable reason" and "clear intention to sever the employer-employee relationship x x x manifested by some overt acts" should both concur.31 Further, the employee’s deliberate and unjustified refusal to resume his employment without any intention of returning should be established and proven by the employer.32

Petitioners failed to prove that it was respondent who voluntarily refused to report back for work by his defiance and refusal to accept the memoranda and the notices of absences sent to him. The CA correctly ruled that petitioners failed to present evidence that they sent these notices to respondent’s last known address for the purpose of warning him that his continued failure to report would be construed as abandonment of work. The affidavit of petitioner Harpoon’s liaison officer that the memoranda/notices were duly sent to respondent is insufficient and self-serving. Despite being stamped as received, the memoranda do not bear any signature of respondent to indicate that he actually received the same. There was no proof on how these notices were given to respondent. Neither was there any other cogent evidence that these were properly received by respondent.

The fact that respondent never prayed for reinstatement and has sought employment in another company which is a competitor of petitioner Harpoon cannot be construed as his overt acts of abandoning employment. Neither can the delay of four months be taken as an indication that the respondent’s filing of a complaint for illegal dismissal is a mere afterthought. Records show that respondent first attempted to get his separation pay and alleged commissions from the company. It was only after his requests went unheeded that he resorted to judicial recourse.

In fine, both the NLRC and the CA did not commit manifest error in finding that there was illegal dismissal. The award of backwages and separation pay in favor of respondent is therefore proper.

Respondent is not entitled to the payment of commissions since the check vouchers and purported list of vessels show vagueness as to sufficiently prove the claim.

The Labor Arbiter, the NLRC and the CA unanimously held that respondent is entitled to his accrued commissions in the amount of P10,000.00 for every vessel repaired/constructed by the company or the total amount ofP70,000.00 for the seven vessels repaired/constructed under his supervision.lawphi1

The Court, however, is inclined to rule otherwise. Examination of the check vouchers presented by respondent reveals that an amount of P30,000.00 and P10,000.00 alleged as commissions were paid to respondent on June 9, 2000 and September 28, 2000, respectively. Although the veracity and genuineness of these documents were not effectively disputed by petitioners, nothing in them provides that commissions were paid to respondent on account of a repair or construction of a vessel. It cannot also be deduced from said documents for what or for how many vessels the amounts stated therein are for. In other words, the check vouchers contain very scant details and can hardly be considered as sufficient and substantial evidence to conclude that respondent is entitled to a commission of P10,000.00 for every vessel repaired or constructed by the company. At most, these vouchers only showed that respondent was paid on two occasions but were silent as to the specific purpose of payment. The list of vessels supposedly repaired/constructed by the company neither validates respondent’s monetary claim as it merely contains an enumeration of 17 names of vessels and nothing more. No particulars, notation or any clear indication can be found on the list that the repair or complete construction of seven of the seventeen boats listed therein was supervised or managed by respondent. Worse, the list is written only on a piece of paper and not on petitioners’ official stationery and is unverified and unsigned. Verily, its patent vagueness makes it unworthy of any credence to be used as basis for awarding respondent compensations as alleged commissions. Aside from these documents, no other competent evidence was presented by respondent to determine the value of what is properly due him, much less his entitlement to a commission. Respondent’s claim cannot be based on allegations and unsubstantiated assertions without any competent document to support it. Certainly, the award of commissions in favor of respondent in the amount of P70,000.00 should not be allowed as the claim is founded on mere inferences, speculations and presumptions.








Rosit could not be held solidarily liable with Harpoon for lack of substantial evidence of bad faith and malice on his part in terminating respondent.

Although we find no error on the part of the NLRC and the CA in declaring the dismissal of respondent illegal, we, however, are not in accord with the ruling that petitioner Rosit should be held solidarily liable with petitioner Harpoon for the payment of respondent’s backwages and separation pay.

As held in the case of MAM Realty Development Corporation v. National Labor Relations Commission,33"obligations incurred by [corporate officers], acting as such corporate agents, are not theirs but the direct accountabilities of the corporation they represent."34 As such, they should not be generally held jointly and solidarily liable with the corporation. The Court, however, cited circumstances when solidary liabilities may be imposed, as exceptions:

1. When directors and trustees or, in appropriate cases, the officers of a corporation –

(a) vote for or assent to [patently] unlawful acts of the corporation;

(b) act in bad faith or with gross negligence in directing the corporate affairs;

(c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons.

2. When the director or officer has consented to the issuance of watered stock or who, having knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto.

3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the corporation.

4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action.35

The general rule is grounded on the theory that a corporation has a legal personality separate and distinct from the persons comprising it.36 To warrant the piercing of the veil of corporate

fiction, the officer’s bad faith or wrongdoing "must be established clearly and convincingly" as "[b]ad faith is never presumed."37

In the case at bench, the CA’s basis for petitioner Rosit’s liability was that he acted in bad faith when he approached respondent and told him that the company could no longer afford his salary and that he will be paid instead his separation pay and accrued commissions. This finding, however, could not substantially justify the holding of any personal liability against petitioner Rosit. The records are bereft of any other satisfactory evidence that petitioner Rosit acted in bad faith with gross or inexcusable negligence, or that he acted outside the scope of his authority as company president. Indeed, petitioner Rosit informed respondent that the company wishes to terminate his services since it could no longer afford his salary. Moreover, the promise of separation pay, according to petitioners, was out of goodwill and magnanimity. At the most, petitioner Rosit’s actuations only show the illegality of the manner of effecting respondent’s termination from service due to absence of just or valid cause and non-observance of procedural due process but do not point to any malice or bad faith on his part. Besides, good faith is still presumed. In addition, liability only attaches if the officer has assented to patently unlawful acts of the corporation.

Thus, it was error for the CA to hold petitioner Rosit solidarily liable with petitioner Harpoon for illegally dismissing respondent.

WHEREFORE, the petition is PARTLY GRANTED. The Decision dated January 26, 2005 and Resolution dated April 12, 2005 of the Court of Appeals in CA-G.R. SP No. 79630 finding respondent Fernan H. Francisco to have been illegally dismissed and awarding him backwages and separation pay are AFFIRMED. The award of commissions in his favor is, however, DELETED. Petitioner Jose Lido T. Rosit is ABSOLVED from the liability adjudged against co-petitioner Harpoon Marine Services, Incorporated.SO ORDERED.

G.R. No. 168757 January 19, 2011

RENATO REAL, Petitioner, vs. SANGU PHILIPPINES, INC. and/ or KIICHI ABE, Respondents.

D E C I S I O N

DEL CASTILLO, J.:

The perennial question of whether a complaint for illegal dismissal is intra-corporate and thus beyond the jurisdiction of the Labor Arbiter is the core issue up for consideration in this case.

This Petition for Review on Certiorari assails the Decision1 dated June 28, 2005 of the Court of Appeals (CA) in CA-G.R. SP. No. 86017 which dismissed the petition for certiorari filed before it.

Factual Antecedents

Petitioner Renato Real was the Manager of respondent corporation Sangu Philippines, Inc., a corporation engaged in the business of providing manpower for general services, like janitors, janitresses and other maintenance personnel, to various clients. In 2001, petitioner, together with 29 others who were either janitors, janitresses, leadmen and maintenance men, all employed by respondent corporation, filed their respective Complaints2 for illegal dismissal against the latter and respondent Kiichi Abe, the corporation’s Vice-President and General Manager. These complaints were later on consolidated.

With regard to petitioner, he was removed from his position as Manager through Board Resolution 2001-033adopted by respondent corporation’s Board of Directors. Petitioner complained that he was neither notified of the Board Meeting during which said board resolution was passed nor formally charged with any infraction. He just received from respondents a letter4 dated March 26, 2001 stating that he has been terminated from service effective March 25, 2001 for the following reasons: (1) continuous absences at his post at Ogino Philippines Inc. for several months which was detrimental to the corporation’s operation; (2) loss of trust and confidence; and, (3) to cut down operational expenses to reduce further losses being experienced by respondent corporation.

Respondents, on the other hand, refuted petitioner’s claim of illegal dismissal by alleging that after petitioner was appointed Manager, he committed gross acts of misconduct detrimental to the company since 2000. According to them, petitioner would almost always absent himself from work without informing the corporation of his whereabouts and that he would come to the office only to collect his salaries. As he was almost always absent, petitioner neglected to supervise the employees resulting in complaints from various clients about employees’ performance. In one instance, petitioner together with a few others, while apparently drunk, went to the premises of one of respondents’ clients, Epson Precision (Phils.) Inc., and engaged in a heated argument with the employees therein. Because of this, respondent Abe allegedly received a complaint from Epson’s Personnel Manager concerning petitioner’s conduct. Respondents likewise averred that petitioner established a company engaged in the same business as respondent corporation’s and even











submitted proposals for janitorial services to two of the latter’s clients. Because of all these, the Board of Directors of respondent corporation met on March 24, 2001 and adopted Board Resolution No. 2001-03 removing petitioner as Manager. Petitioner was thereafter informed of his removal through a letter dated March 26, 2001 which he, however, refused to receive.

Further, in what respondents believed to be an act of retaliation, petitioner allegedly encouraged the employees who had been placed in the manpower pool to file a complaint for illegal dismissal against respondents. Worse, he later incited those assigned in Epson Precision (Phils.) Inc., Ogino Philippines Corporation, Hitachi Cable Philippines Inc. and Philippine TRC Inc. to stage a strike on April 10 to 16, 2001. Not satisfied, petitioner together with other employees also barricaded the premises of respondent corporation. Such acts respondents posited constitute just cause for petitioner’s dismissal and that same was validly effected.

Rulings of the Labor Arbiter and the National Labor Relations Commission

The Labor Arbiter in a Decision5 dated June 5, 2003 declared petitioner and his co-complainants as having been illegally dismissed and ordered respondents to reinstate complainants to their former positions without loss of seniority rights and other privileges and to pay their full backwages from the time of their dismissal until actually reinstated and furthermore, to pay them attorney’s fees. The Labor Arbiter found no convincing proof of the causes for which petitioner was terminated and noted that there was complete absence of due process in the manner of his termination.

Respondents thus appealed to the National Labor Relations Commission (NLRC) and raised therein as one of the issues the lack of jurisdiction of the Labor Arbiter over petitioner’s complaint. Respondents claimed that petitioner is both a stockholder and a corporate officer of respondent corporation, hence, his action against respondents is an intra-corporate controversy over which the Labor Arbiter has no jurisdiction.

The NLRC found such contention of respondents to be meritorious. Aside from petitioner’s own admission in the pleadings that he is a stockholder and at the same time occupying a managerial position, the NLRC also gave weight to the corporation’s General Information Sheet6 (GIS) dated October 27, 1999 listing petitioner as one of its stockholders, consequently his termination had to be effected through a board resolution. These, the NLRC opined, clearly established petitioner’s status as a stockholder and as a corporate officer and hence, his action against respondent corporation is an intra-corporate controversy over which the Labor Arbiter has no jurisdiction. As to the other

complainants, the NLRC ruled that there was no dismissal. The NLRC however, modified the appealed decision of the Labor Arbiter in a Decision7 dated February 13, 2004, the dispositive portion of which reads:

WHEREFORE, all foregoing premises considered, the appealed Decision dated June 5, 2003 is hereby MODIFIED. Accordingly, judgment is hereby rendered DISMISSING the complaint of Renato Real for lack of jurisdiction. As to the rest of the complainants, they are hereby ordered to immediately report back to work but without the payment of backwages.

All other claims against respondents including attorney’s fees are DISMISSED for lack of merit.

SO ORDERED.

Still joined by his co-complainants, petitioner brought the case to the CA by way of petition for certiorari.


Before the CA, petitioner imputed upon the NLRC grave abuse of discretion amounting to lack or excess of jurisdiction in declaring him a corporate officer and in holding that his action against respondents is an intra-corporate controversy and thus beyond the jurisdiction of the Labor Arbiter.

While admitting that he is indeed a stockholder of respondent corporation, petitioner nevertheless disputed the declaration of the NLRC that he is a corporate officer thereof. He posited that his being a stockholder and his being a managerial employee do not ipso facto confer upon him the status of a corporate officer. To support this contention, petitioner called the CA’s attention to the same GIS relied upon by the NLRC when it declared him to be a corporate officer. He pointed out that although said information sheet clearly indicates that he is a stockholder of respondent corporation, he is not an officer thereof as shown by the entry "N/A" or "not applicable" opposite his name in the officer column. Said column requires that the particular position be indicated if the person is an officer and if not, the entry "N/A". Petitioner further argued that the fact that his dismissal was effected through a board resolution does not likewise mean that he is a corporate officer. Otherwise, all that an employer has to do in order to avoid compliance with the requisites of a valid dismissal under the Labor Code is to dismiss a managerial employee through a board resolution. Moreover, he insisted that his action for illegal dismissal is not an intra-corporate controversy as same stemmed from employee-employer relationship which is well within the jurisdiction of the Labor Arbiter. This can be deduced and is bolstered by the last paragraph of the termination letter

sent to him by respondents stating that he is entitled to benefits under the Labor Code, to wit:

In this connection (his dismissal) you are entitled to separation pay and other benefits provided for under the Labor Code of the Philippines.8 (Emphasis supplied)

In contrast, respondents stood firm that the action against them is an intra-corporate controversy. It cited Tabang v. National Labor Relations Commission9 wherein this Court declared that "an intra-corporate controversy is one which arises between a stockholder and the corporation;" that "[t]here is no distinction, qualification, nor any exemption whatsoever;" and that it is "broad and covers all kinds of controversies between stockholders and corporations." In view of this ruling and since petitioner is undisputedly a stockholder of the corporation, respondents contended that the action instituted by petitioner against them is an intra-corporate controversy cognizable only by the appropriate regional trial court. Hence, the NLRC correctly dismissed petitioner’s complaint for lack of jurisdiction.

In the assailed Decision10 dated June 28, 2005, the CA sided with respondents and affirmed the NLRC’s finding that aside from being a stockholder of respondent corporation, petitioner is also a corporate officer thereof and consequently, his complaint is an intra-corporate controversy over which the labor arbiter has no jurisdiction. Said court opined that if it was true that petitioner is a mere employee, the respondent corporation would not have called a board meeting to pass a resolution for petitioner’s dismissal considering that it was very tedious for the Board of Directors to convene and to adopt a resolution every time they decide to dismiss their managerial employees. To support its finding, the CA likewise cited Tabang. As to petitioner’s co-complainants, the CA likewise affirmed the NLRC’S finding that they were never dismissed from the service. The dispositive portion of the CA Decision reads:

WHEREFORE, the instant petition is hereby DISMISSED. Accordingly, the assailed decision and resolution of the public respondent National Labor Relations Commission in NLRC NCR CA No. 036128-03 NLRC SRAB-IV-05-6618-01-B/05-6619-02-B/05-6620-02-B/10-6637-01-B/10-6833-01-B, STANDS.

SO ORDERED.

Now alone but still undeterred, petitioner elevated the case to us through this Petition for Review on Certiorari.

The Parties’ Arguments








Petitioner continues to insist that he is not a corporate officer. He argues that a corporate officer is one who holds an elective position as provided in the Articles of Incorporation or one who is appointed to such other positions by the Board of Directors as specifically authorized by its By-Laws. And, since he was neither elected nor is there any showing that he was appointed by the Board of Directors to his position as Manager, petitioner maintains that he is not a corporate officer contrary to the findings of the NLRC and the CA.

Petitioner likewise contends that his complaint for illegal dismissal against respondents is not an intra-corporate controversy. He avers that for an action or suit between a stockholder and a corporation to be considered an intra-corporate controversy, same must arise from intra-corporate relations, i.e., an action involving the status of a stockholder as such. He believes that his action against the respondents does not arise from intra-corporate relations but rather from employer-employee relations. This, according to him, was even impliedly recognized by respondents as shown by the earlier quoted portion of the termination letter they sent to him.

For their part, respondents posit that what petitioner is essentially assailing before this Court is the finding of the NLRC and the CA that he is a corporate officer of respondent corporation. To the respondents, the question of whether petitioner is a corporate officer is a question of fact which, as held in a long line of jurisprudence, cannot be the subject of review under this Petition for Review on Certiorari. At any rate, respondents insist that petitioner who is undisputedly a stockholder of respondent corporation is likewise a corporate officer and that his action against them is an intra-corporate dispute beyond the jurisdiction of the labor tribunals. To support this, they cited several jurisprudence such as Pearson & George (S.E. Asia), Inc. v. National Labor Relations Commission,11Philippine School of Business Administration v. Leano,12 Fortune Cement Corporation v. National Labor Relations Commission13 and again, Tabang v. National Labor Relations Commission.14

Moreover, in an attempt to demolish petitioner’s claim that the present controversy concerns employer-employee relations, respondents enumerated the following facts and circumstances: (1) Petitioner was an incorporator, stockholder and manager of respondent company; (2) As an incorporator, he was one of only seven incorporators of respondent corporation and one of only four Filipino members of the Board of Directors; (3) As stockholder, he has One Thousand (1,000) of the Ten Thousand Eight Hundred (10,800) common shares held by Filipino stockholders, with a par-value of One Hundred Thousand Pesos (P100,000.00); (4) His appointment as manager was by virtue of Section 1, Article IV of respondent corporation’s By-Laws; (5) As manager, he had direct management and authority over all of respondent corporation’s skilled employees; (6) Petitioner has

shown himself to be an incompetent manager, unable to properly supervise the employees and even causing friction with the corporation’s clients by engaging in unruly behavior while in client’s premises; (7) As if his incompetence was not enough, in a blatant and palpable act of disloyalty, he established another company engaged in the same line of business as respondent corporation; (8) Because of these acts of incompetence and disloyalty, respondent corporation through a Resolution adopted by its Board of Directors was finally constrained to remove petitioner as Manager and declare his office vacant; (9) After his removal, petitioner urged the employees under him to stage an unlawful strike by leading them to believe that they have been illegally dismissed from employment.15Apparently, respondents intended to show from this enumeration that petitioner’s removal pertains to his relationship with respondent corporation, that is, his utter failure to advance its interest and the prejudice caused by his acts of disloyalty. For this reason, respondents see the action against them not as a case between an employer and an employee as what petitioner alleges, but one by an officer and at same time a major stockholder seeking to be reinstated to his former office against the corporation that declared his position vacant.

Finally, respondents state that the fact that petitioner is being given benefits under the Labor Code as stated in his termination letter does not mean that they are recognizing the employer-employee relations between them. They explain that the benefits provided under the Labor Code were merely made by respondent corporation as the basis in determining petitioner’s compensation package and that same are merely part of the perquisites of petitioner’s office as a director and manager. It does not and it cannot change the intra-corporate nature of the controversy. Hence, respondents pray that this petition be dismissed for lack of merit.

Issues

From the foregoing and as earlier mentioned, the core issue to be resolved in this case is whether petitioner’s complaint for illegal dismissal constitutes an intra-corporate controversy and thus, beyond the jurisdiction of the Labor Arbiter.

Our Ruling

Two-tier test in determining the existence of intra-corporate controversy

Respondents strongly rely on this Court’s pronouncement in the 1997 case of Tabang v. National Labor Relations Commission, to wit:

[A]n intra-corporate controversy is one which arises between a stockholder and the corporation. There is no distinction, qualification nor any exemption whatsoever. The provision is broad and covers all kinds of controversies between stockholders and corporations.16

In view of this, respondents contend that even if petitioner challenges his being a corporate officer, the present case still constitutes an intra-corporate controversy as petitioner is undisputedly a stockholder and a director of respondent corporation.

It is worthy to note, however, that before the promulgation of the Tabang case, the Court provided in Mainland Construction Co., Inc. v. Movilla17 a "better policy" in determining which between the Securities and Exchange Commission (SEC) and the Labor Arbiter has jurisdiction over termination disputes,18 or similarly, whether they are intra-corporate or not, viz:

The fact that the parties involved in the controversy are all stockholders or that the parties involved are the stockholders and the corporation does not necessarily place the dispute within the ambit of the jurisdiction of the SEC (now the Regional Trial Court19). The better policy to be followed in determining jurisdiction over a case should be to consider concurrent factors such as the status or relationship of the parties or the nature of the question that is subject of their controversy. In the absence of any one of these factors, the SEC will not have jurisdiction. Furthermore, it does not necessarily follow that every conflict between the corporation and its stockholders would involve such corporate matters as only SEC (now the Regional Trial Court20) can resolve in the exercise of its adjudicatory or quasi-judicial powers. (Emphasis ours)

And, while Tabang was promulgated later than Mainland Construction Co., Inc., the "better policy" enunciated in the latter appears to have developed into a standard approach in classifying what constitutes an intra-corporate controversy. This is explained lengthily in Reyes v. Regional Trial Court of Makati, Br. 142,21 to wit:

Intra-Corporate Controversy

A review of relevant jurisprudence shows a development in the Court’s approach in classifying what constitutes an intra-corporate controversy. Initially, the main consideration in determining whether a dispute constitutes an intra-corporate controversy was limited to a consideration of the intra-corporate relationship existing between or among the parties. The types of relationships embraced under Section 5(b) x x x were as follows:













a) between the corporation, partnership or association and the public;

b) between the corporation, partnership or association and its stockholders, partners, members or officers;

c) between the corporation, partnership or association and the State as far as its franchise, permit or license to operate is concerned; and

d) among the stockholders, partners or associates themselves.

The existence of any of the above intra-corporate relations was sufficient to confer jurisdiction to the SEC (now the RTC), regardless of the subject matter of the dispute. This came to be known as the relationship test.

However, in the 1984 case of DMRC Enterprises v. Esta del Sol Mountain Reserve, Inc., the Court introduced the nature of the controversy test. We declared in this case that it is not the mere existence of an intra-corporate relationship that gives rise to an intra-corporate controversy; to rely on the relationship test alone will divest the regular courts of their jurisdiction for the sole reason that the dispute involves a corporation, its directors, officers, or stockholders. We saw that there is no legal sense in disregarding or minimizing the value of the nature of the transactions which gives rise to the dispute.

Under the nature of the controversy test, the incidents of that relationship must also be considered for the purpose of ascertaining whether the controversy itself is intra-corporate. The controversy must not only be rooted in the existence of an intra-corporate relationship, but must as well pertain to the enforcement of the parties’ correlative rights and obligations under the Corporation Code and the internal and intra-corporate regulatory rules of the corporation. If the relationship and its incidents are merely incidental to the controversy or if there will still be conflict even if the relationship does not exist, then no intra-corporate controversy exists.

The Court then combined the two tests and declared that jurisdiction should be determined by considering not only the status or relationship of the parties, but also the nature of the question under controversy. This two-tier test was adopted in the recent case of Speed Distribution Inc. v. Court of Appeals:

‘To determine whether a case involves an intra-corporate controversy, and is to be heard and decided by the branches of the RTC specifically designated by the Court to try and decide such cases, two elements must concur: (a) the status or relationship of

the parties, and (2) the nature of the question that is the subject of their controversy.

The first element requires that the controversy must arise out of intra-corporate or partnership relations between any or all of the parties and the corporation, partnership, or association of which they are not stockholders, members or associates, between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership, or association and the State insofar as it concerns the individual franchises. The second element requires that the dispute among the parties be intrinsically connected with the regulation of the corporation. If the nature of the controversy involves matters that are purely civil in character, necessarily, the case does not involve an intra-corporate controversy.’ [Citations omitted.]

Guided by this recent jurisprudence, we thus find no merit in respondents’ contention that the fact alone that petitioner is a stockholder and director of respondent corporation automatically classifies this case as an intra-corporate controversy. To reiterate, not all conflicts between the stockholders and the corporation are classified as intra-corporate. There are other factors to consider in determining whether the dispute involves corporate matters as to consider them as intra-corporate controversies.

What then is the nature of petitioner’s Complaint for Illegal Dismissal? Is it intra-corporate and thus beyond the jurisdiction of the Labor Arbiter? We shall answer this question by using the standards set forth in the Reyes case.

No intra-corporate relationship between the parties

As earlier stated, petitioner’s status as a stockholder and director of respondent corporation is not disputed. What the parties disagree on is the finding of the NLRC and the CA that petitioner is a corporate officer. An examination of the complaint for illegal dismissal, however, reveals that the root of the controversy is petitioner’s dismissal as Manager of respondent corporation, a position which respondents claim to be a corporate office. Hence, petitioner is involved in this case not in his capacity as a stockholder or director, but as an alleged corporate officer. In applying the relationship test, therefore, it is necessary to determine if petitioner is a corporate officer of respondent corporation so as to establish the intra-corporate relationship between the parties. And albeit respondents claim that the determination of whether petitioner is a corporate officer is a question of fact which this Court cannot pass upon in this petition for review on certiorari, we shall nonetheless proceed to consider the same because such question is not the main issue to be resolved in this case but is merely collateral to the core issue earlier mentioned.

Petitioner negates his status as a corporate officer by pointing out that although he was removed as Manager through a board resolution, he was never elected to said position nor was he appointed thereto by the Board of Directors. While the By-Laws of respondent corporation provides that the Board may from time to time appoint such officers as it may deem necessary or proper, he avers that respondents failed to present any board resolution that he was appointed pursuant to said By-Laws. He instead alleges that he was hired as Manager of respondent corporation solely by respondent Abe. For these reasons, petitioner claims to be a mere employee of respondent corporation rather than as a corporate officer.

We find merit in petitioner’s contention.

"‘Corporate officers’ in the context of Presidential Decree No. 902-A are those officers of the corporation who are given that character by the Corporation Code or by the corporation’s by-laws. There are three specific officers whom a corporation must have under Section 25 of the Corporation Code. These are the president, secretary and the treasurer. The number of officers is not limited to these three. A corporation may have such other officers as may be provided for by its by-laws like, but not limited to, the vice-president, cashier, auditor or general manager. The number of corporate officers is thus limited by law and by the corporation’s by-laws."22

Respondents claim that petitioner was appointed Manager by virtue of Section 1, Article IV of respondent corporation’s By-Laws which provides:

ARTICLE IV OFFICER

Section 1. Election/Appointment – Immediately after their election, the Board of Directors shall formally organize by electing the President, Vice-President, the Secretary at said meeting.

The Board, may from time to time, appoint such other officers as it may determine to be necessary or proper. Any two (2) or more positions may be held concurrently by the same person, except that no one shall act as President and Treasurer or Secretary at the same time.

x x x x23 (Emphasis ours)

We have however examined the records of this case and we find nothing to prove that petitioner’s appointment was made pursuant to the above-quoted provision of respondent corporation’s By-Laws. No copy of board resolution appointing petitioner as Manager or any other document showing that he




was appointed to said position by action of the board was submitted by respondents. What we found instead were mere allegations of respondents in their various pleadings24 that petitioner was appointed as Manager of respondent corporation and nothing more. "The Court has stressed time and again that allegations must be proven by sufficient evidence because mere allegation is definitely not evidence."25

It also does not escape our attention that respondents made the following conflicting allegations in their Memorandum on Appeal26 filed before the NLRC which cast doubt on petitioner’s status as a corporate officer, to wit:

x x x x

24. Complainant-appellee Renato Real was appointed as the manager of respondent-appellant Sangu on November 6, 1998. Priorly [sic], he was working at Atlas Ltd. Co. at Mito-shi, Ibaraki-ken Japan. He was staying in Japan as an illegal alien for the past eleven (11) years. He had a problem with his family here in the Philippines which prompted him to surrender himself to Japan’s Bureau of Immigration and was deported back to the Philippines. His former employer, Mr. Tsutomo Nogami requested Mr. Masahiko Shibata, one of respondent-appellant Sangu’s Board of Directors, if complainant-appellee Renato Real could work as one of its employees here in the Philippines because he had been blacklisted at Japan’s Immigration Office and could no longer go back to Japan. And so it was arranged that he would serve as respondent-appellant Sangu’s manager, receiving a salary of P25,000.00. As such, he was tasked to oversee the operations of the company. x x x (Emphasis ours)

x x x x

As earlier stated, complainant-appellee Renato Real was hired as the manager of respondent-appellant Sangu. As such, his position was reposed with full trust and confidence. x x x

While respondents repeatedly claim that petitioner was appointed as Manager pursuant to the corporation’s By-Laws, the above-quoted inconsistencies in their allegations as to how petitioner was placed in said position, coupled by the fact that they failed to produce any documentary evidence to prove that petitioner was appointed thereto by action or with approval of the board, only leads this Court to believe otherwise. It has been consistently held that "[a]n ‘office’ is created by the charter of the corporation and the officer is elected (or appointed) by the directors or stockholders."27 Clearly here, respondents failed to prove that petitioner was appointed by the board of directors. Thus, we cannot subscribe to their claim that petitioner is a corporate officer. Having said this, we find that there is no intra-

corporate relationship between the parties insofar as petitioner’s complaint for illegal dismissal is concerned and that same does not satisfy the relationship test.

Present controversy does not relate to intra-corporate dispute

We now go to the nature of controversy test. As earlier stated, respondents terminated the services of petitioner for the following reasons: (1) his continuous absences at his post at Ogino Philippines, Inc; (2) respondents’ loss of trust and confidence on petitioner; and, (3) to cut down operational expenses to reduce further losses being experienced by the corporation. Hence, petitioner filed a complaint for illegal dismissal and sought reinstatement, backwages, moral damages and attorney’s fees. From these, it is not difficult to see that the reasons given by respondents for dismissing petitioner have something to do with his being a Manager of respondent corporation and nothing with his being a director or stockholder. For one, petitioner’s continuous absences in his post in Ogino relates to his performance as Manager. Second, respondents’ loss of trust and confidence in petitioner stemmed from his alleged acts of establishing a company engaged in the same line of business as respondent corporation’s and submitting proposals to the latter’s clients while he was still serving as its Manager. While we note that respondents also claim these acts as constituting acts of disloyalty of petitioner as director and stockholder, we, however, think that same is a mere afterthought on their part to make it appear that the present case involves an element of intra-corporate controversy. This is because before the Labor Arbiter, respondents did not see such acts to be disloyal acts of a director and stockholder but rather, as constituting willful breach of the trust reposed upon petitioner as Manager.28 It was only after respondents invoked the Labor Arbiter’s lack of jurisdiction over petitioner’s complaint in the Supplemental Memorandum of Appeal29 filed before the NLRC that respondents started considering said acts as such. Third, in saying that they were dismissing petitioner to cut operational expenses, respondents actually want to save on the salaries and other remunerations being given to petitioner as its Manager. Thus, when petitioner sought for reinstatement, he wanted to recover his position as Manager, a position which we have, however, earlier declared to be not a corporate position. He is not trying to recover a seat in the board of directors or to any appointive or elective corporate position which has been declared vacant by the board. Certainly, what we have here is a case of termination of employment which is a labor controversy and not an intra-corporate dispute. In sum, we hold that petitioner’s complaint likewise does not satisfy the nature of controversy test.

With the elements of intra-corporate controversy being absent in this case, we thus hold that petitioner’s complaint for illegal dismissal against respondents is not intra-corporate. Rather, it is a

termination dispute and, consequently, falls under the jurisdiction of the Labor Arbiter pursuant to Section 21730 of the Labor Code.

We take note of the cases cited by respondents and find them inapplicable to the case at bar. Fortune Cement Corporation v. National Labor Relations Commission31 involves a member of the board of directors and at the same time a corporate officer who claims he was illegally dismissed after he was stripped of his corporate position of Executive Vice-President because of loss of trust and confidence. On the other hand, Philippine School of Business Administration v. Leano32 and Pearson & George v. National Labor Relations Commission33 both concern a complaint for illegal dismissal by corporate officers who were not re-elected to their respective corporate positions. The Court declared all these cases as involving intra-corporate controversies and thus affirmed the jurisdiction of the SEC (now the RTC)34 over them precisely because they all relate to corporate officers and their removal or non-reelection to their respective corporate positions. Said cases are by no means similar to the present case because as discussed earlier, petitioner here is not a corporate officer.

With the foregoing, it is clear that the CA erred in affirming the decision of the NLRC which dismissed petitioner’s complaint for lack of jurisdiction. In cases such as this, the Court normally remands the case to the NLRC and directs it to properly dispose of the case on the merits. "However, when there is enough basis on which a proper evaluation of the merits of petitioner’s case may be had, the Court may dispense with the time-consuming procedure of remand in order to prevent further delays in the disposition of the case."35 "It is already an accepted rule of procedure for us to strive to settle the entire controversy in a single proceeding, leaving no root or branch to bear the seeds of litigation. If, based on the records, the pleadings, and other evidence, the dispute can be resolved by us, we will do so to serve the ends of justice instead of remanding the case to the lower court for further proceedings."36 We have gone over the records before us and we are convinced that we can now altogether resolve the issue of the validity of petitioner’s dismissal and hence, we shall proceed to do so.

Petitioner’s dismissal not in accordance with law

"In an illegal dismissal case, the onus probandi rests on the employer to prove that [the] dismissal of an employee is for a valid cause."37 Here, as correctly observed by the Labor Arbiter, respondents failed to produce any convincing proof to support the grounds for which they terminated petitioner. Respondents contend that petitioner has been absent for several months, yet they failed to present any proof that petitioner was indeed absent for such a long time. Also, the fact that petitioner was still able to collect his salaries after his alleged absences casts doubts on the truthfulness of such charge. Respondents likewise allege that
















petitioner engaged in a heated argument with the employees of Epson, one of respondents’ clients. But just like in the charge of absenteeism, there is no showing that an investigation on the matter was done and that disciplinary action was imposed upon petitioner. At any rate, we have reviewed the records of this case and we agree with the Labor Arbiter that under the circumstances, said charges are not sufficient bases for petitioner’s termination. As to the charge of breach of trust allegedly committed by petitioner when he established a new company engaged in the same line of business as respondent corporation’s and submitted proposals to two of the latter’s clients while he was still a Manager, we again observe that these are mere allegations without sufficient proof. To reiterate, allegations must be proven by sufficient evidence because mere allegation is definitely not evidence.38

Moreover, petitioner’s dismissal was effected without due process of law.lawphi1 "The twin requirements of notice and hearing constitute the essential elements of due process. The law requires the employer to furnish the employee sought to be dismissed with two written notices before termination of employment can be legally effected: (1) a written notice apprising the employee of the particular acts or omissions for which his dismissal is sought in order to afford him an opportunity to be heard and to defend himself with the assistance of counsel, if he desires, and (2) a subsequent notice informing the employee of the employer’s decision to dismiss him. This procedure is mandatory and its absence taints the dismissal with illegality."39 Since in this case, petitioner’s dismissal was effected through a board resolution and all that petitioner received was a letter informing him of the board’s decision to terminate him, the abovementioned procedure was clearly not complied with. All told, we agree with the findings of the Labor Arbiter that petitioner has been illegally dismissed. And, as an illegally dismissed employee is entitled to the two reliefs of backwages and reinstatement,40 we affirm the Labor Arbiter’s judgment ordering petitioner’s reinstatement to his former position without loss of seniority rights and other privileges and awarding backwages from the time of his dismissal until actually reinstated. Considering that petitioner has to secure the services of counsel to protect his interest and necessarily has to incur expenses, we likewise affirm the award of attorney’s fees which is equivalent to 10% of the total backwages that respondents must pay petitioner in accordance with this Decision.

WHEREFORE, the petition is hereby GRANTED. The assailed June 28, 2005 Decision of the Court of Appeals insofar as it affirmed the National Labor Relations Commission’s dismissal of petitioner’s complaint for lack of jurisdiction, is hereby REVERSED and SET ASIDE. The June 5, 2003 Decision of the Labor Arbiter with respect to petitioner Renato Real is AFFIRMED and this case is ordered REMANDED to the National Labor Relations

Commission for the computation of petitioner’s backwages and attorney’s fees in accordance with this Decision.SO ORDERED.

G.R. No. 117847 October 7, 1998

PEOPLE'S AIRCARGO AND WAREHOUSING CO. INC., petitioner, vs. COURT OF APPEALS and STEFANI SAÑO, respondents.

PANGANIBAN, J.:

Contracts entered into by a corporate president without express prior board approval bind the corporation, when such officer's apparent authority is estabished and when these contracts are ratified by the corporation.

The Case

This principle is stressed by the Court in rejecting the Petition for Review of the February 28, 1994 Decision and the October 28, 1994 Resolution of the Court of Appeals in CA-GR CV No. 30670.

In a collection case 1 filed by Stefani Saño against People's Aircargo and Warehousing Co., Inc., the Regional Trial Court (RTC) of Pasay City, Branch 110, rendered a Decision 2 dated October 26, 1990, the dispositive portion of which reads: 3

WHEREFORE, in light of all the foregoing, Judgment is hereby rendered, ordering [petitioner] to pay [private respondent] the amount of sixty thousand (P60,000.00) pesos representing payment of [private respondents] services in preparing the manual of operations and in the conduct of a seminar for [petitioner]. The Counterclaim is hereby dismissed.

Aggrieved by what he considered a minuscule award of P60,000, private respondent appealed to the Court of Appeals 4 (CA) which, in its Decision promulgated February 28, 1994, granted his prayer for P400,000, as follows: 5

WHEREFORE, PREMISES CONSIDERED, the appealed judgment is hereby MODIFIED in that [petitioner] is ordered to pay [private respondent] the amount of four hundred thousand pesos (P400,000.00) representing payment of [private respondent's] services

in preparing the manual of operations and in the conduct of a seminar for [petitioner].

As no new ground was raised by petitioner, reconsideration of the above-mentioned Decision was denied in the Resolution promulgated on October 28, 1994.

The Facts

Petitioner is a domestic corporation, which was organized in the middle of 1986 to operate a customs bonded warehouse at the old Manila International Airport in Pasay City. 6

To obtain a license for the corporation from the Bureau of Customs, Antonio Punsalan Jr., the corporation president, solicited a proposal from private respondent for the preparation of a feasibility study. 7 Private respondent submitted a letter-proposal dated October 17, 1986 ("First Contract" hereafter) to Punsalan, which is reproduced hereunder: 8

Dear Mr. Punsalan:

With reference to your request for professional engineering consultancy services for your proposed MIA Warehousing Project may we offer the following outputs and the corresponding rate and terms of agreement:

=======================================

Project Feasibility Study consisting of

Market Study

Technical Study

Financial Feasibility Study

Preparation of pertinent documentation requirements for the application

_____________________________________________





The above services will be provided for a fee of [p]esos 350,000.00 payable according to the following schedule:

=====================================================

Fifty percent (50%) upon confirmation of the agreement

Twenty-five percent (25%) 15 days after the confirmation of the agreement

Twenty-five percent (25%) upon submission of the specified outputs

The outputs will be completed and submitted within 30 days upon confirmation of the agreement and receipt by us of the first fifty percent payment.

---------------------------------------------------------------------------------

Thank you.

Yours truly, CONFORME:

(S)STEFANI C. SAÑO (S)ANTONIO C. PUNSALAN, JR.

(T)STEFANI C. SAÑO (T)ANTONIO C. PUNSALAN, JR.

Consultant for President, PAIRCARGO

Industrial Engineering

Initially, Cheng Yong, the majority stockholder of petitioner, objected to private respondent's offer, as another company priced a similar proposal at only P15,000. 9 However, Punsalan preferred private respondent's service because of the latter's membership in the task force, which was supervising the transition of the Bureau of Customs from the Marcos government to the Aquino administration. 10

On October 17, 1986, pertitioner, through Punsalan, sent private respondent a letter, confirming their agreement as follows:

Dear Mr. Saño:

With regard to the services offered by your company in your letter dated 13 October 1986, for the preparation of the necessary study and documentations to support our Application for Authority to Operate a public Customs Bonded Warehouse located at the old MIA Compound in Pasay City, please be informed that our company is willing to hire your services and will pay the amount of THREE HUNDRED FIFTY THOUSAND PESOS (P350,000.00) as follows:

P100,000.00 — uppon signing of the agreement;

150,000.00 — on or before October 31, 1986, with the favorable Recommendation of the CBW on our application.

100,000.00 — upon receipt of the study in final form.t

CONFORME & RECEIVED from PAIRCARGO, the

amount of ONE HUNDRED THOUSAND PESOS

(P100,000.00), this 17th day of October, 1986

as 1st Installment payment of the service agreement

dated October 13, 1986.

(S)STEFANI C. SAÑO

(T)STEFANI C. SAÑO

Accordingly, private respondent prepared a feasibility study for petitioner which eventually paid him the balance of the contract price, although not according to the schedule agreed upon. 11

On December 4, 1986, upon Punsalan's request, private respondent sent petitioner another letter-proposal ("Second Contract" hereafter), which reads:

People's Air Cargo & Warehousing Co., Inc.

Old MIA Compound, Metro Manila

Attention: Mr. ANTONIO PUN[S]ALAN, JR.

President

Dear Mr. Pun[s]alan:

This is to formalize our proposal for consultancy services to your company the scope of which is defined in the attached service description.

The total service you have decided to avail . . . would be available upon signing of the conforme below and would come [in] the amount of FOUR HUNDRED THOUSAND PESOS (P400,000.00) payable at the schedule defined as follows (with the balance covered by post-dated cheques):

Downpayment upon signing conforme P80,000.00

15 January 1987 53,333.00

30 January 1987 53,333.00

15 February 1987 53,333.00

28 February 1987 53,333.00

15 March1987 53,333.00

30 March 1987 53,333.00

With is package, you are assured of the highest service quality as our performance record shows we always deliver no less.


Thank you very much.

Yours truly,

(S)STEFANI C. SAÑO

(T)STEFANI C. SAÑO

Industrial Engineering Consultant

CONFORME:

(S)ANTONIO C. PUNSALAN JR.

(T)PAIRCARGO CO. INC.

During the trial, the lower court observed that the Second Contract bore, at the lower right portion of the letter, the following notations in pencil:

1. Operations Manual

2. Seminar/workshop for your employees

P400,000 — package deal

50% upon completion of seminar/workshop

50% upon approval by the Commissioner

The Manual has already been approved by the Commissioner but payment has not yet been made.

The lower left corner of the letter also contained the following notations:

1st letter — 4 Dec. 1986

2nd letter — 15 June 1987 with

"Hinanakit".

On January 10, 1987, Andy Villaceren, vice president of petitioner, received the operations manual prepared by private respondent. 12 Petitioner submitted said operations manual to the Bureau of Customs is connection with the former's application to operate a bonded warehouse; thereafter, in May 1987, the Bureau issued to it a license to operate, enabling it to become one of the three public bonded warehouses at the international airport. 13 Private respondent also conducted, in the third week of January 1987 in the warehouse of petitioner, a three-day training seminar for the latter's employees. 14

On March 25, 1987, private respondent joined the Bureau of Customs as special assistant to then Commissioner Alex Padilla, a position he held until he became technical assitant to then Commissioner Miriam Defensor-Santiago on March 7, 1988. 15 Meanwhile, Punsalan sold his shares in petitioner-corporation and resigned as its president in 1987. 16

On February 9, 1988, private respondent filed a collection suit against petitioner. He allege that he had prepared an operations manual for petitioner, conducted a seminar-workshop for its employees and delivered to it a computer program; but that, despite demand, petitioner refused to pay him for his services.

Petitioner, in its answer, denied that private respondent had prepared an operations manual and a computer program or conducted a seminar-workshop for its employees. It further alleged that the letter-agreement was signed by Punsalan without authority, "in collusion with [private respondent] in order to unlawfully get some money from [petitioner]," and despite his knowledge that a group of employees of the company had been commissioned by the board of directors to prepare an operations manual. 17

The trial court declared the Second Contract unenforceable or simulated. However, since private respondent had actually prepared the operations manual and conducted a training seminar for petitioner and its employees, the trial court awarded P60,000 to the former, on the ground that no one should be unjustly enriched at the expense of another (Article 2142, Civil Code). The trial court determined the amount "in light of the evidence presented by defendant on the usual charges made by a leading consultancy firm on similar services." 18

The Ruling of the Court of Appeals

To Respondent Court, the pivotal issue of private respondent's appeal was the enforceability of the Second Contract. It noted that petitioner did not appeal the Decision of the trial court,

implying that it had agreed to pay the P60,000 award. If the contract was valid and enforceable, then petitioner should be held liable for the full amount stated therein, not P60,000 as held by the lower court.

Rejecting the finding of the trial court that the December 4, 1986 contract was simulated or unenforceable, the CA ruled in favor of its validity and enforceability. According to the Court of Appeals, the evidence on record shows that the president of petititoner-corporation had entered into the First Contract, which was similar to the Second Contract. Thus, petitioner had clothed its president with apparent authority to enter into the disputed agreement. As it had also become the practice of the petitioner-corporation to allow its president to negotiate and execute contracts necessary to secure its license as a customs bonded warehouse without prior board approval, the board itself, by its acts and through acquiescence, practically laid aside the normal requirement of prior express approval. The Second Contract was declared valid and binding on the petitioner, which was held liable to private respondent in the full amount of P400,000.

Disagreeing with the CA, petitioner lodged this petition before us. 19

The Issues

Instead of alleging reversible errors, petitioner imputes "grave abuse of discretion" to the Court of Appeals, viz.: 20

I. . . . [I]n ruling that the subject letter-agreement for services was binding on the corporation simply because it was entered into by its president[;]

II. . . . [I]n ruling that the subject letter-agreement for services was binding on the corporation notwithstanding the lack of any board authority since it was the purported "practice" to allow the president to enter into contracts of said nature (citing one previous instance of a similar contract)[;] and

III. . . . [I]n ruling that the subject letter-agreement for services was a valid contract and not merely simulated.

The Court will overlook the lapse of petitioner in alleging grave abuse of discretion as its ground for seeking reversal of the assailed Decision. Although the Rules of Court specify "reversible errors" as grounds for a petition for review under Rule 45, the


Court will lay aside for the nonce this procedural lapse and consider the allegations of "grave abuse" as statements of reversible errors of law.

Petitioner does not contest its liability; it merely disputes the amount of such accountability. Hence, the resolution of this petition rests on the sole issue of the enforceability and validity of the Second Contract, more specifically: (1) whether the president of the petitioner-corporation had apparent authority to bind petitioner to the Second Contract; and (2) whether the said contract was valid and not merely simulated.

The Court's Ruling

The petition is not meritorious.

First Issue:

Apparent Authority of a Corporate President

Petitioner argues that the disputed contract is unenforceable, because Punsalan, its president, was not authorized by its board of directors to enter into said contract.

The general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. 21 A corporation is a juridical person, separate and distinct from its stockholders and members, "having . . . powers, attributes and properties expressly authorized by law or incident to its existence." 22

Being a juridical entity, a corporation may board of directors, which exercises almost all corporate powers, lays down all corporate business policies and is responsible for the efficiency of management, 23 as provided in Section 23 of the Corporation Code of the Philippines:

Sec. 23. The Board of Directors or Trustees. — Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees . . . .

Under this provision, the power and the responsibility to decide whether the corporation should enter into a contract that will bind the corporation is lodged in the board, subject to the articles of incorporaration, bylaws, or relevant provisions of law. 24 Howeever, just as a natural person may authorize another

to do certain acts for and on his behalf, the board of directors may validly delegate some of its functions and powers to officers, committees or agents. The authority of such individuals to bind the corporation is generally derived from law, corporate bylaws or authorization from the board, either expressly or impliedly by habit, custom or acquiescence in the general course of business, viz.: 25

A corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that [the] authority to do so has been conferred upon him, and this includes powers which have been intentionally conferred, and also such powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has conferred.

Accordingly, the appellate court ruled in this case that the authority to act for and to bind a corporation may be presumed from acts of recognition in other instances, wherein the power was in fact exercised without any objection from its board or shareholders. Petitioner had previously allowed its president to enter into the First Contract with private respondent without a board resolution expressly authorizing him; thus, it had clothed its president with apparent authority to execute the subject contract.

Petitioner rebuts, arguing that a single isolated agreement prior to the subject contract does not constitute corporate practice, which Webster defines as "frequent or custmary action." It cites Board of Liquidators v. Kalaw,26 in which the practice of NACOCO allowing its general manager to negotiate and execute contract in its copra trading activities for and on its behalf, without prior board approval, was inferred from sixty contract — not one, as in present case — previously entered into by the corporation without such board resolution.

Petitioner's argument is not persuasive. Apparent authority is derived not merely from practice. Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers. 27 It requires presentation of evidence of similar act(s) executed either

in its favor or in favor of other parties. 28 It is not the quantity of similar acts which establishes apparent authority, but the vesting of a corporale officer with the power to bind the corporation.

In the case at bar, petitioner, through its president Antonio Punsalan Jr., entered into the First Contract without first securing board approval. Despite such lack of board approval, petitioner did not object to or repudiate said contract, thus "clothing" its president with the power to bind the corporation. The grant of apparent authority to Punsalan is evident in the testimony of Yong — senior vice president, treasurer and major stockholder of petitioner. Testifying on the First Contract, he said: 29

A: Mr. [Punsalan] told me that he prefer[s] Mr. Saño because Mr. Saño is very influential with the Collector of Customs[s]. Because the Collector of Custom[s] will be the one to approve our project study and I objected to that, sir. And I said it [was an exorbitant] price. And Mr. Punsalan he is the [p]resident, so he [gets] his way.

Q: And so did the company eventually pay this P350,000.00 to Mr. Saño?

A: Yes, sir.

The First Contract was consummated, implemented and paid without a hitch.

Hence, private respondent should not be faulted for believing that Punsalan's conformity to the contract in dispute was also binding on petitioner. It is familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts; and thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent's authority. 30


Furthermore, private respondent prepared an operations manual and conducted a seminar for the employees of petitioner in accordance with their contract. Petitioner accepted the operations manual, submitted it to the Bureau of Customs and allowed the seminar for its employees. As a result of its aforementioned actions, petitioner was given by the Bureau of Customs a license to operate a bonded warehouse. Granting arguendo then that the Second Contract was outside the usual powers of the president, petitioner's ratification of said contract and acceptance of benefits have made it binding, nonetheless. The enforceability of contracts under Article 1403(2) is ratified "by the acceptance of benefits under them" under Article 1405.

Inasmuch as a corporate president is often given general supervision and control over corporate operations, the strict rule that said officer has no inherent power to act for the corporation is slowly giving way to the realization that such officer has certain limited powers in the transaction of the usual and ordinary business of the corporation. 31 In the absence of a charter or bylaw provision to the contrary, the president is presumed to have the authority to act within the domain of the general objectives of its business and within the scope of his or her usual duties. 32

Hence, it has been held in other jurisdictions that the president of a corporation possesses the power to enter into a contract for the corporation, when the "conduct on the part of both the president and the corporation [shows] that he had been in the habit of acting in similar matters on behalf of the company and that the company had authorized him so to act and had recognized, approved and ratified his former and similar actions." 33 Furthermore, a party dealing with the president of a corporation is entitled to assume that he has the authority to enter, on behalf of the corporation, into contracts that are within the scope of the powers of said corporation and that do not violate any statute or rule on public policy. 34

Second Issue: Alleged Simulation of the First Contract

As an alternative position, petitioner seeks to pare down its liabilities by limiting its exposure from P400,000 to only P60,000, the amount awarded by the RTC. Petitioner capitalizes on the "badges of fraud" cited by the trial court in declaring said contract either simulated or unenforceable, viz.:

. . . The October 1986 transaction with [private respondent] involved P350,000. The same was embodied in a letter which bore therein not only the conformity of [petitioner's] then President Punsalan but also drew a letter-confirmation from the

latter for, indeed, he was clothed with authority to enter into the contract after the same was brought to the attention and consideration of [petitioner]. Not only that, a [down payment] was made. In the alleged agreement of December 4, 1986 subject of the present case, the amount is even bigger - P400,000.00. Yet, the alleged letter-agreement drew no letter of confirmation. And no [down payment] and postdated checks were given. Until the filing of the present case in February 1988, no written demand for payment was sent to [petitioner]. [Private respondent's] claim that he sent one in writing, and one was sent by his counsel who manifested that "[h]e was looking for a copy in [his] files" fails in light of his failure to present any such copy. These and the following considerations, to wit:

1) Despite the fact that no [down payment] and/or postdated checks [partial payments] (as purportedly stipulated in the alleged contract) [was given, private respondent] went ahead with the services[;]

2) [There was a delay in the filing of the present suit, more than a year after [private respondent] allegedly completed his services or eight months after the alleged last verbal demand for payment made on Punsalan in June 1987;

3) Does not Punsalan's writing allegedly in June 1987 on the alleged letter-agreement of "your employees[,]" when it should have been "our employees", as he was then still connected with [petitioner], indicate that the letter-agreement was signed by Punsalan when he was no longer connected with [petitioner] or, as claimed by [petitioner], that Punsalan signed it without [petitioner's] authority and must have been done "in collusion with plaintiff in order to unlawfully get some money from [petitioner]?

4) If, as [private respondent] claims, the letter was returned by Punsalan after affixing thereon his conformity, how come . . . when Punsalan allegedly visited [private

respondent] in his office at the Bureau of Customs, in June 1987, Punsalan "brought" (again?) the letter (with the pencil [notation] at the left bottom portion allegedly already written)?

5) How come . . . [private respondent] did not even keep a copy of the alleged service contract allegedly attached to the letter-agreement?

6) Was not the letter-agreement a mere draft, it bearing the corrections made by Punsalan of his name (the letter "n" is inserted before the last letter "o" in Antonio) and of the spelling of his family name (Punsalan, not Punzalan)?

7) Why was not Punsalan impleaded in the case?

The issue of whether the contract is simulated or real is factual in nature, and the Court eschews factual examinanon in a petition for review under Rule 45 of the Rules of Court. 35 This rule, however, admits of exceptions, one of which is a conflict between the factual findings of the lower and of the appellate courts 36 as in the case at bar.

After judicious deliberation, the Court agrees with the appellate court that the alleged "badges of fraud" mentioned earlier have not affected in any manner the perfection thereof. First, the lack of payment (whether down, partial or full payment), even after completion of private respondent's obligations, imports only a defect in the performance of the contract on the part of petitioner. Second, the delay in the filing of action was not fatal to private respondent's cause. Despite the lapse of one year after private respondent completed his services or eight months after the alleged last demand for payment in June 1987, the action was still filed within the allowable period, considering that an action based on a written contract prescribes only after ten years from the time the right of action accrues. 37 Third, a misspelling in the contract does not establish vitiation of consent, cause or object of the contract. Fourth, a confirmation letter is not an essential element of a contract, neither is it necessary to perfect one.Fifth, private respondent's failure to implead the corporate president does not establish collusion between them. Petitioner could have easily filed a third-party claim against Punsalan if it believed that it had recourse against the latter. Lastly, the mere fact that the contract price was six times the alleged going rate does not invalidate it. 38 In short, these "badges" do not establish simulation of said contract.


A fictitious and simulated agreement lacks consent which is essential to a valid and enforceable contract. 39 A contract is simulated if the parties do not intend to be bound at all (absolutely simulated), 40 or if the parties conceal their true agreement (relatively simulated). 41 In the case at bar, petitioner received from private respondent a letter-offer containing the terms of the former, including a stipulation of the consideration for the latter's services. Punsalan's conformity, as well as the receipt and use of the operations manual, shows petitioner's consent to or, at the very least, ratification of the contract. To repeat, petitioner even submitted the manual to the Bureau of Customs and allowed private respondent to conduct the seminar for its employees. Private respondent heard no objection from the petitioner, until he claimed payment for the services he had rendered.

Contemporaneous and subsequent acts are also principal factors in the determination of the will of the contracting parties. 42 The circumstances outlined above do not establish any intention to simulate the contract in dispute. On the contrary, the legal presumption is always on the validity of contracts. A corporation, by accepting benefits of a transaction entered into without authority, has ratified the agreement and is, therefore, bound by it. 43

WHEREFORE, the petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against petitioner.SO ORDERED.

G.R. No. 125778 June 10, 2003

INTER-ASIA INVESTMENTS INDUSTRIES, INC., Petitioner, vs. COURT OF APPEALS and ASIA INDUSTRIES, INC., Respondents.

D E C I S I O N

CARPIO-MORALES, J.:

The present petition for review on certiorari assails the Court of Appeals Decision1 of January 25, 1996 and Resolution2 of July 11, 1996.

The material facts of the case are as follows:

On September 1, 1978, Inter-Asia Industries, Inc. (petitioner), by a Stock Purchase Agreement3 (the Agreement), sold to Asia Industries, Inc. (private respondent) for and in consideration of the sum of P19,500,000.00 all its right, title and interest in and to

all the outstanding shares of stock of FARMACOR, INC. (FARMACOR).4 The Agreement was signed by Leonides P. Gonzales and Jesus J. Vergara, presidents of petitioner and private respondent, respectively.5

Under paragraph 7 of the Agreement, petitioner as seller made warranties and representations among which were "(iv.) [t]he audited financial statements of FARMACOR at and for the year ended December 31, 1977... and the audited financial statements of FARMACOR as of September 30, 1978 being prepared by S[ycip,] G[orres,] V[elayo and Co.]... fairly present or will present the financial position of FARMACOR and the results of its operations as of said respective dates; said financial statements show or will show all liabilities and commitments of FARMACOR, direct or contingent, as of said respective dates . . ."; and "(v.) [t]he Minimum Guaranteed Net Worth of FARMACOR as of September 30, 1978 shall be Twelve Million Pesos (P12,000,000.00)."6

The Agreement was later amended with respect to the "Closing Date," originally set up at 10:00 a.m. of September 30, 1978, which was moved to October 31, 1978, and to the mode of payment of the purchase price.7

The Agreement, as amended, provided that pending submission by SGV of FARMACOR’s audited financial statements as of October 31, 1978, private respondent may retain the sum of P7,500,000.00 out of the stipulated purchase price of P19,500,000.00; that from this retained amount of P7,500,000.00, private respondent may deduct any shortfall on the Minimum Guaranteed Net Worth of P12,000,000.00;8 and that if the amount retained is not sufficient to make up for the deficiency in the Minimum Guaranteed Net Worth, petitioner shall pay the difference within 5 days from date of receipt of the audited financial statements.9

Respondent paid petitioner a total amount of P 12,000,000.00: P5,000,000.00 upon the signing of the Agreement, and P7,000,000.00 on November 2, 1978.10

From the STATEMENT OF INCOME AND DEFICIT attached to the financial report11 dated November 28, 1978 submitted by SGV, it appears that FARMACOR had, for the ten months ended October 31, 1978, a deficit of P11,244,225.00.12 Since the stockholder’s equity amounted to P10,000,000.00, FARMACOR had a net worth deficiency of P1,244,225.00. The guaranteed net worth shortfall thus amounted to P13,244,225.00 after adding the net worth deficiency of P1,244,225.00 to the Minimum Guaranteed Net Worth of P12,000,000.00.

The adjusted contract price, therefore, amounted to P6,225,775.00 which is the difference between the contract price of P19,500,000.00 and the shortfall in the guaranteed net worth of P13,224,225.00. Private respondent having already paid petitioner P12,000,000.00, it was entitled to a refund of P5,744,225.00.

Petitioner thereafter proposed, by letter13 of January 24, 1980, signed by its president, that private respondent’s claim for refund be reduced to P4,093,993.00, it promising to pay the cost of the Northern Cotabato Industries, Inc. (NOCOSII) superstructures in the amount of P759,570.00. To the proposal respondent agreed. Petitioner, however, weiched on its promise. Petitioner’s total liability thus stood at P4,853,503.00 (P4,093,993.00 plus P759,570.00)14 exclusive of interest.15

On April 5, 1983, private respondent filed a complaint16 against petitioner with the Regional Trial Court of Makati, one of two causes of action of which was for the recovery of above-said amount of P4,853,503.0017 plus interest.

Denying private respondent’s claim, petitioner countered that private respondent failed to pay the balance of the purchase price and accordingly set up a counterclaim.

Finding for private respondent, the trial court rendered on November 27, 1991 a Decision,18 the dispositive portion of which reads:

WHEREFORE, judgment is rendered in favor of plaintiff and against defendant (a) ordering the latter to pay to the former the sum of P4,853,503.0019 plus interest thereon at the legal rate from the filing of the complaint until fully paid, the sum of P30,000.00 as attorney’s fees and the costs of suit; and (b) dismissing the counterclaim.

SO ORDERED.

On appeal to the Court of Appeals, petitioner raised the following errors:

THE TRIAL COURT ERRED IN HOLDING THE DEFENDANT LIABLE UNDER THE FIRST CAUSE OF ACTION PLEADED BY THE PLAINTIFF.

THE TRIAL COURT ERRED IN AWARDING ATTORNEY’S FEES AND IN DISMISSING THE COUNTERCLAIM.

THE TRIAL COURT ERRED IN RENDERING JUDGMENT IN FAVOR OF THE PLAINTIFF, THE ALLEGED BREACH OF





















WARRANTIES AND REPRESENTATION NOT HAVING BEEN SHOWN, MUCH LESS ESTABLISHED BY THE PLAINTIFF.20

By Decision of January 25, 1996, the Court of Appeals affirmed the trial court’s decision. Petitioner’s motion for reconsideration of the decision having been denied by the Court of Appeals by Resolution of July 11, 1996, the present petition for review on certiorari was filed, assigning the following errors:

I

THE RESPONDENT COURT ERRED IN NOT HOLDING THAT THE LETTER OF THE PRESIDENT OF THE PETITIONER IS NOT BINDING ON THE PETITIONER BEING ULTRA VIRES.

II

THE LETTER CAN NOT BE AN ADMISSION AND WAIVER OF THE PETITIONER AS A CORPORATION.

III

THE RESPONDENT COURT ERRED IN NOT DECLARING THAT THERE IS NO BREACH OF WARRANTIES AND REPRESENTATION AS ALLEGED BY THE PRIVATE RESPONDENT.

IV

THE RESPONDENT COURT ERRED IN ORDERING THE PETITIONER TO PAY ATTORNEY’S FEES AND IN SUSTAINING THE DISMISSAL OF THE COUNTERCLAIM.18 (Underscoring in the original)

Petitioner argues that the January 24, 1980 letter-proposal (for the reduction of private respondent’s claim for refund upon petitioner’s promise to pay the cost of NOCOSII superstructures in the amount of P759,570.00) which was signed by its president has no legal force and effect against it as it was not authorized by its board of directors, it citing the Corporation Law which provides that unless the act of the president is authorized by the board of directors, the same is not binding on it.

This Court is not persuaded.

The January 24, 1980 letter signed by petitioner’s president is valid and binding. The case of People’s Aircargo and Warehousing Co., Inc. v. Court of Appeals19 instructs:

The general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. A corporation is a juridical person, separate and distinct from its stockholders and members, "having x x x powers, attributes and properties expressly authorized by law or incident to its existence."

Being a juridical entity, a corporation may act through its board of directors, which exercises almost all corporate powers, lays down all corporate business policies and is responsible for the efficiency of management, as provided in Section 23 of the Corporation Code of the Philippines:

SEC. 23. The Board of Directors or Trustees. - Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees x x x.

Under this provision, the power and responsibility to decide whether the corporation should enter into a contract that will bind the corporation is lodged in the board, subject to the articles of incorporation, bylaws, or relevant provisions of law. However, just as a natural person may authorize another to do certain acts for and on his behalf, the board of directors may validly delegate some of its functions and powers to officers, committees or agents. The authority of such individuals to bind the corporation is generally derived from law, corporate bylaws or authorization from the board, either expressly or impliedly by habit, custom or acquiescence in the general course of business, viz:

A corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that [the] authority to do so has been conferred upon him, and this includes powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation has caused person dealing with the officer or agent to believe that it has conferred.

x x x

[A]pparent authority is derived not merely from practice. Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within or beyond the scope of his ordinary powers.

It requires presentation of evidence of similar act(s) executed either in its favor or infavor of other parties. It is not the quantity of similar acts which establishes apparent authority, but thevesting of a corporate officer with power to bind the corporation.

x x x (Emphasis and underscoring supplied)

As correctly argued by private respondent, an officer of a corporation who is authorized to purchase the stock of another corporation has the implied power to perform all other obligations arising therefrom, such as payment of the shares of stock. By allowing its president to sign the Agreement on its behalf, petitioner clothed him with apparent capacity to perform all acts which are expressly, impliedly and inherently stated therein.21

Petitioner further argues that when the Agreement was executed on September 1, 1978, its financial statements were extensively examined and accepted as correct by private respondent, hence, it cannot later be disproved "by resorting to some scheme such as future financial auditing;"22 and that it should not be bound by the SGV Report because it is self-serving and biased, SGV having been hired solely by private respondent, and the alleged shortfall of FARMACOR occurred only after the execution of the Agreement.

This Court is not persuaded either.

The pertinent provisions of the Agreement read:

7. Warranties and Representations - (a) SELLER warrants and represents as follows:

x x x

(iv) The audited financial statements of FARMACOR as at and for the year ended December 31, 1977 and theaudited financial statements of FARMACOR as at September 30, 1978 being prepared by SGV pursuant toparagraph 6(b) fairly present or will present the financial position of FARMACOR and the results of its operations as of said respective dates; said financial statements show or will show all liabilities and commitments of FARMACOR, direct or contingent, as of said respective dates; and the receivables set forth in said financial statements are fully due and collectible, free and clear of any set-offs, defenses, claims and other impediments to their collectibility.



http://www.lawphil.net/judjuris/juri1998/oct1998/gr_117847_1998.html

http://www.lawphil.net/judjuris/juri1998/oct1998/gr_117847_1998.html





(v) The Minimum Guaranteed Net Worth of FARMACOR as of September 30, 1978 shall be Twelve Million Pesos (P12,000,000.00), Philippine Currency.1âwphi1

x x x (Underscoring in the original; emphasis supplied)23

True, private respondent accepted as correct the financial statements submitted to it when the Agreement was executed on September 1, 1978. But petitioner expressly warranted that the SGV Reports "fairly present or will present the financial position of FARMACOR." By such warranty, petitioner is estopped from claiming that the SGV Reports are self-serving and biased.1âwphi1

As to the claim that the shortfall occurred after the execution of the Agreement, the declaration of Emmanuel de Asis, supervisor in the Accounting Division of SGV and head of the team which conducted the auditing of FARMACOR, that the period covered by the audit was from January to October 1978 shows that the periodbefore the Agreement was entered into (on September 1, 1978) was covered.24

As to petitioner’s assigned error on the award of attorney’s fees which, it argues, is bereft of factual, legal and equitable justification, this Court finds the same well-taken.

On the matter of attorney’s fees, it is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule, and counsel’s fees are not to be awarded every time a party wins a suit. Thepower of the court to award attorney’s fees under Article 2208 of the Civil Code demands factual, legaland equitable justification, without which the award is a conclusion without a premise, its basis being improperly left to speculation and conjecture. In all events, the court must explicitly state in the text of the decision, and not only in the decretal portion thereof, the legal reason for the award of attorney’s fees.25

x x x (Emphasis and underscoring supplied; citations omitted)

WHEREFORE, the instant petition is PARTLY GRANTED. The assailed decision of the Court of Appeals affirming that of the trial court is modified in that the award of attorney’s fees in favor of private respondent is deleted. The decision is affirmed in other respects.SO ORDERED.

G.R. No. 137686 February 8, 2000

RURAL BANK OF MILAOR (CAMARINES SUR), petitioner, vs. FRANCISCA OCFEMIA, ROWENA BARROGO, MARIFE O. NIÑO, FELICISIMO OCFEMIA, RENATO OCFEMIA JR, and WINSTON OCFEMIA, respondents.

PANGANIBAN, J.:

When a bank, by its acts and failure to act, has clearly clothed its manager with apparent authority to sell an acquired asset in the normal course of business, it is legally obliged to confirm the transaction by issuing a board resolution to enable the buyers to register the property in their names. It has a duty to perform necessary and lawful acts to enable the other parties to enjoy all benefits of the contract which it had authorized.

The Case

Before this Court is a Petition for Review on Certiorari challenging the December 18, 1998 Decision of the Court of Appeals 1 (CA) in CA-GR SP No. 46246, which affirmed the May 20, 1997 Decision 2 of the Regional Trial Court (RTC) of Naga City (Branch 28). The CA disposed as follows:

Wherefore, premises considered, the Judgment appealed from is hereby AFFIRMED. Costs against the respondent-appellant. 3

The dispositive portion of the judgment affirmed by the CA ruled in this wise:

WHEREFORE, in view of all the foregoing findings, decision is hereby rendered whereby the [petitioner] Rural Bank of Milaor (Camarines Sur), Inc. through its Board of Directors is hereby ordered to immediately issue a Board Resolution confirming the Deed of Sale it executed in favor of Renato Ocfemia marked Exhibits C, C-1 and C-2); to pay [respondents] the sum of FIVE HUNDRED (P500.00) PESOS as actual damages; TEN THOUSAND (P10,000.00) PESOS as attorney's fees; THIRTY THOUSAND (P30,000.00) PESOS as moral damages; THIRTY THOUSAND (P30,000.00) PESOS as exemplary damages; and to pay the costs. 4

Also assailed is the February 26, 1999 CA Resolution 5 which denied petitioner's Motion for Reconsideration.

The Facts

The trial court's summary of the undisputed facts was reproduced in the CA Decision as follows:

This is an action for mandamus with damages. On April 10, 1996, [herein petitioner] was declared in default on motion of the [respondents] for failure to file an answer within the reglementary-period after it was duly served with summons. On April 26, 1996, [herein petitioner] filed a motion to set aside the order of default with objection thereto filed by [herein respondents].

On June 17, 1996, an order was issued denying [petitioner's] motion to set aside the order of default. On July 10, 1996, the defendant filed a motion for reconsideration of the order of June 17, 1996 with objection thereto by [respondents]. On July 12, 1996, an order was issued denying [petitioner's] motion for reconsideration. On July 31, 1996, [respondents] filed a motion to set case for hearing. A copy thereof was duly furnished the [petitioner] but the latter did not file any opposition and so [respondents] were allowed to present their evidence ex-parte. A certiorari case was filed by the [petitioner] with the Court of Appeals docketed as CA GR No. 41497-SP but the petition was denied in a decision rendered on March 31, 1997 and the same is now final.

The evidence presented by the [respondents] through the testimony of Marife O. Niño, one of the [respondents] in this case, show[s] that she is the daughter of Francisca Ocfemia, a co-[respondent] in this case, and the late Renato Ocfemia who died on July 23, 1994. The parents of her father, Renato Ocfemia, were Juanita Arellano Ocfemia and Felicisimo Ocfemia. Her other co-[respondents] Rowena O. Barrogo, Felicisimo Ocfemia, Renato Ocfemia, Jr. and Winston Ocfemia are her brothers and sisters.1âwphi1.nêt

Marife O. Niño knows the five (5) parcels of land described in paragraph 6 of the petition which are located in Bombon, Camarines Sur and that they are the ones possessing them which [were] originally owned by her grandparents, Juanita Arellano Ocfemia and Felicisimo Ocfemia. During the lifetime of her grandparents, [respondents] mortgaged the said five (5) parcels of land and two (2) others to the [petitioner] Rural Bank of Milaor as shown by the Deed of Real Estate Mortgage (Exhs. A and A-1) and the Promissory Note (Exh. B).





The spouses Felicisimo Ocfemia and Juanita Arellano Ocfemia were not able to redeem the mortgaged properties consisting of seven (7) parcels of land and so the mortgage was foreclosed and thereafter ownership thereof was transferred to the [petitioner] bank. Out of the seven (7) parcels that were foreclosed, five (5) of them are in the possession of the [respondents] because these five (5) parcels of land described in paragraph 6 of the petition were sold by the [petitioner] bank to the parents of Marife O. Niño as evidenced by a Deed of Sale executed in January 1988 (Exhs. C, C-1 and C-2).

The aforementioned five (5) parcels of land subject of the deed of sale (Exh. C), have not been, however transferred in the name of the parents of Merife O. Niño after they were sold to her parents by the [petitioner] bank because according to the Assessor's Office the five (5) parcels of land, subject of the sale, cannot be transferred in the name of the buyers as there is a need to have the document of sale registered with the Register of Deeds of Camarines Sur.

In view of the foregoing, Marife O. Niño went to the Register of Deeds of Camarines Sur with the Deed of Sale (Exh. C) in order to have the same registered. The Register of Deeds, however, informed her that the document of sale cannot be registered without a board resolution of the [petitioner] Bank. Marife Niño then went to the bank, showed to if the Deed of Sale (Exh. C), the tax declaration and receipt of tax payments and requested the [petitioner] for a board resolution so that the property can be transferred to the name of Renato Ocfemia the husband of petitioner Francisca Ocfemia and the father of the other [respondents] having died already.

The [petitioner] bank refused her request for a board resolution and made many alibi[s]. She was told that the [petitioner] bank ha[d] a new manager and it had no record of the sale. She was asked and she complied with the request of the [petitioner] for a copy of the deed of sale and receipt of payment. The president of the [petitioner] bank told her to get an authority from her parents and other [respondents] and receipts evidencing payment of the consideration appearing in the deed of sale. She complied with said requirements and after she gave all these documents, Marife O. Niño was again told to wait for two (2) weeks because the [petitioner] bank would still study the matter.

After two (2) weeks, Marife O. Niño returned to the [petitioner] bank and she was told that the resolution of the board would not be released because the [petitioner] bank ha[d] no records from the old manager. Because of this, Marife O. Niño brought the matter to her lawyer and the latter wrote a letter on December 22, 1995 to the [petitioner] bank inquiring why no action was taken by the board of the request for the issuance of the resolution considering that the bank was already fully paid [for] the consideration of the sale since January 1988 as shown by the deed of sale itself (Exh. D and D-1 ).

On January 15, 1996 the [petitioner] bank answered [respondents'] lawyer's letter (Exh. D and D-1) informing the latter that the request for board resolution ha[d] already been referred to the board of directors of the [petitioner] bank with another request that the latter should be furnished with a certified machine copy of the receipt of payment covering the sale between the [respondents] and the [petitioner] (Exh. E). This request of the [petitioner] bank was already complied [with] by Marife O. Niño even before she brought the matter to her lawyer.

On January 23, 1996 [respondents'] lawyer wrote back the branch manager of the [petitioner] bank informing the latter that they were already furnished the receipts the bank was asking [for] and that the [respondents] want[ed] already to know the stand of the bank whether the board [would] issue the required board resolution as the deed of sale itself already show[ed] that the [respondents were] clearly entitled to the land subject of the sale (Exh. F). The manager of the [petitioner] bank received the letter which was served personally to him and the latter told Marife O. Niño that since he was the one himself who received the letter he would not sign anymore a copy showing him as having already received said letter (Exh. F).

After several days from receipt of the letter (Exh. F) when Marife O. Niño went to the [petitioner] again and reiterated her request, the manager of the [petitioner] bank told her that they could not issue the required board resolution as the [petitioner] bank ha[d] no records of the sale. Because of this Merife O. Niño already went to their lawyer and ha[d] this petition filed.

The [respondents] are interested in having the property described in paragraph 6 of the petition transferred to their names because their mother and

co-petitioner, Francisca Ocfemia, is very sickly and they want to mortgage the property for the medical expenses of Francisca Ocfemia. The illness of Francisca Ocfemia beg[a]n after her husband died and her suffering from arthritis and pulmonary disease already became serious before December 1995.

Marife O. Niño declared that her mother is now in serious condition and they could not have her hospitalized for treatment as they do not have any money and this is causing the family sleepless nights and mental anguish, thinking that their mother may die because they could not submit her for medication as they do not have money. 6

The trial court granted the Petition. As noted earlier, the CA affirmed the RTC Decision.

Hence, this recourse. 7 In a Resolution dated June 23, 1999, this Court issued a Temporary Restraining Order directing the trial court "to refrain and desist from executing [pending appeal] the decision dated May 20, 1997 in Civil Case No. RTC-96-3513, effective immediately until further orders from this Court." 8


The CA held that herein respondents were "able to prove their present cause of action" against petitioner. It ruled that the RTC had jurisdiction over the case, because (1) the Petition involved a matter incapable of pecuniary estimation; (2) mandamus fell within the jurisdiction of RTC; and (3) assuming that the action was for specific performance as argued by the petitioner, it was still cognizable by the said court.

Issues

In its Memorandum, 9 the bank posed the following questions:

1. Question of Jurisdiction of the Regional Trial Court. — Has a Regional Trial Court original jurisdiction over an action involving title to real property with a total assessed value of less than P20,000.00?

2. Question of Law. — May the board of directors of a rural banking corporation be compelled to confirm a deed of absolute sale of real property owned by the corporation which deed of sale was executed by the bank manager without prior authority of the board of directors of the rural banking corporation? 10


This Court's Ruling

The present Petition has no merit.

First Issue: Jurisdiction of the Regional Trial Court

Petitioner submits that the RTC had no jurisdiction over the case. Disputing the ruling of the appellate court that the present action was incapable of pecuniary estimation, petitioner argues that the matter in fact involved title to real property worth less than P20,000. Thus, under RA 7691, the case should have been filed before a metropolitan trial court, a municipal trial court or a municipal circuit trial court.

We disagree. The well-settled rule is that jurisdiction is determined by the allegations of the complaint. 11 In the present case, the Petition for Mandamus filed by respondents before the trial court prayed that petitioner-bank be compelled to issue a board resolution confirming the Deed of Sale covering five parcels of unregistered land, which the bank manager had executed in their favor. The RTC has jurisdiction over such action pursuant to Section 21 of BP 129, which provides:

Sec. 21. Original jurisdiction in other cases. — Regional Trial Courts shall exercise original jurisdiction;

(1) in the issuance of writ of certiorari, prohibition, mandamus, quo warranto, habeas corpus and injunction which may be enforced in any part of their respective regions; and

(2) In actions affecting ambassadors and other public ministers and consuls.

A perusal of the Petition shows that the respondents did not raise any question involving the title to the property, but merely asked that petitioner's board of directors be directed to issue the subject resolution. Moreover, the bank did not controvert the allegations in the said Petition. To repeat, the issue therein was not the title to the property; it was respondents' right to compel the bank to issue a board resolution confirming the Deed of Sale.

Second Issue: Authority of the Bank Manager

Respondents initiated the present proceedings, so that they could transfer to their names the subject five parcels of land; and subsequently, to mortgage said lots and to use the loan proceeds for the medical expenses of their ailing mother. For the property

to be transferred in their names, however, the register of deeds required the submission of a board resolution from the bank confirming both the Deed of Sale and the authority of the bank manager, Fe S. Tena, to enter into such transaction. Petitioner refused. After being given the runaround by the bank, respondents sued in exasperation.

Allegations in the Petition for Mandamus Deemed Admitted

Respondents based their action before the trial court on the Deed of Sale, the substance of which was alleged in and a copy thereof was attached to the Petition for Mandamus. The Deed named Fe S. Tena as the representative of the bank. Petitioner, however, failed to specifically deny under oath the allegations in that contract. In fact, it filed no answer at all, for which reason it was declared in default. Pertinent provisions of the Rules of Court read:

Sec. 7. Action or defense based on document. — Whenever an action or defense is based upon a written instrument or document, the substance of such instrument or document shall be set forth in the pleading, and the original or a copy thereof shall be attached to the pleading as an exhibit, which shall be deemed to be a part of the pleading, or said copy may with like effect be set forth in the pleading.

Sec. 8. How to contest genuineness of such documents.— When an action or defense is founded upon a written instrument, copied in or attached to the corresponding pleading as provided in the preceding section, the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them, and sets forth what he claims to be the facts; but this provision does not apply when the adverse party does not appear to be a party to the instrument or when compliance with an order for an inspection of the original instrument is refused. 12

In failing to file its answer specifically denying under oath the Deed of Sale, the bank admitted the due execution of the said contract. Such admission means that it acknowledged that Tena was authorized to sign the Deed of Sale on its behalf. 13 Thus, defenses that are inconsistent with the due execution and the genuineness of the written instrument are cut off by an admission implied from a failure to make a verified specific denial.

Other Acts of the Bank

In any event, the bank acknowledged, by its own acts or failure to act, the authority of Fe S. Tena to enter into binding contracts. After the execution of the Deed of Sale, respondents occupied the properties in dispute and paid the real estate taxes due thereon. If the bank management believed that it had title to the property, it should have taken some measures to prevent the infringement or invasion of its title thereto and possession thereof.

Likewise, Tena had previously transacted business on behalf of the bank, and the latter had acknowledged her authority. A bank is liable to innocent third persons where representation is made in the course of its normal business by an agent like Manager Tena, even though such agent is abusing her authority. 14 Clearly, persons dealing with her could not be blamed for believing that she was authorized to transact business for and on behalf of the bank. Thus, this Court has ruled in Board of Liquidators v. Kalaw: 15

Settled jurisprudence has it that where similar acts have been approved by the directors as a matter of general practice, custom, and policy, the general manager may bind the company without formal authorization of the board of directors. In varying language, existence of such authority is established, by proof of the course of business, the usages and practices of the company and by the knowledge which the board of directors has, or must be presumed to have, of acts and doings of its subordinates in and about the affairs of the corporation. So also,

. . . authority to act for and bind a corporation may be presumed from acts of recognition in other instances where the power was in fact exercised.

. . . Thus, when, in the usual course of business of a corporation, an officer has been allowed in his official capacity to manage its affairs, his authority to represent the corporation may be implied from the manner in which he has been permitted by the directors to manage its business.

Notwithstanding the putative authority of the manager to bind the bank in the Deed of Sale, petitioner has failed to file an answer to the Petition below within the reglementary period, let alone present evidence controverting such authority. Indeed, when one of herein respondents, Marife S. Nino, went to the bank to ask for the board resolution, she was merely told to bring the receipts. The bank failed to categorically declare that Tena had no authority. This Court stresses the following:


. . . Corporate transactions would speedily come to a standstill were every person dealing with a corporation held duty-bound to disbelieve every act of its responsible officers, no matter how regular they should appear on their face. This Court has observed in Ramirez vs. Orientalist Co., 38 Phil. 634, 654-655, that —

In passing upon the liability of a corporation in cases of this kind it is always well to keep in mind the situation as it presents itself to the third party with whom the contract is made. Naturally he can have little or no information as to what occurs in corporate meetings; and he must necessarily rely upon the external manifestation of corporate consent. The integrity of commercial transactions can only be maintained by holding the corporation strictly to the liability fixed upon it by its agents in accordance with law; and we would be sorry to announce a doctrine which would permit the property of man in the city of Paris to be whisked out of his hands and carried into a remote quarter of the earth without recourse against the corporation whose name and authority had been used in the manner disclosed in this case. As already observed, it is familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public as possessing power to do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through such agent, be estopped from denying his authority; and where it is said "if the corporation permits this means the same as "if the thing is permitted by the directing power of the corporation." 16

In this light, the bank is estopped from questioning the authority of the bank manager to enter into the contract of sale. If a corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, it holds the agent out to the public as possessing the power to do those acts; thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent's authority. 17

Unquestionably, petitioner has authorized Tena to enter into the Deed of Sale. Accordingly, it has a clear legal duty to issue the board resolution sought by respondent's. Having authorized her to sell the property, it behooves the bank to confirm the Deed of Sale so that the buyers may enjoy its full use.

The board resolution is, in fact, mere paper work. Nonetheless, it is paper work necessary in the orderly operations of the register of deeds and the full enjoyment of respondents' rights. Petitioner-bank persistently and unjustifiably refused to perform its legal duty. Worse, it was less than candid in dealing with respondents regarding this matter. In this light, the Court finds it proper to assess the bank treble costs, in addition to the award of damages.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision and Resolution AFFIRMED. The Temporary Restraining Order issued by this Court is hereby LIFTED. Treble costs against petitioner.SO ORDERED.

G.R. No. 182147 December 15, 2010

ARNEL U. TY, MARIE ANTONETTE TY, JASON ONG, WILLY DY, and ALVIN TY, Petitioners, vs. NBI SUPERVISING AGENT MARVIN E. DE JEMIL, PETRON GASUL DEALERS ASSOCIATION, and TOTALGAZ DEALERS ASSOCIATION, Respondents.

D E C I S I O NVELASCO, JR., J.:

The Case

In this Petition for Review on Certiorari under Rule 45, petitioners seek the reversal of the Decision1 dated September 28, 2007 of the Court of Appeals (CA) in CA-G.R. SP No. 98054, which reversed and set aside the Resolutions dated October 9, 20062 and December 14, 20063 of the Secretary of Justice, and reinstated the November 7, 2005 Joint Resolution4 of the Office of the Chief State Prosecutor. Petitioners assail also the CA Resolution5 dated March 14, 2008, denying their motion for reconsideration.

The Facts

Petitioners are stockholders of Omni Gas Corporation (Omni) as per Omni’s General Information Sheet6 (GIS) dated March 6, 2004 submitted to the Securities and Exchange Commission (SEC). Omni is in the business of trading and refilling of Liquefied

Petroleum Gas (LPG) cylinders and holds Pasig City Mayor’s Permit No. RET-04-001256 dated February 3, 2004.

The case all started when Joaquin Guevara Adarlo & Caoile Law Offices (JGAC Law Offices) sent a letter dated March 22, 20047 to the NBI requesting, on behalf of their clients Shellane Dealers Association, Inc., Petron Gasul Dealers Association, Inc., and Totalgaz Dealers Association, Inc., for the surveillance, investigation, and apprehension of persons or establishments in Pasig City that are engaged in alleged illegal trading of petroleum products and underfilling of branded LPG cylinders in violation of Batas Pambansa Blg. (BP) 33,8 as amended by Presidential Decree No. (PD) 1865.9

Earlier, the JGAC Law Offices was furnished by several petroleum producers/brand owners their respective certifications on the dealers/plants authorized to refill their respective branded LPG cylinders, to wit: (1) On October 3, 2003, Pilipinas Shell Petroleum Corporation (Pilipinas Shell) issued a certification10 of the list of entities duly authorized to refill Shellane LPG cylinders; (2) on December 4, 2003, Petron Corporation (Petron) issued a certification11 of their dealers in Luzon, Visayas, and Mindanao authorized to refill Petron Gasul LPG cylinders; and (3) on January 5, 2004, Total (Philippines) Corporation (Total) issued two certifications12 of the refilling stations and plants authorized to refill their Totalgaz and Superkalan Gaz LPG cylinders.

Agents De Jemil and Kawada attested to conducting surveillance of Omni in the months of March and April 2004 and doing a test-buy on April 15, 2004. They brought eight branded LPG cylinders of Shellane, Petron Gasul,Totalgaz, and Superkalan Gaz to Omni for refilling. The branded LPG cylinders were refilled, for which the National Bureau of Investigation (NBI) agents paid PhP 1,582 as evidenced by Sales Invoice No. 9004013 issued by Omni on April 15, 2004. The refilled LPG cylinders were without LPG valve seals and one of the cylinders was actually underfilled, as found by LPG Inspector Noel N. Navio of the Liquefied Petroleum Gas Industry Association (LPGIA) who inspected the eight branded LPG cylinders on April 23, 2004 which were properly marked by the NBI after the test-buy.

The NBI’s test-buy yielded positive results for violations of BP 33, Section 2(a) in relation to Secs. 3(c) and 4, i.e., refilling branded LPG cylinders without authority; and Sec. 2(c) in relation to Sec. 4, i.e., underdelivery or underfilling of LPG cylinders. Thus, on April 28, 2004, Agent De Jemil filed an Application for Search Warrant (With Request for Temporary Custody of the Seized Items)14 before the Regional Trial Court (RTC) in Pasig City, attaching, among others, his affidavit15 and the affidavit of Edgardo C. Kawada,16 an NBI confidential agent.

http://www.lawphil.net/judjuris/juri2010/dec2010/gr_182147_2010.html#fnt1

















On the same day of the filing of the application for search warrants on April 28, 2004, the RTC, Branch 167 in Pasig City issued Search Warrants No. 262417 and 2625.18 The NBI served the warrants the next day or on April 29, 2004 resulting in the seizure of several items from Omni’s premises duly itemized in the NBI’s Receipt/Inventory of Property/Item Seized.19 On May 25, 2004, Agent De Jemil filed his Consolidated Return of Search Warrants with Ex-Parte Motion to Retain Custody of the Seized Items20 before the RTC Pasig City.

Subsequently, Agent De Jemil filed before the Department of Justice (DOJ) his Complaint-Affidavits against petitioners for: (1) Violation of Section 2(a), in relation to Sections 3(c) and 4, of B.P. Blg. 33, as amended by P.D. 1865;21 and (2) Violation of Section 2(c), in relation to Section 4, of B.P. Blg. 33, as amended by P.D. 1865,22docketed as I.S. Nos. 2004-616 and 2004-618, respectively.

During the preliminary investigation, petitioners submitted their Joint Counter-Affidavit,23 which was replied24 to by Agent De Jemil with a corresponding rejoinder25 from petitioners.

The Ruling of the Office of the Chief State Prosecutor in I.S. No. 2004-616 and I.S. No. 2004-618

On November 7, 2005, the 3rd Assistant City Prosecutor Leandro C. Catalo of Manila issued a Joint Resolution,26later approved by the Chief State Prosecutor Jovencito R. Zuño upon the recommendation of the Head of the Task Force on Anti-Intellectual Property Piracy (TFAIPP), Assistant Chief State Prosecutor Leah C. Tanodra-Armamento, finding probable cause to charge petitioners with violations of pertinent sections of BP 33, as amended, resolving as follows:

WHEREFORE, premises considered, it is hereby recommended that two (2) Informations for violations of Section 2 [a] (illegal trading in petroleum and/or petroleum products) and Section 2 [c] (underfilling of LPG cylinders), both of Batas Pambansa Bilang 33, as amended, be filed against respondents [herein petitioners] ARNEL TY, MARIE ANTONETTE TY, JASON ONG, WILLY DY and ALVIN TY.27

Assistant City Prosecutor Catalo found the existence of probable cause based on the evidence submitted by Agent De Jemil establishing the fact that Omni is not an authorized refiller of Shellane, Petron Gasul, Totalgazand Superkalan Gaz LPG cylinders. Debunking petitioners’ contention that the branded LPG cylinders are already owned by consumers who are free to do with them as they please, the law is clear that the stamped markings on the LPG cylinders show who are the real owners thereof and they cannot be refilled sans authority from Pilipinas

Shell, Petron or Total, as the case may be. On the underfilling of one LPG cylinder, the findings of LPG Inspector Navio of the LPGIA were uncontroverted by petitioners.

Petitioners’ motion for reconsideration,28 was denied through a Resolution29 by the Office of the Chief State Prosecutor issued on May 3, 2006.

In time, petitioners appealed to the Office of the Secretary of Justice.30

The Ruling of the DOJ Secretary in I.S. No. 2004-616 and I.S. No. 2004-618

On October 9, 2006, the Office of the Secretary of Justice issued a Resolution31 reversing and setting aside the November 7, 2005 Joint Resolution of the Office of the Chief State Prosecutor, the dispositive portion of which reads:

WHEREFORE, the assailed resolution is hereby REVERSED and SET ASIDE. The Chief State Prosecutor is directed to cause the withdrawal of the informations for violations of Sections 2(a) and 2(c) of B.P. Blg. 33, as amended by P.D. 1865, against respondents Arnel Ty, Mari Antonette Ty, Jason Ong, Willy Dy and Alvin Ty and report the action taken within ten (10) days from receipt hereof.

SO ORDERED.32

The Office of the Secretary of Justice viewed, first, that the underfilling of one of the eight LPG cylinders was an isolated incident and cannot give rise to a conclusion of underfilling, as the phenomenon may have been caused by human error, oversight or technical error. Being an isolated case, it ruled that there was no showing of a clear pattern of deliberate underfilling. Second, on the alleged violation of refilling branded LPG cylinders sans written authority, it found no sufficient basis to hold petitioners responsible for violation of Sec. 2 (c) of BP 33, as amended, since there was no proof that the branded LPG cylinders seized from Omni belong to another company or firm, holding that the simple fact that the LPG cylinders with markings or stamps of other petroleum producers cannot by itself prove ownership by said firms or companies as the consumers who take them to Omni fully owned them having purchased or acquired them beforehand.

Agent De Jemil moved but was denied reconsideration33 through another Resolution34 dated December 14, 2006 prompting him to repair to the CA via a petition for certiorari35 under Rule 65 of the Rules of Court, docketed as CA-G.R. SP No. 98054.

The Ruling of the CA

The Office of the Solicitor General (OSG), in its Comment36 on Agent De Jemil’s appeal, sought the dismissal of the latter’s petition viewing that the determination by the Office of the Secretary of Justice of probable cause is entitled to respect owing to the exercise of his prerogative to prosecute or not.

On August 31, 2007, Petron filed a Motion to Intervene and to Admit Attached Petition-in-Intervention37 and Petition-in-Intervention38 before the CA in CA-G.R. SP No. 98054. And much earlier, the Nationwide Association of Consumers, Inc. (NACI) also filed a similar motion.

On September 28, 2007, the appellate court rendered the assailed Decision39 revoking the resolutions of the Office of the Secretary of Justice and reinstated the November 7, 2005 Joint Resolution of the Office of the Chief State Prosecutor. The fallo reads:

WHEREFORE, the instant petition is GRANTED. The assailed resolutions dated October 9, 2006 and December 14, 2006 are hereby REVERSED and SET ASIDE. The Joint Resolution dated November 7, 2005 of the Office of the Chief State Prosecutor finding probable cause against private respondents Arnel Ty, Marie Antonette Ty, Jason Ong, Willy Dy, and Alvin Ty is hereby REINSTATED.

SO ORDERED.40

Citing Sec. 1 (1) and (3) of BP 33, as amended, which provide for the presumption of underfilling, the CA held that the actual underfilling of an LPG cylinder falls under the prohibition of the law which does not require for the underfilling to be substantial and deliberate.

Moreover, the CA found strong probable violation of "refilling of another company’s or firm’s cylinders without such company’s or firm’s written authorization" under Sec. 3 (c) of BP 33, as amended. The CA relied on the affidavits of Agents De Jemil and Kawada, the certifications from various LPG producers that Omni is not authorized to refill their branded LPG cylinders, the results of the test-buy operation as attested to by the NBI agents and confirmed by the examination of LPG Inspector Navio of the LPGIA, the letter-opinion41 of the Department of Energy (DOE) to Pilipinas Shell confirming that branded LPG cylinders are properties of the companies whose stamp markings appear thereon, and Department Circular No. 2000-05-00742 of the DOE on the required stamps or markings by the manufacturers of LPG cylinders.

After granting the appeal of Agent De Jemil, however, the motions to intervene filed by Petron and NACI were simply noted by the appellate court.




























Petitioners’ motion for reconsideration was rebuffed by the CA through the equally assailed March 14, 2008 Resolution.43

Thus, the instant petition.

The Issues

I. WHETHER OR NOT RESPONDENTS WERE ENTITLED TO THE SPECIAL CIVIL ACTION OF CERTIORARI IN THE COURT OF APPEALS.

II. WHETHER OR NOT UNDER THE CIRCUMSTANCES THERE WAS PROBABLE CAUSE TO BELIEVE THAT PETITIONERS VIOLATED SECTION 2(A) OF BATAS PAMBANSA BLG. 33, AS AMENDED.

III. WHETHER OR NOT UNDER THE CIRCUMSTANCES THERE WAS PROBABLE CAUSE TO BELIEVE THAT PETITIONERS VIOLATED SECTION 2(C) OF BATAS PAMBANSA BLG. 33, AS AMENDED.

IV. WHETHER OR NOT PETITIONERS CAN BE HELD LIABLE UNDER BATAS PAMBANSA BLG. 33, AS AMENDED, FOR BEING MERE DIRECTORS, NOT ACTUALLY IN CHARGE OF THE MANAGEMENT OF THE BUSINESS AFFAIRS OF THE CORPORATION.44

The foregoing issues can be summarized into two core issues: first, whether probable cause exists against petitioners for violations of Sec. 2 (a) and (c) of BP 33, as amended; and second, whether petitioners can be held liable therefor. We, however, will tackle at the outset the sole procedural issue raised: the propriety of the petition for certiorari under Rule 65 availed of by public respondent Agent De Jemil to assail the resolutions of the Office of the Secretary of Justice.

Petron’s Comment-in-Intervention

On April 14, 2009, Petron entered its appearance by filing a Motion for Leave to Intervene and to Admit Comment-in-Intervention45 and its Comment-in-Intervention [To petition for Review on Certiorari dated 13 May 2008].46 It asserted vested interest in the seizure of several Gasul LPG cylinders and the right to prosecute petitioners for unauthorized refilling of its branded LPG cylinders by Omni. Petitioners duly filed their Comment/Opposition47 to Petron’s motion to intervene. It is clear, however, that Petron has substantial interest to protect in so far as its business relative to the sale and refilling of Petron Gasul LPG cylinders is concerned, and therefore its intervention in the instant case is proper.


We partially grant the petition.

Procedural Issue: Petition for Certiorari under Rule 65 Proper

Petitioners raise the sole procedural issue of the propriety of the legal remedy availed of by public respondent Agent De Jemil. They strongly maintain that the Office of the Secretary of Justice properly assumed jurisdiction and did not gravely abuse its discretion in its determination of lack of probable cause—the exercise thereof being its sole prerogative—which, they lament, the appellate court did not accord proper latitude. Besides, they assail the non-exhaustion of administrative remedies when Agent De Jemil immediately resorted to court action through a special civil action for certiorari under Rule 65 before the CA without first appealing the resolutions of the Office of the Secretary of Justice to the Office of the President (OP).

We cannot agree with petitioners.

For one, while it is the consistent principle in this jurisdiction that the determination of probable cause is a function that belongs to the public prosecutor48 and, ultimately, to the Secretary of Justice, who may direct the filing of the corresponding information or move for the dismissal of the case;49 such determination is subject to judicial review where it is established that grave abuse of discretion tainted the determination.

For another, there is no question that the Secretary of Justice is an alter ego of the President who may opt to exercise or not to exercise his or her power of review over the former’s determination in criminal investigation cases. As aptly noted by Agent De Jemil, the determination of probable cause by the Secretary of Justice is, under the doctrine of qualified political agency, presumably that of the Chief Executive unless disapproved or reprobated by the latter.

Chan v. Secretary of Justice50 delineated the proper remedy from the determination of the Secretary of Justice. Therein, the Court, after expounding on the policy of non-interference in the determination of the existence of probable cause absent any showing of arbitrariness on the part of the public prosecutor and the Secretary of Justice, however, concluded, citing Alcaraz v. Gonzalez51 and Preferred Home Specialties, Inc. v. Court of Appeals,52 that an aggrieved party from the resolution of the Secretary of Justice may directly resort to judicial review on the ground of grave abuse of discretion, thus:

x x x [T]he findings of the Justice Secretary may be reviewed through a petition for certiorari under Rule 65 based on the

allegation that he acted with grave abuse of discretion. This remedy is available to the aggrieved party.53 (Emphasis supplied.)

It is thus clear that Agent De Jemil, the aggrieved party in the assailed resolutions of the Office of the Secretary of Justice, availed of and pursued the proper legal remedy of a judicial review through a petition for certiorari under Rule 65 in assailing the latter’s finding of lack of probable cause on the ground of grave abuse of discretion.

First Core Issue: Existence of Probable Cause

Petitioners contend that there is no probable cause that Omni violated Sec. 2 (a), in relation to Secs. 3 (c) and 4 of BP 33, as amended, prohibiting the refilling of another company’s or firm’s LPG cylinders without its written authorization. First, the branded LPG cylinders seized were not traded by Omni as its representative annotated in the NBI receipt of seized items that the filled LPG cylinders came from customers’ trucks and the empty ones were taken from the warehouse or swapping section of the refilling plant and not from the refilling section. Second, the branded LPG cylinders are owned by end-user customers and not by the major petroleum companies, i.e., Petron, Pilipinas Shell and Total. And even granting arguendo that Omni is selling these LPG cylinders, still there cannot be a prima facie case of violation since there is no proof that the refilled branded LPG cylinders are owned by another company or firm.

Third, granting that Petron, Total and Pilipinas Shell still own their respective branded LPG cylinders already sold to consumers, still such fact will not bind third persons, like Omni, who is not privy to the agreement between the buying consumers and said major petroleum companies. Thus, a subsequent transfer by the customers of Petron, Total and Pilipinas Shell of the duly marked or stamped LPG cylinders through swapping, for example, will effectively transfer ownership of the LPG cylinders to the transferee, like Omni.

Fourth, LPG cylinder exchange or swapping is a common industry practice that the DOE recognizes. They point to a series of meetings conducted by the DOE for institutionalizing the validity of swapping of all and any kind of LPG cylinders among the industry players. The meetings resulted in a draft Memorandum of Agreement (MOA) which unfortunately was not signed due to the withdrawal of petroleum major players Petron, Total and Pilipinas Shell. Nonetheless, the non-signing of the MOA does not diminish the fact of the recognized industry practice of cylinder exchange or swapping. Relying on Republic Act No. (RA) 8479,54 petitioners maintain that said law promotes and encourages the entry of new participants in the petroleum industry such as Omni. And in furtherance of this mandate is the














valid practice of cylinder exchange or swapping in the LPG industry.

We are not persuaded by petitioners’ strained rationalizations.

Probable violation of Sec. 2 (a) of BP 33, amended

First. The test-buy conducted on April 15, 2004 by the NBI agents, as attested to by their respective affidavits, tends to show that Omni illegally refilled the eight branded LPG cylinders for PhP 1,582. This is a clear violation of Sec. 2 (a), in relation to Secs. 3 (c) and 4 of BP 33, as amended. It must be noted that the criminal complaints, as clearly shown in the complaint-affidavits of Agent De Jemil, are not based solely on the seized items pursuant to the search warrants but also on the test-buy earlier conducted by the NBI agents.

Second. The written certifications from Pilipinas Shell, Petron and Total show that Omni has no written authority to refill LPG cylinders, embossed, marked or stamped Shellane, Petron Gasul, Totalgaz and Superkalan Gaz. In fact, petitioners neither dispute this nor claim that Omni has authority to refill these branded LPG cylinders.

Third. Belying petitioners’ contention, the seized items during the service of the search warrants tend to show that Omni illegally refilled branded LPG cylinders without authority.

On April 29, 2004, the NBI agents who served the search warrants on Omni seized the following:

Quantity/Unit Description

7 LPG cylinders Totalgaz, 11.0 kg

[filled]

1 LPG cylinder Petron Gasul, 11.0 kg

[filled]

1 LPG cylinder Shellane, 11.0 kg

[filled]

29 LPG cylinders Superkalan Gaz, 2.7 kg

[empty]

17 LPG cylinders Petron Gasul, 11.0 kg

[emptly]

8 LPG cylinders Marked

as Omnigas with Shell emboss, 11.0

kg [empty]


as Omnigas with Totalgaz emboss,

11.0 kg [empty]

23 LPG cylinders Shellane, 11.0 kg

[empty]


as Omnigas with Gasul emboss,

11.0 kg [empty]

21 LPG cylindersTotalgaz, 11.0 kg

[empty]

The foregoing list is embodied in the NBI’s Receipt/Inventory of Property/Item Seized55 signed by NBI Agent Edwin J. Roble who served and implemented the search warrants. And a copy thereof was duly received by Atty. Allan U. Ty, representative of Omni, who signed the same "under protest" and made the annotation at the bottom part thereon: "The above items/cylinders were taken at customers’ trucks and the empty cylinders taken at the warehouse (swapping section) of the company."56

Even considering that the filled LPG cylinders were indeed already loaded on customers’ trucks when confiscated, yet the fact that these refilled LPG cylinders consisting of nine branded LPG cylinders, specifically Totalgaz,Petron Gasul and Shellane, tends to show that Omni indeed refilled these branded LPG cylinders without authorization from Total, Petron and Pilipinas Shell. Such a fact is bolstered by the test-buy conducted by Agent De Jemil and NBI confidential agent Kawada: Omni’s unauthorized refilling of branded LPG cylinders, contrary to Sec. 2 (a) in relation to Sec. 3 (c) of BP 33, as amended. Said provisos provide:

Sec. 2. Prohibited Acts.—The following acts are prohibited and penalized:

(a) Illegal trading in petroleum and/or petroleum products;

x x x x

Sec. 3. Definition of terms.—For the purpose of this Act, the following terms shall be construed to mean:

Illegal trading in petroleum and/or petroleum products—

x x x x

(c) Refilling of liquefied petroleum gas cylinders without authority from said Bureau, or refilling of another company’s or firm’s cylinders without such company’s or firm’s written authorization; (Emphasis supplied.)

As petitioners strongly argue, even if the branded LPG cylinders were indeed owned by customers, such fact does not authorize Omni to refill these branded LPG cylinders without written authorization from the brand owners Pilipinas Shell, Petron and Total. In Yao, Sr. v. People,57 a case involving criminal infringement of property rights under Sec. 155 of RA 8293,58 in affirming the courts a quo’s determination of the presence of probable cause, this Court held that from Sec. 155.159 of RA 8293 can be gleaned that "mere unauthorized use of a container bearing a registered trademark in connection with the sale, distribution or advertising of goods or services which is likely to cause confusion, mistake or deception among the buyers/consumers can be considered as trademark infringement."60 The Court affirmed the presence of infringement involving the unauthorized sale of Gasul andShellane LPG cylinders and the unauthorized refilling of the same by Masagana Gas Corporation as duly attested to and witnessed by NBI agents who conducted the surveillance and test-buys.

Similarly, in the instant case, the fact that Omni refilled various branded LPG cylinders even if owned by its customers but without authority from brand owners Petron, Pilipinas Shell and Total shows palpable violation of BP 33, as amended. As aptly noted by the Court in Yao, Sr. v. People, only the duly authorized dealers and refillers of Shellane, Petron Gasul and, by extension, Total may refill these branded LPG cylinders. Our laws sought to deter the pernicious practices of unscrupulous businessmen.

Fourth. The issue of ownership of the seized branded LPG cylinders is irrelevant and hence need no belaboring. BP 33, as amended, does not require ownership of the branded LPG cylinders as a condition sine qua non for the commission of offenses involving petroleum and petroleum products. Verily, the offense of refilling a branded LPG cylinder without the written consent of the brand owner constitutes the offense regardless of the buyer or possessor of the branded LPG cylinder.








After all, once a consumer buys a branded LPG cylinder from the brand owner or its authorized dealer, said consumer is practically free to do what he pleases with the branded LPG cylinder. He can simply store the cylinder once it is empty or he can even destroy it since he has paid a deposit for it which answers for the loss or cost of the empty branded LPG cylinder. Given such fact, what the law manifestly prohibits is the refilling of a branded LPG cylinder by a refiller who has no written authority from the brand owner. Apropos, a refiller cannot and ought not to refill branded LPG cylinders if it has no written authority from the brand owner.1avvphi1

Besides, persuasive are the opinions and pronouncements by the DOE: brand owners are deemed owners of their duly embossed, stamped and marked LPG cylinders even if these are possessed by customers or consumers. The Court recognizes this right pursuant to our laws, i.e., Intellectual Property Code of the Philippines. Thus the issuance by the DOE Circular No. 2000-05-007,61 the letter-opinion62 dated December 9, 2004 of then DOE Secretary Vincent S. Perez addressed to Pilipinas Shell, the June 6, 2007 letter63 of then DOE Secretary Raphael P.M. Lotilla to the LPGIA, and DOE Department Circular No. 2007-10-000764 on LPG Cylinder Ownership and Obligations Related Thereto issued on October 13, 2007 by DOE Secretary Angelo T. Reyes.

Fifth. The ownership of the seized branded LPG cylinders, allegedly owned by Omni customers as petitioners adamantly profess, is of no consequence.

The law does not require that the property to be seized should be owned by the person against whom the search warrants is directed. Ownership, therefore, is of no consequence, and it is sufficient that the person against whom the warrant is directed has control or possession of the property sought to be seized.65 Petitioners cannot deny that the seized LPG cylinders were in the possession of Omni, found as they were inside the Omni compound.

In fine, we also note that among those seized by the NBI are 16 LPG cylinders bearing the embossed brand names of Shellane, Gasul and Totalgaz but were marked as Omnigas. Evidently, this pernicious practice of tampering or changing the appearance of a branded LPG cylinder to look like another brand violates the brand owners’ property rights as infringement under Sec. 155.1 of RA 8293. Moreover, tampering of LPG cylinders is a mode of perpetrating the criminal offenses under BP 33, as amended, and clearly enunciated under DOE Circular No. 2000-06-010 which provided penalties on a per cylinder basis for each violation.

Foregoing considered, in the backdrop of the quantum of evidence required to support a finding of probable cause, we

agree with the appellate court and the Office of the Chief State Prosecutor, which conducted the preliminary investigation, that there exists probable cause for the violation of Sec. 2 (a) in relation to Sec. 3 (c) of BP 33, as amended. Probable cause has been defined as the existence of such facts and circumstances as would excite belief in a reasonable mind, acting on the facts within the knowledge of the prosecutor, that the person charged was guilty of the crime for which he was prosecuted.66 After all, probable cause need not be based on clear and convincing evidence of guilt, as the investigating officer acts upon reasonable belief—probable cause implies probability of guilt and requires more than bare suspicion but less than evidence which would justify a conviction.67

Probable violation of Sec. 2 (c) of BP 33, as amended

Anent the alleged violation of Sec. 2 (c) in relation to Sec. 4 of BP 33, as amended, petitioners strongly argue that there is no probable cause for said violation based upon an underfilling of a lone cylinder of the eight branded LPG cylinders refilled during the test-buy. Besides, they point out that there was no finding of underfilling in any of the filled LPG cylinders seized during the service of the search warrants. Citing DOE’s Bureau of Energy Utilization Circular No. 85-3-348, they maintain that some deviation is allowed from the exact filled weight. Considering the fact that an isolated underfilling happened in so many LPG cylinders filled, petitioners are of the view that such is due to human or equipment error and does not in any way constitute deliberate underfilling within the contemplation of the law.

Moreover, petitioners cast aspersion on the report and findings of LPG Inspector Navio of the LPGIA by assailing his independence for being a representative of the major petroleum companies and that the inspection he conducted was made without the presence of any DOE representative or any independent body having technical expertise in determining LPG cylinder underfilling beyond the authorized quantity.

Again, we are not persuaded.

Contrary to petitioners’ arguments, a single underfilling constitutes an offense under BP 33, as amended by PD 1865, which clearly criminalizes these offenses. In Perez v. LPG Refillers Association of the Philippines, Inc.,68 the Court affirmed the validity of DOE Circular No. 2000-06-010 which provided penalties on a per cylinder basis for each violation, thus:

B.P. Blg. 33, as amended, criminalizes illegal trading, adulteration, underfilling, hoarding, and overpricing of petroleum products. Under this general description of what constitutes criminal acts involving petroleum products, the Circular merely

lists the various modes by which the said criminal acts may be perpetrated, namely: no price display board, no weighing scale, no tare weight or incorrect tare weight markings, no authorized LPG seal, no trade name, unbranded LPG cylinders, no serial number, no distinguishing color, no embossed identifying markings on cylinder, underfilling LPG cylinders, tampering LPG cylinders, and unauthorized decanting of LPG cylinders. These specific acts and omissions are obviously within the contemplation of the law, which seeks to curb the pernicious practices of some petroleum merchants.69 (Emphasis supplied.)

Moreover, in denying the motion for reconsideration of the LPG Refillers Association of the Philippines, Inc., the Court upheld the basis of said DOE Circular No. 2000-06-010 on the imposition of penalties on a per cylinder basis, thus:

Respondent’s position is untenable. The Circular is not confiscatory in providing penalties on a per cylinder basis. Those penalties do not exceed the ceiling prescribed in Section 4 of B.P. Blg. 33, as amended, which penalizes "any person who commits any act [t]herein prohibited." Thus, violation on a per cylinder basis falls within the phrase "any act" as mandated in Section 4. To provide the same penalty for one who violates a prohibited act in B.P. Blg. 33, as amended, regardless of the number of cylinders involved would result in an indiscriminate, oppressive and impractical operation of B.P. Blg. 33, as amended. The equal protection clause demands that "all persons subject to such legislation shall be treated alike, under like circumstances and conditions, both in the privileges conferred and in the liabilities imposed."70

The Court made it clear that a violation, like underfilling, on a per cylinder basis falls within the phrase of any actas mandated under Sec. 4 of BP 33, as amended. Ineluctably, the underfilling of one LPG cylinder constitutes a clear violation of BP 33, as amended. The finding of underfilling by LPG Inspector Navio of the LPGIA, as aptly noted by Manila Assistant City Prosecutor Catalo who conducted the preliminary investigation, was indeed not controverted by petitioners.

On the issue of manifest bias and partiality, suffice it to say that aside from the allegation by petitioners, they have not shown that LPG Inspector Navio is neither an expert nor qualified to determine underfilling. Besides, it must be noted that the inspection by LPG Inspector Navio was conducted in the presence of NBI agents on April 23, 2004 who attested to that fact through their affidavits. Moreover, no rules require and petitioners have not cited any that the inspection be conducted in the presence of DOE representatives.

Second Core Issue: Petitioners’ Liability for Violations












Sec. 4 of BP 33, as amended, provides for the penalties and persons who are criminally liable, thus:

Sec. 4. Penalties. — Any person who commits any act herein prohibited shall, upon conviction, be punished with a fine of not less than twenty thousand pesos (P20,000) but not more than fifty thousand pesos (P50,000), or imprisonment of at least two (2) years but not more than five (5) years, or both, in the discretion of the court. In cases of second and subsequent conviction under this Act, the penalty shall be both fine and imprisonment as provided herein. Furthermore, the petroleum and/or petroleum products, subject matter of the illegal trading, adulteration, shortselling, hoarding, overpricing or misuse, shall be forfeited in favor of the Government: Provided, That if the petroleum and/or petroleum products have already been delivered and paid for, the offended party shall be indemnified twice the amount paid, and if the seller who has not yet delivered has been fully paid, the price received shall be returned to the buyer with an additional amount equivalent to such price; and in addition, if the offender is an oil company, marketer, distributor, refiller, dealer, sub-dealer and other retail outlets, or hauler, the cancellation of his license.

Trials of cases arising from this Act shall be terminated within thirty (30) days after arraignment.

When the offender is a corporation, partnership, or other juridical person, the president, the general manager, managing partner, or such other officer charged with the management of the business affairs thereof, or employee responsible for the violation shall be criminally liable; in case the offender is an alien, he shall be subject to deportation after serving the sentence.

If the offender is a government official or employee, he shall be perpetually disqualified from office. (Emphasis supplied.)

Relying on the third paragraph of the above statutory proviso, petitioners argue that they cannot be held liable for any perceived violations of BP 33, as amended, since they are mere directors of Omni who are not in charge of the management of its business affairs. Reasoning that criminal liability is personal, liability attaches to a person from his personal act or omission but not from the criminal act or negligence of another. Since Sec. 4 of BP 33, as amended, clearly provides and enumerates who are criminally liable, which do not include members of the board of directors of a corporation, petitioners, as mere members of the board of directors who are not in charge of Omni’s business affairs, maintain that they cannot be held liable for any perceived violations of BP 33, as amended. To bolster their position, they attest to being full-time employees of various firms as shown by the Certificates of Employment71 they submitted tending to show that they are neither involved in the day-to-day business of Omni

nor managing it. Consequently, they posit that even if BP 33, as amended, had been violated by Omni they cannot be held criminally liable thereof not being in any way connected with the commission of the alleged violations, and, consequently, the criminal complaints filed against them based solely on their being members of the board of directors as per the GIS submitted by Omni to SEC are grossly discriminatory.

On this point, we agree with petitioners except as to petitioner Arnel U. Ty who is indisputably the President of Omni.

It may be noted that Sec. 4 above enumerates the persons who may be held liable for violations of the law, viz: (1) the president, (2) general manager, (3) managing partner, (4) such other officer charged with the management of the business affairs of the corporation or juridical entity, or (5) the employee responsible for such violation. A common thread of the first four enumerated officers is the fact that they manage the business affairs of the corporation or juridical entity. In short, they are operating officers of a business concern, while the last in the list is self-explanatory.

It is undisputed that petitioners are members of the board of directors of Omni at the time pertinent. There can be no quibble that the enumeration of persons who may be held liable for corporate violators of BP 33, as amended, excludes the members of the board of directors. This stands to reason for the board of directors of a corporation is generally a policy making body. Even if the corporate powers of a corporation are reposed in the board of directors under the first paragraph of Sec. 2372 of the Corporation Code, it is of common knowledge and practice that the board of directors is not directly engaged or charged with the running of the recurring business affairs of the corporation. Depending on the powers granted to them by the Articles of Incorporation, the members of the board generally do not concern themselves with the day-to-day affairs of the corporation, except those corporate officers who are charged with running the business of the corporation and are concomitantly members of the board, like the President. Section 2573 of the Corporation Code requires the president of a corporation to be also a member of the board of directors.

Thus, the application of the legal maxim expressio unius est exclusio alterius, which means the mention of one thing implies the exclusion of another thing not mentioned. If a statute enumerates the thing upon which it is to operate, everything else must necessarily and by implication be excluded from its operation and effect.74 The fourth officer in the enumerated list is the catch-all "such other officer charged with the management of the business affairs" of the corporation or juridical entity which is a factual issue which must be alleged and supported by evidence.

A scrutiny of the GIS reveals that among the petitioners who are members of the board of directors are the following who are likewise elected as corporate officers of Omni: (1) Petitioner Arnel U. Ty (Arnel) as President; (2) petitioner Mari Antonette Ty as Treasurer; and (3) petitioner Jason Ong as Corporate Secretary. Sec. 4 of BP 33, as amended, clearly indicated firstly the president of a corporation or juridical entity to be criminally liable for violations of BP 33, as amended.

Evidently, petitioner Arnel, as President, who manages the business affairs of Omni, can be held liable for probable violations by Omni of BP 33, as amended. The fact that petitioner Arnel is ostensibly the operations manager of Multi-Gas Corporation, a family owned business, does not deter him from managing Omni as well. It is well-settled that where the language of the law is clear and unequivocal, it must be taken to mean exactly what it says.75 As to the other petitioners, unless otherwise shown that they are situated under the catch-all "such other officer charged with the management of the business affairs," they may not be held liable under BP 33, as amended, for probable violations. Consequently, with the exception of petitioner Arnel, the charges against other petitioners must perforce be dismissed or dropped.

WHEREFORE, premises considered, we PARTIALLY GRANT the instant petition. Accordingly, the assailed September 28, 2007 Decision and March 14, 2008 Resolution of the Court of Appeals in CA-G.R. SP No. 98054 are AFFIRMED with MODIFICATION that petitioners Mari Antonette Ty, Jason Ong, Willy Dy and Alvin Ty are excluded from the two Informations charging probable violations of Batas Pambansa Bilang 33, as amended. The Joint Resolution dated November 7, 2005 of the Office of the Chief State Prosecutor is modified accordingly.

No pronouncement as to costs.SO ORDERED.







G.R. No. 192416 March 23, 2011

GRANDTEQ INDUSTRIAL STEEL PRODUCTS, INC., ABELARDO GONZALES,1 RONALD A. DE LEON,2 NOEL AGUIRRE, FELIX ARPIA, and NICK EUGENIO, Petitioners, vs. ANNALIZA M. ESTRELLA, Respondent.

D E C I S I O NNACHURA, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court assails the Decision3 and the Resolution4of the Court of Appeals (CA), respectively dated November 26, 2009 and May 17, 2010.

The Facts

Petitioner Grandteq Industrial Steel Products, Inc. (Grandteq), a domestic corporation engaged in the sale and distribution of welding electrodes, alloy steels, aluminum and copper alloys,5 hired respondent Annaliza Estrella (Estrella) on November 15, 2001, as a sales engineer.6

Abelardo M. Gonzales (Gonzales), Ronald A. de Leon (De Leon), Noel Aguirre (Aguirre), Felix Arpia (Arpia), and Nick Eugenio (Eugenio) are officers of Grandteq.7

Sometime in January 2004, Grandteq and Estrella entered into a Purchase/Assignment of Car Agreement,8whereby the former undertook to purchase a car for Estrella, who would in turn refund the purchase price to Grandteq in 100 monthly installments. The agreement likewise stated that the "company shall retain the ownership of the car until the car loan is fully paid." To complement the terms of the agreement, Estrella executed a Promissory Note.9

When Estrella defaulted in her payments, Grandteq instructed her on September 15, 2004 to leave the car in the office premises.10 Estrella failed to abide by the company’s directive;11 hence, on September 18, 2004, Grandteq sent her another memorandum requiring her to explain her "insubordination."12

In her reply to the memorandum, Estrella asserted that she had already paid the P50,000.00 downpayment for the vehicle, and that Grandteq had no valid cause to demand its surrender.13

Estrella also had claims against the company. On September 17, 2004, she filed a complaint for recovery of sales commissions, allowances, and other benefits before the Labor Arbiter

(LA).14 The complaint alleged that Grandteq refused to release her sales commissions and incentives.15 She submitted a computation of such claims to the LA on October 21, 2004.16

Meanwhile, on September 20, 2004, Estrella filed an application for leave of absence, and subsequently, submitted a medical certificate recommending that she rest for three (3) weeks. Grandteq denied her application; nonetheless, she went on leave of absence effective September 22, 2004 until October 14, 2004.17

On October 1, 2004, Estrella tried to withdraw her salary for the period September 15 to 30, 2004 from an Automated Teller Machine. To her dismay, she discovered that her salary was not remitted by Grandteq.18 Thus, on October 4, 2004, she amended her complaint to include nonpayment of salary. She likewise imputed illegal deduction of expanded withholding tax against Grandteq’s officers.19

On October 15, 2004, Estrella went to the office of Grandteq to report for work, but the security guard refused her entry, allegedly upon the behest of Grandteq’s vice-president, De Leon.20 Aggrieved, respondent again amended her complaint to include illegal dismissal as one of her causes of action. She also demanded for the payment of moral damages and attorney’s fees.21

Traversing the complaint, Grandteq averred that Estrella was validly dismissed because she abandoned her job when she did not report for work for three weeks despite the disapproval of her leave application; that she committed insubordination when she failed to obey an official order directing her to return a company vehicle; that she violated the confidence and trust reposed in her by the company when she negotiated in her personal capacity with a client, Philex Mining Corporation, at the time when she was allegedly sick; and that she failed to attend the administrative hearing initiated by the company on October 29, 2004; thus, Grandteq deemed her to have waived her right to be heard. Estrella was furnished with a Notice of Termination22 on November 12, 2004, indicating that she was being dismissed for gross and habitual neglect of duty and fraud or willful breach of trust. Grandteq denied any outstanding sales commissions or incentives due Estrella.23

The LA24 ruled in favor of Estrella and held that Grandteq had no justifiable cause to terminate her employment. Abandonment could not be inferred from her absence sans any overt act showing that she did not want to work anymore. Besides, she went on sick leave with a prior notice to Grandteq. The immediate filing of a complaint for illegal dismissal also negated a finding of abandonment.

Lastly, the LA decreed that the notice of termination served to Estrella on November 12, 2004 was evidently a mere afterthought to cast a

semblance of validity to her termination. As shown in the notice, as early as September 22, 2004, Grandteq already decided to terminate her services even before she could present her side and refute the charges against her.

Estrella’s money claims were granted, but no specific computation was made as to her claim for sales commissions and incentives. The decretal portion of the LA’s decision25 reads:

WHEREFORE, the foregoing considered, judgment is hereby rendered declaring [respondent] Annaliza M. Estrella to have been illegally dismissed. [Petitioners] are ordered to reinstate [respondent] to her former position without loss of seniority rights and other benefits and to her full backwages from the time her compensation was withheld up to the time of her actual reinstatement. Likewise[, petitioner] Grandteq Industrial Steel Products[,] Inc. is ordered to pay the monetary awards pursuant to the computation of the Computation Unit of this Commission forming part of the records of this case, as follows:

Basic Wage P 6,000.00

Allowance 5,000.00

P11,000.00

Backwages: 9/22/04 – 8/30/06

P11,000 x 23.30 mos. 256,300.00

13th Month Pay

½ of P256,300 21,358.33

SILP: P11,000/26 x 5/12 x 23.30.mos. 4,107.37

281,765.71

Moral Damages 10,000.00 10,000.00

Exemplary Damages 10,000.00 20,000.00

301,765.71



























Atty.’s Fees 28,176.57

TOTAL P329,942.28

Other claims are dismissed for lack of merit.

SO ORDERED.26

Both parties appealed to the National Labor Relations Commission (NLRC). Grandteq insisted that Estrella’s dismissal was based on valid grounds and was implemented with due process.27

Estrella, on the other hand, claimed that her unpaid sales commissions, incentives, and salary for the period September 15 to 30, 2004 should be indicated in the dispositive portion of the LA’s decision. She further prayed that Grandteq officers Gonzales, De Leon, Aguirre, Arpia, and Eugenio be declared solidarily liable with the company.28

The NLRC found that Grandteq had valid grounds to dismiss Estrella since her allegation of illegal termination was not sufficiently substantiated by the security guard’s mere refusal to allow her entry into Grandteq’s premises. Estrella’s act of going on leave without Grandteq’s approval constituted gross and habitual neglect of duty. The NLRC decreed that Grandteq merely failed to comply with procedural due process. Hence, the LA’s decision was modified as follows:

WHEREFORE, premises considered, the appeals are PARTLY GRANTED and the Decision dated July 31, 2006 is MODIFIED finding that respondents has (sic) valid ground to terminate complainant but for failure to comply with the standards of due process, respondents shall indemnify complainant in the amount of P20,000.00 and ordering that the records of this case be remanded to the office of origin for the disposition of complainant’s money claims. The award of damages and attorney’s fees were not raised on appeal, hence, STANDS.

SO ORDERED.29

Grandteq sought recourse with the CA through a petition for certiorari. On November 26, 2009, the CA reinstated the LA’s Decision and

ordered the case remanded to the LA for the resolution of Estrella’s claims for commissions and allowances, viz.:

ACCORDINGLY, the assailed June 11, 2008 Resolution is SET ASIDE. The Labor Arbiter’s July 31, 2006 Decision is REINSTATED with the

directive that it must further hear and decide on petitioner’s claims for sales commission, allowances and other benefits, car incentive,

S.A. (Salesman Advance) commission, and other incentives" as specified in her second amended complaint.

SO ORDERED.30

Petitioners interposed the present recourse when the CA denied31 their motion for reconsideration.32 They proffer this sole argument:

THE HONORABLE COURT OF APPEALS HAD DECIDED A QUESTION OF SUBSTANCE IN PATENT DISREGARD OF THE PROVISIONS OF THE LABOR CODE, THE PHILIPPINE CONSTITUTION, THE RULES OF COURT, AND PERTINENT DECISIONS OF THIS HONORABLE SUPREME COURT.33

We deny the petition.

The petition hinges on the question of whether the acts imputed to Estrella constitute gross and habitual neglect of duty and loss of trust and confidence so as to provide just cause for her dismissal.

At the outset, we stress that these issues involve questions of fact, the determination of which entails an evaluation of the evidence on record. As a general rule, purely factual questions are not passed upon in petitions for review under Rule 45, for this Court does not try facts but merely relies on

the expert findings of labor tribunals whose statutory function is to determine the facts. In the present case, however, in view of the conflicting factual findings of the LA and the CA on one hand, and the NLRC on the other, the Court is constrained to resolve the factual question at hand.34

A judicious review of the records discloses that Grandteq failed to prove that Estrella was justifiably dismissed due to lack of trust and confidence and gross and habitual neglect of duty.

Grandteq attributes loss of trust and confidence to the following acts: (1) insubordination when Estrella disobeyed a company directive ordering her to return a company vehicle; and (2) transacting, in her personal capacity, with a client of Grandteq.

Insubordination, as a just cause for the dismissal of an employee, necessitates the concurrence of at least two requisites: (1) the

employee's assailed conduct must have been willful, that is, characterized by a wrongful and perverse attitude; and (2) the order violated must have been reasonable, lawful, made known to the employee, and must pertain to the duties which he had been engaged to discharge.35 The facts of the case do not show the presence of the second requisite. The failure to return the vehicle and the Purchase/Assignment of Car Agreement, from which Grandteq derives its claim of ownership over the car, had no relation at all to the discharge of respondent’s duties as a sales engineer.

There is likewise no basis for a finding of legitimate loss of confidence because Grandteq failed to show that Estrella held a position of trust and confidence. Firm is the rule that loss of confidence as a just cause for termination of employment is premised on the fact that the employee concerned holds a position of trust and confidence, where greater trust is placed by management and from whom greater fidelity to duty is correspondingly expected.36 The betrayal of this trust is the essence of the offense for which an employee is penalized.37

The job description of Estrella dated February 19, 2004, signed by her and by Grandteq’s Vice President for Sales, Aguirre, and approved by De Leon, Vice-President for Administration, and Gonzales, President, confirms these findings:

- Should report to office 8:00 a.m. regularly from Monday to Saturday.

- Submit itinerary/report of client visits.

- Will receive allowance of P5,000.00 monthly.

- 100Km radius, excess would be reimburse[d] to the office. (Gasoline Allowance)

- Allowed North visit at least one week/month allocation of P800.00. (This covers board, transportation and meal allowance)

- Failure to report in office will be deducted to (sic) salary.38

Grandteq also imputes gross and habitual neglect of duty when Estrella was absent from work for three (3) weeks without an approved application for leave.

Gross negligence connotes want of care in the performance of one's duties, while habitual neglect implies repeated failure to perform one's duties for a period of time, depending on the















circumstances. The single or isolated act of negligence does not constitute a just cause for the dismissal of an employee.39

We find no gross and habitual neglect in this case, and we quote with approval the following disquisition of the CA:

Grandteq does not dispute receiving Estrella’s Medical Certificate and worse, proffers no explanation why it did not act on Estrella’s application for sick leave. And even if, arguendo, such absences were established, still, they would merit at best mere suspension from service. The penalty of dismissal would be too harsh, considering that apparently, management had no complaint as regards Estrella’s quality of work.

Moreso that it is settled that an employee’s excusable and unavoidable absences does (sic) not amount to an abandonment of his employment. Abandonment, as a just and valid ground for termination, means the deliberate, unjustified refusal of an employee to resume his employment. For abandonment to be a valid ground for dismissal, two (2) elements must be proved: the intention of an employee to abandon, coupled with an overt act from which it may be inferred that the employee has no more intention to resume his work. The burden of proof is on the employer to show a clear and deliberate intent on the part of the employee to discontinue employment.

Here, these elements were not established. Estrella’s actions after her absences negate an intent to abandon her job. Estrella’s application for sick leave, the Medical Certificate she secured, and the letter from her lawyer that she was going on sick leave and more importantly, her going back to the company premises on October 15, 2004 – all indicate her intention to resume work after the lapse of the period of her leave of absence. It would be the height of inequity and injustice to declare Estrella to have abandoned her job on the mere pretext that her sick leave application was not approved. Especially so that prior to her dismissal, she had no record of infraction of company rules for which she could have been sanctioned by either warning, reprimand or suspension. Besides, her filing of an illegal dismissal case clearly contradicts Grandteq’s allegation that she abandoned her job.40

We must stress anew that, in termination cases, the burden rests upon the employer to show that the dismissal of an employee is for just cause, and failure to do so would mean that the dismissal is not justified.41 Failure to discharge that burden would mean that the dismissal is not justified and, therefore, illegal.42 Grandteq miserably failed to discharge this onus, and Estrella’s termination from employment was, thus, illegal.

Anent Estrella’s claim for sales commissions and incentives, we agree with the uniform ruling of the NLRC and the CA that the matter needs the further assessment of the LA, thus:

A review of the records shows that Estrella’s money claims referred to unpaid sales commissions, allowances and other incentives. And while the Labor Arbiter held:

"As regards the monetary claims, this office is in accord with the complainant that respondents have failed to establish by sufficient with evidence (sic) that complainant is not entitled thereto. This is based on the principle that each party must prove his affirmatives (sic) allegations. On the other hand, complainant has adduced evidence of her entitlement thereto. (Annex ‘B’ is ‘B-10’)."

The court notes, however, that he failed to assess and weigh the parties’ arguments on the matter. In fact, the Labor Arbiter’s decision did not touch upon or rule on Grandteq’s arguments and evidence against Estrella’s claims. As a result, the NLRC and this Court have admittedly no basis in affirming his findings.

Verily, the resolution of Estrella’s entitlement to her commissions and allowances requires conscientious evaluation and assessment of the evidence adduced by the parties, which is best undertaken by the Labor Arbiter. It thus is just proper that said money claims be remanded to the Labor Arbiter for proper evaluation of the evidence of both parties.43

Lastly, we deem it imperative to resolve the question of whether Grandteq’s officers, who are co-petitioners herein, are solidarily liable with the company.

There is solidary liability when the obligation expressly so states, when the law so provides, or when the nature of the obligation so requires.44 In MAM Realty Development Corporation v. NLRC,45 the solidary liability of corporate officers in labor disputes was discussed in this wise:

A corporation, being a juridical entity, may act only through its directors, officers and employees. Obligations incurred by them, acting as such corporate agents, are not theirs but the direct accountabilities of the corporation they represent. True, solidary liabilities may at times be incurred but only when exceptional circumstances warrantsuch as, generally, in the following cases:

1. When directors and trustees or, in appropriate cases, the officers of a corporation−

(a) vote for or assent to patently unlawful acts of the corporation;

(b) act in bad faith or with gross negligence in directing the corporate affairs;

x x x x

In labor cases, for instance, the Court has held corporate directors and officers solidarily liable with the corporation for the termination of employment of employees done with malice or in bad faith.

From the decisions of the LA, the NLRC, and the CA, there is no indication that Estrella’s dismissal was effected with malice or bad faith on the part of Grandteq’s officers. Their liability for Estrella’s illegal dismissal, the consequential monetary award arising from such dismissal and the other money claims awarded in the LA’s decision, as correctly affirmed by the CA, could thus only be joint, not solidary.1awphil This pronouncement does not extend to Estrella’s claims for commissions, allowances, and incentives, as the same are still subject to the LA’s scrutiny.

WHEREFORE, foregoing considered, the petition is hereby DENIED, and the November 26, 2009 Decision and the May 17, 2010 Resolution of the Court of Appeals are AFFIRMED.SO ORDERED.

G.R. No. 185814 October 13, 2010

SHS PERFORATED MATERIALS, INC., WINFRIED HARTMANNSHENN, and HINRICH JOHANN SCHUMACHER, Petitioners, vs. MANUEL F. DIAZ, Respondent.

D E C I S I O NMENDOZA, J.:

Petitioners, by way of this petition for review on certiorari under Rule 45, seek to annul and set aside the December 23, 2008 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 100015, which reversed and set aside the December 29, 2006 Resolution2 of the National Labor Relations Commission (NLRC). The NLRC Resolution, in turn, reversed and set aside the June 15, 2006 Decision3 of the Labor Arbiter (LA).4













THE FACTS

Petitioner SHS Perforated Materials, Inc. (SHS) is a start-up corporation organized and existing under the laws of the Republic of the Philippines and registered with the Philippine Economic Zone Authority. Petitioner Winfried Hartmannshenn (Hartmannshenn), a German national, is its president, in which capacity he determines the administration and direction of the day-to-day business affairs of SHS. Petitioner Hinrich Johann Schumacher(Schumacher), also a German national, is the treasurer and one of the board directors. As such, he is authorized to pay all bills, payrolls, and other just debts of SHS of whatever nature upon maturity. Schumacher is also the Executive Vice-President of the European Chamber of Commerce of the Philippines (ECCP) which is a separate entity from SHS. Both entities have an arrangement where ECCP handles the payroll requirements of SHS to simplify business operations and minimize operational expenses. Thus, the wages of SHS employees are paid out by ECCP, through its Accounting Services Department headed by Juliet Taguiang (Taguiang).

Manuel F. Diaz (respondent) was hired by petitioner SHS as Manager for Business Development on probationary status from July 18, 2005 to January 18, 2006, with a monthly salary of P100,000.00. Respondent’s duties, responsibilities, and work hours were described in the Contract of Probationary Employment,5 as reproduced below:

NAME : Jose Manuel F. Diaz

TITLE/STATUS : Manager for Business Development

LOCATION : Lot C3-2A, Phase I, Camelray Industrial Park II, Calamba, Laguna

REPORTS TO : Direct to Mr. Winfried Hartmannshenn

Normal Working Hours

: 8:00 a.m. to 5:00 p.m. subject to requirements of the job

OVERTIME : ________________________

JOB DESCRIPTION AND RESPONSIBILITIES:

DAILY/GENERAL DUTIES:

(a) Represent the company in any event organized by PEZA;

(b) Perform sales/marketing functions;

(c) Monitor/follow-up customer’s inquiry on EMPLOYER’s services;

(d) Monitor on-going job orders/projects;

(e) Submit requirements as needed in application/renewal of necessary permits;

(f) Liaise closely with the other commercial and technical staff of the company;

(g) Accomplish PEZA documents/requirements for every sales made; with legal assistance where necessary at EMPLOYER’s expense; and

(h) Perform other related duties and responsibilities.

OTHER RESPONSIBILITIES:

(a) abide by and perform to the best of his abilities all functions, duties and responsibilities to be assigned by the EMPLOYER in due course;

(b) comply with the orders and instructions given from time to time by the EMPLOYER, INC. through its authorized representatives;

(c) will not disclose any confidential information in respect of the affairs of the EMPLOYER to any unauthorized person;

(d) perform any other administrative or non-administrative duties, as assigned by any of the EMPLOYER’s representative from time to time either through direct written order or by verbal assignment. The EMPLOYER may take into account

EMPLOYEE’s training and expertise when assigning additional tasks.

AGREED:

(sgd. Manuel Diaz).

In addition to the above-mentioned responsibilities, respondent was also instructed by Hartmannshenn to report to the SHS office and plant at least two (2) days every work week to observe technical processes involved in the manufacturing of perforated materials, and to learn about the products of the company, which respondent was hired to market and sell.

During respondent’s employment, Hartmannshenn was often abroad and, because of business exigencies, his instructions to respondent were either sent by electronic mail or relayed through telephone or mobile phone. When he would be in the Philippines, he and the respondent held meetings. As to respondent’s work, there was no close supervision by him.

During meetings with the respondent, Hartmannshenn expressed his dissatisfaction over respondent’s poor performance. Respondent allegedly failed to make any concrete business proposal or implement any specific measure to improve the productivity of the SHS office and plant or deliver sales except for a meagre P2,500.00 for a sample product. In numerous electronic mail messages, respondent acknowledged his poor performance and offered to resign from the company.

Respondent, however, denied sending such messages but admitted that he had reported to the SHS office and plant only eight (8) times from July 18, 2005 to November 30, 2005.

On November 16, 2005, in preparation for his trip to the Philippines, Hartmannshenn tried to call respondent on his mobile phone, but the latter failed to answer. On November 18, 2005, Hartmannshenn arrived in the Philippines from Germany, and on November 22 and 24, 2005, notified respondent of his arrival through electronic mail messages and advised him to get in touch with him. Respondent claimed that he never received the messages.

On November 29, 2005, Hartmannshenn instructed Taguiang not to release respondent’s salary. Later that afternoon, respondent called and inquired about his salary. Taguiang informed him that it was being withheld and that he had to immediately communicate with Hartmannshenn. Again, respondent denied having received such directive.



The next day, on November 30, 2005, respondent served on SHS a demand letter and a resignation letter. The resignation letter reads:

This is to tender my irrevocable resignation from SHS Perforated Materials, Inc, Philippines, effective immediately upon receipt of my due and demandable salary for the period covering November 16 to 30, 2005, which has yet been unpaid and is still currently being withheld albeit illegally. This covers and amounts to the sum of Php50,000.00 pesos net of all taxes. As my employment contract clearly shows I receive a monthly salary of Php100,000.00 net of all taxes.

It is precisely because of illegal and unfair labor practices such as these that I offer my resignation with neither regret nor remorse.6

In the evening of the same day, November 30, 2005, respondent met with Hartmannshenn in Alabang. The latter told him that he was extremely disappointed for the following reasons: his poor work performance; his unauthorized leave and malingering from November 16 to November 30, 2005; and failure to immediately meet Hartmannshenn upon his arrival from Germany.

Petitioners averred that respondent was unable to give a proper explanation for his behavior. Hartmannshenn then accepted respondent’s resignation and informed him that his salary would be released upon explanation of his failure to report to work, and proof that he did, in fact, work for the period in question. He demanded that respondent surrender all company property and information in his possession. Respondent agreed to these "exit" conditions through electronic mail. Instead of complying with the said conditions, however, respondent sent another electronic mail message to Hartmannshenn and Schumacher on December 1, 2005, appealing for the release of his salary.

Respondent, on the other hand, claimed that the meeting with Hartmannshenn took place in the evening of December 1, 2005, at which meeting the latter insulted him and rudely demanded that he accept P25,000.00 instead of his accrued wage and stop working for SHS, which demands he refused. Later that same night, he sent Hartmannshenn and Schumacher an electronic mail message appealing for the release of his salary. Another demand letter for respondent’s accrued salary for November 16 to November 30, 2005, 13th month pay, moral and exemplary damages, and attorney’s fees was sent on December 2, 2005.

To settle the issue amicably, petitioners’ counsel advised respondent’s counsel by telephone that a check had been prepared in the amount of P50,000.00, and was ready for pick-up on December 5, 2005. On the same date, a copy of the formal reply letter relating to the prepared payment was sent to the

respondent’s counsel by facsimile transmission. Despite being informed of this, respondent never picked up the check.

Respondent countered that his counsel received petitioners’ formal reply letter only on December 20, 2005, stating that his salary would be released subsequent to the turn-over of all materials owned by the company in his possession. Respondent claimed that the only thing in his possession was a sample panels folder which he had already returned and which was duly received by Taguiang on November 30, 2005.

On December 9, 2005, respondent filed a Complaint7 against the petitioners for illegal dismissal; non-payment of salaries/wages and 13th month pay with prayer for reinstatement and full backwages; exemplary damages, and attorney’s fees, costs of suit, and legal interest.

THE RULING OF THE LABOR ARBITER

On June 15, 2006, the LA rendered his decision, the dispositive portion of which states:

WHEREFORE, premises considered, judgment is hereby rendered declaring complainant as having been illegally dismissed and further ordering his immediate reinstatement without loss of seniority rights and benefits. It is also ordered that complainant be deemed as a regular employee. Accordingly, respondents are hereby ordered to jointly and severally pay complainant the following

1. P704,166.67 (P100,000.00 x 6.5 + (P100,000.00 x 6.5/12) as backwages;

2. P50,000.00 as unpaid wages;

3. P37,083.33 as unpaid 13th month pay

4. P200,000.00 as moral and exemplary damages;

5. P99,125.00 as attorney’s fees.

SO ORDERED.8

The LA found that respondent was constructively dismissed because the withholding of his salary was contrary to Article 116 of the Labor Code as it was not one of the exceptions for allowable wage deduction by the employer under Article 113 of the Labor Code. He had no other alternative but to resign because he could not be expected to continue working for an employer

who withheld wages without valid cause. The LA also held that respondent’s probationary employment was deemed regularized because petitioners failed to conduct a prior evaluation of his performance and to give notice two days prior to his termination as required by the Probationary Contract of Employment and Article 281 of the Labor Code. Petitioners’ contention that they lost trust and confidence in respondent as a managerial employee was not given credence for lack of notice to explain the supposed loss of trust and confidence and absence of an evaluation of respondent’s performance.

The LA believed that the respondent complied with the obligations in his contract as evidenced by his electronic mail messages to petitioners. He ruled that petitioners are jointly and severally liable to respondent for backwages including 13th month pay as there was no showing in the salary vouchers presented that such was integrated in the salary; for moral and exemplary damages for having in bad faith harassed respondent into resigning; and for attorney’s fees.

THE RULING OF THE NLRC

On appeal, the NLRC reversed the decision of the LA in its December 29, 2006 Resolution, the dispositive portion of which reads:

WHEREFORE, premises considered, the appeal is hereby GRANTED.

The Decision dated June 15, 2006 is hereby REVERSED and SET ASIDE and a new one is hereby entered:

(1) dismissing the complaint for illegal dismissal for want of merit;

(2) dismissing the claims for 13th month pay, moral and exemplary damages and attorney’s fees for lack of factual and legal basis; and

(3) ordering respondents to pay the complainant’s unpaid salary for the period covering November 16-30, 2005 in the amount of FIFTY THOUSAND PESOS (Php 50,000.00).

SO ORDERED.9

The NLRC explained that the withholding of respondent’s salary was a valid exercise of management prerogative. The act was deemed justified as it was reasonable to demand an explanation for failure to report to work and to account for his work






accomplishments. The NLRC held that the respondent voluntarily resigned as evidenced by the language used in his resignation letter and demand letters. Given his professional and educational background, the letters showed respondent’s resolve to sever the employer-employee relationship, and his understanding of the import of his words and their consequences. Consequently, respondent could not have been regularized having voluntarily resigned prior to the completion of the probationary period. The NLRC further noted that respondent’s 13th month pay was already integrated in his salary in accordance with his Probationary Contract of Employment and, therefore, no additional amount should be due him.

On January 25, 2007, respondent filed a motion for reconsideration but the NLRC subsequently denied it for lack of merit in its May 23, 2007 Resolution.

THE RULING OF THE COURT OF APPEALS

The CA reversed the NLRC resolutions in its December 23, 2008 Decision, the dispositive portion of said decision reads:

WHEREFORE, premises considered, the herein petition is GRANTED and the 29 December 2006 Resolution of the NLRC in NLRC CN RAB-IV-12-21758-05-L, and the 23 May 2007 Resolution denying petitioner’s Motion for Reconsideration, are REVERSED and SET ASIDE. Accordingly, a new judgment is hereby entered in that petitioner is hereby awarded separation pay equivalent to at least one month pay, and his full backwages, other privileges and benefits, or their monetary equivalent during the period of his dismissal up to his supposed actual reinstatement by the Labor Arbiter on 15 June 2006.

SO ORDERED.10

Contrary to the NLRC ruling, the CA held that withholding respondent’s salary was not a valid exercise of management prerogative as there is no such thing as a management prerogative to withhold wages temporarily. Petitioners’ averments of respondent’s failure to report to work were found to be unsubstantiated allegations not corroborated by any other evidence, insufficient to justify said withholding and lacking in probative value. The malicious withholding of respondent’s salary made it impossible or unacceptable for respondent to continue working, thus, compelling him to resign. The respondent’s immediate filing of a complaint for illegal dismissal could only mean that his resignation was not voluntary. As a probationary employee entitled to security of tenure, respondent was illegally dismissed. The CA ruled out actual reinstatement, however, reasoning out that antagonism had caused a severe strain in their

relationship. It was of the view that separation pay equivalent to at least one month pay would be a more equitable disposition.

THE ISSUES

Aggrieved, the petitioners come to this Court praying for the reversal and setting aside of the subject CA decision presenting the following

ISSUES

I

THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN NOT AFFIRMING THE DECISION OF THE NLRC, WHICH WAS BASED ON SUBSTANTIAL EVIDENCE.

II

THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN NOT AFFIRMING THE NLRC’S HOLDING THAT PETITIONERS’ WITHHOLDING OF RESPONDENT’S SALARY FOR THE PAYROLL PERIOD NOVEMBER 16-30, 2005 IN VIEW OF RESPONDENT’S FAILURE TO RENDER ACTUAL WORK FOR SAID PAYROLL PERIOD WAS A VALID EXERCISE OF MANAGEMENT PREROGATIVE.

III

THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN AFFIRMING THE LABOR ARBITER’S FINDING THAT RESPONDENT HAD BEEN CONSTRUCTIVELY DISMISSED.

IV

THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN AWARDING RESPONDENT SEPARATION PAY EQUIVALENT TO AT LEAST ONE MONTH PAY IN LIEU OF REINSTATEMENT, FULL BACKWAGES, AND OTHER PRIVILEGES AND BENEFITS, OR THEIR MONETARY EQUIVALENT IN VIEW OF THE FACT THAT RESPONDENT VOLUNTARILY RESIGNED FROM PETITIONER SHS AND WAS NOT ILLEGALLY DISMISSED.

V

THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN NOT HOLDING THAT INDIVIDUAL PETITIONERS HARTMANNSHENN AND SCHUMACHER MAY NOT BE HELD

SOLIDARILY AND PERSONALLY LIABLE WITH PETITIONER SHS FOR THE PAYMENT OF THE MONETARY AWARD TO RESPONDENT.

The resolution of these issues is dependent on whether or not respondent was constructively dismissed by petitioners, which determination is, in turn, hinged on finding out (i) whether or not the temporary withholding of respondent’s salary/wages by petitioners was a valid exercise of management prerogative; and (ii) whether or not respondent voluntarily resigned.

THE COURT’S RULING

As a rule, the factual findings of the courts below are conclusive in a petition for review on certiorari where only errors of law should be reviewed. The case, however, is an exception because the factual findings of the CA and the LA are contradictory to that of the NLRC. Thus, a review of the records is necessary to resolve the factual issues involved and render substantial justice to the parties.11

Petitioners contend that withholding respondent’s salary from November 16 to November 30, 2005, was justified because respondent was absent and did not show up for work during that period. He also failed to account for his whereabouts and work accomplishments during said period. When there is an issue as to whether an employee has, in fact, worked and is entitled to his salary, it is within management prerogative to temporarily withhold an employee’s salary/wages pending determination of whether or not such employee did indeed work.

We disagree with petitioners.

Management prerogative refers "to the right of an employer to regulate all aspects of employment, such as the freedom to prescribe work assignments, working methods, processes to be followed, regulation regarding transfer of employees, supervision of their work, lay-off and discipline, and dismissal and recall of work."12 Although management prerogative refers to "the right to regulate all aspects of employment," it cannot be understood to include the right to temporarily withhold salary/wages without the consent of the employee. To sanction such an interpretation would be contrary to Article 116 of the Labor Code, which provides:

ART. 116. Withholding of wages and kickbacks prohibited. – It shall be unlawful for any person, directly or indirectly, to withhold any amount from the wages of a worker or induce him to give up any part of his wages by force, stealth, intimidation, threat or by any other means whatsoever without the worker’s consent.





Any withholding of an employee’s wages by an employer may only be allowed in the form of wage deductions under the circumstances provided in Article 113 of the Labor Code, as set forth below:

ART. 113. Wage Deduction. – No employer, in his own behalf or in behalf of any person, shall make any deduction from the wages of his employees, except:

(a) In cases where the worker is insured with his consent by the employer, and the deduction is to recompense the employer for the amount paid by him as premium on the insurance;

(b) For union dues, in cases where the right of the worker or his union to check-off has been recognized by the employer or authorized in writing by the individual worker concerned; and

(c) In cases where the employer is authorized by law or regulations issued by the Secretary of Labor.

As correctly pointed out by the LA, "absent a showing that the withholding of complainant’s wages falls under the exceptions provided in Article 113, the withholding thereof is thus unlawful."13

Petitioners argue that Article 116 of the Labor Code only applies if it is established that an employee is entitled to his salary/wages and, hence, does not apply in cases where there is an issue or uncertainty as to whether an employee has worked and is entitled to his salary/wages, in consonance with the principle of "a fair day’s wage for a fair day’s work." Petitioners contend that in this case there was precisely an issue as to whether respondent was entitled to his salary because he failed to report to work and to account for his whereabouts and work accomplishments during the period in question.

To substantiate their claim, petitioners presented hard copies of the electronic mail messages14 sent to respondent on November 22 and 24, 2005, directing the latter to contact Hartmannshenn; the Affidavit15 of Taguiang stating that she advised respondent on or about November 29, 2005 to immediately communicate with Mr. Hartmannshenn at the SHS office; Hartmannshenn’s Counter-Affidavit16 stating that he exerted earnest efforts to contact respondent through mobile phone; Schumacher’s Counter-Affidavit17 stating that respondent had not filed any request for official leave; and respondent’s admission in his Position Paper18 that he found it absurd to report to the SHS plant when only security guards and machinists were present.

Respondent, on the other hand, presented reports19 prepared by him and submitted to Hartmannshenn on November 18 and 25, 2005; a receipt20 issued to him by Taguiang for a client’s payment during the subject period; and eight notarized letters21 of prospective clients vouching for meetings they had with the respondent during the subject period.

The Court finds petitioners’ evidence insufficient to prove that respondent did not work from November 16 to November 30, 2005. As can be gleaned from respondent’s Contract of Probationary Employment and the exchanges of electronic mail messages22 between Hartmannshenn and respondent, the latter’s duties as manager for business development entailed cultivating business ties, connections, and clients in order to make sales. Such duties called for meetings with prospective clients outside the office rather than reporting for work on a regular schedule. In other words, the nature of respondent’s job did not allow close supervision and monitoring by petitioners. Neither was there any prescribed daily monitoring procedure established by petitioners to ensure that respondent was doing his job. Therefore, granting that respondent failed to answer Hartmannshenn’s mobile calls and to reply to two electronic mail messages and given the fact that he admittedly failed to report to work at the SHS plant twice each week during the subject period, such cannot be taken to signify that he did not work from November 16 to November 30, 2005.

Furthermore, the electronic mail reports sent to Hartmannshenn and the receipt presented by respondent as evidence of his having worked during the subject period were not controverted by petitioners. The eight notarized letters of prospective clients vouching for meetings they had with respondent during the subject period may also be given credence. Although respondent only presented such letters in support of his Motion for Reconsideration filed with the NLRC, they may be considered by this Court in light of Section 10, Rule VII, of the 2005 New Rules of Procedure of the NLRC, which provides in part that "the rules of procedure and evidence prevailing in courts of law and equity shall not be controlling and the Commission shall use every and all reasonable means to ascertain the facts in each case speedily and objectively, without regard to technicalities of law or procedure, all in the interest of due process." While administrative tribunals exercising quasi-judicial functions are free from the rigidity of certain procedural requirements, they are bound by law and practice to observe the fundamental and essential requirements of due process in justiciable cases presented before them.23 In this case, due process was afforded petitioners as respondent filed with the NLRC a Motion to Set Case for Reception of Additional Evidence as regards the said letters, which petitioners had the opportunity to, and did, oppose.

Although it cannot be determined with certainty whether respondent worked for the entire period from November 16 to

November 30, 2005, the consistent rule is that if doubt exists between the evidence presented by the employer and that by the employee, the scales of justice must be tilted in favor of the latter24 in line with the policy mandated by Articles 2 and 3 of the Labor Code to afford protection to labor and construe doubts in favor of labor. For petitioners’ failure to satisfy their burden of proof, respondent is presumed to have worked during the period in question and is, accordingly, entitled to his salary. Therefore, the withholding of respondent’s salary by petitioners is contrary to Article 116 of the Labor Code and, thus, unlawful.

Petitioners contend that respondent could not have been constructively dismissed because he voluntarily resigned as evidenced by his resignation letter. They assert that respondent was not forced to draft the letter and his intention to resign is clear from the contents and terms used, and that given respondent’s professional and educational background, he was fully aware of the import and consequences of the said letter. They maintain that respondent resigned to ‘save face’ and avoid disciplinary measures due to his allegedly dismal work performance and failure to report to work.

The Court, however, agrees with the LA and the CA that respondent was forced to resign and was, thus, constructively dismissed. In Duldulao v. Court of Appeals, it was written:

There is constructive dismissal if an act of clear discrimination, insensibility, or disdain by an employer becomes so unbearable on the part of the employee that it would foreclose any choice by him except to forego his continued employment. It exists where there is cessation of work because continued employment is rendered impossible, unreasonable or unlikely, as an offer involving a demotion in rank and a diminution in pay. 25

What made it impossible, unreasonable or unlikely for respondent to continue working for SHS was the unlawful withholding of his salary. For said reason, he was forced to resign. It is of no moment that he served his resignation letter on November 30, 2005, the last day of the payroll period and a non-working holiday, since his salary was already due him on November 29, 2005, being the last working day of said period. In fact, he was then informed that the wages of all the other SHS employees were already released, and only his was being withheld. What is significant is that the respondent prepared and served his resignation letter right after he was informed that his salary was being withheld. It would be absurd to require respondent to tolerate the unlawful withholding of his salary for a longer period before his employment can be considered as so impossible, unreasonable or unlikely as to constitute constructive dismissal. Even granting that the withholding of respondent’s salary on November 30, 2005, would not constitute an unlawful act, the continued refusal to release his salary after the payroll period was clearly unlawful. The















petitioners’ claim that they prepared the check ready for pick-up cannot undo the unlawful withholding.

It is worthy to note that in his resignation letter, respondent cited petitioners’ "illegal and unfair labor practice"26as his cause for resignation. As correctly noted by the CA, respondent lost no time in submitting his resignation letter and eventually filing a complaint for illegal dismissal just a few days after his salary was withheld. These circumstances are inconsistent with voluntary resignation and bolster the finding of constructive dismissal.

Petitioners cite the case of Solas v. Power & Telephone Supply Phils., Inc.27 to support their contention that the mere withholding of an employee’s salary does not by itself constitute constructive dismissal. Petitioners are mistaken in anchoring their argument on said case, where the withholding of the salary was deemed lawful. In the above-cited case, the employee’s salary was withheld for a valid reason - it was applied as partial payment of a debt due to the employer, for withholding taxes on his income and for his absence without leave. The partial payment of a debt due to the employer and the withholding of taxes on income were valid deductions under Article 113 paragraph (c) of the Labor Code. The deduction from an employee’s salary for a due and demandable debt to an employer was likewise sanctioned under Article 1706 of the Civil Code. As to the withholding for income tax purposes, it was prescribed by the National Internal Revenue Code. Moreover, the employee therein was indeed absent without leave.

In this case, the withholding of respondent’s salary does not fall under any of the circumstances provided under Article 113. Neither was it established with certainty that respondent did not work from November 16 to November 30, 2005. Hence, the Court agrees with the LA and the CA that the unlawful withholding of respondent’s salary amounts to constructive dismissal.

Respondent was constructively dismissed and, therefore, illegally dismissed.1avvphi1 Although respondent was a probationary employee, he was still entitled to security of tenure. Section 3 (2) Article 13 of the Constitution guarantees the right of all workers to security of tenure. In using the expression "all workers," the Constitution puts no distinction between a probationary and a permanent or regular employee. This means that probationary employees cannot be dismissed except for cause or for failure to qualify as regular employees.28

This Court has held that probationary employees who are unjustly dismissed during the probationary period are entitled to reinstatement and payment of full backwages and other benefits and privileges from the time they were dismissed up to their actual reinstatement.29 Respondent is, thus, entitled to reinstatement without loss of seniority rights and other privileges as well as to full backwages, inclusive of allowances, and other

benefits or their monetary equivalent computed from the time his compensation was withheld up to the time of actual reinstatement. Respondent, however, is not entitled to the additional amount for 13th month pay, as it is clearly provided in respondent’s Probationary Contract of Employment that such is deemed included in his salary. Thus:

EMPLOYEE will be paid a net salary of One Hundred Thousand (Php100,000.00) Pesos per month payable every 15th day and end of the month.

The compensation package defined in this paragraph shall represent all that is due and demandable under this Contract and includes all benefits required by law such as the 13th month pay. No other benefits, bonus or allowance shall be due the employee. 30

(emphasis supplied)

Respondent’s reinstatement, however, is no longer feasible as antagonism has caused a severe strain in their working relationship. Under the doctrine of strained relations, the payment of separation pay is considered an acceptable alternative to reinstatement when the latter option is no longer desirable or viable. Payment liberates the employee from what could be a highly oppressive work environment, and at the same time releases the employer from the obligation of keeping in its employ a worker it no longer trusts. Therefore, a more equitable disposition would be an award of separation pay equivalent to at least one month pay, in addition to his full backwages, allowances and other benefits.31

With respect to the personal liability of Hartmannshenn and Schumacher, this Court has held that corporate directors and officers are only solidarily liable with the corporation for termination of employment of corporate employees if effected with malice or in bad faith.32 Bad faith does not connote bad judgment or negligence; it imports dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of unknown duty through some motive or interest or ill will; it partakes of the nature of fraud.33 To sustain such a finding, there should be evidence on record that an officer or director acted maliciously or in bad faith in terminating the employee.34

Petitioners withheld respondent’s salary in the sincere belief that respondent did not work for the period in question and was, therefore, not entitled to it. There was no dishonest purpose or ill will involved as they believed there was a justifiable reason to withhold his salary. Thus, although they unlawfully withheld respondent’s salary, it cannot be concluded that such was made in bad faith. Accordingly, corporate officers, Hartmannshenn and

Schumacher, cannot be held personally liable for the corporate obligations of SHS.

WHEREFORE, the assailed December 23, 2008 Decision of the Court of Appeals in CA-G.R. SP No. 100015 is hereby AFFIRMED with MODIFICATION. The additional amount for 13th month pay is deleted. Petitioners Winfried Hartmannshenn and Hinrich Johann Schumacher are not solidarily liable with petitioner SHS Perforated Materials, Inc.SO ORDERED.

NOTE: Ang ubang cases kay nausab lang.










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Documents

richard salas

board of trustees

board members

soledad salastubilleja

villasis reginald

petitioners reginald

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