Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
6817
filed a claim charging the estate with the aforesaid advances for
expenses of the appellant and of her children which had been assumed
by the deceased in his lifetime, a claim which, although reduced to
P26,000 as per Ballentyne schedule of monetary value, was approved by
the Court of First Instance of Iloilo on 27 September 1950, and the
executor of the estate of the late Esteban de la Rama was directed to pay
the claim thus allowed (Exhibit O).
The appellee resists appellant's claim upon the ground that the
assumption by Esteban de la Rama of the total sum of withdrawals by the
appellant for her expenses and of her children was never consented to by
the appellee and hence not binding upon it; and that the accounting
method by which the withdrawals were charged against the Hijas de I. de
la Rama & Co., Inc. was to circumvent the prohibition imposed upon the
appellee to declare dividends, agreed upon in the deed of trust executed
by the appellee and the National Development Company, a prohibition
which lasted from 26 February 1940 to 23 September 1949 (Exhibit 7).
There is no dispute that the appellant is the registered owner of 3,424
shares of stock in the appellee corporation; that on 29 December 1950
the appellee by Resolution No. 50-127 declared a dividend of P100 for
each share of stock; that the appellee further resolved that the personal
accounts of the stockholders of the De la Rama Steamship Co., Inc.,
which include that of the appellant in the sum of P444,202.52 set up in
the books of De la Rama Steamship Co., Inc. against the Hijos de I. de la
Rama & Co., Inc., be credited to the account of the last named
corporation and debited to accounts receivable from the stockholders;
and that from the amount of dividends, the personal account of each and
every stockholder be deducted (Exhibit A-1).
The determination of the controversy hinges on whether the assumption
made by the late Esteban de la Rama in his lifetime of all the advances
made by the appellee to the appellant was binding upon it. There is no
doubt that because of the prohibition agreed upon in the deed of trust to
the effect that no dividends could be declared by the appellee during the
period of time already stated, advances to the stockholders would
constitute a violation of section 12 of the deed of trust. For that reason it
was made to appear that such advances were made to the Hijos de I. de
la Rama & Co., Inc. and debited the same against the latter in the books
of the appellee, and in the books of the Hijos de I. de la Rama & Co., Inc.
the said advances were debited against the individual the stockholders,
the stockholders of both corporations being the same. The pivotal point is
whether the assumption by Esteban de la Rama of the advances made to
the appellant by the appellee, as stated in his letter of 5 May 1947, was
consented to by the appellee to constitute a novation. Express sent by
the creditor is necessary to substitute another for the debtor. 1 Such
consent does not appear to have been given by the board of directors of
the appellee. Corporate acts of a corporation must appear in its books or
records. No such consent appears in the books or records of the appellee.
The appellant does not dispute the total sum of her withdrawals which is
P444,202.52 as claimed by the appellee.
Aside from the letter of 5 May 1947 of Esteban de la Rama, the appellant
relies upon the financial statements and books of the appellee where the
withdrawals by the appellant were entered in the account of Hijos de I. de
la Rama & Co., Inc. or transferred to the account of Esteban de la Rama.
The entries on the withdrawals by the appellant entered in the account of
Hijos de I. de la Rama & Co., Inc. or transferred to the account of Esteban
de la Rama have already been explained satisfactorily. They were done so
in order to circumvent the prohibition referred to above. As a matter of
fact the withdrawals made by the appellant were made by her and not by
the Hijos de I. de la Rama & Co., Inc. Nor is there any evidence that those
advances were used by the Hijos de I. de la Rama & Co., Inc.
As to the inclusion of the withdrawals made by the appellant in the claim
of the Hijos de I. de la Rama & Co., Inc. filed against the estate of the late
Esteban de la Rama in special proceedings No. 401 of the probate court
of Iloilo and allowed by the court although in a reduced amount, suffice it
to say that such act of the Hijos de I. de la Rama & Co., Inc. cannot and
does not bind the appellee. Its appearance in the probate court was by
order of that court of 19 June 1950 (Exhibit M), and in its pleading the
appellee disclaimed any interest in the claim filed by the Hijos de I. de la
Rama & Co., Inc. against the estate of the late Esteban de la Rama
(Exhibit N).
Resolution No. 50-127 of the board of directors of the appellee of 29
December 1950, whereby a cash dividend of P2,000,000 was declared in
favor of stockholders of record as of 1 December 1950, or at the rate of
P100 per share, subject to the conditions already stated, does not suffer
from any legal infirmity. The segregation from the account of Hijos de I.
de la Rama & Co., Inc. and the setting up in the books of the De la Rama
Steamship Co., Inc. of withdrawals made by the stockholders of the
appellee as accounts receivable due from said stockholders was even
suggested by the President of Hijos de I. de la Rama & Co., Inc. in a letter
dated 9 April 1945, addressed to the De la Rama Steamship Co., Inc.
(Exhibit A-1).
There is no room for the application of the in pari delicto principle to the
instant case, because the appellee corporation and the Hijos de I. de la
Rama & Co., Inc. have committed no crime or violation of law, but a
600,000 shares of the Balatoc Mining Co. which constitute the principal
subject matter of the action. This was done apparently to facilitate the
splitting up to the shares in the course of the sale or distribution. To
prevent this the plaintiffs, upon filing their original complaint, procured a
preliminary injunction restraining the defendants, their agents and
servants, from selling, assigning or transferring the 600,000 shares of the
Balatoc Mining Co., or any part thereof, and from removing said shares
from the Philippine Islands. This explains the connection of Renz with the
case. The other individual defendants are made merely as officials of the
Benguet Consolidated Mining Co. Upon hearing the cause the trial court
dismissed the complaint and dissolved the preliminary injunction, with
costs against the plaintiffs. From this judgment the plaintiffs appealed.
The facts which have given rise this lawsuit are simple, as the financial
interests involve are immense. Briefly told these facts are as follows: The
Benguet Consolidated Mining Co. was organized in June, 1903, as
a sociedad anonima in conformity with the provisions of Spanish law;
while the Balatoc Mining Co. was organized in December 1925, as a
corporation, in conformity with the provisions of the Corporation Law (Act
No. 1459). Both entities were organized for the purpose of engaging in
the mining of gold in the Philippine Islands, and their respective
properties are located only a few miles apart in the subprovince of
Benguet. The capital stock of the Balatoc Mining Co. consists of one
million shares of the par value of one peso (P1) each.
When the Balatoc Mining Co. was first organized the properties acquired
by it were largely undeveloped; and the original stockholders were
unable to supply the means needed for profitable operation. For this
reason, the board of directors of the corporation ordered a suspension of
all work, effective July 31, 1926. In November of the same year a general
meeting of the company's stockholders appointed a committee for the
purpose of interesting outside capital in the mine. Under the authority of
this resolution the committee approached A. W. Beam, then president and
general manager of the Benguet Company, to secure the capital
necessary to the development of the Balatoc property. As a result of the
negotiations thus begun, a contract, formally authorized by the
management of both companies, was executed on March 9, 1927, the
principal features of which were that the Benguet Company was to
proceed with the development and construct a milling plant for the
Balatoc mine, of a capacity of 100 tons of ore per day, and with an
extraction of at least 85 per cent of the gold content. The Benguet
Company also agreed to erect an appropriate power plant, with the aerial
tramlines and such other surface buildings as might be needed to
operate the mine. In return for this it was agreed that the Benguet
Company should receive from the treasurer of the Balatoc Company
Under the guidance of this and certain other provisions thus enacted by
Congress, the Philippine Commission entered upon the enactment of a
general law authorizing the creation of corporations in the Philippine
Islands. This rather elaborate piece of legislation is embodied in what is
called our Corporation Law (Act No. 1459 of the Philippine Commission).
The evident purpose of the commission was to introduce the American
corporation into the Philippine Islands as the standard commercial entity
and to hasten the day when the sociedad anonima of the Spanish law
would be obsolete. That statute is a sort of codification of American
corporate law.
For the purposes general description only, it may be stated that
the sociedad anonima is something very much like the English joint stock
company, with features resembling those of both the partnership is
shown in the fact that sociedad, the generic component of its name in
Spanish, is the same word that is used in that language to designate
other forms of partnership, and in its organization it is constructed along
the same general lines as the ordinary partnership. It is therefore not
surprising that for purposes of loose translation the expression sociedad
anonima has not infrequently the other hand, the affinity of this entity to
the American corporation has not escaped notice, and the
expression sociedad anonima is now generally translated by the word
corporation. But when the word corporation is used in the sense
of sociedad anonima and close discrimination is necessary, it should be
associated with the Spanish expression sociedad anonima either in a
parenthesis or connected by the word "or". This latter device was
adopted in sections 75 and 191 of the Corporation Law.
In drafting the Corporation Law the Philippine Commission inserted
bodily, in subsection (5) of section 13 of that Act (No. 1459) the words
which we have already quoted from section 75 of the Act of Congress of
July 1, 1902 (Philippine Bill); and it is of course obvious that whatever
meaning originally attached to this provision in the Act of Congress, the
same significance should be attached to it in section 13 of our
Corporation Law.
As it was the intention of our lawmakers to stimulate the introduction of
the American Corporation into Philippine law in the place of the sociedad
anonima, it was necessary to make certain adjustments resulting from
the continued co-existence, for a time, of the two forms of commercial
entities. Accordingly, in section 75 of the Corporation Law, a provision is
found making the sociedad anonima subject to the provisions of the
Corporation Law "so far as such provisions may be applicable", and giving
to the sociedades anonimas previously created in the Islands the option
to continue business as such or to reform and organize under the
provisions of the Corporation Law. Again, in section 191 of the
Mining Co., 29 Mont., 428; Holmes & Griggs Mfg. Co. vs. Holmes &
Wessell Metal Co., 127 N. Y., 252; Oelbermann vs. N. Y. & N. R. Co., 77
Hun., 332.)
Most suggestive perhaps of all the cases in Compaia Azucarera de
Carolina vs. Registrar (19 Porto Rico, 143), for the reason that this case
arose under a provision of the Foraker Act, a law analogous to our
Philippine Bill. It appears that the registrar had refused to register two
deeds in favor of the Compaia Azucarera on the ground that the land
thereby conveyed was in excess of the area permitted by law to the
company. The Porto Rican court reversed the ruling of the registrar and
ordered the registration of the deeds, saying:
Thus it may be seen that a corporation limited by the law or by its
charter has until the State acts every power and capacity that
any other individual capable of acquiring lands, possesses. The
corporation may exercise every act of ownership over such lands;
it may sue in ejectment or unlawful detainer and it may demand
specific performance. It has an absolute title against all the world
except the State after a proper proceeding is begun in a court of
law. ... The Attorney General is the exclusive officer in whom is
confided the right to initiate proceedings for escheat or attack the
right of a corporation to hold land.
Having shown that the plaintiffs in this case have no right of action
against the Benguet Company for the infraction of law supposed to have
been committed, we forego cny discussion of the further question
whether a sociedad anonima created under Spanish law, such as the
Benguet Company, is a corporation within the meaning of the prohibitory
provision already so many times mentioned. That important question
should, in our opinion, be left until it is raised in an action brought by the
Government.
The judgment which is the subject of his appeal will therefore be
affirmed, and it is so ordered, with costs against the appellants.
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
s/ Vicente J. Francisco
t/ VICENTE J. FRANCISCO
On the same date, 20 February 1959, Atty. Francisco received the
following telegram:.
VICENTE FRANCISCO
SAMANILLO BLDG. ESCOLTA.
GSIS BOARD APPROVED YOUR REQUEST RE REDEMPTION
OF FORECLOSED PROPERTY OF YOUR DAUGHTER
ANDAL"
On 28 February 1959, Atty. Francisco remitted to the System, through
Andal, a check for P30,000.00, with an accompanying letter, which reads:
I am sending you herewith BPI Check No. B-299484 for Thirty
Thousand Pesos (P30,000.00) in accordance with my letter of
February 20th and your reply thereto of the same date, which
reads:
xxx
... subject to the condition that Mr. Vicente J. Francisco shall pay
all expenses incurred by the GSIS in the foreclosure of the
mortgage.
xxx
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
manifestations 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 a 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."
It has also been decided that
A very large part of the business of the country is carried on by
corporations. It certainly is not the practice of persons dealing
with officers or agents who assume to act for such entities to
insist on being shown the resolution of the board of directors
authorizing the particular officer or agent to transact the
particular business which he assumes to conduct. A person who
knows that the officer or agent of the corporation habitually
transacts certain kinds of business for such corporation under
circumstances which necessarily show knowledge on the part of
those charged with the conduct of the corporate business
assumes, as he has the right to assume, that such agent or
officer is acting within the scope of his authority. (Curtis Land &
Loan Co. vs. Interior Land Co., 137 Wis. 341, 118 N.W. 853, 129
Am. St. Rep. 1068; as cited in 2 Fletcher's Encyclopedia, Priv.
Corp. 263, perm. Ed.)
Indeed, it is well-settled that
In its Counterclaim, PWCC asks for moral damages in the amount of not
less than P10,000.00, exemplary damages in the sum of P500,000.00 and
attorney's fees in the sum of P10,000.00.
On 3 November 1973, YKS sent to PWCC a letter (Exhibit "D") as a followup to the 2 November 1973 telegram, but this was returned to sender
as unclaimed. 13
21
Issues having been joined, the trial court conducted a pre-trial. 22 On that
occasion, the parties admitted that according to the By-Laws of PWCC,
the Chairman of the Board, who is also the President of the corporation,
"has the power to execute and sign, for and in behalf of the corporation,
all contracts or agreements which the corporation enters into," subject to
the qualification that "all the president's actuations, prior to and after he
had signed and executed said contracts, shall be given to the board of
directors of defendant Corporation." Furthermore, it was likewise stated
for the record "that the corporation is a semi-subsidiary of the
government because of the NIDC participation in the same, and that all
contracts of the corporation should meet the approval of the NIDC and/or
the PNB Board because of an exposure and financial involvement of
around P10 million therein. 23
During the trial, PWCC presented evidence to prove that Exhibit "A" is not
binding upon it because Mr. Maglana was not authorized to make the
offer and sign the contract in behalf of the corporation. Per its By-Laws
(Exhibit "8"), only the Board of Directors has the power . . . (7) To enter
into (sic) agreement or contract of any kind with any person in the name
and for and in behalf of the corporation through its President, subject only
to the declared objects and purpose of the corporation and the existing
provisions of law. 24 Among the powers of the President is "to operate and
conduct the business of the corporation according to his own judgment
and discretion, whenever the same is not expressly limited by such
orders, directives or resolutions." 25 Per standard practice of the
corporation, contracts should first pass through the marketing and
intelligence unit before they are finalized. Because of its interest in the
PWCC, the NIDC, through its comptroller, goes over contracts involving
funds of and white cement produced by the PWCC. Finally, among the
duties of its legal counsel is to review proposed contracts before they are
submitted to the Board. While the president. may be tasked with the
preparation of a contract, it must first pass through the legal counsel and
the comptroller of the corporation. 26
On 20 November 1975, after trial on the merits, the court handed down
its decision in favor of herein petitioner, the dispositive portion of which
reads:
27
further ruled that the By-Laws, does not require that Exhibit "A" be
approved by the Board of Directors. Finally, in the light of the Chairman's
power to "execute and sign for and in behalf of the corporation all
contracts or agreements which the corporation may enter into" (Exhibit
"I-1"), it concluded that Mr. Maglana merely followed the By-Laws
"presumably both as president and chairman of the board
thereof." 30 Hence, Exhibit "A" was validly entered into by Maglana and
thus binds the corporation.
The trial court, however, ruled that the option to sell is not valid because
it is not supported by any consideration distinct from the price; it was
exercised before compliance with the original contract by PWCC; and the
repudiation of the original contract by PWCC was deemed a withdrawal of
the option before acceptance by the petitioner.
Both parties appealed from the said decision to the respondent Court of
Appeals before which petitioner presented the following Assignment of
Errors:
I
THE TRIAL COURT ERRED IN HOLDING THAT THE OPTION
TO RENEW THE CONTRACT OF SALE IS NOT
ENFORCEABLE BECAUSE THE OPTION WAS MADE EVEN
BEFORE THE COMPLIANCE OF (sic) THE ORIGINAL
CONTRACT BY DEFENDANT AND THAT DEFENDANT'S
PROMISE TO SELL IS NOT SUPPORTED BY ANY
CONSIDERATION DISTINCT FROM THE PRICE.
II
THE TRIAL COURT ERRED IN NOT AWARDING TO THE
PLAINTIFF ACTUAL DAMAGES, SUFFICIENT EXEMPLARY
DAMAGES AND ATTORNEY'S FEES AS ALLEGED IN THE
COMPLAINT AND PROVEN DURING THE TRIAL." 31
while the private respondent cited the following errors:
I
THE TRIAL COURT ERRED IN HOLDING THAT EXHIBIT "A"
IS A VALID CONTRACT OR PLAINTIFF CAN CLAIM THAT THE
PROPOSED LETTER-CONTRACT, EXHIBIT "A" IS LEGALLY
ENFORCEABLE, AS THE SAME IS A MERE UNACCEPTED
Before going any further, this Court must first resolve an issue which,
although raised in the Answer of private respondent, was neither pursued
in its appeal before the respondent Court nor in its Comment and
Memorandum in this case. It also eluded the attention of the trial court
and the respondent Court. The issue, which is of paramount importance,
concerns the lack of capacity of plaintiff/petitioner to sue. In the caption
of both the complaint and the instant petition, the plaintiff and the
petitioner, respectively, is:
YAO KA SIN TRADING,
owned and operated by
YAO KA SIN. 40
and is described in the body thereof as "a business concern of single
proprietorship owned and operated by Yao Ka Sin." 41 In the body of the
petition, it is described as "a single proprietorship business concern." 42 It
also appears that, as gathered from the decision of the trial court, no Yao
Ka Sin testified. Instead, one Henry Yao took the witness stand and
testified that he is the "manager of Yao Ka Sin Trading" and "it was in
representation of the plaintiff" that he signed Exhibit "A"43 Under Section
1, Rule 3 of the Rules of Court, only natural or juridical persons or entities
authorized by law may be parties in a civil action. In Juasing Hardware vs.
Mendoza, 44 this Court held that a single proprietorship is neither a
natural person nor a juridical person under Article 44 of the Civil Code; it
is not an entity authorized by law to bring suit in court:
The law merely recognizes the existence of a sole
proprietorship as a form of business organization
conducted for profit by a single individual, and requires
the proprietor or owner thereof to secure licenses and
permits, register the business name, and pair taxes to the
national government. It does not vest juridical or legal
personality upon the sole proprietorship nor empower it
to file or defend an action in court. 45
Accordingly, the proper party plaintiff/petitioner should be YAO KA SIN.
46
The complaint then should have been amended to implead Yao Ka Sin as
plaintiff in substitution of Yao Ka Sin Trading. However, it is now too late
in the history of this case to dismiss this petition and, in effect, nullify all
proceedings had before the trial court and the respondent Court on the
sole ground of petitioner's lack of capacity to sue. Considering that
private respondent did not pursue this issue before the respondent Court
and this Court; that, as We held in Juasing, the defect is merely formal
and not substantial, and an amendment to cure such defect is expressly
Insurance
System 49 and Board of Liquidators vs. Kalaw,
for clothing him with apparent authority.
50
The cases then of Francisco vs. GSIS and Board of Liquidators vs.
Kalaw are hopelessly unavailing to the petitioner. In said cases, this Court
found sufficient evidence, based on the conduct and actuations of the
corporations concerned, of apparent authority conferred upon the officer
involved which bound the corporations on the basis of ratification. In the
first case, it was established that the offer of compromise made by
plaintiff in the letter, Exhibit "A", was validly accepted by the GSIS. The
terms of the trial offer were clear, and over the signature of defendant's
general manager Rodolfo Andal, plaintiff was informed telegraphically
that her proposal had been accepted. It was sent by the GSIS Board
Secretary and defendant did not disown the same. Moreover, in a letter
remitting the payment of P30,000 advanced by her father, plaintiff
quoted verbatim the telegram of acceptance. This was in itself notice to
the corporation of the terms of the allegedly unauthorized telegram.
Notwithstanding this notice, GSIS pocketed the amount and kept silent
about the telegram. This Court then ruled that:
P243,415.62
585,918.17
Associated Sugar
463,860.36
General Securities
86,743.65
Bacolod Murcia
501,030.61
97,884.42
4,365.90
The Court found that sums were taken out of the funds of the Maao Sugar Central Co., Inc. and delivered to these affiliated companies,
and vice versa, without the approval of the Ma-ao Board of Directors, in
violation of Sec. III, Art. 6-A of the by-laws.
The errors assigned in the appeal of the plaintiffs, as appellants,
are as follows:
I.
THE LOWER COURT ERRED IN HOLDING THAT THE
INVESTMENT OF CORPORATE FUNDS OF THE MA-AO SUGAR
CENTRAL CO., INC., IN THE PHILIPPINE FIBER PROCESSING CO.,
INC. WAS NOT A VIOLATION OF SEC. 17- OF THE CORPORATION
LAW.
II.
THE LOWER COURT ERRED IN NOT FINDING THAT THE MAAO SUGAR CENTRAL CO., INC. WAS INSOLVENT.
III.
xxx
xxx
(2) "On the other hand, the Court has noted against plaintiffs that
their contention that Ma-ao Sugar is on the verge of bankruptcy
has not been clearly shown; against this are Exh. C to Exh. C-3
perhaps the best proof that insolvency is still far is that this
action was filed in 1953 and almost seven years have passed
since then without the company apparently getting worse than it
was before; ..." (Decision, pp. 243-244,supra.)
xxx
xxx
xxx
(3) "As to the crop loan anomalies in that instead of giving unto
the planters the entire amount alloted for that, the Central
withheld a certain portion for their own use, as can be seen in
Appendix A of Exh. C-1, while the theory of plaintiffs is that since
between the amount of P3,791,551.78 the crop loan account
payable, and the amount of P1,708,488.22, the crop loan
receivable, there is a difference of P2,083,063.56, this would
indicate that this latter sum had been used by the Central itself
for its own purposes; on the other hand, defendants contend that
the first amount did not represent the totality of the crop loans
obtained from the Bank for the purpose of relending to the
planters, but that it included the Central's own credit line on its
40% share in the standing crop; and that this irregularity
amounts to a grievance by plaintiffs as planters and not as
stockholders, the Court must find that as to this count, there is
really reason to find that said anomaly is not a clear basis for the
derivative suit, first, because plaintiffs' evidence is not very
sufficient to prove clearly the alleged diversion in the face of
defendants' defense; there should have been a showing that the
xxx
xxx
(4) "...; for the Court must admit its limitations and confess that it
cannot pretend to know better than the Board in matters where
the Board has not transgressed any positive statute or by-law
especially where as here, there is the circumstance that
presumably, an impartial representative in the Board of Directors,
the one from the Philippine National Bank, against whom
apparently plaintiffs have no quarrel, does not appear to have
made any protest against the same; the net result will be to hold
that the culpable acts proved are not enough to secure a
dissolution; the Court will only order the correction of abuses,
proved as already mentioned; nor will the Court grant any more
damages one way or the other. (Decision, p. 244,supra.)
On the other hand, the errors assigned in the appeal of the
defendants as appellants are as follows:
I.
THE LOWER COURT ERRED IN ADJUDGING J. AMADO
ARANETA TO PAY TO MA-AO SUGAR CENTRAL CO., INC., THE
AMOUNT OF P46,270.00, WITH 8% INTEREST FROM THE DATE OF
FILING OF THE COMPLAINT.
II.
THE LOWER COURT ERRED IN NOT ORDERING THE
PLAINTIFFS TO PAY THE DEFENDANTS, PARTICULARLY J. AMADO
ARANETA, THE DAMAGES PRAYED FOR IN THE COUNTERCLAIM OF
SAID DEFENDANTS.
The portions of the Decision of the Lower Court assailed by the
defendants as appellants are as follows:
(1) "As to the alleged juggling of books in that the personal
account of J. Amado Araneta of P46,270.00 was closed on
October 31, 1947 by charges transferred to loans receivable nor
was interest paid on this amount, the Court finds that this is
related to charge No. 1, namely, the granting of personal loans to
J. Amado Araneta; it is really true that according to the books,
and as admitted by defendants, J. Amado Araneta secured
personal loans; in 1947, the cash advance to him was
P132,082.00 (Exh. A); the Court has no doubt that this was
against the By-Laws which provided that:
The Directors shall not in any case borrow money
from the Company. (Sec. III, Art. 7);
the Court therefore finds this count to be duly proved;
worse, the Court also finds that as plaintiffs contend, while the
books of the Corporation would show that the last balance of
P46,270.00 was written off as paid, as testified to by Auditor Mr.
Sanchez, the payment appeared to be nothing more than a
transfer of his loan receivable account, stated otherwise, the item
was only transferred from the personal account to the loan
receivable account, so that again the Court considers established
the juggling of the books; and then again, it is also true that the
loans were secured without any interest and while it is true that
in the Directors' meeting of 21 October, 1953, it was resolved to
collect 8%, the Court does not see how such a unilateral action of
the Board could bind the borrowers. Be it stated that defendants
have presented in evidence Exh. 5 photostatic copy of the page
in loan receivable and it is sought to be proved that J. Amado
Araneta's debt was totally paid on 31 October, 1953; to the
Court, in the absence of definite primary proof of actual payment
having found out that there had already been a juggling of books,
it cannot just believe that the amount had been paid as noted in
the books. (Decision, pp. 233-235 of Record on Appeal.)
xxx
xxx
a finding that plaintiffs had been actuated by bad faith, nor is there
anything in the complaint essentially libelous especially as the rule is that
allegations in pleadings where relevant, are privileged even though they
may not be clearly proved afterwards; ..."
As regards defendants' first assignment of error, referring to the
status of the account of J. Amado Araneta in the amount of P46,270.00,
this Court likewise agrees with the finding of the Lower Court that Exhibit
5, photostatic copy of the page on loans receivable does not constitute
definite primary proof of actual payment, particularly in this case where
there is evidence that the account in question was transferred from one
account to another. There is no better substitute for an official receipt and
a cancelled check as evidence of payment.
In the judgment, the lower court ordered the management of the
Ma-ao Sugar Central Co., Inc. "to refrain from making investments in
Acoje Mining, Mabuhay Printing and any other company whose purpose is
not connected with the sugar central business." This portion of the
decision should be reversed because, Sec. 17- of the Corporation Law
allows a corporation to "invest its fund in any other corporation or
business, or for any purpose other than the main purpose for which it was
organized," provided that its board of directors has been so authorized by
the affirmative vote of stockholders holding shares entitling them to
exercise at least two-thirds of the voting power.
IN VIEW OF ALL THE FOREGOING, that part of the judgment which
orders the Ma-ao Sugar Central Co., Inc. "to refrain from making
investments in Acoje Mining, Mabuhay Printing, and any other: company
whose purpose is not connected with the sugar central business," is
reversed. The other parts of the judgment are, affirmed. No special
pronouncement as to costs.
It having been shown that the operation of the Lepanto mines on the part
of Nielson had been suspended during the period set out above within
the purview of the management contract, the next question that needs to
be determined is the effect of such suspension. Stated in another way,
the question now to be determined is whether such suspension had the
effect of extending the period of the management contract for the period
of said suspension. To elucidate this matter, we again need to resort to
the evidence.
For appellant Nielson two witnesses testified, declaring that the
suspension had the effect of extending the period of the contract,
namely, George T. Scholey and Mark Nestle. Scholey was a mining
engineer since 1929, an incorporator, general manager and director of
Nielson and Company; and for some time he was also the vice-president
and director of the Lepanto Company during the pre-war days and, as
such, he was an officer of both appellant and appellee companies. As
vice-president of Lepanto and general manager of Nielson, Scholey
participated in the negotiation of the management contract to the extent
that he initialed the same both as witness and as an officer of both
corporations. This witness testified in this case to the effect that the
standard force majeure clause embodied in the management contract
was taken from similar mining contracts regarding mining operations and
the understanding regarding the nature and effect of said clause was that
when there is suspension of the operation that suspension meant the
extension of the contract. Thus, to the question, "Before the war, what
was the understanding of the people in the particular trend of business
with respect to the force majeure clause?", Scholey answered: "That was
our understanding that the suspension meant the extension of time
lost."6
Mark Nestle, the other witness, testified along similar line. He had been
connected with Nielson since 1937 until the time he took the witness
stand and had been a director, manager, and president of the same
company. When he was propounded the question: "Do you know what
was the custom or usage at that time in connection with force
majeure clause?", Nestle answered, "In the mining world the force
majeure clause is generally considered. When a calamity comes up and
stops the work like in war, flood, inundation or fire, etc., the work is
suspended for the duration of the calamity, and the period of the contract
is extended after the calamity is over to enable the person to do the big
work or recover his money which he has invested, or accomplish what his
obligation is to a third person ."7
And the above testimonial evidence finds support in the very minutes of
the special meeting of the Board of Directors of the Lepanto Company
only because such was given by him against his own interest but also
because it was given before the Board of Directors of Lepanto and in the
presence, of some Nielson officials 10 who, on that occasion were
naturally led to believe that that was the true meaning of the suspension
clause, while the second opinion was merely self-serving and was given
as a mere afterthought.
Appellee also claims that the issue of true intent of the parties was not
brought out in the complaint, but anent this matter suffice it to state that
in paragraph No. 19 of the complaint appellant pleaded that the contract
was extended. 11 This is a sufficient allegation considering that the rules
on pleadings must as a rule be liberally construed.
It is likewise noteworthy that in this issue of the intention of the parties
regarding the meaning and usage concerning the force majeure clause,
the testimony adduced by appellant is uncontradicted. If such were not
true, appellee should have at least attempted to offer contradictory
evidence. This it did not do. Not even Lepanto's President, Mr. V. E.
Lednicky who took the witness stand, contradicted said evidence.
In holding that the suspension of the agreement meant the extension of
the same for a period equivalent to the suspension, We do not have the
least intention of overruling the cases cited by appellee. We simply want
to say that the ruling laid down in said cases does not apply here
because the material facts involved therein are not the same as those
obtaining in the present. The rule of stare decisis cannot be invoked
where there is no analogy between the material facts of the decision
relied upon and those of the instant case.
Thus, in Victorias Planters Association vs. Victorias Milling Company, 51
O.G. 4010, there was no evidence at all regarding the intention of the
parties to extend the contract equivalent to the period of suspension
caused by the war. Neither was there evidence that the parties
understood the suspension to mean extension; nor was there evidence of
usage and custom in the industry that the suspension meant the
extension of the agreement. All these matters, however, obtain in the
instant case.
Again, in the case of Rosario S. Vda. de Lacson vs. Abelardo G. Diaz, 87
Phil. 150, the issue referred to the interpretation of a pre-war contract of
lease of sugar cane lands and the liability of the lessee to pay rent during
and immediately following the Japanese occupation and where the
defendant claimed the right of an extension of the lease to make up for
the time when no cane was planted. This Court, in holding that the years
which the lessee could not use the land because of the war could not be
discounted from the period agreed upon, held that "Nowhere is there any
insinuation that the defendant-lessee was to have possession of lands for
seven years excluding years on which he could not harvest sugar."
Clearly, this ratio decidendi is not applicable to the case at bar wherein
there is evidence that the parties understood the "suspension clause by
force majeure" to mean the extension of the period of agreement.
Lastly, in the case of Lo Ching y So Young Chong Co. vs. Court of Appeals,
et al., 81 Phil. 601, appellant leased a building from appellee beginning
September 13, 1940 for three years, renewable for two years. The
lessee's possession was interrupted in February, 1942 when he was
ousted by the Japanese who turned the same over to German Otto
Schulze, the latter occupying the same until January, 1945 upon the
arrival of the liberation forces. Appellant contended that the period
during which he did not enjoy the leased premises because of his
dispossession by the Japanese had to be deducted from the period of the
lease, but this was overruled by this Court, reasoning that such
dispossession was merely a simple "perturbacion de merohecho y de la
cual no responde el arrendador" under Article 1560 of the old Civil Code
Art. 1664). This ruling is also not applicable in the instant case because in
that case there was no evidence of the intention of the parties that any
suspension of the lease by force majeure would be understood to extend
the period of the agreement.
In resume, there is sufficient justification for Us to conclude that the
cases cited by appellee are inapplicable because the facts therein
involved do not run parallel to those obtaining in the present case.
We shall now consider appellee's defense of laches. Appellee is correct in
its contention that the defense of laches applies independently of
prescription. Laches is different from the statute of limitations.
Prescription is concerned with the fact of delay, whereas laches is
concerned with the effect of delay. Prescription is a matter of time; laches
is principally a question of inequity of permitting a claim to be enforced,
this inequity being founded on some change in the condition of the
property or the relation of the parties. Prescription is statutory; laches is
not. Laches applies in equity, whereas prescription applies at law.
Prescription is based on fixed time, laches is not. (30 C.J.S., p. 522; See
also Pomeroy's Equity Jurisprudence, Vol. 2, 5th ed., p. 177).
The question to determine is whether appellant Nielson is guilty of laches
within the meaning contemplated by the authorities on the matter. In the
leading case of Go Chi Gun, et al. vs. Go Cho, et al., 96 Phil. 622, this
Court enumerated the essential elements of laches as follows:
depletion reserves for 1941; and (3) 10% in the profits for years prior to
1948 amounting to P19,764.70.
With regard to the first claim, the Lepanto's report for the calendar year
of 1954 28 shows that it declared a 10% cash dividend in December,
1941, the amount of which is P175,000.00. The evidence in this
connection (Exhibits L and O) was admitted without objection by counsel
for Lepanto. 29 Nielson claims 10% share in said amount with interest
thereon at 6% per annum. The document (Exhibit L) was even recognized
by Lepanto's President V. L. Lednicky, 30 and this claim is predicated on
the provision of paragraph V of the management contract as modified
pursuant to the proposal of Lepanto at the special meeting of the Board
of Directors on August 21, 1940 (Exh. B), whereby it was provided that
Nielson would be entitled to 10% of any dividends to be declared and
paid during the period of the contract.
With regard to the second claim, Nielson admits that there is no evidence
regarding the amount set aside by Lepanto for depletion reserve for
1941 31 and so the 10% participation claimed thereon cannot be
assessed.
Anent the third claim relative to the 10% participation of Nielson on the
sum of P197,647.08, which appears in Lepanto's annual report for
1948 32 and entered as profit for prior years in the statement of income
and surplus, which amount consisted "almost in its entirety of proceeds
of copper concentrates shipped to the United States during 1947," this
claim should to denied because the amount is not "dividend declared and
paid" within the purview of the management contract.
The fifth assignment of error of appellant refers to the failure of the lower
court to order Lepanto to pay its management fees for January, 1942, and
for the full period of extension amounting to P150,000.00, or P2,500.00 a
month for sixty (60) months, a total of P152,500.00 with interest
thereon from the date of judicial demand.
It is true that the claim of management fee for January, 1942 was not
among the causes of action in the complaint, but inasmuch as the
contract was suspended in February, 1942 and the management fees
asked for included that of January, 1942, the fact that such claim was not
included in a specific manner in the complaint is of no moment because
an appellate court may treat the pleading as amended to conform to the
evidence where the facts show that the plaintiff is entitled to relief other
than what is asked for in the complaint (Alonzo vs. Villamor, 16 Phil. 315).
The evidence shows that the last payment made by Lepanto for
management fee was for November and December, 1941. 33 If, as We
On the other hand, appellee claims that Nielson was not ready and able
to resume the work in the mines, relying mainly on the testimony of Dr.
Juan Nabong, former secretary of both Nielson and Lepanto, given in the
separate case of Nancy Irving Romero vs. Lepanto Consolidated Mining
Company (Civil Case No. 652, CFI, Baguio), to the effect that as far as he
knew "Nielson and Company had not attempted to operate the Lepanto
Consolidated Mining Company because Mr. Nielson was not here in the
Philippines after the last war. He came back later," and that Nielson and
Company had no money nor stocks with which to start the operation. He
was asked by counsel for the appellee if he had testified that way in Civil
Case No. 652 of the Court of First Instance of Baguio, and he answered
that he did not confirm it fully. When this witness was asked by the same
counsel whether he confirmed that testimony, he said that when he
testified in that case he was not fully aware of what happened and that
after he learned more about the officials of the corporation it was only
then that he became aware that Nielson had really sent his men to the
mines along with Mr. Blessing and that he was aware of this fact
personally. He further said that Mr. Nielson was here in 1945 and "he was
going out and contacting his people." 36
Lepanto admits, in its own brief, that Nielson had really insisted in taking
over the management and operation of the mines but that it (Lepanto)
unequivocally refuse to allow it. The following is what appears in the brief
of the appellee:
It was while defendant was in the midst of the rehabilitation work
which was fully described earlier, still reeling under the terrible
devastation and destruction wrought by war on its mine that
Nielson insisted in taking over the management and operation of
the mine. Nielson thus put Lepanto in a position where
defendant, under the circumstances, had to refuse, as in fact it
did, Nielson's insistence in taking over the management and
operation because, as was obvious, it was impossible, as a result
of the destruction of the mine, for the plaintiff to manage and
operate the same and because, as provided in the agreement,
the contract was suspended by reason of the war. The stand of
Lepanto in disallowing Nielson to assume again the management
of the mine in 1945 was unequivocal and cannot be
misinterpreted, infra.37
Based on the foregoing facts and circumstances, and Our conclusion that
the management contract was extended, We believe that Nielson is
entitled to the management fees for the period of extension. Nielson
should be awarded on this claim sixty times its monthly pay of P2,500.00,
or a total of P150,000.00.
In its sixth assignment of error Nielson contends that the lower court
erred in not ordering Lepanto to pay it (Nielson) the 10% share in the
profits of operation realized during the period of five (5) years from the
resumption of its post-war operations of the Mankayan mines, in the total
sum of P2,403,053.20 with interest thereon at the rate of 6% per annum
from February 6, 1958 until full payment. 38
The above claim of Nielson refers to four categories, namely: (1) cash
dividends; (2) stock dividends; (3) depletion reserves; and (4) amount
expended on capital investment.
Anent the first category, Lepanto's report for the calendar year
1954 39 contains a record of the cash dividends it paid up to the date of
said report, and the post-war dividends paid by it corresponding to the
years included in the period of extension of the management contract are
as follows:
POST-WAR
8
10%
November
1949
P 200,000.00
10%
July
1950
300,000.00
10
10%
October
1950
500,000.00
11
20%
December
1950
1,000,000.00
12
20%
March
1951
1,000,000.00
13
20%
June
1951
1,000,000.00
14
20%
September
1951
1,000,000.00
15
40%
December
1951
2,000,000.00
16
20%
March
1952
1,000,000.00
17
20%
May
1952
1,000,000.00
18
20%
July
1952
1,000,000.00
19
20%
September
1952
1,000,000.00
20
20%
December
1952
1,000,000.00
21
20%
March
1953
1,000,000.00
22
20%
June
1953
1,000,000.00
TOTAL
P14,000,000.00
in 1953 and adding the same to the value of the fixed assets as of
December 31, 1953 is P9,755,840.41 43 which the value of the fixed
assets as of December 31, 1952 is P8,463,741.82, the difference being
P1,292,098.69. One-half of this amount is P646,049.34 which would
represent the expenses for capital account up to June, 1953. This amount
added to the value of the fixed assets as of December 31, 1952 would
give a total of P9,109,791.16 which would be the value of fixed assets at
the end of June, 1953.
The increase, therefore, of the value of the fixed assets of Lepanto from
June, 1948 to June, 1953 is P6,943,647.69, which amount represents the
difference between the value of the fixed assets of Lepanto in the year
1948 and in the year 1953, as stated above. On this amount Nielson is
entitled to a share of 10% or to the amount of P694,364.76.
Considering that most of the claims of appellant have been entertained,
as pointed out in this decision, We believe that appellant is entitled to be
awarded attorney's fees, especially when, according to the undisputed
testimony of Mr. Mark Nestle, Nielson obliged himself to pay attorney's
fees in connection with the institution of the present case. In this respect,
We believe, considering the intricate nature of the case, an award of fifty
thousand (P50,000.00) pesos for attorney's fees would be reasonable.
IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse the
decision of the court a quo and enter in lieu thereof another, ordering the
appellee Lepanto to pay appellant Nielson the different amounts as
specified hereinbelow:
(1) 10% share of cash dividends of December, 1941 in the amount of
P17,500.00, with legal interest thereon from the date of the filing of the
complaint;
(2) management fee for January, 1942 in the amount of P2,500.00, with
legal interest thereon from the date of the filing of the complaint;
(3) management fees for the sixty-month period of extension of the
management contract, amounting to P150,000.00, with legal interest
from the date of the filing of the complaint;
(4) 10% share in the cash dividends during the period of extension of the
management contract, amounting to P1,400,000.00, with legal interest
thereon from the date of the filing of the complaint;
(5) 10% of the depletion reserve set up during the period of extension,
amounting to P53,928.88, with legal interest thereon from the date of the
filing of the complaint;
(6) 10% of the expenses for capital account during the period of
extension, amounting to P694,364.76, with legal interest thereon from
the date of the filing of the complaint;
(7) to issue and deliver to Nielson and Co., Inc. shares of stock of Lepanto
Consolidated Mining Co. at par value equivalent to the total of Nielson's
l0% share in the stock dividends declared on November 28, 1949 and
August 22, 1950, together with all cash and stock dividends, if any, as
may have been declared and issued subsequent to November 28, 1949
and August 22, 1950, as fruits that accrued to said shares;
If sufficient shares of stock of Lepanto's are not available to satisfy this
judgment, defendant-appellee shall pay plaintiff-appellant an amount in
cash equivalent to the market value of said shares at the time of default
(12 C.J.S., p. 130), that is, all shares of the stock that should have been
delivered to Nielson before the filing of the complaint must be paid at
their market value as of the date of the filing of the complaint; and all
shares, if any, that should have been delivered after the filing of the
complaint at the market value of the shares at the time Lepanto disposed
of all its available shares, for it is only then that Lepanto placed itself in
condition of not being able to perform its obligation (Article 1160, Civil
Code);
(8) the sum of P50,000.00 as attorney's fees; and
(9) the costs. It is so ordered.
and the aforenamed defendants waived and transferred their rights and
interests over the questioned 823 shares of stock in favor of the plaintiffs,
as follows:
3. That the defendants Ramon L. de la Rama, Paz de la
Rama Battistuzzi and Enzo Battistuzzi will waive, cede,
transfer or other wise convey, as they hereby waive,
cede, transfer and convey, free from all liens and
encumbrances unto the plaintiffs, in such proportion as
the plaintiffs may among themselves determine, all of the
rights, interests, participations or title that the
defendants Ramon L. de la Rama, Paz de la Rama
Battistuzzi Enzo Battistuzzi now have or may have in the
eight hundred twenty-three (823) shares in the capital
stock of the corporation INOCENTES DELA RAMA, INC.'
which were issued in the names of the defendants in the
above-entitled case on or about February 11, 1972, or at
any date thereafter and which shares are the subjectmatter of the present suit.
The compromise agreement was approved by the trial court on
December 4, 1972, 5 As a result, the defendants filed a motion to dismiss
the complaint, on November 19, 1974, upon the grounds: (1) that the
plaintiffs' cause of action had been waived or abandoned; and (2) that
they were estopped from further prosecuting the case since they have, in
effect, acknowledged the validity of the issuance of the disputed 823
shares of stock. The motion was denied on January 2, 1975. 6
The defendants also filed a motion to declare the defendants Ramon L.
de la Rama, Paz de la Rama Battistuzzi and Enzo Battistuzzi in contempt
of court, for having violated the writ of preliminary injunction when they
entered into the aforesaid compromise agreement with the plaintiffs, but
the respondent judge denied the said motion for lack of merit. 7
On February 10, 1975, the defendants filed a motion for the
reconsideration of the order denying their motion to dismiss the
complaint' and subsequently, an Addendum thereto, claiming that the
respondent court has no jurisdiction to interfere with the management of
the corporation by the board of directors, and the enactment of a
resolution by the defendants, as members of the board of directors of the
corporation, allowing the sale of the 823 shares of stock to the
defendants was purely a management concern which the courts could
not interfere with. When the trial court denied said motion and its
addendum, the defendants filed the instant petition for certiorari for the
review of said orders.
(i) October 28, 1947: Fairwood & Co., for 1,000 tons, $210.00 per
short ton, c.i.f., Pacific ports, delivery: January, 1948. This
contract was assigned to Pacific Vegetable Co.
(a) July 30, 1947: Alexander Adamson & Co., for 2,000 long tons,
$167.00: per ton, f. o. b., delivery: August and September, 1947.
This contract was later assigned to Louis Dreyfus & Co.
(Overseas) Ltd.
(b) August 14, 1947: Alexander Adamson & Co., for 2,000 long
tons $145.00 per long ton, f.o.b., Philippine ports, to be shipped:
September-October, 1947. This contract was also assigned to
Louis Dreyfus & Co. (Overseas) Ltd.
(c) August 22, 1947: Pacific Vegetable Co., for 3,000 tons,
$137.50 per ton, delivery: September, 1947.
(d) September 5, 1947: Spencer Kellog & Sons, for 1,000 long
tons, $160.00 per ton, c.i.f., Los Angeles, California, delivery:
November, 1947.
(e) September 9, 1947: Franklin Baker Division of General Foods
Corporation, for 1,500 long tons, $164,00 per ton, c.i.f., New York,
to be shipped in November, 1947.
(f) September 12, 1947: Louis Dreyfus & Co. (Overseas) Ltd., for
3,000 long tons, $154.00 per ton, f.o.b., 3 Philippine ports,
delivery: November, 1947.
(g) September 13, 1947: Juan Cojuangco, for 2,000 tons, $175.00
per ton, delivery: November and December, 1947. This contract
was assigned to Pacific Vegetable Co.
(h) October 27, 1947: Fairwood & Co., for 1,000 tons, $210.00 per
short ton, c.i.f., Pacific ports, delivery: December, 1947 and
Buyers
Pacific Vegetable Oil
Tons
Delivered
Undeliver
ed
2,386.45
4,613.55
Spencer Kellog
None
1,000
Franklin Baker
1,000
500
800
2,200
1,150
850
Louis Dreyfus
Louis Dreyfus (Adamson contract of July
30, 1947)
Louis Dreyfus (Adamson Contract of
August 14, 1947)
TOTALS
1,755
245
7,091.45
9,408.55
corporation, within the three year period just mentioned, "is authorized
and empowered to convey all of its property to trustees for the benefit of
members, stockholders, creditors, and others interested." 8
It is defendants' pose that their case comes within the coverage of the
second method. They reason out that suit was commenced in February,
1949; that by Executive Order 372, dated November 24, 1950, NACOCO,
together with other government-owned corporations, was abolished, and
the Board of Liquidators was entrusted with the function of settling and
closing its affairs; and that, since the three year period has elapsed, the
Board of Liquidators may not now continue with, and prosecute, the
present case to its conclusion, because Executive Order 372 provides in
Section 1 thereof that
Sec.1. The National Abaca and Other Fibers Corporation, the
National Coconut Corporation, the National Tobacco Corporation,
the National Food Producer Corporation and the former enemyowned or controlled corporations or associations, . . . are hereby
abolished. The said corporations shall be liquidated in accordance
with law, the provisions of this Order, and/or in such manner as
the President of the Philippines may direct; Provided, however,
That each of the said corporations shall nevertheless be
continued as a body corporate for a period of three (3) years from
the effective date of this Executive Order for the purpose of
prosecuting and defending suits by or against it and of enabling
the Board of Liquidators gradually to settle and close its affairs,
to dispose of and, convey its property in the manner hereinafter
provided.
Citing Mr. Justice Fisher, defendants proceed to argue that even where it
may be found impossible within the 3 year period to reduce disputed
claims to judgment, nonetheless, "suits by or against a corporation abate
when it ceases to be an entity capable of suing or being sued" (Fisher,
The Philippine Law of Stock Corporations, pp. 390-391). Corpus Juris
Secundum likewise is authority for the statement that "[t]he dissolution
of a corporation ends its existence so that there must be statutory
authority for prolongation of its life even for purposes of pending
litigation"9 and that suit "cannot be continued or revived; nor can a valid
judgment be rendered therein, and a judgment, if rendered, is not only
erroneous, but void and subject to collateral attack." 10 So it is, that
abatement of pending actions follows as a matter of course upon the
expiration of the legal period for liquidation, 11 unless the statute merely
requires a commencement of suit within the added time. 12 For, the court
cannot extend the time alloted by statute. 13
We, however, express the view that the executive order abolishing
NACOCO and creating the Board of Liquidators should be examined in
context. The proviso in Section 1 of Executive Order 372, whereby the
corporate existence of NACOCO was continued for a period of three years
from the effectivity of the order for "the purpose of prosecuting and
defending suits by or against it and of enabling the Board of Liquidators
gradually to settle and close its affairs, to dispose of and convey its
property in the manner hereinafter provided", is to be read not as an
isolated provision but in conjunction with the whole. So reading, it will be
readily observed that no time limit has been tacked to the existence of
the Board of Liquidators and its function of closing the affairs of the
various government owned corporations, including NACOCO.
By Section 2 of the executive order, while the boards of directors of the
various corporations were abolished, their powers and functions and
duties under existing laws were to be assumed and exercised by the
Board of Liquidators. The President thought it best to do away with the
boards of directors of the defunct corporations; at the same time,
however, the President had chosen to see to it that the Board of
Liquidators step into the vacuum. And nowhere in the executive order
was there any mention of the lifespan of the Board of Liquidators. A
glance at the other provisions of the executive order buttresses our
conclusion. Thus, liquidation by the Board of Liquidators may, under
section 1, proceed in accordance with law, the provisions of the executive
order, "and/or in such manner as the President of the Philippines may
direct." By Section 4, when any property, fund, or project is transferred to
any governmental instrumentality "for administration or continuance of
any project," the necessary funds therefor shall be taken from the
corresponding special fund created in Section 5. Section 5, in turn, talks
of special funds established from the "net proceeds of the liquidation" of
the various corporations abolished. And by Section, 7, fifty per centum of
the fees collected from the copra standardization and inspection service
shall accrue "to the special fund created in section 5 hereof for the
rehabilitation and development of the coconut industry." Implicit in all
these, is that the term of life of the Board of Liquidators is without time
limit. Contemporary history gives us the fact that the Board of Liquidators
still exists as an office with officials and numerous employees continuing
the job of liquidation and prosecution of several court actions.
Not that our views on the power of the Board of Liquidators to proceed to
the final determination of the present case is without jurisprudential
support. The first judicial test before this Court is National Abaca and
Other Fibers Corporation vs. Pore, L-16779, August 16, 1961. In that case,
the corporation, already dissolved, commenced suit within the three-year
extended period for liquidation. That suit was for recovery of money
advanced to defendant for the purchase of hemp in behalf of the
Long before the disputed contracts came into being, Kalaw contracted
by himself alone as general manager for forward sales of copra. For
the fiscal year ending June 30, 1947, Kalaw signed some 60 such
contracts for the sale of copra to divers parties. During that period, from
those copra sales, NACOCO reaped a gross profit of P3,631,181.48. So
pleased was NACOCO's board of directors that, on December 5, 1946, in
Kalaw's absence, it voted to grant him a special bonus "in recognition of
the signal achievement rendered by him in putting the Corporation's
business on a self-sufficient basis within a few months after assuming
office, despite numerous handicaps and difficulties."
These previous contract it should be stressed, were signed by
Kalaw without prior authority from the board. Said contracts were known
all along to the board members. Nothing was said by them. The aforesaid
contracts stand to prove one thing: Obviously, NACOCO board met the
difficulties attendant to forward sales by leaving the adoption of means to
end, to the sound discretion of NACOCO's general manager Maximo M.
Kalaw.
Liberally spread on the record are instances of contracts executed by
NACOCO's general manager and submitted to the board after their
consummation, not before. These agreements were not Kalaw's alone.
One at least was executed by a predecessor way back in 1940, soon after
NACOCO was chartered. It was a contract of lease executed on November
16, 1940 by the then general manager and board chairman, Maximo
Rodriguez, and A. Soriano y Cia., for the lease of a space in Soriano
Building On November 14, 1946, NACOCO, thru its general manager
Kalaw, sold 3,000 tons of copra to the Food Ministry, London, thru
Sebastian Palanca. On December 22, 1947, when the controversy over
the present contract cropped up, the board voted to approve a lease
contract previously executed between Kalaw and Fidel Isberto and
Ulpiana Isberto covering a warehouse of the latter. On the same date, the
board gave its nod to a contract for renewal of the services of Dr. Manuel
L. Roxas. In fact, also on that date, the board requested Kalaw to report
for action all copra contracts signed by him "at the meeting immediately
following the signing of the contracts." This practice was observed in a
later instance when, on January 7, 1948, the board approved two
previous contracts for the sale of 1,000 tons of copra each to a certain
"SCAP" and a certain "GNAPO".
And more. On December 19, 1946, the board resolved to ratify the
brokerage commission of 2% of Smith, Bell and Co., Ltd., in the sale of
4,300 long tons of copra to the French Government. Such ratification was
necessary because, as stated by Kalaw in that same meeting, "under an
existing resolution he is authorized to give a brokerage fee of only 1% on
sales of copra made through brokers." On January 15, 1947, the
4. But if more were required, we need but turn to the board's ratification
of the contracts in dispute on January 30, 1948, though it is our (and the
lower court's) belief that ratification here is nothing more than a mere
formality.
Indeed, our law pronounces that "[r]atification cleanses the contract from
all its defects from the moment it was constituted." 32 By corporate
confirmation, the contracts executed by Kalaw are thus purged of
whatever vice or defect they may have. 33
In sum, a case is here presented whereunder, even in the face of an
express by-law requirement of prior approval, the law on corporations is
not to be held so rigid and inflexible as to fail to recognize equitable
considerations. And, the conclusion inevitably is that the embattled
contracts remain valid.
5. It would be difficult, even with hostile eyes, to read the record in terms
of "bad faith and/or breach of trust" in the board's ratification of the
contracts without prior approval of the board. For, in reality, all that we
have on the government's side of the scale is that the board knew that
the contracts so confirmed would cause heavy losses.
As we have earlier expressed, Kalaw had authority to execute the
contracts without need of prior approval. Everybody, including Kalaw
himself, thought so, and for a long time. Doubts were first thrown on the
way only when the contracts turned out to be unprofitable for NACOCO.
Rightfully had it been said that bad faith 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
thru some motive or interest or ill will; it partakes of the nature of
fraud.34 Applying this precept to the given facts herein, we find that there
was no "dishonest purpose," or "some moral obliquity," or "conscious
Nor was it even intimated here that the NACOCO directors acted for
personal reasons, or to serve their own private interests, or to pocket
money at the expense of the corporation. 35 We have had occasion to
affirm that bad faith contemplates a "state of mind affirmatively
operating with furtive design or with some motive of self-interest or ill will
or for ulterior purposes." 36 Briggs vs. Spaulding, 141 U.S. 132, 148-149,
35 L. ed. 662, 669, quotes with approval from Judge Sharswood (in
Spering's App., 71 Pa. 11), the following: "Upon a close examination of all
the reported cases, although there are many dicta not easily reconcilable,
yet I have found no judgment or decree which has held directors to
account, except when they have themselves been personally guilty of
some fraud on the corporation, or have known and connived at some
fraud in others, or where such fraud might have been prevented had they
given ordinary attention to their duties. . . ." Plaintiff did not even dare
charge its defendant-directors with any of these malevolent acts.
The typhoons were known to plaintiff. In fact, NACOCO resisted the suits
filed by Louis Dreyfus & Co. by pleading in its answers force majeure as
an affirmative defense and there vehemently asserted that "as a result of
the said typhoons, extensive damage was caused to the coconut trees in
the copra producing regions of the Philippines and according to estimates
of competent authorities, it will take about one year until the coconut
producing regions will be able to produce their normal coconut yield and
it will take some time until the price of copra will reach normal levels;"
and that "it had never been the intention of the contracting parties in
entering into the contract in question that, in the event of a sharp rise in
the price of copra in the Philippine market produce by force majeureor by
caused beyond defendant's control, the defendant should buy the copra
contracted for at exorbitant prices far beyond the buying price of the
plaintiff under the contract." 40
38
39
The facts yield the answer. Four typhoons wreaked havoc then on our
copra-producing regions. Result: Copra production was impaired, prices
spiralled, warehouses destroyed. Quick turnovers could not be expected.
NACOCO was not alone in this misfortune. The record discloses that
private traders, old, experienced, with bigger facilities, were not spared;
also suffered tremendous losses. Roughly estimated, eleven principal
trading concerns did run losses to about P10,300,000.00. Plaintiff's
witness Sisenando Barretto, head of the copra marketing department of
NACOCO, observed that from late 1947 to early 1948 "there were many
produce profits and higher than those prevailing in the local market.
Plaintiff's witness, Barretto, categorically stated that "it would be foolish
to think that one would sign (a) contract when you are going to lose
money" and that no contract was executed "at a price unsafe for the
Nacoco." 45 Really, on the basis of prices then prevailing, NACOCO
envisioned a profit of around P752,440.00. 46
Kalaw's acts were not the result of haphazard decisions either. Kalaw
invariably consulted with NACOCO's Chief Buyer, Sisenando Barretto, or
the Assistant General Manager. The dailies and quotations from abroad
were guideposts to him.
Kalaw's good faith, and that of the other directors, clinch the case for
defendants. 49
Of course, Kalaw could not have been an insurer of profits. He could not
be expected to predict the coming of unpredictable typhoons. And even
as typhoons supervened Kalaw was not remissed in his duty. He exerted
efforts to stave off losses. He asked the Philippine National Bank to
implement its commitment to extend a P400,000.00 loan. The bank did
not release the loan, not even the sum of P200,000.00, which, in October,
1947, was approved by the bank's board of directors. In frustration, on
December 12, 1947, Kalaw turned to the President, complained about the
bank's short-sighted policy. In the end, nothing came out of the
negotiations with the bank. NACOCO eventually faltered in its contractual
obligations.
That Kalaw cannot be tagged with crassa negligentia or as much as
simple negligence, would seem to be supported by the fact that even as
the contracts were being questioned in Congress and in the NACOCO
board itself, President Roxas defended the actuations of Kalaw. On
December 27, 1947, President Roxas expressed his desire "that the Board
of Directors should reelect Hon. Maximo M. Kalaw as General Manager of
the National Coconut Corporation." 47 And, on January 7, 1948, at a time
when the contracts had already been openly disputed, the board, at its
regular meeting, appointed Maximo M. Kalaw as acting general manager
of the corporation.
Well may we profit from the following passage from Montelibano vs.
Bacolod-Murcia Milling Co., Inc., L-15092, May 18, 1962:
"They (the directors) hold such office charged with the duty to act for the
corporation according to their best judgment, and in so doing they cannot
be controlled in the reasonable exercise and performance of such duty.
Whether the business of a corporation should be operated at a loss
during a business depression, or closed down at a smaller loss, is a purely
business and economic problem to be determined by the directors of the
corporation, and not by the court. It is a well known rule of law that
Viewed in the light of the entire record, the judgment under review must
be, as it is hereby, affirmed.
Without costs. So ordered.
printed Amended Milling Contract form was drawn up. On August 20,
1936, the Board of Directors of the appellee Bacolod-Murcia Milling Co.,
Inc., adopted a resolution (Acts No. 11, Acuerdo No. 1) granting further
concessions to the planters over and above those contained in the
printed Amended Milling Contract. The bone of contention is paragraph 9
of this resolution, that reads as follows:
ACTA No. 11
SESSION DE LA JUNTA DIRECTIVA
AGOSTO 20, 1936
xxx
xxx
xxx
xxx
xxx
Much is made of the circumstance that the report submitted by the Board
of Directors of the appellee company in November 19, 1936 (Exhibit 4)
only made mention of 90%, the planters having agreed to the 60-40
sharing of the sugar set forth in the printed "amended milling contracts",
and did not make any reference at all to the terms of the resolution of
August 20, 1936. But a reading of this report shows that it was not
intended to inventory all the details of the amended contract; numerous
provisions of the printed terms are alao glossed over. The Directors of the
appellee Milling Company had no reason at the time to call attention to
the provisions of the resolution in question, since it contained mostly
modifications in detail of the printed terms, and the only major change
was paragraph 9 heretofore quoted; but when the report was made, that
paragraph was not yet in effect, since it was conditioned on other
centrals granting better concessions to their planters, and that did not
happen until after 1950. There was no reason in 1936 to emphasize a
concession that was not yet, and might never be, in effective operation.
There can be no doubt that the directors of the appellee company had
authority to modify the proposed terms of the Amended Milling Contract
for the purpose of making its terms more acceptable to the other
contracting parties. The rule is that
It is a question, therefore, in each case of the logical relation of
the act to the corporate purpose expressed in the charter. If that
act is one which is lawful in itself, and not otherwise prohibited, is
done for the purpose of serving corporate ends, and is reasonably
tributary to the promotion of those ends, in a substantial, and not
in a remote and fanciful sense, it may fairly be considered within
charter powers. The test to be applied is whether the act in
question is in direct and immediate furtherance of the
corporation's business, fairly incident to the express powers and
reasonably necessary to their exercise. If so, the corporation has
the power to do it; otherwise, not. (Fletcher Cyc. Corp., Vol. 6,
Rev. Ed. 1950, pp. 266-268)
As the resolution in question was passed in good faith by the board of
directors, it is valid and binding, and whether or not it will cause losses or
decrease the profits of the central, the court has no authority to review
them.
They hold such office charged with the duty to act for the
corporation according to their best judgment, and in so doing
they cannot be controlled in the reasonable exercise and
performance of such duty. Whether the business of a corporation
should be operated at a loss during depression, or close down at
64.2%
for 1952-53;
64.3%
for 1953-54;
64.5%
63.5%
for 1955-56,
PHILIPPINE
STOCK
EXCHANGE,
INC., petitioner,
vs. THE
HONORABLE COURT OF APPEALS, SECURITIES AND
EXCHANGE COMMISSION and PUERTO AZUL LAND,
INC., respondents.
DECISION
the appellee Bacolod-Murcia Milling Company is, under the terms of its
Resolution of August 20, 1936, duty bound to grant similar increases to
plaintiffs-appellants herein.
WHEREFORE, the decision under appeal is reversed and set aside; and
judgment is decreed sentencing the defendant-appellee to pay plaintiffsappellants the differential or increase of participation in the milled sugar
in accordance with paragraph 9 of the appellee Resolution of August 20,
1936, over and in addition to the 60% expressed in the printed Amended
Milling Contract, or the value thereof when due, as follows:
0,333% to appellants Montelibano for the 1951-1952 crop year,
said appellants having received an additional 2% corresponding
to said year in October, 1953;
2.333% to appellant Gonzaga & Co., for the 1951-1952 crop year;
and to all appellants thereafter
4.2% for the 1952-1953 crop year;
The facts of the case are undisputed, and are hereby restated in
sum.
The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation,
had sought to offer its shares to the public in order to raise funds
allegedly to develop its properties and pay its loans with several banking
institutions. In January, 1995, PALI was issued a Permit to Sell its shares
to the public by the Securities and Exchange Commission (SEC). To
facilitate the trading of its shares among investors, PALI sought to course
the trading of its shares through the Philippine Stock Exchange, Inc.
(PSE), for which purpose it filed with the said stock exchange an
application to list its shares, with supporting documents attached.
On February 8, 1996, the Listing Committee of the PSE, upon a
perusal of PALIs application, recommended to the PSEs Board of
Governors the approval of PALIs listing application.
On February 14, 1996, before it could act upon PALIs application,
the Board of Governors of PSE received a letter from the heirs of
Ferdinand E. Marcos, claiming that the late President Marcos was the
legal and beneficial owner of certain properties forming part of the Puerto
Azul Beach Hotel and Resort Complex which PALI claims to be among its
assets and that the Ternate Development Corporation, which is among
the stockholders of PALI, likewise appears to have been held and continue
to be held in trust by one Rebecco Panlilio for then President Marcos and
now, effectively for his estate, and requested PALIs application to be
deferred. PALI was requested to comment upon the said letter.
PALIs answer stated that the properties forming part of Puerto Azul
Beach Hotel and Resort Complex were not claimed by PALI as its
assets. On the contrary, the resort is actually owned by Fantasia Filipina
Resort, Inc. and the Puerto Azul Country Club, entities distinct from PALI.
Furthermore, the Ternate Development Corporation owns only 1.20% of
PALI. The Marcoses responded that their claim is not confined to the
facilities forming part of the Puerto Azul Hotel and Resort Complex,
thereby implying that they are also asserting legal and beneficial
ownership of other properties titled under the name of PALI.
On February 20, 1996, the PSE wrote Chairman Magtanggol
Gunigundo of the Presidential Commission on Good Government (PCGG)
requesting for comments on the letter of the PALI and the Marcoses. On
March 4, 1996, the PSE was informed that the Marcoses received a
Temporary Restraining Order on the same date, enjoining the Marcoses
from, among others, further impeding, obstructing, delaying or
interfering in any manner by or any means with the consideration,
processing and approval by the PSE of the initial public offering of PALI.
The TRO was issued by Judge Martin S. Villarama, Executive Judge of the
RTC of Pasig City in Civil Case No. 65561, pending in Branch 69 thereof.
PSE should require PALI to submit full disclosure of material facts and
information to protect the investing public. In this regard, PALI is hereby
ordered to amend its registration statements filed with the Commission
to incorporate the full disclosure of these material facts and information.
Dissatisfied with this ruling, the PSE filed with the Court of Appeals
on May 17, 1996 a Petition for Review (with application for Writ of
Preliminary Injunction and Temporary Restraining Order), assailing the
above mentioned orders of the SEC, submitting the following as errors of
the SEC:
I. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF
DISCRETION IN ISSUING THE ASSAILED ORDERS WITHOUT
POWER, JURISDICTION, OR AUTHORITY; SEC HAS NO POWER
TO ORDER THE LISTING AND SALE OF SHARES OF PALI
WHOSE ASSETS ARE SEQUESTERED AND TO REVIEW AND
SUBSTITUTE DECISIONS OF PSE ON LISTING APPLICATIONS;
II. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF
DISCRETION IN FINDING THAT PSE ACTED IN AN ARBITRARY
AND ABUSIVE MANNER IN DISAPPROVING PALIS LISTING
APPLICATION;
III. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID FOR
ALLOWING
FURTHER
DISPOSITION
OF
PROPERTIES
IN CUSTODIA
LEGIS AND
WHICH
FORM
PART
OF
NAVAL/MILITARY RESERVATION; AND
IV. THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY
PROMULGATED
AND
ITS
IMPLEMENTATION
AND
APPLICATION IN THIS CASE VIOLATES THE DUE PROCESS
CLAUSE OF THE CONSTITUTION.
On June 4, 1996, PALI filed its Comment to the Petition for Review
and subsequently, a Comment and Motion to Dismiss. On June 10, 1996,
PSE filed its Reply to Comment and Opposition to Motion to Dismiss.
On June 27, 1996, the Court of Appeals promulgated its Resolution
dismissing the PSEs Petition for Review. Hence, this Petition by the PSE.
The appellate court had ruled that the SEC had both jurisdiction and
authority to look into the decision of the petitioner PSE, pursuant to
Section 3[3] of the Revised Securities Act in relation to Section 6(j) and
6(m)[4] of P.D. No. 902-A, and Section 38(b) [5] of the Revised Securities
Act, and for the purpose of ensuring fair administration of the exchange.
Both as a corporation and as a stock exchange, the petitioner is subject
to public respondents jurisdiction, regulation and control. Accepting the
argument that the public respondent has the authority merely to
supervise or regulate, would amount to serious consequences,
been settled by a final judgment; and the final decree having been
registered, they can no longer be re-opened considering that the one
year period has already passed. Lastly, the determination of what
standard to apply in allowing PALIs application for listing, whether the
discretion method or the system of public disclosure adhered to by the
SEC, should be addressed to the Securities Commission, it being the
government agency that exercises both supervisory and regulatory
authority over all corporations.
On August 15, 1996, the PSE, after it was granted an extension, filed
an instant Petition for Review on Certiorari, taking exception to the
rulings of the SEC and the Court of Appeals. Respondent PALI filed its
Comment to the petition on October 17, 1996. On the same date, the
PCGG filed a Motion for Leave to file a Petition for Intervention. This was
followed up by the PCGGs Petition for Intervention on October 21,
1996. A supplemental Comment was filed by PALI on October 25,
1997. The Office of the Solicitor General, representing the SEC and the
Court of Appeals, likewise filed its Comment on December 26, 1996. In
answer to the PCGGs motion for leave to file petition for intervention,
PALI filed its Comment thereto on January 17, 1997, whereas the PSE filed
its own Comment on January 20, 1997.
On February 25, 1996, the PSE filed its Consolidated Reply to the
comments of respondent PALI (October 17, 1996) and the Solicitor
General (December 26, 1996). On may 16, 1997, PALI filed its Rejoinder
to the said consolidated reply of PSE.
PSE submits that the Court of Appeals erred in ruling that the SEC
had authority to order the PSE to list the shares of PALI in the stock
exchange. Under presidential decree No. 902-A, the powers of the SEC
over stock exchanges are more limited as compared to its authority over
ordinary corporations. In connection with this, the powers of the SEC
over stock exchanges under the Revised Securities Act are specifically
enumerated, and these do not include the power to reverse the decisions
of the stock exchange. Authorities are in abundance even in the United
States, from which the countrys security policies are patterned, to the
effect of giving the Securities Commission less control over stock
exchanges, which in turn are given more lee-way in making the decision
whether or not to allow corporations to offer their stock to the public
through the stock exchange. This is in accord with the business
judgment rule whereby the SEC and the courts are barred from intruding
into business judgments of corporations, when the same are made in
good faith. The said rule precludes the reversal of the decision of the PSE
to deny PALIs listing application, absent a showing a bad faith on the
part of the PSE. Under the listing rule of the PSE, to which PALI had
previously agreed to comply, the PSE retains the discretion to accept or
reject applications for listing. Thus, even if an issuer has complied with
the PSE listing rules and requirements, PSE retains the discretion to
accept or reject the issuers listing application if the PSE determines that
the listing shall not serve the interests of the investing public.
Moreover, PSE argues that the SEC has no jurisdiction over
sequestered corporations, nor with corporations whose properties are
under sequestration. A reading of Republic of the Philippines vs.
Sandiganbayan, G.R. No. 105205, 240 SCRA 376, would reveal that the
properties of PALI, which were derived from the Ternate Development
Corporation (TDC) and the Monte del Sol Development Corporation
(MSDC), are under sequestration by the PCGG, and the subject of
forfeiture proceedings in the Sandiganbayan. This ruling of the Court is
the law of the case between the Republic and the TDC and MSDC. It
categorically declares that the assets of these corporations were
sequestered by the PCGG on March 10, 1986 and April 4, 1988.
It is, likewise, intimidated that the Court of Appeals sanction that
PALIs ownership over its properties can no longer be questioned, since
certificates of title have been issued to PALI and more than one year has
since lapsed, is erroneous and ignores well settled jurisprudence on land
titles. That a certificate of title issued under the Torrens System is a
conclusive evidence of ownership is not an absolute rule and admits
certain exceptions. It is fundamental that forest lands or military
reservations are non-alienable. Thus, when a title covers a forest reserve
or a government reservation, such title is void.
PSE, likewise, assails the SECs and the Court of Appeals reliance on
the alleged policy of full disclosure to uphold the listing of the PALIs
shares with the PSE, in the absence of a clear mandate for the effectivity
of such policy. As it is, the case records reveal the truth that PALI did not
comply with the listing rules and disclosure requirements. In fact, PALIs
documents supporting its application contained misrepresentations and
misleading statements, and concealed material information. The matter
of sequestration of PALIs properties and the fact that the same form part
of military/naval/forest reservations were not reflected in PALIs
application.
It is undeniable that the petitioner PSE is not an ordinary
corporation, in that although it is clothed with the marking of a corporate
entity, its functions as the primary channel through which the vessels of
capital trade ply. The PSEs relevance to the continued operation and
filtration of the securities transactions in the country gives it a distinct
color of importance such that government intervention in its affairs
becomes justified, if not necessary. Indeed, as the only operational stock
exchange in the country today, the PSE enjoys a monopoly of securities
transactions, and as such, it yields an immense influence upon the
countrys economy.
often been said that the economy moves on the basis of the rise and fall
of stocks being traded. By its economic power, the petitioner certainly
can dictate which and how many users are allowed to sell securities thru
the facilities of a stock exchange, if allowed to interpret its own rules
liberally as it may please. Petitioner can either allow or deny the entry to
the market of securities. To repeat, the monopoly, unless accompanied
by control, becomes subject to abuse; hence, considering public interest,
then it should be subject to government regulation.
The role of the SEC in our national economy cannot be
minimized. The legislature, through the Revised Securities Act,
Presidential Decree No. 902-A, and other pertinent laws, has entrusted to
it the serious responsibility of enforcing all laws affecting corporations
and other forms of associations not otherwise vested in some other
government office.[10]
This is not to say, however, that the PSEs management prerogatives
are under the absolute control of the SEC. The PSE is, after all, a
corporation authorized by its corporate franchise to engage in its
proposed and duly approved business. One of the PSEs main concerns,
as such, is still the generation of profit for its stockholders. Moreover, the
PSE has all the rights pertaining to corporations, including the right to sue
and be sued, to hold property in its own name, to enter (or not to enter)
into contracts with third persons, and to perform all other legal acts
within its allocated express or implied powers.
A corporation is but an association of individuals, allowed to transact
under an assumed corporate name, and with a distinct legal
personality. In organizing itself as a collective body, it waives no
constitutional immunities and perquisites appropriate to such body. [11] As
to its corporate and management decisions, therefore, the state will
generally not interfere with the same. Questions of policy and of
management are left to the honest decision of the officers and directors
of a corporation, and the courts are without authority to substitute their
judgment for the judgment of the board of directors. The board is the
business manager of the corporation, and so long as it acts in good faith,
its orders are not reviewable by the courts.[12]
Thus, notwithstanding the regulatory power of the SEC over the PSE,
and the resultant authority to reverse the PSEs decision in matters of
application for listing in the market, the SEC may exercise such power
only if the PSEs judgment is attended by bad faith. In board of
Liquidators vs. Kalaw,[13] it was held that bad faith does not simply
connote bad judgment or negligence. It imports a dishonest purpose or
some moral obliquity and conscious doing of wrong. It means a breach of
a known duty through some motive or interest of ill will, partaking of the
nature of fraud.
In reaching its decision to deny the application for listing of PALI, the
PSE considered important facts, which in the general scheme, brings to
serious question the qualification of PALI to sell its shares to the public
through the stock exchange. During the time for receiving objections to
the application, the PSE heard from the representative of the late
President Ferdinand E. Marcos and his family who claim the properties of
the private respondent to be part of the Marcos estate. In time, the
PCGG confirmed this claim. In fact, an order of sequestration has been
issued covering the properties of PALI, and suit for reconveyance to the
state has been filed in the Sandiganbayan Court. How the properties
were effectively transferred, despite the sequestration order, from the
TDC and MSDC to Rebecco Panlilio, and to the private respondent PALI, in
only a short span of time, are not yet explained to the Court, but it is
clear that such circumstances give rise to serious doubt as to the
integrity of PALI as a stock issuer. The petitioner was in the right when it
refused application of PALI, for a contrary ruling was not to the best
interest of the general public. The purpose of the Revised Securities Act,
after all, is to give adequate and effective protection to the investing
public against fraudulent representations, or false promises, and the
imposition of worthless ventures. [14]
It is to be observed that the U.S. Securities Act emphasized its
avowed protection to acts detrimental to legitimate business, thus:
The Securities Act, often referred to as the truth in securities Act, was
designed not only to provide investors with adequate information upon
which to base their decisions to buy and sell securities, but also to
protect legitimate business seeking to obtain capital through honest
presentation against competition form crooked promoters and to
prevent fraud in the sale of securities. (Tenth Annual Report, U.S.
Securities and Exchange Commission, p. 14).
As has been pointed out, the effects of such an act are chiefly (1)
prevention of excesses and fraudulent transactions, merely by
requirement of that details be revealed; (2) placing the market during the
early stages of the offering of a security a body of information, which
operating indirectly through investment services and expert investors,
will tend to produce a more accurate appraisal of a security. x x x. Thus,
the Commission may refuse to permit a registration statement to become
effective if it appears on its face to be incomplete or inaccurate in any
material respect, and empower the Commission to issue a stop order
suspending the effectiveness of any registration statement which is found
to include any untrue statement of a material fact or to omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading. (Idem).
Also, as the primary market for securities, the PSE has established
its name and goodwill, and it has the right to protect such goodwill by
maintaining a reasonable standard of propriety in the entities who choose
to transact through its facilities. It was reasonable for PSE, therefore, to
exercise its judgment in the manner it deems appropriate for its business
identity, as long as no rights are trampled upon, and public welfare is
safeguarded.
In this connection, it is proper to observe that the concept of
government absolutism in a thing of the past, and should remain so.
The observation that the title of PALI over its properties is absolute
and can no longer be assailed is of no moment. At this juncture, there is
the claim that the properties were owned by the TDC and MSDC and were
transferred in violation of sequestration orders, to Rebecco Panlilio and
later on to PALI, besides the claim of the Marcoses that such properties
belong to Marcos estate, and were held only in trust by Rebecco
Panlilio. It is also alleged by the petitioner that these properties belong to
naval and forest reserves, and therefore beyond private dominion. If any
of these claims is established to be true, the certificates of title over the
subject properties now held by PALI may be disregarded, as it is an
established rule that a registration of a certificate of title does not confer
ownership over the properties described therein to the person named as
owner. The inscription in the registry, to be effective, must be made in
good faith. The defense of indefeasibility of a Torrens Title does not
extend to a transferee who takes the certificate of title with notice of a
flaw.
In any case, for the purpose of determining whether PSE acted
correctly in refusing the application of PALI, the true ownership of the
properties of PALI need not be determined as an absolute fact. What is
material is that the uncertainty of the properties ownership and
alienability exists, and this puts to question the qualification of PALIs
public offering. In sum, the Court finds that the SEC had acted arbitrarily
in arrogating unto itself the discretion of approving the application for
listing in the PSE of the private respondent PALI, since this is a matter
addressed to the sound discretion of the PSE, a corporate entity, whose
business judgments are respected in the absence of bad faith.
The question as to what policy is, or should be relied upon in
approving the registration and sale of securities in the SEC is not for the
Court to determine, but is left to the sound discretion of the Securities
and Exchange Commission. In mandating the SEC to administer the
Revised Securities Act, and in performing its other functions under
pertinent laws, the Revised Securities Act, under Section 3 thereof, gives
the SEC the power to promulgate such rules and regulations as it may
consider appropriate in the public interest for the enforcement of the said
laws. The second paragraph of Section 4 of the said law, on the other
(ii) has violated or has not complied with the provisions of this Act, or
the rules promulgated pursuant thereto, or any order of the Commission;
(iii) has failed to comply with any of the applicable requirements and
conditions that the Commission may, in the public interest and for the
protection of investors, impose before the security can be registered;
(iv) had been engaged or is engaged or is about to engaged in
fraudulent transactions;
(v)
(vi) does not conduct its business in accordance with law or is engaged
in a business that is illegal or contrary or government rules and
regulations.
(3)
The enterprise or the business of the issuer is not shown to be
sound or to be based on sound business principles;
(4)
An officer, member of the board of directors, or principal
stockholder of the issuer is disqualified to such officer, director or
principal stockholder; or
(5)
The issuer or registrant has not shown to the satisfaction of the
Commission that the sale of its security would not work to the prejudice
to the public interest or as a fraud upon the purchaser or investors.
(Emphasis Ours)
A reading of the foregoing grounds reveals the intention of the
lawmakers to make the registration and issuance of securities dependent,
to a certain extent, on the merits of the securities themselves, and of the
issuer, to be determined by the Securities and Exchange
Commission. This measure was meant to protect the interest of the
investing public against fraudulent and worthless securities, and the SEC
is mandated by law to safeguard these interests, following the policies
and rules therefore provided. The absolute reliance on the full disclosure
method in the registration of securities is, therefore, untenable. At it is,
the Court finds that the private respondent PALI, on at least two points
(nos. 1 and 5) has failed to support the propriety of the issue of its shares
with unfailing clarity, thereby lending support to the conclusion that the
PSE acted correctly in refusing the listing of PALI in its stock
exchange. This does not discount the effectivity of whatever method the
SEC, in the exercise of its vested authority, chooses in setting the
standard for public offerings of corporations wishing to do so. However,
the SEC must recognize and implement the mandate of the law,
particularly the Revised Securities Act, the provisions of which cannot be
amended or supplanted my mere administrative issuance.
In resum, the Court finds that the PSE has acted with justified
circumspection, discounting, therefore, any imputation of arbitrariness
and whimsical animation on its part. Its action in refusing to allow the
listing of PALI in the stock exchange is justified by the law and by the
circumstances attendant to this case.
ACCORDINGLY, in view of the foregoing considerations, the Court
hereby GRANTS the Petition for Review on Certiorari. The decisions of the
Court of Appeals and the Securities and Exchage Commission dated July
27, 1996 and April 24, 1996, respectively, are hereby REVERSED and SET
ASIDE, and a new Judgment is hereby ENTERED, affirming the decision of
the Philippine Stock Exchange to deny the application for listing of the
private respondent Puerto Azul Land, Inc.
SO ORDERED.
share. At the time of the amendment, the outstanding and paid up shares
totalled 30,127,047 with a total par value of P301,270,430.00. It was
contended that according to section 22 of the Corporation Law and
Article VIII of the by-laws of the corporation, the power to amend, modify,
repeal or adopt new by-laws may be delegated to the Board of Directors
only by the affirmative vote of stockholders representing not less than
2/3 of the subscribed and paid up capital stock of the corporation, which
2/3 should have been computed on the basis of the capitalization at the
time of the amendment. Since the amendment was based on the 1961
authorization, petitioner contended that the Board acted without
authority and in usurpation of the power of the stockholders.
As a second cause of action, it was alleged that the authority granted in
1961 had already been exercised in 1962 and 1963, after which the
authority of the Board ceased to exist.
As a third cause of action, petitioner averred that the membership of the
Board of Directors had changed since the authority was given in 1961,
there being six (6) new directors.
As a fourth cause of action, it was claimed that prior to the questioned
amendment, petitioner had all the qualifications to be a director of
respondent corporation, being a Substantial stockholder thereof; that as
a stockholder, petitioner had acquired rights inherent in stock ownership,
such as the rights to vote and to be voted upon in the election of
directors; and that in amending the by-laws, respondents purposely
provided for petitioner's disqualification and deprived him of his vested
right as afore-mentioned hence the amended by-laws are null and void. 1
As additional causes of action, it was alleged that corporations have no
inherent power to disqualify a stockholder from being elected as a
director and, therefore, the questioned act is ultra vires and void; that
Andres M. Soriano, Jr. and/or Jose M. Soriano, while representing other
corporations, entered into contracts (specifically a management contract)
with respondent corporation, which was allowed because the questioned
amendment gave the Board itself the prerogative of determining whether
they or other persons are engaged in competitive or antagonistic
business; that the portion of the amended bylaws which states that in
determining whether or not a person is engaged in competitive business,
the Board may consider such factors as business and family relationship,
is unreasonable and oppressive and, therefore, void; and that the portion
of the amended by-laws which requires that "all nominations for election
of directors ... shall be submitted in writing to the Board of Directors at
least five (5) working days before the date of the Annual Meeting" is
likewise unreasonable and oppressive.
It was, therefore, prayed that the amended by-laws be declared null and
void and the certificate of filing thereof be cancelled, and that individual
respondents be made to pay damages, in specified amounts, to
petitioner.
On October 28, 1976, in connection with the same case, petitioner filed
with the Securities and Exchange Commission an "Urgent Motion for
Production and Inspection of Documents", alleging that the Secretary of
respondent corporation refused to allow him to inspect its records despite
request made by petitioner for production of certain documents
enumerated in the request, and that respondent corporation had been
attempting to suppress information from its stockholders despite a
negative reply by the SEC to its query regarding their authority to do so.
Among the documents requested to be copied were (a) minutes of the
stockholder's meeting field on March 13, 1961, (b) copy of the
management contract between San Miguel Corporation and A. Soriano
Corporation (ANSCOR); (c) latest balance sheet of San Miguel
International, Inc.; (d) authority of the stockholders to invest the funds of
respondent corporation in San Miguel International, Inc.; and (e) lists of
salaries, allowances, bonuses, and other compensation, if any, received
by Andres M. Soriano, Jr. and/or its successor-in-interest.
The "Urgent Motion for Production and Inspection of Documents" was
opposed by respondents, alleging, among others that the motion has no
legal basis; that the demand is not based on good faith; that the motion
is premature since the materiality or relevance of the evidence sought
cannot be determined until the issues are joined, that it fails to show
good cause and constitutes continued harrasment, and that some of the
information sought are not part of the records of the corporation and,
therefore, privileged.
During the pendency of the motion for production, respondents San
Miguel Corporation, Enrique Conde, Miguel Ortigas and Antonio Prieto
filed their answer to the petition, denying the substantial allegations
therein and stating, by way of affirmative defenses that "the action taken
by the Board of Directors on September 18, 1976 resulting in the ...
amendments is valid and legal because the power to "amend, modify,
repeal or adopt new By-laws" delegated to said Board on March 13, 1961
and long prior thereto has never been revoked of SMC"; that contrary to
petitioner's claim, "the vote requirement for a valid delegation of the
power to amend, repeal or adopt new by-laws is determined in relation to
the total subscribed capital stock at the time the delegation of said power
is made, not when the Board opts to exercise said delegated power"; that
petitioner has not availed of his intra-corporate remedy for the
nullification of the amendment, which is to secure its repeal by vote of
the stockholders representing a majority of the subscribed capital stock
Subsequently, a Joint Omnibus Motion for the striking out of the motion
for production and inspection of documents was filed by all the
respondents. This was duly opposed by petitioner. At this juncture,
respondents Emigdio Tanjuatco, Sr. and Eduardo R. Visaya were allowed
to intervene as oppositors and they accordingly filed their oppositionsintervention to the petition.
Miguel International. Inc. and thereafter to decide SEC Cases No. 1375
and 1423 on the merits.
(1) that the petitioner the interest he represents are engaged in business
competitive and antagonistic to that of respondent San Miguel
Corporation, it appearing that the owns and controls a greater portion of
his SMC stock thru the Universal Robina Corporation and the
Consolidated Foods Corporation, which corporations are engaged in
business directly and substantially competing with the allied businesses
of respondent SMC and of corporations in which SMC has substantial
investments. Further, when CFC and Robina had accumulated
investments. Further, when CFC and Robina had accumulated shares in
SMC, the Board of Directors of SMC realized the clear and present danger
that competitors or antagonistic parties may be elected directors and
thereby have easy and direct access to SMC's business and trade secrets
and plans;
(1) Order No. 449, Series of 1977 (SEC Case No. 1375); denying
petitioner's motion for reconsideration, with its supplement, of the order
of the Commission denying in part petitioner's motion for production of
documents, petitioner's motion for reconsideration of the order denying
the issuance of a temporary restraining order denying the issuance of a
temporary restraining order, and petitioner's consolidated motion to
declare respondents in contempt and to nullify the stockholders' meeting;
(2) Order No. 450, Series of 1977 (SEC Case No. 1375), allowing
petitioner to run as a director of respondent corporation but stating that
he should not sit as such if elected, until such time that the Commission
has decided the validity of the bylaws in dispute, and denying deferment
of Item 6 of the Agenda for the annual stockholders' meeting; and
(3) Order No. 451, Series of 1977 (SEC Case No. 1375), denying
petitioner's motion for reconsideration of the order of respondent
Commission denying petitioner's motion for summary judgment;
It is petitioner's assertions, anent the foregoing orders, (1) that
respondent Commission acted with indecent haste and without
circumspection in issuing the aforesaid orders to petitioner's irreparable
damage and injury; (2) that it acted without jurisdiction and in violation of
petitioner's right to due process when it decided en banc an issue not
raised before it and still pending before one of its Commissioners, and
without hearing petitioner thereon despite petitioner's request to have
the same calendared for hearing , and (3) that the respondents acted
oppressively against the petitioner in violation of his rights as a
stockholder, warranting immediate judicial intervention.
It is prayed in the supplemental petition that the SEC orders complained
of be declared null and void and that respondent Commission be ordered
to allow petitioner to undertake discovery proceedings relative to San
On May 17, 1977, respondent SEC, Andres M. Soriano, Jr. and Jose M.
Soriano filed their comment, alleging that the petition is without merit for
the following reasons:
(2) that the amended by law were adopted to preserve and protect
respondent SMC from the clear and present danger that business
competitors, if allowed to become directors, will illegally and unfairly
utilize their direct access to its business secrets and plans for their own
private gain to the irreparable prejudice of respondent SMC, and,
ultimately, its stockholders. Further, it is asserted that membership of a
competitor in the Board of Directors is a blatant disregard of no less that
the Constitution and pertinent laws against combinations in restraint of
trade;
(3) that by laws are valid and binding since a corporation has the
inherent right and duty to preserve and protect itself by excluding
competitors and antogonistic parties, under the law of self-preservation,
and it should be allowed a wide latitude in the selection of means to
preserve itself;
(4) that the delay in the resolution and disposition of SEC Cases Nos.
1375 and 1423 was due to petitioner's own acts or omissions, since he
failed to have the petition to suspend, pendente lite the amended bylaws calendared for hearing. It was emphasized that it was only on April
29, 1977 that petitioner calendared the aforesaid petition for suspension
(preliminary injunction) for hearing on May 3, 1977. The instant petition
being dated May 4, 1977, it is apparent that respondent Commission was
not given a chance to act "with deliberate dispatch", and
(5) that, even assuming that the petition was meritorious was, it has
become moot and academic because respondent Commission has acted
on the pending incidents, complained of. It was, therefore, prayed that
the petition be dismissed.
and guidance of the public that an immediate and final ruling on the
question be made ... "; third: "petitioner was denied due process by SEC"
when "Commissioner de Guzman had openly shown prejudice against
petitioner ... ", and "Commissioner Sulit ... approved the amended bylaws ex-parte and obviously found the same intrinsically valid; and finally:
"to remand the case to SEC would only entail delay rather than serve the
ends of justice."
Respondents Andres M. Soriano, Jr. and Jose M. Soriano similarly pray that
this Court resolve the legal issues raised by the parties in keeping with
the "cherished rules of procedure" that "a court should always strive to
settle the entire controversy in a single proceeding leaving no root or
branch to bear the seeds of future ligiation", citingGayong v. Gayos. 3 To
the same effect is the prayer of San Miguel Corporation that this Court
resolve on the merits the validity of its amended by laws and the rights
and obligations of the parties thereunder, otherwise "the time spent and
effort exerted by the parties concerned and, more importantly, by this
Honorable Court, would have been for naught because the main question
will come back to this Honorable Court for final resolution." Respondent
Eduardo R. Visaya submits a similar appeal.
It is only the Solicitor General who contends that the case should be
remanded to the SEC for hearing and decision of the issues involved,
invoking the latter's primary jurisdiction to hear and decide case
involving intra-corporate controversies.
It is an accepted rule of procedure that the Supreme Court should always
strive to settle the entire controversy in a single proceeding, leaving nor
root or branch to bear the seeds of future litigation. 4 Thus, in Francisco v.
City of Davao, 5 this Court resolved to decide the case on the merits
instead of remanding it to the trial court for further proceedings since the
ends of justice would not be subserved by the remand of the case.
In Republic v. Security Credit and Acceptance Corporation, et al., 6 this
Court, finding that the main issue is one of law, resolved to decide the
case on the merits "because public interest demands an early disposition
of the case", and in Republic v. Central Surety and Insurance
Company, 7 this Court denied remand of the third-party complaint to the
trial court for further proceedings, citing precedent where this Court, in
similar situations resolved to decide the cases on the merits, instead of
remanding them to the trial court where (a) the ends of justice would not
be subserved by the remand of the case; or (b) where public interest
demand an early disposition of the case; or (c) where the trial court had
already received all the evidence presented by both parties and the
Supreme Court is now in a position, based upon said evidence, to decide
the case on its merits. 8 It is settled that the doctrine of primary
jurisdiction has no application where only a question of law is
21
it was said:
engaging in agriculture may hold his stock in such corporations solely for
investment and not for the purpose of bringing about or attempting to
bring about a combination to exercise control of incorporations ... ."
Neither are We persuaded by the claim that the by-law was Intended to
prevent the candidacy of petitioner for election to the Board. If the by-law
were to be applied in the case of one stockholder but waived in the case
of another, then it could be reasonably claimed that the by-law was being
applied in a discriminatory manner. However, the by law, by its terms,
applies to all stockholders. The equal protection clause of the
Constitution requires only that the by-law operate equally upon all
persons of a class. Besides, before petitioner can be declared ineligible to
run for director, there must be hearing and evidence must be submitted
to bring his case within the ambit of the disqualification. Sound principles
of public policy and management, therefore, support the view that a bylaw which disqualifies a competition from election to the Board of
Directors of another corporation is valid and reasonable.
In the absence of any legal prohibition or overriding public policy, wide
latitude may be accorded to the corporation in adopting measures to
protect legitimate corporation interests. Thus, "where the reasonableness
of a by-law is a mere matter of judgment, and upon which reasonable
minds must necessarily differ, a court would not be warranted in
substituting its judgment instead of the judgment of those who are
authorized to make by-laws and who have expressed their authority. 45
Although it is asserted that the amended by-laws confer on the present
Board powers to perpetua themselves in power such fears appear to be
misplaced. This power, but is very nature, is subject to certain well
established limitations. One of these is inherent in the very convert and
definition of the terms "competition" and "competitor". "Competition"
implies a struggle for advantage between two or more forces, each
possessing, in substantially similar if not Identical degree, certain
characteristics essential to the business sought. It means an independent
endeavor of two or more persons to obtain the business patronage of a
third by offering more advantageous terms as an inducement to secure
trade. 46 The test must be whether the business does in fact compete, not
whether it is capable of an indirect and highly unsubstantial duplication
of an isolated or non-characteristics activity. 47 It is, therefore, obvious
that not every person or entity engaged in business of the same kind is a
competitor. Such factors as quantum and place of business, Identity of
products and area of competition should be taken into consideration. It is,
therefore, necessary to show that petitioner's business covers a
substantial portion of the same markets for similar products to the extent
of not less than 10% of respondent corporation's market for competing
products. While We here sustain the validity of the amended by-laws, it
51
The Court voted unanimously to grant the petition insofar as it prays that
petitioner be allowed to examine the books and records of San Miguel
International, Inc., as specified by him.
On the matter of the validity of the amended by-laws of respondent San
Miguel Corporation, six (6) Justices, namely, Justices Barredo, Makasiar,
Antonio, Santos, Abad Santos and De Castro, voted to sustain the validity
per se of the amended by-laws in question and to dismiss the petition
without prejudice to the question of the actual disqualification of
petitioner John Gokongwei, Jr. to run and if elected to sit as director of
respondent San Miguel Corporation being decided, after a new and
proper hearing by the Board of Directors of said corporation, whose
decision shall be appealable to the respondent Securities and Exchange
Commission deliberating and acting en banc and ultimately to this Court.
Unless disqualified in the manner herein provided, the prohibition in the
afore-mentioned amended by-laws shall not apply to petitioner.
The afore-mentioned six (6) Justices, together with Justice Fernando,
voted to declare the issue on the validity of the foreign investment of
respondent corporation as moot.
Chief Justice Fred Ruiz Castro reserved his vote on the validity of the
amended by-laws, pending hearing by this Court on the applicability of
section 13(5) of the Corporation Law to petitioner.
Justice Fernando reserved his vote on the validity of subject amendment
to the by-laws but otherwise concurs in the result.
Four (4) Justices, namely, Justices Teehankee, Concepcion, Jr., Fernandez
and Guerrero filed a separate opinion, wherein they voted against the
validity of the questioned amended bylaws and that this question should
properly be resolved first by the SEC as the agency of primary
jurisdiction. They concur in the result that petitioner may be allowed to
run for and sit as director of respondent SMC in the scheduled May 6,
1979 election and subsequent elections until disqualified after proper
hearing by the respondent's Board of Directors and petitioner's
the consequent effects upon its creation in the light of the provisions of
the Corporation Code.
A voting trust is defined in Ballentine's Law Dictionary as follows:
(a) trust created by an agreement between a group of the
stockholders of a corporation and the trustee or by a
group of identical agreements between individual
stockholders and a common trustee, whereby it is
provided that for a term of years, or for a period
contingent upon a certain event, or until the agreement is
terminated, control over the stock owned by such
stockholders, either for certain purposes or for all
purposes, is to be lodged in the trustee, either with or
without a reservation to the owners, or persons
designated by them, of the power to direct how such
control shall be used. (98 ALR 2d. 379 sec. 1 [d]; 19 Am J
2d Corp. sec. 685).
Under Section 59 of the new Corporation Code which expressly
recognizes voting trust agreements, a more definitive meaning may be
gathered. The said provision partly reads:
Sec. 59. Voting Trusts One or more stockholders of a
stock corporation may create a voting trust for the
purpose of conferring upon a trustee or trustees the right
to vote and other rights pertaining to the share for a
period rights pertaining to the shares for a period not
exceeding five (5) years at any one time: Provided, that
in the case of a voting trust specifically required as a
condition in a loan agreement, said voting trust may be
for a period exceeding (5) years but shall automatically
expire upon full payment of the loan. A voting trust
agreement must be in writing and notarized, and shall
specify the terms and conditions thereof. A certified copy
of such agreement shall be filed with the corporation and
with the Securities and Exchange Commission; otherwise,
said agreement is ineffective and unenforceable. The
certificate or certificates of stock covered by the voting
trust agreement shall be cancelled and new ones shall be
issued in the name of the trustee or trustees stating that
they are issued pursuant to said agreement. In the books
of the corporation, it shall be noted that the transfer in
the name of the trustee or trustees is made pursuant to
said voting trust agreement.
stockholders of ALFA, as one party, and the DBP, as the other party, the
former assigned and transferred all their shares in ALFA to DBP, as
trustee. They argue that by virtue to of the voting trust agreement the
petitioners can no longer be considered directors of ALFA. In support of
their contention, the petitioners invoke section 23 of the Corporation
Code which provides, in part, that:
Every director must own at least one (1) share of the
capital stock of the corporation of which he is a director
which share shall stand in his name on the books of the
corporation. Any director who ceases to be the owner of
at least one (1) share of the capital stock of the
corporation of which he is a director shall thereby cease
to be director . . . (Rollo, p. 270)
The private respondents, on the contrary, insist that the voting trust
agreement between ALFA and the DBP had all the more safeguarded the
petitioners' continuance as officers and directors of ALFA inasmuch as the
general object of voting trust is to insure permanency of the tenure of the
directors of a corporation. They cited the commentaries by Prof. Aguedo
Agbayani on the right and status of the transferring stockholders, to wit:
The "transferring stockholder", also called the "depositing
stockholder", is equitable owner for the stocks
represented by the voting trust certificates and the stock
reversible on termination of the trust by surrender. It is
said that the voting trust agreement does not destroy the
status of the transferring stockholders as such, and thus
render them ineligible as directors. But a more accurate
statement seems to be that for some purposes the
depositing stockholder holding voting trust certificates in
lieu of his stock and being the beneficial owner thereof,
remains and is treated as a stockholder. It seems to be
deducible from the case that he may sue as a stockholder
if the suit is in equity or is of an equitable nature, such as,
a technical stockholders' suit in right of the corporation.
[Commercial Laws of the Philippines by Agbayani, Vol. 3
pp. 492-493, citing 5 Fletcher 326, 327] (Rollo, p. 291)
We find the petitioners' position meritorious.
Both under the old and the new Corporation Codes there is no dispute as
to the most immediate effect of a voting trust agreement on the status of
a stockholder who is a party to its execution from legal titleholder or
owner of the shares subject of the voting trust agreement, he becomes
be deemed to have retained their status as officers of ALFA which was the
case before the execution of the subject voting trust agreement. There
appears to be no dispute from the records that DBP has taken over full
control and management of the firm.
Moreover, in the Certification dated January 24, 1989 issued by the DBP
through one Elsa A. Guevarra, Vice-President of its Special Accounts
Department II, Remedial Management Group, the petitioners were no
longer included in the list of officers of ALFA "as of April 1982." (CA Rollo,
pp. 140-142)
1987, the voting trust agreement in question was not yet terminated so
that the legal title to the stocks of ALFA, then, still belonged to the DBP.
In view of the foregoing, the ultimate issue of whether or not there was
proper service of summons on ALFA through the petitioners is readily
answered in the negative.
Under section 13, Rule 14 of the Revised Rules of Court, it is provided
that:
Sec. 13. Service upon private domestic corporation or
partnership. If the defendant is a corporation organized
under the laws of the Philippines or a partnership duly
registered, service may be made on the president,
manager, secretary, cashier, agent or any of its directors.
It is a basic principle in Corporation Law that a corporation has a
personality separate and distinct from the officers or members who
compose it. (See Sulo ng Bayan Inc. v. Araneta, Inc., 72 SCRA 347 [1976];
Osias Academy v. Department of Labor and Employment, et al., G.R. Nos.
83257-58, December 21, 1990). Thus, the above rule on service of
processes of a corporation enumerates the representatives of a
corporation who can validly receive court processes on its behalf. Not
every stockholder or officer can bind the corporation considering the
existence of a corporate entity separate from those who compose it.
The rationale of the aforecited rule is that service must be made on a
representative so integrated with the corporation sued as to make it a
priori supposable that he will realize his responsibilities and know what
he should do with any legal papers served on him. (Far Corporation v.
Francisco, 146 SCRA 197 [1986] citing Villa Rey Transit, Inc. v. Far East
Motor Corp. 81 SCRA 303 [1978]).
The petitioners in this case do not fall under any of the enumerated
officers. The service of summons upon ALFA, through the petitioners,
therefore, is not valid. To rule otherwise, as correctly argued by the
petitioners, will contravene the general principle that a corporation can
only be bound by such acts which are within the scope of the officer's or
agent's authority. (see Vicente v. Geraldez, 52 SCRA 210 [1973]).
WHEREFORE, premises considered, the petition is hereby GRANTED. The
appealed decision dated March 19, 1990 and the Court of Appeals'
resolution of May 10, 1990 are SET ASIDE and the Orders dated April 25,
1989 and October 17, 1989 issued by the Regional Trial Court of Makati,
Branch 58 are REINSTATED.
SO ORDERED.
The only issue in this case is whether or not the filing of the case for
damages against private respondent was authorized by a duly
constituted Board of Directors of the petitioner corporation.
Petitioner, through the first set of officers, viz., Mario Zavalla, Oscar
Gan, Lionel Pengson, Jose Ma. Silva, Aderito Yujuico and Rodolfo Millare,
presented the Minutes [5] of the meeting of its Board of Directors held
on April 1, 1982, as proof that the filing of the case against private
respondent was authorized by the Board. On the other hand, the second
set of officers, viz., Saturnino G. Belen, Jr., Alberto C. Nograles and Jose
L.R. Reyes, presented a Resolution [6] dated July 30, 1986, to show that
Premium did not authorize the filing in its behalf of any suit against the
private respondent International Corporate Bank.
Later
on,
petitioner
submitted
its
Articles
of
Incorporation[7] dated November 6, 1979 with the following as Directors:
Mario C. Zavalla, Pedro C. Celso, Oscar B. Gan, Lionel Pengson, and Jose
Ma. Silva.
However, it appears from the general information sheet and the
Certification issued by the SEC on August 19, 1986[8] that as of March 4,
1981, the officers and members of the board of directors of the Premium
Marble Resources, Inc. were:
Alberto C. Nograles President/Director
Fernando D. Hilario Vice President/Director
Augusto I. Galace Treasurer
Jose L.R. Reyes Secretary/Director
Pido E. Aguilar Director
action must necessarily fail. The power of the corporation to sue and be
sued in any court is lodged with the board of directors that exercises its
corporate powers. Thus, the issue of authority and the invalidity of
plaintiff-appellants subscription which is still pending, is a matter that is
also addressed, considering the premises, to the sound judgment of the
Securities & Exchange Commission.[9]
By the express mandate of the Corporation Code (Section 26), all
corporations duly organized pursuant thereto are required to submit
within the period therein stated (30 days) to the Securities and Exchange
Commission the names, nationalities and residences of the directors,
trustees and officers elected.
Sec. 26 of the Corporation Code provides, thus:
Sec. 26.
Report of election of directors, trustees and officers.
Within thirty (30) days after the election of the directors, trustees and
officers of the corporation, the secretary, or any other officer of the
corporation, shall submit to the Securities
and Exchange Commission, the names, nationalities and residences of
the directors, trustees and officers elected. xxx
Evidently, the objective sought to be achieved by Section 26 is to
give the public information, under sanction of oath of responsible officers,
of the nature of business, financial condition and operational status of the
company together with information on its key officers or managers so
that those dealing with it and those who intend to do business with it
may know or have the means of knowing facts concerning the
corporations financial resources and business responsibility. [10]
The claim, therefore, of petitioners as represented by Atty.
Dumadag, that Zaballa, et al., are the incumbent officers of Premium has
not been fully substantiated. In the absence of an authority from the
board of directors, no person, not even the officers of the corporation,
can validly bind the corporation. [11]
While the Minutes of the Meeting of the Board on April 1, 1982 states
that the newly elected officers for the year 1982 were Oscar Gan, Mario
Zavalla, Aderito Yujuico and Rodolfo Millare, petitioner failed to show
proof that this election was reported to the SEC. In fact, the last entry in
their General Information Sheet with the SEC, as of 1986 appears to be
the set of officers elected in March 1981.
SO ORDERED.
board of directors had been thus elected and had qualified, they chose a
set of officers constituting of Jose M. Yusay, president, Timoteo Unson,
vice-president, Jose G. Montalvo, secretary-treasurer, and H. W. Corp and
Agustin Coruna, as members. Said officials immediately entered upon the
discharged of their duties and have continued in possession of their
respective offices until the present time.
Since the creation of the voting trust there have been a number of
vacancies caused by resignation or the absence of members from the
Philippine Islands, with the result that various substitutions have been
made in the personnel of the voting trust. At the present time the
petitioners Roxas, Echaus, and Lacson presumably constitute its
membership. We say presumably, because in the present proceedings an
issue of fact is made by the respondents upon the point whether the
three individuals named have been regularly substituted for their several
predecessors. In the view we take of the case it is not necessary to
determine this issue; and we shall assume provisionally that the three
petitioners are the lawful components of the voting trust.
Although the present officers of the Binalbagan Estate, Inc., were
elected by the representative of the voting trust, the present trustee are
apparently desirous of ousting said officers, without awaiting the
termination of their official terms at the expiration of one year from the
date of their election. In other to effect this purpose the petitioners in
their character as members of the voting trust, on August 2, 1926,
caused the secretary of the Binalbagan Estate, Inc., to issue to the
shareholders a notice calling for a special general meeting of
shareholders to be held at 10 a. m., on August 16, 1926, "for the election
of the board of directors, for the amendment of the By-Laws, and for any
other business that can be dealt with in said meeting."
Within a few days after said notice was issued Agustin Corua, as
member of the existing board, and Mauro Ledesma, as a simple
shareholder of the corporation, instituted a civil action (No. 3840) in the
Court of First Instance of Occidental Negros against the trustees and the
Binalbagan Estate, Inc., for the purpose of enjoining the meeting
completed in the notice above-mentioned.
In response to a proper for a preliminary injunction, in connection
with said action, the respondent judge issued the restraining order, or
preliminary injunction, which gave rise to the present petition for the writ
of certiorari. In the dispositive part of said order the Binalbagan Estate,
Inc., its lawyers, agents, representatives, and all others who may be
assisting or corroborating with them, are restrained from holding the
general shareholders' meeting called for the date mentioned and from
directors are de facto incumbents of the office whose acts will be valid
until they shall be lawfully removed from the office or cease from the
discharge of their functions. In this case it is not necessary for us to
agitate ourselves over the question whether the respondent judge
properly exercised his judicial discretion in granting the order complained
of. If suffices to know that in making the order he was acting within the
limits of his judicial powers.
It will be noted that the order in question enjoins the defendants
from holding the meeting called for August 16; and said order must not
be understood as constituting any obstacle for the holding of the regular
meeting at the time appointed in the by-laws of the corporation.
For the reasons stated the petition will be denied, and it is so
ordered, with costs.
A few years later, that is, on March 13, 1991, petitioners Homero
Villasis, Preston 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 WITs 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 corporations fiscal year 1985-1986 (beginning
May 1, 1985 and ending April 30, 1986). The information for falsification
of a public document states:
CONTRARY TO LAW.
Iloilo City, Philippines, November 22,1991.[3] [Underscoring 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 the 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 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 P186,470.70 and subsequently paying themselves every 15 th and
30th of the month starting June 15, 1986 until the present, in the amount
ofP19,500.00 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] [Underscoring 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.
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: xxx [T]he directors
shall not receive any compensation, as such directors, xxx. 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, ViceChairman - P3,500.00/month, Corporate Treasurer - P3,500.00/month
andCorporate Secretary - P3,500.00/month, retroactive June 1, 1985 and
the ten percentum 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.
(Sgd) ANTONI
O S. SALAS
Corporate
Secretary[11] [Underscoring ours]
Clearly, therefore , the prohibition with respect to granting compensation
to corporate directors/trustees as such under Section 30 is not violated in
this particular case. Consequently, the last sentence of Section 30 which
provides:
xxx xxx. 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. [Underscoring
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
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 courts 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 case should have been filed
with the Securities and Exchange Commission (SEC) which exercises
original and exclusive jurisdiction over derivative suits, they being intracorporate 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
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 courts 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 readily be 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
a 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
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
(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.[Underscoring 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. [Underscoring ours]
The acquittal in Criminal Cases Nos. 37097 and 37098 is not merely
based on reasonable doubt but rather on a finding that the accusedprivate 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.
Austin G.E. Taylor, the first residing in Connecticut, U.S.A., and the second
in New York City. While this application for registration was pending
consideration by the Securities and Exchange Commission, SAN JOSE
PETROLEUM filed an amended Statement on June 20, 1958, for
registration of the sale in the Philippines of its shares of capital stock,
which was increased from 2,000,000 to 5,000,000, at a reduced offering
price of from P1.00 to P0.70 per share. At this time the par value of the
shares has also been reduced from $.35 to $.01 per share. 1
In the 1946 Ordinance Appended to the Constitution, this right (to utilize
and exploit our natural resources) was extended to citizens of the United
States, thus:
Notwithstanding the provisions of section one, Article Thirteen,
and section eight, Article Fourteen, of the foregoing Constitution,
during the effectivity of the Executive Agreement entered into by
the President of the Philippines with the President of the United
States on the fourth of July, nineteen hundred and forty-six,
pursuant to the provisions of Commonwealth Act Numbered
Seven hundred and thirty-three, but in no case to extend beyond
the third of July, nineteen hundred and seventy-four, the
disposition, exploitation, development, and utilization of all
agricultural, timber, and mineral lands of the public domain,
waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, and other natural resources of the
Philippines, and the operation of public utilities shall, if open to
any person, be open to citizens of the United States, and to all
forms of business enterprises owned or controlled, directly or
indirectly, by citizens of the United States in the same manner as
to, and under the same conditions imposed upon, citizens of the
Philippines or corporations or associations owned or controlled by
citizens of the Philippines (Emphasis supplied.)
In the 1954 Revised Trade Agreement concluded between the United
States and the Philippines, also known as the Laurel-Langley Agreement,
embodied in Republic Act 1355, the following provisions appear:
ARTICLE VI
1. The disposition, exploitation, development and utilization of all
agricultural, timber, and mineral lands of the public domain,
waters, minerals, coal, petroleum and other mineral oils, all
forces and sources of potential energy, and other natural
resources of either Party, and the operation of public utilities,
shall, if open to any person, be open to citizens of the other Party
and to all forms of business enterprise owned or controlled,
directly or indirectly, by citizens of such other Party in the same
manner as to and under the same conditions imposed upon
citizens or corporations or associations owned or controlled by
citizens of the Party granting the right.
2. The rights provided for in Paragraph 1 may be exercised, . . . in
the case of citizens of the United States, with respect to natural
resources in the public domain in the Philippines, only through
it be for his benefit or for the benefit of any other person, firm,
association or partnership in which he may be interested.
These provisions are in direct opposition to our corporation law and
corporate practices in this country. These provisions alone would outlaw
any corporation locally organized or doing business in this jurisdiction.
Consider the unique and unusual provision that no contract or transaction
between the company and any other association or corporation shall be
affected except in case of fraud, by the fact that any of the directors or
officers of the company may be interested in or are directors or officers of
such other association or corporation; and that none of such contracts or
transactions of this company with any person or persons, firms,
associations or corporations shall be affected by the fact that any director
or officer of this company is a party to or has an interest in such contract
or transaction or has any connection with such person or persons, firms
associations or corporations; and that any and all persons who may
become directors or officers of this company are hereby relieved of all
responsibility which they would otherwise incur by reason of any contract
entered into which this company either for their own benefit, or for the
benefit of any person, firm, association or corporation in which they may
be interested.
The impact of these provisions upon the traditional judiciary relationship
between the directors and the stockholders of a corporation is too
obvious to escape notice by those who are called upon to protect the
interest of investors. The directors and officers of the company can do
anything, short of actual fraud, with the affairs of the corporation even to
benefit themselves directly or other persons or entities in which they are
interested, and with immunity because of the advance condonation or
relief from responsibility by reason of such acts. This and the other
provision which authorizes the election of non-stockholders as directors,
completely disassociate the stockholders from the government and
management of the business in which they have invested.
To cap it all on April 17, 1957, admittedly to assure continuity of the
management and stability of SAN JOSE PETROLEUM, OIL INVESTMENTS,
as holder of the only subscribed stock of the former corporation and
acting "on behalf of all future holders of voting trust certificates," entered
into a voting trust agreement12 with James L. Buckley and Austin E.
Taylor, whereby said Trustees were given authority to vote the shares
represented by the outstanding trust certificates (including those that
may henceforth be issued) in the following manner:
(a) At all elections of directors, the Trustees will designate a
suitable proxy or proxies to vote for the election of directors
It was also therein provided that the said Agreement shall be binding
upon the parties thereto, their successors, and upon all holders of voting
trust certificates.
And these are the voting trust certificates that are offered to investors as
authorized by Security and Exchange Commissioner. It can not be
doubted that the sale of respondent's securities would, to say the least,
work or tend to work fraud to Philippine investors.
FOR ALL THE FOREGOING CONSIDERATIONS, the motion of respondent to
dismiss this appeal, is denied and the orders of the Securities and
Exchange Commissioner, allowing the registration of Respondent's
securities and licensing their sale in the Philippines are hereby set aside.
The case is remanded to the Securities and Exchange Commission for
appropriate action in consonance with this decision. With costs. Let a
copy of this decision be furnished the Solicitor General for whatever
action he may deem advisable to take in the premises. So ordered.
[1]
interest from the date of the decree of the District Court. Dresser v.
Bates, 250 Fed. 525, 162 C. C. A. 541. Dresser's administrator and the
receiver both appeal, the latter contending that the decree of the District
Court should be affirmed with interest and costs.
The bank was a little bank at Cambridge with a capital of $100,000 and
average deposits of somewhere about $300,000. It had a cashier, a
bookkeeper, a teller and a messenger. Before and during the time of the
losses Dresser was its president and executive officer, a large
stockholder, with an inactive deposit of from $35,000 to $50,000. From
July, 1903, to the end, Frank L. Earl was cashier. Coleman, who made the
trouble, entered the service of the bank as messenger in September,
1903. In January, 1904, he was promoted to be bookkeeper, being then
employed upon the work immediately. Coleman kept the deposit ledger
and this was the work that fell into his hands. There was no cage in the
false additions in the column of total checks, and false balances in the
bank, and in 1904 and 1905 there were some small shortages in the
deposit ledger. Then for the moment a safer concealment was effected by
accounts of three successive tellers that were not accounted for, and the
when a bank examiner was expected. Of course when the fraud was
Before doing so he told Dresser that someone had taken the money and
that if he might be allowed to stay he would set a trap and catch the
by calling in the passbooks, or taking all the deposit slips and comparing
man, but Dresser did not care to do that and thought that there was
acted as paying and receiving teller, in addition to his other duty, until
account was $20,000. In 1908 the sum was raised from $33,000 to
the teller's accounts. In May, 1906, Coleman took $2,000 cash from th
vaults of the bank, but restored it the next morning. In November of the
same year he began the thefts that come into question here. Perhaps in
a small account at the bank, he would draw checks for the amount he
wanted, exchange checks with a Boston broker, get cash for the broker's
check, and, when his own check came to the bank through the clearing
considered the matter in September, but concluded that the falling off
house, would abstract it from the envelope, enter the others on his book
handed to the cashier only the slip from the clearing house that showed
wrong to him.
the totals. The cashier paid whatever appeared to be due and thus
Coleman's checks were honored. So far as Coleman thought it necessary,
in view of the absolute trust in him on the part of all concerned, he took
care that his balances should agree with those in the cashier's book.
In this connection it should be mentioned that in the previous semiannual examinations by national bank examiners nothing was discovered
pointing to malfeasance. The cashier was honest and everybody believed
that they could rely upon him, although in fact he relied too much upon
Coleman, who also was unsuspected by all. If Earl had opened the
envelopes from the clearing house, and had seen the checks, or had
reverse the finding of the master and the Circuit Court of Appeals that
examined the deposit ledger with any care he would have found out what
the directors should not be held answerable for taking the cashier's
was going on. The scrutiny of anyone accustomed to such details would
have discovered the false additions and other indicia of fraud that were
was. If he had not been negligent without their knowledge it would have
on the face of the book. But it may be doubted whether anything less
than a continuous pursuit of the figures through pages would have done
their belief that all was well by the president, whose responsibility, as
The question of the liability of the directors in this case is the question
whether they neglected their duty by accepting the cashier's statement
of liabilities and failing to inspect the depositors' ledger. The statements
of assets always were correct. A bylaw that had been allowed to become
obsolete or nearly so is invoked as establishing their own standard of
conduct. By that a committee was to be appointed every six months 'to
examine into the affairs of the bank, to count its cash, and compare its
assets and liabilities with the balances on the general ledger, for the
purpose of ascertaining whether or not the books re correctly kept, and
the condition of the bank in a sound and solvent condition.' Of course
the situation. He was daily at the bank for hours, he had the deposit
ledger in his hands at times and might have had it at any time. He had
is not the direction in which fraud would have been looked for, especially
on the part of one who at the time of his principal abstractions was not in
warnings that should not be magnified unduly, but still that taken with
contact with the funds. A debtor hardly expects to have his liability
of the teller, Cutting, in 1905, and the final seeming rapid decline in
dangerous propensities before the owner can be held. This fraud was a
deposits, would have induced scrutiny but for an invincible repose upon
the status quo. In 1908 one Fillmore learned that a package containing
$150 left with the bank for safe keeping was not to be found, told Dresser
though the precise form that the fraud would take hardly could have been
of the loss, wrote to him that he could not conclude that the package had
later conversation said that it was evident that there was a thief in the
should be charged against his estate upon the sum found by the Circuit
bank. He added that he would advise the president to look after Coleman,
that he believed he was living at a pretty fast pace, and that he had
pretty good authority for thinking that he was supporting a woman. In the
v. Edmission, 208 U.S. 534, 539, 28 Sup. Ct. 367, 52 L. Ed. 606; but to the
same year or the year before, Coleman, whose pay was never more than
extent that the decree of the District Court was affirmed, Kneeland v.
American Loan & Trust Co., 138 U.S. 509, 11 Sup. Ct. 426, 34 L. Ed. 1052;
De La Rama v. De La Rama, 241 U.S. 154, 159, 36 Sup. Ct. 518, 60 L. Ed.
932, Ann. Cas. 1917C, 411, it seems to us just upon all the circumstances
that it should run until the receiver interposed a delay by his appeal to
this Court. The Scotland, 118 U.S. 507, 520, 6 Sup. Ct. 1174, 30 L. Ed.
Coleman and the notice as to speculations may have been slight, but
153. Upon this as upon the other points our decision is confined to the
taking the whole story of the relations of the parties, we are not ready to
specific facts.
say that the two courts below erred in finding that Dresser had been put
upon his guard. However little the warnings may have pointed to the
specific facts, had they been accepted they would have led to an
Mr. Justice McKENNA and Mr. Justice PITNEY dissent, upon the ground that
not only the administrator of the president of the bank but the other
We do not perceive any ground for applyi g to this case the limitations of
liability ex contractu adverted to in Globe Refining Co. v. Landa Cotton Oil
directors ought to be held liable to the extent to which they were held by
the District Court. 229 Fed. 772.
Co., 190 U.S. 540, 23 Sup. Ct. 754, 47 L. Ed. 1171. In accepting the
presidency Dresser must be taken to have contemplated responsibility for
losses to the bank, whatever they were, if chargeable to his fault. Those
Mr. Justice VAN DEVANTER and Mr. Justice BRANDEIS took no part in the
decision.
that happened were chargeable to his fault, after he had warnings that
should have led to steps that would have made fraud impossible, even
sued if they voted against the merger, and vague advice from Romans
who told them that the $55 was in the beginning end of the range he
Brief Fact Summary. Plaintiffs, Alden Smith and John Gosselin, brought
calculated. Van Gorkom did not disclose how he came to the $55 amount.
a class action suit against Defendant corporation, Trans Union, and its
On this advice, the Board approved the merger, and it was also later
approved by shareholders.
PADILLA, J.:
Appeal from an order dated 29 November 1958 entered by the Court of
First Instance of Iloilo directing defendant Paquita B. Lezama, secretary of
the La Paz Ice Plant & Cold Storage Co., Inc., to transfer in the books of
the corporation the sale of seven shares of stock of plaintiff Ricardo
Gurrea in favor of Ricardo Jeruta, Jr., Felipe Espinosa and Isidro Perlado
upon surrender to her of the respective certificates of stock (civil case No.
4994).
particularly to plaintiff Ricardo Gurrea and his wife Susie Gurrea, as well
as to C. N. Hodges who became the principal stockholder in November,
1954; that because of mismanagement and diversion of corporate funds
for personal use by its president and manager Jose Manuel Lezama and
excessive salaries and allowances or disbursements, the corporation has
suffered losses; that since 1950 the principal stockholders have not
received any dividend, unlike in previous years when Ricardo Gurrea was
then the manager, that since May, 1949 when defendant Lezama took
over the management, the corporation suffered a total loss of P100,000;
that if Lezama should continue as manager, the corporation with its
assets estimated at from P150,000 to P200,000 and its daily earnings of
P300 to P400 would suffer tremendous losses; and that since Lezama and
his wife own only 29 shares of stock, the appointment of a receiver ex
parte is necessary to preserve and administer the assets and earnings of,
and to avoid irreparable damages to, the corporation which is on the
verge of insolvency (civil case No. 4994). Upon the foregoing, the
plaintiffs pray that an order ex parte be issued appointing Ricardo Gurrea
receiver of all funds, assets and business of the corporation taking into
account the fact that he had been its manager from the time it started
operations in 1929 until 1949, and his technical knowledge as the
present manager of the Riverside Ice Plant and Cold Storage; directing
him to call a meeting of the stockholders for the purpose of electing its
officers and to preside at said meeting until after a majority of
stockholders representing a majority of the stock present and entitled to
vote shall have chosen one of their members to act as presiding officer;
and ordering defendant Jose Manuel Lezama to pay the La Paz Ice Plant &
Cold Storage Co., Inc., or the plaintiffs herein, the sum of P100,000 as
damages, interest thereon at the rate of 6% per annum from the date of
the filing of the complaint. As prayed for in the original complaint, on 26
September 1958 the court appointed Jose Dineros receiver of the
corporation and not Ricardo Gurrea who is a party to the suit, as prayed
for in the amended complaint.
In their answer dated 8 October 1958, the defendants deny that plaintiff
C. N. Hodges owned 2,300 shares of stock of the corporation as
evidenced by certificate of stock No. 17, because upon the issuance of
said certificate to Hodges, he immediately transferred the shares to
Benjamin Luis Borja, to whom certificate of stock No. 18 was issued and
whose name appears in the corporate books but not Ricardo Gurrea.
Defendant Lezama admits having failed to render any account of his
management to any stockholder including Gurrea or C. N. Hodges who
was a stockholder only for a day for the reason that his annual
accountings were made directly to the Board of Directors of the
corporation; that the annual general meeting had been held every August
from 1949 to 1958; that he admits that he had not made or furnished the
plaintiffs with a financial statement as every stockholder is free to inspect
order the receiver to record such transfer of shares of stock in the books
of the corporation and to issue in their names the certificates of the
shares of stock sold to them in lieu of those of plaintiff Gurrea. Acting
upon the motion, the court a quo on 29 November 1958 issued in order,
the pertinent part of which is:
VI. Acting upon the motion of Atty. Sorogan, the secretary of the
corporation is hereby ordered to transfer in the books of the
defendant corporation the sale of shares of stock of plaintiff
Ricardo Gurrea in favor of Ricardo Jeruta, Jr., Felipe Espinosa and
Isidro Perlado after surrendering the certificates to the secretary
of the corporation.
On 18 November 1958, the defendant secretary moved for a
reconsideration and setting aside of the above order, on the ground that
the duly-appointed receiver of the corporation should decide what to do
with the aforesaid transfer of shares, and as an additional ground, she
advanced the theory that the movants (Jeruta, Jr., Espinosa and Perlado),
who are not parties to the pending case of receivership, have no right to
come into the case and ask for the cancellation of the certificates of stock
of Ricardo Gurrea and, in lieu thereof, for the issuance of new ones in
their names, and that the issues in the case having nothing to do with the
alleged purchase and transfer of shares. On 2 January 1959 the movants
filed an objection to the defendant's (Paquita B. Lezama's) motion for
reconsideration of the order of 29 November 1958 contending that as a
result of the appointment of a receiver, the court may order the secretary
of the corporation to transfer in the corporate books the sales of the
shares of stock of plaintiff Gurrea to the three movants, the conveyance
being a business transaction and the properties of the corporation being
in the hands of the receiver, or in custodia legis.
Without acting upon the movants' motion of 12 December 1958 for
contempt of court against the secretary of the corporation, on 5 January
1959 the court denied the motion for reconsideration.
The plaintiff Ricardo Gurrea is the registered owner of 215 shares of the
capital stock of the corporation. On 4 August 1958, in a notarized
instrument, he sold seven of the shares to herein movants-appellees and
on 26 September 1958 the corporation was placed under receivership.
Despite surrender of the owner's (Gurrea's) certificate No. 14 and efforts
exerted by the purchasers (movants) to have the transfer registered in
the "stock and transfer books" of the corporation, the appellant as
secretary of the corporation refused the registration and transfer. The
appellant never questioned the legality of the transfer sought to be
registered, she having admitted in her answer that Gurrea owned 215
shares of stock of the corporation.1wph1.t
This Court has ruled and held that a trial court has jurisdiction to order a
receiver of a corporation under receivership to do any act so as to protect
and preserve his properties, and to that end it may order the secretary to
do an act within the internal affairs of the corporation aimed at protecting
the interests of the stockholders. 1Sections 35 and 52 of the Corporation
Law, as amended by Act 3471, which require that all transfers of shares
to be valid as far as the corporation is concerned must be entered and
noted upon the books of the corporation, contemplate no restriction as to
whom the shares may be transferred or sold.2 The assets and business of
the corporation having been placed under receivership, the court is in
duty bound and has the authority to require the appellant as secretary of
the corporation to perform her duties under the law.
The order appealed from is affirmed, with costs against the appellant.
the departure from the accepted concept of nonwaivability of objection to jurisdiction has been ignored
and, instead a blanket doctrine had been repeatedly
upheld that rendered the supposed ruling
in Sibonghanoy not as the exception, but rather the
general rule, virtually overthrowing altogether the timehonored principle that the issue of jurisdiction is not lost
by waiver or by estoppel.
xxx xxx xxx
It is neither fair nor legal to bind a party by the result of a
suit or proceeding which was taken cognizance of in a
court which lacks jurisdiction over the same irrespective
of the attendant circumstances. The equitable defense of
estoppel requires knowledge or consciousness of the
facts upon which it is based . The same thing is true with
estoppel by conduct which may be asserted only when it
is shown, among others, that the representation must
have been made with knowledge of the facts and that the
party to whom it was made is ignorant of the truth of the
matter (De Castro vs. Gineta, 27 SCRA 623). The filing of
an action or suit in a court that does not possess
jurisdiction to entertain the same may not be presumed
to be deliberate and intended to secure a ruling which
could later be annulled if not favorable to the party who
filed such suit or proceeding in a court that lacks
jurisdiction to take cognizance of the same, such act may
not at once be deemed sufficient basis of estoppel. It
could have been the result of an honest mistake or of
divergent interpretation of doubtful legal provisions. If
any fault is to be imputed to a party taking such course of
action, part of the blame should be placed on the court
which shall entertain the suit, thereby lulling the parties
into believing that they pursued their remedies in the
correct forum. Under the rules, it is the duty of the court
to dismiss an action 'whenever it appears that court has
no jurisdiction over the subject matter.' (Section 2, Rule 9,
Rules of Court) Should the Court render a judgment
without jurisdiction, such judgment may be impeached or
annulled for lack of jurisdiction (Sec. 30, Rule 132, Ibid),
within ten (10) years from the finality of the same (Art.
1144, par. 3, Civil Code).
SO ORDERED.
On October 30, 1992, the NLRC rendered its decision dismissing the
case by virtue of Section 5, paragraph (c), of P.D. No. 902-A. However,
the Commission stated that, although in its view it has jurisdiction over
the case, it must yield to the Supreme Courts decisions recognizing
SECs jurisdiction over such a case, to wit:
It is our view that notwithstanding the provisions of Presidential Decree
No. 902-A, we in this Commission, have jurisdiction over this case. The
reason being, Article 217 of the Labor Code was amended on March 21,
1989 by Section 9, Republic Act 6715, viz.:
xxx
On the other hand, we are mindful of a rule in this jurisdiction (geared
towards stability of jurisprudence) that:
If a judge of a lower court feels, in the fulfillment of his mission of
deciding cases, that the application of a doctrine promulgated by his
superiority is against his way of reasoning, or against his conscience, he
may state his opinion on the matter, but rather than disposing of the
case in accordance with his personal views, he must first think that it is
his duty to apply the law as interpreted by the highest court of the land,
and that any deviation from a principle laid down by the latter would
unavoidably cause, as a sequel, unnecessary inconveniences, delay and
expenses to the litigants.(emphasis by NLRC, People vs. Santos, 56 O.G.
3546)
Guided by the above mandate, we thus have stated our opinion on the
matter, but rather than disposing of the case in accordance with our
views, we cannot but apply the law as interpreted by the highest court of
the land, and rule that jurisdiction here is not with us but with the
Securities and Exchange Commission.
WHEREFORE, the appealed decision is hereby set aside, and this case is
dismissed for want of jurisdiction.
SO ORDERED.[6]
In his petition for certiorari dated February 11, 1993, petitioner
contends that:
I. THE NATIONAL LABOR RELATIONS COMMISSION COMMITTED
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF
JURISDICTION OR ACTED IN EXCESS OF ITS JURISDICTION IN
respondents aver that the officers and their terms of office are prescribed
by the corporations by-laws, which provide as follows:
BY-LAW NO. III Directors and Officers
xxx
The officers of the corporation shall be the President, Executive Vice
President, Secretary and Treasurer, each of whom may hold his office
until his successor is elected and qualified, unless sooner removed by the
Board of Directors; Provided, That for the convenience of the corporation
the office of the Secretary and Treasurer may be held by one and the
same person. Officers shall be designated by the stockholders meeting
at the time they elect the members of the Board of Directors. Any
vacancy occurring among the officers of the Corporation on account of
removal or resignation shall be filled by a stockholders
meeting. Stockholders holding one half, or more of the subscribed
capital stock of the corporation may demand and compel the resignation
of any officer at any time.[10]
The by-laws being in force, clearly petitioner is considered an officer of
MICC, elected and/or designated by its board of directors. Following
Section 5(c) of P.D. No. 902-A, the SEC exercises exclusive jurisdiction
over controversies regarding the election and/or designation of directors,
trustees, officers or managers of a corporation, partnership or
association. This provision is indubitably applicable to the petitioners
case. Jurisdiction here is not with the Labor Arbiter nor the NLRC, but
with the SEC.
Note that a corporate officers removal from his office is a corporate
act. If such removal occasions an intra-corporate controversy, its nature
is not altered by the reason or wisdom, or lack thereof, with which the
Board of Directors might have in taking such action. [11] When petitioner,
as Executive Vice-President allegedly diverted company funds for his
personal use resulting in heavy financial losses to the company, this
matter would amount to fraud. Such fraud would be detrimental to the
interest not only of the corporation but also of its members. [12] This type
of fraud encompasses controversies in a relationship within the
corporation covered by SEC jurisdiction. [13] Perforce, the matter would
come within the area of corporate affairs and management, and such a
corporate controversy would call for the adjudicative expertise of the
SEC, not the Labor Arbiter or the NLRC.
Petitioner maintains that MICC can not question now the issue of
jurisdiction of the NLRC, considering that MICC did not raise this matter
until after the case had been brought on appeal to the NLRC. However, it
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 Sao against Peoples 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]
SO ORDERED.
The Facts
PANGANIBAN, J.:
Contracts entered into by a corporate president without express
prior board approval bind the corporation, when such officers apparent
authority is established and when these contracts are ratified by the
corporation.
Thank you.
Yours truly,
CONFORME:
(S)STEFANI C. SAO
(T)STEFANI C. SAO
Consultant for
President, PAIRCARGO
Industrial Engineering
Initially, Cheng Yong, the majority stockholder of petitioner, objected
to private respondents offer, as another company priced a similar
proposal at only P15,000.[9] However, Punsalan preferred private
respondents services because of the latters 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, petitioner, through Punsalan, sent private
respondent a letter, confirming their agreement as follows:
Dear Mr. Sao:
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 -
100,000.00 -
yours,
(S)ANTONIO C.
PUNSALAN
(T)ANTONIO C.
PUNSALAN
President
CONFORME & RECEIVED from PAIRCARGO, the
The total service you have decided to avail xxx 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
(S)STEFANI C. SAO
15 March1987
.............
53,333.00
(T)STEFANI C. SAO
30 March 1987
.............
53,333.00
With this 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. SAO
(T)STEFANI C. SAO
Operations Manual
2.
package deal
4 Dec. 1986
2nd letter
The Issues
Instead of alleging reversible errors, petitioner imputes grave abuse
of discretion to the Court of Appeals, viz.:[20]
I.
xxx [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.
xxx [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.
xxx [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 a 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.
Yes, sir.
months after the alleged last verbal demand for payment made on
Punsalan in June 1987;
3)
Does not Punsalans 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 [petitioners] 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 xxx 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 xxx [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)
que de acuerdo con los arts. 1102, 1103 y 1902 del Codigo Civil,
el debe ser responsable subsidiariamente del pago de la cantidad
objecto de la demanda.
En meritos de todo lo expuesto, se confirma la decision apelada
con la modificacion de que el apelante debe pagar al apelado la
suma de P2,295.70 como valor de los 1,417 cavanes de palay
que dejo de entregar al demandante, mas la suma de P339.08
como importe de los 1,417 sacos vacios, que dejo de devolver, a
razon de P0.24 el saco, total P3,314.78, con sus intereses legales
desde la interposicion de la demanda y las costas de ambas
instancias.
Vista la mocion de reconsideracion de nuestra decision de fecha
13 de Octubre de 1942, y alegandose en la misma que cuando el
apelante vendio los 1,500 cavanes de palay a Ah Phoy, la
corporacion todavia tenia bastante existencia de dicho grano, y
no estando dicho extremo suficientemente discutido y probado, y
pudiendo variar el resultado del asunto, dejamos sin efecto
nuestra citada decision, y ordenamos la devolucion de la causa al
Juzgado de origen para que reciba pruebas al efecto y dicte
despues la decision correspondiente.
Upon consideration of the motion of the attorney for the plaintiffappellee in case CA-G.R. No. 8676,Francisco de Borja vs. Antonio
Vasquez et al., praying, for the reasons therein given, that the
resolution of December 22, 1942, be reconsidered: Considering
that said resolution remanding the case to the lower court is for
the benefit of the plaintiff-appellee to afford him opportunity to
refute the contention of the defendant-appellant Antonio
Vazquez, motion denied.
The action is on a contract, and the only issue pleaded and tried is
whether the plaintiff entered into the contract with the defendant Antonio
Vazquez in his personal capacity or as manager of the Natividad-Vazquez
Sabani Development Co., Inc. The Court of Appeals found that according
to the preponderance of the evidence "the sale made by Antonio Vazquez
in favor of Francisco de Borja of 4,000 cavans of palay was in his capacity
as acting president and manager of the corporation Natividad-Vazquez
Sabani Development Co., Inc." That finding of fact is final and, it resolving
the only issue involved, should be determinative of the result.
The Court of Appeals doubly erred in ordering that the cause be
remanded to the court of origin for further trial to determine whether the
corporation had sufficient stock of palay at the time appellant sold, 1500
cavans of palay to Kwong Ah Phoy. First, if that point was material to the
issue, it should have been proven during the trial; and the statement of
the court that it had not been sufficiently discussed and proven was no
justification for ordering a new trial, which, by the way, neither party had
solicited but against which, on the contrary, both parties now vehemently
protest. Second, the point is, in any event, beside the issue, and this we
shall now discuss in connection with the original judgment of the Court of
Appeals which the plaintiff cross-petitioner seeks to maintain.
The action being on a contract, and it appearing from the preponderance
of the evidence that the party liable on the contract is the NatividadVazquez Sabani Development Co., Inc. which is not a party herein, the
complaint should have been dismissed. Counsel for the plaintiff, in his
brief as respondent, argues that altho by the preponderance of the
evidence the trial court and the Court of Appeals found that Vazquez
celebrated the contract in his capacity as acting president of the
corporation and altho it was the latter, thru Vazquez, with which the
plaintiff had contracted and which, thru Vazquez, had received the sum of
P8,400 from Borja, and altho that was true from the point of view of a
legal fiction, "ello no impede que tambien sea verdad lo alegado en la
demanda de que la misma persona de Vasquez fue la que contrato con
Borja y que la misma persona de Vasquez fue quien recibio la suma de
P8,400." But such argument is invalid and insufficient to show that the
president of the corporation is personally liable on the contract duly and
lawfully entered into by him in its behalf.
It is well known that a corporation is an artificial being invested by law
with a personality of its own, separate and distinct from that of its
stockholders and from that of its officers who manage and run its affairs.
The mere fact that its personality is owing to a legal fiction and that it
necessarily has to act thru its agents, does not make the latter personally
liable on a contract duly entered into, or for an act lawfully performed, by
them for an in its behalf. The legal fiction by which the personality of a
corporation is created is a practical reality and necessity. Without it no
corporate entities may exists and no corporate business may be
transacted. Such legal fiction may be disregarded only when an attempt
is made to use it as a cloak to hide an unlawful or fraudulent purpose. No
such thing has been alleged or proven in this case. It has not been
alleged nor even intimated that Vazquez personally benefited by the
contract of sale in question and that he is merely invoking the legal
fiction to avoid personal liability. Neither is it contended that he entered
into said contract for the corporation in bad faith and with intent to
defraud the plaintiff. We find no legal and factual basis upon which to
hold him liable on the contract either principally or subsidiarily.
The trial court found him guilty of negligence in the performance of the
contract and held him personally liable on that account. On the other
hand, the Court of Appeals found that he "no solamente obro con
negligencia, sino interveniendo culpa de su parte, por lo que de acuerdo
con los arts. 1102, 1103 y 1902 del Codigo Civil, el debe ser responsable
subsidiariamente del pago de la cantidad objeto de la demanda." We
think both the trial court and the Court of Appeals erred in law in so
holding. They have manifestly failed to distinguish a contractual from an
extracontractual obligation, or an obligation arising from contract from an
obligation arising from culpa aquiliana. The fault and negligence referred
to in articles 1101-1104 of the Civil Code are those incidental to the
fulfillment or nonfullfillment of a contractual obligation; while the fault or
negligence referred to in article 1902 is theculpa aquiliana of the civil
law, homologous but not identical to tort of the common law, which gives
rise to an obligation independently of any contract. (Cf. Manila R.R.
Co. vs. Cia. Trasatlantica, 38 Phil., 875, 887-890; Cangco vs. Manila R.R.
Co., 38 Phil. 768.) The fact that the corporation, acting thru Vazquez as
its manager, was guilty of negligence in the fulfillment of the contract,
did not make Vazquez principally or even subsidiarily liable for such
negligence. Since it was the corporation's contract, its nonfulfillment,
whether due to negligence or fault or to any other cause, made the
corporation and not its agent liable.
On the other hand if independently of the contract Vazquez by his fault or
negligence cause damaged to the plaintiff, he would be liable to the
latter under article 1902 of the Civil Code. But then the plaintiff's cause of
action should be based on culpa aquiliana and not on the contract
alleged in his complaint herein; and Vazquez' liability would be principal
and not merely subsidiary, as the Court of Appeals has erroneously held.
No such cause of action was alleged in the complaint or tried by express
or implied consent of the parties by virtue of section 4 of Rule 17. Hence
the trial court had no jurisdiction over the issue and could not adjudicate
upon it (Reyes vs. Diaz, G.R. No. 48754.) Consequently it was error for the
Court of Appeals to remand the case to the trial court to try and decide
such issue.
It only remains for us to consider petitioner's second assignment of error
referring to the lower courts' refusal to entertain his counterclaim for
damages against the respondent Borja arising from the bringing of this
action. The lower courts having sustained plaintiff's action. The finding of
the Court of Appeals that according to the preponderance of the evidence
the defendant Vazquez celebrated the contract not in his personal
capacity but as acting president and manager of the corporation, does
not warrant his contention that the suit against him is malicious and
tortious; and since we have to decide defendant's counterclaim upon the
facts found by the Court of Appeals, we find no sufficient basis upon
correct in law. But the law definitely does not require that
the contracting party who believes itself injured must first
file suit and wait for a judgment before taking
extrajudicial steps to protect its interest. Otherwise, the
party injured by the other's breach will have to passively
sit and watch its damages accumulate during the
pendency of the suit until the final judgment of rescission
is rendered when the law itself requires that he should
exercise due diligence to minimize its own damages (Civil
Code, Article 2203).
We see no conflict between this ruling and the previous
jurisprudence of this Court invoked by respondent
declaring that judicial action is necessary for the
resolution of a reciprocal obligation (Ocejo Perez & Co.,
vs. International Banking Corp., 37 Phil. 631; Republic vs.
Hospital de San Juan De Dios, et al., 84 Phil 820) since in
every case where the extrajudicial resolution is contested
only the final award of the court of competent jurisdiction
can conclusively settle whether the resolution was proper
or not. It is in this sense that judicial action win be
necessary, as without it, the extrajudicial resolution will
remain contestable and subject to judicial invalidation
unless attack thereon should become barred by
acquiescense, estoppel or prescription.
Fears have been expressed that a stipulation providing
for a unilateral rescission in case of breach of contract
may render nugatory the general rule requiring judicial
action (v. Footnote, Padilla Civil Law, Civil Code Anno.,
1967 ed. Vol. IV, page 140) but, as already observed, in
case of abuse or error by the rescinder the other party is
not barred from questioning in court such abuse or error,
the practical effect of the stipulation being merely to
transfer to the defaulter the initiative of instituting suit,
instead of the rescinder (Emphasis supplied).
Of similar import is the ruling in Nera vs. Vacante 4, reading:
A stipulation entitling one party to take possession of the
land and building if the other party violates the contract
does not ex propio vigore confer upon the former the
right to take possession thereof if objected to without
judicial intervention and determination.
In this case, private respondent has denied that rescission is justified and
has resorted to judicial action. It is now for the Court to determine
whether resolution of the contract by petitioners was warranted.
We hold that resolution by petitioners of the contract was ineffective and
inoperative against private respondent for lack of notice of resolution, as
held in the U.P. vs. Angeles case, supra
Petitioner relies on Torralba vs. De los Angeles 8 where it was held that
"there was no contract to rescind in court because from the moment the
petitioner defaulted in the timely payment of the installments, the
contract between the parties was deemed ipso facto rescinded."
However, it should be noted that even in that case notice in writing was
made to the vendee of the cancellation and annulment of the contract
although the contract entitled the seller to immediate repossessing of the
land upon default by the buyer.
The indispensability of notice of cancellation to the buyer was to be later
underscored in Republic Act No. 6551 entitled "An Act to Provide
Protection to Buyers of Real Estate on Installment Payments." which took
effect on September 14, 1972, when it specifically provided:
Sec. 3(b) ... the actual cancellation of the contract shall
take place after thirty days from receipt by the buyer of
the notice of cancellation or the demand for rescission of
the contract by a notarial act and upon full payment of
the cash surrender value to the buyer. (Emphasis
supplied).
The contention that private respondent had waived his right to be
notified under paragraph 6 of the contract is neither meritorious because
it was a contract of adhesion, a standard form of petitioner corporation,
and private respondent had no freedom to stipulate. A waiver must be
certain and unequivocal, and intelligently made; such waiver follows only
where liberty of choice has been fully accorded. 9 Moreover, it is a matter
could not have been intended by the law that created it 13 ; or to defeat
public convenience, justify wrong, protect fraud, or defend crime. 14 ; or
to perpetuate fraud or confuse legitimate issues 15 ; or to circumvent the
law or perpetuate deception 16 ; or as an alter ego, adjunct or business
conduit for the sole benefit of the stockholders. 17
We find no badges of fraud on petitioners' part. They had literally relied,
albeit mistakenly, on paragraph 6 (supra) of its contract with private
respondent when it rescinded the contract to sell extrajudicially and had
sold it to a third person.
In this case, petitioner Onstott was made liable because he was then the
President of the corporation and he a to be the controlling stockholder. No
sufficient proof exists on record that said petitioner used the corporation
to defraud private respondent. He cannot, therefore, be made personally
liable just because he "appears to be the controlling stockholder". Mere
ownership by a single stockholder or by another corporation is not of
itself sufficient ground for disregarding the separate corporate
personality. 18 In this respect then, a modification of the Resolution under
review is called for.
WHEREFORE, the questioned Resolution of respondent public official,
dated May 2, 1980, is hereby modified. Petitioner Palay, Inc. is directed to
refund to respondent Nazario M. Dumpit the amount of P13,722.50, with
interest at twelve (12%) percent per annum from November 8, 1974, the
date of the filing of the Complaint. The temporary Restraining Order
heretofore issued is hereby lifted.
No costs.
SO ORDERED.
G.R. No. 111008 November 7, 1994
SO ORDERED.
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.
SO ORDERED.
On January 21, 1974, the UNION filed another Motion for Execution
alleging that although RANSOM had assumed a posture of suffering from
business reverse, its officers and principal stockholders had organized a
new corporation, the Rosario Industrial Corporation (thereinafter called
ROSARIO), using the same equipment, personnel, business stocks and
the same place of business. For its part, RANSOM declared that ROSARIO
is a distinct and separate corporation, which was organized long before
these instant cases were decided adversely against RANSOM.
It appears that among the persons named in the aforequoted Order, Ma.
Rosario Hernandez died in 1971; Francisco Hernandez died in 1977: and
Celestino C. Hernandez passed away in 1979. And Maximo Hernandez
who was named in the CIR Decision, died in 1966. 5
The NLRC, on appeal, modified the Decision by relieving the officers and
agents of liability as follows:
be modified, in that all the individual private respondents and not only
the President, should be held jointly and severally liable with RANSOM.
On November 4, 1986, it further filed an Urgent Motion for Preliminary
Mandatory Injunction "directing private respondents to deposit the
amount of P 199,276.00 or to put up a supersedeas bond of the same
sum."
The CIR Decision became final, conclusive, and executory after this Court
denied the RANSOM petition for review in 1973. In other words, this Court
upheld that portion of the judgment ordering the officers and agents of
RANSOM to reinstate the laborers concerned, with backwages. The
inclusion of the officers and agents was but proper since a corporation, as
an artificial being, can act only through them. It was also pursuant to the
CIR Act (CA No. 103 ), 7 the Industrial Peace Act (R.A. 875) 8 the Minimum
Wage Law (R.A. 602). 9 Consequently, when, in resolving the UNION's
Motion for Writ of Execution and Garnishment in the Order of March 11,
1980, Labor Arbiter Genilo named the seven (17) private respondents
herein as the RANSOM officers and agents, who should be held liable
(supra), he merely implemented the already final and executory CIR
decision of August 19, 1972. The NLRC, on appeal to it by RANSOM, could
not have modified the CIR Decision, as affirmed by this Court, by relieving
RANSOM's officers and agents of liability. It is also for that reason that in
our Decision of June 10, 1986 we set aside said NLRC Decision and
reinstated the Order of Labor Arbiter Genilo, with modification, in that we
limited liability for backwages due the 22 UNION members to the
President of RANSOM in 1974 jointly and severally with other Presidents
of the same corporation who had been elected as such after 1972 or up
to the time the corporation life was terminated, since the President
should also be deemed included in the term "employer. "
SO ORDERED.
Reconsideration sought by the UNION from the NLRC was denied, hence
this special civil action of Certiorari.
On June 10, 1986, this Court promulgated its Decision, the dispositive
portion of which decrees:
WHEREFORE, the questioned Decision of the National
Labor Relations Commission is SET ASIDE, and the Order
of the Labor Arbiter Tito F. Genilo of March 11, 1980 is
reinstated with the modification that personal liability for
the backwages due the 22 strikers shall be limited to
Ruben Hernandez, who was President of RANSOM in
1974, jointly and severally with other Presidents of the
same corporation who had been elected as such after
1972 or up to the time the corporate life was terminated.
Both parties have moved for reconsideration. Private respondents point
out that they were never impleaded as parties in the Trial Court, and that
their personal liabilities were never at issue; that judgment holding Ruben
Hernandez personally liable is tantamount to deprivation of property
without due process of law; and that he was not an officer of the
corporation at the time the unfair labor practices were committed.
The UNION on the other hand, in its own Motion for Reconsideration,
prays that the veil of corporate fiction be pierced and that the Decision
Incontrovertible is the fact that RANSOM was found guilty by the CIR, in
its Decision of August 19, 1972, of unfair labor practice; that its officers
and agents were ordered to cease and desist from further committing
acts constitutive of the same, and to reinstate immediately the 22 union
members to their respective positions with backwages from July 25, 1969
until actually reinstated.
The foregoing, however, limits the scope of liability and deviates from the
CIR Decision, affirmed by this Court in 1973, holding the officers and
agents of RANSOM liable. In other words, the officers and agents listed in
the Genilo Order except for those who have since passed away, should,
as affirmed by this Court, be held jointly and severally liable for the
payment of backwages to the 22 strikers.
This finding does not ignore the legal fiction that a corporation has a
personality separate and distinct from its stockholders and members, for,
as this Court had held "where the incorporators and directors belong to a
single family, the corporation and its members can be considered as one
in order to avoid its being used as an instrument to commit
injustice," 10 or to further an end subversive of justice. 11 In the case
of Claparols vs. CIR 12involving almost similar facts as in this case, it was
also held that the shield of corporate fiction should be pierced when it is
deliberately and maliciously designed to evade financial obligations to
employees. To the same effect was this Court's rulings in still other cases:
When the notion of legal entity is used as a means to
perpetrate fraud or an illegal act or as a vehicle for the
evasion of an existing obligation, the circumvention of
statutes, and or confuse legitimate issues the veil which
protects the corporation will be lifted (Villa Rey Transit,
Inc. vs. Ferrer, 25 SCRA 846 [1968]; Republic vs. Razon,
20 SCRA 234 [1967]; A.D. Santos, Inc. vs. Vasquez, 22
SCRA 1156 [1968]; Telephone Eng'g. & Service Company,
Inc. vs. WCC, 104 SCRA 354 [1981]).
The alleged bankruptcy of RANSOM furnishes no justification for nonpayment of backwages to the employees concerned taking into
consideration Article 110 of the Labor Code, which provides:
ART. 110. Worker preference in case of bankruptcy. - In
the event of bankruptcy or liquidation of an employer's
business, his workers shall enjoy first preference as
regards wages due them for services rendered during the
period prior to the bankruptcy or liquidation, any
provision of law to the contrary notwithstanding. Unpaid
wages shag be paid in full before other creditors may
establish any claim to a share in the assets of the
employer.
The term "wages" refers to all remunerations, earnings and other benefits
in terms of money accruing to the employees or workers for services
rendered. They are to be paid in full before other creditors may establish
any claim to a share in the assets of the employer.
Section 10. Payment of wages in case of bankruptcy.Unpaid wages earned by the employees before the
declaration of bankruptcy or judicial liquidation of the
employer's business shall be given first preference and
required appeal fee was not paid; in holding it jointly and severally liable
with the Security Agency; and in refusing to give due course to its Motion
for Reconsideration.
MELENCIO-HERRERA, J.:
A petition for certiorari seeking the annulment of the National Labor
Relations Commission (NLRC) Resolution in ROX Arbitration Case No. 44579 entitled Paulino Mabuti, et al. versus Calinar Security Agency, et al.,
and the affirmance instead, of the Decision of the Labor Arbiter.
On February 1, 1978, petitioner Del Rosario & Sons Logging Enterprises,
Inc. entered into a "Contract of Services" with private respondent Calinar
Security Agency (Security Agency, for short) whereby the latter
undertook to supply the former with security guards at the rate of
P300.00 per month for each guard.
On October 4, 1979, Paulino Mabuti, Napoleo Borata and Silvino Tudio
filed a Complaint against the Security Agency and petitioner, for
underpayment of salary, non-payment of living allowance, and 13th
month pay. Thereafter, five other guards filed their complaint for the
same causes of action.
In its Answer, petitioner contended that complainants have no cause of
action against it due to absence of employer-employee relationship
between them. The Security Agency also denied liability alleging that due
to the inadequacy of the amounts paid to it under the Contract of
Services, it could not possibly comply with the payments required by
labor laws.
Assigned for compulsory arbitration, on December 21, 1979, the Labor
Arbiter rendered a Decision dismissing the complaint against petitioner
for want of employer-employee relationship but ordering the Security
Agency to pay complainants the amounts sought by them totalling
P2,923.17.
The formal defects in the appeal of the Security Agency were not fatal
defects. The lack of verification could have been easily corrected by
requiring an oath. 1 The appeal fee had been paid although it was
delayed. 2 In the case of Panes vs. Court of Appeals, et al., 3 we held:
Clearly, failure to pay the docketing fees does not
automatically result in the dismissal of the appeal,
Dismissal is discretionary with the Appellate Court
(Nawasa vs. Secretary of Public Works and
Communications, 16 SCRA 536, 539 [1966]), and
discretion must be exercised wisely and prudently, never
capriciously, with a view to substantial justice (Cucio vs.
Court of Appeals, 57 SCRA 401 [1974]). Failure to pay the
appeal docketing fee confers a directory and not a
mandatory power to dismiss an appeal and such power
must be exercised with sound discretion and with a great
deal of circumspection, considering all attendant
circumstances. 4
It may be that, as held in Acda vs. MOLE, 119 SCRA 306 [1982], payment
of the appeal fee is "by no means a mere technicality but is an essential
requirement in the perfection of an appeal." However, where as in this
case, the fee had been paid, unlike in the Acda case, although payment
was delayed, the broader interests of justice and the desired objective of
resolving controversies on the merits demanded that the appeal be given
course as, in fact, it was so given by the NLRC. Besides, it was within the
inherent power of the NLRC to have allowed the late payment of the
appeal fee.
The Security Agency appealed to the NLRC, which modified the Decision
of the Labor Arbiter by holding that petitioner is liable to pay
complainants, jointly and severally, with the Security Agency on the
ground that petitioner is an indirect employer pursuant to Articles 106
and 107 of the Labor Code, as amended.
Moreover, as provided for by Article 221 of the Labor Code "in any
proceeding before the Commission or any of the Labor Arbiters, the rules
of evidence prevailing in Courts of law or equity shall not be controlling
and it is the spirit and intention of this Code that the Commission and its
members and the Labor Arbiters shall use every and an reasonable
means to ascertain the facts in each case speedily and objectively and
without regard to technicalities of law or procedure, all in the interest of
due process."
Petitioner's joint and several liability with the Security Agency was
correctly adjudged. When petitioner entered into a Contract of Services
with the Security Agency and the latter hired complainants to work as
Commart and Jesus T. Maglutac, on the other hand, justified the dismissal
for lack of trust and confidence brought about by complainant and his
family's establishment of a company, MM International, in direct
competition with Commart. After the parties submitted their respective
position papers, the Labor Arbiter assigned to the case, Jose Collado, Jr.,
rendered a decision on January 11, 1986 finding that complainant was
illegally dismissed. The dispositive portion of the decision reads:
And, in the later case of Gudez, et al., v. NLRC, et al., G.R. No. 83023,
March 23, 1990, We held the president and treasurer, Herminia Crisologo,
jointly and severally liable with the corporation. In the said case, the
employer corporation, Retired Army Protective Security Agency, Inc.
(RAPSA), was ordered to cease operations and the corporation, on the
same day when the Labor Arbiter promulgated its decision, filed a
petition for voluntary insolvency, We held:
... The foregoing circumstances make it more necessary
to hold respondent Crisologo liable for the claims due to
petitioners; otherwise, any decision that would be
rendered in favor of the latter would be useless and
ineffective for there would no one against whom it can be
enforced.
The same circumstances obtain in the instant case in the light of the
manifestation of Commart that it had become insolvent and that it had
suspended operations.
Moreover, not only was Jesus T. Maglutac the most ranking officer of
Commart at the time of the termination of the complainant, it was
likewise found that he had a direct hand in the latter's dismissal. The
Labor Arbiter therefore, correctly ruled that Jesus T. Maglutac was jointly
and severally liable with Commart.
In G.R. No. 78637, Jesus T. Maglutac would want Us to reverse the
findings of the Labor Arbiter and the NLRC that complainant Jose M.
Maglutac was dismissed without just cause. The matter, being factual, is
beyond the authority of this court to review. Factual findings of
administrative agencies are generally final and binding upon this Court
when supported by substantial evidence as in the instant case.
Likewise, respondents' claim that they were denied due process because
the Labor Arbiter rendered judgment on the basis of complainant's replyposition paper without furnishing them a copy thereof, is not meritorious.
Where the records show that in response to the complaint before the
Labor Arbiter rendered his decision, Commart and Jesus T. Maglutac
submitted a position paper, complete with annexes where they set out
and argued the factual as well as the legal basis of their positions, their
due process argument must fail. (see Llora Motors, Inc. v. Franklin Drilon,
G.R. 82895, 7 Nov, 1989) The procedure by which issues are resolved
based on position papers, affidavits and other documentary evidence is
recognized as not violative of due process (AMS Farming Corp. v. Pura
Ferrer-Calleja, G.R. No. 80557, Feb. 1988). The failure of complainant to
serve a copy of his Reply-Position Paper is therefore, not fatal, it having
been established that Commart and Jesus T. Maglutac were afforded a
reasonable opportunity to present their sides. Moreover, the existence of
the letters written by individual respondent Jesus T. Maglutac
encouraging the formation of MM International was never denied by him
before the NLRC nor before this Court.
While an employer has its own interests to protect, and
pursuant thereto, it may terminate a managerial
employee for a just cause, such prerogative to dismiss or
lay-off an employee must be exercised without abuse of
discretion. Its implementation should be tempered with
compassion and understanding. The employer should
bear in mind that in the execution of said prerogative,
what is at stake is not only the employees position but his
livelihood. The fact that one is a managerial employee
does not by itself exclude him from the protection of the
constitutional guarantee of security of tenure (Santo v.
NLRC, G.R. 76991, Oct. 28, 1988).
One final point. It cannot now be expected that the harmonious and
pleasant working relationship between the parties in this case prior to the
bringing of the derivative suit with the Securities and Exchange
Commission and the filing of complaint for illegal dismissal with the labor
Arbiter, can be revived. The relationship had been so strained ' that to
order the reinstatement of the complainant would not be wise. Where the
relationship of employer to employee is so strained and ruptured as to
preclude a harmonious working relationship should reinstatement of the
employee be decreed, the latter should be afforded the right to
separation pay where the employer does not have to endure the
continued services of the employee in whom it has lost confidence
(Esmalin v. NLRC, G.R. 67880, 15 September 1989, Bautista v. Enciong,
G.R. No. L-52824, 16 March 1988, Asiaworld Publishing House Inc. v. Hon.
Ople, et al., G.R. No. 56398, July 23, 1987).