1.

LEONARDO S. UMALE, [deceased] G.R. No. 181126

represented by CLARISSA VICTORIA,
JOHN LEO, GEORGE LEONARD, Present:
KRISTINE, MARGUERITA ISABEL, AND
MICHELLE ANGELIQUE, ALL VELASCO, JR.,
SURNAMED UMALE, Acting Chairperson,
Petitioners, LEONARDO-DE CASTRO,
BERSAMIN,
DEL CASTILLO, and
- versus - PEREZ, JJ.

ASB REALTY CORPORATION, Promulgated:

Respondent. June 15, 2011
x--------------------------------------------------------x

DECISION

DEL CASTILLO, J.:

Being placed under corporate rehabilitation and having a receiver appointed to carry out the rehabilitation plan do not ipso facto deprive a corporation and its corporate officers of the power to
recover its unlawfully detained property.

Petitioners filed this Petition for Review on Certiorari[1] assailing the October 15, 2007 Decision[2] of the Court of Appeals (CA) in CA-G.R. SP No. 91096, as well as its January 2, 2008
Resolution.[3] The dispositive portion of the assailed Decision reads:

WHEREFORE, the Decision dated March 28, 2005 of the trial court is affirmed in toto.
SO ORDERED.[4]

Factual Antecedents

This case involves a parcel of land identified as Lot 7, Block 5, Amethyst Street, Ortigas Center, Pasig City which was originally owned by Amethyst Pearl Corporation (Amethyst Pearl), a
company that is, in turn, wholly-owned by respondent ASB Realty Corporation (ASB Realty).

In 1996, Amethyst Pearl executed a Deed of Assignment in Liquidation of the subject premises in favor of ASB Realty in consideration of the full redemption of Amethyst Pearls outstanding
capital stock from ASB Realty.[5] Thus, ASB Realty became the owner of the subject premises and obtained in its name Transfer Certificate of Title No. PT-105797,[6] which was registered in 1997
with the Registry of Deeds of Pasig City.
Sometime in 2003, ASB Realty commenced an action in the Metropolitan Trial Court (MTC) of Pasig City for unlawful detainer [7] of the subject premises against petitioner Leonardo S. Umale
(Umale). ASB Realty alleged that it entered into a lease contract[8] with Umale for the period June 1, 1999-May 31, 2000. Their agreement was for Umale to conduct a pay-parking business on the
property and pay a monthly rent of P60,720.00 to ASB Realty.

Upon the contracts expiration on May 31, 2000, Umale continued occupying the premises and paying rentals albeit at an increased monthly rent of P100,000.00. The last rental payment made by
Umale to ASB Realty was for the June 2001 to May 2002 period, as evidenced by the Official Receipt No. 56511[9] dated November 19, 2001.

On June 23, 2003, ASB Realty served on Umale a Notice of Termination of Lease and Demand to Vacate and Pay. [10] ASB Realty stated that it was terminating the lease effective midnight of June
30, 2003; that Umale should vacate the premises, and pay to ASB Realty the rental arrears amounting to P1.3 million by July 15, 2003. Umale failed to comply with ASB Realtys demands and
continued in possession of the subject premises, even constructing commercial establishments thereon.

Umale admitted occupying the property since 1999 by virtue of a verbal lease contract but vehemently denied that ASB Realty was his lessor. He was adamant that his lessor was the original
owner, Amethyst Pearl. Since there was no contract between himself and ASB Realty, the latter had no cause of action to file the unlawful detainer complaint against him.

In asserting his right to remain on the property based on the oral lease contract with Amethyst Pearl, Umale interposed that the lease period agreed upon was for a long period of time. [11] He then
allegedly paid P1.2 million in 1999 as one year advance rentals to Amethyst Pearl.[12]
Umale further claimed that when his oral lease contract with Amethyst Pearl ended in May 2000, they both agreed on an oral contract to sell. They agreed that Umale did not have to pay rentals
until the sale over the subject property had been perfected between them. [13] Despite such agreement with Amethyst Pearl regarding the waiver of rent payments, Umale maintained that he
continued paying the annual rent of P1.2 million. He was thus surprised when he received the Notice of Termination of Lease from ASB Realty.[14]

Umale also challenged ASB Realtys personality to recover the subject premises considering that ASB Realty had been placed under receivership by the Securities and Exchange Commission
(SEC) and a rehabilitation receiver had been duly appointed. Under Section 14(s), Rule 4 of the Administrative Memorandum No. 00-8-10SC, otherwise known as the Interim Rules of Procedure
on Corporate Rehabilitation (Interim Rules), it is the rehabilitation receiver that has the power to take possession, control and custody of the debtors assets. Since ASB Realty claims that it owns
the subject premises, it is its duly-appointed receiver that should sue to recover possession of the same.[15]

ASB Realty replied that it was impossible for Umale to have entered into a Contract of Lease with Amethyst Pearl in 1999 because Amethyst Pearl had been liquidated in 1996. ASB Realty
insisted that, as evidenced by the written lease contract, Umale contracted with ASB Realty, not with Amethyst Pearl. As further proof thereof, ASB Realty cited the official receipt evidencing the
rent payments made by Umale to ASB Realty.

Ruling of the Metropolitan Trial Court

In its August 20, 2004 Decision,[16] the MTC dismissed ASB Realtys complaint against Umale without prejudice. It held that ASB Realty had no cause to seek Umales ouster from the subject
property because it was not Umales lessor. The trial court noted an inconsistency in the written lease contract that was presented by ASB Realty as basis for its complaint. Its whereas clauses cited
ASB Realty, with Eden C. Lin as its representative, as Umales lessor; but its signatory page contained Eden C. Lins name under the heading Amethyst Pearl. The MTC then concluded from such
inconsistency that Amethyst Pearl was the real lessor, who can seek Umales ejectment from the subject property.[17]

Likewise, the MTC agreed with Umale that only the rehabilitation receiver could file suit to recover ASB Realtys property.[18] Having been placed under receivership, ASB Realty had no more
personality to file the complaint for unlawful detainer.

Ruling of the Regional Trial Court

ASB Realty appealed the adverse MTC Decision to the Regional Trial Court (RTC),[19] which then reversed[20] the MTC ruling.

The RTC held that the MTC erred in dismissing ASB Realtys complaint for lack of cause of action. It found sufficient evidence to support the conclusion that it was indeed ASB Realty that
entered into a lease contract with Umale, hence, the proper party who can assert the corresponding right to seek Umales ouster from the leased premises for violations of the lease terms. In
addition to the written lease contract, the official receipt evidencing Umales rental payments for the period June 2001 to May 2002 to ASB Realty adequately established that Umale was aware
that his lessor, the one entitled to receive his rent payments, was ASB Realty, not Amethyst Pearl.

ASB Realtys positive assertions, supported as they are by credible evidence, are more compelling than Umales bare negative assertions. The RTC found Umales version of the facts incredible. It
was implausible that a businessman such as Umale would enter into several transactions with his alleged lessor a lease contract, payment of lease rentals, acceptance of an offer to sell from his
alleged lessor, and an agreement to waive rentals sans a sliver of evidence.

With the lease contract between Umale and ASB Realty duly established and Umales failure to pay the monthly rentals since June 2002 despite due demands from ASB Realty, the latter had the
right to terminate the lease contract and seek his eviction from the leased premises. Thus, when the contract expired on June 30, 2003 (as stated in the Notice of Termination of Lease), Umale lost
his right to remain on the premises and his continued refusal to vacate the same constituted sufficient cause of action for his ejectment.[21]

With respect to ASB Realtys personality to file the unlawful detainer suit, the RTC ruled that ASB Realty retained all its corporate powers, including the power to sue, despite the appointment of a
rehabilitation receiver. Citing the Interim Rules, the RTC noted that the rehabilitation receiver was not granted therein the power to file complaints on behalf of the corporation.[22]

Moreover, the retention of its corporate powers by the corporation under rehabilitation will advance the objective of corporate rehabilitation, which is to conserve and administer the assets of the
corporation in the hope that it may eventually be able to go from financial distress to solvency. The suit filed by ASB Realty to recover its property and back rentals from Umale could only benefit
ASB Realty.[23]

The dispositive portion of the RTC Decision reads as follows:

WHEREFORE, premises considered, the appealed decision is hereby reversed and set aside. Accordingly, judgment is hereby rendered in favor of the plaintiff-appellant ordering
defendant-appellee and all persons claiming rights under him:
 1) To immediately vacate the subject leased premises located at Lot 7, Block 5, Amethyst St., Pearl Drive, Ortigas Center, Pasig City and deliver possession thereof to the plaintiff-
appellant;

2) To pay plaintiff-appellant the sum of P1,300,000.00 representing rentals in arrears from June 2002 to June 2003;

3) To pay plaintiff-appellant the amount of P100,000.00 a month starting from July 2003 and every month thereafter until they finally vacate the subject premises as reasonable
compensation for the continued use and occupancy of the same;

4) To pay plaintiff-appellant the sum of P200,000.00 as and by way of attorneys fees; and the costs of suit.

SO ORDERED.[24]

Umale filed a Motion for Reconsideration[25] while ASB Realty moved for the issuance of a writ of execution pursuant to Section 21 of the 1991 Revised Rules on Summary Procedure.[26]

In its July 26, 2005 Order, the RTC denied reconsideration of its Decision and granted ASB Realtys Motion for Issuance of a Writ of Execution.[27]

Umale then filed his appeal[28] with the CA insisting that the parties did not enter into a lease contract. [29] Assuming that there was a lease, it was at most an implied lease. Hence its period
depended on the rent payments. Since Umale paid rent annually, ASB Realty had to respect his lease for the entire year. It cannot terminate the lease at the end of the month, as it did in its Notice
of Termination of Lease.[30] Lastly, Umale insisted that it was the rehabilitation receiver, not ASB Realty, that was the real party-in-interest.[31]

Pending the resolution thereof, Umale died and was substituted by his
widow and legal heirs, per CA Resolution dated August 14, 2006.[32]

Ruling of the Court of Appeals

The CA affirmed the RTC Decision in toto.[33]

According to the appellate court, ASB Realty fully discharged its burden to prove the existence of a lease contract between ASB Realty and Umale, [34] as well as the grounds for eviction.[35]The
veracity of the terms of the lease contract presented by ASB Realty was further bolstered, instead of demolished, by Umales admission that he paid monthly rents in accordance therewith.[36]

The CA found no merit in Umales claim that in light of Article 1687 of the Civil Code the lease should be extended until the end of the year. The said provision stated that in cases where the lease
period was not fixed by the parties, the lease period depended on the payment periods. In the case at bar, the rent payments were made on a monthly basis, not annually; thus, Umales failure to pay
the monthly rent gave ASB Realty the corresponding right to terminate the lease at the end of the month.[37]

The CA then upheld ASB Realtys, as well as its corporate officers, personality to recover an unlawfully withheld corporate property. As expressly stated in Section 14 of Rule 4 of the Interim
Rules, the rehabilitation receiver does not take over the functions of the corporate officers.[38]
Petitioners filed a Motion for Reconsideration,[39] which was denied in the

assailed January 2, 2008 Resolution.[40]

Issues

The petitioners raise the following issues for resolution:[41]

1. Can a corporate officer of ASB Realty (duly authorized by the Board of Directors) file suit to recover an unlawfully detained corporate property despite the fact that the corporation had already
been placed under rehabilitation?

2. Whether a contract of lease exists between ASB Realty and Umale; and

3. Whether Umale is entitled to avail of the lease periods provided in Article 1687 of the Civil Code.

Our Ruling

Petitioners ask for the dismissal of the complaint for unlawful detainer on the ground that it was not brought by the real party-in-interest. [42] Petitioners maintain that the appointment of a
rehabilitation receiver for ASB Realty deprived its corporate officers of the power to recover corporate property and transferred such power to the rehabilitation receiver. Section 6, Rule 59 of the
Rules of Court states that a receiver has the power to bring actions in his own name and to collect debts due to the corporation. Under Presidential Decree (PD) No. 902-A and the Interim Rules,
the rehabilitation receiver has the power to take custody and control of the assets of the corporation. Since the receiver for ASB Realty did not file the complaint for unlawful detainer, the trial
court did not acquire jurisdiction over the subject property.[43]

Petitioners cite Villanueva v. Court of Appeals,[44] Yam v. Court of

Appeals,[45] and Abacus Real Estate Development Center, Inc. v. The Manila Banking Corporation, [46] as authorities for the rule that the appointment of a receiver suspends the authority of the
corporation and its officers over its property and effects.[47]

ASB Realty counters that there is no provision in PD 902-A, the Interim Rules, or in Rule 59 of the Rules of Court that divests corporate officers of their power to sue upon the appointment of a
rehabilitation receiver.[48] In fact, Section 14 , Rule 4 of the Interim Rules expressly limits the receivers power by providing that the rehabilitation receiver does not take over the management and
control of the corporation but shall closely oversee and monitor the operations of the debtor. [49] Further, the SEC Rules of Procedure on Corporate Recovery (SEC Rules), the rules applicable to the
instant case, do not include among the receivers powers the exclusive right to file suits for the corporation.[50]

The Court resolves the issue in favor of ASB Realty and its officers.
There is no denying that ASB Realty, as the owner of the leased premises, is the real party-in-interest in the unlawful detainer suit. [51] Real party-in-interest is defined as the party who stands to be
benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit.[52]

What petitioners argue is that the corporate officer of ASB Realty is incapacitated to file this suit to recover a corporate property because ASB Realty has a duly-appointed rehabilitation
receiver. Allegedly, this rehabilitation receiver is the only one that can file the instant suit.

Corporations, such as ASB Realty, are juridical entities that exist by operation of law. [53] As a creature of law, the powers and attributes of a corporation are those set out, expressly or impliedly, in
the law. Among the general powers granted by law to a corporation is the power to sue in its own name. [54] This power is granted to a duly-organized corporation, unless specifically revoked by
another law. The question becomes: Do the laws on corporate rehabilitation particularly PD 902-A, as amended,[55] and its corresponding rules of procedure forfeit the power to sue from the
corporate officers and Board of Directors?

Corporate rehabilitation is defined as the restoration of the debtor to a position of successful operation and solvency, if it is shown that its continuance of operation is economically feasible and its
creditors can recover by way of the present value of payments projected in the plan more if the corporation continues as a going concern than if it is immediately liquidated. [56] It was first
introduced in the Philippine legal system through PD 902-A, as amended. [57] The intention of the law is to effect a feasible and viable rehabilitation by preserving a floundering business as
a going concern, because the assets of a business are often more valuable when so maintained than they would be when liquidated.[58] This concept of preserving the corporations business as a
going concern while it is undergoing rehabilitation is called debtor-in-possession or debtor-in-place. This means that the debtor corporation (the corporation undergoing rehabilitation), through its
Board of Directors and corporate officers, remains in control of its business and properties, subject only to the monitoring of the appointed rehabilitation receiver.[59] The concept of debtor-in-
possession, is carried out more particularly in the SEC Rules, the rule that is relevant to the instant case. [60] It states therein that the interim rehabilitation receiver of the debtor corporation
does not take over the control and management of the debtor corporation.[61] Likewise, the rehabilitation receiver that will replace the interim receiver is tasked only to monitor the successful
implementation of the rehabilitation plan.[62] There is nothing in the concept of corporate rehabilitation that would ipso facto deprive[63] the Board of Directors and corporate officers of a debtor
corporation, such as ASB Realty, of control such that it can no longer enforce its right to recover its property from an errant lessee.

To be sure, corporate rehabilitation imposes several restrictions on the debtor corporation. The rules enumerate the prohibited corporate actions and transactions[64] (most of which involve some
kind of disposition or encumbrance of the corporations assets) during the pendency of the rehabilitation proceedings but none of which touch on the debtor corporations right to sue. The
implication therefore is that our concept of rehabilitation does not restrict this particular power, save for the caveat that all its actions are monitored closely by the receiver, who can seek an
annulment of any prohibited or anomalous transaction or agreement entered into by the officers of the debtor corporation.

Petitioners insist that the rehabilitation receiver has the power to bring and defend actions in his own name as this power is provided in Section 6 of Rule 59 of the Rules of Court.

Indeed, PD 902-A, as amended, provides that the receiver shall have the powers enumerated under Rule 59 of the Rules of Court. But Rule 59 is a rule of general application. It applies to different
kinds of receivers rehabilitation receivers, receivers of entities under management, ordinary receivers, receivers in liquidation and for different kinds of situations. While the SEC has the
discretion[65] to authorize the rehabilitation receiver, as the case may warrant, to exercise the powers in Rule 59, the SECs exercise of such discretion cannot simply be assumed. There is no
allegation whatsoever in this case that the SEC gave ASB Realtys rehabilitation receiver the exclusive right to sue.
Petitioners cite Villanueva,[66] Yam,[67] and Abacus Real Estate[68] as authorities for their theory that the corporate officers of a corporation under rehabilitation is incapacitated to act. In Villanueva,
[69]
the Court nullified the sale contract entered into by the Philippine Veterans Bank on the ground that the banks insolvency restricted its capacity to act. Yam,[70] on the other hand, nullified the
compromise agreement that Manphil Investment Corporation entered into while it was under receivership by the Central Bank. In Abacus Real Estate,[71] it was held that Manila Banks president
had no authority to execute an option to purchase contract while the bank was under liquidation.

These jurisprudence are inapplicable to the case at bar because they involve
banking and financial institutions that are governed by different laws. [72] In the cited cases, the applicable banking law was Section 29 [73] of the Central Bank Act.[74] In stark contrast to
rehabilitation where the corporation retains control and management of its affairs, Section 29 of the Central Bank Act, as amended, expressly forbids the bank or the quasi-bank from doing
business in the Philippines.
Moreover, the nullified transactions in the cited cases involve dispositions of assets and claims, which are prohibited transactions even for corporate rehabilitation [75] because these may be
prejudicial to creditors and contrary to the rehabilitation plan. The instant case, however, involves the recovery of assets and collection of receivables, for which there is no prohibition in PD 902-
A.

While the Court rules that ASB Realty and its corporate officers retain their power to sue to recover its property and the back rentals from Umale, the necessity of keeping the receiver apprised of
the proceedings and its results is not lost upon this Court. Tasked to closely monitor the assets of ASB Realty, the rehabilitation receiver has to be notified of the developments in the case, so that
these assets would be managed in accordance with the approved rehabilitation plan.

Coming to the second issue, petitioners maintain that ASB Realty has no
cause of action against them because it is not their lessor. They insist that Umale entered into a verbal lease agreement with Amethyst Pearl only. As proof of this verbal agreement, petitioners cite
their possession of the premises, and construction of buildings thereon, sans protest from Amethyst Pearl or ASB Realty.[76]

Petitioners concede that they may have raised questions of fact but insist nevertheless on their review as the appellate courts ruling is allegedly grounded entirely on speculations, surmises, and
conjectures and its conclusions regarding the termination of the lease contract are manifestly absurd, mistaken, and impossible.[77]

Petitioners arguments have no merit. Ineluctably, the errors they raised involve factual findings,[78] the review of which is not within the purview of the Courts functions under Rule 45, particularly
when there is adequate evidentiary support on record.

While petitioners assail the authenticity of the written lease contract by pointing out the inconsistency in the name of the lessor in two separate pages, they fail to account for Umales actions which
are consistent with the terms of the contract the payment of lease rentals to ASB Realty (instead of his alleged lessor Amethyst Pearl) for a 12-month period. These matters cannot simply be
brushed off as sheer happenstance especially when weighed against Umales incredible version of the facts that he entered into a verbal lease contract with Amethyst Pearl; that the term of the lease
is for a very long period of time; that Amethyst Pearl offered to sell the leased premises and Umale had accepted the offer, with both parties not demanding any written documentation of the
transaction and without any mention of the purchase price; and that finally, Amethyst Pearl agreed that Umale need not pay rentals until the perfection of the sale. The Court is of the same mind as
the appellate court that it is simply inconceivable that a businessman, such as petitioners predecessor-in-interest, would enter into commercial transactions with and pay substantial rentals to a
corporation nary a single documentation.
Petitioners then try to turn the table on ASB Realty with their third argument. They say that under Article 1687 of the New Civil Code, the period for rent payments determines the lease period.
Judging by the official receipt presented by ASB Realty, which covers the 12-month period from June 2001 to May 2002, the lease period should be annual because of the annual rent payments.
[79]
Petitioners then conclude that ASB Realty violated Article 1687 of the New Civil Code when it terminated the lease on June 30, 2003, at the beginning of the new period. They then implore the
Court to extend the lease to the end of the annual period, meaning until May 2004, in accordance with the annual rent payments.[80]

In arguing for an extension of lease under Article 1687, petitioners lost sight of the restriction provided in Article 1675 of the Civil Code. It states that a lessee that commits any of the grounds for
ejectment cited in Article 1673, including non-payment of lease rentals and devoting the leased premises to uses other than those stipulated, cannot avail of the periods established in Article 1687.
[81]

Moreover, the extension in Article 1687 is granted only as a matter of equity. The law simply recognizes that there are instances when it would be unfair to abruptly end the lease contract causing
the eviction of the lessee. It is only for these clearly unjust situations that Article 1687 grants the court the discretion to
extend the lease.[82]

The particular circumstances of the instant case however, do not inspire granting equitable relief. Petitioners have not paid, much less offered to pay, the rent for 14 months and even had the
temerity to disregard the pay-and-vacate notice served on them. An extension will only benefit the wrongdoer and punish the long-suffering property owner.[83]

WHEREFORE, the petition is DENIED. The October 15, 2007 Decision and January 2, 2008 Resolution of the Court of Appeals in CA-G.R. SP No. 91096 are hereby AFFIRMED. ASB
Realty Corporation is ordered to FURNISH a copy of the Decision on its incumbent Rehabilitation Receiver and to INFORM the Court of its compliance therewith within 10 days.

SO ORDERED.

2.

JOSELITO MUSNI PUNO G.R. No. 177066

(as heir of the late Carlos Puno),
Petitioner, Present:

YNARES-SANTIAGO, J.,
Chairperson,
CHICO-NAZARIO,
- versus - VELASCO, JR.,
NACHURA, and
PERALTA, JJ.

PUNO ENTERPRISES, INC., represented by Promulgated:

JESUSA PUNO,
Respondent. September 11, 2009

x------------------------------------------------------------------------------------x
 DECISION

NACHURA, J.:

Upon the death of a stockholder, the heirs do not automatically become stockholders of the corporation; neither are they mandatorily entitled to the rights and privileges of a
stockholder. This, we declare in this petition for review on certiorari of the Court of Appeals (CA) Decision [1] dated October 11, 2006 and Resolution dated March 6, 2007 in CA-
G.R. CV No. 86137.

The facts of the case follow:

Carlos L. Puno, who died on June 25, 1963, was an incorporator of respondent Puno Enterprises, Inc. On March 14, 2003, petitioner Joselito Musni Puno, claiming to be an
heir of Carlos L. Puno, initiated a complaint for specific performance against respondent. Petitioner averred that he is the son of the deceased with the latters common-law wife,
Amelia Puno. As surviving heir, he claimed entitlement to the rights and privileges of his late father as stockholder of respondent. The complaint thus prayed that respondent allow
petitioner to inspect its corporate book, render an accounting of all the transactions it entered into from 1962, and give petitioner all the profits, earnings, dividends, or income
pertaining to the shares of Carlos L. Puno.[2]

Respondent filed a motion to dismiss on the ground that petitioner did not have the legal personality to sue because his birth certificate names him as Joselito Musni Muno.
Apropos, there was yet a need for a judicial declaration that Joselito Musni Puno and Joselito Musni Muno were one and the same.

The court ordered that the proceedings be held in abeyance, ratiocinating that petitioners certificate of live birth was no proof of his paternity and relation to Carlos L. Puno.

Petitioner submitted the corrected birth certificate with the name Joselito M. Puno, certified by the Civil Registrar of the City of Manila, and the Certificate of Finality
thereof. To hasten the disposition of the case, the court conditionally admitted the corrected birth certificate as genuine and authentic and ordered respondent to file its answer
within fifteen days from the order and set the case for pretrial.[3]

On October 11, 2005, the court rendered a Decision, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered ordering Jesusa Puno and/or Felicidad Fermin to allow the plaintiff to inspect the corporate books and records
of the company from 1962 up to the present including the financial statements of the corporation.

The costs of copying shall be shouldered by the plaintiff. Any expenses to be incurred by the defendant to be able to comply with this order shall be the
subject of a bill of costs.

SO ORDERED.[4]
On appeal, the CA ordered the dismissal of the complaint in its Decision dated October 11, 2006. According to the CA, petitioner was not able to establish the paternity of and his
filiation to Carlos L. Puno since his birth certificate was prepared without the intervention of and the participatory acknowledgment of paternity by Carlos L. Puno. Accordingly,
the CA said that petitioner had no right to demand that he be allowed to examine respondents books. Moreover, petitioner was not a stockholder of the corporation but was merely
claiming rights as an heir of Carlos L. Puno, an incorporator of the corporation. His action for specific performance therefore appeared to be premature; the proper action to be
taken was to prove the paternity of and his filiation to Carlos L. Puno in a petition for the settlement of the estate of the latter.[5]

Petitioners motion for reconsideration was denied by the CA in its Resolution[6] dated March 6, 2007.

In this petition, petitioner raises the following issues:

I. THE HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT THE JOSELITO PUNO IS ENTITLED TO THE RELIEFS
DEMANDED HE BEING THE HEIR OF THE LATE CARLOS PUNO, ONE OF THE INCORPORATORS [OF] RESPONDENT CORPORATION.

II. HONORABLE COURT OF APPEALS ERRED IN RULING THAT FILIATION OF JOSELITO PUNO, THE PETITIONER[,] IS NOT DULY
PROVEN OR ESTABLISHED.

III. THE HONORABLE COURT ERRED IN NOT RULING THAT JOSELITO MUNO AND JOSELITO PUNO REFERS TO THE ONE AND THE
SAME PERSON.

IV. THE HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT WHAT RESPONDENT MERELY DISPUTES IS THE SURNAME OF
THE PETITIONER WHICH WAS MISSPELLED AND THE FACTUAL ALLEGATION E.G. RIGHTS OF PETITIONER AS HEIR OF CARLOS PUNO
ARE DEEMED ADMITTED HYPOTHETICALLY IN THE RESPONDENT[S] MOTION TO DISMISS.

V. THE HONORABLE COURT OF APPEALS THEREFORE ERRED I[N] DECREEING THAT PETITIONER IS NOT ENTITLED TO INSPECT THE
CORPORATE BOOKS OF DEFENDANT CORPORATION.[7]

The petition is without merit. Petitioner failed to establish the right to inspect respondent corporations books and receive dividends on the stocks owned by Carlos L. Puno.

Petitioner anchors his claim on his being an heir of the deceased stockholder. However, we agree with the appellate court that petitioner was not able to prove satisfactorily
his filiation to the deceased stockholder; thus, the former cannot claim to be an heir of the latter.

Incessantly, we have declared that factual findings of the CA supported by substantial evidence, are conclusive and binding.[8] In an appeal via certiorari, the Court may not
review the factual findings of the CA. It is not the Courts function under Rule 45 of the Rules of Court to review, examine, and evaluate or weigh the probative value of the
evidence presented.[9]

A certificate of live birth purportedly identifying the putative father is not competent evidence of paternity when there is no showing that the putative father had a hand in
the preparation of the certificate. The local civil registrar has no authority to record the paternity of an illegitimate child on the information of a third person. [10] As correctly
observed by the CA, only petitioners mother supplied the data in the birth certificate and signed the same. There was no evidence that Carlos L. Puno acknowledged petitioner as
his son.

As for the baptismal certificate, we have already decreed that it can only serve as evidence of the administration of the sacrament on the date specified but not of the
veracity of the entries with respect to the childs paternity.[11]

In any case, Sections 74 and 75 of the Corporation Code enumerate the persons who are entitled to the inspection of corporate books, thus

Sec. 74. Books to be kept; stock transfer agent. x x x.

The records of all business transactions of the corporation and the minutes of any meeting shall be open to the inspection of any director, trustee,
stockholder or member of the corporation at reasonable hours on business days and he may demand, in writing, for a copy of excerpts from said records or minutes,
at his expense.

xxxx

Sec. 75. Right to financial statements. Within ten (10) days from receipt of a written request of any stockholder or member, the corporation shall furnish to
him its most recent financial statement, which shall include a balance sheet as of the end of the last taxable year and a profit or loss of statement for said taxable
year, showing in reasonable detail its assets and liabilities and the result of its operations.[12]

The stockholders right of inspection of the corporations books and records is based upon his ownership of shares in the corporation and the necessity for self-protection.
After all, a shareholder has the right to be intelligently informed about corporate affairs. [13] Such right rests upon the stockholders underlying ownership of the corporations assets
and property.[14]

Similarly, only stockholders of record are entitled to receive dividends declared by the corporation, a right inherent in the ownership of the shares.[15]

Upon the death of a shareholder, the heirs do not automatically become stockholders of the corporation and acquire the rights and privileges of the deceased as shareholder
of the corporation. The stocks must be distributed first to the heirs in estate proceedings, and the transfer of the stocks must be recorded in the books of the corporation. Section 63
of the Corporation Code provides that no transfer shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation. [16] During such interim
period, the heirs stand as the equitable owners of the stocks, the executor or administrator duly appointed by the court being vested with the legal title to the stock. [17]Until a
settlement and division of the estate is effected, the stocks of the decedent are held by the administrator or executor. [18] Consequently, during such time, it is the administrator or
executor who is entitled to exercise the rights of the deceased as stockholder.

Thus, even if petitioner presents sufficient evidence in this case to establish that he is the son of Carlos L. Puno, he would still not be allowed to inspect respondents books
and be entitled to receive dividends from respondent, absent any showing in its transfer book that some of the shares owned by Carlos L. Puno were transferred to him. This would
only be possible if petitioner has been recognized as an heir and has participated in the settlement of the estate of the deceased.
 Corollary to this is the doctrine that a determination of whether a person, claiming proprietary rights over the estate of a deceased person, is an heir of the deceased must be
ventilated in a special proceeding instituted precisely for the purpose of settling the estate of the latter. The status of an illegitimate child who claims to be an heir to a decedents
estate cannot be adjudicated in an ordinary civil action, as in a case for the recovery of property. [19] The doctrine applies to the instant case, which is one for specific performance to
direct respondent corporation to allow petitioner to exercise rights that pertain only to the deceased and his representatives.

WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated October 11, 2006 and Resolution dated March 6, 2007
are AFFIRMED.

SO ORDERED.

3.

WILSON P. GAMBOA, G.R. No. 176579

Petitioner,

Present:

PABLITO V. SANIDAD and Promulgated:

ARNO V. SANIDAD,

Petitioners-in-Intervention. June 28, 2011

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

DECISION
CARPIO, J.:

The Case

This is an original petition for prohibition, injunction, declaratory relief and declaration of nullity of the sale of shares of stock of Philippine Telecommunications Investment
Corporation (PTIC) by the government of the Republic of the Philippines to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First
Pacific).

The Antecedents

The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine Long Distance Telephone Company (PLDT), are as follows:1

On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise and the right to engage in telecommunications business. In 1969, General
Telephone and Electronics Corporation (GTE), an American company and a major PLDT stockholder, sold 26 percent of the outstanding common shares of PLDT to PTIC. In
1977, Prime Holdings, Inc. (PHI) was incorporated by several persons, including Roland Gapud and Jose Campos, Jr. Subsequently, PHI became the owner of 111,415 shares of
stock of PTIC by virtue of three Deeds of Assignment executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of stock of PTIC held
by PHI were sequestered by the Presidential Commission on Good Government (PCGG). The 111,415 PTIC shares, which represent about 46.125 percent of the outstanding
capital stock of PTIC, were later declared by this Court to be owned by the Republic of the Philippines.2

In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the remaining 54 percent of the outstanding capital stock of PTIC. On 20 November
2006, the Inter-Agency Privatization Council (IPC) of the Philippine Government announced that it would sell the 111,415 PTIC shares, or 46.125 percent of the outstanding
capital stock of PTIC, through a public bidding to be conducted on 4 December 2006. Subsequently, the public bidding was reset to 8 December 2006, and only two bidders,
Parallax Venture Fund XXVII (Parallax) and Pan-Asia Presidio Capital, submitted their bids. Parallax won with a bid of P25.6 billion or US$510 million.

Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder and buy the 111,415 PTIC shares by matching the bid price of Parallax.
However, First Pacific failed to do so by the 1 February 2007 deadline set by IPC and instead, yielded its right to PTIC itself which was then given by IPC until 2 March 2007 to
buy the PTIC shares. On 14 February 2007, First Pacific, through its subsidiary, MPAH, entered into a Conditional Sale and Purchase Agreement of the 111,415 PTIC shares, or
46.125 percent of the outstanding capital stock of PTIC, with the Philippine Government for the price of P25,217,556,000 or US$510,580,189. The sale was completed on 28
February 2007.
Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares is actually an indirect sale of 12 million shares or about 6.3 percent
of the outstanding common shares of PLDT. With the sale, First Pacifics common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the
common shareholdings of foreigners in PLDT to about 81.47 percent. This violates Section 11, Article XII of the 1987 Philippine Constitution which limits foreign ownership
of the capital of a public utility to not more than 40 percent.3

On the other hand, public respondents Finance Secretary Margarito B. Teves, Undersecretary John P. Sevilla, and PCGG Commissioner Ricardo Abcede allege the following
relevant facts:

On 9 November 1967, PTIC was incorporated and had since engaged in the business of investment holdings. PTIC held 26,034,263 PLDT common shares, or 13.847 percent of the
total PLDT outstanding common shares. PHI, on the other hand, was incorporated in 1977, and became the owner of 111,415 PTIC shares or 46.125 percent of the outstanding
capital stock of PTIC by virtue of three Deeds of Assignment executed by Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 PTIC shares held by PHI were
sequestered by the PCGG, and subsequently declared by this Court as part of the ill-gotten wealth of former President Ferdinand Marcos. The sequestered PTIC shares
were reconveyed to the Republic of the Philippines in accordance with this Courts decision4 which became final and executory on 8 August 2006.

The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4 percent of the outstanding common shares of stock of PLDT, and designated the Inter-
Agency Privatization Council (IPC), composed of the Department of Finance and the PCGG, as the disposing entity. An invitation to bid was published in seven different
newspapers from 13 to 24 November 2006. On 20 November 2006, a pre-bid conference was held, and the original deadline for bidding scheduled on 4 December 2006 was reset
to 8 December 2006. The extension was published in nine different newspapers.

During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the highest bidder with a bid of P25,217,556,000. The government notified First Pacific, the
majority owner of PTIC shares, of the bidding results and gave First Pacific until 1 February 2007 to exercise its right of first refusal in accordance with PTICs Articles of
Incorporation. First Pacific announced its intention to match Parallaxs bid.

On 31 January 2007, the House of Representatives (HR) Committee on Good Government conducted a public hearing on the particulars of the then impending sale of the 111,415
PTIC shares. Respondents Teves and Sevilla were among those who attended the public hearing. The HR Committee Report No. 2270 concluded that: (a) the auction of the
governments 111,415 PTIC shares bore due diligence, transparency and conformity with existing legal procedures; and (b) First Pacifics intended acquisition of the
governments 111,415 PTIC shares resulting in First Pacifics 100% ownership of PTIC will not violate the 40 percent constitutional limit on foreign ownership of a public
utility since PTIC holds only 13.847 percent of the total outstanding common shares of PLDT. 5 On 28 February 2007, First Pacific completed the acquisition of the 111,415
shares of stock of PTIC.

Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public bidding for the sale of 111,415 PTIC shares or 46 percent of the outstanding capital
stock of PTIC (the remaining 54 percent of PTIC shares was already owned by First Pacific and its affiliates); (b) Parallax offered the highest bid amounting to P25,217,556,000;
(c) pursuant to the right of first refusal in favor of PTIC and its shareholders granted in PTICs Articles of Incorporation, MPAH, a First Pacific affiliate, exercised its right of first
refusal by matching the highest bid offered for PTIC shares on 13 February 2007; and (d) on 28 February 2007, the sale was consummated when MPAH paid IPC P25,217,556,000
and the government delivered the certificates for the 111,415 PTIC shares. Respondent Pangilinan denies the other allegations of facts of petitioner.

On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory relief, and declaration of nullity of sale of the 111,415 PTIC shares. Petitioner
claims, among others, that the sale of the 111,415 PTIC shares would result in an increase in First Pacifics common shareholdings in PLDT from 30.7 percent to 37 percent, and
this, combined with Japanese NTT DoCoMos common shareholdings in PLDT, would result to a total foreign common shareholdings in PLDT of 51.56 percent which is over the
40 percent constitutional limit.6 Petitioner asserts:

If and when the sale is completed, First Pacifics equity in PLDT will go up from 30.7 percent to 37.0 percent of its common or voting- stockholdings, x x x. Hence, the
consummation of the sale will put the two largest foreign investors in PLDT First Pacific and Japans NTT DoCoMo, which is the worlds largest wireless
telecommunications firm, owning 51.56 percent of PLDT common equity. x x x With the completion of the sale, data culled from the official website of the New York
Stock Exchange (www.nyse.com) showed that those foreign entities, which own at least five percent of common equity, will collectively own 81.47 percent of PLDTs
common equity. x x x

x x x as the annual disclosure reports, also referred to as Form 20-K reports x x x which PLDT submitted to the New York Stock Exchange for the period
2003-2005, revealed that First Pacific and several other foreign entities breached the constitutional limit of 40 percent ownership as early as 2003. x x x7

Petitioner raises the following issues: (1) whether the consummation of the then impending sale of 111,415 PTIC shares to First Pacific violates the constitutional limit on foreign
ownership of a public utility; (2) whether public respondents committed grave abuse of discretion in allowing the sale of the 111,415 PTIC shares to First Pacific; and (3) whether
the sale of common shares to foreigners in excess of 40 percent of the entire subscribed common capital stock violates the constitutional limit on foreign ownership of a public
utility.8

On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to Intervene and Admit Attached Petition-in-Intervention. In the Resolution of 28 August
2007, the Court granted the motion and noted the Petition-in-Intervention.

Petitioners-in-intervention join petitioner Wilson Gamboa x x x in seeking, among others, to enjoin and/or nullify the sale by respondents of the 111,415 PTIC shares to First
Pacific or assignee. Petitioners-in-intervention claim that, as PLDT subscribers, they have a stake in the outcome of the controversy x x x where the Philippine Government is
completing the sale of government owned assets in [PLDT], unquestionably a public utility, in violation of the nationality restrictions of the Philippine Constitution.

The Issue
This Court is not a trier of facts. Factual questions such as those raised by petitioner,9 which indisputably demand a thorough examination of the evidence of the parties, are
generally beyond this Courts jurisdiction. Adhering to this well-settled principle, the Court shall confine the resolution of the instant controversy solely on the threshold and
purely legal issue of whether the term capital in Section 11, Article XII of the Constitution refers to the total common shares only or to the total outstanding capital stock
(combined total of common and non-voting preferred shares) of PLDT, a public utility.

The Ruling of the Court

The petition is partly meritorious.

Petition for declaratory relief treated as petition for mandamus

At the outset, petitioner is faced with a procedural barrier. Among the remedies petitioner seeks, only the petition for prohibition is within the original jurisdiction of this court,
which however is not exclusive but is concurrent with the Regional Trial Court and the Court of Appeals. The actions for declaratory relief,10 injunction, and annulment of sale are
not embraced within the original jurisdiction of the Supreme Court. On this ground alone, the petition could have been dismissed outright.

While direct resort to this Court may be justified in a petition for prohibition,11 the Court shall nevertheless refrain from discussing the grounds in support of the petition for
prohibition since on 28 February 2007, the questioned sale was consummated when MPAH paid IPC P25,217,556,000 and the government delivered the certificates for the 111,415
PTIC shares.

However, since the threshold and purely legal issue on the definition of the term capital in Section 11, Article XII of the Constitution has far-reaching implications to the
national economy, the Court treats the petition for declaratory relief as one for mandamus.12

In Salvacion v. Central Bank of the Philippines,13 the Court treated the petition for declaratory relief as one for mandamus considering the grave injustice that would result in the
interpretation of a banking law. In that case, which involved the crime of rape committed by a foreign tourist against a Filipino minor and the execution of the final judgment in the
civil case for damages on the tourists dollar deposit with a local bank, the Court declared Section 113 of Central Bank Circular No. 960, exempting foreign currency deposits from
attachment, garnishment or any other order or process of any court, inapplicable due to the peculiar circumstances of the case. The Court held that injustice would result especially
to a citizen aggrieved by a foreign guest like accused x x x that would negate Article 10 of the Civil Code which provides that in case of doubt in the interpretation or application of
laws, it is presumed that the lawmaking body intended right and justice to prevail. The Court therefore required respondents Central Bank of the Philippines, the local bank, and the
accused to comply with the writ of execution issued in the civil case for damages and to release the dollar deposit of the accused to satisfy the judgment.

In Alliance of Government Workers v. Minister of Labor,14 the Court similarly brushed aside the procedural infirmity of the petition for declaratory relief and treated the same as
one for mandamus. In Alliance, the issue was whether the government unlawfully excluded petitioners, who were government employees, from the enjoyment of rights to which
they were entitled under the law. Specifically, the question was: Are the branches, agencies, subdivisions, and instrumentalities of the Government, including government owned or
controlled corporations included among the four employers under Presidential Decree No. 851 which are required to pay their employees x x x a thirteenth (13th) month pay
x x x ? The Constitutional principle involved therein affected all government employees, clearly justifying a relaxation of the technical rules of procedure, and certainly requiring
the interpretation of the assailed presidential decree.

In short, it is well-settled that this Court may treat a petition for declaratory relief as one for mandamus if the issue involved has far-reaching implications. As this Court held
in Salvacion:

The Court has no original and exclusive jurisdiction over a petition for declaratory relief. However, exceptions to this rule have been recognized. Thus, where the
petition has far-reaching implications and raises questions that should be resolved, it may be treated as one for mandamus.15 (Emphasis supplied)

In the present case, petitioner seeks primarily the interpretation of the term capital in Section 11, Article XII of the Constitution. He prays that this Court declare that the term
capital refers to common shares only, and that such shares constitute the sole basis in determining foreign equity in a public utility. Petitioner further asks this Court to declare any
ruling inconsistent with such interpretation unconstitutional.

The interpretation of the term capital in Section 11, Article XII of the Constitution has far-reaching implications to the national economy. In fact, a resolution of this issue will
determine whether Filipinos are masters, or second class citizens, in their own country. What is at stake here is whether Filipinos or foreigners will have effective control of the
national economy. Indeed, if ever there is a legal issue that has far-reaching implications to the entire nation, and to future generations of Filipinos, it is the threshhold legal issue
presented in this case.

The Court first encountered the issue on the definition of the term capital in Section 11, Article XII of the Constitution in the case of Fernandez v. Cojuangco, docketed as G.R. No.
157360.16 That case involved the same public utility (PLDT) and substantially the same private respondents. Despite the importance and novelty of the constitutional issue raised
therein and despite the fact that the petition involved a purely legal question, the Court declined to resolve the case on the merits, and instead denied the same for disregarding the
hierarchy of courts.17 There, petitioner Fernandez assailed on a pure question of law the Regional Trial Courts Decision of 21 February 2003 via a petition for review under Rule
45. The Courts Resolution, denying the petition, became final on 21 December 2004.
The instant petition therefore presents the Court with another opportunity to finally settle this purely legal issue which is of transcendental importance to the national economy and
a fundamental requirement to a faithful adherence to our Constitution. The Court must forthwith seize such opportunity, not only for the benefit of the litigants, but more
significantly for the benefit of the entire Filipino people, to ensure, in the words of the Constitution, a self-reliant and independent national economy effectively controlled by
Filipinos.18 Besides, in the light of vague and confusing positions taken by government agencies on this purely legal issue, present and future foreign investors in this country
deserve, as a matter of basic fairness, a categorical ruling from this Court on the extent of their participation in the capital of public utilities and other nationalized businesses.

Despite its far-reaching implications to the national economy, this purely legal issue has remained unresolved for over 75 years since the 1935 Constitution. There is no reason for
this Court to evade this ever recurring fundamental issue and delay again defining the term capital, which appears not only in Section 11, Article XII of the Constitution, but also in
Section 2, Article XII on co-production and joint venture agreements for the development of our natural resources,19 in Section 7, Article XII on ownership of private lands,20 in
Section 10, Article XII on the reservation of certain investments to Filipino citizens,21 in Section 4(2), Article XIV on the ownership of educational institutions,22 and in Section
11(2), Article XVI on the ownership of advertising companies.23

Petitioner has locus standi

There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right to question the subject sale, which he claims to violate the nationality requirement prescribed
in Section 11, Article XII of the Constitution. If the sale indeed violates the Constitution, then there is a possibility that PLDTs franchise could be revoked, a dire consequence
directly affecting petitioners interest as a stockholder.

More importantly, there is no question that the instant petition raises matters of transcendental importance to the public. The fundamental and threshold legal issue in this case,
involving the national economy and the economic welfare of the Filipino people, far outweighs any perceived impediment in the legal personality of the petitioner to bring this
action.

In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a suit on matters of transcendental importance to the public, thus:

In Taada v. Tuvera, the Court asserted that when the issue concerns a public right and the object of mandamus is to obtain the enforcement of a public duty, the people are
regarded as the real parties in interest; and because it is sufficient that petitioner is a citizen and as such is interested in the execution of the laws, he need not show that
he has any legal or special interest in the result of the action. In the aforesaid case, the petitioners sought to enforce their right to be informed on matters of public concern, a
right then recognized in Section 6, Article IV of the 1973 Constitution, in connection with the rule that laws in order to be valid and enforceable must be published in the Official
Gazette or otherwise effectively promulgated. In ruling for the petitioners legal standing, the Court declared that the right they sought to be enforced is a public right recognized by
no less than the fundamental law of the land.
Legaspi v. Civil Service Commission, while reiterating Taada, further declared that when a mandamus proceeding involves the assertion of a public right, the requirement of
personal interest is satisfied by the mere fact that petitioner is a citizen and, therefore, part of the general public which possesses the right.

Further, in Albano v. Reyes, we said that while expenditure of public funds may not have been involved under the questioned contract for the development, management and
operation of the Manila International Container Terminal, public interest [was] definitely involved considering the important role [of the subject contract] . . . in the
economic development of the country and the magnitude of the financial consideration involved. We concluded that, as a consequence, the disclosure provision in the
Constitution would constitute sufficient authority for upholding the petitioners standing. (Emphasis supplied)

Clearly, since the instant petition, brought by a citizen, involves matters of transcendental public importance, the petitioner has the requisite locus standi.

Definition of the Term Capital in

Section 11, Article XII of the 1987 Constitution

Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of public utilities, to wit:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or
to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such
franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the
condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in
public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share
in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines. (Emphasis supplied)

The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution, thus:

Section 5. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or
to corporations or associations organized under the laws of the Philippines at least sixty per centum of the capital of which is owned by such citizens, nor shall such
franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the
condition that it shall be subject to amendment, alteration, or repeal by the National Assembly when the public interest so requires. The State shall encourage equity
 participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their
proportionate share in the capital thereof. (Emphasis supplied)

The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the 1935 Constitution, viz:

Section 8. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or
to corporations or other entities organized under the laws of the Philippines sixty per centum of the capital of which is owned by citizens of the Philippines, nor
shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. No franchise or right shall be granted to any individual,
firm, or corporation, except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the public interest so requires. (Emphasis
supplied)

Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission, reminds us that the Filipinization provision in the 1987 Constitution is one of the
products of the spirit of nationalism which gripped the 1935 Constitutional Convention.25 The 1987 Constitution provides for the Filipinization of public utilities by requiring that
any form of authorization for the operation of public utilities should be granted only to citizens of the Philippines or to corporations or associations organized under the laws of the
Philippines at least sixty per centum of whose capital is owned by such citizens. The provision is [an express] recognition of the sensitive and vital position of public utilities
both in the national economy and for national security.26 The evident purpose of the citizenship requirement is to prevent aliens from assuming control of public utilities, which
may be inimical to the national interest.27 This specific provision explicitly reserves to Filipino citizens control of public utilities, pursuant to an overriding economic goal of the
1987 Constitution: to conserve and develop our patrimony28 and ensure a self-reliant and independent national economy effectively controlled by Filipinos.29

Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum nationality requirement prescribed in Section 11, Article XII of the Constitution.
Hence, for a corporation to be granted authority to operate a public utility, at least 60 percent of its capital must be owned by Filipino citizens.

The crux of the controversy is the definition of the term capital. Does the term capital in Section 11, Article XII of the Constitution refer to common shares or to the total
outstanding capital stock (combined total of common and non-voting preferred shares)?

Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only to common shares because such shares are entitled to vote and it is through
voting that control over a corporation is exercised. Petitioner posits that the term capital in Section 11, Article XII of the Constitution refers to the ownership of common capital
stock subscribed and outstanding, which class of shares alone, under the corporate set-up of PLDT, can vote and elect members of the board of directors. It is undisputed that
PLDTs non-voting preferred shares are held mostly by Filipino citizens.30 This arose from Presidential Decree No. 217,31 issued on 16 June 1973 by then President Ferdinand
Marcos, requiring every applicant of a PLDT telephone line to subscribe to non-voting preferred shares to pay for the investment cost of installing the telephone line.32

Petitioners-in-intervention basically reiterate petitioners arguments and adopt petitioners definition of the term capital.33 Petitioners-in-intervention allege that the approximate
foreign ownership of common capital stock of PLDT x x x already amounts to at least 63.54% of the total outstanding common stock, which means that foreigners exercise
significant control over PLDT, patently violating the 40 percent foreign equity limitation in public utilities prescribed by the Constitution.

Respondents, on the other hand, do not offer any definition of the term capital in Section 11, Article XII of the Constitution. More importantly, private
respondents Nazareno and Pangilinan of PLDT do not dispute that more than 40 percent of the common shares of PLDT are held by foreigners.

In particular, respondent Nazarenos Memorandum, consisting of 73 pages, harps mainly on the procedural infirmities of the petition and the supposed violation of the due process
rights of the affected foreign common shareholders. Respondent Nazareno does not deny petitioners allegation of foreigners dominating the common shareholdings of
PLDT. Nazarenostressed mainly that the petition seeks to divest foreign common shareholders purportedly exceeding 40% of the total common shareholdings in PLDT of
their ownership over their shares. Thus, the foreign natural and juridical PLDT shareholders must be impleaded in this suit so that they can be
heard.34 Essentially, Nazareno invokes denial of due process on behalf of the foreign common shareholders.

While Nazareno does not introduce any definition of the term capital, he states that among the factual assertions that need to be established to counter petitioners allegations
is the uniform interpretation by government agencies (such as the SEC), institutions and corporations (such as the Philippine National Oil Company-Energy
Development Corporation or PNOC-EDC) of including both preferred shares and common shares in controlling interest in view of testing compliance with the 40%
constitutional limitation on foreign ownership in public utilities.35

Similarly, respondent Manuel V. Pangilinan does not define the term capital in Section 11, Article XII of the Constitution. Neither does he refute petitioners claim of foreigners
holding more than 40 percent of PLDTs common shares. Instead, respondent Pangilinan focuses on the procedural flaws of the petition and the alleged violation of the due process
rights of foreigners. Respondent Pangilinan emphasizes in his Memorandum (1) the absence of this Courts jurisdiction over the petition; (2) petitioners lack of standing;
(3) mootness of the petition; (4) non-availability of declaratory relief; and (5) the denial of due process rights. Moreover, respondent Pangilinan alleges that the issue should be
whether owners of shares in PLDT as well as owners of shares in companies holding shares in PLDT may be required to relinquish their shares in PLDT and in those companies
without any law requiring them to surrender their shares and also without notice and trial.

Respondent Pangilinan further asserts that Section 11, [Article XII of the Constitution] imposes no nationality requirement on the shareholders of the utility company as a
condition for keeping their shares in the utility company. According to him, Section 11 does not authorize taking one persons property (the shareholders stock in the utility
company) on the basis of another partys alleged failure to satisfy a requirement that is a condition only for that other partys retention of another piece of property (the utility
company being at least 60% Filipino-owned to keep its franchise).36
The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P. Sevilla, Commissioner Ricardo Abcede, and Chairman Fe Barin, is likewise silent on
the definition of the term capital. In its Memorandum37 dated 24 September 2007, the OSG also limits its discussion on the supposed procedural defects of the petition, i.e. lack of
standing, lack of jurisdiction, non-inclusion of interested parties, and lack of basis for injunction. The OSG does not present any definition or interpretation of the term capital in
Section 11, Article XII of the Constitution. The OSG contends that the petition actually partakes of a collateral attack on PLDTs franchise as a public utility, which in effect
requires a full-blown trial where all the parties in interest are given their day in court.38

Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of the Philippine Stock Exchange (PSE), does not also define the term capital and seeks the
dismissal of the petition on the following grounds: (1) failure to state a cause of action against Lim; (2) the PSE allegedly implemented its rules and required all listed companies,
including PLDT, to make proper and timely disclosures; and (3) the reliefs prayed for in the petition would adversely impact the stock market.

In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a stockholder of record of PLDT, contended that the term capital in the 1987 Constitution
refers to shares entitled to vote or the common shares. Fernandez explained thus:

The forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to ownership of shares of stock entitled to vote, i.e., common
shares, considering that it is through voting that control is being exercised. x x x

Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions on fully nationalized and partially nationalized activities is for Filipino
nationals to be always in control of the corporation undertaking said activities. Otherwise, if the Trial Courts ruling upholding respondents arguments were to be given
credence, it would be possible for the ownership structure of a public utility corporation to be divided into one percent (1%) common stocks and ninety-nine percent (99%)
preferred stocks. Following the Trial Courts ruling adopting respondents arguments, the common shares can be owned entirely by foreigners thus creating an absurd
situation wherein foreigners, who are supposed to be minority shareholders, control the public utility corporation.

xxxx

Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial ownership and the controlling interest.

xxxx
 Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to ownership of shares of stock entitled to vote,
i.e., common shares. Furthermore, ownership of record of shares will not suffice but it must be shown that the legal and beneficial ownership rests in the hands of Filipino
citizens. Consequently, in the case of petitioner PLDT, since it is already admitted that the voting interests of foreigners which would gain entry to petitioner PLDT by the
acquisition of SMART shares through the Questioned Transactions is equivalent to 82.99%, and the nominee arrangements between the foreign principals and the Filipino
owners is likewise admitted, there is, therefore, a violation of Section 11, Article XII of the Constitution.

Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial Court to support the proposition that the meaning of the word capital as used in
Section 11, Article XII of the Constitution allegedly refers to the sum total of the shares subscribed and paid-in by the shareholder and it allegedly is immaterial how the
stock is classified, whether as common or preferred, cannot stand in the face of a clear legislative policy as stated in the FIA which took effect in 1991 or way after said
opinions were rendered, and as clarified by the above-quoted Amendments. In this regard, suffice it to state that as between the law and an opinion rendered by an
administrative agency, the law indubitably prevails. Moreover, said Opinions are merely advisory and cannot prevail over the clear intent of the framers of the Constitution.

In the same vein, the SECs construction of Section 11, Article XII of the Constitution is at best merely advisory for it is the courts that finally determine what a law means. 39

On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos A. Arellano, Helen Y. Dee, Magdangal B. Elma, Mariles Cacho-Romulo,
Fr. Bienvenido F. Nebres, Ray C. Espinosa, Napoleon L. Nazareno, Albert F. Del Rosario, and Orlando B. Vea, argued that the term capital in Section 11, Article XII of the
Constitution includes preferred shares since the Constitution does not distinguish among classes of stock, thus:

16. The Constitution applies its foreign ownership limitation on the corporations capital, without distinction as to classes of shares. x x x

In this connection, the Corporation Code which was already in force at the time the present (1987) Constitution was drafted defined outstanding capital stock as follows:

Section 137. Outstanding capital stock defined. The term outstanding capital stock, as used in this Code, means the total shares of stock issued under binding subscription
agreements to subscribers or stockholders, whether or not fully or partially paid, except treasury shares.

Section 137 of the Corporation Code also does not distinguish between common and preferred shares, nor exclude either class of shares, in determining the outstanding
capital stock (the capital) of a corporation. Consequently, petitioners suggestion to reckon PLDTs foreign equity only on the basis of PLDTs outstanding common shares is
without legal basis. The language of the Constitution should be understood in the sense it has in common use.

xxxx
 17. But even assuming that resort to the proceedings of the Constitutional Commission is necessary, there is nothing in the Record of the Constitutional Commission (Vol. III)
which petitioner misleadingly cited in the Petition x x x which supports petitioners view that only common shares should form the basis for computing a public utilitys
foreign equity.

xxxx

18. In addition, the SEC the government agency primarily responsible for implementing the Corporation Code, and which also has the responsibility of ensuring compliance
with the Constitutions foreign equity restrictions as regards nationalized activities x x x has categorically ruled that both common and preferred shares are properly
considered in determining outstanding capital stock and the nationality composition thereof.40

We agree with petitioner and petitioners-in-intervention. The term capital in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in the election
of directors, and thus in the present case only to common shares,41 and not to the total outstanding capital stock comprising both common and non-voting preferred shares.

The Corporation Code of the Philippines42 classifies shares as common or preferred, thus:

Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided into classes or series of shares, or both, any of which classes or series of shares
may have such rights, privileges or restrictions as may be stated in the articles of incorporation: Provided, That no share may be deprived of voting rights except those
classified and issued as preferred or redeemable shares, unless otherwise provided in this Code: Provided, further, That there shall always be a class or series of shares
which have complete voting rights. Any or all of the shares or series of shares may have a par value or have no par value as may be provided for in the articles of
incorporation: Provided, however, That banks, trust companies, insurance companies, public utilities, and building and loan associations shall not be permitted to issue no-
par value shares of stock.

Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets of the corporation in case of liquidation and in the distribution
of dividends, or such other preferences as may be stated in the articles of incorporation which are not violative of the provisions of this Code: Provided, That preferred
shares of stock may be issued only with a stated par value. The Board of Directors, where authorized in the articles of incorporation, may fix the terms and conditions of
preferred shares of stock or any series thereof: Provided, That such terms and conditions shall be effective upon the filing of a certificate thereof with the Securities and
Exchange Commission.

Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the holder of such shares shall not be liable to the corporation or to its
creditors in respect thereto: Provided; That shares without par value may not be issued for a consideration less than the value of five (P5.00) pesos per share: Provided,
further, That the entire consideration received by the corporation for its no-par value shares shall be treated as capital and shall not be available for distribution as dividends.

A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional or legal requirements.

Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share shall be equal in all respects to every other share.
 Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of such shares shall nevertheless be entitled to vote on the
following matters:

1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;

3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property;

4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;

6. Merger or consolidation of the corporation with another corporation or other corporations;

7. Investment of corporate funds in another corporation or business in accordance with this Code; and

8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular corporate act as provided in this Code shall be deemed to refer only
to stocks with voting rights.

Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the corporation.43 This is exercised through his vote in the election of
directors because it is the board of directors that controls or manages the corporation.44 In the absence of provisions in the articles of incorporation denying voting rights to
preferred shares, preferred shares have the same voting rights as common shares. However, preferred shareholders are often excluded from any control, that is, deprived of the right
to vote in the election of directors and on other matters, on the theory that the preferred shareholders are merely investors in the corporation for income in the same manner as
bondholders.45 In fact, under the Corporation Code only preferred or redeemable shares can be deprived of the right to vote.46 Common shares cannot be deprived of the right to
vote in any corporate meeting, and any provision in the articles of incorporation restricting the right of common shareholders to vote is invalid.47

Considering that common shares have voting rights which translate to control, as opposed to preferred shares which usually have no voting rights, the term capital in Section 11,
Article XII of the Constitution refers only to common shares. However, if the preferred shares also have the right to vote in the election of directors, then the term capital shall
include such preferred shares because the right to participate in the control or management of the corporation is exercised through the right to vote in the election of directors. In
short, the term capital in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the election of directors.

This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of Filipino citizens the control and management of public utilities. As
revealed in the deliberations of the Constitutional Commission, capital refers to the voting stock or controlling interest of a corporation, to wit:
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in
Section 15.

MR. VILLEGAS. That is right.

MR. NOLLEDO. In teaching law, we are always faced with this question: Where do we base the equity requirement, is it on the authorized capital stock, on the subscribed
capital stock, or on the paid-up capital stock of a corporation? Will the Committee please enlighten me on this?

MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center who provided us a draft. The phrase that is contained here
which we adopted from the UP draft is 60 percent of voting stock.

MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent, unpaid capital stock shall be entitled to vote.

MR. VILLEGAS. That is right.

MR. NOLLEDO. Thank you.

With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent equity invests in another corporation which is permitted by
the Corporation Code, does the Committee adopt the grandfather rule?

MR. VILLEGAS. Yes, that is the understanding of the Committee.

MR. NOLLEDO. Therefore, we need additional Filipino capital?

MR. VILLEGAS. Yes.48

xxxx

MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.

MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase voting stock or controlling interest.

MR. AZCUNA. Hence, without the Davide amendment, the committee report would read: corporations or associations at least sixty percent of whose CAPITAL is owned
by such citizens.

MR. VILLEGAS. Yes.

MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned by citizens.

MR. VILLEGAS. That is right.

MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us say 40 percent of the capital is owned by them, but it is the voting
capital, whereas, the Filipinos own the nonvoting shares. So we can have a situation where the corporation is controlled by foreigners despite being the minority
because they have the voting capital. That is the anomaly that would result here.

MR. BENGZON. No, the reason we eliminated the word stock as stated in the 1973 and 1935 Constitutions is that according to Commissioner Rodrigo, there are
associations that do not have stocks. That is why we say CAPITAL.

MR. AZCUNA. We should not eliminate the phrase controlling interest.

 MR. BENGZON. In the case of stock corporations, it is assumed.49 (Emphasis supplied)

Thus, 60 percent of the capital assumes, or should result in, controlling interest in the corporation. Reinforcing this interpretation of the term capital, as referring to controlling
interest or shares entitled to vote, is the definition of a Philippine national in the Foreign Investments Act of 1991,50 to wit:

SEC. 3. Definitions. - As used in this Act:

a. The term Philippine national shall mean a citizen of the Philippines; or a domestic partnership or association wholly owned by citizens of the Philippines; or a
corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and
held by citizens of the Philippines; or a corporation organized abroad and registered as doing business in the Philippines under the Corporation Code of which one
hundred percent (100%) of the capital stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That
where a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange Commission (SEC) registered enterprise, at least sixty percent (60%) of the
capital stock outstanding and entitled to vote of each of both corporations must be owned and held by citizens of the Philippines and at least sixty percent (60%) of the
members of the Board of Directors of each of both corporations must be citizens of the Philippines, in order that the corporation, shall be considered a Philippine national.
(Emphasis supplied)

In explaining the definition of a Philippine national, the Implementing Rules and Regulations of the Foreign Investments Act of 1991 provide:

b. Philippine national shall mean a citizen of the Philippines or a domestic partnership or association wholly owned by the citizens of the Philippines; or a corporation
organized under the laws of the Philippines of which at least sixty percent [60%] of the capital stock outstanding and entitled to vote is owned and held by citizens
of the Philippines; or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent
[60%] of the fund will accrue to the benefit of the Philippine nationals; Provided,that where a corporation its non-Filipino stockholders own stocks in a Securities and
Exchange Commission [SEC] registered enterprise, at least sixty percent [60%] of the capital stock outstanding and entitled to vote of both corporations must be owned and
held by citizens of the Philippines and at least sixty percent [60%] of the members of the Board of Directors of each of both corporation must be citizens of the Philippines,
in order that the corporation shall be considered a Philippine national. The control test shall be applied for this purpose.

Compliance with the required Filipino ownership of a corporation shall be determined on the basis of outstanding capital stock whether fully paid or not, but only
such stocks which are generally entitled to vote are considered.
 For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Full
beneficial ownership of the stocks, coupled with appropriate voting rights is essential. Thus, stocks, the voting rights of which have been assigned or transferred to
aliens cannot be considered held by Philippine citizens or Philippine nationals.

Individuals or juridical entities not meeting the aforementioned qualifications are considered as non-Philippine nationals. (Emphasis supplied)

Mere legal title is insufficient to meet the 60 percent Filipino-owned capital required in the Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock,
coupled with 60 percent of the voting rights, is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipino
nationals in accordance with the constitutional mandate. Otherwise, the corporation is considered as non-Philippine national[s].

Under Section 10, Article XII of the Constitution, Congress may reserve to citizens of the Philippines or to corporations or associations at least sixty per centum of whose capital is
owned by such citizens, or such higher percentage as Congress may prescribe, certain areas of investments. Thus, in numerous laws Congress has reserved certain areas of
investments to Filipino citizens or to corporations at least sixty percent of the capital of which is owned by Filipino citizens. Some of these laws are: (1) Regulation of Award of
Government Contracts or R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and Medium Enterprises or R.A. No. 6977;
(4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5) Domestic Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act
of 2009 or R.A. No. 10055; and (7) Ship Mortgage Decree or P.D. No. 1521. Hence, the term capital in Section 11, Article XII of the Constitution is also used in the same
context in numerous lawsreserving certain areas of investments to Filipino citizens.

To construe broadly the term capital as the total outstanding capital stock, including both common and non-voting preferred shares, grossly contravenes the intent and letter of the
Constitution that the State shall develop a self-reliant and independent national economy effectively controlled by Filipinos. A broad definition unjustifiably disregards who owns
the all-important voting stock, which necessarily equates to control of the public utility.

We shall illustrate the glaring anomaly in giving a broad definition to the term capital. Let us assume that a corporation has 100 common shares owned by foreigners and 1,000,000
non-voting preferred shares owned by Filipinos, with both classes of share having a par value of one peso (P1.00) per share. Under the broad definition of the term capital, such
corporation would be considered compliant with the 40 percent constitutional limit on foreign equity of public utilities since the overwhelming majority, or more than 99.999
percent, of the total outstanding capital stock is Filipino owned. This is obviously absurd.

In the example given, only the foreigners holding the common shares have voting rights in the election of directors, even if they hold only 100 shares. The foreigners, with a
minuscule equity of less than 0.001 percent, exercise control over the public utility. On the other hand, the Filipinos, holding more than 99.999 percent of the equity, cannot vote in
the election of directors and hence, have no control over the public utility. This starkly circumvents the intent of the framers of the Constitution, as well as the clear language of the
Constitution, to place the control of public utilities in the hands of Filipinos. It also renders illusory the State policy of an independent national economy effectively controlled by
Filipinos.

The example given is not theoretical but can be found in the real world, and in fact exists in the present case.

Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDTs Articles of Incorporation expressly state that the holders of Serial
Preferred Stock shall not be entitled to vote at any meeting of the stockholders for the election of directors or for any other purpose or otherwise participate in any action
taken by the corporation or its stockholders, or to receive notice of any meeting of stockholders.51

On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors. PLDTs Articles of Incorporation52 state that each holder of
Common Capital Stock shall have one vote in respect of each share of such stock held by him on all matters voted upon by the stockholders, and the holders of Common Capital
Stock shall have the exclusive right to vote for the election of directors and for all other purposes.53

In short, only holders of common shares can vote in the election of directors, meaning only common shareholders exercise control over PLDT. Conversely, holders of preferred
shares, who have no voting rights in the election of directors, do not have any control over PLDT. In fact, under PLDTs Articles of Incorporation, holders of common shares have
voting rights for all purposes, while holders of preferred shares have no voting right for any purpose whatsoever.

It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares of PLDT. In fact, based on PLDTs 2010 General Information Sheet
(GIS),54which is a document required to be submitted annually to the Securities and Exchange Commission,55 foreigners hold 120,046,690 common shares of PLDT whereas
Filipinos hold only 66,750,622 common shares.56 In other words, foreigners hold 64.27% of the total number of PLDTs common shares, while Filipinos hold only 35.73%. Since
holding a majority of the common shares equates to control, it is clear that foreigners exercise control over PLDT. Such amount of control unmistakably exceeds the allowable 40
percent limit on foreign ownership of public utilities expressly mandated in Section 11, Article XII of the Constitution.

Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted to the SEC, shows that per share the SIP58 preferred shares earn a pittance in dividends compared to the
common shares. PLDT declared dividends for the common shares at P70.00 per share, while the declared dividends for the preferred shares amounted to a measly P1.00 per
share.59 So the preferred shares not only cannot vote in the election of directors, they also have very little and obviously negligible dividend earning capacity compared to common
shares.

As shown in PLDTs 2010 GIS,60 as submitted to the SEC, the par value of PLDT common shares is P5.00 per share, whereas the par value of preferred shares is P10.00 per share.
In other words, preferred shares have twice the par value of common shares but cannot elect directors and have only 1/70 of the dividends of common shares. Moreover, 99.44% of
the preferred shares are owned by Filipinos while foreigners own only a minuscule 0.56% of the preferred shares.61 Worse, preferred shares constitute 77.85% of the authorized
capital stock of PLDT while common shares constitute only 22.15%.62 This undeniably shows that beneficial interest in PLDT is not with the non-voting preferred shares but with
the common shares, blatantly violating the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership in a public utility.

The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipinos in accordance with the constitutional mandate. Full beneficial
ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is constitutionally required for the States grant of authority to operate a
public utility. The undisputed fact that the PLDT preferred shares, 99.44% owned by Filipinos, are non-voting and earn only 1/70 of the dividends that PLDT common shares earn,
grossly violates the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership of a public utility.

In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the dividends, of PLDT. This directly contravenes the express command in
Section 11, Article XII of the Constitution that [n]o franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to
x x xcorporations x x x organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens x x x.

To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the sole right to vote in the election of directors, and thus exercise control
over PLDT; (2) Filipinos own only 35.73% of PLDTs common shares, constituting a minority of the voting stock, and thus do not exercise control over PLDT; (3) preferred shares,
99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends that common shares earn;63 (5) preferred shares have twice the par value of
common shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This kind of ownership and control of a
public utility is a mockery of the Constitution.

Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock market value of P2,328.00 per share,64 while PLDT preferred shares with a par value
of P10.00 per share have a current stock market value ranging from only P10.92 to P11.06 per share,65 is a glaring confirmation by the market that control and beneficial ownership
of PLDT rest with the common shares, not with the preferred shares.

Indisputably, construing the term capital in Section 11, Article XII of the Constitution to include both voting and non-voting shares will result in the abject surrender of our
telecommunications industry to foreigners, amounting to a clear abdication of the States constitutional duty to limit control of public utilities to Filipino citizens. Such an
interpretation certainly runs counter to the constitutional provision reserving certain areas of investment to Filipino citizens, such as the exploitation of natural resources as well as
the ownership of land, educational institutions and advertising businesses. The Court should never open to foreign control what the Constitution has expressly reserved to Filipinos
for that would be a betrayal of the Constitution and of the national interest. The Court must perform its solemn duty to defend and uphold the intent and letter of the Constitution to
ensure, in the words of the Constitution, a self-reliant and independent national economy effectively controlled by Filipinos.
Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly reserving to Filipinos specific areas of investment, such as the development of natural
resources and ownership of land, educational institutions and advertising business, is self-executing. There is no need for legislation to implement these self-executing provisions
of the Constitution. The rationale why these constitutional provisions are self-executing was explained in Manila Prince Hotel v. GSIS,66 thus:

x x x Hence, unless it is expressly provided that a legislative act is necessary to enforce a constitutional mandate, the presumption now is that all provisions of the
constitution are self-executing. If the constitutional provisions are treated as requiring legislation instead of self-executing, the legislature would have the power to ignore
and practically nullify the mandate of the fundamental law. This can be cataclysmic. That is why the prevailing view is, as it has always been, that

. . . in case of doubt, the Constitution should be considered self-executing rather than non-self-executing. . . . Unless the contrary is clearly intended, the provisions of
the Constitution should be considered self-executing, as a contrary rule would give the legislature discretion to determine when, or whether, they shall be effective.
These provisions would be subordinated to the will of the lawmaking body, which could make them entirely meaningless by simply refusing to pass the needed
implementing statute. (Emphasis supplied)

In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice Reynato S. Puno, later Chief Justice, agreed that constitutional provisions are presumed to be self-
executing. Justice Puno stated:

Courts as a rule consider the provisions of the Constitution as self-executing, rather than as requiring future legislation for their enforcement. The reason is not difficult to
discern. For if they are not treated as self-executing, the mandate of the fundamental law ratified by the sovereign people can be easily ignored and nullified by
Congress. Suffused with wisdom of the ages is the unyielding rule that legislative actions may give breath to constitutional rights but congressional inaction
should not suffocate them.

Thus, we have treated as self-executing the provisions in the Bill of Rights on arrests, searches and seizures, the rights of a person under custodial investigation, the rights
of an accused, and the privilege against self-incrimination. It is recognized that legislation is unnecessary to enable courts to effectuate constitutional provisions
guaranteeing the fundamental rights of life, liberty and the protection of property. The same treatment is accorded to constitutional provisions forbidding the taking or
damaging of property for public use without just compensation. (Emphasis supplied)
Thus, in numerous cases,67 this Court, even in the absence of implementing legislation, applied directly the provisions of the 1935, 1973 and 1987 Constitutions limiting land
ownership to Filipinos. In Soriano v. Ong Hoo,68 this Court ruled:

x x x As the Constitution is silent as to the effects or consequences of a sale by a citizen of his land to an alien, and as both the citizen and the alien have violated the law,
none of them should have a recourse against the other, and it should only be the State that should be allowed to intervene and determine what is to be done with the property
subject of the violation. We have said that what the State should do or could do in such matters is a matter of public policy, entirely beyond the scope of judicial
authority. (Dinglasan, et al. vs. Lee Bun Ting, et al., 6 G. R. No. L-5996, June 27, 1956.) While the legislature has not definitely decided what policy should be followed
in cases of violations against the constitutional prohibition, courts of justice cannot go beyond by declaring the disposition to be null and void as violative of the
Constitution. x x x (Emphasis supplied)

To treat Section 11, Article XII of the Constitution as not self-executing would mean that since the 1935 Constitution, or over the last 75 years, not one of the constitutional
provisions expressly reserving specific areas of investments to corporations, at least 60 percent of the capital of which is owned by Filipinos, was enforceable. In short, the framers
of the 1935, 1973 and 1987 Constitutions miserably failed to effectively reserve to Filipinos specific areas of investment, like the operation by corporations of public utilities, the
exploitation by corporations of mineral resources, the ownership by corporations of real estate, and the ownership of educational institutions. All the legislatures that convened
since 1935 also miserably failed to enact legislations to implement these vital constitutional provisions that determine who will effectively control the national economy, Filipinos
or foreigners. This Court cannot allow such an absurd interpretation of the Constitution.

This Court has held that the SEC has both regulatory and adjudicative functions.69 Under its regulatory functions, the SEC can be compelled by mandamus to perform its statutory
duty when it unlawfully neglects to perform the same. Under its adjudicative or quasi-judicial functions, the SEC can be also be compelled by mandamus to hear and decide a
possible violation of any law it administers or enforces when it is mandated by law to investigate such violation.

Under Section 17(4)70 of the Corporation Code, the SEC has the regulatory function to reject or disapprove the Articles of Incorporation of any corporation where the required
percentage of ownership of the capital stock to be owned by citizens of the Philippines has not been complied with as required by existing laws or the Constitution. Thus,
the SEC is the government agency tasked with the statutory duty to enforce the nationality requirement prescribed in Section 11, Article XII of the Constitution on the ownership of
public utilities. This Court, in a petition for declaratory relief that is treated as a petition for mandamus as in the present case, can direct the SEC to perform its statutory duty under
the law, a duty that the SEC has apparently unlawfully neglected to do based on the 2010 GIS that respondent PLDT submitted to the SEC.

Under Section 5(m) of the Securities Regulation Code,71 the SEC is vested with the power and function to suspend or revoke, after proper notice and hearing, the franchise or
certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law. The SEC is mandated under Section 5(d) of the same Code
with the power and function to investigate x x x the activities of persons to ensure compliance with the laws and regulations that SEC administers or enforces. The GIS that all
corporations are required to submit to SEC annually should put the SEC on guard against violations of the nationality requirement prescribed in the Constitution and existing laws.
This Court can compel the SEC, in a petition for declaratory relief that is treated as a petition for mandamus as in the present case, to hear and decide a possible violation of
Section 11, Article XII of the Constitution in view of the ownership structure of PLDTs voting shares, as admitted by respondents and as stated in PLDTs 2010 GIS that PLDT
submitted to SEC.

WHEREFORE, we PARTLY GRANT the petition and rule that the term capital in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote
in the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock (common and non-voting preferred shares).
Respondent Chairperson of the Securities and Exchange Commission is DIRECTED to apply this definition of the term capital in determining the extent of allowable foreign
ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate
sanctions under the law.

SO ORDERED.

4.

DONNINA C. HALLEY, G.R. No. 157549

Petitioner,
Present:

CARPIO MORALES, Chairperson,

BRION,
-versus- BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.

Promulgated:
PRINTWELL, INC.,
Respondent. May 30, 2011
x-----------------------------------------------------------------------------------------x

DECISION

BERSAMIN, J:

Stockholders of a corporation are liable for the debts of the corporation up to the extent of their unpaid subscriptions. They cannot invoke the veil of corporate identity as a shield
from liability, because the veil may be lifted to avoid defrauding corporate creditors.

Weaffirm with modification the decisionpromulgated on August 14, 2002, [1]whereby the Court of Appeals(CA) upheld thedecision of the Regional Trial Court, Branch 71,
in Pasig City (RTC),[2]ordering the defendants (including the petitioner)to pay to Printwell, Inc. (Printwell) the principal sum of P291,342.76 plus interest.
 Antecedents

The petitioner wasan incorporator and original director of Business Media Philippines, Inc. (BMPI), which, at its incorporation on November 12, 1987, [3]had an authorized
capital stock of P3,000,000.00 divided into 300,000 shares each with a par value of P10.00,of which 75,000 were initially subscribed, to wit:

Subscriber No. of shares Total subscription Amount paid

Donnina C. Halley 35,000 P 350,000.00 P87,500.00
Roberto V. Cabrera, Jr. 18,000 P 180,000.00 P45,000.00
Albert T. Yu 18,000 P 180,000.00 P45,000.00
Zenaida V. Yu 2,000 P 20,000.00 P5,000.00
Rizalino C. Vineza 2,000 P 20,000.00 P5,000.00
TOTAL 75,000 P750,000.00 P187,500.00

Printwellengaged in commercial and industrial printing.BMPI commissioned Printwell for the printing of the magazine Philippines, Inc. (together with wrappers and
subscription cards) that BMPI published and sold. For that purpose, Printwell extended 30-day credit accommodations to BMPI.

In the period from October 11, 1988 until July 12, 1989, BMPI placedwith Printwell several orders on credit, evidenced byinvoices and delivery receipts
totalingP316,342.76.Considering that BMPI paidonlyP25,000.00,Printwell suedBMPIon January 26, 1990 for the collection of the unpaid balance of P291,342.76 in the RTC.[4]

On February 8, 1990,Printwell amended thecomplaint in order to implead as defendants all the original stockholders and incorporators to recover on theirunpaid
subscriptions, as follows:[5]

Name Unpaid Shares

Donnina C. Halley P 262,500.00
Roberto V. Cabrera, Jr. P135,000.00
Albert T. Yu P135,000.00
Zenaida V. Yu P15,000.00
Rizalino C. Vieza P15,000.00
TOTAL P 562,500.00

The defendants filed a consolidated answer,[6]averring that they all had paid their subscriptions in full; that BMPI had a separate personality from those of its stockholders;
thatRizalino C. Vieza had assigned his fully-paid up sharesto a certain Gerardo R. Jacinto in 1989; andthat the directors and stockholders of BMPI had resolved to dissolve BMPI
during the annual meetingheld on February 5, 1990.

To prove payment of their subscriptions, the defendantstockholderssubmitted in evidenceBMPI official receipt (OR) no. 217, OR no. 218, OR no. 220,OR no. 221, OR no. 222, OR
no. 223, andOR no. 227,to wit:
 Receipt No. Date Name Amount
217 November 5, 1987 Albert T. Yu P 45,000.00
218 May 13, 1988 Albert T. Yu P 135,000.00
220 May 13, 1988 Roberto V. Cabrera, Jr. P 135,000.00
221 November 5, 1987 Roberto V. Cabrera, Jr. P 45,000.00
222 November 5, 1987 Zenaida V. Yu P 5,000.00
223 May 13, 1988 Zenaida V. Yu P 15,000.00
227 May 13, 1988 Donnina C. Halley P 262,500.00

In addition, the stockholderssubmitted other documentsin evidence, namely:(a) an audit report dated March 30, 1989 prepared by Ilagan, Cepillo & Associates (submitted to the
SEC and the BIR);[7](b) BMPIbalance sheet[8] and income statement[9]as of December 31, 1988; (c) BMPI income tax return for the year 1988 (stamped received by the BIR);[10](d)
journal vouchers;[11](e) cash deposit slips;[12] and(f)Bank of the Philippine Islands (BPI) savings account passbookin the name of BMPI.[13]

Ruling of the RTC

On November 3, 1993, the RTC rendereda decision in favor of Printwell, rejecting the allegation of payment in full of the subscriptions in view of an irregularity in the issuance of
the ORs and observingthat the defendants had used BMPIs corporate personality to evade payment and create injustice, viz:

The claim of individual defendants that they have fully paid their subscriptions to defend[a]nt corporation, is not worthy of consideration, because:

a) in the case of defendants-spouses Albert and Zenaida Yu, it will be noted that the alleged payment made on May 13, 1988 amounting to P135,000.00, is
covered by Official Receipt No. 218 (Exh. 2), whereas the alleged payment made earlier on November 5, 1987, amounting to P5,000.00, is covered by
Official Receipt No. 222 (Exh. 3). This is cogent proof that said receipts were belatedly issued just to suit their theory since in the ordinary course of
business, a receipt issued earlier must have serial numbers lower than those issued on a later date. But in the case at bar, the receipt issued on November 5,
1987 has serial numbers (222) higher than those issued on a later date (May 13, 1988).

b) The claim that since there was no call by the Board of Directors of defendant corporation for the payment of unpaid subscriptions will not be a valid
excuse to free individual defendants from liability. Since the individual defendants are members of the Board of Directors of defendantcorporation, it was
within their exclusive power to prevent the fulfillment of the condition, by simply not making a call for the payment of the unpaid subscriptions. Their
inaction should not work to their benefit and unjust enrichment at the expense of plaintiff.
Assuming arguendo that the individual defendants have paid their unpaid subscriptions, still, it is very apparent that individual defendants merely used the
corporate fiction as a cloak or cover to create an injustice; hence, the alleged separate personality of defendant corporation should be disregarded (Tan Boon Bee &
Co., Inc. vs. Judge Jarencio, G.R. No. 41337, 30 June 1988).[14]
Applying the trust fund doctrine, the RTC declared the defendant stockholders liable to Printwell pro rata, thusly:

Defendant Business Media, Inc. is a registered corporation (Exhibits A, A-1 to A-9), and, as appearing from the Articles of Incorporation, individual
defendants have the following unpaid subscriptions:
Names Unpaid Subscription
 Donnina C. Halley P262,500.00
Roberto V. Cabrera, Jr. 135.000.00
Albert T. Yu 135,000.00
Zenaida V. Yu 15,000.00
Rizalino V. Vineza 15,000.00
--------------------
Total P562,500.00

and it is an established doctrine that subscriptions to the capital stock of a corporation constitute a fund to which creditors have a right to look for satisfaction of
their claims (Philippine National Bank vs. Bitulok Sawmill, Inc., 23 SCRA 1366) and, in fact, a corporation has no legal capacity to release a subscriber to its capital
stock from the obligation to pay for his shares, and any agreement to this effect is invalid (Velasco vs. Poizat, 37 Phil. 802).

The liability of the individual stockholders in the instant case shall be pro-rated as follows:

Names Amount
Donnina C. Halley P149,955.65
Roberto V. Cabrera, Jr. 77,144.55
Albert T. Yu 77,144.55
Zenaida V. Yu 8,579.00
Rizalino V. Vineza 8,579.00
------------------
Total P321,342.75[15]

The RTC disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants, ordering defendants to pay to plaintiff the amount of P291,342.76, as
principal, with interest thereon at 20% per annum, from date of default, until fully paid, plus P30,000.00 as attorneys fees, plus costs of suit.

Defendants counterclaims are ordered dismissed for lack of merit.

SO ORDERED.[16]

Ruling of the CA

All the defendants, except BMPI, appealed.

Spouses Donnina and Simon Halley, andRizalinoVieza defined the following errors committed by the RTC, as follows:

I.
THE TRIAL COURT ERRED IN HOLDING APPELLANTS-STOCKHOLDERS LIABLE FOR THE LIABILITIES OF THE DEFENDANT CORPORATION.

II.
 ASSUMING ARGUENDO THAT APPELLANTS MAY BE LIABLE TO THE EXTENT OF THEIR UNPAID SUBSCRIPTION OF SHARES OF STOCK, IF
ANY, THE TRIAL COURT NONETHELESS ERRED IN NOT FINDING THAT APPELLANTS-STOCKHOLDERS HAVE, AT THE TIME THE SUIT WAS
FILED, NO SUCH UNPAID SUBSCRIPTIONS.

On their part, Spouses Albert and Zenaida Yu averred:

I.
THE RTC ERRED IN REFUSING TO GIVE CREDENCE AND WEIGHT TO DEFENDANTS-APPELLANTS SPOUSES ALBERT AND ZENAIDA YUS
EXHIBITS 2 AND 3 DESPITE THE UNREBUTTED TESTIMONY THEREON BY APPELLANT ALBERT YU AND THE ABSENCE OF PROOF
CONTROVERTING THEM.

II.
THE RTC ERRED IN HOLDING DEFENDANTS-APPELLANTS SPOUSES ALBERT AND ZENAIDA YU PERSONALLY LIABLE FOR THE
CONTRACTUAL OBLIGATION OF BUSINESS MEDIA PHILS., INC. DESPITE FULL PAYMENT BY SAID DEFENDANTS-APPELLANTS OF THEIR
RESPECTIVE SUBSCRIPTIONS TO THE CAPITAL STOCK OF BUSINESS MEDIA PHILS., INC.

Roberto V. Cabrera, Jr. argued:

I.
IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO APPLY THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE PERSONALITY IN
ABSENCE OF ANY SHOWING OF EXTRA-ORDINARY CIRCUMSTANCES THAT WOULD JUSTIFY RESORT THERETO.

II.
IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO RULE THAT INDIVIDUAL DEFENDANTS ARE LIABLE TO PAY THE PLAINTIFF-
APPELLEES CLAIM BASED ON THEIR RESPECTIVE SUBSCRIPTION. NOTWITHSTANDING OVERWHELMING EVIDENCE SHOWING FULL
SETTLEMENT OF SUBSCRIBED CAPITAL BY THE INDIVIDUAL DEFENDANTS.

On August 14, 2002, the CA affirmed the RTC, holding that the defendants resort to the corporate personality would createan injustice becausePrintwell would thereby be at a loss
against whom it would assert the right to collect, viz:

Settled is the rule that when the veil of corporate fiction is used as a means of perpetrating fraud or an illegal act or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, the achievements or perfection of monopoly or generally the perpetration of knavery or crime, the veil with which the law
covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of
individuals (First Philippine International Bank vs. Court of Appeals, 252 SCRA 259). Moreover, under this doctrine, the corporate existence may be disregarded
where the entity is formed or used for non-legitimate purposes, such as to evade a just and due obligations or to justify wrong (Claparols vs. CIR, 65 SCRA 613).

In the case at bench, it is undisputed that BMPI made several orders on credit from appellee PRINTWELL involving the printing of business magazines, wrappers
and subscription cards, in the total amount of P291,342.76 (Record pp. 3-5, Annex A) which facts were never denied by appellants stockholders that they owe
appellee the amount of P291,342.76. The said goods were delivered to and received by BMPI but it failed to pay its overdue account to appellee as well as the
interest thereon, at the rate of 20% per annum until fully paid. It was also during this time that appellants stockholders were in charge of the operation of BMPI
despite the fact that they were not able to pay their unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view of the unpaid subscriptions,
BMPI failed to pay appellee of its liability, hence appellee in order to protect its right can collect from the appellants stockholders regarding their unpaid
 subscriptions. To deny appellee from recovering from appellants would place appellee in a limbo on where to assert their right to collect from BMPI since the
stockholders who are appellants herein are availing the defense of corporate fiction to evade payment of its obligations.[17]

Further, the CA concurred with the RTC on theapplicability of thetrust fund doctrine, under which corporate debtors might look to the unpaid subscriptions for the satisfaction of
unpaid corporate debts, stating thus:

It is an established doctrine that subscription to the capital stock of a corporation constitute a fund to which creditors have a right to look up to for satisfaction of
their claims, and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts
(PNB vs. Bitulok Sawmill, 23 SCRA 1366).

Premised on the above-doctrine, an inference could be made that the funds, which consists of the payment of subscriptions of the stockholders, is where the
creditors can claim monetary considerations for the satisfaction of their claims. If these funds which ought to be fully subscribed by the stockholders were not paid
or remain an unpaid subscription of the corporation then the creditors have no other recourse to collect from the corporation of its liability. Such occurrence was
evident in the case at bar wherein the appellants as stockholders failed to fully pay their unpaid subscriptions, which left the creditors helpless in collecting their
claim due to insufficiency of funds of the corporation. Likewise, the claim of appellants that they already paid the unpaid subscriptions could not be given weight
because said payment did not reflect in the Articles of Incorporations of BMPI that the unpaid subscriptions were fully paid by the appellants stockholders. For it is
a rule that a stockholder may be sued directly by creditors to the extent of their unpaid subscriptions to the corporation (Keller vs. COB Marketing, 141 SCRA 86).

Moreover, a corporation has no power to release a subscription or its capital stock, without valuable consideration for such releases, and as against creditors, a
reduction of the capital stock can take place only in the manner and under the conditions prescribed by the statute or the charter or the Articles of Incorporation.
(PNB vs. Bitulok Sawmill, 23 SCRA 1366).[18]

The CAdeclared thatthe inconsistency in the issuance of the ORs rendered the claim of full payment of the subscriptions to the capital stock unworthy of consideration; andheld
that the veil of corporate fiction could be pierced when it was used as a shield to perpetrate a fraud or to confuse legitimate issues, to wit:

Finally, appellants SPS YU, argued that the fact of full payment for the unpaid subscriptions was incontrovertibly established by competent testimonial and
documentary evidence, namely Exhibits 1, 2, 3 & 4, which were never disputed by appellee, clearly shows that they should not be held liable for payment of the said
unpaid subscriptions of BMPI.

The reliance is misplaced.

We are hereby reproducing the contents of the above-mentioned exhibits, to wit:

Exh: 1 YU Official Receipt No. 217 dated November 5, 1987 amounting to P45,000.00 allegedly representing the initial payment of subscriptions of
stockholder Albert Yu.
Exh: 2 YU Official Receipt No. 218 dated May 13, 1988 amounting to P135,000.00 allegedly representing full payment of balance of subscriptions of
stockholder Albert Yu. (Record p. 352).
Exh: 3 YU Official Receipt No. 222 dated November 5, 1987 amounting to P5,000.00 allegedly representing the initial payment of subscriptions of
stockholder Zenaida Yu.
Exh: 4 YU Official Receipt No. 223 dated May 13, 1988 amounting to P15,000.00 allegedly representing the full payment of balance of subscriptions of
stockholder Zenaida Yu. (Record p. 353).
 Based on the above exhibits, we are in accord with the lower courts findings that the claim of the individual appellants that they fully paid their subscription to
the defendant BMPI is not worthy of consideration, because, in the case of appellants SPS. YU, there is an inconsistency regarding the issuance of the official
receipt since the alleged payment made on May 13, 1988 amounting to P135,000.00 was covered by Official Receipt No. 218 (Record, p. 352), whereas the alleged
payment made earlier on November 5, 1987 amounting to P5,000.00 is covered by Official Receipt No. 222 (Record, p. 353). Such issuance is a clear indication that
said receipts were belatedly issued just to suit their claim that they have fully paid the unpaid subscriptions since in the ordinary course of business, a receipt is
issued earlier must have serial numbers lower than those issued on a later date. But in the case at bar, the receipt issued on November 5, 1987 had a serial number
(222) higher than those issued on May 13, 1988 (218). And even assuming arguendo that the individual appellants have paid their unpaid subscriptions, still, it is
very apparent that the veil of corporate fiction may be pierced when made as a shield to perpetuate fraud and/or confuse legitimate issues. (Jacinto vs. Court of
Appeals, 198 SCRA 211).[19]

Spouses Halley and Vieza moved for a reconsideration, but the CA denied their motion for reconsideration.

Issues

Only Donnina Halley has come to the Court to seek a further review, positing the following for our consideration and resolution, to wit:

I.
THE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE DECISION THAT DID NOTSTATE THE FACTS AND THE LAW UPON WHICH THE
JUDGMENT WAS BASED BUT MERELY COPIED THE CONTENTS OF RESPONDENTS MEMORANDUM ADOPTING THE SAME AS THE REASON
FOR THE DECISION

II.
THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE REGIONAL TRIAL COURT WHICH ESSENTIALLY ALLOWED THE
PIERCING OF THE VEIL OF CORPORATE FICTION

III.
THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE TRUST FUND DOCTRINE WHEN THE GROUNDS THEREFOR HAVE NOT BEEN
SATISFIED.

On the first error, the petitioner contends that the RTC lifted verbatim from the memorandum of Printwell; and submits that the RTCthereby violatedthe requirement imposed in
Section 14, Article VIII of the Constitution[20] as well as in Section 1,Rule 36 of the Rules of Court,[21]to the effect that a judgment or final order of a court should state clearly and
distinctly the facts and the law on which it is based. The petitioner claims that the RTCs violation indicated that the RTC did not analyze the case before rendering its decision, thus
denying her the opportunity to analyze the decision; andthat a suspicion of partiality arose from the fact that the RTC decision was but a replica of Printwells memorandum.She
cites Francisco v. Permskul,[22] in which the Court has stated that the reason underlying the constitutional requirement, that every decision should clearly and distinctly state the
facts and the law on which it is based, is to inform the reader of how the court has reached its decision and thereby give the losing party an opportunity to study and analyze the
decision and enable such party to appropriately assign the errors committed therein on appeal.
On the second and third errors, the petitioner maintains that the CA and the RTC erroneously pierced the veil of corporate fiction despite the absence of cogent proof showing that
she, as stockholder of BMPI, had any hand in transacting with Printwell; thatthe CA and the RTC failed to appreciate the evidence that she had fully paid her subscriptions; and the
CA and the RTCwrongly relied on the articles of incorporation in determining the current list of unpaid subscriptions despite the articles of incorporationbeing at best
reflectiveonly of the pre-incorporation status of BMPI.

As her submissions indicate, the petitioner assails the decisions of the CA on: (a) the propriety of disregarding the separate personalities of BMPI and its stockholdersby piercing
the thin veil that separated them; and (b) the application of the trust fund doctrine.

Ruling

The petition for review fails.

I
The RTC did not violate
the Constitution and the Rules of Court

The contention of the petitioner, that the RTC merely copied the memorandum of Printwell in writing its decision, and did not analyze the records on its own, thereby
manifesting a bias in favor of Printwell, is unfounded.

It is noted that the petition for review merely generally alleges that starting from its page 5, the decision of the RTC copied verbatim the allegations of herein Respondents
in its Memorandum before the said court, as if the Memorandum was the draft of the Decision of the Regional Trial Court of Pasig, [23]but fails to specify either the portions
allegedly lifted verbatim from the memorandum, or why she regards the decision as copied. The omission renders thepetition for review insufficient to support her contention,
considering that the mere similarityin language or thought between Printwells memorandum and the trial courts decisiondid not necessarily justify the conclusion that the RTC
simply lifted verbatim or copied from thememorandum.

It is to be observed in this connection that a trial or appellate judge may occasionally viewa partys memorandum or brief as worthy of due consideration either entirely or
partly. When he does so, the judgemay adopt and incorporatein his adjudicationthe memorandum or the parts of it he deems suitable,and yet not be guilty of the accusation of
lifting or copying from the memorandum.[24] This isbecause ofthe avowed objective of the memorandum to contribute in the proper illumination and correct determination of the
controversy.Nor is there anything untoward in the congruence of ideas and views about the legal issues between himself and the party drafting the memorandum.The frequency of
similarities in argumentation, phraseology, expression, and citation of authorities between the decisions of the courts and the memoranda of the parties, which may be great or
small, can be fairly attributable tothe adherence by our courts of law and the legal profession to widely knownor universally accepted precedents set in earlier judicial actions with
identical factual milieus or posing related judicial dilemmas.
 We also do not agree with the petitioner that the RTCs manner of writing the decisiondeprivedher ofthe opportunity to analyze its decisionas to be able to assign errors on
appeal. The contrary appears, considering that she was able to impute and assignerrors to the RTCthat she extensively discussed in her appeal in the CA, indicating her thorough
analysis ofthe decision of the RTC.

Our own readingof the trial courts decision persuasively shows that the RTC did comply with the requirements regarding the content and the manner of writing a decision
prescribed in the Constitution and the Rules of Court. The decision of the RTC contained clear and distinct findings of facts, and stated the applicablelaw and jurisprudence, fully
explaining why the defendants were being held liable to the plaintiff. In short, the reader was at once informed of the factual and legal reasons for the ultimate result.

II
Corporate personality not to be used to foster injustice

Printwell impleaded the petitioner and the other stockholders of BMPI for two reasons, namely: (a) to reach the unpaid subscriptions because it appeared that such
subscriptions were the remaining visible assets of BMPI; and (b) to avoid multiplicity of suits.[25]

The petitionersubmits that she had no participation in the transaction between BMPI and Printwell;that BMPI acted on its own; and that shehad no hand in persuading
BMPI to renege on its obligation to pay. Hence, she should not be personally liable.

We rule against the petitioners submission.

Although a corporation has a personality separate and distinct from those of its stockholders, directors, or officers, [26]such separate and distinct personality is merely a
fiction created by law for the sake of convenience and to promote the ends of justice.[27]The corporate personality may be disregarded, and the individuals composing the
corporation will be treated as individuals, if the corporate entity is being used as a cloak or cover for fraud or illegality;as a justification for a wrong; as an alter ego, an adjunct, or
a business conduit for the sole benefit of the stockholders.[28] As a general rule, a corporation is looked upon as a legal entity, unless and until sufficient reason to the contrary
appears. Thus,the courts always presume good faith, andfor that reason accord prime importance to the separate personality of the corporation, disregarding the corporate
personality only after the wrongdoing is first clearly and convincingly established. [29]It thus behooves the courts to be careful in assessing the milieu where the piercing of the
corporate veil shall be done.[30]

Although nowhere in Printwells amended complaint or in the testimonies Printwell offered can it be read or inferred from that the petitioner was instrumental in persuading
BMPI to renege onits obligation to pay; or that sheinduced Printwell to extend the credit accommodation by misrepresenting the solvency of BMPI toPrintwell, her personal
liability, together with that of her co-defendants, remainedbecause the CA found her and the other defendant stockholders to be in charge of the operations of BMPI at the time the
unpaid obligation was transacted and incurred, to wit:
In the case at bench, it is undisputed that BMPI made several orders on credit from appellee PRINTWELL involving the printing of business magazines,
wrappers and subscription cards, in the total amount of P291,342.76 (Record pp. 3-5, Annex A) which facts were never denied by appellants stockholders that they
owe(d) appellee the amount of P291,342.76. The said goods were delivered to and received by BMPI but it failed to pay its overdue account to appellee as well as
the interest thereon, at the rate of 20% per annum until fully paid. It was also during this time that appellants stockholders were in charge of the operation of BMPI
 despite the fact that they were not able to pay their unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view of the unpaid subscriptions,
BMPI failed to pay appellee of its liability, hence appellee in order to protect its right can collect from the appellants stockholders regarding their unpaid
subscriptions. To deny appellee from recovering from appellants would place appellee in a limbo on where to assert their right to collect from BMPI since the
stockholders who are appellants herein are availing the defense of corporate fiction to evade payment of its obligations.[31]

It follows, therefore, that whether or not the petitioner persuaded BMPI to renege on its obligations to pay, and whether or not she induced Printwell to transact with BMPI
were not gooddefensesin the suit.

III
Unpaid creditor may satisfy its claim from
unpaid subscriptions;stockholders must
prove full payment oftheir subscriptions

Both the RTC and the CA applied the trust fund doctrineagainst the defendant stockholders, including the petitioner.

The petitionerargues, however,that the trust fund doctrinewas inapplicablebecause she had already fully paid her subscriptions to the capital stock of BMPI. She thus
insiststhat both lower courts erred in disregarding the evidence on the complete payment of the subscription, like receipts, income tax returns, and relevant financial statements.

The petitioners argumentis devoid of substance.

The trust fund doctrineenunciates a

xxx rule that the property of a corporation is a trust fund for the payment of creditors, but such property can be called a trust fund only by way of analogy or
metaphor. As between the corporation itself and its creditors it is a simple debtor, and as between its creditors and stockholders its assets are in equity a fund for the
payment of its debts.[32]

The trust fund doctrine, first enunciated in the American case of Wood v. Dummer,[33]was adopted in our jurisdiction in Philippine Trust Co. v. Rivera,[34]where thisCourt
declared that:

It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims
and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts. (Velasco vs.
Poizat, 37 Phil., 802) xxx[35]

We clarify that the trust fund doctrineis not limited to reaching the stockholders unpaid subscriptions. The scope of the doctrine when the corporation is insolvent
encompasses not only the capital stock, but also other property and assets generally regarded in equity as a trust fund for the payment of corporate debts. [36]All assets and property
belonging to the corporation held in trust for the benefit of creditors thatwere distributed or in the possession of the stockholders, regardless of full paymentof their subscriptions,
may be reached by the creditor in satisfaction of its claim.
 Also, under the trust fund doctrine,a corporation has no legal capacity to release an original subscriber to its capital stock from the obligation of paying for his shares, in
whole or in part,[37] without a valuable consideration,[38] or fraudulently, to the prejudice of creditors. [39]The creditor is allowed to maintain an action upon any unpaid subscriptions
and thereby steps into the shoes of the corporation for the satisfaction of its debt. [40]To make out a prima facie case in a suit against stockholders of an insolvent corporation to
compel them to contribute to the payment of its debts by making good unpaid balances upon their subscriptions, it is only necessary to establish that thestockholders have not in
good faith paid the par value of the stocks of the corporation.[41]

The petitionerposits that the finding of irregularity attending the issuance of the receipts (ORs) issued to the other stockholders/subscribers should not affect her becauseher
receipt did not suffer similar irregularity.

Notwithstanding that the RTC and the CA did not find any irregularity in the OR issued in her favor,we still cannot sustain the petitioners defense of full payment of her
subscription.

In civil cases, theparty who pleads payment has the burden of proving it, that even where the plaintiff must allege nonpayment, the general rule is that the burden rests on
the defendant to prove payment, rather than on the plaintiff to prove nonpayment. In other words, the debtor bears the burden of showing with legal certainty that the obligation
has been discharged by payment.[42]

Apparently, the petitioner failed to discharge her burden.

A receipt is the written acknowledgment of the fact of payment in money or other settlement between the seller and the buyer of goods, thedebtor or thecreditor, or
theperson rendering services, and theclient or thecustomer.[43]Althougha receipt is the best evidence of the fact of payment, it isnot conclusive, but merely presumptive;nor is it
exclusive evidence,considering thatparole evidence may also establishthe fact of payment.[44]

The petitioners ORNo. 227,presentedto prove the payment of the balance of her subscription, indicated that her supposed payment had beenmade by means of a check.
Thus, to discharge theburden to prove payment of her subscription, she had to adduce evidence satisfactorily proving that her payment by check wasregardedas payment under the
law.

Paymentis defined as the delivery of money.[45]Yet, because a check is not money and only substitutes for money, the delivery of a check does not operate as payment and
does not discharge the obligation under a judgment. [46] The delivery of a bill of exchange only produces the fact of payment when the bill has been encashed. [47]The following
passage fromBank of Philippine Islands v. Royeca[48]is enlightening:

Settled is the rule that payment must be made in legal tender. A check is not legal tender and, therefore, cannot constitute a valid tender of payment.
Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment.
Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment
by commercial document is actually realized.
 To establish their defense, the respondents therefore had to present proof, not only that they delivered the checks to the petitioner, but also that the
checks were encashed. The respondents failed to do so. Had the checks been actually encashed, the respondents could have easily produced the cancelled
checks as evidence to prove the same. Instead, they merely averred that they believed in good faith that the checks were encashed because they were not
notified of the dishonor of the checks and three years had already lapsed since they issued the checks.

Because of this failure of the respondents to present sufficient proof of payment, it was no longer necessary for the petitioner to prove non-payment,
particularly proof that the checks were dishonored. The burden of evidence is shifted only if the party upon whom it is lodged was able to adduce preponderant
evidence to prove its claim.

Ostensibly, therefore, the petitioners mere submission of the receipt issued in exchange of the check did not satisfactorily establish her allegation of full payment of her
subscription. Indeed, she could not even inform the trial court about the identity of her drawee bank, [49]and about whether the check was cleared and its amount paid to BMPI. [50]In
fact, she did not present the check itself.

Theincome tax return (ITR) and statement of assets and liabilities of BMPI, albeit presented, had no bearing on the issue of payment of the subscription because they did
not by themselves prove payment. ITRsestablish ataxpayers liability for taxes or a taxpayers claim for refund. In the same manner, the deposit slips and entries in the passbook
issued in the name of BMPI were hardly relevant due to their not reflecting the alleged payments.

It is notable, too, that the petitioner and her co-stockholders did not support their allegation of complete payment of their respective subscriptions with the stock and transfer
book of BMPI. Indeed, books and records of a corporation (including the stock and transfer book) are admissible in evidence in favor of or against the corporation and its members
to prove the corporate acts, its financial status and other matters (like the status of the stockholders), and are ordinarily the best evidence of corporate acts and proceedings.
[51]
Specifically, a stock and transfer book is necessary as a measure of precaution, expediency, and convenience because it provides the only certain and accurate method of
establishing the various corporate acts and transactions and of showing the ownership of stock and like matters. [52]That she tendered no explanation why the stock and transfer book
was not presented warrants the inference that the book did not reflect the actual payment of her subscription.

Nor did the petitioner present any certificate of stock issued by BMPI to her. Such a certificate covering her subscription might have been a reliable evidence of full
payment of the subscriptions, considering that under Section 65 of the Corporation Code a certificate of stock issues only to a subscriber who has fully paid his subscription. The
lack of any explanation for the absence of a stock certificate in her favor likewise warrants an unfavorable inference on the issue of payment.

Lastly, the petitioner maintains that both lower courts erred in relying on the articles of incorporationas proof of the liabilities of the stockholders subscribing to BMPIs
stocks, averring that the articles of incorporationdid not reflect the latest subscription status of BMPI.

Although the articles of incorporation may possibly reflect only the pre-incorporation status of a corporation, the lower courts reliance on that document to determine
whether the original subscribersalready fully paid their subscriptions or not was neither unwarranted nor erroneous. As earlier explained, the burden of establishing the fact of full
payment belonged not to Printwell even if it was the plaintiff, but to the stockholders like the petitioner who, as the defendants, averredfull payment of their subscriptions as a
defense. Their failure to substantiate their averment of full payment, as well as their failure to counter the reliance on the recitals found in the articles of incorporation simply
meant their failure or inability to satisfactorily prove their defense of full payment of the subscriptions.
 To reiterate, the petitionerwas liablepursuant to the trust fund doctrine for the corporate obligation of BMPI by virtue of her subscription being still unpaid. Printwell, as
BMPIs creditor,had a right to reachher unpaid subscription in satisfaction of its claim.

IV
Liability of stockholders for corporate debts isup
to the extentof their unpaid subscription

The RTC declared the stockholders pro rata liable for the debt(based on the proportion to their shares in the capital stock of BMPI); and held the petitionerpersonally liable
onlyin the amount of P149,955.65.

We do not agree. The RTC lacked the legal and factual support for its prorating the liability. Hence, we need to modify the extent of the petitioners personal liability to
Printwell. The prevailing rule is that a stockholder is personally liable for the financial obligations of the corporation to the extent of his unpaid subscription.[53]In view ofthe
petitioners unpaid subscription being worth P262,500.00, shewas liable up to that amount.

Interest is also imposable on the unpaid obligation. Absent any stipulation, interest is fixed at 12% per annum from the date the amended complaint was filed on February
8, 1990 until the obligation (i.e., to the extent of the petitioners personal liability of P262,500.00) is fully paid.[54]

Lastly, we find no basis togrant attorneys fees, the award for which must be supported by findings of fact and of law as provided under Article 2208 of the Civil
[55]
Code incorporated in the body of decision of the trial court. The absence of the requisite findings from the RTC decision warrants the deletion of the attorneys fees.

ACCORDINGLY, we deny the petition for review on certiorari;and affirm with modification the decision promulgated on August 14, 2002by ordering the petitionerto pay
to Printwell, Inc. the sum of P262,500.00, plus interest of 12% per annum to be computed from February 8, 1990 until full payment.

The petitioner shall paycost of suit in this appeal.

SO ORDERED.

5.
PRISMA CONSTRUCTION & G.R. No. 160545
DEVELOPMENT CORPORATION and
ROGELIO S. PANTALEON,
Petitioners, Present:
*
NACHURA, J.,
BRION, Acting Chairperson,
- versus - DEL CASTILLO,
ABAD, and
 PEREZ, JJ.

ARTHUR F. MENCHAVEZ ,
Respondent. Promulgated:

March 9, 2010

x------------------------------------------------------------------------------------------x
DECISION

BRION, J.:

We resolve in this Decision the petition for review on certiorari[1] filed by petitioners Prisma Construction & Development Corporation (PRISMA) and Rogelio S. Pantaleon
(Pantaleon) (collectively, petitioners) who seek to reverse and set aside the Decision[2] dated May 5, 2003 and the Resolution[3] dated October 22, 2003 of the Former Ninth
Division of the Court of Appeals (CA) in CA-G.R. CV No. 69627. The assailed CA Decision affirmed the Decision of the Regional Trial Court (RTC), Branch 73, Antipolo City in
Civil Case No. 97-4552 that held the petitioners liable for payment of P3,526,117.00 to respondent Arthur F. Menchavez (respondent), but modified the interest rate from 4% per
month to 12% per annum, computed from the filing of the complaint to full payment. The assailed CA Resolution denied the petitioners Motion for Reconsideration.

FACTUAL BACKGROUND

The facts of the case, gathered from the records, are briefly summarized below.

On December 8, 1993, Pantaleon, the President and Chairman of the Board of PRISMA, obtained a P1,000,000.00[4] loan from the respondent, with a monthly interest
of P40,000.00 payable for six months, or a total obligation of P1,240,000.00 to be paid within six (6) months,[5] under the following schedule of payments:

January 8, 1994 . P40,000.00

February 8, 1994 ... P40,000.00
March 8, 1994 ... P40,000.00
April 8, 1994 . P40,000.00
May 8, 1994 .. P40,000.00
June 8, 1994 P1,040,000.00[6]
Total P1,240,000.00
To secure the payment of the loan, Pantaleon issued a promissory note[7] that states:

I, Rogelio S. Pantaleon, hereby acknowledge the receipt of ONE MILLION TWO HUNDRED FORTY THOUSAND PESOS (P1,240,000), Philippine
Currency, from Mr. Arthur F. Menchavez, representing a six-month loan payable according to the following schedule:

January 8, 1994 . P40,000.00

 February 8, 1994 ... P40,000.00
March 8, 1994 ... P40,000.00
April 8, 1994 . P40,000.00
May 8, 1994 .. P40,000.00
June 8, 1994 P1,040,000.00

The checks corresponding to the above amounts are hereby acknowledged.[8]

and six (6) postdated checks corresponding to the schedule of payments. Pantaleon signed the promissory note in his personal capacity, [9] and as duly authorized by the Board of
Directors of PRISMA.[10] The petitioners failed to completely pay the loan within the stipulated six (6)-month period.

From September 8, 1994 to January 4, 1997, the petitioners paid the following amounts to the respondent:

September 8, 1994 P320,000.00

October 8, 1995.P600,000.00
November 8, 1995.....P158,772.00
January 4, 1997 P30,000.00[11]

As of January 4, 1997, the petitioners had already paid a total of P1,108,772.00. However, the respondent found that the petitioners still had an outstanding balance
of P1,364,151.00 as of January 4, 1997, to which it applied a 4% monthly interest.[12] Thus, on August 28, 1997, the respondent filed a complaint for sum of money with the RTC
to enforce the unpaid balance, plus 4% monthly interest, P30,000.00 in attorneys fees, P1,000.00 per court appearance and costs of suit.[13]

In their Answer dated October 6, 1998, the petitioners admitted the loan of P1,240,000.00, but denied the stipulation on the 4% monthly interest, arguing that the interest was not
provided in the promissory note. Pantaleon also denied that he made himself personally liable and that he made representations that the loan would be repaid within six (6) months.
[14]

THE RTC RULING

The RTC rendered a Decision on October 27, 2000 finding that the respondent issued a check for P1,000,000.00 in favor of the petitioners for a loan that would earn an interest of
4% or P40,000.00 per month, or a total of P240,000.00 for a 6-month period. It noted that the petitioners made several payments amounting to P1,228,772.00, but they were still
indebted to the respondent for P3,526,117.00 as of February 11,[15] 1999 after considering the 4% monthly interest. The RTC observed that PRISMA was a one-man corporation of
Pantaleon and used this circumstance to justify the piercing of the veil of corporate fiction. Thus, the RTC ordered the petitioners to jointly and severally pay the respondent the
amount of P3,526,117.00 plus 4% per month interest from February 11, 1999 until fully paid.[16]
The petitioners elevated the case to the CA via an ordinary appeal under Rule 41 of the Rules of Court, insisting that there was no express stipulation on the 4% monthly interest.

THE CA RULING

The CA decided the appeal on May 5, 2003. The CA found that the parties agreed to a 4% monthly interest principally based on the board resolution that authorized Pantaleon to
transact a loan with an approved interest of not more than 4% per month. The appellate court, however, noted that the interest of 4% per month, or 48% per annum, was
unreasonable and should be reduced to 12% per annum. The CA affirmed the RTCs finding that PRISMA was a mere instrumentality of Pantaleon that justified the piercing of the
veil of corporate fiction. Thus, the CA modified the RTC Decision by imposing a 12% per annum interest, computed from the filing of the complaint until finality of judgment, and
thereafter, 12% from finality until fully paid.[17]

After the CA's denial[18] of their motion for reconsideration,[19] the petitioners filed the present petition for review on certiorari under Rule 45 of the Rules of Court.

THE PETITION

The petitioners submit that the CA mistakenly relied on their board resolution to conclude that the parties agreed to a 4% monthly interest because the board resolution was not an
evidence of a loan or forbearance of money, but merely an authorization for Pantaleon to perform certain acts, including the power to enter into a contract of loan. The expressed
mandate of Article 1956 of the Civil Code is that interest due should be stipulated in writing, and no such stipulation exists. Even assuming that the loan is subject to 4% monthly
interest, the interest covers the six (6)-month period only and cannot be interpreted to apply beyond it. The petitioners also point out the glaring inconsistency in the CA Decision,
which reduced the interest from 4% per month or 48% per annum to 12% per annum, but failed to consider that the amount of P3,526,117.00 that the RTC ordered them to pay
includes the compounded 4% monthly interest.

THE CASE FOR THE RESPONDENT

The respondent counters that the CA correctly ruled that the loan is subject to a 4% monthly interest because the board resolution is attached to, and an integral part of, the
promissory note based on which the petitioners obtained the loan. The respondent further contends that the petitioners are estopped from assailing the 4% monthly interest, since
they agreed to pay the 4% monthly interest on the principal amount under the promissory note and the board resolution.

THE ISSUE
The core issue boils down to whether the parties agreed to the 4% monthly interest on the loan. If so, does the rate of interest apply to the 6-month payment period only or until full
payment of the loan?

OUR RULING

We find the petition meritorious.

Interest due should be stipulated in writing; otherwise, 12% per annum

Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. [20] When the terms of a contract are clear and
leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations governs. [21] In such cases, courts have no authority to alter the contract by
construction or to make a new contract for the parties; a court's duty is confined to the interpretation of the contract the parties made for themselves without regard to its wisdom or
folly, as the court cannot supply material stipulations or read into the contract words the contract does not contain. [22] It is only when the contract is vague and ambiguous that
courts are permitted to resort to the interpretation of its terms to determine the parties intent.

In the present case, the respondent issued a check for P1,000,000.00.[23] In turn, Pantaleon, in his personal capacity and as authorized by the Board, executed the promissory note
quoted above. Thus, the P1,000,000.00 loan shall be payable within six (6) months, or from January 8, 1994 up to June 8, 1994. During this period, the loan shall earn an interest
of P40,000.00 per month, for a total obligation of P1,240,000.00 for the six-month period. We note that this agreed sum can be computed at 4% interest per month, but no
such rate of interest was stipulated in the promissory note; rather a fixed sum equivalent to this rate was agreed upon.

Article 1956 of the Civil Code specifically mandates that no interest shall be due unless it has been expressly stipulated in writing. Under this provision, the payment of interest in
loans or forbearance of money is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in
writing. The concurrence of the two conditions is required for the payment of interest at a stipulated rate. Thus, we held in Tan v. Valdehueza[24] and Ching v. Nicdao[25] that
collection of interest without any stipulation in writing is prohibited by law.

Applying this provision, we find that the interest of P40,000.00 per month corresponds only to the six (6)-month period of the loan, or from January 8, 1994 to June 8, 1994, as
agreed upon by the parties in the promissory note. Thereafter, the interest on the loan should be at the legal interest rate of 12% per annum, consistent with our ruling in Eastern
Shipping Lines, Inc. v. Court of Appeals:[26]

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may
have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation,
 the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code. (Emphasis supplied)

We reiterated this ruling in Security Bank and Trust Co. v. RTC-Makati, Br. 61,[27] Sulit v. Court of Appeals,[28] Crismina Garments, Inc. v. Court of Appeals,[29] Eastern Assurance
and Surety Corporation v. Court of Appeals,[30] Sps. Catungal v. Hao,[31] Yong v. Tiu,[32] and Sps. Barrera v. Sps. Lorenzo.[33] Thus, the RTC and the CA misappreciated the facts of
the case; they erred in finding that the parties agreed to a 4% interest, compounded by the application of this interest beyond the promissory notes six (6)-month period. The facts
show that the parties agreed to the payment of a specific sum of money of P40,000.00 per month for six months, not to a 4% rate of interest payable within a six (6)-month period.

Medel v. Court of Appeals not applicable

The CA misapplied Medel v. Court of Appeals[34] in finding that a 4% interest per month was unconscionable.

In Medel, the debtors in a P500,000.00 loan were required to pay an interest of 5.5% per month, a service charge of 2% per annum, and a penalty charge of 1% per month,
plus attorneys fee equivalent to 25% of the amount due, until the loan is fully paid. Taken in conjunction with the stipulated service charge and penalty, we found the interest rate of
5.5% to be excessive, iniquitous, unconscionable, exorbitant and hence, contrary to morals, thereby rendering the stipulation null and void.

Applying Medel, we invalidated and reduced the stipulated interest in Spouses Solangon v. Salazar[35] of 6% per month or 72% per annum interest on a P60,000.00 loan;
in Ruiz v. Court of Appeals,[36] of 3% per month or 36% per annum interest on a P3,000,000.00 loan; in Imperial v. Jaucian,[37] of 16% per month or 192% per annum interest on
a P320,000.00 loan; in Arrofo v. Quio,[38] of 7% interest per month or 84% per annum interest on a P15,000.00 loan; in Bulos, Jr. v. Yasuma,[39] of 4% per month or 48% per annum
interest on a P2,500,000.00 loan; and in Chua v. Timan,[40] of 7% and 5% per month for loans totalling P964,000.00. We note that in all these cases, the terms of the loans were
open-ended; the stipulated interest rates were applied for an indefinite period.

Medel finds no application in the present case where no other stipulation exists for the payment of any extra amount except a specific sum of P40,000.00 per month on the
principal of a loan payable within six months. Additionally, no issue on the excessiveness of the stipulated amount of P40,000.00 per month was ever put in issue by the petitioners;
[41]
they only assailed the application of a 4% interest rate, since it was not agreed upon.

It is a familiar doctrine in obligations and contracts that the parties are bound by the stipulations, clauses, terms and conditions they have agreed to, which is the law
between them, the only limitation being that these stipulations, clauses, terms and conditions are not contrary to law, morals, public order or public policy. [42] The payment of
the specific sum of money of P40,000.00 per month was voluntarily agreed upon by the petitioners and the respondent. There is nothing from the records and, in fact, there is no
allegation showing that petitioners were victims of fraud when they entered into the agreement with the respondent.
 Therefore, as agreed by the parties, the loan of P1,000,000.00 shall earn P40,000.00 per month for a period of six (6) months, or from December 8, 1993 to June 8, 1994,
for a total principal and interest amount of P1,240,000.00. Thereafter, interest at the rate of 12% per annum shall apply. The amounts already paid by the petitioners during the
pendency of the suit, amounting to P1,228,772.00 as of February 12, 1999,[43] should be deducted from the total amount due, computed as indicated above. We remand the case to
the trial court for the actual computation of the total amount due.

Doctrine of Estoppel not applicable

The respondent submits that the petitioners are estopped from disputing the 4% monthly interest beyond the six-month stipulated period, since they agreed to pay this interest on
the principal amount under the promissory note and the board resolution.

We disagree with the respondents contention.

We cannot apply the doctrine of estoppel in the present case since the facts and circumstances, as established by the record, negate its application. Under the promissory note,
[44]
what the petitioners agreed to was the payment of a specific sum of P40,000.00 per month for six months not a 4% rate of interest per month for six (6) months on a loan
whose principal is P1,000,000.00, for the total amount of P1,240,000.00. Thus, no reason exists to place the petitioners in estoppel, barring them from raising their present
defenses against a 4% per month interest after the six-month period of the agreement. The board resolution,[45] on the other hand, simply authorizes Pantaleon to contract for a loan
with a monthly interest of not more than 4%. This resolution merely embodies the extent of Pantaleons authority to contract and does not create any right or obligation except as
between Pantaleon and the board. Again, no cause exists to place the petitioners in estoppel.

Piercing the corporate veil unfounded

We find it unfounded and unwarranted for the lower courts to pierce the corporate veil of PRISMA.

The doctrine of piercing the corporate veil applies only in three (3) basic instances, namely: a) when the separate and distinct corporate personality defeats public convenience, as
when the corporate fiction is used as a vehicle for the evasion of an existing obligation; b) in fraud cases, or when the corporate entity is used to justify a wrong, protect a fraud, or
defend a crime; or c) is used in alter ego cases, i.e., where a corporation is essentially a farce, since it is a mere alter ego or business conduit of a person, or where the corporation is
so organized and controlled and its affairs so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. [46] In the absence of malice, bad
faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities.[47]
In the present case, we see no competent and convincing evidence of any wrongful, fraudulent or unlawful act on the part of PRISMA to justify piercing its corporate veil. While
Pantaleon denied personal liability in his Answer, he made himself accountable in the promissory note in his personal capacity and as authorized by the Board Resolution of
PRISMA.[48] With this statement of personal liability and in the absence of any representation on the part of PRISMA that the obligation is all its own because of its separate
corporate identity, we see no occasion to consider piercing the corporate veil as material to the case.

WHEREFORE, in light of all the foregoing, we hereby REVERSE and SET ASIDE the Decision dated May 5, 2003 of the Court of Appeals in CA-G.R. CV No. 69627. The
petitioners loan of P1,000,000.00 shall bear interest of P40,000.00 per month for six (6) months from December 8, 1993 as indicated in the promissory note. Any portion of this
loan, unpaid as of the end of the six-month payment period, shall thereafter bear interest at 12% per annum. The total amount due and unpaid, including accrued interests, shall
bear interest at 12% per annum from the finality of this Decision. Let this case be REMANDED to the Regional Trial Court, Branch 73, Antipolo City for the proper computation
of the amount due as herein directed, with due regard to the payments the petitioners have already remitted. Costs against the respondent.
SO ORDERED.
6.
G.R. No. 178505
CHERRY J. PRICE, STEPHANIE G. DOMINGO AND LOLITA
ARBILERA, Petitioners, Present:

- versus - YNARES-SANTIAGO, J.,

Chairperson,
INNODATA PHILS. INC.,/ INNODATA CORPORATION, LEO RABANG AND
JANE NAVARETTE, Respondents. AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

Promulgated:
September 30, 2008

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

DECISION

CHICO-NAZARIO, J.:

This Petition for Review on Certiorari under Rule 45 of the Rules of Court assails the Decision1 dated 25 September 2006 and Resolution2 dated 15 June 2007 of the Court of
Appeals in CA-G.R. SP No. 72795, which affirmed the Decision dated 14 December 2001 of the National Labor Relations Commission (NLRC) in NLRC NCR Case No. 30-03-
01274-2000 finding that petitioners were not illegally dismissed by respondents.

The factual antecedents of the case are as follows:

Respondent Innodata Philippines, Inc./Innodata Corporation (INNODATA) was a domestic corporation engaged in the data encoding and data conversion business. It employed
encoders, indexers, formatters, programmers, quality/quantity staff, and others, to maintain its business and accomplish the job orders of its clients. Respondent Leo Rabang was its
Human Resources and Development (HRAD) Manager, while respondent Jane Navarette was its Project Manager. INNODATA had since ceased operations due to business losses
in June 2002.

Petitioners Cherry J. Price, Stephanie G. Domingo, and Lolita Arbilera were employed as formatters by INNODATA. The parties executed an employment contract denominated as
a "Contract of Employment for a Fixed Period," stipulating that the contract shall be for a period of one year,3 to wit:

CONTRACT OF EMPLOYMENT FOR A FIXED PERIOD

xxxx

WITNESSETH: That

WHEREAS, the EMPLOYEE has applied for the position of FORMATTER and in the course thereof and represented himself/herself to be fully qualified and skilled for the said
position;

WHEREAS, the EMPLOYER, by reason of the aforesaid representations, is desirous of engaging that the (sic) services of the EMPLOYEE for a fixed period;

NOW, THEREFORE, for and in consideration of the foregoing premises, the parties have mutually agreed as follows:

TERM/DURATION

The EMPLOYER hereby employs, engages and hires the EMPLOYEE and the EMPLOYEE hereby accepts such appointment as FORMATTER effective FEB. 16, 1999 to FEB.
16, 2000 a period of ONE YEAR.

xxxx

TERMINATION

6.1 In the event that EMPLOYER shall discontinue operating its business, this CONTRACT shall also ipso facto terminate on the last day of the month on which the EMPLOYER
ceases operations with the same force and effect as is such last day of the month were originally set as the termination date of this Contract. Further should the Company have no
more need for the EMPLOYEEs services on account of completion of the project, lack of work (sic) business losses, introduction of new production processes and techniques,
which will negate the need for personnel, and/or overstaffing, this contract maybe pre-terminated by the EMPLOYER upon giving of three (3) days notice to the employee.

6.2 In the event period stipulated in item 1.2 occurs first vis--vis the completion of the project, this contract shall automatically terminate.

6.3 COMPANYs Policy on monthly productivity shall also apply to the EMPLOYEE.

6.4 The EMPLOYEE or the EMPLOYER may pre-terminate this CONTRACT, with or without cause, by giving at least Fifteen (15) notice to that effect. Provided, that such pre-
termination shall be effective only upon issuance of the appropriate clearance in favor of the said EMPLOYEE.

6.5 Either of the parties may terminate this Contract by reason of the breach or violation of the terms and conditions hereof by giving at least Fifteen (15) days written notice.
Termination with cause under this paragraph shall be effective without need of judicial action or approval.4
During their employment as formatters, petitioners were assigned to handle jobs for various clients of INNODATA, among which were CAS, Retro, Meridian, Adobe, Netlib,
PSM, and Earthweb. Once they finished the job for one client, they were immediately assigned to do a new job for another client.

On 16 February 2000, the HRAD Manager of INNODATA wrote petitioners informing them of their last day of work. The letter reads:

RE: End of Contract

Date: February 16, 2000

Please be informed that your employment ceases effective at the end of the close of business hours on February 16, 2000.5

According to INNODATA, petitioners employment already ceased due to the end of their contract.

On 22 May 2000, petitioners filed a Complaint6 for illegal dismissal and damages against respondents. Petitioners claimed that they should be considered regular employees since
their positions as formatters were necessary and desirable to the usual business of INNODATA as an encoding, conversion and data processing company. Petitioners also averred
that the decisions in Villanueva v. National Labor Relations Commission7 and Servidad v. National Labor Relations Commission,8 in which the Court already purportedly ruled
"that the nature of employment at Innodata Phils., Inc. is regular,"9 constituted stare decisis to the present case. Petitioners finally argued that they could not be considered project
employees considering that their employment was not coterminous with any project or undertaking, the termination of which was predetermined.

On the other hand, respondents explained that INNODATA was engaged in the business of data processing, typesetting, indexing, and abstracting for its foreign clients. The bulk of
the work was data processing, which involved data encoding. Data encoding, or the typing of data into the computer, included pre-encoding, encoding 1 and 2, editing,
proofreading, and scanning. Almost half of the employees of INNODATA did data encoding work, while the other half monitored quality control. Due to the wide range of services
rendered to its clients, INNODATA was constrained to hire new employees for a fixed period of not more than one year. Respondents asserted that petitioners were not illegally
dismissed, for their employment was terminated due to the expiration of their terms of employment. Petitioners contracts of employment with INNODATA were for a limited
period only, commencing on 6 September 1999 and ending on 16 February 2000.10 Respondents further argued that petitioners were estopped from asserting a position contrary to
the contracts which they had knowingly, voluntarily, and willfully agreed to or entered into. There being no illegal dismissal, respondents likewise maintained that petitioners were
not entitled to reinstatement and backwages.

On 17 October 2000, the Labor Arbiter11 issued its Decision12 finding petitioners complaint for illegal dismissal and damages meritorious. The Labor Arbiter held that as
formatters, petitioners occupied jobs that were necessary, desirable, and indispensable to the data processing and encoding business of INNODATA. By the very nature of their
work as formatters, petitioners should be considered regular employees of INNODATA, who were entitled to security of tenure. Thus, their termination for no just or authorized
cause was illegal. In the end, the Labor Arbiter decreed:

FOREGOING PREMISES CONSIDERED, judgment is hereby rendered declaring complainants dismissal illegal and ordering respondent INNODATA PHILS. INC./INNODATA
CORPORATION to reinstate them to their former or equivalent position without loss of seniority rights and benefits. Respondent company is further ordered to pay complainants
their full backwages plus ten percent (10%) of the totality thereof as attorneys fees. The monetary awards due the complainants as of the date of this decision are as follows:

A. Backwages

1. Cherry J. Price

2/17/2000 10/17/2000 at 223.50/day

P5,811.00/mo/ x 8 mos. P46,488.00

 2. Stephanie Domingo 46,488.00

(same computation)

3. Lolita Arbilera 46,488.00

(same computation)

Total Backwages P139,464.00

B. Attorneys fees (10% of total award) 13,946.40

Total Award P153,410.40

Respondent INNODATA appealed the Labor Arbiters Decision to the NLRC. The NLRC, in its Decision dated 14 December 2001, reversed the Labor Arbiters Decision dated 17
October 2000, and absolved INNODATA of the charge of illegal dismissal.

The NLRC found that petitioners were not regular employees, but were fixed-term employees as stipulated in their respective contracts of employment. The NLRC applied Brent
School, Inc. v. Zamora13 and St. Theresas School of Novaliches Foundation v. National Labor Relations Commission,14 in which this Court upheld the validity of fixed-term
contracts. The determining factor of such contracts is not the duty of the employee but the day certain agreed upon by the parties for the commencement and termination of the
employment relationship. The NLRC observed that the petitioners freely and voluntarily entered into the fixed-term employment contracts with INNODATA. Hence, INNODATA
was not guilty of illegal dismissal when it terminated petitioners employment upon the expiration of their contracts on 16 February 2000.

The dispositive portion of the NLRC Decision thus reads:

WHEREFORE, premises considered, the decision appealed from is hereby REVERSED and SET ASIDE and a new one entered DISMISSING the instant complaint for lack of
merit.15

The NLRC denied petitioners Motion for Reconsideration in a Resolution dated 28 June 2002.16

In a Petition for Certiorari under Rule 65 of the Rules of Court filed before the Court of Appeals, petitioners prayed for the annulment, reversal, modification, or setting aside of the
Decision dated 14 December 2001 and Resolution dated 28 June 2002 of the NLRC.lawphil.net

On 25 September 2006, the Court of Appeals promulgated its Decision sustaining the ruling of the NLRC that petitioners were not illegally dismissed.

The Court of Appeals ratiocinated that although this Court declared in Villanueva and Servidad that the employees of INNODATA working as data encoders and abstractors were
regular, and not contractual, petitioners admitted entering into contracts of employment with INNODATA for a term of only one year and for a project called Earthweb. According
to the Court of Appeals, there was no showing that petitioners entered into the fixed-term contracts unknowingly and involuntarily, or because INNODATA applied force, duress or
improper pressure on them. The appellate court also observed that INNODATA and petitioners dealt with each other on more or less equal terms, with no moral dominance
exercised by the former on latter. Petitioners were therefore bound by the stipulations in their contracts terminating their employment after the lapse of the fixed term.

The Court of Appeals further expounded that in fixed-term contracts, the stipulated period of employment is governing and not the nature thereof. Consequently, even though
petitioners were performing functions that are necessary or desirable in the usual business or trade of the employer, petitioners did not become regular employees because their
employment was for a fixed term, which began on 16 February 1999 and was predetermined to end on 16 February 2000.
The appellate court concluded that the periods in petitioners contracts of employment were not imposed to preclude petitioners from acquiring security of tenure; and, applying the
ruling of this Court in Brent, declared that petitioners fixed-term employment contracts were valid. INNODATA did not commit illegal dismissal for terminating petitioners
employment upon the expiration of their contracts.

The Court of Appeals adjudged:

WHEREFORE, the instant petition is hereby DENIED and the Resolution dated December 14, 2001 of the National Labor Relations Commission declaring petitioners were not
illegally dismissed is AFFIRMED.17

The petitioners filed a Motion for Reconsideration of the afore-mentioned Decision of the Court of Appeals, which was denied by the same court in a Resolution dated 15 June
2007.

Petitioners are now before this Court via the present Petition for Review on Certiorari, based on the following assignment of errors:

I.

THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW AND GRAVE ABUSE OF DISCRETION WHEN IT DID NOT APPLY THE
SUPREME COURT RULING IN THE CASE OF NATIVIDAD & QUEJADA THAT THE NATURE OF EMPLOYMENT OF RESPONDENTS IS REGULAR NOT
FIXED, AND AS SO RULED IN AT LEAST TWO OTHER CASES AGAINST INNODATA PHILS. INC.

II.

THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN RULING THAT THE STIPULATION OF CONTRACT IS GOVERNING
AND NOT THE NATURE OF EMPLOYMENT AS DEFINED BY LAW.

III.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN IT DID NOT
CONSIDER THE EVIDENCE ON RECORD SHOWING THAT THERE IS CLEAR CIRCUMVENTION OF THE LAW ON SECURITY OF TENURE THROUGH
CONTRACT MANIPULATION.18

The issue of whether petitioners were illegally dismissed by respondents is ultimately dependent on the question of whether petitioners were hired by INNODATA under valid
fixed-term employment contracts.

After a painstaking review of the arguments and evidences of the parties, the Court finds merit in the present Petition. There were no valid fixed-term contracts and petitioners were
regular employees of the INNODATA who could not be dismissed except for just or authorized cause.

The employment status of a person is defined and prescribed by law and not by what the parties say it should be.19 Equally important to consider is that a contract of employment is
impressed with public interest such that labor contracts must yield to the common good.20 Thus, provisions of applicable statutes are deemed written into the contract, and the
parties are not at liberty to insulate themselves and their relationships from the impact of labor laws and regulations by simply contracting with each other.21

Regular employment has been defined by Article 280 of the Labor Code, as amended, which reads:

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

An employment shall be deemed to be casual if it is not covered by the preceding paragraph. Provided, That, any employee who has rendered at least one year of service, whether
such service is continuous or broken, shall be considered a regular employee with respect to the activity in which he is employed and his employment shall continue while such
activity exists. (Underscoring ours).

Based on the afore-quoted provision, the following employees are accorded regular status: (1) those who are engaged to perform activities which are necessary or desirable in the
usual business or trade of the employer, regardless of the length of their employment; and (2) those who were initially hired as casual employees, but have rendered at least one
year of service, whether continuous or broken, with respect to the activity in which they are employed.

Undoubtedly, petitioners belong to the first type of regular employees.

Under Article 280 of the Labor Code, the applicable test to determine whether an employment should be considered regular or non-regular is the reasonable connection between
the particular activity performed by the employee in relation to the usual business or trade of the employer.22

In the case at bar, petitioners were employed by INNODATA on 17 February 1999 as formatters. The primary business of INNODATA is data encoding, and the formatting of the
data entered into the computers is an essential part of the process of data encoding. Formatting organizes the data encoded, making it easier to understand for the clients and/or the
intended end users thereof. Undeniably, the work performed by petitioners was necessary or desirable in the business or trade of INNODATA.

However, it is also true that while certain forms of employment require the performance of usual or desirable functions and exceed one year, these do not necessarily result in
regular employment under Article 280 of the Labor Code.23 Under the Civil Code, fixed-term employment contracts are not limited, as they are under the present Labor Code, to
those by nature seasonal or for specific projects with predetermined dates of completion; they also include those to which the parties by free choice have assigned a specific date of
termination.24

The decisive determinant in term employment is the day certain agreed upon by the parties for the commencement and termination of their employment relationship, a day certain
being understood to be that which must necessarily come, although it may not be known when. Seasonal employment and employment for a particular project are instances of
employment in which a period, where not expressly set down, is necessarily implied.25

Respondents maintain that the contracts of employment entered into by petitioners with INNDOATA were valid fixed-term employment contracts which were automatically
terminated at the expiry of the period stipulated therein, i.e., 16 February 2000.

The Court disagrees.

While this Court has recognized the validity of fixed-term employment contracts, it has consistently held that this is the exception rather than the general rule. More importantly, a
fixed-term employment is valid only under certain circumstances. In Brent, the very same case invoked by respondents, the Court identified several circumstances wherein a fixed-
term is an essential and natural appurtenance, to wit:

Some familiar examples may be cited of employment contracts which may be neither for seasonal work nor for specific projects, but to which a fixed term is an essential and
natural appurtenance: overseas employment contracts, for one, to which, whatever the nature of the engagement, the concept of regular employment with all that it implies does not
appear ever to have been applied, Article 280 of the Labor Code notwithstanding; also appointments to the positions of dean, assistant dean, college secretary, principal, and other
administrative offices in educational institutions, which are by practice or tradition rotated among the faculty members, and where fixed terms are a necessity without which no
reasonable rotation would be possible. Similarly, despite the provisions of Article 280, Policy Instructions No. 8 of the Minister of Labor implicitly recognize that certain company
officials may be elected for what would amount to fixed periods, at the expiration of which they would have to stand down, in providing that these officials, "x x may lose their
jobs as president, executive vice-president or vice president, etc. because the stockholders or the board of directors for one reason or another did not reelect them."26
As a matter of fact, the Court, in its oft-quoted decision in Brent, also issued a stern admonition that where, from the circumstances, it is apparent that the period was imposed to
preclude the acquisition of tenurial security by the employee, then it should be struck down as being contrary to law, morals, good customs, public order and public policy. 27

After considering petitioners contracts in their entirety, as well as the circumstances surrounding petitioners employment at INNODATA, the Court is convinced that the terms
fixed therein were meant only to circumvent petitioners right to security of tenure and are, therefore, invalid.

The contracts of employment submitted by respondents are highly suspect for not only being ambiguous, but also for appearing to be tampered with.

Petitioners alleged that their employment contracts with INNODATA became effective 16 February 1999, and the first day they reported for work was on 17 February 1999. The
Certificate of Employment issued by the HRAD Manager of INNODATA also indicated that petitioners Price and Domingo were employed by INNODATA on 17 February 1999.

However, respondents asserted before the Labor Arbiter that petitioners employment contracts were effective only on 6 September 1999. They later on admitted in their
Memorandum filed with this Court that petitioners were originally hired on 16 February 1999 but the project for which they were employed was completed before the expiration of
one year. Petitioners were merely rehired on 6 September 1999 for a new project. While respondents submitted employment contracts with 6 September 1999 as beginning date of
effectivity, it is obvious that in one of them, the original beginning date of effectivity, 16 February 1999, was merely crossed out and replaced with 6 September 1999. The copies
of the employment contracts submitted by petitioners bore similar alterations.

The Court notes that the attempt to change the beginning date of effectivity of petitioners contracts was very crudely done. The alterations are very obvious, and they have not
been initialed by the petitioners to indicate their assent to the same. If the contracts were truly fixed-term contracts, then a change in the term or period agreed upon is material and
would already constitute a novation of the original contract.

Such modification and denial by respondents as to the real beginning date of petitioners employment contracts render the said contracts ambiguous. The contracts themselves state
that they would be effective until 16 February 2000 for a period of one year. If the contracts took effect only on 6 September 1999, then its period of effectivity would obviously be
less than one year, or for a period of only about five months.

Obviously, respondents wanted to make it appear that petitioners worked for INNODATA for a period of less than one year. The only reason the Court can discern from such a
move on respondents part is so that they can preclude petitioners from acquiring regular status based on their employment for one year. Nonetheless, the Court emphasizes that it
has already found that petitioners should be considered regular employees of INNODATA by the nature of the work they performed as formatters, which was necessary in the
business or trade of INNODATA. Hence, the total period of their employment becomes irrelevant.

Even assuming that petitioners length of employment is material, given respondents muddled assertions, this Court adheres to its pronouncement in Villanueva v. National Labor
Relations Commission,28 to the effect that where a contract of employment, being a contract of adhesion, is ambiguous, any ambiguity therein should be construed strictly against
the party who prepared it. The Court is, thus, compelled to conclude that petitioners contracts of employment became effective on 16 February 1999, and that they were already
working continuously for INNODATA for a year.

Further attempting to exonerate itself from any liability for illegal dismissal, INNODATA contends that petitioners were project employees whose employment ceased at the end of
a specific project or undertaking. This contention is specious and devoid of merit.

In Philex Mining Corp. v. National Labor Relations Commission,29 the Court defined "project employees" as those workers hired (1) for a specific project or undertaking, and
wherein (2) the completion or termination of such project has been determined at the time of the engagement of the employee.

Scrutinizing petitioners employment contracts with INNODATA, however, failed to reveal any mention therein of what specific project or undertaking petitioners were hired for.
Although the contracts made general references to a "project," such project was neither named nor described at all therein. The conclusion by the Court of Appeals that petitioners
were hired for the Earthweb project is not supported by any evidence on record. The one-year period for which petitioners were hired was simply fixed in the employment
contracts without reference or connection to the period required for the completion of a project. More importantly, there is also a dearth of evidence that such project or
undertaking had already been completed or terminated to justify the dismissal of petitioners. In fact, petitioners alleged - and respondents failed to dispute that petitioners did not
work on just one project, but continuously worked for a series of projects for various clients of INNODATA.

In Magcalas v. National Labor Relations Commission,30 the Court struck down a similar claim by the employer therein that the dismissed employees were fixed-term and project
employees. The Court here reiterates the rule that all doubts, uncertainties, ambiguities and insufficiencies should be resolved in favor of labor. It is a well-entrenched doctrine that
in illegal dismissal cases, the employer has the burden of proof. This burden was not discharged in the present case.

As a final observation, the Court also takes note of several other provisions in petitioners employment contracts that display utter disregard for their security of tenure. Despite
fixing a period or term of employment, i.e., one year, INNODATA reserved the right to pre-terminate petitioners employment under the following circumstances:

6.1 x x x Further should the Company have no more need for the EMPLOYEEs services on account of completion of the project, lack of work (sic) business losses, introduction
of new production processes and techniques, which will negate the need for personnel, and/or overstaffing, this contract maybe pre-terminated by the EMPLOYER upon giving of
three (3) days notice to the employee.

xxxx

6.4 The EMPLOYEE or the EMPLOYER may pre-terminate this CONTRACT, with or without cause, by giving at least Fifteen (15) [day] notice to that effect. Provided, that
such pre-termination shall be effective only upon issuance of the appropriate clearance in favor of the said EMPLOYEE. (Emphasis ours.)

Pursuant to the afore-quoted provisions, petitioners have no right at all to expect security of tenure, even for the supposedly one-year period of employment provided in their
contracts, because they can still be pre-terminated (1) upon the completion of an unspecified project; or (2) with or without cause, for as long as they are given a three-day notice.
Such contract provisions are repugnant to the basic tenet in labor law that no employee may be terminated except for just or authorized cause.

Under Section 3, Article XVI of the Constitution, it is the policy of the State to assure the workers of security of tenure and free them from the bondage of uncertainty of tenure
woven by some employers into their contracts of employment. This was exactly the purpose of the legislators in drafting Article 280 of the Labor Code to prevent the
circumvention by unscrupulous employers of the employees right to be secure in his tenure by indiscriminately and completely ruling out all written and oral agreements
inconsistent with the concept of regular employment.

In all, respondents insistence that it can legally dismiss petitioners on the ground that their term of employment has expired is untenable. To reiterate, petitioners, being regular
employees of INNODATA, are entitled to security of tenure. In the words of Article 279 of the Labor Code:

ART. 279. Security of Tenure. In cases of regular employment, the employer shall not terminate the services of an employee except for a just cause or when authorized by this
Title. An employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges and to his full backwages, inclusive
of allowances, and to his other benefits or their monetary equivalent computed from the time his compensation was withheld from him up to the time of his actual reinstatement.

By virtue of the foregoing, an illegally dismissed employee is entitled to reinstatement without loss of seniority rights and other privileges, with full back wages computed from the
time of dismissal up to the time of actual reinstatement.

Considering that reinstatement is no longer possible on the ground that INNODATA had ceased its operations in June 2002 due to business losses, the proper award is separation
pay equivalent to one month pay31 for every year of service, to be computed from the commencement of their employment up to the closure of INNODATA.

The amount of back wages awarded to petitioners must be computed from the time petitioners were illegally dismissed until the time INNODATA ceased its operations in June
2002.32
Petitioners are further entitled to attorneys fees equivalent to 10% of the total monetary award herein, for having been forced to litigate and incur expenses to protect their rights
and interests herein.

Finally, unless they have exceeded their authority, corporate officers are, as a general rule, not personally liable for their official acts, because a corporation, by legal fiction, has a
personality separate and distinct from its officers, stockholders and members. Although as an exception, corporate directors and officers are solidarily held liable with the
corporation, where terminations of employment are done with malice or in bad faith,33 in the absence of evidence that they acted with malice or bad faith herein, the Court exempts
the individual respondents, Leo Rabang and Jane Navarette, from any personal liability for the illegal dismissal of petitioners.

WHEREFORE, the Petition for Review on Certiorari is GRANTED. The Decision dated 25 September 2006 and Resolution dated 15 June 2007 of the Court of Appeals in CA-
G.R. SP No. 72795are hereby REVERSED and SET ASIDE. RespondentInnodata Philippines, Inc./Innodata Corporation is ORDERED to pay petitioners Cherry J. Price,
Stephanie G. Domingo, and Lolita Arbilera: (a) separation pay, in lieu of reinstatement, equivalent to one month pay for every year of service, to be computed from the
commencement of their employment up to the date respondent Innodata Philippines, Inc./Innodata Corporation ceased operations; (b) full backwages, computed from the time
petitioners compensation was withheld from them up to the time respondent Innodata Philippines, Inc./Innodata Corporation ceased operations; and (3) 10% of the total monetary
award as attorneys fees. Costs against respondent Innodata Philippines, Inc./Innodata Corporation.

SO ORDERED.

7.
DAVID LU, G.R. No. 153690
Petitioner,

- versus -

PATERNO LU YM, SR., PATERNO LU

YM, JR., VICTOR LU YM, ET. AL. &
LUYM DEVELOPMENT CORP.,
Respondents.

PATERNO LU YM, SR., PATERNO LU

YM, JR., VICTOR LU YM, JOHN LU G.R. No. 157381
YM, KELLY LU YM, and LUDO &
LUYM DEVELOPMENT CORP.,
Petitioners,

- versus -

DAVID LU,
Respondent.

JOHN LU YM and LUDO & LUYM

DEVELOPMENT CORPORATION,
Petitioner, G.R. No. 170889

-versus- Present:
YNARES-SANTIAGO, J.,
 THE HON. COURT OF APPEALS OF Chairperson,
CEBU CITY (former Twentieth CARPIO-MORALES,*
Division), DAVID LU, ROSA GO, CHICO-NAZARIO,
SILVANO LUDO & CL NACHURA, and
CORPORATION, BRION, JJ.**
Respondents.
Promulgated:

August 4, 2009
x-----------------------------------------------------------------------------------------x

RESOLUTION

NACHURA, J.:

For resolution is the Motion for Reconsideration [1] filed by petitioners John Lu Ym and Ludo & LuYm Development Corporation (movants), praying that we reconsider our
Decision[2] dated August 26, 2008, where we disposed of the three consolidated cases in this wise:

WHEREFORE, premises considered, the petitions in G.R. Nos. 153690 and 157381 are DENIED for being moot and academic; while the petition in G.R.
No. 170889 is DISMISSED for lack of merit. Consequently, the Status Quo Order dated January 23, 2006 is hereby LIFTED.

The Court of Appeals is DIRECTED to proceed with CA-G.R. CV No. 81163 and to resolve the same with dispatch.

SO ORDERED.[3]

In support of their motion, the movants advance the following arguments:

1. Private respondents are guilty of fraud in avoiding payment of the correct docket fees by not listing the real properties in their Complaint and Amended
Complaint despite their admission that the real properties are the subject matter of the case and by their act of annotating notices of lis pendens on the properties of
Ludo Dev.

2. The present action is not an intra-corporate controversy and therefore the RTC, being a special commercial court, has no jurisdiction over the subject
matter of the case.

3. The RTC has no jurisdiction to order the dissolution of the Corporation.

However, should this Honorable Court decide that the foregoing grounds are not sufficient justification to warrant a dismissal of SRC-021 CEB, petitioners
ask that the Status Quo Order of this Court be maintained during the appeal of the case or that a Writ of Injunction be issued to stop the immediate implementation
of the March 1, 2004 decision based on the following grounds:

a) The March 1, 2004 decision of the RTC was null and void for denying petitioners right to due process.

b) The Management Committee organized by the RTC in the March 1, 2004 decision was unlawfully constituted.
 c) Supervening event has made the management committee functus oficio.[4]

To resolve the motion judiciously, it is necessary to restate, albeit briefly, the factual and procedural antecedents that gave rise to these consolidated petitions.

On August 14, 2000, David Lu, Rosa Go, Silvano Ludo and CL Corporation filed with the Regional Trial Court (RTC) of Cebu City a complaint against Paterno Lu Ym,
Sr., Paterno Lu Ym, Jr., Victor Lu Ym, John Lu Ym, Kelly Lu Ym, and Ludo & Luym Development Corporation (LLDC) for Declaration of Nullity of Share Issue, Receivership
and Dissolution. The case was docketed as Civil Case No. CEB-25502. The plaintiffs, shareholders of LLDC, claimed that the Lu Ym father and sons, as members of the Board of
Directors, caused the issuance to the latter of 600,000 of the corporations unsubscribed and unissued shares for less than their actual value. They then prayed for the dissolution of
the corporation and the appointment of a receiver during the pendency of the action.

The defendants therein moved to dismiss the complaint for non-compliance with the requirement of certification of non-forum shopping, and for failure of the plaintiffs to
exert efforts towards a compromise. The trial court denied the motion and placed LLDC under receivership.

Defendants Lu Ym father and sons elevated the matter to the Court of Appeals through a petition for certiorari, docketed as CA-G.R. SP No. 64154. However, the same was
dismissed for insufficient signatures on the verification and certification of non-forum shopping. Subsequently, they re-filed a petition, which was docketed as CA-G.R. SP No.
64523. On December 20, 2001, the CA granted the petition and ordered the dismissal of the complaint. Aggrieved, David Lu (David), et al., came to this Court via G.R. No.
153690.

Meanwhile, the Presiding Judge of Branch 6 of the RTC of Cebu City, where the case was initially raffled, inhibited himself on motion of the Lu Ym father and sons. The
case was re-raffled to Branch 11. The Presiding Judge of the latter branch directed the parties to amend their respective pleadings in order to conform to the requirements of
Republic Act No. 8799, and the case was re-docketed as SRC Case No. 021-CEB.

The Lu Ym father and sons then filed with the trial court a motion to lift the order of receivership over LLDC. Before the matter could be heard, David instituted a petition
for certiorari and prohibition before the CA on the issue of the motion to lift order of receivership, docketed as CA-G.R. SP No. 73383. On February 27, 2003, the CA granted the
petition and ruled that the proceedings on the receivership could not proceed without the parties amending their pleadings. The Lu Ym father and sons thus filed a petition for
review with this Court (G.R. No. 157381).

In the meantime, the Presiding Judge of Branch 11 also inhibited himself, and the case was transferred to Branch 12. On March 31, 2003, the plaintiffs therein filed a
Motion to Admit Complaint to Conform to the Interim Rules Governing Intra-Corporate Controversies, which was admitted by the trial court.

On January 23, 2004, the Lu Ym father and sons inquired from the Clerk of Court as to the amount of docket fees paid by David, et al. John Lu Ym further inquired from
the Office of the Court Administrator (OCA) on the correctness of the amount paid by David, et al. The OCA informed John Lu Ym that a query on the matter of docket fees
should be addressed to the trial court and not to the OCA.

On March 1, 2004, the RTC decided the case on the merits. It annulled the issuance of LLDCs 600,000 shares of stock to the Lu Ym father and sons. It also ordered the
dissolution of LLDC and the liquidation of its assets, and created a management committee to take over LLDC. The Lu Ym father and sons appealed to the CA, where the case was
docketed as CA-G.R. CV No. 81163.

In view of the executory nature of the decision of the trial court, as mandated in the Interim Rules of Procedure for Intra-Corporate Controversies,[5] the Lu Ym father and
sons moved for the issuance of a writ of preliminary injunction which, however, was denied by the CA. They filed a motion for reconsideration, wherein they further questioned
the sufficiency of the docket fees paid by David, et al. in the RTC. On December 8, 2005, the CA denied the motion for reconsideration and stated that the matter should be raised
in the appellants brief to be threshed out in the appeal. Hence, the Lu Ym father and sons filed with this Court a special civil action for certiorari and prohibition (G.R. No.
170889).

On August 26, 2008, this Court rendered judgment as aforesaid. Lu Ym father and sons filed the instant Motion for Reconsideration. We required David, et al., to submit
their Comment thereto. With our directive complied with, we now resolve the Motion for Reconsideration.

In our August 26, 2008 Decision, we declared that the subject matter of the complaint filed by David, et al., was one incapable of pecuniary estimation. Movants beg us to
reconsider this position, pointing out that the case filed below by David, et al., had for its objective the nullification of the issuance of 600,000 shares of stock of LLDC. The
complaint itself contained the allegation that the real value of these shares, based on underlying real estate values, was One Billion Eighty Seven Million Fifty Five Thousand One
Hundred Five Pesos (P1,087,055,105).[6]

Upon deeper reflection, we find that the movants claim has merit. The 600,000 shares of stock were, indeed, properties in litigation. They were the subject matter of the
complaint, and the relief prayed for entailed the nullification of the transfer thereof and their return to LLDC. David, et al., are minority shareholders of the corporation who claim
to have been prejudiced by the sale of the shares of stock to the Lu Ym father and sons. Thus, to the extent of the damage or injury they allegedly have suffered from this sale of
the shares of stock, the action they filed can be characterized as one capable of pecuniary estimation. The shares of stock have a definite value, which was declared by plaintiffs
themselves in their complaint. Accordingly, the docket fees should have been computed based on this amount. This is clear from the following version of Rule 141, Section 7,
which was in effect at the time the complaint was filed:

SEC. 7. Clerks of Regional Trial Courts.

(a) For filing an action or a permissive counterclaim or money claim against an estate not based on judgment, or for filing with leave of court a third-party, fourth-
party, etc. complaint, or a complaint in intervention, and for all clerical services in the same, if the total sum claimed, exclusive of interest, or the stated value of
the property in litigation, is:

x x x x[7]

We have earlier held that a court acquires jurisdiction over a case only upon the payment of the prescribed fees. [8] Hence, without payment of the correct docket fees, the
trial court did not acquire jurisdiction over the action filed by David, et al.

We also stated in our Decision that the earlier rule in Manchester Development Corporation v. Court of Appeals[9] has been relaxed. Subsequent decisions now uniformly
hold that when insufficient filing fees are initially paid by the plaintiffs and there is no intention to defraud the government, the Manchester rule does not apply.[10]

Addressing this point, movants argue that David, et al., were guilty of fraud in that, while they did not mention any real property in their complaint, they were able to obtain
the annotation of notices of lis pendens on various real properties of LLDC by alleging in their motion to conduct special raffle that there was an imminent danger that properties
subject matter of this case might be disposed of. Moreover, David, et al., prayed for, among others, the liquidation and distribution of the assets of the corporation, so that they may
receive their share therein. Among the assets of the corporation are real properties. Hence, the case was, in actuality, a real action that had for its objective the recovery of real
property.

Fraud is a generic term embracing all multifarious means which human ingenuity can devise and which are resorted to by one individual to secure an advantage over
another by false suggestions or by suppression of truth, and includes all surprise, trick, cunning, dissembling and any unfair way by which another is cheated. [11] Since fraud is a
state of mind, its presence can only be determined by examining the attendant circumstances.[12]
 It is true, as we held in our Decision, that David, et al., merely relied on the assessment made by the Clerk of Court and cannot be faulted for their payment of insufficient
docket fees. However, movants now point out that when David Lu moved for the annotation of notices of lis pendens on real properties owned by LLDC, they in effect
acknowledged that the case they filed was a real action.

A notice of lis pendens is governed by Rule 13, Section 14 of the Rules of Court, which states:

Sec. 14. Notice of lis pendens. In an action affecting the title or the right of possession of real property, the plaintiff and the defendant, when affirmative
relief is claimed in his answer, may record in the office of the registry of deeds of the province in which the property is situated a notice of the pendency of the
action. Said notice shall contain the names of the parties and the object of the action or defense, and a description of the property in that province affected
thereby. Only from the time of filing such notice for record shall a purchaser, or encumbrancer of the property affected thereby, be deemed to have constructive
notice of the pendency of the action, and only of its pendency against the parties designated by their real names.

The notice of lis pendens hereinabove mentioned may be cancelled only upon order of the court, after proper showing that the notice is for the purpose of
molesting the adverse party, or that it is not necessary to protect the rights of the party who caused it to be recorded.[13]

A notice of lis pendens is an announcement to the whole world that a particular real property is in litigation, serving as a warning that one who acquires interest over said
property does so at his own risk, or that he gambles on the result of the litigation over the said property. The filing of a notice of lis pendens charges all strangers with notice of the
particular litigation referred to therein and, therefore, any right they may thereafter acquire over the property is subject to the eventuality of the suit. Such announcement is founded
upon public policy and necessity, the purpose of which is to keep the properties in litigation within the power of the court until the litigation is terminated and to prevent the defeat
of the judgment or decree by subsequent alienation.[14]

As a general rule, the only instances in which a notice of lis pendens may be availed of are as follows: (a) an action to recover possession of real estate; (b) an action for
partition; and (c) any other court proceedings that directly affect the title to the land or the building thereon or the use or the occupation thereof. Additionally, this Court has held
that resorting to lis pendens is not necessarily confined to cases that involve title to or possession of real property. This annotation also applies to suits seeking to establish a right
to, or an equitable estate or interest in, a specific real property; or to enforce a lien, a charge or an encumbrance against it.[15]

From the foregoing, it is clear that a notice of lis pendens is availed of mainly in real actions. Hence, when David, et al., sought the annotation of notices of lis pendens on
the titles of LLDC, they acknowledged that the complaint they had filed affected a title to or a right to possession of real properties. At the very least, they must have been fully
aware that the docket fees would be based on the value of the realties involved. Their silence or inaction to point this out to the Clerk of Court who computed their docket fees,
therefore, becomes highly suspect, and thus, sufficient for this Court to conclude that they have crossed beyond the threshold of good faith and into the area of fraud. Clearly, there
was an effort to defraud the government in avoiding to pay the correct docket fees. Consequently, the trial court did not acquire jurisdiction over the case.

Anent the issue of estoppel, we earlier ruled that the movants are barred from questioning the jurisdiction of the trial court because of their participation in the proceedings
therein. In passing upon this issue, we take heed from the pronouncement of this Court in the recent case Vargas v. Caminas:[16]

The Court finds that Tijam is not applicable in the present case. The general rule is that lack of jurisdiction of a court may be raised at any stage of the
proceedings. In Calimlim v.Ramirez, the Court stated that Tijam is an exception to the general rule because of the presence of laches:
 A rule that had been settled by unquestioned acceptance and upheld in decisions so numerous to cite is that the jurisdiction of a court over the subject
matter of the action is a matter of law and may not be conferred by consent or agreement of the parties. The lack of jurisdiction of a court may be
raised at any stage of the proceedings, even on appeal. This doctrine has been qualified by recent pronouncements which stemmed principally from
the ruling in the cited case of [Tijam]. It is to be regretted, however, that the holding in said case had been applied to situations which were obviously
not contemplated therein. The exceptional circumstance involved in [Tijam] which justified the departure from the accepted concept of non-
waivability of objection to jurisdiction has been ignored and, instead a blanket doctrine had been repeatedly upheld that rendered the supposed ruling
in [Tijam] not as the exception, but rather the general rule, virtually overthrowing altogether the time-honored principle that the issue of jurisdiction
is not lost by waiver or by estoppel.

In Tijam, the lack of jurisdiction was raised for the first time in a motion to dismiss filed almost fifteen (15) years after the questioned ruling had been
rendered. Hence, the Court ruled that the issue of jurisdiction may no longer be raised for being barred by laches.

The circumstances of the present case are different from Tijam. Spouses Vargas raised the issue of jurisdiction before the trial court rendered its decision. They
continued to raise the issue in their appeal before the Court of Appeals and this Court. Hence, it cannot be said that laches has set in. The exception in Tijam finds no
application in this case and the general rule must apply, that the question of jurisdiction of a court may be raised at any stage of the proceedings. Spouses Vargas are
therefore not estopped from questioning the jurisdiction of the trial court.[17]

The exhortations of this Court in the above-cited case have constrained us to look more closely into the nature of the participation of the movants in the proceedings, to
determine whether the exceptional principle of estoppel may be applied against them. The records show that the very first pleading filed by the Lu Ym father and sons before the
court a quo was a motion to dismiss, albeit anchored on the ground of insufficiency of the certificate of non-forum shopping and failure of the plaintiffs to exert efforts towards a
compromise. When the trial court denied this, they went up to the CA on certiorari, where they were sustained and the appellate court ordered the dismissal of the complaint
below.

Next, the Lu Ym father and sons filed a motion for the lifting of the receivership order, which the trial court had issued in the interim. David, et al., brought the matter up to
the CA even before the trial court could resolve the motion. Thereafter, David, et al., filed their Motion to Admit Complaint to Conform to the Interim Rules Governing Intra-
Corporate Controversies. It was at this point that the Lu Ym father and sons raised the question of the amount of filing fees paid. They raised this point again in the CA when they
appealed the trial courts decision in the case below.

We find that, in the circumstances, the Lu Ym father and sons are not estopped from challenging the jurisdiction of the trial court. They raised the insufficiency of the
docket fees before the trial court rendered judgment and continuously maintained their position even on appeal to the CA. Although the manner of challenge was erroneous they
should have addressed this issue directly to the trial court instead of to the OCA they should not be deemed to have waived their right to assail the jurisdiction of the trial court.
The matter of lack of jurisdiction of the trial court is one that may be raised at any stage of the proceedings. More importantly, this Court may pass upon this issue motu
proprio.
Hence, notwithstanding that the petition in G.R. No. 170889 is a special civil action for certiorari and prohibition assailing an interlocutory resolution of the CA, we have
the power to order the dismissal of the complaint filed in the court of origin and render all incidents herein moot and academic.

With the foregoing findings, there is no more need to discuss the other arguments raised in the Motion for Reconsideration.

In summary, the trial court did not acquire jurisdiction over the case for failure of David, et.al. to pay the correct docket fees. Consequently, all interlocutory matters
pending before this Court, specifically the incidents subject of these three consolidated petitions, must be denied for being moot and academic. With the dismissal of the main
action, the ancillary motions have no more leg to stand on.
 WHEREFORE, in view of the foregoing, the Motion for Reconsideration filed by John Lu Ym and Ludo & LuYm Development Corporation is GRANTED. The
Decision of this Court dated August 26, 2008 is RECONSIDERED and SET ASIDE. The complaint in SRC Case No. 021-CEB, now on appeal with the Court of Appeals in CA
G.R. CV No. 81163, is DISMISSED.
All interlocutory matters challenged in these consolidated petitions are DENIED for being moot and academic.

SO ORDERED.

8. WOODCHILD HOLDINGS, INC., G.R. No. 140667

Petitioner,
Present:
PUNO, J., Chairman,
AUSTRIA-MARTINEZ,
- versus - CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.

ROXAS ELECTRIC AND Promulgated:

CONSTRUCTION COMPANY, INC.,
Respondent. August 12, 2004
x--------------------------------------------------x

DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision [1] of the Court of Appeals in CA-G.R. CV No. 56125 reversing the Decision [2] of the Regional Trial Court of Makati,
Branch 57, which ruled in favor of the petitioner.

The Antecedents

The respondent Roxas Electric and Construction Company, Inc. (RECCI), formerly the Roxas Electric and Construction Company, was the
owner of two parcels of land, identified as Lot No. 491-A-3-B-1 covered by Transfer Certificate of Title (TCT) No. 78085 and Lot No. 491-A-3-B-2 covered by TCT No. 78086.A
portion of Lot No. 491-A-3-B-1 which abutted Lot No. 491-A-3-B-2 was a dirt road accessing to the Sumulong Highway, Antipolo, Rizal.
 At a special meeting on May 17, 1991, the respondents Board of Directors approved a resolution authorizing the corporation, through its president, Roberto B. Roxas, to
sell Lot No. 491-A-3-B-2 covered by TCT No. 78086, with an area of 7,213 square meters, at a price and under such terms and conditions which he deemed most reasonable and
advantageous to the corporation; and to execute, sign and deliver the pertinent sales documents and receive the proceeds of the sale for and on behalf of the company.[3]

Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy Lot No. 491-A-3-B-2 covered by TCT No. 78086 on which it planned to construct its warehouse building, and a
portion of the adjoining lot, Lot No. 491-A-3-B-1, so that its 45-foot container van would be able to readily enter or leave the property. In a Letter to Roxas dated June 21, 1991,
WHI President Jonathan Y. Dy offered to buy Lot No. 491-A-3-B-2 under stated terms and conditions for P1,000 per square meter or at the price of P7,213,000.[4] One of the terms
incorporated in Dys offer was the following provision:

5. This Offer to Purchase is made on the representation and warranty of the OWNER/SELLER, that he holds a good and registrable title to the property, which shall
be conveyed CLEAR and FREE of all liens and encumbrances, and that the area of 7,213 square meters of the subject property already includes the area on
which the right of way traverses from the main lot (area) towards the exit to the Sumulong Highway as shown in the location plan furnished by the
Owner/Seller to the buyer. Furthermore, in the event that the right of way is insufficient for the buyers purposes (example: entry of a 45-foot container), the
seller agrees to sell additional square meter from his current adjacent property to allow the buyer to full access and full use of the property.[5]

Roxas indicated his acceptance of the offer on page 2 of the deed. Less than a month later or on July 1, 1991, Roxas, as President of RECCI, as vendor, and Dy, as President of
WHI, as vendee, executed a contract to sell in which RECCI bound and obliged itself to sell to Dy Lot No. 491-A-3-B-2 covered by TCT No. 78086 for P7,213,000.[6] On
September 5, 1991, a Deed of Absolute Sale[7] in favor of WHI was issued, under which Lot No. 491-A-3-B-2 covered by TCT No. 78086 was sold for P5,000,000, receipt of
which was acknowledged by Roxas under the following terms and conditions:

The Vendor agree (sic), as it hereby agrees and binds itself to give Vendee the beneficial use of and a right of way from Sumulong Highway to the property herein
conveyed consists of 25 square meters wide to be used as the latters egress from and ingress to and an additional 25 square meters in the corner of Lot No. 491-A-3-
B-1, as turning and/or maneuvering area for Vendees vehicles.

The Vendor agrees that in the event that the right of way is insufficient for the Vendees use (ex entry of a 45-foot container) the Vendor agrees to sell additional
square meters from its current adjacent property to allow the Vendee full access and full use of the property.
 The Vendor hereby undertakes and agrees, at its account, to defend the title of the Vendee to the parcel of land and improvements herein conveyed, against all claims
of any and all persons or entities, and that the Vendor hereby warrants the right of the Vendee to possess and own the said parcel of land and improvements thereon
and will defend the Vendee against all present and future claims and/or action in relation thereto, judicial and/or administrative. In particular, the Vendor shall eject
all existing squatters and occupants of the premises within two (2) weeks from the signing hereof. In case of failure on the part of the Vendor to eject all occupants
and squatters within the two-week period or breach of any of the stipulations, covenants and terms and conditions herein provided and that of contract to sell dated 1
July 1991, the Vendee shall have the right to cancel the sale and demand reimbursement for all payments made to the Vendor with interest thereon at 36% per
annum.[8]

On September 10, 1991, the Wimbeco Builders, Inc. (WBI) submitted its quotation for P8,649,000 to WHI for the construction of the warehouse building on a portion of the
property with an area of 5,088 square meters.[9] WBI proposed to start the project on October 1, 1991 and to turn over the building to WHI on February 29, 1992.[10]

In a Letter dated September 16, 1991, Ponderosa Leather Goods Company, Inc. confirmed its lease agreement with WHI of a 5,000-square-meter portion of the warehouse
yet to be constructed at the rental rate of P65 per square meter. Ponderosa emphasized the need for the warehouse to be ready for occupancy before April 1, 1992. [11] WHI accepted
the offer. However, WBI failed to commence the construction of the warehouse in October 1, 1991 as planned because of the presence of squatters in the property and suggested a
renegotiation of the contract after the squatters shall have been evicted.[12] Subsequently, the squatters were evicted from the property.

On March 31, 1992, WHI and WBI executed a Letter-Contract for the construction of the warehouse building for P11,804,160.[13] The contractor started construction in
April 1992 even before the building officials of Antipolo City issued a building permit on May 28, 1992. After the warehouse was finished, WHI issued on March 21, 1993 a
certificate of occupancy by the building official. Earlier, or on March 18, 1993, WHI, as lessor, and Ponderosa, as lessee, executed a contract of lease over a portion of the property
for a monthly rental of P300,000 for a period of three years from March 1, 1993 up to February 28, 1996.[14]

In the meantime, WHI complained to Roberto Roxas that the vehicles of RECCI were parked on a portion of the property over which WHI had been granted a right of
way.Roxas promised to look into the matter. Dy and Roxas discussed the need of the WHI to buy a 500-square-meter portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085
as provided for in the deed of absolute sale. However, Roxas died soon thereafter. On April 15, 1992, the WHI wrote the RECCI, reiterating its verbal requests to purchase a
portion of the said lot as provided for in the deed of absolute sale, and complained about the latters failure to eject the squatters within the three-month period agreed upon in the
said deed.

The WHI demanded that the RECCI sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 for its beneficial use within 72 hours from notice thereof, otherwise
the appropriate action would be filed against it. RECCI rejected the demand of WHI. WHI reiterated its demand in a Letter dated May 29, 1992. There was no response from
RECCI.
 On June 17, 1992, the WHI filed a complaint against the RECCI with the Regional Trial Court of Makati, for specific performance and damages, and alleged, inter alia, the
following in its complaint:

5. The current adjacent property referred to in the aforequoted paragraph of the Deed of Absolute Sale pertains to the property covered by Transfer Certificate of
Title No. N-78085 of the Registry of Deeds of Antipolo, Rizal, registered in the name of herein defendant Roxas Electric.

6. Defendant Roxas Electric in patent violation of the express and valid terms of the Deed of Absolute Sale unjustifiably refused to deliver to Woodchild Holdings
the stipulated beneficial use and right of way consisting of 25 square meters and 55 square meters to the prejudice of the plaintiff.

7. Similarly, in as much as the 25 square meters and 55 square meters alloted to Woodchild Holdings for its beneficial use is inadequate as turning and/or
maneuvering area of its 45-foot container van, Woodchild Holdings manifested its intention pursuant to para. 5 of the Deed of Sale to purchase additional square
meters from Roxas Electric to allow it full access and use of the purchased property, however, Roxas Electric refused and failed to merit Woodchild Holdings
request contrary to defendant Roxas Electrics obligation under the Deed of Absolute Sale (Annex A).

8. Moreover, defendant, likewise, failed to eject all existing squatters and occupants of the premises within the stipulated time frame and as a consequence thereof,
plaintiffs planned construction has been considerably delayed for seven (7) months due to the squatters who continue to trespass and obstruct the subject property,
thereby Woodchild Holdings incurred substantial losses amounting to P3,560,000.00 occasioned by the increased cost of construction materials and labor.

9. Owing further to Roxas Electrics deliberate refusal to comply with its obligation under Annex A, Woodchild Holdings suffered unrealized income of P300,000.00
a month or P2,100,000.00 supposed income from rentals of the subject property for seven (7) months.

10. On April 15, 1992, Woodchild Holdings made a final demand to Roxas Electric to comply with its obligations and warranties under the Deed of Absolute Sale
but notwithstanding such demand, defendant Roxas Electric refused and failed and continue to refuse and fail to heed plaintiffs demand for compliance.

Copy of the demand letter dated April 15, 1992 is hereto attached as Annex B and made an integral part hereof.

11. Finally, on 29 May 1991, Woodchild Holdings made a letter request addressed to Roxas Electric to particularly annotate on Transfer Certificate of Title No. N-
78085 the agreement under Annex A with respect to the beneficial use and right of way, however, Roxas Electric unjustifiably ignored and disregarded the same.
Copy of the letter request dated 29 May 1992 is hereto attached as Annex C and made an integral part hereof.

12. By reason of Roxas Electrics continuous refusal and failure to comply with Woodchild Holdings valid demand for compliance under Annex A, the latter was
constrained to litigate, thereby incurring damages as and by way of attorneys fees in the amount of P100,000.00 plus costs of suit and expenses of litigation.[15]

The WHI prayed that, after due proceedings, judgment be rendered in its favor, thus:

WHEREFORE, it is respectfully prayed that judgment be rendered in favor of Woodchild Holdings and ordering Roxas Electric the following:

a) to deliver to Woodchild Holdings the beneficial use of the stipulated 25 square meters and 55 square meters;

b) to sell to Woodchild Holdings additional 25 and 100 square meters to allow it full access and use of the purchased property pursuant to para. 5 of
the Deed of Absolute Sale;

c) to cause annotation on Transfer Certificate of Title No. N-78085 the beneficial use and right of way granted to Woodchild Holdings under the Deed
of Absolute Sale;

d) to pay Woodchild Holdings the amount of P5,660,000.00, representing actual damages and unrealized income;

e) to pay attorneys fees in the amount of P100,000.00; and

f) to pay the costs of suit.

Other reliefs just and equitable are prayed for.[16]

 In its answer to the complaint, the RECCI alleged that it never authorized its former president, Roberto Roxas, to grant the beneficial use of any portion of Lot No. 491-A-
3-B-1, nor agreed to sell any portion thereof or create a lien or burden thereon. It alleged that, under the Resolution approved on May 17, 1991, it merely authorized Roxas to sell
Lot No. 491-A-3-B-2 covered by TCT No. 78086. As such, the grant of a right of way and the agreement to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 in
the said deed are ultra vires. The RECCI further alleged that the provision therein that it would sell a portion of Lot No. 491-A-3-B-1 to the WHI lacked the essential elements of a
binding contract.[17]

In its amended answer to the complaint, the RECCI alleged that the delay in the construction of its warehouse building was due to the failure of the WHIs contractor to
secure a building permit thereon.[18]

During the trial, Dy testified that he told Roxas that the petitioner was buying a portion of Lot No. 491-A-3-B-1 consisting of an area of 500 square meters, for the price
of P1,000 per square meter.

On November 11, 1996, the trial court rendered judgment in favor of the WHI, the decretal portion of which reads:

WHEREFORE, judgment is hereby rendered directing defendant:

(1) To allow plaintiff the beneficial use of the existing right of way plus the stipulated 25 sq. m. and 55 sq. m.;

(2) To sell to plaintiff an additional area of 500 sq. m. priced at P1,000 per sq. m. to allow said plaintiff full access and use of the purchased property pursuant to Par.
5 of their Deed of Absolute Sale;

(3) To cause annotation on TCT No. N-78085 the beneficial use and right of way granted by their Deed of Absolute Sale;

(4) To pay plaintiff the amount of P5,568,000 representing actual damages and plaintiffs unrealized income;

(5) To pay plaintiff P100,000 representing attorneys fees; and

To pay the costs of suit.

 SO ORDERED.[19]

The trial court ruled that the RECCI was estopped from disowning the apparent authority of Roxas under the May 17, 1991 Resolution of its Board of Directors. The court
reasoned that to do so would prejudice the WHI which transacted with Roxas in good faith, believing that he had the authority to bind the WHI relating to the easement of right of
way, as well as the right to purchase a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085.

The RECCI appealed the decision to the CA, which rendered a decision on November 9, 1999 reversing that of the trial court, and ordering the dismissal of the
complaint.The CA ruled that, under the resolution of the Board of Directors of the RECCI, Roxas was merely authorized to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086,
but not to grant right of way in favor of the WHI over a portion of Lot No. 491-A-3-B-1, or to grant an option to the petitioner to buy a portion thereof. The appellate court also
ruled that the grant of a right of way and an option to the respondent were so lopsided in favor of the respondent because the latter was authorized to fix the location as well as the
price of the portion of its property to be sold to the respondent. Hence, such provisions contained in the deed of absolute sale were not binding on the RECCI. The appellate court
ruled that the delay in the construction of WHIs warehouse was due to its fault.

The Present Petition

The petitioner now comes to this Court asserting that:

I.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ABSOLUTE SALE (EXH. C) IS ULTRA VIRES.

II.
THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING OF THE COURT A QUO ALLOWING THE PLAINTIFF-APPELLEE THE
BENEFICIAL USE OF THE EXISTING RIGHT OF WAY PLUS THE STIPULATED 25 SQUARE METERS AND 55 SQUARE METERS BECAUSE THESE
ARE VALID STIPULATIONS AGREED BY BOTH PARTIES TO THE DEED OF ABSOLUTE SALE (EXH. C).
 III.
THERE IS NO FACTUAL PROOF OR EVIDENCE FOR THE COURT OF APPEALS TO RULE THAT THE STIPULATIONS OF THE DEED OF ABSOLUTE
SALE (EXH. C) WERE DISADVANTAGEOUS TO THE APPELLEE, NOR WAS APPELLEE DEPRIVED OF ITS PROPERTY WITHOUT DUE PROCESS.

IV.
IN FACT, IT WAS WOODCHILD WHO WAS DEPRIVED OF PROPERTY WITHOUT DUE PROCESS BY THE ASSAILED DECISION.

V.
THE DELAY IN THE CONSTRUCTION WAS DUE TO THE FAILURE OF THE APPELLANT TO EVICT THE SQUATTERS ON THE LAND AS AGREED
IN THE DEED OF ABSOLUTE SALE (EXH. C).

VI.
THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING OF THE COURT A QUO DIRECTING THE DEFENDANT TO PAY THE
PLAINTIFF THE AMOUNT OF P5,568,000.00 REPRESENTING ACTUAL DAMAGES AND PLAINTIFFS UNREALIZED INCOME AS WELL AS
ATTORNEYS FEES.[20]

The threshold issues for resolution are the following: (a) whether the respondent is bound by the provisions in the deed of absolute sale granting to the petitioner beneficial use and
a right of way over a portion of Lot
No. 491-A-3-B-1 accessing to the Sumulong Highway and granting the option to the petitioner to buy a portion thereof, and, if so, whether such agreement is enforceable against
the respondent; (b) whether the respondent failed to eject the squatters on its property within two weeks from the execution of the deed of absolute sale; and, (c) whether the
respondent is liable to the petitioner for damages.

On the first issue, the petitioner avers that, under its Resolution of May 17, 1991, the respondent authorized Roxas, then its president, to grant a right of way over a portion of Lot
No. 491-A-3-B-1 in favor of the petitioner, and an option for the respondent to buy a portion of the said property. The petitioner contends that when the respondent sold Lot No.
491-A-3-B-2 covered by TCT No. 78086, it (respondent) was well aware of its obligation to provide the petitioner with a means of ingress to or egress from the property to the
Sumulong Highway, since the latter had no adequate outlet to the public highway. The petitioner asserts that it agreed to buy the property covered by TCT No. 78085 because of
the grant by the respondent of a right of way and an option in its favor to buy a portion of the property covered by TCT No. 78085. It contends that the respondent never objected
to Roxas acceptance of its offer to purchase the property and the terms and conditions therein; the respondent even allowed Roxas to execute the deed of absolute sale in its
behalf. The petitioner asserts that the respondent even received the purchase price of the property without any objection to the terms and conditions of the said deed of sale. The
petitioner claims that it acted in good faith, and contends that after having been benefited by the said sale, the respondent is estopped from assailing its terms and conditions. The
petitioner notes that the respondents Board of Directors never approved any resolution rejecting the deed of absolute sale executed by Roxas for and in its behalf. As such, the
respondent is obliged to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 with an area of 500 square meters at the price of P1,000 per square meter, based on its
evidence and Articles 649 and 651 of the New Civil Code.

For its part, the respondent posits that Roxas was not so authorized under the May 17, 1991 Resolution of its Board of Directors to impose a burden or to grant a right of way in
favor of the petitioner on Lot No. 491-A-3-B-1, much less convey a portion thereof to the petitioner. Hence, the respondent was not bound by such provisions contained in the deed
of absolute sale. Besides, the respondent contends, the petitioner cannot enforce its right to buy a portion of the said property since there was no agreement in the deed of absolute
sale on the price thereof as well as the specific portion and area to be purchased by the petitioner.

We agree with the respondent.

In San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals,[21] we held that:

A corporation is a juridical person separate and distinct from its stockholders or members. Accordingly, the property of the corporation is not the property of its
stockholders or members and may not be sold by the stockholders or members without express authorization from the corporations board of directors. Section 23 of
BP 68, otherwise known as the Corporation Code of the Philippines, provides:

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

Indubitably, a corporation may act only through its board of directors or, when authorized either by its by-laws or by its board resolution, through its officers
or agents in the normal course of business. The general principles of agency govern the relation between the corporation and its officers or agents, subject to the
articles of incorporation, by-laws, or relevant provisions of law. [22]

Generally, the acts of the corporate officers within the scope of their authority are binding on the corporation. However, under Article 1910 of the New Civil Code, acts done by
such officers beyond the scope of their authority cannot bind the corporation unless it has ratified such acts expressly or tacitly, or is estopped from denying them:
 Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly.

Thus, contracts entered into by corporate officers beyond the scope of authority are unenforceable against the corporation unless ratified by the corporation.[23]

In BA Finance Corporation v. Court of Appeals,[24] we also ruled that persons dealing with an assumed agency, whether the assumed agency be a general or special one, are
bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the
burden of proof is upon them to establish it.

In this case, the respondent denied authorizing its then president Roberto B. Roxas to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085, and to create a lien or
burden thereon. The petitioner was thus burdened to prove that the respondent so authorized Roxas to sell the same and to create a lien thereon.

Central to the issue at hand is the May 17, 1991 Resolution of the Board of Directors of the respondent, which is worded as follows:

RESOLVED, as it is hereby resolved, that the corporation, thru the President, sell to any interested buyer, its 7,213-sq.-meter property at the Sumulong Highway,
Antipolo, Rizal, covered by Transfer Certificate of Title No. N-78086, at a price and on terms and conditions which he deems most reasonable and advantageous to
the corporation;

FURTHER RESOLVED, that Mr. ROBERTO B. ROXAS, President of the corporation, be, as he is hereby authorized to execute, sign and deliver the pertinent sales
documents and receive the proceeds of sale for and on behalf of the company.[25]

Evidently, Roxas was not specifically authorized under the said resolution to grant a right of way in favor of the petitioner on a portion of Lot No. 491-A-3-B-1 or to agree to sell to
the petitioner a portion thereof. The authority of Roxas, under the resolution, to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086 did not include the authority to sell a portion
of the adjacent lot, Lot No. 491-A-3-B-1, or to create or convey real rights thereon. Neither may such authority be implied from the authority granted to Roxas to sell Lot No. 491-
A-3-B-2 to the petitioner on such terms and conditions which he deems most reasonable and advantageous. Under paragraph 12, Article 1878 of the New Civil Code, a special
power of attorney is required to convey real rights over immovable property. [26] Article 1358 of the New Civil Code requires that contracts which have for their object the creation
of real rights over immovable property must appear in a public document. [27] The petitioner cannot feign ignorance of the need for Roxas to have been specifically authorized in
writing by the Board of Directors to be able to validly grant a right of way and agree to sell a portion of Lot No. 491-A-3-B-1. The rule is that if the act of the agent is one which
requires authority in writing, those dealing with him are charged with notice of that fact.[28]

Powers of attorney are generally construed strictly and courts will not infer or presume broad powers from deeds which do not sufficiently include property or subject under
which the agent is to deal.[29] The general rule is
that the power of attorney must be pursued within legal strictures, and the agent can neither go beyond it; nor beside it. The act done must be legally identical with that authorized
to be done.[30] In sum, then, the consent of the respondent to the assailed provisions in the deed of absolute sale was not obtained; hence, the assailed provisions are not binding on
it.

We reject the petitioners submission that, in allowing Roxas to execute the contract to sell and the deed of absolute sale and failing to reject or disapprove the same, the
respondent thereby gave him apparent authority to grant a right of way over Lot No. 491-A-3-B-1 and to grant an option for the respondent to sell a portion thereof to the
petitioner. Absent estoppel or ratification, apparent authority cannot remedy the lack of the written power required under the statement of frauds. [31] In addition, the petitioners
fallacy is its wrong assumption of the unproved premise that the respondent had full knowledge of all the terms and conditions contained in the deed of absolute sale when Roxas
executed it.

It bears stressing that apparent authority is based on estoppel and can arise from two instances: first, the principal may knowingly permit the agent to so hold himself out as
having such authority, and in this way, the principal becomes estopped to claim that the agent does not have such authority; second, the principal may so clothe the agent with the
indicia of authority as to lead a reasonably prudent person to believe that he actually has such authority. [32] There can be no apparent authority of an agent without acts or conduct
on the part of the principal and such acts or conduct of the principal must have been known and relied upon in good faith and as a result of the exercise of reasonable prudence by a
third person as claimant and such must have produced a change of position to its detriment. The apparent power of an agent is to be determined by the acts of the principal and not
by the acts of the agent.[33]

For the principle of apparent authority to apply, the petitioner was burdened to prove the following: (a) the acts of the respondent justifying belief in the agency by the
petitioner; (b) knowledge thereof by the respondent which is sought to be held; and, (c) reliance thereon by the petitioner consistent with ordinary care and prudence. [34] In this
case, there is no evidence on record of specific acts made by the respondent [35] showing or indicating that it had full knowledge of any representations made by Roxas to the
petitioner that the respondent had authorized him to grant to the respondent an option to buy a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085, or to create a burden or
lien thereon, or that the respondent allowed him to do so.
 The petitioners contention that by receiving and retaining the P5,000,000 purchase price of Lot No. 491-A-3-B-2, the respondent effectively and impliedly ratified the grant
of a right of way on the adjacent lot, Lot No. 491-A-3-B-1, and to grant to the petitioner an option to sell a portion thereof, is barren of merit. It bears stressing that the respondent
sold Lot No. 491-A-3-B-2 to the petitioner, and the latter had taken possession of the property. As such, the respondent had the right to retain the P5,000,000, the purchase price of
the property it had sold to the petitioner. For an act of the principal to be considered as an implied ratification of an unauthorized act of an agent, such act must be inconsistent with
any other hypothesis than that he approved and intended to adopt what had been done in his name. [36] Ratification is based on waiver the intentional relinquishment of a known
right. Ratification cannot be inferred from acts that a principal has a right to do independently of the unauthorized act of the agent. Moreover, if a writing is required to grant an
authority to do a particular act, ratification of that act must also be in writing. [37] Since the respondent had not ratified the unauthorized acts of Roxas, the same are unenforceable.
[38]
Hence, by the respondents retention of the amount, it cannot thereby be implied that it had ratified the unauthorized acts of its agent, Roberto Roxas.

On the last issue, the petitioner contends that the CA erred in dismissing its complaint for damages against the respondent on its finding that the delay in the construction of
its warehouse was due to its (petitioners) fault. The petitioner asserts that the CA should have affirmed the ruling of the trial court that the respondent failed to cause the eviction of
the squatters from the property on or before September 29, 1991; hence, was liable for P5,660,000. The respondent, for its part, asserts that the delay in the construction of the
petitioners warehouse was due to its late filing of an application for a building permit, only on May 28, 1992.

The petitioners contention is meritorious. The respondent does not deny that it failed to cause the eviction of the squatters on or before September 29, 1991. Indeed, the
respondent does not deny the fact that when the petitioner wrote the respondent demanding that the latter cause the eviction of the squatters on April 15, 1992, the latter were still
in the premises. It was only after receiving the said letter in April 1992 that the respondent caused the eviction of the squatters, which thus cleared the way for the petitioners
contractor to commence the construction of its warehouse and secure the appropriate building permit therefor.

The petitioner could not be expected to file its application for a building permit before April 1992 because the squatters were still occupying the property. Because of the
respondents failure to cause their eviction as agreed upon, the petitioners contractor failed to commence the construction of the warehouse in October 1991 for the agreed price
of P8,649,000. In the meantime, costs of construction materials spiraled. Under the construction contract entered into between the petitioner and the contractor, the petitioner was
obliged to pay P11,804,160,[39] including the additional work costing P1,441,500, or a net increase of P1,712,980.[40] The respondent is liable for the difference between the original
cost of construction and the increase thereon, conformably to Article 1170 of the New Civil Code, which reads:

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor
thereof, are liable for damages.
 The petitioner, likewise, lost the amount of P3,900,000 by way of unearned income from the lease of the property to the Ponderosa Leather Goods Company. The
respondent is, thus, liable to the petitioner for the said amount, under Articles 2200 and 2201 of the New Civil Code:

Art. 2200. Indemnification for damages shall comprehend not only the value of the loss suffered, but also that of the profits which the obligee failed to
obtain.

Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and
probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was
constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-
performance of the obligation.

In sum, we affirm the trial courts award of damages and attorneys fees to the petitioner.

IN LIGHT OF ALL THE FOREGOING, judgment is hereby rendered AFFIRMING the assailed Decision of the Court of Appeals WITH MODIFICATION. The
respondent is ordered to pay to the petitioner the amount of P5,612,980 by way of actual damages and P100,000 by way of attorneys fees. No costs.

SO ORDERED.
9. MA. BELEN FLORDELIZA C. G.R. No. 178511
ANG-ABAYA, FRANCIS JASON
A. ANG, HANNAH ZORAYDA A.
ANG, and VICENTE G. GENATO,
Petitioners, Present:
Ynares-Santiago, J. (Chairperson),
- versus - Austria-Martinez,
Carpio Morales,*
 Chico-Nazario, and
Reyes, JJ.
EDUARDO G. ANG,
Respondent. Promulgated:

December 4, 2008
x ---------------------------------------------------------------------------------------- x

DECISION

YNARES-SANTIAGO, J.:

This Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court assails the March 6, 2007 Decision [2] of the Court of Appeals in CA-G.R. SP No. 94708, which
nullified and set aside the July 26, 2005 and March 29, 2006 Resolutions[3] of the Secretary of Justice in I.S. No. MAL-2004-1167 directing the withdrawal of the information filed
against petitioners for violation of Section 74 of the Corporation Code. Also assailed is the June 19, 2007 Resolution[4] denying the Motion for Reconsideration.

Vibelle Manufacturing Corporation (VMC) and Genato Investments, Inc. (Genato) (collectively referred to as the corporations) are family-owned corporations, where
petitioners Ma. Belen Flordeliza C. Ang-Abaya (Flordeliza), Francis Jason A. Ang (Jason), Vincent G. Genato (Vincent), Hanna Zorayda A. Ang (Hanna) and private respondent
Eduardo G. Ang (Eduardo) are shareholders, officers and members of the board of directors.

Prior to the instant controversy, VMC, Genato, and Oriana Manufacturing Corporation (Oriana) filed Civil Case No. 4257-MC, which is a case for damages with prayer for
issuance of a temporary restraining order (TRO) and/or writ of preliminary injunction against herein respondent Eduardo, together with Michael Edward Chi Ang (Michael), and
some other persons for allegedly conniving to fraudulently wrest control/management of the corporations. [5] Eduardo allegedly borrowed substantial amounts of money from the
said corporations without any intention to repay; that he repeatedly demanded for increases in his monthly allowance and for more cash advances contrary to existing corporate
policies; that he harassed petitioner Flordeliza to transfer and/or sell certain corporate and personal properties in order to pay off his personal obligations; that he attempted to
forcibly evict petitioner Jason from his office and claim it as his own; that he interfered with and disrupted the daily business operations of the corporations; that Michael was
placed on preventive suspension due to prolonged absence without leave and commission of acts of disloyalty such as carrying out orders of Eduardo which were detrimental to
their business, using privileged information and confidential documents/data obtained in his capacity as Vice President of the corporations, and admitting to have sabotaged their
distribution system and operations.

During the pendency of Civil Case No. 4257-MC, particularly in July, 2004, Eduardo sought permission to inspect the corporate books of VMC and Genato on account of
petitioners alleged failure and/or refusal to update him on the financial and business activities of these family corporations. [6] Petitioners denied the request claiming that Eduardo
would use the information obtained from said inspection for purposes inimical to the corporations interests, considering that: a) he is harassing and/or bullying the Corporation[s]
into writing off P165,071,586.55 worth of personal advances which he had unlawfully obtained in the past; b) he is unjustly demanding that he be given the office currently
occupied by Mr. Francis Jason Ang, the Vice-President for Finance and Corporate Secretary; c) he is usurping the rights belonging exclusively to the Corporation; and d) he is
coercing and/or trying to inveigle the Directors and/or Officers of the Corporation to give in to his baseless demands involving specific corporate assets.[7]

Because of petitioners refusal to grant his request to inspect the corporate books of VMC and Genato, Eduardo filed an Affidavit-Complaint [8] against petitioners Flordeliza
and Jason, charging them with violation (two counts) of Section 74, in relation to Section 144, of the Corporation Code of the Philippines. [9] Ma. Belinda G. Sandejas (Belinda),
Vincent, and Hanna were subsequently impleaded for likewise denying respondents request to inspect the corporate books.

Petitioners filed a Joint Counter-Affidavit praying for the dismissal of the complaint for lack of factual and legal basis, or for the suspension of the same while Civil Case
No. 4257-MC is still pending resolution.[10] They denied violating Section 74 of the Corporation Code and reiterated the allegations contained in their complaint in Civil Case No.
4257-MC. Petitioners blamed Eduardos lavish lifestyle, which is funded by personal loans and cash advances from the family corporations. They alleged that Eduardo consistently
pressured petitioner Flordeliza, his daughter, to improperly transfer ownership of the corporations V.A.G. Building to him; [11] to disregard the company policy prohibiting advances
by shareholders; to unduly increase his corporate monthly allowance; and to sell her Wack-Wack Golf proprietary share and use the proceeds thereof to pay his personal financial
obligations. When the proposed transfer of the V.A.G. Building did not materialize, petitioners claim that Eduardo instituted an action to compel the donation of said property to
him.[12] Furthermore, they claim that Eduardo attempted to forcibly evict petitioner Jason from his office at VMC so he can occupy the same; that Eduardo and his cohorts
constantly created trouble by intervening in the daily operations of the corporations without the knowledge or consent of the board of directors.

Meanwhile, in Civil Case No. 4257-MC, the trial court rendered a Decision granting the permanent injunction applied for by the corporations. [13] However, the Court of
Appeals subsequently rendered a Decision[14] declaring that Eduardo, his son Michael, and the other persons impleaded in Civil Case No. 4257-MC, were imprudently declared in
default by the trial court. The appellate court thus annulled the permanent injunction issued by the trial court and remanded the case for further proceedings. VMC, Genato, and
Oriana corporations filed a Petition for Review on Certiorari before this Court, but the same was denied for failure to sufficiently show any reversible error in the Decision of the
Court of Appeals.[15] The three corporations filed a Motion for Reconsideration, but the same was denied with finality on June 25, 2008.

Meanwhile, on February 3, 2005, the City Prosecutors Office of Malabon City issued a Resolution [16] recommending that petitioners be charged with two counts of violation
of Section 74 of the Corporation Code, but dismissed the complaint against Belinda for lack of evidence. [17] Petitioners filed a Petition for Review[18] before the Department of
Justice (DOJ), which reversed the recommendation of the City Prosecutor of Malabon City.[19] The dispositive portion of the DOJ Resolution dated July 26, 2005, reads:

Wherefore, premises considered, the assailed resolution is REVERSED and SET ASIDE. The City Prosecutor of Malabon City is hereby directed to cause
the withdrawal of the corresponding information filed against respondents [herein petitioners] for violation of Section 74 of the Corporation Code of the Philippines
and to report the action taken thereon within ten (10) days from the receipt hereof.

SO ORDERED.[20]
The DOJ denied Eduardos Motion for Reconsideration[21] in a Resolution[22] dated March 29, 2006. On appeal, the Court of Appeals rendered the assailed Decision, the dispositive
portion of which states:

WHEREFORE, the instant petition is partially GRANTED. The assailed Resolutions of public respondent dated July 26, 2005 and March 29, 2006 are
hereby NULLIFIED and SET ASIDE. However, due to the present existence of a prejudicial question, the criminal case docketed I.S. No. MAL-2004-1167 is
hereby SUSPENDED until Civil Case No. 4257-MC is decided on the merits with finality. [23]

The appellate court ruled that the Secretary of Justice committed grave abuse of discretion amounting to lack or excess of jurisdiction in reversing the Resolutions of the Malabon
City Prosecutor and in finding that Eduardo did not act in good faith when he demanded for the examination of VMC and Genatos corporate books. It further held that Eduardo can
demand said examination as a stockholder of both corporations; that Eduardo raised legitimate questions that necessitated inspection of the corporate books and records; and that
petitioners refusal to allow inspection created probable cause to believe that they have committed a violation of Section 74 of the Corporation Code.
On June 19, 2007, the Court of Appeals denied the Motions for Reconsideration filed by petitioners and the Secretary of Justice.[24] Hence, this petition raising the following issues:

WHETHER OR NOT THE HONORABLE COURT OF APPEALS WAS CORRECT IN ITS FINDING THAT THE HONORABLE JUSTICE SECRETARYS
REVERSAL OF THE MALABON CITY PROSECUTORS RESOLUTION FINDING PROBABLE CAUSE AGAINST HEREIN PETITIONERS WAS DONE
CONTRARY TO THE APPLICABLE LAW AND JURISPRUDENCE TANTAMOUNT TO GRAVE ABUSE OF DISCRETION.

WHETHER OR NOT THE HONORABLE JUSTICE SECRETARY COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS
OF JURISDICTION IN REVERSING THE RESOLUTION OF THE MALABON CITY PROSECUTOR FINDING PROBABLE CAUSE AGAINST
PETITIONERS AFTER PRELIMINARY INVESTIGATION FOR VIOLATION OF SECTION 74 OF THE CORPORATION CODE OF THE PHILIPPINES.

WHETHER OR NOT THE HONORABLE JUSTICE SECRETARY COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS
OF JURISDICTION IN FINDING THAT PETITIONERS ACTED IN GOOD FAITH WHEN THEY DENIED PRIVATE RESPONDENTS DEMAND FOR
INSPECTION OF CORPORATE BOOKS.[25]

We grant the petition.

Probable cause, for purposes of filing a criminal information, has been defined as such facts as are sufficient to engender a well-founded belief that a crime has been
committed and that respondent is probably guilty thereof. It is such a state of facts in the mind of the prosecutor as would lead a person of ordinary caution and prudence to believe
or entertain an honest or strong suspicion that a thing is so. The term does not mean actual or positive cause; nor does it import absolute certainty. It is merely based on opinion
and reasonable belief. Thus, a finding of probable cause does not require an inquiry into whether there is sufficient evidence to procure a conviction. It is enough that it is believed
that the act or omission complained of constitutes the offense charged. Precisely, there is a trial for the reception of prosecutions evidence in support of the charge.[26]
 The determination of the existence of probable cause lies within the discretion of the prosecuting officers after conducting a preliminary investigation upon complaint of an
offended party. Their decisions are reviewable by the Secretary of Justice who may direct the filing of the corresponding information or to move for the dismissal of the case.[27]

In reversing the Resolutions of the Secretary of Justice directing the withdrawal of the information filed against petitioners for lack of probable cause, the Court of Appeals
held that it was beyond the Secretary of Justices authority to determine the motives of Eduardo in seeking an inspection of the corporations books and papers.

In order that probable cause to file a criminal case may be arrived at, or in order to engender the well-founded belief that a crime has been committed, the elements of the
crime charged should be present.[28] This is based on the principle that every crime is defined by its elements, without which there should be at the most no criminal offense.

In Gokongwei, Jr. v. Securities and Exchange Commission,[29] this Court explained the rationale behind a stockholder's right to inspect corporate books, to wit:

The stockholder's right of inspection of the corporation's books and records is based upon their ownership of the assets and property of the corporation. It is,
therefore, an incident of ownership of the corporate property, whether this ownership or interest be termed an equitable ownership, a beneficial ownership, or a
quasi-ownership. This right is predicated upon the necessity of self-protection. It is generally held by majority of the courts that where the right is granted by statute
to the stockholder, it is given to him as such and must be exercised by him with respect to his interest as a stockholder and for some purpose germane thereto or in
the interest of the corporation. In other words, the inspection has to be germane to the petitioner's interest as a stockholder, and has to be proper and lawful
in character and not inimical to the interest of the corporation.[30]

In Republic v. Sandiganbayan,[31] the Court declared that the right to inspect and/or examine the records of a corporation under Section 74 of the Corporation Code is
circumscribed by the express limitation contained in the succeeding proviso, which states that:

[I]t shall be a defense to any action under this section that the person demanding to examine and copy excerpts from the corporation's records and minutes has
improperly used any information secured through any prior examination of the records or minutes of such corporation or of any other corporation, or was not
acting in good faith or for a legitimate purpose in making his demand. (Emphasis supplied)

Thus, contrary to Eduardos insistence, the stockholders right to inspect corporate books is not without limitations. While the right of inspection was enlarged under the
Corporation Code as opposed to the old Corporation Law (Act No. 1459, as amended),

It is now expressly required as a condition for such examination that the one requesting it must not have been guilty of using improperly any information secured
through a prior examination, or that the person asking for such examination must be acting in good faith and for a legitimate purpose in making his demand.
[32]
(Emphasis supplied)
 In order therefore for the penal provision under Section 144 of the Corporation Code to apply in a case of violation of a stockholder or members right to inspect the
corporate books/records as provided for under Section 74 of the Corporation Code, the following elements must be present:

First. A director, trustee, stockholder or member has made a prior demand in writing for a copy of excerpts from the corporations records or minutes;

Second. Any officer or agent of the concerned corporation shall refuse to allow the said director, trustee, stockholder or member of the corporation to
examine and copy said excerpts;

Third. If such refusal is made pursuant to a resolution or order of the board of directors or trustees, the liability under this section for such action shall be
imposed upon the directors or trustees who voted for such refusal; and,

Fourth. Where the officer or agent of the corporation sets up the defense that the person demanding to examine and copy excerpts from the corporations
records and minutes has improperly used any information secured through any prior examination of the records or minutes of such corporation or of any other
corporation, or was not acting in good faith or for a legitimate purpose in making his demand, the contrary must be shown or proved.

Thus, in a criminal complaint for violation of Section 74 of the Corporation Code, the defense of improper use or motive is in the nature of a justifying circumstance that
would exonerate those who raise and are able to prove the same. Accordingly, where the corporation denies inspection on the ground of improper motive or purpose, the burden of
proof is taken from the shareholder and placed on the corporation. [33] This being the case, it would be improper for the prosecutor, during preliminary investigation, to refuse or fail
to address the defense of improper use or motive, given its express statutory recognition. In the past we have declared that if justifying circumstances are claimed as a defense, they
should have at least been raised during preliminary investigation;[34] which settles the view that the consideration and determination of justifying circumstances as a defense is a
relevant subject of preliminary investigation.

A preliminary investigation is in effect a realistic judicial appraisal of the merits of the case; sufficient proof of the guilt of the criminal respondent must be adduced so that
when the case is tried, the trial court may not be bound, as a matter of law, to order an acquittal. [35] Although a preliminary investigation is not a trial and is not intended to usurp
the function of the trial court, it is not a casual affair; the officer conducting the same investigates or inquires into the facts concerning the commission of the crime with the end in
view of determining whether or not an information may be prepared against the accused. [36] After all, the purpose of preliminary investigation is not only to determine whether
there is sufficient ground to engender a well-founded belief that a crime has been committed and the respondent therein is probably guilty thereof and should be held for trial; it is
just as well for the purpose of securing the innocent against hasty, malicious and oppressive prosecution, and to protect him from an open and public accusation of a crime, from
the trouble, expense and anxiety of a public trial. [37] More importantly, in the appraisal of the case presented to him for resolution, the duty of a prosecutor is more to do justice and
less to prosecute.[38]

If the prosecutor is convinced during preliminary investigation of the validity of the respondents claim of a justifying circumstance, then he must dismiss the complaint; if
not, then he must file the requisite information. This is his discretion, the exercise of which we grant sufficient latitude.[39]

In the instant case, the Court finds that the Court of Appeals erred in declaring that the Secretary of Justice exceeded his authority when he conducted an inquiry on the
petitioners defense of improper use and motive on Eduardos part. As a necessary element in the offense of refusal to honor a stockholder/members right to inspect the corporate
books/records, it was incumbent upon the Secretary of Justice to determine that all the elements which constitute said offense are present, in line with our ruling in Duterte v.
Sandiganbayan.

A preliminary investigation is the crucial sieve in the criminal justice system which spells for an individual the difference between months if not years of agonizing trial and
possibly jail term, on the one hand, and peace of mind and liberty, on the other. Thus, we have characterized the right to a preliminary investigation as not a mere formal or
technical right but a substantive one, forming part of due process in criminal justice. [40] Due process, in the instant case, requires that an inquiry into the motive behind Eduardos
attempt at inspection should have been made even during the preliminary investigation stage, just as soon as petitioners set up the defense of improper use and motive.

Petitioners argue that Eduardos demand for an inspection of the corporations books is based on the latters attempt in bad faith at having his more than P165 million
advances from the corporations written off; that Eduardo is unjustly demanding that he be given the office of Jason, or the Vice Presidency for Finance and Corporate Secretary;
that Eduardo is usurping rights belonging exclusively to the corporations; and Eduardos attempts at coercing the corporations, their directors and officers into giving in to his
baseless demands involving specific corporate assets. Specifically, petitioners accuse Eduardo of the following:

1. He is a spendthrift, using the family corporations resources to sustain his extravagant lifestyle. During his incumbency as officer of VMC and Genato
(from 1984 to 2000), he was able to obtain massive amounts by way of cash advances from these corporations, amounting to more than P165 million;

2. He is exercising undue pressure upon petitioners in order to acquire ownership, through the forced execution of a deed of donation, over the VAG
Building in San Juan, which building belongs to Genato;

3. He is putting pressure on the corporations, through their directors and officers, for the latter to disregard their respective policies which prohibit the grant
of cash advances to stockholders.

4. At one time, he coerced Flordeliza for the latter to sell her Wack-Wack Golf Proprietary Share;

5. In May 2003, without the requisite authority, he called a stockholders meeting to demand an increase in his P140,000.00 monthly allowance from the
corporation to P250,000.00; demand a cash advance of US$10,000; and to demand that the corporations shoulder the medical and educational expenses of his family
as well as those of the other stockholders;

6. In November 2003, he demanded that he be given an office within the corporations premises. In December 2003, he stormed the corporations common
office, ordered the employees to vacate the premises, summoned the directors to a meeting, and there he berated them for not acting on his requests. In January
2004, he returned to the office, demanding the transfer of the Accounting Department and for Jason to vacate his office by the end of the month. He likewise left a
letter which contained his demands. At the end of January 2004, he returned, ordered the employees to leave the premises and demanded that Jason surrender his
office and vacate his desk. He did this no less than four (4) times. As a result, the respective boards of directors of the corporations resolved to ban him from the
corporate premises;

7. He has been interfering in the everyday operations of VMC and Genato, usurping the duties, rights and authority of the directors and officers thereof. He
attempted to lease out a warehouse within the VMC premises without the knowledge and consent of its directors and officers; during the wake of the former
President of VMC and Genato, he issued instructions for the employees to close down operations for the whole duration of the wake, against the corporate officers
instructions to attend the wake by batch, so as not to hamper business operations; he has caused chaos and confusion in VMC and Genato as a result;[41]
 8. He is out to sabotage the family corporations.[42]

These serious allegations are supported by official and other documents, such as board resolutions, treasurers affidavits and written communication from the respondent
Eduardo himself, who appears to have withheld his objections to these charges. His silence virtually amounts to an acquiescence. [43] Taken together, all these serve to justify
petitioners allegation that Eduardo was not acting in good faith and for a legitimate purpose in making his demand for inspection of the corporate books. Otherwise stated, there is
lack of probable cause to support the allegation that petitioners violated Section 74 of the Corporation Code in refusing respondents request for examination of the corporation
books.

WHEREFORE, the Petition for Review on Certiorari is GRANTED. The March 6, 2007 Decision and June 19, 2007 Resolution of the Court of Appeals in CA-G.R. SP
No. 94708 are REVERSED and SET ASIDE. The July 26, 2005 and March 29, 2006 Resolutions of the Secretary of Justice directing the withdrawal of the information filed
against petitioners for violation of Section 74 of the Corporation Code are accordingly REINSTATED and AFFIRMED.

SO ORDERED.

10. G.R. No. 146667 January 23, 2007

JOHN F. McLEOD, Petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION (First Division), FILIPINAS SYNTHETIC FIBER CORPORATION (FILSYN), FAR EASTERN TEXTILE
MILLS, INC., STA. ROSA TEXTILES, INC., (PEGGY MILLS, INC.), PATRICIO L. LIM, and ERIC HU, Respondents.

DECISION

CARPIO, J.:

The Case

This is a petition for review1 to set aside the Decision2 dated 15 June 2000 and the Resolution3 dated 27 December 2000 of the Court of Appeals in CA-G.R. SP No. 55130. The
Court of Appeals affirmed with modification the 29 December 1998 Decision4 of the National Labor Relations Commission (NLRC) in NLRC NCR 02-00949-95.

The Facts

The facts, as summarized by the Labor Arbiter and adopted by the NLRC and the Court of Appeals, are as follows:

On February 2, 1995, John F. McLeod filed a complaint for retirement benefits, vacation and sick leave benefits, non-payment of unused airline tickets, holiday pay, underpayment
of salary and 13th month pay, moral and exemplary damages, attorneys fees plus interest against Filipinas Synthetic Corporation (Filsyn), Far Eastern Textile Mills, Inc., Sta. Rosa
Textiles, Inc., Patricio Lim and Eric Hu.

In his Position Paper, complainant alleged that he is an expert in textile manufacturing process; that as early as 1956 he was hired as the Assistant Spinning Manager of Universal
Textiles, Inc. (UTEX); that he was promoted to Senior Manager and worked for UTEX till 1980 under its President, respondent Patricio Lim; that in 1978 Patricio Lim formed
Peggy Mills, Inc. with respondent Filsyn having controlling interest; that complainant was absorbed by Peggy Mills as its Vice President and Plant Manager of the plant at Sta.
Rosa, Laguna; that at the time of his retirement complainant was receiving P60,000.00 monthly with vacation and sick leave benefits; 13th month pay, holiday pay and two round
trip business class tickets on a Manila-London-Manila itinerary every three years which is convertible to cas[h] if unused; that in January 1986, respondents failed to pay vacation
and leave credits and requested complainant to wait as it was short of funds but the same remain unpaid at present; that complainant is entitled to such benefit as per CBA
provision (Annex "A"); that respondents likewise failed to pay complainants holiday pay up to the present; that complainant is entitled to such benefits as per CBA provision
(Annex "B"); that in 1989 the plant union staged a strike and in 1993 was found guilty of staging an illegal strike; that from 1989 to 1992 complainant was entitled to 4 round trip
business class plane tickets on a Manila-London-Manila itinerary but this benefit not (sic) its monetary equivalent was not given; that on August 1990 the respondents reduced
complainants monthly salary of P60,000.00 by P9,900.00 till November 1993 or a period of 39 months; that in 1991 Filsyn sold Peggy Mills, Inc. to Far Eastern Textile Mills, Inc.
as per agreement (Annex "D") and this was renamed as Sta. Rosa Textile with Patricio Lim as Chairman and President; that complainant worked for Sta. Rosa until November 30
that from time to time the owners of Far Eastern consulted with complainant on technical aspects of reoperation of the plant as per correspondence (Annexes "D-1" and "D-2");
that when complainant reached and applied retirement age at the end of 1993, he was only given a reduced 13th month pay of P44,183.63, leaving a balance of P15,816.87; that
thereafter the owners of Far Eastern Textiles decided for cessation of operations of Sta. Rosa Textiles; that on two occasions, complainant wrote letters (Annexes "E-1" to "E-2") to
Patricio Lim requesting for his retirement and other benefits; that in the last quarter of 1994 respondents offered complainant compromise settlement of only P300,000.00 which
complainant rejected; that again complainant wrote a letter (Annex "F") reiterating his demand for full payment of all benefits and to no avail, hence this complaint; and that he is
entitled to all his money claims pursuant to law.

On the other hand, respondents in their Position Paper alleged that complainant was the former Vice-President and Plant Manager of Peggy Mills, Inc.; that he was hired in June
1980 and Peggy Mills closed operations due to irreversible losses at the end of July 1992 but the corporation still exists at present; that its assets were acquired by Sta. Rosa Textile
Corporation which was established in April 1992 but still remains non-operational at present; that complainant was hired as consultant by Sta. Rosa Textile in November 1992 but
he resigned on November 30, 1993; that Filsyn and Far Eastern Textiles are separate legal entities and have no employer relationship with complainant; that respondent Patricio
Lim is the President and Board Chairman of Sta. Rosa Textile Corporation; that respondent Eric Hu is a Taiwanese and is Director of Sta. Rosa Textiles, Inc.; that complainant has
no cause of action against Filsyn, Far Eastern Textile Ltd., Sta. Rosa Textile Corporation and Eric Hu; that Sta. Rosa only acquired the assets and not the liabilities of Peggy Mills,
Inc.; that Patricio Lim was only impleaded as Board Chairman of Sta. Rosa Textile and not as private individual; that while complainant was Vice President and Plant Manager of
Peggy Mills, the union staged a strike up to July 1992 resulting in closure of operations due to irreversible losses as per Notice (Annex "1"); that complainant was relied upon to
settle the labor problem but due to his lack of attention and absence the strike continued resulting in closure of the company; and losses to Sta. Rosa which acquired its assets as per
their financial statements (Annexes "2" and "3"); that the attendance records of complainant from April 1992 to November 1993 (Annexes "4" and "5") show that he was either
absent or worked at most two hours a day; that Sta. Rosa and Peggy Mills are interposing counterclaims for damages in the total amount of P36,757.00 against complainant; that
complainants monthly salary at Peggy Mills was P50,495.00 and not P60,000.00; that Peggy Mills, does not have a retirement program; that whatever amount complainant is
entitled should be offset with the counterclaims; that complainant worked only for 12 years from 1980 to 1992; that complainant was only hired as a consultant and not an
employee by Sta. Rosa Textile; that complainants attendance record of absence and two hours daily work during the period of the strike wipes out any vacation/sick leave he may
have accumulated; that there is no basis for complainants claim of two (2) business class airline tickets; that complainants pay already included the holiday pay; that he is entitled
to holiday pay as consultant by Sta. Rosa; that he has waived this benefit in his 12 years of work with Peggy Mills; that he is not entitled to 13th month pay as consultant; and that
he is not entitled to moral and exemplary damages and attorneys fees.

In his Reply, complainant alleged that all respondents being one and the same entities are solidarily liable for all salaries and benefits and complainant is entitled to; that all
respondents have the same address at 12/F B.A. Lepanto Building, Makati City; that their counsel holds office in the same address; that all respondents have the same offices and
key personnel such as Patricio Lim and Eric Hu; that respondents Position Paper is verified by Marialen C. Corpuz who knows all the corporate officers of all respondents; that the
veil of corporate fiction may be pierced if it is used as a shield to perpetuate fraud and confuse legitimate issues; that complainant never accepted the change in his position from
Vice-President and Plant Manger to consultant and it is incumbent upon respondents to prove that he was only a consultant; that the Deed of Dation in Payment with Lease (Annex
"C") proves that Sta. Rosa took over the assets of Peggy Mills as early as June 15, 1992 and not 1995 as alleged by respondents; that complainant never resigned from his job but
applied for retirement as per letters (Annexes "E-1", "E-2" and "F"); that documents "G", "H" and "I" show that Eric Hu is a top official of Peggy Mills that the closure of Peggy
Mills cannot be the fault of complainant; that the strike was staged on the issue of CBA negotiations which is not part of the usual duties and responsibilities as Plant Manager; that
complainant is a British national and is prohibited by law in engaging in union activities; that as per Resolution (Annex "3") of the NLRC in the proper case, complainant testified
in favor of management; that the alleged attendance record of complainant was lifted from the logbook of a security agency and is hearsay evidence; that in the other attendance
record it shows that complainant was reporting daily and even on Saturdays; that his limited hours was due to the strike and cessation of operations; that as plant manager
complainant was on call 24 hours a day; that respondents must pay complainant the unpaid portion of his salaries and his retirement benefits that cash voucher No. 17015 (Annex
"K") shows that complainant drew the monthly salary of P60,000.00 which was reduced to P50,495.00 in August 1990 and therefore without the consent of complainant; that
complainant was assured that he will be paid the deduction as soon as the company improved its financial standing but this assurance was never fulfilled; that Patricio Lim
promised complainant his retirement pay as per the latters letters (Annexes "E-1", "E-2" and "F"); that the law itself provides for retirement benefits; that Patricio Lim by way of
Memorandum (Annex "M") approved vacation and sick leave benefits of 22 days per year effective 1986; that Peggy Mills required monthly paid employees to sign an
acknowledgement that their monthly compensation includes holiday pay; that complainant was not made to sign this undertaking precisely because he is entitled to holiday pay
over and above his monthly pay; that the company paid for complainants two (2) round trip tickets to London in 1983 and 1986 as reflected in the complainants passport (Annex
"N"); that respondents claim that complainant is not entitled to 13th month pay but paid in 1993 and all the past 13 years; that complainant is entitled to moral and exemplary
damages and attorneys fees; that all doubts must be resolved in favor of complainant; and that complainant reserved the right to file perjury cases against those concerned.

In their Reply, respondents alleged that except for Peggy Mills, the other respondents are not proper persons in interest due to the lack of employer-employee relationship between
them and complainant; that undersigned counsel does not represent Peggy Mills, Inc.

In a separate Position Paper, respondent Peggy Mills alleged that complainant was hired on February 10, 1991 as per Board Minutes (Annex "A"); that on August 19, 1987, the
workers staged an illegal strike causing cessation of operations on July 21, 1992; that respondent filed a Notice of Closure with the DOLE (Annex "B"); that all employees were
given separation pay except for complainant whose task was extended to December 31, 1992 to wind up the affairs of the company as per vouchers (Annexes "C" and "C-1"); that
respondent offered complainant his retirement benefits under RA 7641 but complainant refused; that the regular salaries of complainant from closure up to December 31, 1992
have offset whatever vacation and sick leaves he accumulated; that his claim for unused plane tickets from 1989 to 1992 has no policy basis, the companys formula of employees
monthly rate x 314 days over 12 months already included holiday pay; that complainants unpaid portion of the 13th month pay in 1993 has no basis because he was only an
employee up to December 31, 1992; that the 13th month pay was based on his last salary; and that complainant is not entitled to damages.5

On 3 April 1998, the Labor Arbiter rendered his decision with the following dispositive portion:

WHEREFORE, premises considered, We hold all respondents as jointly and solidarily liable for complainants money claims as adjudicated above and computed below as follows:

Retirement Benefits (one month salary for every year of service)

6/80 - 11/30/93 = 14 years

P60,000 x 14.0 mos. P840,000.00

Vacation and Sick Leave (3 yrs.)

P2,000.00 x 22 days x 3 yrs. 132,000.00

Underpayment of Salaries (3 yrs.)

P60,000 - P50,495 = P9,505

P 9,505 x 36.0 mos. ... 342,180.00

Holiday Pay (3 yrs.)

P2,000 x 30 days . 60,000.00

Underpayment of 13th month pay (1993) ... 15,816.87

 Moral Damages .. 3,000,000.00

Exemplary Damages .. 1,000,000.00

10% Attorneys Fees . 138,999.68

TOTAL P5,528,996.55

Unused Airline Tickets (3 yrs.)

(To be converted in Peso upon payment)

$2,450.00 x 3.0 [yrs.].. $7,350.00

SO ORDERED.6

Filipinas Synthetic Fiber Corporation (Filsyn), Far Eastern Textile Mills, Inc. (FETMI), Sta. Rosa Textiles, Inc. (SRTI), Patricio L. Lim (Patricio), and Eric Hu appealed to the
NLRC. The NLRC rendered its decision on 29 December 1998, thus:

WHEREFORE, the Decision dated 3 April 1998 is hereby REVERSED and SET ASIDE and a new one is entered ORDERING respondent Peggy Mills, Inc. to pay complainant
his retirement pay equivalent to 22.5 days for every year of service for his twelve (12) years of service from 1980 to 1992 based on a salary rate of P50,495.00 a month.

All other claims are DISMISSED for lack of merit.

SO ORDERED.7

John F. McLeod (McLeod) filed a motion for reconsideration which the NLRC denied in its Resolution of 30 June 1999.8 McLeod thus filed a petition for certiorari before the
Court of Appeals assailing the decision and resolution of the NLRC.9

The Ruling of the Court of Appeals

On 15 June 2000, the Court of Appeals rendered judgment as follows:

WHEREFORE, the decision dated December 29, 1998 of the NLRC is hereby AFFIRMED with the MODIFICATION that respondent Patricio Lim is jointly and solidarily liable
with Peggy Mills, Inc., to pay the following amounts to petitioner John F. McLeod:

1. retirement pay equivalent to 22.5 days for every year of service for his twelve (12) years of service from 1980 to 1992 based on a salary rate of P50,495, a month;

2. moral damages in the amount of one hundred thousand (P100,000.00) Pesos;

3. exemplary damages in the amount of fifty thousand (P50,000.00) Pesos; and

4. attorneys fees equivalent to 10% of the total award.

No costs is awarded.
SO ORDERED.10

The Court of Appeals rejected McLeods theory that all respondent corporations are the same corporate entity which should be held solidarily liable for the payment of his
monetary claims.

The Court of Appeals ruled that the fact that (1) all respondent corporations have the same address; (2) all were represented by the same counsel, Atty. Isidro S. Escano; (3) Atty.
Escano holds office at respondent corporations address; and (4) all respondent corporations have common officers and key personnel, would not justify the application of the
doctrine of piercing the veil of corporate fiction.

The Court of Appeals held that there should be clear and convincing evidence that SRTI, FETMI, and Filsyn were being used as alter ego, adjunct or business conduit for the sole
benefit of Peggy Mills, Inc. (PMI), otherwise, said corporations should be treated as distinct and separate from each other.

The Court of Appeals pointed out that the Articles of Incorporation of PMI show that it has six incorporators, namely, Patricio, Jose Yulo, Jr., Carlos Palanca, Jr., Cesar R. Concio,
Jr., E. A. Picasso, and Walter Euyang. On the other hand, the Articles of Incorporation of Filsyn show that it has 10 incorporators, namely, Jesus Y. Yujuico, Carlos Palanca, Jr.,
Patricio, Ang Beng Uh, Ramon A. Yulo, Honorio Poblador, Jr., Cipriano Azada, Manuel Tomacruz, Ismael Maningas, and Benigno Zialcita, Jr.

The Court of Appeals pointed out that PMI and Filsyn have only two interlocking incorporators and directors, namely, Patricio and Carlos Palanca, Jr.

Reiterating the ruling of this Court in Laguio v. NLRC,11 the Court of Appeals held that mere substantial identity of the incorporators of two corporations does not necessarily
imply fraud, nor warrant the piercing of the veil of corporate fiction.

The Court of Appeals also pointed out that when SRTI and PMI executed the Dation in Payment with Lease, it was clear that SRTI did not assume the liabilities PMI incurred
before the execution of the contract.

The Court of Appeals held that McLeod failed to substantiate his claim that all respondent corporations should be treated as one corporate

entity. The Court of Appeals thus upheld the NLRCs finding that no employer-employee relationship existed between McLeod and respondent corporations except PMI.

The Court of Appeals ruled that Eric Hu, as an officer of PMI, should be exonerated from any liability, there being no proof of malice or bad faith on his part. The Court of
Appeals, however, ruled that McLeod was entitled to recover from PMI and Patricio, the companys Chairman and President.

The Court of Appeals pointed out that Patricio deliberately and maliciously evaded PMIs financial obligation to McLeod. The Court of Appeals stated that, on several occasions,
despite his approval, Patricio refused and ignored to pay McLeods retirement benefits. The Court of Appeals stated that the delay lasted for one year prompting McLeod to initiate
legal action. The Court of Appeals stated that although PMI offered to pay McLeod his retirement benefits, this offer for P300,000 was still below the "floor limits" provided by
law. The Court of Appeals held that an employee could demand payment of retirement benefits as a matter of right.

The Court of Appeals stated that considering that PMI was no longer in operation, its "officer should be held liable for acting on behalf of the corporation."

The Court of Appeals also ruled that since PMI did not have a retirement program providing for retirement benefits of its employees, Article 287 of the Labor Code must be
followed. The Court of Appeals thus upheld the NLRCs finding that McLeod was entitled to retirement pay equivalent to 22.5 days for every year of service from 1980 to 1992
based on a salary rate of P50,495 a month.

The Court of Appeals held that McLeod was not entitled to payment of vacation, sick leave and holiday pay because as Vice President and Plant Manager, McLeod is a managerial
employee who, under Article 82 of the Labor Code, is not entitled to these benefits.
The Court of Appeals stated that for McLeod to be entitled to payment of service incentive leave and holidays, there must be an agreement to that effect between him and his
employer.

Moreover, the Court of Appeals rejected McLeods argument that since PMI paid for his two round-trip tickets Manila-London in 1983 and 1986, he was also "entitled to unused
airline tickets." The Court of Appeals stated that the fact that PMI granted McLeod "free transport to and from Manila and London for the year 1983 and 1986 does not ipso facto
characterize it as regular that would establish a prevailing company policy."

The Court of Appeals also denied McLeods claims for underpayment of salaries and his 13th month pay for the year 1994. The Court of Appeals upheld the NLRCs ruling that it
could be deduced from McLeods own narration of facts that he agreed to the reduction of his compensation from P60,000 to P50,495 in August 1990 to November 1993.

The Court of Appeals found the award of moral damages for P50,000 in order because of the "stubborn refusal" of PMI and Patricio to respect McLeods valid claims.

The Court of Appeals also ruled that attorneys fees equivalent to 10% of the total award should be given to McLeod under Article 2208, paragraph 2 of the Civil Code.12

Hence, this petition.

The Issues

McLeod submits the following issues for our consideration:

1. Whether the challenged Decision and Resolution of the 14th Division of the Court of Appeals promulgated on 15 June 2000 and 27 December 2000, respectively, in CA-
G.R. SP No. 55130 are in accord with law and jurisprudence;

2. Whether an employer-employee relationship exists between the private respondents and the petitioner for purposes of determining employer liability to the petitioner;

3. Whether the private respondents may avoid their financial obligations to the petitioner by invoking the veil of corporate fiction;

4. Whether petitioner is entitled to the relief he seeks against the private respondents;

5. Whether the ruling of [this] Court in Special Police and Watchman Association (PLUM) Federation v. National Labor Relations Commission cited by the Office of the
Solicitor General is applicable to the case of petitioner; and

6. Whether the appeal taken by the private respondents from the Decision of the labor arbiter meets the mandatory requirements recited in the Labor Code of the
Philippines, as amended.13

The Courts Ruling

The petition must fail.

McLeod asserts that the Court of Appeals should not have upheld the NLRCs findings that he was a managerial employee of PMI from 20 June 1980 to 31 December 1992, and
then a consultant of SRTI up to 30 November 1993. McLeod asserts that if only for this "brazen assumption," the Court of Appeals should not have sustained the NLRCs ruling
that his cause of action was only against PMI.

These assertions do not deserve serious consideration.

Records disclose that McLeod was an employee only of PMI.14 PMI hired McLeod as its acting Vice President and General Manager on 20 June 1980.15 PMI confirmed McLeods
appointment as Vice President/Plant Manager in the Special Meeting of its Board of Directors on 10 February 1981.16 McLeod himself testified during the hearing before the Labor
Arbiter that his "regular employment" was with PMI.17

When PMIs rank-and-file employees staged a strike on 19 August 1989 to July 1992, PMI incurred serious business losses.18 This prompted PMI to stop permanently plant
operations and to send a notice of closure to the Department of Labor and Employment on 21 July 1992.19

PMI informed its employees, including McLeod, of the closure.20 PMI paid its employees, including managerial employees, except McLeod, their unpaid wages, sick leave,
vacation leave, prorated 13th month pay, and separation pay. Under the compromise agreement between PMI and its employees, the employer-employee relationship between them
ended on 25 November 1992.21

Records also disclose that PMI extended McLeods service up to 31 December 1992 "to wind up some affairs" of the company.22 McLeod testified on cross-examination that he
received his last salary from PMI in December 1992.23

It is thus clear that McLeod was a managerial employee of PMI from 20 June 1980 to 31 December 1992.

However, McLeod claims that after FETMI purchased PMI in January 1993, he "continued to work at the same plant with the same responsibilities" until 30 November 1993.
McLeod claims that FETMI merely renamed PMI as SRTI. McLeod asserts that it was for this reason that when he reached the retirement age in 1993, he asked all the respondents
for the payment of his benefits.24

These assertions deserve scant consideration.

What took place between PMI and SRTI was dation in payment with lease. Pertinent portions of the contract that PMI and SRTI executed on 15 June 1992 read:

WHEREAS, PMI is indebted to the Development Bank of the Philippines ("DBP") and as security for such debts (the "Obligations") has mortgaged its real properties covered by
TCT Nos. T-38647, T-37136, and T-37135, together with all machineries and improvements found thereat, a complete listing of which is hereto attached as Annex "A" (the
"Assets");

WHEREAS, by virtue of an inter-governmental agency arrangement, DBP transferred the Obligations, including the Assets, to the Asset Privatization Trust ("APT") and the latter
has received payment for the Obligations from PMI, under APTs Direct Debt Buy-Out ("DDBO") program thereby causing APT to completely discharge and cancel the mortgage
in the Assets and to release the titles of the Assets back to PMI;

WHEREAS, PMI obtained cash advances from SRTC in the total amount of TWO HUNDRED TEN MILLION PESOS (P210,000,000.00) (the "Advances") to enable PMI to
consummate the DDBO with APT, with SRTC subrogating APT as PMIs creditor thereby;

WHEREAS, in payment to SRTC for PMIs liability, PMI has agreed to transfer all its rights, title and interests in the Assets by way of a dation in payment to SRTC, provided that
simultaneous with the dation in payment, SRTC shall grant unto PMI the right to lease the Assets under terms and conditions stated hereunder;

xxxx

NOW THEREFORE, for and in consideration of the foregoing premises, and of the terms and conditions hereinafter set forth, the parties hereby agree as follows:

1. CESSION. In consideration of the amount of TWO HUNDRED TEN MILLION PESOS (P210,000,000.00), PMI hereby cedes, conveys and transfers to SRTC all of its rights,
title and interest in and to the Assets by way of a dation in payment.25 (Emphasis supplied)
As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling corporation, provided the former acted in good faith and paid adequate
consideration for such assets, except when any of the following circumstances is present: (1) where the purchaser expressly or impliedly agrees to assume the debts, (2) where the
transaction amounts to a consolidation or merger of the corporations, (3) where the purchasing corporation is merely a continuation of the selling corporation, and (4) where the
selling corporation fraudulently enters into the transaction to escape liability for those debts.26

None of the foregoing exceptions is present in this case.

Here, PMI transferred its assets to SRTI to settle its obligation to SRTI in the sum of P210,000,000. We are not convinced that PMI fraudulently transferred these assets to escape
its liability for any of its debts. PMI had already paid its employees, except McLeod, their money claims.

There was also no merger or consolidation of PMI and SRTI.

Consolidation is the union of two or more existing corporations to form a new corporation called the consolidated corporation. It is a combination by agreement between two or
more corporations by which their rights, franchises, and property are united and become those of a single, new corporation, composed generally, although not necessarily, of the
stockholders of the original corporations.

Merger, on the other hand, is a union whereby one corporation absorbs one or more existing corporations, and the absorbing corporation survives and continues the combined
business.

The parties to a merger or consolidation are called constituent corporations. In consolidation, all the constituents are dissolved and absorbed by the new consolidated enterprise. In
merger, all constituents, except the surviving corporation, are dissolved. In both cases, however, there is no liquidation of the assets of the dissolved corporations, and the surviving
or consolidated corporation acquires all their properties, rights and franchises and their stockholders usually become its stockholders.

The surviving or consolidated corporation assumes automatically the liabilities of the dissolved corporations, regardless of whether the creditors have consented or not to such
merger or consolidation.27

In the present case, there is no showing that the subject dation in payment involved any corporate merger or consolidation. Neither is there any showing of those indicative factors
that SRTI is a mere instrumentality of PMI.

Moreover, SRTI did not expressly or impliedly agree to assume any of PMIs debts. Pertinent portions of the subject Deed of Dation in Payment with Lease provide, thus:

2. WARRANTIES AND REPRESENTATIONS. PMI hereby warrants and represents the following:

xxxx

(e) PMI shall warrant that it will hold SRTC or its assigns, free and harmless from any liability for claims of PMIs creditors, laborers, and workers and for physical injury or injury
to property arising from PMIs custody, possession, care, repairs, maintenance, use or operation of the Assets except ordinary wear and tear;28 (Emphasis supplied)

Also, McLeod did not present any evidence to show the alleged renaming of "Peggy Mills, Inc." to "Sta. Rosa Textiles, Inc."

Hence, it is not correct for McLeod to treat PMI and SRTI as the same entity.

Respondent corporations assert that SRTI hired McLeod as consultant after PMI stopped operations.29 On the other hand, McLeod asserts that he was respondent corporations
employee from 1980 to 30 November 1993.30However, McLeod failed to present any proof of employer-employee relationship between him and Filsyn, SRTI, or FETMI. McLeod
testified, thus:
ATTY. ESCANO:

Do you have any employment contract with Far Eastern Textile?

WITNESS:

It is my belief up the present time.

ATTY. AVECILLA:

May I request that the witness be allowed to go through his Annexes, Your Honor.

ATTY. ESCANO:

Yes, but I want a precise answer to that question. If he has an employment contract with Far Eastern Textile?

WITNESS:

Can I answer it this way, sir? There is not a valid contract but I was under the impression taking into consideration that the closeness that I had at Far Eastern Textile is enough
during that period of time of the development of Peggy Mills to reorganize a staff. I was under the basic impression that they might still retain my status as Vice President and Plant
Manager of the company.

ATTY. ESCANO:

But the answer is still, there is no employment contract in your possession appointing you in any capacity by Far Eastern?

WITNESS:

There was no written contract, sir.

xxxx

ATTY. ESCANO:

So, there is proof that you were in fact really employed by Peggy Mills?

WITNESS:

Yes, sir.

ATTY. ESCANO:

Of course, my interest now is to whether or not there is a similar document to present that you were employed by the other respondents like Filsyn Corporation?

WITNESS:
I have no document, sir.

ATTY. ESCANO:

What about Far Eastern Textile Mills?

WITNESS:

I have no document, sir.

ATTY. ESCANO:

And Sta. Rosa Textile Mills?

WITNESS:

There is no document, sir.31

xxxx

ATTY. ESCANO:

Q Yes. Let me be more specific, Mr. McLeod. Do you have a contract of employment from Far Eastern Textiles, Inc.?

A No, sir.

Q What about Sta. Rosa Textile Mills, do you have an employment contract from this company?

A No, sir.

xxxx

Q And what about respondent Eric Hu. Have you had any contract of employment from Mr. Eric Hu?

A Not a direct contract but I was taken in and I told to take over this from Mr. Eric Hu. Automatically, it confirms that Mr. Eric Hu, in other words, was under the control of Mr.
Patricio Lim at that period of time.

Q No documents to show, Mr. McLeod?

A No. No documents, sir.32

McLeod could have presented evidence to support his allegation of employer-employee relationship between him and any of Filsyn, SRTI, and FETMI, but he did not.
Appointment letters or employment contracts, payrolls, organization charts, SSS registration, personnel list, as well as testimony of co-employees, may serve as evidence of
employee status.33
It is a basic rule in evidence that parties must prove their affirmative allegations. While technical rules are not strictly followed in the NLRC, this does not mean that the rules on
proving allegations are entirely ignored. Bare allegations are not enough. They must be supported by substantial evidence at the very least.34

However, McLeod claims that "for purposes of determining employer liability, all private respondents are one and the same employer" because: (1) they have the same address; (2)
they are all engaged in the same business; and (3) they have interlocking directors and officers.35

This assertion is untenable.

A corporation is an artificial being invested by law with a personality separate and distinct from that of its stockholders and from that of other corporations to which it may be
connected.36

While a corporation may exist for any lawful purpose, the law will regard it as an association of persons or, in case of two corporations, merge them into one, when its corporate
legal entity is used as a cloak for fraud or illegality. This is the doctrine of piercing the veil of corporate fiction. The doctrine applies only when such corporate fiction is used to
defeat public convenience, justify wrong, protect fraud, or defend crime,37 or when it is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter
ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit
or adjunct of another corporation.38

To disregard the separate juridical personality of a corporation, the wrongdoing must be established clearly and convincingly. It cannot be presumed.39

Here, we do not find any of the evils sought to be prevented by the doctrine of piercing the corporate veil.

Respondent corporations may be engaged in the same business as that of PMI, but this fact alone is not enough reason to pierce the veil of corporate fiction.40

In Indophil Textile Mill Workers Union v. Calica,41 the Court ruled, thus:

In the case at bar, petitioner seeks to pierce the veil of corporate entity of Acrylic, alleging that the creation of the corporation is a devise to evade the application of the CBA
between petitioner Union and private respondent Company. While we do not discount the possibility of the similarities of the businesses of private respondent and Acrylic, neither
are we inclined to apply the doctrine invoked by petitioner in granting the relief sought. The fact that the businesses of private respondent and Acrylic are related, that some of the
employees of the private respondent are the same persons manning and providing for auxiliary services to the units of Acrylic, and that the physical plants, offices and facilities are
situated in the same compound, it is our considered opinion that these facts are not sufficient to justify the piercing of the corporate veil of Acrylic.42 (Emphasis supplied)

Also, the fact that SRTI and PMI shared the same address, i.e., 11/F BA-Lepanto Bldg., Paseo de Roxas, Makati City, 43 can be explained by the two companies stipulation in their
Deed of Dation in Payment with Lease that "simultaneous with the dation in payment, SRTC shall grant unto PMI the right to lease the Assets under terms and conditions stated
hereunder."44

As for the addresses of Filsyn and FETMI, Filsyn held office at 12th Floor, BA-Lepanto Bldg., Paseo de Roxas, Makati City, 45 while FETMI held office at 18F, Tun Nan
Commercial Building, 333 Tun Hwa South Road, Sec. 2, Taipei, Taiwan, R.O.C.46 Hence, they did not have the same address as that of PMI.

That respondent corporations have interlocking incorporators, directors, and officers is of no moment.

The only interlocking incorporators of PMI and Filsyn were Patricio and Carlos Palanca, Jr.47 While Patricio was Director and Board Chairman of Filsyn, SRTI, and PMI,48 he was
never an officer of FETMI.

Eric Hu, on the other hand, was Director of Filsyn and SRTI.49 He was never an officer of PMI.
Marialen C. Corpuz, Filsyns Finance Officer,50 testified on cross-examination that (1) among all of Filsyns officers, only she was the one involved in the management of PMI; (2)
only she and Patricio were the common officers between Filsyn and PMI; and (3) Filsyn and PMI are "two separate companies."51

Apolinario L. Posio, PMIs Chief Accountant, testified that "SRTI is a different corporation from PMI."52

At any rate, the existence of interlocking incorporators, directors, and officers is not enough justification to pierce the veil of corporate fiction, in the absence of fraud or other
public policy considerations.53

In Del Rosario v. NLRC,54 the Court ruled that substantial identity of the incorporators of corporations does not necessarily imply fraud.

In light of the foregoing, and there being no proof of employer-employee relationship between McLeod and respondent corporations and Eric Hu, McLeods cause of action is only
against his former employer, PMI.

On Patricios personal liability, it is settled that in the absence of malice, bad faith, or specific provision of law, a stockholder or an officer of a corporation cannot be made
personally liable for corporate liabilities.55

To reiterate, a corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. The
rule is that obligations incurred by the corporation, acting through its directors, officers, and employees, are its sole liabilities.56

Personal liability of corporate directors, trustees or officers attaches only when (1) they assent to a patently unlawful act of the corporation, or when they are guilty of bad faith or
gross negligence in directing its affairs, or when there is a conflict of interest resulting in damages to the corporation, its stockholders or other persons; (2) they consent to the
issuance of watered down stocks or when, having knowledge of such issuance, do not forthwith file with the corporate secretary their written objection; (3) they agree to hold
themselves personally and solidarily liable with the corporation; or (4) they are made by specific provision of law personally answerable for their corporate action. 57

Considering that McLeod failed to prove any of the foregoing exceptions in the present case, McLeod cannot hold Patricio solidarily liable with PMI.

The records are bereft of any evidence that Patricio acted with malice or bad faith. Bad faith is a question of fact and is evidentiary. Bad faith does not connote bad judgment or
negligence. It imports a dishonest purpose or some moral obliquity and conscious wrongdoing. It means breach of a known duty through some ill motive or interest. It partakes of
the nature of fraud.58

In the present case, there is nothing substantial on record to show that Patricio acted in bad faith in terminating McLeods services to warrant Patricios personal liability. PMI had
no other choice but to stop plant operations. The work stoppage therefore was by necessity. The company could no longer continue with its plant operations because of the serious
business losses that it had suffered. The mere fact that Patricio was president and director of PMI is not a ground to conclude that he should be held solidarily liable with PMI for
McLeods money claims.

The ruling in A.C. Ransom Labor Union-CCLU v. NLRC,59 which the Court of Appeals cited, does not apply to this case. We quote pertinent portions of the ruling, thus:

(a) Article 265 of the Labor Code, in part, expressly provides:

"Any worker whose employment has been terminated as a consequence of an unlawful lockout shall be entitled to reinstatement with full backwages."

Article 273 of the Code provides that:

"Any person violating any of the provisions of Article 265 of this Code shall be punished by a fine of not exceeding five hundred pesos and/or imprisonment for not less than one
(1) day nor more than six (6) months."
(b) How can the foregoing provisions be implemented when the employer is a corporation? The answer is found in Article 212 (c) of the Labor Code which provides:

"(c) Employer includes any person acting in the interest of an employer, directly or indirectly. The term shall not include any labor organization or any of its officers or agents
except when acting as employer.".

The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is an artificial person, it must have an officer who can be presumed to be the
employer, being the "person acting in the interest of (the) employer" RANSOM. The corporation, only in the technical sense, is the employer.

The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for non-payment of back wages. That is the policy of the law.

xxxx

(c) If the policy of the law were otherwise, the corporation employer can have devious ways for evading payment of back wages. In the instant case, it would appear that
RANSOM, in 1969, foreseeing the possibility or probability of payment of back wages to the 22 strikers, organized ROSARIO to replace RANSOM, with the latter to be
eventually phased out if the 22 strikers win their case. RANSOM actually ceased operations on May 1, 1973, after the December 19, 1972 Decision of the Court of Industrial
Relations was promulgated against RANSOM.60 (Emphasis supplied)

Clearly, in A.C. Ransom, RANSOM, through its President, organized ROSARIO to evade payment of backwages to the 22 strikers. This situation, or anything similar showing
malice or bad faith on the part of Patricio, does not obtain in the present case. In Santos v. NLRC,61 the Court held, thus:

It is true, there were various cases when corporate officers were themselves held by the Court to be personally accountable for the payment of wages and money claims to its
employees. In A.C. Ransom Labor Union-CCLU vs. NLRC, for instance, the Court ruled that under the Minimum Wage Law, the responsible officer of an employer corporation
could be held personally liable for nonpayment of backwages for "(i)f the policy of the law were otherwise, the corporation employer (would) have devious ways for evading
payment of backwages." In the absence of a clear identification of the officer directly responsible for failure to pay the backwages, the Court considered the President of the
corporation as such officer. The case was cited in Chua vs. NLRC in holding personally liable the vice-president of the company, being the highest and most ranking official of the
corporation next to the President who was dismissed for the latters claim for unpaid wages.

A review of the above exceptional cases would readily disclose the attendance of facts and circumstances that could rightly sanction personal liability on the part of the company
officer. In A.C. Ransom, the corporate entity was a family corporation and execution against it could not be implemented because of the disposition posthaste of its leviable assets
evidently in order to evade its just and due obligations. The doctrine of "piercing the veil of corporate fiction" was thus clearly appropriate. Chua likewise involved another family
corporation, and this time the conflict was between two brothers occupying the highest ranking positions in the company. There were incontrovertible facts which pointed to
extreme personal animosity that resulted, evidently in bad faith, in the easing out from the company of one of the brothers by the other.

The basic rule is still that which can be deduced from the Courts pronouncement in Sunio vs. National Labor Relations Commission; thus:

We come now to the personal liability of petitioner, Sunio, who was made jointly and severally responsible with petitioner company and CIPI for the payment of the backwages of
private respondents. This is reversible error. The Assistant Regional Directors Decision failed to disclose the reason why he was made personally liable. Respondents, however,
alleged as grounds thereof, his being the owner of one-half () interest of said corporation, and his alleged arbitrary dismissal of private respondents.

Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager of petitioner corporation. There appears to be no evidence on record that he acted maliciously
or in bad faith in terminating the services of private respondents. His act, therefore, was within the scope of his authority and was a corporate act.

It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which
it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality. Petitioner Sunio, therefore, should not have been made personally answerable for the payment of private respondents back
salaries.62 (Emphasis supplied)

Thus, the rule is still that the doctrine of piercing the corporate veil applies only when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or
defend crime. In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for
corporate liabilities. Neither Article 212(c) nor Article 273 (now 272) of the Labor Code expressly makes any corporate officer personally liable for the debts of the corporation. As
this Court ruled in H.L. Carlos Construction, Inc. v. Marina Properties Corporation:63

We concur with the CA that these two respondents are not liable. Section 31 of the Corporation Code (Batas Pambansa Blg. 68) provides:

"Section 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are
guilty of gross negligence or bad faith ... shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders and other persons."

The personal liability of corporate officers validly attaches only when (a) they assent to a patently unlawful act of the corporation; or (b) they are guilty of bad faith or gross
negligence in directing its affairs; or (c) they incur conflict of interest, resulting in damages to the corporation, its stockholders or other persons.

The records are bereft of any evidence that Typoco acted in bad faith with gross or inexcusable negligence, or that he acted outside the scope of his authority as company president.
The unilateral termination of the Contract during the existence of the TRO was indeed contemptible for which MPC should have merely been cited for contempt of court at the
most and a preliminary injunction would have then stopped work by the second contractor. Besides, there is no showing that the unilateral termination of the Contract was null
and void.64

McLeod is not entitled to payment of vacation leave and sick leave as well as to holiday pay. Article 82, Title I, Book Three of the Labor Code, on Working Conditions and Rest
Periods, provides:

Coverage. The provisions of this title shall apply to employees in all establishments and undertakings whether for profit or not, but not to government employees, managerial
employees, field personnel, members of the family of the employer who are dependent on him for support, domestic helpers, persons in the personal service of another, and
workers who are paid by results as determined by the Secretary of Labor in appropriate regulations.

As used herein, "managerial employees" refer to those whose primary duty consists of the management of the establishment in which they are employed or of a department or
subdivision thereof, and to other officers or members of the managerial staff. (Emphasis supplied)

As Vice President/Plant Manager, McLeod is a managerial employee who is excluded from the coverage of Title I, Book Three of the Labor Code. McLeod is entitled to payment
of vacation leave and sick leave only if he and PMI had agreed on it. The payment of vacation leave and sick leave depends on the policy of the employer or the agreement
between the employer and employee.65 In the present case, there is no showing that McLeod and PMI had an agreement concerning payment of these benefits.

McLeods assertion of underpayment of his 13th month pay in December 1993 is unavailing.66 As already stated, PMI stopped plant operations in 1992. McLeod himself testified
that he received his last salary from PMI in December 1992. After the termination of the employer-employee relationship between McLeod and PMI, SRTI hired McLeod as
consultant and not as employee. Since McLeod was no longer an employee, he was not entitled to the 13th month pay.67 Besides, there is no evidence on record that McLeod
indeed received his alleged "reduced 13th month pay of P44,183.63" in December 1993.68

Also unavailing is McLeods claim that he was entitled to the "unpaid monetary equivalent of unused plane tickets for the period covering 1989 to 1992 in the amount
of P279,300.00."69 PMI has no company policy granting its officers and employees expenses for trips abroad.70 That at one time PMI reimbursed McLeod for his and his wifes
plane tickets in a vacation to London71 could not be deemed as an established practice considering that it happened only once. To be considered a "regular practice," the giving of
the benefits should have been done over a long period, and must be shown to have been consistent and deliberate.72
In American Wire and Cable Daily Rated Employees Union v. American Wire and Cable Co., Inc.,73 the Court held that for a bonus to be enforceable, the employer must have
promised it, and the parties must have expressly agreed upon it, or it must have had a fixed amount and had been a long and regular practice on the part of the employer.

In the present case, there is no showing that PMI ever promised McLeod that it would continue to grant him the benefit in question. Neither is there any proof that PMI and
McLeod had expressly agreed upon the giving of that benefit.

McLeods reliance on Annex M74 can hardly carry the day for him. Annex M, which is McLeods letter addressed to "Philip Lim, VP Administration," merely contains McLeods
proposals for the grant of some benefits to supervisory and confidential employees. Contrary to McLeods allegation, Patricio did not sign the letter. Hence, the letter does not
embody any agreement between McLeod and the management that would entitle McLeod to his money claims.

Neither can McLeods assertions find support in Annex U.75 Annex U is the Agreement which McLeod and Universal Textile Mills, Inc. executed in 1959. The Agreement merely
contains the renewal of the service agreement which the parties signed in 1956.

McLeod cannot successfully pretend that his monthly salary of P60,000 was reduced without his consent.

McLeod testified that in 1990, Philip Lim explained to him why his salary would have to be reduced. McLeod said that Philip told him that "they were short in finances; that it
would be repaid."76 Were McLeod not amenable to that reduction in salary, he could have immediately resigned from his work in PMI.

McLeod knew that PMI was then suffering from serious business losses. In fact, McLeod testified that PMI was not able to operate from August 1989 to 1992 because of the strike.
Even before 1989, as Vice President of PMI, McLeod was aware that the company had incurred "huge loans from DBP."77 As it happened, McLeod continued to work with PMI.
We find it pertinent to quote some portions of Apolinario Posios testimony, to wit:

Q You also stated that before the period of the strike as shown by annex "K" of the reply filed by the complainant which was I think a voucher, the salary of Mr. McLeod was
roughly P60,000.00 a month?

A Yes, sir.

Q And as shown by their annex "L" to their reply, that this was reduced to roughly P50,000.00 a month?

A Yes, sir.

Q You stated that this was indeed upon the instruction by the Vice-President of Peggy Mills at that time and that was Mr. Philip Lim, would you not?

A Yes, sir.

Q Of your own personal knowledge, can you say if this was, in fact, by agreement between Mr. Philip Lim or any other officers of Peggy Mills and Mr. McLeod?

A If I recall it correctly, I assume it was an agreement, verbal agreement with, between Mr. Philip Lim and Mr. McLeod, because the voucher that we prepared was actually
acknowledged by Mr. McLeod, the reduced amount was acknowledged by Mr. McLeod thru the voucher that we prepared.

Q In other words, Mr. Witness, you mean to tell us that Mr. McLeod continuously received the reduced amount of P50,000.00 by signing the voucher and receiving the amount in
question?

A Yes, sir.
Q As far as you remember, Mr. Posio, was there any complaint by Mr. McLeod because of this reduced amount of his salary at that time?

A I dont have any personal knowledge of any complaint, sir.

Q At least, that is in so far as you were concerned, he said nothing when he signed the voucher in question?

A Yes, sir.

Q Now, you also stated that the reason for what appears to be an agreement between Peggy Mills and Mr. McLeod in so far as the reduction of his salary from P60,000.00
to P50,000.00 a month was because he would have a reduced number of working days in view of the strike at Peggy Mills, is that right?

A Yes, sir.

Q And that this was so because on account of the strike, there was no work to be done in the company?

A Yes, sir.78

xxxx

Q Now, you also stated if you remember during the first time that you testified that in the beginning, the monthly salary of the complainant was P60,000.00, is that correct?

A Yes, sir.

Q And because of the long period of the strike, when there was no work to be done, by agreement with the complainant, his monthly salary was adjusted to only P50,495 because
he would not have to report for work on Saturday. Do you remember having made that explanation?

A Yes, sir.

Q You also stated that the complainant continuously received his monthly salary in the adjusted amount of P50,495.00 monthly signing the necessary vouchers or pay slips for that
without complaining, is that not right, Mr. Posio?

A Yes, sir.79

Since the last salary that McLeod received from PMI was P50,495, that amount should be the basis in computing his retirement benefits. McLeod must be credited only with his
service to PMI as it had a juridical personality separate and distinct from that of the other respondent corporations.

Since PMI has no retirement plan,80 we apply Section 5, Rule II of the Rules Implementing the New Retirement Law which provides:

5.1 In the absence of an applicable agreement or retirement plan, an employee who retires pursuant to the Act shall be entitled to retirement pay equivalent to at least one-half (1/2)
month salary for every year of service, a fraction of at least six (6) months being considered as one whole year.

5.2 Components of One-half (1/2) Month Salary. For the purpose of determining the minimum retirement pay due an employee under this Rule, the term "one-half month salary"
shall include all of the following:

(a) Fifteen (15) days salary of the employee based on his latest salary rate. x x x
With McLeod having worked with PMI for 12 years, from 1980 to 1992, he is entitled to a retirement pay equivalent to month salary for every year of service based on his latest
salary rate of P50,495 a month.

There is no basis for the award of moral damages.

Moral damages are recoverable only if the defendant has acted fraudulently or in bad faith, or is guilty of gross negligence amounting to bad faith, or in wanton disregard of his
contractual obligations. The breach must be wanton, reckless, malicious, or in bad faith, oppressive or abusive.81 From the records of the case, the Court finds no ultimate facts to
support a conclusion of bad faith on the part of PMI.

Records disclose that PMI had long offered to pay McLeod his money claims. In their Comment, respondents assert that they offered to pay McLeod the sum of P840,000, as
"separation benefits, and not P300,000, if only to buy peace and to forestall any complaint" that McLeod may initiate before the NLRC. McLeod admitted at the hearing before the
Labor Arbiter that PMI has made this offer

ATTY. ESCANO:

x x x According to your own statement in your Position Paper and I am referring to page 8, your unpaid retirement benefit for fourteen (14) years of service at P60,000.00 per year
is P840,000.00, is that correct?

WITNESS:

That is correct, sir.

ATTY. ESCANO:

And this amount is correct P840,000.00, according to your Position Paper?

WITNESS:

That is correct, sir.

ATTY. ESCANO:

The question I want to ask is, are you aware that this amount was offered to you sometime last year through your own lawyer, my good friend, Atty. Avecilla, who is right here with
us?

WITNESS:

I was aware, sir.

ATTY. ESCANO:

So this was offered to you, is that correct?

WITNESS:
I was told that a fixed sum of P840,000.00 was offered.

ATTY. ESCANO:

And , of course, the reason, if I may assume, that you declined this offer was that, according to you, there are other claims which you would like to raise against the Respondents
which, by your impression, they were not willing to pay in addition to this particular amount?

WITNESS:

Yes, sir.

ATTY. ESCANO:

The question now is, if the same amount is offered to you by way of retirement which is exactly what you stated in your own Position Paper, would you accept it or not?

WITNESS:

Not on the concept without all the basic benefits due me, I will refuse.82

xxxx

ATTY. ROXAS:

Q You mentioned in the cross-examination of Atty. Escano that you were offered the separation pay in 1994, is that correct, Mr. Witness?

WITNESS:

A I was offered a settlement of P300,000.00 for complete settlement and that was I think in January or February 1994, sir.

ATTY. ESCANO:

No. What was mentioned was the amount of P840,000.00.

WITNESS:

What did you say, Atty. Escano?

ATTY. ESCANO:

The amount that I mentioned was P840,000.00 corresponding to the . . . . . . .

WITNESS:

May I ask that the question be clarified, your Honor?

ATTY. ROXAS:

Q You mentioned that you were offered for the settlement of your claims in 1994 for P840,000.00, is that right, Mr. Witness?

A During that period in time, while the petition in this case was ongoing, we already filed a case at that period of time, sir. There was a discussion. To the best of my knowledge,
they are willing to settle for P840,000.00 and based on what the Attorney told me, I refused to accept because I believe that my position was not in anyway due to a compromise
situation to the benefits I am entitled to.83

Hence, the awards for exemplary damages and attorneys fees are not proper in the present case.84

That respondent corporations, in their appeal to the NLRC, did not serve a copy of their memorandum of appeal upon PMI is of no moment. Section 3(a), Rule VI of the NLRC
New Rules of Procedure provides:

Requisites for Perfection of Appeal. (a) The appeal shall be filed within the reglementary period as provided in Section 1 of this Rule; shall be under oath with proof of payment
of the required appeal fee and the posting of a cash or surety bond as provided in Section 5 of this Rule; shall be accompanied by a memorandum of appeal x x x and proof of
service on the other party of such appeal. (Emphasis supplied)

The "other party" mentioned in the Rule obviously refers to the adverse party, in this case, McLeod. Besides, Section 3, Rule VI of the Rules which requires, among others, proof
of service of the memorandum of appeal on the other party, is merely a rundown of the contents of the required memorandum of appeal to be submitted by the appellant. These are
not jurisdictional requirements.85

WHEREFORE, we DENY the petition and AFFIRM the Decision of the Court of Appeals in CA-G.R. SP No. 55130, with the following MODIFICATIONS: (a) the retirement pay
of John F. McLeod should be computed at month salary for every year of service for 12 years based on his salary rate of P50,495 a month; (b) Patricio L. Lim is absolved from
personal liability; and (c) the awards for moral and exemplary damages and attorneys fees are deleted. No pronouncement as to costs.

SO ORDERED.

11. [G.R. No. 150978. April 3, 2003]

POWTON CONGLOMERATE[1], INC., and PHILIP C. CHIEN, petitioners, vs. JOHNNY AGCOLICOL, respondent.

DECISION
YNARES-SANTIAGO, J.:

In a contract to build a structure or any other work for a stipulated price, the contractor cannot demand an increase in the contract price on account of higher cost of labor or
materials, unless there has been a change in the plan and specification which was authorized in writing by the other party and the price has been agreed upon in writing by both
parties.[2]
This is a petition for review on certiorari assailing the September 3, 2001 Decision [3] of the Court of Appeals in CA-G.R. CV No. 65100, and its December 5, 2001
Resolution[4] denying petitioners motion for reconsideration.
 Sometime in November 1990, respondent Johnny Agcolicol, proprietor of Japerson Engineering, entered into an Electrical Installation Contract with Powton Conglomerate,
Inc. (Powton), thru its President and Chairman of the Board, Philip C. Chien. For a contract price of P5,300,000.00, respondent undertook to provide electrical works as well as the
necessary labor and materials for the installation of electrical facilities at the Ciano Plaza Building owned by Powton, located along M. Reyes Street, corner G. Mascardo Street,
Bangkal, Makati, Metro Manila.[5] In August 1992, the City Engineers Office of Makati inspected the electrical installations at the Ciano Plaza Building and certified that the same
were in good condition. Hence, it issued the corresponding certificate of electrical inspection.
On December 16, 1994, respondent filed with the Regional Trial Court of Pasay City, Branch 115, the instant complaint for sum of money against the petitioners. [6] He alleged
that despite the completion of the electrical works at Ciano Plaza Building, the latter only paid the amount of P5,031,860.40, which is equivalent to more than 95% of the total
contract price, thereby leaving a balance of P268,139.80. Respondent likewise claimed the amount of P722,730.38 as additional electrical works which were necessitated by the
alleged revisions in the structural design of the building.[7]
In their answer, petitioners contended that they cannot be obliged to pay the balance of the contract price because the electrical installations were defective and were completed
beyond the agreed period.[8] During the trial, petitioner Chien testified that they should not be held liable for the additional electrical works allegedly performed by the petitioner
because they never authorized the same.[9]
At the pre-trial conference, the parties stipulated, inter alia, that the unpaid balance claimed by the respondent is P268,139.60 and the cost of additional work is P722,730.38.
[10]

On August 16, 1999, a decision was rendered awarding the respondent the total award of P990,867.38 representing the unpaid balance and the costs of additional works. The
dispositive portion thereof reads:

Wherefore, this Court renders its judgment in favor of the plaintiff and orders the defendants Powton Congolmerate and Philip C. Chien to pay the plaintiff, jointly and severally,
the amount of P990,867.38 representing their total unpaid obligations plus legal interest from the time of the filing of this complaint. No pronouncement as to costs.

SO ORDERED.[11]

Aggrieved, petitioners appealed to the Court of Appeals which, however, affirmed the decision of the trial court.[12] The motion for reconsideration was likewise denied.[13]
Hence, the instant petition.
Is the petitioner liable to pay the balance of the contract price and the increase in costs brought about by the revision of the structural design of the Ciano Plaza Building?
The petition is partly meritorious.
We agree with the findings of both the trial court and the Court of Appeals that petitioners failed to show that the installations made by respondent were defective and
completed beyond the agreed period. The justification cited by petitioners for not paying the balance of the contract price is the self-serving allegation of petitioner Chien. Pertinent
portion of his testimony, reads:
COURT:
Q: You are telling the Court that you did not accept the job because it is not yet complete. That is [a] general statement.
ATTY. FLORENCIO:
Q: Why did you say that the job was not yet complete?
COURT: Specify.
WITNESS:
A: I am not an electrical engineer but my menwe also get independent engineer to certify that the job was not complete, your Honor.
COURT:
 Q: You mean to say you hired an independent electrical engineer and he certified that the job is not yet complete and there is danger?
WITNESS:
A: Yes, your Honor.
COURT:
Q: You have to present that engineer.
ATTY. FLORENCIO:
A: Yes, your Honor.[14]
Notwithstanding the above promise, petitioners never presented the engineer or any other competent witness to testify on the matter of delay and defects. Having failed to
present sufficient proof, petitioners bare assertion of unsatisfactory and delayed installation will not justify their non-payment of the balance of the contract price. Hence, we affirm
the ruling of the trial court and the Court of Appeals ordering petitioners to pay the balance of P268,139.80.
In awarding additional costs to respondent, both the trial court and the Court of Appeals sweepingly applied the principle of unjust enrichment without discussing the
relevance in the instant case of Article 1724 of the Civil Code, which provides:

Art. 1724. The contractor who undertakes to build a structure or any other work for a stipulated price, in conformity with plans and specifications agreed upon with the landowner,
can neither withdraw from the contract nor demand an increase in the price on account of the higher cost of labor or materials, save when there has been a change in the plans and
specifications, provided:

(1) Such change has been authorized by the proprietor in writing; and

(2) The additional price to be paid to the contractor has been determined in writing by both parties.

Article 1724 of the Civil Code was copied from Article 1593 of the Spanish Civil Code,[15] which provided as follows:

No architect or contractor who, for a lump sum, undertakes the construction of a building, or any other work to be done in accordance with a plan agreed upon with the owner of
the ground, may demand an increase of the price, even if the costs of the materials or labor has increased; but he may do so when any change increasing the work is made in the
plans, provided the owner has given his consent thereto.[16]

The present Civil Code added substantive requisites before recovery of the contractor may be validly had. It will be noted that while under the precursor provision, recovery
for additional costs may be allowed if consent to make such additions can be proved, the present provision clearly requires that the changes should be authorized, such
authorization by the proprietor in writing. The evident purpose of the amendment is to prevent litigation for additional costs incurred by reason of additions or changes in the
original plan. Undoubtedly, it was adopted to serve as a safeguard or a substantive condition precedent to recovery.[17]
In Weldon Construction Corporation v. Court of Appeals,[18] involving a contract of supervision of construction of a theater, we denied the contractors claim to recover costs
for additional works. It was held that the contract entered into by the parties was one for a piece of work for a stipulated price, wherein the right of the contractor to recover the cost
of additional works is governed by Article 1724 of the Civil Code. Thus

In addition to the owner's authorization for any change in the plans and specifications, Article 1724 requires that the additional price to be paid for the contractor be likewise
reduced in writing. Compliance with the two requisites in Article 1724, a specific provision governing additional works, is a condition precedent to recovery (San Diego v. Sayson,
supra.). The absence of one or the other bars the recovery of additional costs. Neither the authority for the changes made nor the additional price to be paid therefor may be proved
by any other evidence for purposes of recovery.
In the case before this Court, the records do not yield any written authority for the changes made on the plans and specifications of the Gay Theater building. Neither can there be
found any written agreement on the additional price to be paid for said "extra works." While the trial court may have found in the instant case that the private respondent admitted
his having requested the "extra works" done by the contractor (Record on Appeal, p. 66 [C.F.I. Decision]), this does not save the day for the petitioner. The private respondent
claims that the contractor agreed to make the additions without additional cost. Expectedly, the petitioner vigorously denies said claim of the private respondent. This is precisely a
misunderstanding between parties to a construction agreement which the lawmakers sought to avoid in prescribing the two requisites under Article 1724 (Report of the Code
Commission, p. 148). And this case is a perfect example of a tedious litigation which had ensued between the parties as a result of such misunderstanding. Again, this is what the
law endeavors to prevent (San Diego v. Sayson, supra.)

In the absence of a written authority by the owner for the changes in the plans and specifications of the building and of a written agreement between the parties on the additional
price to be paid to the contractor, as required by Article 1724, the claim for the cost of additional works on the Gay Theater building must be denied.[19]

In the instant case, the parties entered into a contract for the execution of all the electrical works at the Ciano Plaza as shown and described in the plans and specification
prepared by RCG Consult (hereinafter referred to as the ARCHITECT/ENGINEER). [20] The contract was for a fixed price of P5,300,000, with the stipulation that any addition or
reduction in the cost of work shall be mutually agreed in writing by both the OWNER and [the] CONTRACTOR upon recommendation/advisement of the
ARCHITEC/ENGINEERS before execution.[21] As admitted by both parties, several revisions and deviations from the original plan and specification of the building were
introduced during the construction thereof.[22] It appears, however, that though respondent was aware of such revisions and of the consequent increase in the cost of the electrical
works, he nevertheless completed the installation of electrical facilities in the constructed building without first entering into a written agreement with the petitioners for the
increase in costs. The fact that petitioner Chien testified [23] that his Engineer/Architect, the R.C. Gaite & Associates, recommended payment of the increase in costs, does not prove
that he was informed of such increase before the job was completed. [24] The records reveal that the demand letter which in effect notified the petitioners of the increase in the costs
of electrical installations was sent by the respondent to petitioners after the completion of the project. [25] This was clearly not in accord with the express stipulation of the parties
requiring a prior written agreement authorizing the increased costs, as well as with the provisions of Article 1724.
It must be stressed that the change in the plans and specifications referred to in Article 1724 pertains to the very contract entered into by the owner of the building and the
contractor.While there is a revision of plan and specification in the instant case, the same pertains to the structural design of the building and not to the electrical installation
contract of the parties. The consent given by the petitioners to the revision of the former will not necessarily extend to the latter. As emphasized in Weldon Construction
Corporation, the issue of consent to the higher cost could have been determined with facility had the respondent complied with the requirement of a written agreement for
additional costs as mandated not only by their contract but also by Article 1724 of the Civil Code. The written consent of the owner to the increased costs sought by the respondent
is not a mere formal requisite, but a vital precondition to the validity of a subsequent contract authorizing a higher or additional contract price. Moreover, the safeguards enshrined
in the provisions of Article 1724 are not only intended to obviate future misunderstandings but also to give the parties a chance to decide whether to bind ones self to or withdraw
from a contract. Had the increase in costs of the electrical installations been disclosed before completion of the project, petitioners could have opted to bargain with the respondent
or hire another contractor for a cheaper price. Respondent, on the other hand, could have gladly accepted the bargain or simply backed out from the contract instead of gambling on
the consequences of assuming the increased costs without the prior written authorization of the petitioners. Indeed, the principle of unjust enrichment cannot be validly invoked by
the respondent who, through his own act or omission, took the risk of being denied payment for additional costs by not giving the petitioners prior notice of such costs and/or by
not securing their written consent thereto, as required by law and their contract.
Finally, we note that the trial court held petitioner Chien solidarily liable with petitioner Powton. The settled rule is that, a corporation is invested by law with a personality
separate and distinct from those of the persons composing it, such that, save for certain exceptions, corporate officers who entered into contracts in behalf of the corporation cannot
be held personally liable for the liabilities of the latter. Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so
validly attach, as a rule, only when (1) he assents to a patently unlawful act of the corporation, or when he is guilty of bad faith or gross negligence in directing its affairs, or when
there is a conflict of interest resulting in damages to the corporation, its stockholders or other persons; (2) he consents to the issuance of watered down stocks or who, having
knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; (3) he agrees to hold himself personally and solidarily liable with the
corporation; or (4) he is made by a specific provision of law personally answerable for his corporate action. [26] Considering that none of the foregoing exceptions was established in
the case at bar, petitioner Chien, who entered into a contract with respondent in his capacity as President and Chairman of the Board of Powton, cannot be held solidarily liable
with the latter.
 WHEREFORE, in view of all the foregoing, the instant petition is PARTIALLY GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 65100 is
MODIFIED. Petitioner Powton Conglomerate, Inc. is ordered to pay respondent Johnny Agcolicol the sum of P268,139.60 representing the unpaid balance in the Electrical
Installation Contract between them.Petitioner Philip C. Chien, President and Chairman of the Board of Powton Conglomerate, Inc. is absolved from personal liability.
SO ORDERED.