Corporation - Formation and Organization
G.R. No. L-2598 June 29, 1950
C. ARNOLD HALL and BRADLEY P. HALL, petitioners,
vs.
EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte, FRED BROWN,
EMMA BROWN, HIPOLITA CAPUCIONG, in his capacity as receiver of the Far Eastern
Lumber and Commercial Co., Inc.,respondents.
Claro M. Recto for petitioners.
Ramon Diokno and Jose W. Diokno for respondents.
BENGZON, J.:
This is petition to set aside all the proceedings had in civil case No. 381 of the Court of First
Instance of Leyte and to enjoin the respondent judge from further acting upon the same.
Facts: (1) on May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the
respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella, signed
and acknowledged in Leyte, the article of incorporation of the Far Eastern Lumber and
Commercial Co., Inc., organized to engage in a general lumber business to carry on as general
contractors, operators and managers, etc. Attached to the article was an affidavit of the
treasurer stating that 23,428 shares of stock had been subscribed and fully paid with certain
properties transferred to the corporation described in a list appended thereto.
(2) Immediately after the execution of said articles of incorporation, the corporation proceeded
to do business with the adoption of by-laws and the election of its officers.
(3) On December 2, 1947, the said articles of incorporation were filed in the office of the
Securities and Exchange Commissioner, for the issuance of the corresponding certificate of
incorporation.
(4) On March 22, 1948, pending action on the articles of incorporation by the aforesaid
governmental office, the respondents Fred Brown, Emma Brown, Hipolita D. Chapman and
Ceferino S. Abella filed before the Court of First Instance of Leyte the civil case numbered
381, entitled "Fred Brown et al. vs. Arnold C. Hall et al.", alleging among other things that the
Far Eastern Lumber and Commercial Co. was an unregistered partnership; that they wished
to have it dissolved because of bitter dissension among the members, mismanagement and
fraud by the managers and heavy financial losses.
(5) The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion to
dismiss, contesting the court's jurisdiction and the sufficiently of the cause of action.
(6) After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution of the
company; and at the request of plaintiffs, appointed of the properties thereof, upon the filing
of a P20,000 bond.
(7) The defendants therein (petitioners herein) offered to file a counter-bond for the discharge
of the receiver, but the respondent judge refused to accept the offer and to discharge the
receiver. Whereupon, the present special civil action was instituted in this court. It is based
upon two main propositions, to wit:
(a) The court had no jurisdiction in civil case No. 381 to decree the dissolution of the
company, because it being a de facto corporation, dissolution thereof may only be ordered in
a quo warranto proceeding instituted in accordance with section 19 of the Corporation Law.
(b) Inasmuch as respondents Fred Brown and Emma Brown had signed the article of
incorporation but only a partnership.
Discussion: The second proposition may at once be dismissed. All the parties are informed
that the Securities and Exchange Commission has not, so far, issued the corresponding
certificate of incorporation. All of them know, or sought to know, that the personality of a
corporation begins to exist only from the moment such certificate is issued — not before (sec.
11, Corporation Law). The complaining associates have not represented to the others that
they were incorporated any more than the latter had made similar representations to them.
And as nobody was led to believe anything to his prejudice and damage, the principle of
estoppel does not apply. Obviously this is not an instance requiring the enforcement of
contracts with the corporation through the rule of estoppel.
The first proposition above stated is premised on the theory that, inasmuch as the Far
Eastern Lumber and Commercial Co., is a de facto corporation, section 19 of the Corporation
Law applies, and therefore the court had not jurisdiction to take cognizance of said civil case
number 381. Section 19 reads as follows:
. . . The due incorporation of any corporations claiming in good faith to be a
corporation under this Act and its right to exercise corporate powers shall not be
inquired into collaterally in any private suit to which the corporation may be a party,
but such inquiry may be had at the suit of the Insular Government on information of
the Attorney-General.
There are least two reasons why this section does not govern the situation. Not having
obtained the certificate of incorporation, the Far Eastern Lumber and Commercial Co. — even
its stockholders — may not probably claim "in good faith" to be a corporation.
Under our statue it is to be noted (Corporation Law, sec. 11) that it is the issuance of
a certificate of incorporation by the Director of the Bureau of Commerce and Industry
which calls a corporation into being. The immunity if collateral attack is granted to
corporations "claiming in good faith to be a corporation under this act." Such a claim
Page 1 of 14
Corporation - Formation and Organization
is compatible with the existence of errors and irregularities; but not with a total or
substantial disregard of the law. Unless there has been an evident attempt to comply
with the law the claim to be a corporation "under this act" could not be made "in good
faith." (Fisher on the Philippine Law of Stock Corporations, p. 75. See
also Humphreys vs. Drew, 59 Fla., 295; 52 So., 362.)
Second, this is not a suit in which the corporation is a party. This is a litigation between
stockholders of the alleged corporation, for the purpose of obtaining its dissolution. Even the
existence of a de jure corporation may be terminated in a private suit for its dissolution
between stockholders, without the intervention of the state.
There might be room for argument on the right of minority stockholders to sue for
dissolution;1 but that question does not affect the court's jurisdiction, and is a matter for
decision by the judge, subject to review on appeal. Whkch brings us to one principal reason
why this petition may not prosper, namely: the petitioners have their remedy by appealing the
order of dissolution at the proper time.
There is a secondary issue in connection with the appointment of a receiver. But it must be
admitted that receivership is proper in proceedings for dissolution of a company or
corporation, and it was no error to reject the counter-bond, the court having declared the
dissolution. As to the amount of the bond to be demanded of the receiver, much depends
upon the discretion of the trial court, which in this instance we do not believe has been
clearly abused.
Judgment: The petition will, therefore, be dismissed, with costs. The preliminary injunction
heretofore issued will be dissolved.
G.R. No. L-11442 May 23, 1958
MANUELA T. VDA. DE SALVATIERRA, petitioner,
vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of
Leyte, Branch II, and SEGUNDINO REFUERZO, respondents.
Jimenez, Tantuico, Jr. and Tolete for petitioner.
Francisco Astilla for respondent Segundino Refuerzo.
FELIX, J.:
This is a petition for certiorari filed by Manuela T. Vda. de Salvatierra seeking to nullify the
order of the Court of First Instance of Leyte in Civil Case No. 1912, dated March 21, 1956,
relieving Segundino Refuerzo of liability for the contract entered into between the former and
the Philippine Fibers Producers Co., Inc., of which Refuerzo is the president. The facts of the
case are as follows:
Manuela T. Vda. de Salvatierra appeared to be the owner of a parcel of land located at
Maghobas, Poblacion, Burauen, Teyte. On March 7, 1954, said landholder entered into a
contract of lease with the Philippine Fibers Producers Co., Inc., allegedly a corporation "duly
organized and existing under the laws of the Philippines, domiciled at Burauen, Leyte,
Philippines, and with business address therein, represented in this instance by Mr.
Segundino Q. Refuerzo, the President". It was provided in said contract, among other things,
that the lifetime of the lease would be for a period of 10 years; that the land would be planted
to kenaf, ramie or other crops suitable to the soil; that the lessor would be entitled to 30 per
cent of the net income accruing from the harvest of any, crop without being responsible for
the cost of production thereof; and that after every harvest, the lessee was bound to declare
at the earliest possible time the income derived therefrom and to deliver the corresponding
share due the lessor.
Apparently, the aforementioned obligations imposed on the alleged corporation were not
complied with because on April 5, 1955, Alanuela T. Vda, de Salvatierra filed with the Court
of First Instance of Leyte a complaint against the Philippine Fibers Producers Co., Inc., and
Segundino Q. Refuerzo, for accounting, rescission and damages (Civil Case No. 1912). She
averred that sometime in April, 1954, defendants planted kenaf on 3 hectares of the leased
property which crop was, at the time of the commencement of the action, already harvested,
processed and sold by defendants; that notwithstanding that fact, defendants refused to
render an accounting of the income derived therefrom and to deliver the lessor's share; that
the estimated gross income was P4,500, and the deductible expenses amounted to P1,000;
that as defendants' refusal to undertake such task was in violation of the terms of the
covenant entered into between the plaintiff and defendant corporation, a rescission was but
proper.
As defendants apparently failed to file their answer to the complaint, of which they were
allegedly notified, the Court declared them in default and proceeded to receive plaintiff's
evidence. On June 8, 1955, the lower Court rendered judgment granting plaintiff's prayer, and
required defendants to render a complete accounting of the harvest of the land subject of the
proceeding within 15 days from receipt of the decision and to deliver 30 per cent of the net
income realized from the last harvest to plaintiff, with legal interest from the date defendants
received payment for said crop. It was further provide that upon defendants' failure to abide
by the said requirement, the gross income would be fixed at P4,200 or a net income of P3,200
after deducting the expenses for production, 30 per cent of which or P960 was held to be due
the plaintiff pursuant to the aforementioned contract of lease, which was declared rescinded.
No appeal therefrom having been perfected within the reglementary period, the Court, upon
motion of plaintiff, issued a writ of execution, in virtue of which the Provincial Sheriff of Leyte
caused the attachment of 3 parcels of land registered in the name of Segundino Refuerzo. No
property of the Philippine Fibers Producers Co., Inc., was found available for attachment. On
January 31, 1956, defendant Segundino Refuerzo filed a motion claiming that the decision
rendered in said Civil Case No. 1912 was null and void with respect to him, there being no
allegation in the complaint pointing to his personal liability and thus prayed that an order be
issued limiting such liability to defendant corporation. Over plaintiff's opposition, the Court a
quo granted the same and ordered the Provincial Sheriff of Leyte to release all properties
Page 2 of 14
Corporation - Formation and Organization
belonging to the movant that might have already been attached, after finding that the
evidence on record made no mention or referred to any fact which might hold movant
personally liable therein. As plaintiff's petition for relief from said order was denied, Manuela
T. Vda. de Salvatierra instituted the instant action asserting that the trial Judge in issuing
the order complained of, acted with grave abuse of discretion and prayed that same be
declared a nullity.
From the foregoing narration of facts, it is clear that the order sought to be nullified was
issued by tile respondent Judge upon motion of defendant Refuerzo, obviously pursuant to
Rule 38 of the Rules of Court. Section 3 of said Rule, however, in providing for the period
within which such a motion may be filed, prescribes that:
SEC. 3. WHEN PETITION FILED; CONTENTS AND VERIFICATION. — A petition
provided for in either of the preceding sections of this rule must be verified,
filed within sixty days after the petitioner learns of the judgment, order, or other
proceeding to be set aside, and not more than six months after such judgment or order
was entered, or such proceeding was taken; and must be must be accompanied with
affidavit showing the fraud, accident, mistake, or excusable negligence relied upon,
and the facts constituting the petitioner is good and substantial cause of action or
defense, as the case may be, which he may prove if his petition be granted". (Rule 38)
The aforequoted provision treats of 2 periods, i.e., 60 days after petitioner learns of the
judgment, and not more than 6 months after the judgment or order was rendered, both of
which must be satisfied. As the decision in the case at bar was under date of June 8, 1955,
whereas the motion filed by respondent Refuerzo was dated January 31, 1956, or after the
lapse of 7 months and 23 days, the filing of the aforementioned motion was clearly made
beyond the prescriptive period provided for by the rules. The remedy allowed by Rule 38 to a
party adversely affected by a decision or order is certainly an alert of grace or benevolence
intended to afford said litigant a penultimate opportunity to protect his interest. Considering
the nature of such relief and the purpose behind it, the periods fixed by said rule are non-
extendible and never interrupted; nor could it be subjected to any condition or contingency
because it is of itself devised to meet a condition or contingency (Palomares vs. Jimenez,* G.R.
No. L-4513, January 31, 1952). On this score alone, therefore, the petition for a writ
of certiorari filed herein may be granted. However, taking note of the question presented by
the motion for relief involved herein, We deem it wise to delve in and pass upon the merit of
the same.
Refuerzo, in praying for his exoneration from any liability resulting from the non-fulfillment of
the obligation imposed on defendant Philippine Fibers Producers Co., Inc., interposed the
defense that the complaint filed with the lower court contained no allegation which would
hold him liable personally, for while it was stated therein that he was a signatory to the lease
contract, he did so in his capacity as president of the corporation. And this allegation was
found by the Court a quo to be supported by the records. Plaintiff on the other hand tried to
refute this averment by contending that her failure to specify defendant's personal liability
was due to the fact that all the time she was under the impression that the Philippine Fibers
Producers Co., Inc., represented by Refuerzo was a duly registered corporation as appearing
in the contract, but a subsequent inquiry from the Securities and Exchange Commission
yielded otherwise. While as a general rule a person who has contracted or dealt with an
association in such a way as to recognize its existence as a corporate body is estopped from
denying the same in an action arising out of such transaction or dealing, (Asia Banking
Corporation vs. Standard Products Co., 46 Phil., 114; Compania Agricola de Ultramar vs.
Reyes, 4 Phil., 1; Ohta Development Co.; vs. Steamship Pompey, 49 Phil., 117), yet this
doctrine may not be held to be applicable where fraud takes a part in the said transaction. In
the instant case, on plaintiff's charge that she was unaware of the fact that the Philippine
Fibers Producers Co., Inc., had no juridical personality, defendant Refuerzo gave no
confirmation or denial and the circumstances surrounding the execution of the contract lead
to the inescapable conclusion that plaintiff Manuela T. Vda. de Salvatierra was really made to
believe that such corporation was duly organized in accordance with law.
There can be no question that a corporation with registered has a juridical personality
separate and distinct from its component members or stockholders and officers such that a
corporation cannot be held liable for the personal indebtedness of a stockholder even if he
should be its president (Walter A. Smith Co. vs. Ford, SC-G.R. No. 42420) and conversely, a
stockholder or member cannot be held personally liable for any financial obligation be, the
corporation in excess of his unpaid subscription. But this rule is understood to refer merely
to registered corporations and cannot be made applicable to the liability of members of an
unincorporated association. The reason behind this doctrine is obvious-since an organization
which before the law is non-existent has no personality and would be incompetent to act and
appropriate for itself the powers and attribute of a corporation as provided by law; it cannot
create agents or confer authority on another to act in its behalf; thus, those who act or
purport to act as its representatives or agents do so without authority and at their own risk.
And as it is an elementary principle of law that a person who acts as an agent without
authority or without a principal is himself regarded as the principal, possessed of all the
rights and subject to all the liabilities of a principal, a person acting or purporting to act on
behalf of a corporation which has no valid existence assumes such privileges and obligations
and comes personally liable for contracts entered into or for other acts performed as such,
agent (Fay vs. Noble, 7 Cushing [Mass.] 188. Cited in II Tolentino's Commercial Laws of the
Philippines, Fifth Ed., P. 689-690). Considering that defendant Refuerzo, as president of the
unregistered corporation Philippine Fibers Producers Co., Inc., was the moving spirit behind
the consummation of the lease agreement by acting as its representative, his liability cannot
be limited or restricted that imposed upon corporate shareholders. In acting on behalf of a
corporation which he knew to be unregistered, he assumed the risk of reaping the
consequential damages or resultant rights, if any, arising out of such transaction.
Wherefore, the order of the lower Court of March 21, 1956, amending its previous decision on
this matter and ordering the Provincial Sheriff of Leyte to release any and all properties of
movant therein which might have been attached in the execution of such judgment, is hereby
set aside and nullified as if it had never been issued. With costs against respondent
Segundino Refuerzo. It is so ordered.
Page 3 of 14
Corporation - Formation and Organization
TWIN TOWERS CONDOMINIUM CORPORATION, petitioner, vs. THE COURT OF APPEALS,
ALS MANAGEMENT & DEVELOPMENT CORPORATION, ANTONIO LITONJUA and
SECURITIES AND EXCHANGE COMMISSION, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review on
certiorari[1]
to nullify the
Decision[2]dated August 31,
1995 of the Court of Appeals and its Resolution[3] dated January 16, 1996 denying petitioners
motion for reconsideration. The Court of Appeals dismissed petitioners appeal from the
Decision en banc[4] of the Securities and Exchange Commission, which reversed the order of
the SEC Hearing Officer.[5] The Court of Appeals dismissed the appeal for lack of merit and for
non-compliance with the requirement on certification of non-forum shopping.[6]
The Antecedent Facts
On June 30, 1988, petitioner Twin Towers Condominium Corporation (petitioner for
brevity) filed a complaint[7] with the Securities and Exchange Commission (SEC for brevity)
against respondents ALS Management & Development Corporation (ALS for brevity) and
Antonio Litonjua (Litonjua for brevity). The complaint prayed that ALS and Litonjua be ordered
to pay solidarily the unpaid condominium assessments and dues with interests and penalties
covering the four quarters of 1986 and 1987 and the first quarter of 1988.
The complaint alleged, among others, that petitioner, a non-stock corporation, is organized
for the sole purpose of holding title to and managing the common areas of Twin Towers
Condominium (Condominium for brevity). Membership in petitioner corporation is compulsory
and limited to all registered owners of units in the Condominium. ALS, as registered owner of
Unit No. 4-A (Unit for brevity) of the Condominium, is a member of petitioner. Litonjua, who is
the corporate president of ALS, occupies the Unit.
Petitioner collects from all its members quarterly assessments and dues as authorized by
its Master Deed and Declaration of Restrictions (Master Deed for brevity) and its By-Laws. As
of the filing of the complaint with the SEC, petitioners records of account show that ALS failed
to pay assessments and dues starting 1986 up to the first quarter of 1988. Petitioner claimed
against both ALS and Litonjua P118,923.20 as unpaid assessments and dues. This amount
includes accrued interests of P30,808.33 and penalty charges of P7,793.34, plus P 1,500.00 as
unpaid contingency fund assessment for 1987.[8]
In their joint Answer with Counterclaim, ALS and Litonjua asserted that petitioner failed
to state a cause of action against Litonjua. ALS and Litonjua argued that petitioners admission
that ALS and not Litonjua is the registered owner of the Unit and member of petitioner
exonerates Litonjua from any liability to petitioner. While ALS is a juridical person that cannot
by itself physically occupy the Unit, the natural person who physically occupies the Unit does
not assume the liability of ALS to petitioner. Neither does the agent who acts for the corporation
become personally liable for the corporations obligation.
As counterclaim, ALS claimed damages against petitioner arising from petitioners act of
repeatedly preventing ALS, its agents and guests from using the parking space, swimming pool,
gym, and other facilities of the Condominium. In addition, Litonjua claimed damages against
petitioner for the latters act of including Litonjuas name in the list of delinquent unit owners
which was posted on petitioners bulletin board.[9]
On December 11, 1991, the SEC Hearing Officer ordered petitioner to pay Litonjua moral
and exemplary damages for maliciously including Litonjuas name in the list of delinquent unit
owners and for impleading him as a respondent. On the other hand, the SEC Hearing Officer
ordered ALS to pay the assessments and dues to petitioner.[10] However, the Hearing Officer did
not determine the exact amount to be paid by ALS because petitioner failed to lay down the
basis for computing the unpaid assessments and dues.[11] The dispositive portion of the
decision reads thus:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Ordering respondent ALS to pay the legal assessments/dues due the complainant within
thirty (30) days from finality of this Decision; and
2. Ordering the complainant to pay respondent Antonio Litonjua the sum of THREE
HUNDRED THOUSAND PESOS (P300,000.00) as moral damages, FIFTY THOUSAND PESOS
(P50,000.00) as exemplary damages, and TWO HUNDRED THOUSAND PESOS (P200,000.00)
as and by way of attorneys fees.
Page 4 of 14
Corporation - Formation and Organization
SO ORDERED.[12]
Not satisfied with the SEC Hearing Officers decision, both parties filed their respective
appeals to the SEC en banc.[13] Petitioner assailed the award of moral and exemplary damages
as well as attorneys fees in favor of Litonjua. On the other hand, ALS appealed that portion of
the decision ordering it to pay to petitioner the assessments and dues.
In a decision dated July 30, 1993, the SEC en banc nullified the award of damages and
attorneys fees to Litonjua on the ground that the SEC had no jurisdiction over Litonjua. The
SEC en banc held that there is no intra-corporate relationship between petitioner and Litonjua
who is not the registered owner of the Unit and thus, not a member of petitioner. The SEC en
banc stated that petitioner could not invoke the doctrine of piercing the veil of ALS corporate
fiction since disregarding the corporate entity is a function of the regular courts.
Furthermore, the SEC en banc remanded the case to the Hearing Officer to determine the
value of the services petitioner failed to render to ALS because of the latters non-use of the
Condominium facilities. The SEC en banc ruled that the value of these services could be
deducted from the unpaid assessments and dues that ALS owes petitioner.
Thus, the SEC en banc declared:
WHEREFORE, in view of the foregoing, the order appealed from is hereby reversed insofar as
it awards moral and exemplary damages and attorneys fees to respondent Litonjua as the
same is null and void for lack of jurisdiction of this Commission over the said party.[14]
As regards that portion of the appealed Order directing respondent ALS to pay the legal
assessment/dues to the complainant TTC within thirty (30) [days] from finality of the said
decision, the same is hereby modified by remanding the case to the hearing officer
for determination of the value of the services withheld by the complainant TTC from
respondent ALS in order that the same may be deducted from the amount of legal
assessments and dues which the respondent corporation shall pay to the complainant.
SO ORDERED.[15] (Emphasis supplied)
Petitioner appealed the SEC en banc Decision to the Court of Appeals contending grave
error or grave abuse of discretion by the SEC en banc.
The Ruling of the Court of Appeals
The Court of Appeals dismissed petitioners appeal on both procedural and substantive
grounds. Procedurally, the Court of Appeals found the petition defective for failure to contain a
sworn certification of non-forum shopping as required by Section 6 of Administrative Circular
No. 1-95 and Section 2 of Revised Circular No. 28-91.
On the merits, the Court of Appeals substantially affirmed the decision of the SEC en
banc that there is no ground to pierce the veil of ALS corporate fiction. The Court of Appeals
held that there is nothing in the records to show that ALS is engaged in unlawful, business or
that Litonjua is using ALS to defraud third parties. The fact alone that ALS is in arrears in
paying its assessments and dues does not make ALS or Litonjua guilty of fraud which would
warrant piercing the corporate veil of ALS. Thus, it was improper for petitioner to post Litonjuas
name instead of ALS in the list of delinquent unit owners since Litonjua is not a member of
petitioner.
The Court of Appeals also sustained the claim of petitioner against ALS for unpaid
assessments and dues but found that petitioner failed to substantiate by preponderance of
evidence the basis for computing the unpaid assessments and dues. Thus, the Court of Appeals
remanded the case to the SEC Hearing Officer for further reception of evidence and for
determination of the exact amount of ALS liability to petitioner. The Court of Appeals, however,
directed the SEC Hearing Officer to deduct from ALS unpaid assessments and dues the value
of the services denied to ALS because of the latters non-use of the Condominium facilities. In
allowing the deduction, the Court of Appeals declared the Condominiums House Rule 26.3
as ultra vires. House Rule 26.3, which petitioner claims as its basis for denying the use of the
Condominium facilities to ALS, authorizes withholding of the use of the Condominium facilities
from delinquent unit owners. The Court of Appeals, however, ruled that petitioner is not
expressly authorized by its Master Deed and By-Laws to prohibit delinquent members from
using the facilities of the Condominium.
The Court of Appeals went further and declared the interest and penalty charges
prescribed by House Rule 26.5[16] on delinquent accounts as exorbitant or grossly excessive,
although this was not raised as an issue. While in its complaint, petitioner sought to recover
P118,923.20 as unpaid assessments and dues, in its amended petition for review, petitioner
sought P994,529.75, more than eight times the amount it originally claimed from ALS. [17]
In the dispositive portion of its assailed decision, the Court of Appeals declared:
WHEREFORE, the instant petition is hereby DENIED and is accordingly DISMISSED.[18]
Hence, this petition.
The Issues
In its Memorandum, petitioner assigns the following errors in the decision of the Court of
Appeals:
1. IN DISMISSING THE PETITION ALLEGEDLY BECAUSE OF PETITIONERS
FAILURE TO COMPLY WITH THE PERTINENT PROVISIONS OF SUPREME
COURT CIRCULAR NOS. 1-95 AND 28-91 ON THE CERTIFICATION AGAINST
FORUM SHOPPING;
Page 5 of 14
Corporation - Formation and Organization
2. IN ORDERING A REMAND OF THE CASE BACK TO THE HEARING OFFICER FOR
THE RECEPTION OF EVIDENCE FOR SERVICES SUPPOSEDLY NOT RENDERED
BY PETITIONER;
3. IN DECLARING HOUSE RULE NO. 26.3 AS ULTRA VIRES;
4. IN FINDING THE PENALTIES AND INTERESTS PRESCRIBED IN HOUSE RULE
26.5[19] AS EXORBITANT AND GROSSLY EXCESSIVE;
5. IN REFUSING TO RECOGNIZE THE FACT THAT RESPONDENT LITONJUA AND
NOT ALS IS THE REAL OWNER OF APARTMENT UNIT 4-A; and
6. IN FAILING TO FIND THAT THERE IS ON RECORD OVERWHELMING EVIDENCE
TO SHOW THE BASIS OF THE DUES AND ASSESSMENTS BEING COLLECTED
FROM THE PRIVATE RESPONDENTS.[20]
The Ruling of the Court
The petition is partly meritorious.
A perusal of the foregoing issues readily reveals that petitioner raises two aspects of the
case for consideration - the procedural aspect and the substantive aspect.
We will discuss the procedural aspect first.
Non-compliance with Supreme Court Circular No. 1-95 and Revised Circular No. 28-91.
Petitioner submits that the Court of Appeals erred in dismissing its appeal for non-
compliance with Supreme Court Circular No. 1-95 and Revised Circular No. 28-91. Petitioner
asserts that when it filed its petition, both circulars were not yet in full force.
Petitioner filed its petition for review with the Court of Appeals on August 18, 1993 and
its amended petition on September 3, 1993. Both the original and amended petitions were filed
before the effectivity of Revised Administrative Circular No. 1-95 on June 1, 1995. However,
contrary to petitioners claim, before the issuance of Revised Administrative Circular No. 1-95,
there was already an existing circular requiring a sworn certification of non-forum shopping
from a party filing a petition for review with the Court of Appeals.
Circular No. 28-91, which took effect on January 1, 1992, required a sworn certification
of non-forum shopping in cases filed with the Court of Appeals and the Supreme Court. Circular
No. 28-91 specifically provides for summary dismissal of petitions which do not contain a sworn
certification of non-forum shopping. Sections 2 and 3 of Circular No. 28-91 state:
2. Certification - The party must certify under oath that he has not commenced any other
action or proceeding involving the same issues in the Supreme Court, the Court of Appeals,
or different Divisions thereof, or any other tribunal or agency, and that to the best of his
knowledge, no such action or proceeding is pending in the Supreme Court, the Court of
Appeals, or different Divisions thereof, or any other tribunal or agency. If there is any action
pending, he must state the status of the same. If he should learn that a similar action or
proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or
different Divisions thereof, or any other tribunal or agency, he should notify the court,
tribunal or agency within five (5) days from such notice.
3. Penalties -
a. Any violation of this Circular shall be a cause for the summary dismissal of the multiple
petition or complaint.
x x x.
Clearly, petitioner cannot claim that at the time of the filing of its petitions with the Court
of Appeals, it was not required under any existing Supreme Court Circular to include in its
petitions a sworn certification of non-forum shopping. Circular No. 28-91 applies in the instant
case, being the Circular in force at the time. Petitioner cannot even feign ignorance of Circular
No. 28-91 as its petitions were filed more than one year after the Circulars effectivity. The rule
against forum shopping has long been established and Circular No. 28-91 merely formalized
the prohibition and provided the appropriate penalties against violators.[21]
The Court of Appeals did not err in dismissing the petition for this procedural lapse.
However, special circumstances or compelling reasons may justify relaxing the rule requiring
certification on non-forum shopping.[22] Technical rules of procedure should be used to
promote, not frustrate justice. While the swift unclogging of court dockets is a laudable
objective, granting substantial justice is an even more urgent ideal. [23] The certificate of non-
forum shopping is a mandatory requirement. Nonetheless, this requirement must not be
interpreted too literally to defeat the ends of justice.[24]
In the instant case, the merits of petitioners case should be considered special
circumstances or compelling reasons that justify tempering the hard consequence of the
procedural requirement on non-forum shopping. In the interest of justice, we reinstate the
petition.
Essentially, the substantive issues for resolution in the instant petition can be
summarized into four, as follows:
1. Whether petitioner can collect assessments and dues despite its denial to ALS of the use of
the Condominium facilities pursuant to House Rule 26.3;
2. Whether ALS can validly offset against its unpaid assessments and dues the value of the
services withheld by petitioner;
Page 6 of 14
Corporation - Formation and Organization
3. Whether a remand of the case to the proper trial court is necessary to determine the
amounts involved; and
4. Whether the penalties prescribed in House Rule 26.2 are grossly excessive and exorbitant.
First Issue: Payment of assessments and dues.
Petitioners authority to assess dues.
Petitioner was organized to hold title to the common areas of the Condominium and to act
as its management body. The Condominium Act, the law governing condominiums, states that:
Title to the common areas, including the land, or the appurtenant interests in such areas,
may be held by a corporation specially formed for the purpose (hereinafter known as the
condominium corporation) in which the holders of separate interests shall automatically be
members or shareholders, to the exclusion of others, in proportion to the appurtenant
interest of their respective units in the common areas. xxx[25]
The Condominium Act provides that the Master Deed may authorize the condominium
corporation to collect reasonable assessments to meet authorized expenditures. [26] For this
purpose, each unit owner may be assessed separately for its share of such expenditures in
proportion (unless otherwise provided) to its owners fractional interest in the common
areas.[27] Also, Section 20 of the Condominium Act declares:
Section 20. An assessment upon any condominium made in accordance with a duly
registered declaration of restrictions shall be an obligation of the owner thereof at the
time the assessment is made. xxx (Emphasis supplied)
Petitioner is expressly authorized by its Master Deed to impose reasonable assessments
on its members to maintain the common areas and facilities of the Condominium. Section 4,
Part II of petitioners Master Deed provides:
Section 4. ASSESSMENTS. From and after date Ayala Investment & Development Corporation
formally conveys the condominium project to the Condominium Corporation, the owner of
each unit shall be proportionately liable for the common expenses of the
condominium project, which shall be assessed against each unit owner in the project
and paid to the Condominium Corporation as provided in Part I Section 8 (b) hereof at
such times and in such manner as shall be provided in the By-Laws of the Condominium
Corporation,
a.) Regular assessments for such amounts as shall be necessary to meet the
operating expenses of the Condominium Corporation as well as such
amounts, determined in accordance with the provisions of the By-Laws, to be
made for the purpose of creating and maintaining a special fund for capital
expenditures on the common areas of the project; including the cost of
extraordinary repairs, reconstruction or restoration necessitated by damage,
depreciation, obsolescence, expropriation or condemnation of the common
areas or part thereof, as well as the cost of improvements or additions thereto
authorized in accordance with the provisions of the By-Laws;
b.) xxx
c.) There may be assessed against the unit owners, in the manner prescribed herein or
in the By-Laws of the Condominium Corporation, such other assessments
as are not specifically provided for herein;
d.) The amount of any such assessment, plus interest penalties, attorneys fees and other
charges incurred for the collection of such assessment, shall constitute a lien
upon the unit and on the appurtenant interest of the unit owner in the
Condominium Corporation. Such lien shall be constituted in the manner
provided in the By-Laws of the Condominium Corporation. The foreclosure,
transfer of conveyance, as well as redemption of the unit shall include the
unit owners appurtenant interest in the Condominium Corporation. The
Condominium Corporation shall have the power to bid at the foreclosure
sale.[28]
Thus, petitioners right to collect assessments and dues from its members and the corollary
obligation of its members to pay are beyond dispute.
There is also no question that ALS is a member of petitioner considering that ALS is the
registered owner of the Unit. Under the automatic exclusive membership clause in the Master
Deed,[29] ALS became a regular member of petitioner upon its acquisition of a unit in the
Condominium.
As a member of petitioner, ALS assumed the compulsory obligation to share in the
common expenses of the Condominium. This compulsory obligation is further emphasized in
Section 8, paragraph c, Part I of the Master Deed, to wit:
Each member of the Condominium Corporation shall share in the common expenses of the
condominium project in the same sharing or percentage stated xxx[30] (Emphasis supplied)
Undoubtedly, as a member of petitioner, ALS is legally bound to pay petitioner
assessments and dues LO maintain the common areas and facilities of the Condominium. ALS
obligation arises from both the law and its contract with the Condominium developer and other
unit owners.
Page 7 of 14
Corporation - Formation and Organization
Petitioners Master Deed provides that a member of the Condominium corporation shall
share in the common expenses of the condominium project.[31] This obligation does not depend
on the use or non-use by the member of the common areas and facilities of the Condominium.
Whether or not a member uses the common areas or facilities, these areas and facilities will
have to be maintained. Expenditures must be made to maintain the common areas and
facilities whether a member uses them frequently, infrequently or never at all.
ALS asserts that the denial by petitioner to ALS and Litonjua of the use of the
Condominium facilities deprived petitioner of any right to demand from ALS payment of any
condominium assessments and dues. ALS contends that the right to demand payment of
assessments and dues carries with it the correlative obligation to allow the use of the
Condominium facilities. ALS is correct if it had not defaulted on its assessment and dues before
the denial of the use of the facilities. However, the records clearly show that petitioner denied
ALS and Litonjua the use of the facilities only after ALS had defaulted on its obligation to pay
the assessments and dues. The denial of the use of the facilities was the sanction for the prior
default incurred by ALS.
In essence, what ALS wants is to use its own prior non-payment as a justification for its
future non-payment of its assessments and dues. Stated another way, ALS advances the
argument that a contracting party who is guilty of first breaching his obligation is excused from
such breach if the other party retaliates by refusing to comply with his own obligation.
This obviously is not the law. In reciprocal obligations, when one party fulfills his
obligation, and the other does not, delay by the other begins. Moreover, when one party does
not comply with his obligation, the other party does not incur delay if he does not perform his
own reciprocal obligation because of the first partys non-compliance. This is embodied in Article
1169 of the Civil Code, the relevant provision of which reads:
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the moment one
of the parties fulfills his obligation, delay by the other begins.
Thus, before ALS incurred its arrearages, petitioner allowed ALS to use the facilities.
However, ALS subsequently defaulted and thus incurred delay. It was only then that petitioner
disallowed ALS and Litonjua from using the facilities. Clearly, petitioners denial to ALS of the
Condominium facilities, after ALS had defaulted, does not constitute a valid ground on the part
of ALS to refuse paying its assessments and dues.
Validity of House Rule 26.3.
Petitioners House Rules and Regulations (House Rules for brevity) expressly authorize
denial of the use of condominium facilities to delinquent members. Specifically, House Rule
26.3 provides that:
26. ASSESSMENTS:
xxx
26.3 Names of unit owners with delinquent accounts who fail to pay two consecutive quarters
shall be posted in the bulletin board. Unit owners with delinquent accounts, their
tenants, guests/visitors and relatives shall not be allowed the use of all facilities of
the condominium such as the swimming pool, gym, social hall, etc. (Emphasis supplied)
The issue on the validity of House Rule 26.3 was raised for the first time on appeal. It is
settled that an issue not raised during trial could not be raised for the first time on appeal as
to do so would be offensive to the basic rules of fair play, justice, and due
process.[32] Nonetheless, the Court of Appeals opted to address this issue.
Petitioner justifies House Rule 26.3 by invoking Section 36, paragraph 11 of the
Corporation Code which grants every corporation the power to exercise such powers as may be
essential or necessary to carry out its purpose or purposes as stated in its Articles of
Incorporation. Petitioner was organized for the main purpose of holding title to and managing
the common areas of the Condominium. Petitioner claims that there is here implied the power
to enact such measures as may be necessary to carry out the provisions of the Articles of
Incorporation, By-Laws and Master Deed to deal with delinquent members. This, asserts
petitioner, includes the power to enact House Rule 26.3 to protect and safeguard the interests
not only of petitioner but also of its members.
For their part, ALS and Litonjua assail the validity of House Rule 26.3 alleging that it
is ultra vires. ALS and Litonjua maintain that neither the Master Deed nor the By-Laws of
petitioner expressly authorizes petitioner to prohibit delinquent members from using the
Condominium facilities. Being ultra vires, House Rule 26.3 binds no one. Even assuming that
House Rule 26.3 is intra vires, the same is iniquitous, unconscionable, and contrary to morals,
good customs and public policy. Thus, ALS claims it can validly deduct the value of the services
withheld from the assessments and dues since it was barred from using the Condominium
facilities for which the assessments and dues were being collected.
The Court of Appeals sustained respondents argument and declared House Rule 26.3 ultra
vires on the ground that petitioner is not expressly authorized by its Master Deed or its By-
Laws to promulgate House Rule 26.3.
House Rule 26.3 clearly restricts delinquent members from the use and enjoyment of the
Condominium facilities. The question is whether petitioner can validly adopt such a sanction
to enforce the collection of Condominium assessments and dues.
We rule that House Rule 26.3 is valid.
Section 45 of the Corporation Code provides:
Sec. 45. Ultra vires acts of corporations. - No corporation under this code shall possess or
exercise any corporate powers except those conferred by this Code or by its articles of
Page 8 of 14
Corporation - Formation and Organization
incorporation and except such as are necessary or incidental to the exercise of the powers so
conferred.
The term ultra vires refers to an act outside or beyond corporate powers, including those
that may ostensibly be within such powers but are, by general or special laws, prohibited or
declared illegal.[33] The Corporation Code defines an ultra vires act as one outside the powers
conferred by the Code or by the Articles of Incorporation, or beyond what is necessary or
incidental to the exercise of the powers so conferred. Moreover, special laws governing certain
classes of corporations, like the Condominium Act, also grant specific corporate powers to
corporations falling under such special laws.
The Condominium Act, petitioners By-Laws and the Master Deed expressly empower
petitioner to promulgate House Rule 26.3. Section 9 of the Condominium Act provides:
Section 9. The owner of a project shall, prior to the conveyance of any condominium therein,
register a declaration of restrictions relating to such project, which restrictions xxx shall
inure to and bind all condominium owners in the project. xxx The Register of Deeds shall
enter and annotate the declaration of restrictions upon the certificate of title covering the land
included within the project, if the land is patented or registered under the Land Registration
or Cadastral acts.
xxx
Such declaration of restrictions, among other things, may also provide:
(a) As to any management body-
1. For the powers thereof, Including power to enforce the provisions of the
declaration of restrictions;
xxx
3. Provisions for maintenance xxx and other services benefiting the
common areas, xxx (Emphasis supplied)
The Condominium Act clearly provides that the Master Deed may expressly empower the
management body, petitioner in the instant case, to enforce all provisions in the Master Deed
and Declaration of Restrictions.
Pursuant to Section 9 (a) (1) and (3) of the Condominium Act, the Master Deed expressly
authorizes petitioner to exercise all the powers granted to the management body by the
Condominium Act, petitioners Articles of Incorporation and By-Laws, the Master Deed, and the
Corporation Code. Section 3, Part II of the Master Deed reads:
Section 3. MANAGEMENT BODY. - The Condominium Corporation to be formed and
organized pursuant to Section 7 of Part I, above, shall constitute the management body of the
project. As such management body, the powers of the Condominium Corporation shall
be such as are provided by the Condominium Act, by the Articles of Incorporation and
the By-Laws of the Corporation, by this instrument and by the applicable provisions of
the Corporation Code as are not inconsistent with the Condominium Act. Among such
powers but not by way of limitation, it shall have the power to enforce the provisions
thereof in accordance with the By-Laws of the corporation. (Emphasis supplied)
Thus, the Master Deed clearly empowers petitioner to enforce the provisions of the Master Deed
in accordance with petitioners By-Laws.
Petitioners By-Laws expressly authorize petitioners Board of Directors to promulgate rules
and regulations on the use and enjoyment of the common areas. Thus, paragraph 2, Section 2
of petitioners By-Laws states:
Without limiting the general nature of the foregoing powers, the Board of Directors shall have
the power to enforce the limitations, restrictions, and conditions contained in the Master
Deed and Declaration of Restrictions of the project; promulgate rules and regulations
concerning the use, enjoyment and occupancy of the units, common areas and other
properties in the condominium project, to make and collect assessments against members
as unit owners to defray the costs and expenses of the condominium project and the
corporation and to secure by legal means the observance of the provisions of the
Condominium Act, the Master Deed, the Articles of Incorporation, these By-Laws, and the
rules and regulations promulgated by it in accordance herewith. The members of the
corporation bind themselves to comply faithfully with all these provisions.[34](Emphasis
supplied)
Evidently, the Condominium Act, the Master Deed and petitioners By-Laws grant petitioner the
express power to promulgate rules and regulations concerning the use, enjoyment and
occupancy of the common areas.
Moreover, House Rule 26.3, which prohibits delinquent members from using the common
areas, is necessary to ensure maintenance of the common areas. Petitioners purpose in
enacting House Rule 26.3 is to enforce effectively the provisions of the Master Deed. House
Rule 26.3 is well within the powers of petitioner to adopt as the same is reasonably necessary
to attain the purpose for which both petitioner and the Condominium project were created.
Thus, Section 7 of the Master Deed declares:
Section 7. CONDOMINIUM CORPORATION. - A corporation to be known as THE TWIN
TOWERS CONDOMINIUM (hereinafter referred to as the Condominium Corporation), shall be
formed and organized pursuant to the Condominium Act and the Corporation Code to hold
title to all the aforestated common areas of the condominium project including the land, to
manage THE TWIN TOWERS CONDOMINIUM and to do such other things as may be
necessary, incidental and convenient to the accomplishment of said
purposes xxx[35] (Emphasis supplied)
Page 9 of 14
Corporation - Formation and Organization
Petitioner would be unable to carry out its main purpose of maintaining the Condominium
common areas and facilities if members refuse to pay their dues and yet continue to use these
areas and facilities. To impose a temporary ban on the use of the common areas and facilities
until the assessments and dues in arrears are paid is a reasonable measure that petitioner may
undertake to compel the prompt payment of assessments and dues.
Second Issue: Offsetting the value of services withheld against ALS unpaid
assessments and dues.
ALS claim for reduction of its assessments and dues because of its non-use of the
Condominium facilities.
We rule that ALS has no right to a reduction of its assessments and dues to the extent of
its non-use of the Condominium facilities. ALS also cannot offset damages against its
assessments and dues because ALS is not entitled to damages for alleged injury arising from
its own violation of its contract. Such a breach of contract cannot be the source of rights or the
basis of a cause of action.[36] To recognize the validity of such claim would be to legalize ALS
breach of its contract.
ALS claim for unrendered repair services barred by estoppel.
ALS also justifies its non-payment of dues on the ground of the alleged failure of petitioner
to repair the defects in ALS Unit. However, this claim for unrendered repairs was never raised
before the SEC Hearing Officer or the SEC en banc. The issue on these alleged unrendered
repairs, which supposedly caused ALS Unit to deteriorate, was raised for the first time on
appeal. The Court of Appeals did not pass upon the same.
Neither in the proceedings in the SEC nor in the appellate court did ALS present evidence
to substantiate its allegation that petitioner failed to render the repair services. Also, ALS failed
to establish whether it claimed for the costs of the repair because ALS advanced these expenses,
or for the value of damages caused to the Unit by the water leakage.
ALS is therefore barred at this late stage to interpose this claim. In Del Rosario v.
Bonga,[37] the Court held:
As a rule, no question will be entertained on appeal unless it has been raised in the court
below. Points of law, theories, issues and arguments not brought to the attention of the lower
court need not be, and ordinarily will not be, considered by a reviewing court, as they cannot
be raised for the first time at that late stage. Basic considerations of due process impel this
rule.
As this claim was a separate cause of action which should have been raised in ALS Answer
with Counterclaim, ALS failure to raise this claim is deemed a waiver of the claim.
Third Issue: Remand of the case to the proper trial court.
Question of fact.
The Court of Appeals ruled that there is a need to remand the case considering that there
is no sufficient evidence on record to establish the amount of petitioners claim against ALS for
unpaid assessments and dues.
The question of whether petitioners claim of P994,529.75 for unpaid assessments and
dues against ALS is supported by sufficient evidence is a purely factual issue and inevitably
requires the weighing of evidence. This Court is not a trier of facts, and it is not the function of
this Court to re-examine the evidence submitted by the parties.[38] In cases brought before this
Court from the Court of Appeals under Rule 45 of the Rules of Court, this Courts jurisdiction
is limited to reviewing errors of law which must be distinctly set forth.[39] In this mode of appeal,
the findings of fact of the Court of Appeals and other courts of origin are conclusive.[40]
Jurisprudence is settled that:
(a)s a rule, the jurisdiction of this Court in cases brought to it from the Court of Appeals xxx
is limited to the review and revision of errors of law allegedly committed by the appellate
court, as its findings of fact are deemed conclusive. As such this Court is not duty-bound to
analyze and weigh all over again the evidence already considered in the proceedings below.[41]
This rule admits of several exceptions. This Court may review the findings of fact of the
Court of Appeals:
(a) where there is grave abuse of discretion; (b) when the finding is grounded entirely on
speculations, surmises or conjectures; (c) when the inference made is manifestly mistaken,
absurd or impossible; (d) when the judgment of the Court of Appeals was based on a
misapprehension of facts; (e) when the factual findings are conflicting; (F) when the Court of
Appeals, in making its findings, went beyond the issues of the case and the same are contrary
to the admissions of both appellant and appellee; (g) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties and which, if properly
considered, would justify a different conclusion; and, (h) where the findings of fact of the
Court of Appeals are contrary to those of the trial court, or are mere conclusions without
citation of specific evidence, or where the facts set forth by the petitioner are not disputed by
the respondent, or where the findings of fact of the Court of Appeals are premised on the
absence of evidence and are contradicted by the evidence on record.[42]
Page 10 of 14
Corporation - Formation and Organization
However, none of these exceptions exists in the instant case.
The SEC Hearing Officer found that, while petitioner is entitled to collect the unpaid
assessments and dues from ALS, petitioner has failed to establish clearly the basis for
computing the correct amount of the unpaid assessments and dues. Indeed, there is no
evidence laying down the basis of petitioners claim other than allegations of previous demands
and statements of accounts. Whether petitioner has sufficiently established its claim by
preponderance of evidence requires an examination of the probative weight of the evidence
presented by the parties. Evidently, this is a question of fact the resolution of which is beyond
the purview of the petition for review where only errors of law may be raised. On the other hand,
the decision of the Court of Appeals, finding insufficient evidence on record, was made under
its power to review both questions of fact and law.
Remand to the proper trial court.
While we sustain the ruling of the Court of Appeals, the case can no longer be remanded
to the SEC Hearing Officer. Republic Act No. 8799, which took effect on August 8, 2000,
transferred SECs jurisdiction over cases involving intra-corporate disputes to courts of general
jurisdiction or the appropriate regional trial courts. Section 5.2 of R.A. No. 8799 reads:
5.2. The Commissions jurisdiction over all cases enumerated under Section 5 of Presidential
Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate
Regional Trial Court; Provided, That the Supreme Court in the exercise of its authority may
designate the Regional Trial Court branches that shall exercise jurisdiction over these cases.
The Commission shall retain jurisdiction over pending cases involving intra-corporate
disputes submitted for final resolution which should be resolved within one (1) year from the
enactment of this Code. The Commission shall retain jurisdiction over pending suspension of
payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.
Based on the Resolution issued by this Court in AM No. 00-8-10-SC,[43]
the Court
Administrator and the Securities and Exchange Commission should cause the transfer of the
records of SEC-AC Nos. 377 and 378 to the proper regional trial court for further reception of
evidence and computation of the correct amount of assessments and dues that ALS shall pay
to petitioner.
Fourth Issue: Penalties prescribed in House Rule 26.2.
ALS and Litonjua did not question before either the SEC or the Court of Appeals the
validity of the penalties prescribed in the Condominiums House Rule 26.2. Nevertheless, the
Court of Appeals ruled that House Rule 26.2 prescribes grossly excessive penalties and
interests. The resolution of this issue is not necessary in arriving at a complete and just
resolution of this case. At any rate, we find the interest and penalties prescribed under House
Rule 26.2 reasonable considering the premier location of the Condominium at the heart of
Makati City. It is inevitable that ALS unpaid assessments and dues would escalate because
ALS delinquency started since 1986.
House Rule 26.2 clearly provides for a 24% interest and an 8% penalty, both running
annually, on the total amount due in case of failure to pay, to wit:
26.2. Late payment of accounts of members shall be charged an interest rate of 24% per
annum. In addition, a penalty at the rate of 8% per annum shall be charged on delinquent
accounts. The 24% interest shall be imposed on unpaid accounts starting with the 21st day
of the quarter until fully paid.
To reiterate, the Condominium Act expressly provides that the Master Deed may empower
the management body of the Condominium to enforce the provisions of the declaration of
restrictions.[44] The Master Deed authorizes petitioner, as the management body, to enforce the
provisions of the Master Deed in accordance with petitioners By-Laws. Thus, petitioners Board
of Directors is authorized to determine the reasonableness of the penalties and interests to be
imposed against those who violate the Master Deed. Petitioner has validly done this by adopting
the House Rules.
The Master Deed binds ALS since the Master Deed is annotated on the condominium
certificate of title of ALS Unit. The Master Deed is ALS contract with all Condominium members
who are all co-owners of the common areas and facilities of the Condominium. Contracts have
the force of law between the parties and are to be complied with in good faith. [45] From the
moment the contract is perfected, the parties are bound to comply with what is expressly
stipulated as well as with what is required by the nature of the obligation in keeping with good
faith, usage and the law.[46] Thus, when ALS purchased its Unit from petitioner, ALS was bound
by the terms and conditions set forth in the contract, including the stipulations in the House
Rules of petitioner, such as House Rule 26.2.
In sum, as a member of petitioner, ALS is indisputably bound by the Condominiums
House Rules which are authorized by the By-Laws, the Master Deed and the Condominium
Act.
Award of attorneys fees.
The award of attorneys fees as damages is the exception rather than the rule. The general
rule is that attorneys fees cannot be recovered as part of damages because of the policy that
no premium should be placed on the right to litigate.[47] Counsels fees are not awarded every
time a party prevails in a suit.[48] An award of attorneys fees and expenses of litigation is proper
under the instances provided for in Article 2208 of the Civil Code, one of which is where the
defendant acted in gross and evident bad faith. In this case, however, we find no cogent reason
to award attorneys fees in the absence of showing of gross and evident bad faith on the part of
ALS in refusing to satisfy petitioners claim.
Page 11 of 14
Corporation - Formation and Organization
WHEREFORE, the petition is GRANTED and the assailed Decision of the Court of Appeals
is SET ASIDE. ALS Management & Development Corporation is ordered to pay Twin Towers
Condominium Corporation all overdue assessments and dues, including interest and penalties
from date of default, as shall be determined by the proper Regional Trial Court in accordance
with this Decision. The proper Regional Trial Court shall complete the computation within sixty
(60) days from its receipt of this Decision and the records of SEC-AC Nos. 377 and 378. Costs
of suit against ALS Management & Development Corporation.
SO ORDERED.
G.R. No. L-31339 January 31, 1978
VILLA REY TRANSIT, INC., and HON. JESUS P. MORFE, in his capacity as Judge of the
Court of First Instance of Manila, petitioners,
vs.
FAR EAST MOTOR CORPORATION and THE HONORABLE COURTS OF
APPEALS, respondents.
Marcial C. Reyes for petitioners.
Jaime S. Linsangan & Associates for private respondent.
GUERRERO, J.:
Appeal by certiorari from the Derision of the Court of Appeals 1 and its Resolution denying
petitioner's Motion for Reconsideration of said Decision in CA-G.R. No. 43144-R, entitled "Far
East Motor Corporation, Petitioner, vs. Hon. Jesus P. Morfe Judge of the Court of First Instance
of Manila, et al., Respondents."
On April 25, 1968, respondent Far East Motor Corporation sued petitioner Villa Rey Transit,
Inc. for various sums of money before the Court of First Instance of Manila, Branch XIII.
Summons was issued to petitioner and per return of the Sheriff, the summons was served on
petitioner on June 16, 1968, the sheriff certifying. "Served thru Atty. Virgilio A. Reyes,
Assistant General Mgr., but refused to sign."
Claiming failure of the petitioner to file answer within the reglementary period, respondent
corporation filed on August 13, 1968 an ex-parte motion to declare the petitioner in default,
which was granted on August 21, 1968.
On the other hand, late receipt of the summons by its main office, petitioner filed an Urgent
Motion to Extend Time to Answer, which was denied on October 2, 1968, the order of denial
being served on petitioner's counsel on October 7, 1968.
Pursuant to the order of default, respondent Far East Motor Corporation then presented its
evidence ex-parte, and based on the said evidence, the lower court adjudicated various sums
of money to the respondent Far East Motor Corporation. Copy of the decision was received by
the petitioner on October 25, 1968.
On November 6, 1968, petitioner then filed a Motion to Quash Service of Summons, to Lift the
Order of Default, and to Set Aside Judgment, on the following grounds:
a. The service of summons upon defendant was not in accordance with law
and therefor this Honorable Court had not acquired a valid jurisdiction over
said defendant;
b. Assuring for the sake of argument only that a valid substituted service of
summons was made, failure of defendant to answer with the reglementary
peirod was due to failure of Sheriff ot propertly serve summons and/or due to
excusable negligence on the part of defendant's employee; and
c. Considering the huge claims of plaintiff which are incorrect and against
which defendant has valid and genuine defense, it is in the interest of justice
and truth to lift the order of deafult which defandant has not received, and to
set aside judgment already rendered.
Petitioner's motion was denied on November 19, 1968 and copy of the denial was received by
the corporation on November 21, 1968.
Hence, on December 3, 1968, respondent Far East Motor Corporation filed a Motion for
Execution of the decision. Upon receipt of its copy of the said motion, petitioner Villa Rey
Transit filed a motion dated December 5, 1968 asking for reconsideration of the court's order
denying its Motion to Set Aside on the following grounds: (a) the sheriff's return is null and
void and hence, the court has not acquired jurisdiction over it, and (b) defendant has valid
defenses which will alter the decision rendered ex-parte if the defendant is given the
opportunity to file its answer and present evidence in support thereof. The motion was set for
hearing on December 14, 1968.
Acting on these last two motions, the lower court on December 27, 1968 denied plaintiff's
motion for execution; granted defendant's motionfor reconsideration; set aside its order of
November 19, 1967; quashed the service of summons; and set aside the judgment already
rendered.
Page 12 of 14
Corporation - Formation and Organization
On the claim that the judgment had already become final and unappealable on December 9,
1968, respondent moved to reconsider the above order of December 9, 1968 but was denied.
Respondent then filed a petition for certiorari, mandamus and prohibition before the Supreme
Court. However, on the ground that the remedy sought in the petition was in aid of the
appellate jurisdictionof the Court of Appeals, the case was certified to the appellate court
whose decision, sustaining the petition and ordering the lower court to issue the writ of
execution upon the judgement, i now subject of this appeal.
Emphasis is on the jurisdictional issue of service of summons.
To recount the facts surrounding the service of summons: Sometime in June, 1968, Deputy
Sheriff Salita went to petitioner's sub-station at 853 M. Earnshaw St., Sampaloc, Manila; he
handed some papers to Atty. Virgilio A. Reyes, Assistant General Manager for Operations:
after reading the contents of the same, and noting that they were copies of a complaint filed
by Far East Motor corporation against petitioner involving some transactions made by him
with the complainant as the then president of petitioner corporation, he suggested that
service of the complaint made by him with the complainant as the then president of petitioner
corporation, he suggested that service of the complaint and the corresponding summons be
made directly on De. Jose M. Villarama, the present President and General Manager, at their
main office at Ricarfor Street, corner Sta. Elena Street, Tondo, Manila; instead, the sheriff left
the papers with one of their night tellers, Juanito Vince Cruz; due to volume and pressure of
his work, Cruz forgot all about the papers; hence, the papers were delivered to their main
office only on September 27, 1968.
Based on the above facts, petitioner claims that service of summons on its mere Assistant
General Manager holding office at ists sub-station is not a valid service; thus, the court did
not acquire jurisdiction over tis person.
We find the claim untenable. Service of process on a corporation is controll ed by Section 13,
Rule 14 of the Revised Rules of Court, thus —
Sec. 13. Service upon private domestic corporation for partnership. — If the
defendant is a corporation organized under the laws of the Philippines or a
partnership duly registered, service may be made on the president, manager,
secretary, cashier, agent, or any of its directors.
Petitioner claims that the foregoing enumeration is exclusive and service of summons is
without force and effect unless made upon any one of them. The focus of inquiry then is
whether an Assistant General Manager for Operations may properly be within the terms
manager or agent.
Petitioner relies on the Litton Mills case 2 where this Court held that a branch manager (sales
manager) does not come within the enumeration in Sec. 13, Rule 14 of the Revised Rules of
Court, all of whom are top officers whose duties extend generally to overall transactions of the
corporation, not merely to a particular branch or department thereof.
The above cases without application here.
Atty. Virgilio A. Reyes is the Assistant General Manager, and admittedly, the former President
and General Manager of the petitioner corporation. As his present title implies, Atty. Virgilio
A. Reyes is not one of the lesser officers of the petitioner corporation upon whom service of
Summons is not authorized by law. That he is in charge of Operations, which "includes the
incoming and outgoing buses, the arrangement of schedule, the appointment of drivers and
conductors, the following of highway troubles, and generally affecting the running of
buses, 3 does not make him a mere branch manager so insistently pointed out by petitioner.
We take the opposite view, for precisely, as the Assistant General Manager for Operations, he
is in charge of the main bulk of the corporate business of the petitioner transit corporation.
"Operations" is the main concern, if not all, of a transit corporation.
More, We find petitioner's claim that Attorney. Virgilio A. Reyes, holding office at their M.
Earnshaw sub-station, is not the proper person upon whom summons may be seized
inconsistent with their own admission that Atty. Reyes customarily receives summons at the
same sub-station in behalf of the petitioner. To quote part of petitioner's motion for
reconsideration of the CFI's denial of its motion to set aside judgment: "Records will show
that Atty. Reyes has been receiving summon issued in cases wherein the Villa Rey Transit,
Inc. is a defendant, before and after June 18, 1968, the alleged date when the deputy sheriff
allegedly served the summons and complaint in the above case. In all these occasions, Atty.
Reyes signed having received said summons and in no occasion had he refused to sign.
However, in connection with the service of summons in the above case, it is not true that
Atty. Reyes refused to sign. What he did was to instruct the deputy sheriff to serve the same
directly to Dr. Jose M. Villarama who is the President and General Manager of the Villa Rey
Transit Inc. and having offices at the Villa Rey Transit main compound located at Ricafort
(corner Sta. Elena Street), Tondo, Manila. There was reason for Atty. Reyes to make such
request upon the deputy sheriff because the promissory notes (Annexes B, C. D, E, F and G
to complaint) were signed by him in his former capacity as President of the Villa Rey Transit,
Inc. while in other cases, the attention of Dr. Villarama may not be imperative." 4 That the
transactions alleged in the complaint involved him personally is no reason for his refusal to
receive this particular summons. Indeed, with more reason that he should have received the
summons because as the signatory to the promissory notes, he had an interest therein.
According to jurisprudence, the rationale of all rules for service of process on corporation is
that service must be made on a representative so integrated with the corporation sued as to
make it a priori supposable that he will realize his responsibilities and know what he should
do with any legal papers served on him. 5 Based on the particular facts of this case, service of
summons upon Atty. Virgilio A. Reyes has served the purpose of the law. And as he refused to
receive the summons, tender unto him was sufficient to confer jurisdiction over the
petitioner.
Page 13 of 14
Corporation - Formation and Organization
Since petitioner failed to answer within the reglementary period, even after denial of its
motion to extend time to answer, the order of default was proper. So also with the hearing on
the merits ex-parte resulting in the judgment by default. The decision was appealable, and as
receipt of the same by petitioner was on October 25, 1968, the 30-day appeal period
commenced from that date on. On November 6, 1968, petitioner filed a Motion to Quash
Service of Summons, To Lift Order of Defeat and To Set Aside Judgment, and from that day
on, the appeal period was deemed suspended, the remaining 18 days beginning to run again
upon receipt of the denial of the motion. Receipt of such denial was on November 21, 1968;
hence, by mathematical computation, the 30-day appeal period expired on December 9, 1968.
There being no appeal increased by the petitioner from the judgment of default on or before
December 9, 1968, the lower court lost its jurisdiction to hear on December 14, 1968
petitioner's Motion for Reconsideration dated December 5, 1968, the judgment by default
having become final and executory.

Of course, petitioner insists that on December 5, 1968 it filed a Motion for Reconsideration of
the order denying its Motion to Quash, Lift Order of Default and to Set Aside Judgment
taking the position that it should have suspended the period to appeal We do not agree. The
records clearly show that there were no new arguments presented against the judgment on
the merits, perforce the motion is pro forma and did not suspend the running of the period to
appeal.

Petitioner then insists that the above motion should be considered a petition for relief. This
again is untenable. As correctly pointed out by the apellate court, a petition for relief
presupposes a final and unappealable judgment. In this case, judgment has not yet become
final and unappealable at the time of the filing of the motion on December 5, 1968.

WHEREFORE, the decision appealed from is affirmed. Let execution issue on the lower
court's judgment by default, Costs against petitioner. SO ORDERED.

Teehankee (Chairman), Makasiar, Muñoz Palma and Fernandez, JJ., concur.

Page 14 of 14